NEW DELHI: The finance ministry has asked state-run general insurers to increase premiums on health insurance, motor and other policies, and refrain from undercutting each other to get new business.
In a recent letter to National Insurance, Oriental Insurance, New India Assurance and United India Insurance, the ministry laid out a strategy for underwriting group health insurance policies. It said premiums on all stand-alone group health insurance policies coming for renewal this year should be revised upwards, keeping in mind the total expenses.
As the four non-life insurers are seeing a decline in net profit despite growth in premium, the government asked them to restructure their premiums and turn around loss-making branches.
The move has attracted sharp criticism from these companies, which have joined ranks with state-owned bank chiefs in accusing the ministry of “micro-management”.
They fear this would jack up insurance premiums of their customers, resulting in loss of business to private insurers.
“In a competitive environment, people reduce prices to get volumes. Pricing is not directed by one single player. The customer is now spoilt for choice. If some private company is giving a lower rate, he will switch over to that. Why should he pay higher premium?” said a top executive with one of the insurers.
The ministry had recently asked state-run banks to revisit their interest rates after the Reserve Bank of India lowered interest rates in April.
The ministry also asked the public sector insurance companies to stop undercutting each other to attract customers.
A PSU insurer won’t be allowed to take business of another state-run insurance company, if the sum assured is over Rs 100 crore for a fire insurance policy. The instruction came after the ministry noticed fire policies were issued at a discount of 80-85 per cent.
A shift within the insurance companies will not be allowed for group health insurance policies, provided the existing insurer gives his ‘no-objection’.
The companies have also been asked to analyse third-party motor insurance and exercise due diligence while offering such policies and increase premiums to pare losses.
The net combined losses of the four insurance companies on group health insurance were estimated at around Rs 1,500 crore in 2011-12.
“These losses are due to the lack of prudent underwriting and a very unhealthy and self-destructive inter-company competition among these four companies,” the ministry said in its letter.
The instructions outline how can these companies bring down their expense ratio and prune management expenses to improve profit. The ministry said the practice of giving heavy discount on premium to stanch business from other public sector company should be done away with.
The government, as a promoter shareholder, also advised public sector banks and insurance companies to make an action plan to turn around their loss-making branches. The ministry noticed that 50 per cent of their branches made operating losses in at least three out of last five years. The companies are expected to take the proposals to their respective boards.
“There is concentration of branches in major cities. We are suggesting there should be some rationalisation. They should go to unserved areas,” said a finance ministry official.
PRANAB: WILL NOT REOPEN CASES PRIOR TO APR 1, 2012
NEW DELHI: Finance minister Pranab Mukherjee on Wednesday said the income-tax department has issued orders not to reopen cases where assessment proceedings have been finalised before April 1, 2012, bringing relief to foreign investors worried about past deals coming under re-examination. Meanwhile, the ministry has told British telecom major Vodafone that its recent arbitration notice over the multi-billion dollar tax dispute related to the 2007 Hutchison acquisition was premature, which warranted no response from the government. The Dutch subsidiary of Vodafone served the arbitration notice on the Indian government invoking a bilateral investment protection agreement between Indiaand the Netherlandsafter New Delhiamended Income Tax Act with retrospective effect to bring Vodafone-type deals under the tax net. While the government wants to crack down on Vodafone like deals, it is very focused and does not want to keep the scope of reopening of old cases too wide. (For details log on to : http://www.financialexpress.com/news/pranab-will-not-reopen-cases-prior-to-apr-1-2012/955848/)
FINMIN SHUTS MUTUAL FUNDS OUT OF NEW TAX-FREE EQUITY PLAN
NEW DELHI: The finance ministry has rejected a Securities and Exchange Board of India (Sebi) proposal to market Rajiv Gandhi Equity Savings Scheme (RGESS) through mutual funds, indicating such a move would contradict the principle of deepening capital markets by attracting new retail investors. Sebi had suggested to the government that under the tax-saving RGESS, first-time investors should enter stock market through experienced institutional players like mutual funds. The government, however, asserts that RGESS was conceived for a different purpose, that of expanding India’s capital market culture. To ensure investor protection, the finance ministry is putting in place safeguards to protect the hard-earned savings of small investors. The cover would ensure that investors are exposed to risks of equity investments in a measured way. The RGESS allows 50% deduction from an individual’s taxable income for investments in equities up to a maximum of R50,000. The tax benefit is available only once to all individuals with an annual income below Rs 10 lakh. (For details log on to : http://www.financialexpress.com/news/finmin-shuts-mfs-out-of-new-taxfree-equity-plan/955997/)
GROWTH IN NON-FOOD CREDIT OFFTAKE RISES 16.7% Y-O-Y
MUMBAI: Growth in non-food credit rose 16.7% y-o-y in the fortnight ended May 18, 2012, taking the outstanding credit to R45,42,870 crore, data from the Reserve Bank of India (RBI) showed on Wednesday. Since the start of the current financial year, loan books of banks have contracted by over R71,000 crore, compared with the corresponding period of 2010-11. Loan books have contracted by over R2,000 crore in the last fortnight. Deposits in the fortnight grew a sluggish 13.8% y-o-y, taking the outstanding deposits to R60,58,294 crore. Since the beginning of 2012-13, outstanding deposits contracted by 1% or R54,000 crore. Credit growth has stabilised at 16% in the last 10 fortnights, except for the last fortnight of 2011-12 when it shot up to 18% y-o-y, reflecting the aggressive lending by banks in a bid to show better balance sheets at the end of the year. On April 17, the RBI cut repo rates by 50 basis points, following which almost all banks decreased their base rates by 15 to 25 bps, indicating a reversal in the rate cycle. Most banks’ base rates are now around 10.50%, except State Bank of Indiaand some private sector banks, which have lower base rate than the industry average. (For details log on to : http://www.financialexpress.com/news/growth-in-nonfood-credit-offtake-rises-16.7-yoy/955966/)
FM’S TAX BREATHER FOR IT INDUSTRY
NEW DELHI: Finance Minister Pranab Mukherjee on Wednesday gave a breather to the $100-billion information technology (IT) industry by clarifying that sale of packaged software in the domestic market won’t be subjected to tax at multiple levels. Although the circular is yet to be issued, industry experts say this would mean that the 10% tax on the royalty would be deducted only at the level of the master distributor who buys the software from foreign manufacturers and sells the same to smaller dealers. There won’t be another incidence of tax at the downstream including at the stage of final sale to the end consumer. In the Budget 2012-13, Mukherjee brought a retrospective amendment to tax law overcoming judicial rulings which said that payments towards packaged software by an Indian resident to foreign manufacturer wouldn’t amount to royalty. While this provision would hit the IT industry, the clarification that there won’t be multiple TDS in the domestic distribution chain would bring some solace to the industry. (For details log on to : http://www.financialexpress.com/news/fms-tax-breather-for-it-industry/955859/)
BANKS YET TO SEE MAJOR PICKUP IN DEPOSITS, LOANS THIS FISCAL
MUMBAI: The growth rates of deposits and loans are diverging and this could exert pressure on lending rates if the demand for loans remains strong. Deposits have slowed as inflation eats into savings. Six weeks into the new fiscal year, banks are yet to see any perceptible pickup in business. Both loans and deposits are declining when compared with the figures at the end of the previous fiscal when lenders indulged in ‘window-dressing’ of books to meet targets. While loans dipped by Rs 45,484 core, deposits were down by Rs 36,741 crore between April 6 and May 18. Total loans outstanding of the banking system was at Rs 46.48 lakh crore as on May 18, while total deposits were at Rs 60.58 lakh crore. The annual year-on-year growth works out to 14% for deposits, two percentage points below the RBI forecast, and 17% for loans, in line with the RBI projections. Banks often do not push for business in the months of April and May since most of them are busy closing the account books of the previous year. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-yet-to-see-major-pickup-in-deposits-loans-this-fiscal/articleshow/13679525.cms)
FOLLOW-ON DEALS ON THE RISE AS PEs EYE SAFER BETS
MUMBAI: State Bank of Indiaon Tuesday said it would reduce the proportion of its net non-performing assets (NPAs) to the total from the present 1.8 per cent to 1.62 per cent this financial year. Only yesterday, Union Finance Minister Pranab Mukherjee had expressed concern over the asset quality of banks. To achieve the target, SBI, the country’s largest bank, constituted a Stressed Asset Management Group (SAMG) during the past financial year. According to Pratip Chaudhuri, chairman, the SAMG managed a cash recovery of around Rs 1,000 crore during 2011-12 by working on these NPAs, the highest in a single year in the bank’s history. He was speaking to reporters after handing over keys of an ambulance van to the Cancer institute here, as part of SBI’s corporate social responsibility programme. The SAMG has around 400 people and has opened nine offices, focusing only on stressed assets. “We are asking the borrowers to consider restructuring loans, ahead of default. Most of the stressed assets are related to exports, especially of the textile industry,” said Chaudhuri. Asked if the bank would sell these stressed assets, he said, “Last year we could not, since asset reconstruction companies did not have cash.” (For details log on to : http://www.business-standard.com/india/news/follow-on-dealsthe-rise-as-pes-eye-safer-bets/475855/)
FITCH DOWNGRADES VIJAYA BANK
MUMBAI: Fitch Ratings has downgraded public sector lender Vijaya Bank’s national long-term (LT) rating to ‘Fitch AA-(ind)’ from ‘Fitch AA(ind)’. The outlook for the bank is stable. The agency has also downgraded Vijaya Bank’s R900-crore lower tier 2 subordinated debt to ‘Fitch AA-(ind)’ from ‘Fitch AA(ind)’ and its R600-crore upper tier 2 subordinated debt to ‘Fitch A-(ind)’ from ‘Fitch AA-(ind)’. “The downgrade reflects continued deterioration in Vijaya Bank’s funding profile, which is weak compared with most Indian government banks. The ratings also reflect Fitch’s expectations of continued weakening in the bank’s asset quality and moderate capitalisation,” the ratings agency said. The national long-term rating is on account of Fitch’s view of continued financial support from the government of India(GoI), given GoI’s 55% ownership and the bank”s regional stature. The government injected R1,200 crore in the form of perpetual non-cumulative preference shares and R370 crore in the form of equity into Vijaya Bank in the financial year 2010-11. In March 2012, the bank received R150 crore indirectly as equity through Life Insurance Corporation of India (LIC). (For details log on to : http://www.financialexpress.com/news/fitch-downgrades-vijaya-bank/955974/)
LAKSHMI VILAS BANK NET DOWN 9% AT R25 CRORE
MUMBAI: Private sector bank Lakshmi Vilas Bank (LVB) registered a 9% y-o-y fall in net profits to R25 crore. The net interest margin (NIM) of the bank stood at 2.91% at the end of the fiscal year 2011-12 as against 3.75% in the previous year, driven by higher interest costs on account of substantial growth in term deposits. The gross non-performing assets (NPAs) stood at 2.98% and net NPAs at 1.74%, reflecting short-term stress in a few corporate exposures, provision coverage ratio at 61.27%. Total income of LVB for the quarter grew by 34.2% y-o-y to R466.25 crore. The total deposits rose from R11,149.51 crore in 2011-12 to R14,114.14 crore in 2011-12, registering a 27% y-o-y growth. The gross credit expanded from R8,187.67 crore to R10,328.30 crore, registering a 26% y-o-y growth. (For details log on to : http://www.financialexpress.com/news/lvb-net-down-9-at-r25-crore/955969/)
US-BASED LENDER MORGAN STANLEY GETS BANKING LICENCE IN INDIA
MUMBAI: The Reserve Bank has given an in-principle approval to Morgan Stanley Indiato enter the commercial banking space, the US-based lender said today. “Morgan Stanley has received an in-principle approval for a banking licence from the Reserve Bank,” a spokesman of the company said in an email, without giving more details. So far, Morgan Stanley has been an investment banker in India and was the the top player in this space last year ahead of rivals including Goldman Sachs and Bank of America Merrill Lynch. Following the 2008 credit crisis, RBI has been pushing for the subsidiary route for MNC lenders in the country against the branch banking route, citing easiness of regulatory control. Entering the banking space will allow Morgan Stanley Indiato lend to corporates, whom it currently advises on takeovers. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/us-based-lender-morgan-stanley-gets-banking-licence-in-india/articleshow/13674959.cms)
LIC HIKES INTEREST RATES ON LOANS AGAINST POLICIES
MUMBAI: Life Insurance Corporation has increased interest rates on loans against policies thereby shutting an arbitrage opportunity for policyholders. The corporation has also increased interest rates on delayed payments. Until recently the corporation charged 9% on loans against policies. This provided policyholders an opportunity to earn a spread by borrowing from LIC and parking funds in fixed deposits of triple A rate companies such as HDFC, which offers returns of 9.5% on 15 month deposits. To avoid this, the corporation has raised interest rates to 10%. Explaining the reason why LIC had not revised rates for several years, a senior official said that interest rates have been largely steady in recent years. However, now volatility has compelled LIC to realign rates with the market. “The policy condition states that interest rates on loans would be revised from time to time,” the official said. Unlike the EPFO, which allows employees to tap their retirement savings only for specific events, LIC freely grants loans to policyholders for up to 90% of the surrender value of the policy, including cash value of bonus. The only requirement is that the policy should be assigned in favour of the corporation. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/lic-hikes-interest-rates-on-loans-against-policies/articleshow/13660028.cms)
WARREN BUFFETT ENJOYS A $70-B FLOAT FROM INSURANCE
CHENNAI: Together, the top five income generating enterprises owned by Berkshire Hathaway brought in a pre-tax profit of $9 billion in 2011. ‘Seven years ago,’ Mr Warren Buffett noted in his annual letter to shareholders, ‘we owned only one of the five, whose pre-tax earnings were $393 million.’ Clearly something very important is missing from this story. But it pops into view almost immediately, the story of life and property insurers owned by Berkshire. The reason for the secondary stature accorded to the profits of Berkshire’s insurance companies in Mr Buffett’s letter for 2011 was not that these companies did not make very much. As a group they booked $17 billion in profits between 2003 and 2011. The reason is rather that the primary purpose of the insurance division is to generate money, not profits. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3474475.ece)
KERALA BASED NBFC ALTERNATIVE INVESTMENTS AND CREDITS LTD DRAGS RBI TO COURT ON LICENSE CANCELLATION
Alternative Investments and Credits Ltd or AICL, a ten year old Kochi based NBFC operating on “Islamic Finance principles has moved the Bombay High Court challenging an RBI order that cancelled its NBFC license, two sources familiar with the development told ET NOW. A day after revoking AICL’s registration, RBI said, “Basically, the Indian banking and finance system runs on the interest concept and Islamic finance is based on profit-sharing. “The writ petition filed seeks to quash the RBI order dated 23rd April 2012 and will be taken up by the court on June 11th”, said one of the two individuals cited above. The NBFC’s plea claims that RBI was aware of its business model since August 2001 and it is only in 2010 that it raised objections against the functioning of AlCL which is “completely unreasonable and unfair”, sources added. RBI had contended that AICL did not indicate to borrowers upfront the exact annualized rate of interest that the borrowers will have to pay on the loans availed which could lead to AICL charging exorbitant and undisclosed rate of interest from the borrower. The AICL plea on the other hand claims it has been transparent with its customers and that interest details have always been indicated upfront not only in the sanction letter but also the loan agreement. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/kerala-based-nbfc-alternative-investments-and-credits-ltd-drags-rbi-to-court-on-license-cancellation/articleshow/13676420.cms)
TOYOTA FINANCIAL SERVICES LAUNCH INDIA OPERATIONS
MUMBAI: ToyotaFinancial Services (TFSI), a wholly owned subsidiary of Japanese automobile giant Toyota Motor Corporation today announced the launch of its services in India. Headquartered in Bangalore, TFSI, now a RBI licensed non-banking finance set up will provide auto finance for Toyotavehicle buyers. TFSI began its operations in Australiain 1982, with assets in excess of $150bn. The company enters Indiawith an investment of Rs 2600mn. TFSI’s core objective is to support Toyotasales in Indiathrough its knowledge and speciality in the auto finance industry and bring innovative products and services to Toyotacustomers. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/toyota-financial-services-launch-india-operations/articleshow/13672366.cms)
CII BATS FOR 2 MORE YEARS TO COMPLY WITH NEW PUBLIC FLOAT NORMS
MUMBAI: The Confederation of Indian Industry (CII) has sought a two-year extension to comply with the new norms of ensuring minimum public shareholding of 25 per cent in listed companies. The Securities and Exchange Board of India (Sebi) had given listed entities time till June 2013. CII has sought extension of the deadline to June 2015, citing tough market conditions, which have challenged the ability of companies to float new paper in the markets in order to lighten their shareholding. There are 148 private sector and 14 public sector companies which would need to dilute their equity stakes to comply with the norms. According to the industry body, this would mean compulsory offloading of an aggregate Rs 34,860 crore between June 2012 and June 2013. The ministry of finance, in June 2010, had notified an amendment to the Securities Contracts Rules, mandating minimum public shareholding norms. Later in the year, Sebi came up with a circular , specifying separate mechanisms designed for increasing the public shareholding for existing companies. “Since December 2010, the market conditions have not been conducive, challenging the ability of companies to comply with minimum public shareholding norms. This had also deterred companies from making fresh issuances, with some getting subscribed to only 23 per cent. The unattractive return on investment in equity is also keeping investors away,” said CII in its statement. (For details log on to : http://www.business-standard.com/india/news/cii-bats-for-2-more-yrs-to-complynew-public-float-norms/475839/)
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