NEW DELHI: In a move towards greater capital account convertibility, the finance ministry has signalled its intent to sell sovereign bonds to foreign investors. For the first time ever, finance minister Pranab Mukherjee has outlined the option of selling sovereign bonds overseas in the Budget 2012-13 papers.
Saleof government bonds in the overseas market would mark a big step towards opening up ofIndia’s capital account. Analysts say the move would be both beneficial to the nation even as it is also fraught with macroeconomic risks.
“The proposal (to sell sovereign bonds abroad) is in the form of a debate being raised within the finance ministry,” a senior official told FE, asking not to be named. “No decision has been taken on it as yet but we have said that such a bond issue can be considered. It has been put forth in the FRBM (Fiscal Responsibility and Budget Management) statement for the first time perhaps,” the official said.
Since the proportion of external debt used to finance the country’s fiscal deficit has fallen over the years, the ministry feels overseas bond sale can be considered to bridge the deficit. External debt as a proportion to overall government debt has declined consistently from 10% in 2005-06 to 7.9% in 2010-11. The fiscal deficit has been estimated at 5.9% in 2011-12 and at 5.1% in 2012-13. The government is borrowing Rs 5.7 lakh crore in 2012-13 — the highest level of borrowings so far — to finance the deficit, 93.3% of which will be financed domestically.
Para 42 of the Fiscal Policy Strategy Statement, tabled along with the Budget papers by Mukherjee in Parliament on March 16, says the government can explore selling its bonds abroad. “With a gradual decline in net inflow from multilateral institutions in the coming years, government would have the option of exploring other sources of external debt in the form of sovereign bond issuance,” says the strategy statement.
This would help maintain a reasonable mix of domestic and external debt in its portfolio, it said. The finance ministry has been opening up the government securities (G-sec) market to foreign investors.
Foreign institutional investors (FIIs) are now allowed to buy up to $15 billion of G-sec papers and $45 billion of corporate bonds. Active participation by foreign investors is expected to bring in global trading strategies in the local G-sec market and impart liquidity in this segment. At the same time, it will expose the economy to heightened volatility in interest rates and exchange rates.
Union Budget 2012-13 announced several proposals that can be a seen as a strategic move towards greater capital account convertibility. The government has allowed foreigners to almost freely buy local stocks and corporate bonds. Besides domestic corporations, individuals can move money abroad, with great flexibility. A possible sale of G-sec papers overseas, when it happens, would nearly complete the process of opening the capital account.
The finance ministry’s chief economic adviser Kaushik Basu has strongly favouredIndiafurther opening up its capital account. “I believe that the time has come for greater capital account convertibility. We have to be careful in doing this because of its implications on the exchange rate. But the direction is clear,” Basu said at a Ficci seminar on March 23.
Selling rupee-denominated sovereign bonds overseas could further open up a window for corporateIndiato sell debt papers to foreign investors. So far, large corporates such as Reliance Industries have raised money in overseas market largely by selling dollar bonds.
There are officials, however, in the government who are fiercely opposing such a move, as it is seen as exposing the country to greater uncertainties. “You see what happened in the developed economies. How can we pursue it? The risks are tremendous,” said a secretary-level official, when asked whether the time had come for fuller capital account convertibility.
FINANCE MINISTRY TO MAKE EPFO INVEST IN INFRASTRUCTURE SECTOR
NEW DELHI: The infrastructure sector could soon have a steady supply of long-term funds if the finance ministry is successful in its bid to get a part of the retirement savings of workers invested in dedicated sector funds. The finance ministry has written to the Employees’ Provident Fund Organisation, or EPFO, that manages over Rs 3 lakh crore of retirement savings of organized sector workers to consider investments in the infrastructure development fund (IDF) that were proposed in the budget for 2011-12. “We have taken up the issue with EPFO,” a ministry official, privy to the communication, told ET. The finance ministry has been unable to persuade the EPFO to invest even a modest 5% of incremental inflows into equities, but is hopeful it would be more favourably inclined towards investments in IDFs, which will refinance projects with AA or AAA rating. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/finance-ministry-to-make-epfo-invest-in-infrastructure-sector/articleshow/12526873.cms)
INVESTORS WITH INTEREST IN MAURITIUS WON’T ATTRACT CAPITAL GAINS TAX
NEW DELHI: Foreign institutional investors based in Mauritiuswill not be required to pay capital gains in Indiaif they have ‘substantial commercial interest’ in the island nation, a finance ministry official has clarified. The official said the proposed General Anti Avoidance Rules, or GAAR, are very clear and there is no uncertainty for companies who have not entered into the arrangement purely for tax benefit. “If you are not operating through a post box or a letter box company then there will be no tax,” he said. The proposed GAAR that will come into effect from April 1, 2012 once the finance bill is passed clearly specifies conditions under which an arrangement will be deemed to lack commercial substance. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/investors-with-interest-in-mauritius-wont-attract-capital-gains-tax/articleshow/12526802.cms)
RBI INITIATES INQUIRY INTO 21 BANKS’ OPERATIONS FROM RESIDENTIAL PLOTS IN NODIA
NEW DELHI: The Reserve Bank of Indiahas initiated an inquiry into how 104 branches of 21 major banks in Noida got permissions to start operations from residential plots in clear violation of Noida authority’s by-laws. These branches were ordered by the Supreme Court on December 5 last year to vacate the premises or face sealing action. It had given the banks two months’ time to comply. However, in February the sealing action against the banks was suspended. RBI guidelines for opening bank branches state, “Banks should ensure that there are no restrictions imposed by the local development or other authorities for setting up commercial establishment in the locality where the branch is proposed to be opened.” This puts the onus on the banks to ensure that no rules are violated. (For details log on to: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-initiates-inquiry-into-21-banks-operations-from-residential-plots-in-nodia/articleshow/12526159.cms)
BANK CREDIT GREW 23% IN JULY-SEPTEMBER: RBI
MUMBAI: Credit by banks grew by 23.5 per cent in the quarter to September 2011, up from 19.3 per cent over the same period a year ago, indicating greater economic activity in the country despite higher interest rate regime. Meanwhile, aggregate deposits during the July-Sept quarter increased by 22.1 per cent against 13.9 per cent from a year ago, RBI data showed today. State Bank of India, country’s largest public sector lender, along with its associates, showed an increase of 18.2 per cent in credit, up from 16.4 per cent over the same period a year ago, it said. SBI Group’s total deposits more than doubled to 18.2 per cent in the quarter, from 7.8 per cent a year earlier. As per the data, top hundred centres accounted for 78.5 per cent of the bank credit. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/bank-credit-grew-23-in-july-september-rbi/articleshow/12523218.cms)
RBI ASK BANKS TO PROVIDE NEW INTEREST RATES ON PPF, SCSS
NEW DELHI: The Reserve Bank of Indiatoday directed the banks to provide the higher interest rates on Public Provident Fund (PPF) and senior citizens savings scheme (SCSS) from April 1 as announced by the government. According to a central bank circular, the rates of interest on PPF 1968 and SCSS 2004 will be 8.8 per cent 9.3 per cent respectively from April 1. The new rates would be applicable during this fiscal. Last month, the government had decided to increase the interest rate on PPF by 0.2 per cent to 8.8 per cent. The rate for SCSS has been hiked to 9.3 per cent from 9 per cent. RBI has also asked the bank to display the new rates for the two small saving schemes on their notice boards for the information of subscribers. (For details log on to : http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/rbi-ask-banks-to-provide-new-interest-rates-on-ppf-scss/articleshow/12521181.cms)
ICRA DOWNGRADES BONDS OF ORIENTAL BANK OF COMMERCE
MUMBAI: ICRA has downgraded Oriental Bank of Commerce’s bonds due to worsening asset quality and sustained pressure on profitability. The rating agency has revised ratings outstanding on the Rs 1,000-crore lower Tier-II bond programmes of the lender from AAA (stable) to AA+ (stable). It has also revised the ratings outstanding on the Rs 1,250-crore upper Tier-II and perpetual bond programmes from AA+ (stable) to AA (stable). “The rating revision factors in deterioration in asset quality indicators of the bank, increase in its net non-performing assets (NPAs) in relation to its net worth and sustained pressure on its profitability,” ICRA said. The state-run lender has reported an increase in its gross NPA to 2.92 per cent as on end of December. The slippages mainly came from agriculture and small and medium enterprises and due to the shift to technology-driven system of NPA recognition. According to ICRA, OBC has high level of restructured advances, at 4.84 per cent and has relatively higher exposure to vulnerable sectors such as weak state electricity boards and distribution companies, and aviation. (For details log on to : http://www.business-standard.com/india/news/icra-downgrades-bondsoriental-bankcommerce/470059/)
VIJAYA BANK HIKES DEPOSIT RATES
BANGALORE: Vijaya Bank has increased interest rates on domestic term deposits and NRE term deposits effective April 1. A press release from the bank said that senior citizens will get an additional 0.5 per cent across categories. The interest rate for domestic term deposits below Rs 5 crore: for 180 days to less than one year, 8.5 per cent (8 per cent) with an annualised yield of 8.77 per cent. The interest rate for both domestic term deposits and NRE deposits below Rs 5 crore for one year to less than two years will now be 9.6 per cent (9.25 per cent) with an annualised yield of 10.44 per cent; two years to less than three years: 9.5 per cent (9.35 per cent) with an annualised yield of 10.84 per cent; three years to less than five years: 9.3 per cent (9 per cent) with an annualised yield of 11.67 per cent; and five years and above: 9.25 per cent (8.75 per cent) with an annualised yield of 14.95 per cent. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3278514.ece)
FEDERAL BANK HIKES INTEREST RATE ON TERM DEPOSITS
MUMBAI: Federal Bank has hiked the rate of interest on both– resident as well as NRE term deposits for a period of 1 year to 10 per cent effective from April 3, a statement issued here said. The rates of interest for resident deposits of other maturity periods has been fixed at for 7 days to 45 days – 5.00 per cent, 46 days to 180 days – 7.00 per cent, 181 days to 199 days – 8.50 per cent, 200 days – 9.50 per cent, 201 days to less than 1 year – 8.50 per cent, above 1 year to less than 3 years – 9.50 per cent and 3 years and above – 9.25 per cent. The rate of interest for NRE term deposits for a period of 1 year to less than 3 years is 9.50 per cent and for a period of 3 years and above is 9.25 per cent. (For details log on to : http://economictimes.indiatimes.com/personal-finance/fixed-deposits/federal-bank-hikes-interest-rate-on-term-deposits/articleshow/12519629.cms)
FIVE WAYS TO BRING DOWN YOUR AUTO INSURANCE COST
Maintaining your car is set to cost more from this month, courtesy Insurance Regulatory and Development Authority (Irda). The insurance regulator has hiked the third-party motor insurance premiums, in line with its decision last year to review the rates annually. Also, some insurers are planning to revise their ‘Own Damage’ rates. Put these two pieces of news together and it is a fair guess that your overall premium will go up when you buy or renew your motor insurance. Depending on the engine capacity of your cars and twowheelers, the third-party premium increase will be in the range of 4-8%. Third-party insurance cover is mandatory and it comes with the comprehensive motor policy. It covers death or injury caused to a third person or damage to the person’s property. The extent of hike in ‘Own Damage’ premiums is yet to be ascertained. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/five-ways-to-bring-down-your-auto-insurance-cost/articleshow/12526246.cms)
INDIAFIRST LIFE EXPECTS TO BREAK EVEN AHEAD OF PLAN
NEW DELHI: IndiaFirst Life Insurance Company Ltd (IndiaFirst) expects to break even by November 2013, a senior company official said. This is two years ahead of the envisaged timeline of November 2015. The optimism is because the company is already outperforming its initial business plans by 20-30 per cent, both topline and bottomline, Dr P. Nandagopal, Managing Director and CEO, IndiaFirst, said. IndiaFirst, which entered the life insurance market in November 2009, is a joint venture of Bank of Baroda, Andhra Bank and UK-based Legal and General. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3278519.ece)
YOUR MEDICLAIM DEPENDS A LOT ON HOSPITAL ROOM RENT LIMITS
By Harsh Roongta, CEO, Apnapaisa
Many health insurance policies come with a specific limit on hospital room rents. For example , policies of all four public sector companies have a clause that restricts room rents to 1% of the sum insured or Rs 5,000, whichever is lower. This may sound like an innocuous little restriction that will, at worst, shave off a few thousand rupees of your claim for hospitalisation expenses. But it is actually not so. Here is an example that will illustrate the huge impact of this clause. Let’s say you have a mediclaim policy of Rs 3 lakh from a company that has a clause restricting room rents to 1% of the sum insured. This means the room rent limit applicable to you is Rs 3,000 per day. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/your-mediclaim-depends-a-lot-on-hospital-room-rent-limits/articleshow/12526441.cms)
HSBC PRIVATE EQUITY, EPLANET TO SHED TRIVITRON STAKE
MUMBAI: HSBC Private Equity and ePlanet Capital are planning to sell their stake in Chennai-based medical diagnostics firm Trivitron Healthcare. “Since their investment cycle has matured, both PE firms are exploring a partial exit from the company,” GSK Velu, MD, Trivitron told ET. Trivitron Healthcare has appointed Kotak Investment Bank to scout for a buyer. Both PE firms had invested close to $11 million in Trivitron Healthcare in 2007, picking up minority stake in the company. Trivitron Healthcare is one of India’s largest medical technology company, involved in designing and manufacturing of medical devices. It posted gross revenue of 500 crore in FY12. The company is looking to raise close to $100 million for investing in its medical technology park in Chennai. It is also planning small size acquisition in this space. “The emergence of private healthcare centres and investment by the government in primary healthcare are going to be the key growth drivers for medical device companies,” said Sujay Shetty, partner healthcare, PWC. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/hsbc-private-equity-eplanet-to-shed-trivitron-stake/articleshow/12527492.cms)
CX PARTNERS IN TALKS TO BUY FUTURE CAP HOLDINGS
MUMBAI: CX Partners, the private equity fund promoted by former Citigroup executive Ajay Relan, is in preliminary negotiations to acquire a controlling stake in the Kishore Biyani-controlled non-banking finance company (NBFC) Future Capital Holdings (FCH). The New Delhi-based PE firm recently held discussions with the top management of Future Capital and will shortly start due diligence, persons close to the discussions told ET. CX Partners is also exploring the possibility of pooling resources and making a joint bid with Baring Private Equity Partners (India), the source added. The Future group wants to sell its entire 54% stake in the NBFC to raise cash and cut the group’s debt, which has touched Rs 7,800 crore. On the other hand, CX Partners is flush with cash after raising $515 million in April 2010 from investors. The Ajay Relan-led company had already invested half of the corpus in growing mid-cap companies. Last week, it picked up a 40% stake in Banglaore-based medical textile manufacturer Sutures India for Rs 200 crore. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/cx-partners-in-talks-to-buy-future-cap-holdings/articleshow/12526568.cms)
INDIAN INVESTMENT BANKS GO GLOBAL IN DEAL HUNT
Homegrown deal makers are hopping overseas, tracking their clients who are expanding globally. Indian investment banks are opening offices abroad and striking alliances with foreign merger and acquisition (M&A ) specialists as cross-border activity dominates the Indian deal economy. JM Financial has recently hired two veteran investment bankers to spearhead its Singaporeand Indonesiaunits to build its profile in South East Asia. This is the first time in its 38-year history that the firm is expanding outside the shores of India. It is also in the process of applying for a licence to start M&A practice in New York. “We just opened our Singaporeoffice, and the first phase of our international expansion also includes Indonesiaand the US,” said Vishal Kampani, MD, JM Financial Group. The company hired Amitava Guharoy, a specialist in mid-market M&A deals, from PricewaterhouseCoopers to drive operations in Singapore. Greg Terry, former Asia Pacific chief at Morgan Stanley , is leading the unit in Indonesia, a country now favourite with private equity investors. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/indian-investment-banks-go-global-in-deal-hunt-jm-financials-vishal-kampani-hires-top-guns/articleshow/12514909.cms)
RETAIL INVESTORS & TRUSTS FROM WEST ASIA HAVE DIRECT ACCESS TO INDIAN EQUITIES: GOVERNMENT
NEW DELHI: The government will soon issue a clarification to enable individual investors or trusts from Gulf countries such as Oman, Quwait, Bahrain, United Arab Emiratesand Qatarto invest in Indian equities directly. The qualified foreign investor scheme that allows retail investors and trusts from other countries to participate in Indian capital markets is restricted to only those countries that are members of global anti-money laundering body the Financial Action Task Force, or FATF. Many of the gulf countries are indirectly members of the FATF through their participation in the Gulf Cooperation Councils. The finance ministry and regulators will soon issue a clarification that countries that are indirectly members of the FATF be also be eligible to invest under the scheme, a ministry official said. “We will issue a clarification explaining the eligibility criterion and taxation issues in a detailed manner,” Many investors from many of the gulf countries have got in touch with the finance ministry wanting to know if they would be eligible to invest under the scheme that specifies FATF membership as a criterion. (For details log on to : http://economictimes.indiatimes.com/markets/stocks/market-news/retail-investors-trusts-from-west-asia-have-direct-access-to-indian-equities-government/articleshow/12527010.cms)
SEBI’S DECISION ON STOCK EXCHANGE LISTING IS RIGHT: BIMAL JALAN
NEW DELHI: Bimal Jalan, who headed the panel on stock exchange reforms, today said SEBI has taken the right decision to remove conflict of regulatory and commercial interests in the context of listing of bourses. “I must say that SEBI has taken the right decision to remove conflict of interest issues. They have said regulatory functions of the stock exchanges must be separated…I am very glad that whatever measures SEBI has taken, they remove the conflict of interest absolutely,” he told CNBC TV18. While allowing listing of stock exchanges, SEBI had said its Board considered the report of the Bimal Jalan Committee on ‘Review of Ownership and Governance of Market Infrastructure Institutions (MIIs) and broadly accepted most of the recommendations. Jalan, a former RBI Governor, further said measures taken by SEBI are “much more comprehensive” than the report itself. (For details log on to : http://economictimes.indiatimes.com/markets/regulation/sebis-decision-on-stock-exchange-listing-is-right-bimal-jalan/articleshow/12523721.cms)
MUTUAL FUNDS LOSE RS 36,000 CRORE WORTH ASSETS IN FY12
NEW DELHI: Hit by a downtrend for the third consecutive quarter, the mutual fund industry saw its total asset base shrink by about five per cent or Rs 36,000 crore in the just-ended fiscal year 2011-12. Reaching its lowest level in more than two years, the average asset under management (AUM) of the entire Indian mutual fund industry dipped to Rs 6,64,824 crore at the close of the last fiscal, ended March 31, 2012. The decline of five per cent in the last fiscal followed a decline of 11 per cent in the previous fiscal 2010-11, when the total average AUM had dipped to near Rs 7 lakh crore. As per the data compiled by the industry body, the Association of Mutual Funds in India (AMFI), HDFC Mutual Fund retained its pole position as the country’s biggest MF with an average AUM of Rs 89,879 crore, followed by Reliance MF (Rs 78,112 crore), ICICI Prudential MF (Rs 68,718 crore), Birla Sunlife MF (Rs 61,143 crore) and UTI MF (Rs 58,922 crore). (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/mutual-funds-lose-rs-36000-crore-worth-assets-in-fy12/articleshow/12517657.cms)
DISTRIBUTORS SHY AWAY FROM FIDELITY MF AFTER FUND SALE
Leading distributors are shying away from recommending Fidelity Mutual Fund’s equity schemes to their clients in the wake of the fund house’s asset sale to L&T Mutual Fund. A section of the mutual fund distributors are advising clients to stop their systematic investment plans (SIPs) on Fidelity’s equity schemes since the announcement , some are recommending outright redemptions amid worries L&T Mutual’s fund managers may not be able to replicate Fidelity’s past performance. The sale of Fidelity’s Indian unit to L&T does not include the fund management team. ET spoke to 14 mutual fund distributors who were unwilling to make official comments on this matter because the issue is sensitive. Privately, these wealth managers and independent financial advisors (IFAs) said they are not comfortable recommending Fidelity’s equity schemes to their clients without the existing fund management team. However, top L&T Finance officials brushed aside these concerns. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/distributors-shy-away-from-fidelity-mf-after-fund-sale/articleshow/12526531.cms)
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