MUMBAI: Indian companies will have to pay more for renewing their insurance policies as reinsurance companies have raised premium rates by up to 15% after burning their fingers in record number of natural catastrophes last year.
General Insurance Corporation of India, which is the designated national reinsurer, has decided to cut its exposure to domestic market, according to industry sources. Regulatory norms require insurance companies to reinsure 10% of their risk with GIC.
“Reinsurance rates have gone up 5% to 15% depending on the treaty experience,” said KG Krishnamoorthy Rao, managing director and CEO of Future Generali General Insurance. “They have either retained the ceding commission or reduced it by 10%.”
Ceding commission is the fee paid to the primary insurer by the reinsurer to compensate for underwriting expenses. On obligatory ceding of business, the insurance regulator has directed GIC to pay commission on lines of businesses like oil and energy, motor own damage and third party although other segments like war, marine cargo, fire and engineering, and marine and hull insurers are left to negotiate rates with GIC.
GIC has cut do-wn on the treaty size and is insisting on excess of loss cover on proportional treaty, industry sources said. Even global reinsurance companies are imposing a limit on the maximum liability that non-life insurers can claim for a catastrophe.
Earlier, for every Rs 1, GIC offered reinsurance of Rs 5 to Rs 10. But now it has rationalised reinsurance to Rs 5. For instance, ICICI Lombard’s treaty has been cut by Rs 100 crore, reducing the gross automatic capacity of the Indian insurance company.
Liability limits for natural disasters is set at two-three times the treaty limit. The insurer and reinsurer for every reinsurance contract decide the treaty limit. The reinsurer then covers all the insurance policies coming within the scope of that contract.
“If we are not satisfied, we are not participating,” said a senior executive of GIC. “Reinsurance is a global phenomenon, so even if there is no major catastrophe in the domestic market, rates will go up.”
Companies who renewed their policy on Monday, or are in the process of renewing, are paying up to 20% higher premium. About 40% of the renewals take place on April 1.
According to a report Swiss Re, a leading global reinsurer, the total insured losses have doubled in 2011 compared with the previous year. The insurance industry worldwide took a hit of $108 billion from natural catastrophes and manmade disasters as against $48 billion in 2010. Claims from natural catastrophes alone reached $103 billion in 2011 against $43 billion last year.
GOVERNMENT ROLLS BACK TAX INCENTIVE FOR WIND FARMS
MUMBAI: The government has ended the tax break given to wind energy projects much against the wishes of industry players who argued that without the popular incentive, capacity addition in the sector could fall to less than 1,000 MW as against the proposed 3,000 MW. The income-tax department has issued a circular stating that wind farms commissioned in financial year 2012-13 would not get accelerated depreciation benefit that allowed them to write off investments sooner. The circular states that the Central Board of Direct Taxes (CBDT) has amended the Income-Tax Rules, 1962, which means that beginning April 1, all new wind farms can only claim a standard depreciation rate of 15%. “It is surprising that despite the Union Budget and finance bill laying specific emphasis on renewable energy, the policy change takes away one of the key pillars of India’s success in this field. Indianeeds power for growth, and this step unfortunately pushes the country in the wrong direction, increasing our dependence on conventional energy and imported fuels that cost our economy more every year,” a spokesperson of wind turbine maker Suzlon Energy told ET. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/energy/power/government-rolls-back-tax-incentive-for-wind-farms/articleshow/12513197.cms)
FINMIN UNLIKELY TO BUDGE ON GAAR
NEW DELHI: Indications from the finance ministry on subjecting participatory notes (P-notes) to taxation according to the changes brought in through the General Anti Avoidance Rule (GAAR) in the Budget, clearly suggest the government is not ready to budge on this count. Apprehensions abound on the exact situation on taxability of P-notes in the GAAR regime, if routed through tax havens and countries that have double-taxation avoidance agreements (DTAAs) with India, like Mauritius. It is this island nation from where most P-notes are issued. Finance ministry officials said the notion that all P-notes would not be taxed, in the light of finance minister Pranab Mukherjee’s statement last week, was not appropriate. They added the GAAR had been introduced to tackle investments through tax havens only to avoid taxes. Profits by foreign institutional investors (FIIs) on P-note investments falling under this category would be subjected to tax. (For details log on to : http://www.business-standard.com/india/news/finmin-unlikely-to-budgegaar/469915/)
BANKS’ DEPOSIT GROWTH PLUMMETS AS A RESULT, WORRYING RBI
MUMBAI: India Inc, till recently sitting on a cash pile, is drawing this down. High interest rates have made companies turn away from bank loans to meet their working capital requirements. Rather, they are withdrawing deposits to meet short-term needs. The corporate sector is also repaying debt, including foreign funds they raised earlier, from deposits earning near-zero real interest due to high inflation. “We are using our own funds instead of borrowing money from banks. The funds are being used for both debt repayment and meeting working capital, capex and other operating and administrative expenses. We are not keeping our funds idle in this environment and are looking to utilise these as efficiently as possible. We will borrow only after interest rates ease,” said Rajeev Talwar, group executive director, DLF. And, banks are paying the price of such a shift. Reserve Bank of India (RBI) data show banks’ deposit growth plummeted from a high of 19 per cent six months earlier to less than 14 per cent in the first week of March, lower than the nominal GDP growth (which is a sum of inflation and real GDP growth). It has become a matter of concern for policy makers and the central bank has already started to enquire about the matter. (For details log on to : http://www.business-standard.com/india/news/india-inc-usingcash-for-short-term-needs/469921/)
COMPANIES NEED RBI NOD TO OPERATE FCA ABROAD
MUMBAI: The Reserve Bank of India (RBI) said on Monday that Indian companies would need to obtain its prior permission to open, hold and maintain foreign currency account (FCA) abroad for the purpose of overseas direct investments. “An Indian party is required to obtain prior permission of the Reserve Bank to open, hold and maintain foreign currency account (FCA) in a foreign country for the purpose of overseas direct investments in that country…” the RBI said in a notification. “The host country regulations stipulate that the investments into the country is required to be routed through a designated account,” it said, adding that the FCA should be opened, held and maintained as per the regulation of the host country. (For details log on to : http://www.financialexpress.com/news/cos-need-rbi-nod-to-operate-fca-abroad/931700/)
ALLAHABAD BANK RAISES R459 CRORE BY ISSUING PREFERENTIAL SHARES TO LIC
NEW DELHI: State-owned Allahabad Bank has raised R459.40 crore by issuing shares to Life Insurance Corporation (LIC) on preferential basis. The bank has allotted 2.3 crore shares of R10 each at a premium of R182.94 amounting to R459.40 crore on preferential allotment basis to LIC and its various scheme, Allahabad Bank said in a filing on the BSE on Monday. In a separate announcement, the bank said TR Chawla took over as the executive director of bank on Monday. Chawla replaces D Sarkar. The Kolkata-based bank got a capital infusion of R670 crore from the government in 2010-11. (For details log on to : http://www.financialexpress.com/news/allahabad-bank-raises-r459-cr-by-issuing-pref-shares-to-lic/931689/)
RETAIL SECTOR TO BE UNION BANK’S FOCUS UNDER NEW CMD
MUMBAI: Union Bank of Indiawill focus on lending to retail sector and aim at improving customer service in a bid to retain and lure clients, new chairman and managing director Debabrata Sarkar has said. Sarkar, who was earlier the executive director of Allahabad Bank, took charge as the chief of Union Bank after MV Nair retired on March 31. The bank should focus on lending to farmers, small businessmen, and retail sector, Sarkar said addressing senior officers of the bank. He said the bank’s ratio of retail advances is very low given its large branch network and strong delivery channel and technology platform. Currently, the bank’s retail advances portfolio stands at nearly Rs 16,000 crore, which is little less than 10% of its total loan book. This compares with an average 20%-25% retail portfolio of other lenders. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/retail-sector-to-be-union-banks-focus-under-new-cmd/articleshow/12512020.cms)
INDIAN BANK REVISES FCNR DEPOSIT RATES
CHENNAI: State-run Indian Bank today said has revised the interest rates on foreign currency non-resident (banking) deposits with immediate effect. For FCNR (B) deposits in USD terms, the revised interest rates has been fixed at 2.30 per cent for deposits of one year and above but less than two years from the existing 2.31 per cent. For deposits of two years and above, but less than three years, it has been revised to 1.85 per cent from the existing 1.81 per cent, the Chennai-headquartered bank said in a statement. For deposits of three years and above, but less than four years, it has been increased to two per cent from the present 1.93 per cent. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/indian-bank-revises-fcnr-deposit-rates/articleshow/12504138.cms)
J&K BANK EYES RS 1 LAKH CRORE BIZ IN FY13
MUMBAI: Private sector lender Jammu & Kashmir Bank has surpassed the business target of Rs 85,000 crore for FY12 and aims to reach the Rs 1 lakh crore target during the current fiscal. “We had set a business target of Rs 85,000 crore for the year 2011-12 and we are happy to note that we have surpassed the target,” Chairman and Chief Executive Mushtaq Ahmad said in a release here today. He also said the bank aims to reach Rs 1 lakh crore business in the current financial year. “The bank has set a business target of Rs 1 lakh crore and net profit of Rs 1,000 crore for this financial year,” he said. (For details log on to : http://www.business-standard.com/india/news/jk-bank-eyes-rs-1-lakh-crore-biz-in-fy13/162148/on)
NEW UNION BANK CHIEF TO FOCUS ON NPAs, RETAIL BIZ
MUMBAI: With economic slowdown pushing up the tally of bad loans, Union Bank of India will focus on improving the management of non-performing assets (NPAs) and bolster its financial profile, said the new chairman and managing director, D Sarkar. The emphasis will be on monitoring NPAs, including recoveries. The bank will have to study the sharp rise in NPAs due to system-based recognition of bad loans, he said on Monday. Moody’s had downgraded the ratings of Union Bank in March due to weak asset quality and inadequate loss absorption capacity. The bank’s financial strength was cut from “D+” to “D”. The global local currency deposit is down to Baa3/Prime-3 from Baa2/Prime-2. (For details log on to : http://www.business-standard.com/india/news/new-union-bank-chief-to-focusnpas-retail-biz/469927/)
DHANLAXMI BANK PLANS TO SHUT 30 BRANCHES, APPOINT DEPUTY CEO
MUMBAI: The Thrissur-based Dhanlaxmi Bank is planning to shut 30 branches in key metros, including Mumbai and Delhi, and it may elevate a key official to the post of deputy chief executive officer. The bank’s network covers 275 branches and 401 ATMs over 140 centers in 14 states. The downsizing is a part of the revival plan submitted by PG Jayakumar, MDand CEO, to the bank’s board on March 28. Some of the branches operate in high-cost areas and the bank does not want to keep them open. “The bank is also planning to shut its corporate banking unit,” said an official with knowledge of the developments. Muralidaran Rajamani, the bank’s chief operating officer, is likely to be made the deputy chief executive officer. “For everything, there is a process. It is not yet been formalised and Rajamani is the senior most executive after me (Jayakumar),” Jayakumar said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/dhanlaxmi-bank-plans-to-shut-30-branches-appoint-deputy-ceo/articleshow/12511743.cms)
MALAYSIA‘S CIMB TO BUY PART OF RBS BIZ IN ASIA-PACIFIC
MUMBAI: Malaysian lender CIMB is set to buy a part of Royal Bank of Scotland’s (RBS) wholesale banking businesses in the Asia-Pacific region, including India. RBS will sell its cash equities, equity capital markets and mergers and acquisitions (M&As) businesses in Indiaas part of the transaction. “The principal benefit of RBS in the sale is to mitigate partially the shutdown costs otherwise associated with these businesses. The cash consideration, based on net asset values, is expected to be around £75 million. The transaction will complete by jurisdiction with the final completion expected to occur during the fourth quarter of 2012,” RBS said in a statement. The Scotland-based group will continue its debt financing, risk management and transaction services operations in 11 Asia-Pacific markets. (For details log on to : http://www.business-standard.com/india/news/malaysias-cimb-to-buy-partrbs-biz-in-asia-pacific/469923/)
STUART MILNE NAMED HSBC INDIA CEO
MUMBAI: Hong Kong and Shanghai Banking Corporation (HSBC) on Monday appointed Stuart Milne as chief executive officer for its Indiabusiness. Milne replaces Stuart A Davis who is moving to a new position within the bank after a three-year stint in this role. The bank will announce Davis’ new role soon. Prior to this appointment, Milne was the country manager of Japansince 2007. In that role he served as the president and chief executive officer of HSBC, chairman of HSBC Securities (Japan) and chairman of HSBC Global Asset Management (Japan) KK. A British graduate with honours in modern Arabic studies from the University of Durham, England, Milne joined HSBC in 1981 in the UK. He has worked across businesses in European, West Asian, American and Asian markets. In 2001, he was appointed head of institutional banking for the Asia-Pacific region. He also led the lender’s corporate banking team in this region. (For details log on to : http://www.business-standard.com/india/news/stuart-milne-named-hsbc-india-ceo/469925/)
DBS INDIA GETS CAPITAL INFUSION OF RS 508.5 CRORE
MUMBAI: The Singapore-headquartered DBS Bank has pumped R508.5 crore capital into its Indian franchise to support future growth plans, a top official said on Monday. “Indiais an excellent growth story for DBS Bank and an integral part of the DBS Group’s Asiastrategy. We have consistently invested in growing Indiabusiness and augmented our capital base through a recent tier-I and tier-2 injection of R508.50 crore to cater to the demands of this rapidly growing franchise,” DBS India chief executive Sanjiv Bhasin said on Monday. With the latest round of capital infusion, the total capital of the foreign lender in Indiais over R3,300 crore. “While tier-I capital has gone up to R2,200 crore, tier -II has increased to R1,100 crore after the capital infusion,” DBS India chief financial officer Yazad Cooper said. (For details log on to : http://www.financialexpress.com/news/dbs-india-gets-capital-infusion-of-rs-508.5-cr/931692/)
RBS SELLS ASIA-PACIFIC EQUITIES BUSINESS TO CIMB FOR $120 MILLION
MUMBAI: Royal Bank of Scotland (RBS) today said it has reached an agreement with Malaysian financial services major CIMB Group to sell its cash equities, equity capital markets and mergers and acquisition business in Indiaas well as in 10 other Asia-Pacific markets for around 75 million pounds (USD 120 million). According to the English lender, cash equities businesses in India, Australia (excluding the interest in RBS Morgans), China, Hong Kong, and Taiwan, including the cash equities sales desk in the US and Britain, will be sold to the CIMB Group. Similarly, RBS will exit equity capital markets and M&A businesses in India, Australiaand China(excluding activities carried out by Hua Ying Securities), Hong Kong, Indonesia, Malaysia, Singapore, Taiwanand Thailand. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/rbs-sells-asia-pacific-equities-business-to-cimb-for-120-million/articleshow/12506507.cms)
SUNDARAM FINANCE HIKES RATES
Leading NBFC, Sundaram Finance Limited has hiked the interest rates on deposits by 0.50% for one-year deposits for both senior citizens and others with effect from April 9 2012. The company will now pay 10.25% on 12/18months deposits and 10% on 24/36months deposits for senior citizens and 9.75% on 12/18months deposits and 9.50% on 24/36months deposits for others. Monthly interest payment option will be available for all terms, said a release.
D SARKAR IS NEW UNION BANK CMD
Union Bank ofIndiaon Monday said D Sarkar has taken over as chairman and managing director (CMD) of the state-owned lender. Sarkar replaces MV Nair, who headed the bank for 6 years. He has taken charge as CMD of the Bank from April 1, Union Bank ofIndiasaid in a filing on the BSE. Prior to this, Sarkar was executive director of Kolkata-based Allahabad Bank. He started his career with Bank of Baroda in 1982.
SC REJECTS PIL ON CREDIT, DEBIT CARDS
The Supreme Court on Monday declined o entertain a PIL seeking a direction to the government to make mandatory imprinting of photograph and signature of holders on their credit, debit and ATM cards issued by banks to prevent their misuse. “There are already some guidelines,” a bench headed by Chief Justice SH Kapadia said while referring to the instructions by RBI. “Banks can take care of all these. You have written a letter to RBI in this regard,” the bench, also comprising justices AK Patnaik and Swatanter Kumar, said while dismissing the PIL filed by a Kolkata resident Avishek Goenka. The PIL said that holders of these cards are prone to be targeted by criminals resulting in direct crimes ranging from snatching, pick pocketing to fraud.
COSTLIER COVER
Irda has increased the premium for third-party motor insurance in the range of 5-20%. A look at why this was done and how it affects you
From this month, vehicle owners will have to pay more for third-party premium as the insurance regulator has hiked the rates after a year. Other components of motor insurance — own damage and driver insurance cover, which are fixed by insurance companies — may also go up. The increase in premium for third-party motor insurance for different category of vehicles is in the range of 5-20%. For private cars and two-wheelers, the increase is the lowest, while it is the highest for commercial vehicles. However, insurers cannot cancel current insurance policies and issue fresh policies to effect the new premium rates. Moreover, since third-party motor insurance is mandatory under the Motor Vehicles Act, insurers will have to ensure that the insurance cover is available at their underwriting offices. “The authority will treat any complaint of non-availability of insurance or use of methods to deny/delay the client seeking insurance cover seriously,” says a note by the Insurance Regulatory and Development Authority (Irda). (For details log on to : http://www.financialexpress.com/news/costlier-cover/931864/)
MOST MICROFINANCE FIRMS’ LOAN REJIG PLANS FAIL TO CLEAR SCRUTINY OF BANKS
MUMBAI: Four out of the five microfinance institutions, which opted for loan recast, have failed to convince banks to admit their proposals in the Corporate Debt Restructuring (CDR) cell. While banks have agreed to restructure close to Rs 650 crore loans of BASIX Group’s micro-lending arm Bhartiya Samruddhi Finance Ltd (BSFL), the lenders have not approved the proposals of SWAWS Credit Corporation, Cresa Financial Services, Nano Financial Services and Dovefin Micro Finance. These four microfinance companies together have around Rs 175-200 crore outstanding loans with banks. For SWAWS Credit Corporation, a Secunderabad-based microfinance firm, its lead bank Punjab National Bank (PNB) has rejected the request to convert a part of the loans into equity shares. The micro-lender currently has around Rs 90 crore loans outstanding with banks. “Seven out of the nine banks had agreed. But PNB and HDFC Bank have opposed the conversion plan. Since 30 per cent of our loans are from PNB we did not have the consensus to go into the CDR,” a senior executive of SWAWS Credit Corporation told Business Standard. (For details log on to : http://www.business-standard.com/india/news/most-microfinance-firms-loan-rejig-plans-fail-to-clear-scrutinybanks/469924/)
SEBI TAKES OVER REGULATION OF PRIVATE EQUITY INDUSTRY
MUMBAI: In a significant move that expands the scope and powers of the Securities and Exchange Board of India (Sebi) beyond the universe of listed companies, the market regulator on Monday cleared the framework of the rules governing Alternative Investment Funds (AIF). “With a view to extending the perimeter of regulation to unregulated funds and ensuring systemic stability, increasing market efficiency and encouraging formation of new capital, the Board approved proposal to frame SEBI (Alternative Investment Funds) Regulations, 2012,” SEBI said in a press release. According to the rules, AIFs shall not be permitted to invest more than 25 per cent of the investible funds in one investee company and shall not invest in associate companies. AIFs shall also provide, on an annual basis, investors with financial information of portfolio companies as also material risks and how these are managed. (For details log on to : http://www.business-standard.com/india/news/sebi-takes-over-regulationprivate-equity-industry/469883/)
EXCHANGES CAN LIST, BUT WITH STIFF RIDERS
MUMBAI: Market regulator Securities and Exchange Board of India (Sebi) on Monday allowed the listing of shares of stock exchanges on other stock exchanges, subject to several conditions. It also laid down provisions to form an independent governance committee that will have a significant say in the regulatory functions of the exchange such as listing, trading and surveillance. The officials who handle these governance functions will have dual reporting to the managing director and chief executive officer of the exchange and the independent committee, according to the regulator. Independent directors would form the majority of the committee and one of them would head it. The moves came after Sebi considered the controversial Bimal Jalan committee report on market infrastructure institutions (MIIs), such as stock exchanges, clearing corporations and depositories, which among other things had advocated against the listing of such entities and recommended capping of their profits. (For details log on to : http://www.business-standard.com/india/news/exchanges-can-list-butstiff-riders/469936/)
HEAVY GOVT BORROWING TO PUSH UP CORPORATE BOND YIELDS
MUMBAI: It is a tough year ahead for private sector companies that wish to raise debt in 2012-13, as there are concerns that large government borrowings may crowd out the market and compel them to offer higher yields to attract investors. In 2012-13, the government is slated to raise Rs 5.69 lakh crore via bond sale against Rs 5.1 lakh crore borrowed in the previous year. “Clearly, there will be pressure on liquidity and bond yields in the wake of huge government borrowing,” said Ajay Manglunia, senior vice-president, Edelweiss Securities. As a result, corporate bond issuers will need to offer higher coupon rates. “There will be no incentive to buy corporate bonds if you get sovereign papers at higher rates.” Manglunia said he expected the corporate bond yields spreads over government security of similar maturity to be 80-120 basis points during 2012-13. (For details log on to : http://www.business-standard.com/india/news/heavy-govt-borrowing-to-pushcorporate-bond-yields/469922/)
FIIs INVEST $9 BILLION IN 3 MONTHS TO MARCH
MUMBAI: Foreign institutional investors (FIIs) have pumped in a little over $9 billion in Indian equities in the first quarter of calendar year 2012. That’s the highest investment for the first three months of a year in more than a decade by this class of investors, who happen to be one of the largest drivers of the Indian equity market. In January, the inflows were of $2.18 billion, while in February they rose to $5.13 billion. The spike in inflows was largely due to the surge of global liquidity after the European Central Bank flooded the banking system with more than euro 1 trillion of cheap three-year loans to mitigate the euro area debt crisis. March saw the FIIs pare their net purchases to about $1.8 billion as a disappointing Union Budget and the confusion over the implementation of General Anti-Avoidance Rule (GAAR) spooked investors. Interestingly, FII were net sellers for just seven out of the 61 trading sessions in the first quarter, with the highest net sales of $111 million effected on February 27. (For details log on to : http://www.financialexpress.com/news/fiis-invest-9-bn-in-3-mths-to-mar/931875/)
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