MUMBAI: Convinced that they are taking bigger hits than promoters, bankers want the terms of loan recasts to be tightened. While they believe promoters should write down their equity in companies as part of a restructuring package, lenders also want promoters to bring in a higher contribution of the ‘diminution in the value’ of between 20% and 25%. Currently, this amount is 15% as specified by the Reserve Bank of India (RBI). Bankers also agree that converting loans into equity, or quasi-equity instruments such as cumulative convertible preference shares should be avoided as far as possible.
The idea, say bankers who discussed the terms at a corporate debt restructuring (CDR) cell meeting in the city on Monday, is to make sure that promoters also take a hit together with lenders and demonstrate that they are committed to the business. Once the equity is written down, the stake of the promoters will fall and banks will have greater control over the company. Moreover, banks are looking for more seats on the board, especially where the managements are weak. “In general the terms of admission to the CDR need be stiffer and if necessary there should be a change in the management before a package is approved,” said a senior banker. As such bankers agreed that those promoters that may have mismanaged the business needed to provide guarantees that are not ‘conditional’.
Banks point out that a higher contribution by the promoter of the ‘diminution in the value’ of between 20% and 25% versus the current 15% would be a sign of the promoter’s commitment. The diminution in the value of the loan arises from the fact that, post-restructuring, the borrower is charged a lower rate of interest and, moreover, the loan is repaid over a longer period. “Lenders were of the view that promoters need to increase their contribution of the amount sacrificed by banks,” said a senior banker, requesting anonymity. Bankers need to provide for the value that has ‘diminished’. The cut in the interest rate, for the borrower, can be anywhere between 0.5 and 2 percentage points and the tenure of the loan can be extended up to 10 years. For infrastructure loans the tenure can be stretched beyond 10 years.
Bankers also believe that they should help out companies genuinely in trouble due to the difficult macro environment and that these firms should be charged interest rates that are “realistic”. As such, if the loans were given at a time when interest rates in the system were higher, these should be re-looked at with respect to prevailing rates, they pointed out. “The unit should become viable once again,” said a banker.
Bankers are understandably worried about the increasing quantum of loans being restructured. Loans recast by the CDR cell rose nearly 35% to Rs1,50,225 crore by end of March 2012 over the previous year. The actual amount of debt restructured during 2011-12 was Rs 39,311 crore, 500% more than the previous year. Data from the CDR cell show that the amount of debt referred to it was as much as Rs 2,05,692 crore at the end of March 2012, up 48% over March 2011.
Bankers also discussed the fact that several companies continued to enjoy the benefits of the restructuring package even after they had been turned around. “There should be greater clarity on the exit process and how the right to recompense should be worked out,” observed a banker. Bankers also want companies to provide the amount payable by the latter as per the recompense clause as part of the contingent liabilities.
WHITE PAPER BLANK ON BLACK MONEY SIZE, MOOTS IMMUNITY
NEW DELHI: The much-awaited White Paper on black money tabled in Parliament on Monday mooted an immunity scheme as a one-time option to encourage Indians to bring back money stashed abroad. The paper also suggested examining a demand on tax immunity for a gold deposit scheme. The White Paper, tabled by Finance Minister Pranab Mukherjee, prescribed moderate tax rates and measures to rein in the parallel economy in real estate, the financial sector and stock markets. Citing the examples of the US, the UK, Franceand Germany, the paper said, “In the past, Indiahas also opted for voluntary disclosure schemes. A similar scheme, targeted at black money stashed abroad, can be a one-time option in view of the increasing capacity of tax administration to access information from foreign jurisdiction.” (For details log on to : http://www.business-standard.com/india/news/white-paper-blankblack-money-size-moots-immunity/474987/)
RBI SLASHES ARBITRAGE OPPORTUNITY AS RUPEE BREACHES 55 A DOLLA
MUMBAI: The Reserve Bank of India (RBI) stepped in yet again to curb volatility arising out of the arbitrage opportunity in the currency futures market even as the rupee fell to a new low on Monday. The Indian currency closed at an all-time low of 55.03 a dollar, as importers rushed to cover unhedged positions and oil marketing companies continued to buy dollars from the spot market. The rupee touched 55.05 in the day, a record intra-day low. According to new RBI norms, the net overnight open position limits of banks will not include positions undertaken in the currency futures or options segments. The position limit for banks for trading in futures and options has been set at 15 per cent of the outstanding open interest (that comes to around $450 million, according to the open position on Friday) or $100 million, whichever is lower. Also, counter-positions cannot be taken between exchanges and the Over The Counter (OTC) market. “The positions in the exchanges, both futures and options, cannot be netted/offset by undertaking positions in the OTC market and vice versa. The positions initiated in the exchanges shall be liquidated or closed in the exchanges only,” the RBI said in a statement on Monday. The central bank has given time till June 30 to wind down the positions. (For details log on to : http://www.business-standard.com/india/news/rbi-slashes-arbitrage-opportunity-as-rupee-breaches-55dollar/474988/)
CAPITAL FLOWS TO DECIDE FATE OF RUPEE: RBI
MUMBAI: The Reserve Bank of India (RBI) on Monday said capital flows would determine where the Indian currency was headed. The rupee has fallen 4.3 per cent against the dollar since the month began, despite RBI’s intervention and administrative measures. On Monday, the currency closed at an all-time low of 55.03, prompting the central bank to restrict currency futures trading and curtail arbitrage opportunity. “It has been touching lows regularly. There is strong pressure on the rupee to depreciate,” Subir Gokarn, one of RBI’s deputy governors, said on Monday. “This is coming from a number of factors. One is the current account deficit. Demand from oil has been strong, particularly on Monday, and the capital flows are not matching that. We have done a number of things and will continue to do things that we think have an impact of stabilising the currency. But, ultimately, capital flows are going to be the main determinant of how the currency behaves.” (For details log on to : http://www.business-standard.com/india/news/capital-flows-to-decide-faterupee-rbi/474990/)
STATE BANK OF INDIA BUSINESS CORRESPONDENT TENDER MATTER BEGINS
NEW DELHI: In April, the Department of Financial Services suggested a sweeping reorganisation of the Bank-Business Correspondent (BC) model. It recommended that India be split into 20 clusters, and that one BC company, common to all public sector banks operating in that geography, be appointed for each cluster. Such a reorganisation, senior mandarins in the Ministry told ET, would improve the economics of the bank-BC model. ET has now learnt that 11 companies have bid for the first of the tenders — issued by the State Bank of Indiafor Maharashtra. These are, in no particular order, Atyati Technologies, Spanco, Eko India Financial Services, Ascendrum Solutions, Basix, Terasoft, Datamatrix GS, Vakrangee Finserve, Coramandel Infotech, FINO and Integra Macro Systems. In the industry, this list is creating some surprise. Under the proposal, each cluster is expected to have about 3,000 gram panchayats. As such, Maharashtra would be one cluster while smaller states like Haryana and Punjabwould be clubbed together as a single cluster. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/state-bank-of-india-business-correspondent-tender-matter-begins/articleshow/13350686.cms)
RAJASTHAN MODEL FOR POWER DISCOMS’ DEBT RECAST
MUMBAI: Banks are to use the hard bargain they drove to recast debt worth Rs 35,000 crore of Rajasthan state power distribution companies (discoms) as a framework to negotiate terms with financially weak discoms in other states. Banks have the finance ministry’s blessings to deal with other cases on the basis of the Rajasthan model, said a Central Bank of Indiaofficial. Short-term loans due for payment after October 2011 have been restructured for the Rajasthan distribution companies, in the fourth quarter of 2011-12. The moratorium for principal payment is till October 2013. These loans are to be repaid in three years. Companies will continue to pay monthly interest instalments. The rise in interest rate under revised terms for loans is not uniform across lenders. (For details log on to : http://www.business-standard.com/india/news/rajasthan-model-for-power-discoms-debt-recast/475013/)
SBI STOCK RALLIES ON RATING UPGRADES
MUMBAI: The country’s largest lender, State Bank of India (SBI), on Monday closed 3.27 per cent higher after leading foreign brokerages upgraded the stock to a ‘buy’ rating. CLSA and Bank of America-Merrill Lynch have upgraded the stock to ‘buy’, citing asset quality improvements and recent under-performance in shares. Macquariealso raised its ratings to ‘neutral’, saying SBI was already the most expensive Indian public sector bank, trading at a 20 per cent premium to its peers. The stock had gained five per cent on Friday, after posting better-than-expected fourth quarter results. The shares had dropped 13.6 per cent this month as of Thursday’s close, the day before its earnings announcement, versus a 7.2 per cent fall in the NSE index in the same period. (For details log on to : http://www.business-standard.com/india/news/sbi-stock-ralliesrating-upgrades/474992/)
GET SAVINGS A/C AT CLICK OF A MOUSE
MUMBAI: ICICI Bank, the largest private sector lender in the country, is offering an ‘instant account number’ if you apply for a savings deposit account through its website. While the account will be created instantly and a number allotted to the depositor, the bank will activate the account only on completion of the know-your-customer (KYC) process. The customer has to provide his e-mail address and mobile number at the time of opening the account. The offer is available across seven types of savings deposit accounts of the bank. The savings accounts for which the account number will be instantly generated include Regular Savings, Silver Savings, Advantage Woman Savings, Senior Citizens Savings, Gold Privilege, Titanium Privilege and Salary. The offer is not available on joint accounts, wealth management accounts and Young Stars accounts. (For details log on to : http://www.business-standard.com/india/news/get-savings-ac-at-clicka-mouse/474991/)
I-BANK ESPIRITO SANTO CONCERNED AT BIOCON’S ACCOUNTING PROCESSES
NEW DELHI: Portuguese investment bank Espirito Santo has raised concerns over the accounting processes of Bangalore-based biotechnology company Biocon. In a report released to the investment community on Monday, the Lisbon-based financial group has asked questions related to Biocon’s accounting, mainly during its split with Pfizer on the $350-million insulin deal and its divestment of stake in AxiCorp. Biocon has denied all the charges contained in the report, while replying to a questionnaire sent by Business Standard on the matter. Biocon said its accounting practices both in case of the deal with Pfizer and divestment in AxiCorp were in compliance with GAAP (Generally Accepted Accounting Practice) and the company had not incurred any additional gains or losses. According to the report, which this newspaper has reviewed, Biocon booked a cash loss of around euro 10 million and a notional loss of euro 21 million in the AxiCorp deal. However, the company structured the deal in a manner that ensured no loss on sale in its P&L (profit and loss account). The report has alleged that Biocon has also not factored in its P&L the $200-million upfront milestone payment it received from Pfizer when the insulin deal between the two companies was called off. Instead, the company, owned by Kiran Mazumdar-Shaw, chose to keep it in its balance sheet and recognise it with R&D costs, the report said. (For details log on to : http://www.business-standard.com/india/news/i-bank-espirito-santo-concerned-at-biocons-accounting-processes/474986/)
NOW, ROAD-ACCIDENT VICTIMS CAN GET INSURANCE DETAILS OF VEHICLES ONLINE
HYDERABAD: Victims of road-accidents can now access the insurance policy details of the vehicle involved with a click of a mouse. The Insurance Regulatory and Development Authority has launched the facility on the portal of its Insurance Information Bureau, which will update the data being provided by the insurers. The insurance status of the vehicles can be known by filling in, among others, the registration number of the vehicle and date of accident. The information will then immediately pop-up. As there is a time lag of two months for submission of information by insurers to the data repository, there is a possibility of information not being available immediately. In such cases, a message will be flashed giving reasons for absence of information which might include, time lag in uploading data by the insurer. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3443676.ece)
HEALTH INSURANCE IS ‘STILL A MAJOR LOSS CONTRIBUTOR’
MUMBAI: Mr Ashok Kumar Roy, General Insurance Corporation’s new Chairman and Managing Director, wants his organisation to be among the top five companies in the world over the next decade. The past year has not been very good for GIC, India’s sole re-insurer — in line with the rest of the insurance industry worldwide. Losses caused by exposures to various catastrophes and disasters worldwide have dented its financials. The full picture is not yet available as the accounts are getting ready. Asked to give an estimate, Mr Roy said, “It is not proper for me to give any final figures as accounts are not ready. Indications are that the company will close with a net loss.” Mr Roy did his bachelor’s degree in agricultural engineering from IIT-Kharagpur. He rates highly the diversity of experience gained in selling general insurance to both cattle owners and top corporates in the course of his job. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3443678.ece)
LIC AIMS AT RS 1,000-CR PREMIUM FROM JEEVAN VAIBHAV
CHENNAI: Life Insurance Corporation of India (LIC) is targeting to collect Rs 1,000-crore premium in Andhra Pradesh and Karnataka from its close-ended, guaranteed-return policy ‘Jeevan Vaibhav’, which was launched on Monday. AK Sahoo, zonal manager of LIC, who heads the operations of the two southern states, said the company was expecting a very good response to this single-premium plan, the company’s first launch in the current financial year, from the customers of Andhra Pradesh and Karnataka. This guaranteed-return plan has been made available only for a limited period of 120 days from the date of launch, according to Sahoo. (For details log on to : http://www.business-standard.com/india/news/lic-aims-at-rs-1000-cr-premiumjeevan-vaibhav/474945/)
IDBI FEDERAL LAUNCHES INSURANCE PLAN FOR ‘SENIORS’
MUMBAI: IDBI Federal Life Insurance has launched a whole-of-life insurance plan with no medical tests for those in the age group of 50-85 years. The ‘Termsurance Seniors Insurance Plan’ will be available for purchase online at its Web site. The insurance cover is for whole of life, that is, the sum assured will always be paid to the nominee upon death of the insured person, the life insurer said in a statement. The premium payment term is till the age of 90 years and the plan is designed to keep the premiums same from the start, while the cover will continue for the whole of life of the insured person. Under the plan, in case of death of the insured person after two years of commencement of policy, the sum insured will be paid to the beneficiary, provided regular payment of the premiums have been made. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3443677.ece)
MFIs FIND RELIEF IN LOAN SECURITISATION
MUMBAI: Microfinance institutions (MFIs) have something to cheer about. Securitised microfinance loans are getting grades that are better than the ratings assigned to micro lenders selling these portfolios, say analysts and those in the sector. This has persuaded banks and non-banking finance companies to buy securitised loan portfolios from MFIs, even if these were based in Andhra Pradesh, where the state government has imposed restrictions on micro lending. For instance, Hyderabad-based SKS Microfinance sold close to Rs 900 crore of securitised assets to various banks and financial institutions in the January-March quarter. Some of these portfolios were assigned a PR1+ rating, a notch above SKS’ own rating, of PR1. Companies in the sector estimate close to Rs 1,500 crore of securitised assets were sold by six MFIs in January-March. Of this, SKS Microfinance alone sold Rs 900 crore. Others active in the securitised asset market include Bandhan Financial Services and Arohan Financial Services. (For details log on to : http://www.business-standard.com/india/news/mfis-find-relief-in-loan-securitisation/475014/)
AMBIT PRAGMA RAISES $77 MILLION FOR SECOND FUND
Ambit Pragma on Monday raised $77 million through its new fund Ambit Pragma Fund II. The fund anticipates a final close by March 2013. The total size of the fund is around $150 million. CDC and IFC, existing investors from Fund I anchored the new fund, and new institutional investors Unilever and DEG have also committed to Ambit Pragma Fund II. Ambit Pragma Fund II is a small cap buyout and growth capital fund with a goal to invest in five high growth sectors – entertainment, healthcare, FMCG, logistics and infrastructure services,” said Ambit in a statement. The average investment size will be US$15 million in companies with revenues between US$ 5 – 15 million,” it said. “India’s emerging businesses showcase strong entrepreneurial flair, yet have limited fund raising options to help realize their strategic leadership ambitions. This presents a compelling opportunity for Ambit Pragma to invest in high potential companies and support them with capital and real world operating expertise,” said Atul Kunwar, Partner at Ambit Pragma. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/ambit-pragma-raises-77-mn-for-second-fund/articleshow/13359972.cms)
MANAPPURAM FIN PROFIT JUMPS 109% IN FY12
KOCHI: The net profit of Manappuram Finance Ltd has surged by 109 per cent to Rs 591.46 crore in 2011-12 compared to Rs 282.66 crore in 2010-11. The board of directors has proposed a final dividend of Re 1 per share of face value Rs 2. This is in addition to the interim dividend of Re 0.50 per share declared earlier in February this year. The increase in profits was driven by growth in assets under management (AUM) which stood at Rs 11,630 crore, a 54 per cent increase over the previous year’s Rs 7,549 crore. The total gold loan disbursements during the year amounted to Rs 31,698 crore (Rs 18,057 crore). The operating income recorded a growth of 124.43 per cent at Rs 2,615.55 crore (Rs 1,165.42 crore). The PBT grew to Rs 877.20 crore (Rs 423.89 crore). Earnings per share amounted to Rs 7.06 and capital adequacy ratio has been maintained at a higher level of 23.26 per cent. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3443680.ece)
‘FINAL’ P-NOTE HOLDER’S KYC KEY TO CURB BLACK MONEY
MUMBAI: Collecting Know Your Client (KYC) details of the ‘ultimate beneficiary’ of participatory note (P-note) holders, and not the middle entities that have been issued these contracts, will be key to checking the flow of black money in India’s stock market, say experts. Legal and equity experts say P-notes go through multiple downward issuances, once issued by a foreign institutional investor (FII), making it difficult to track the ultimate holder, and thereby provide a perfect smoke-screen for routing black money. A white paper on black money tabled in Parliament on Monday by Finance Minister Pranab Mukherjee says ultimate beneficiaries of P-notes could be Indians and the source of investments may be black money. The white paper suggests KYC norms for P-notes should be implemented. However, experts feel the ambiguity surrounding these norms should be clarified first. “The idea to track black money coming through P-notes may not be foolproof unless KYC of ultimate beneficiary is done by an FII, which issues these instruments,” said Deven Choksey, managing director of one of Mumbai’s oldest broking firm, K R Choksey Shares and Securities. (For details log on to : http://www.business-standard.com/india/news/final-p-note-holders-kyc-key-to-curb-black-money/474968/)
FUNDS GET 6 MONTHS FOR AIF REGISTRATION
MUMBAI: The Securities and Exchange Board of India (Sebi) said on Monday an existing fund falling within the definition of an Alternative Investment Fund (AIF), but not registered with it, may continue to operate for only six months more. To bring unregulated funds like hedge funds, private equity and venture capital under its ambit, Sebi, in April had come out with a proposed framework for AIFs, which was notified on Monday. An AIF will be any fund established or incorporated in Indiain the form of a trust, company, limited liability partnership or body corporate, which is a privately pooled investment vehicle that collects funds from investors. Such funds are not covered under the Sebi (Mutual Funds) Regulations, 1996, Sebi (Collective Investment Schemes) Regulations, 1999 or any other rules to regulate fund management activities. (For details log on to : http://www.business-standard.com/india/news/funds-get-6-mths-for-aif-registration/474963/)
TOP AMCs RAKE IN MORE PROFITS DESPITE HARD TIMES
MUMBAI: India’s top asset management companies (AMCs) have continued to remain profitable, no matter whether mutual fund investors made money or not in the tough market conditions. Rather, top players have posted growth in their profitability during financial year 2011-12. Reliance Mutual Fund, despite losing its top slot to HDFC MF during the year, continued to remain the most profitable asset manager in the industry, with Rs 276 crore as net profit in FY12, a growth of 5.6 per cent against Rs 261 crore in the previous financial year. HDFC MF, the country’s largest fund house, grew faster to Rs 269 crore, growth of 11 per cent compared with Rs 242 crore in FY11. ICICI AMC, the third largest fund house, grew the fastest in terms of profitability, at 22.5 per cent to Rs 88 crore against Rs 72 crore earlier. However, Birla Sun Life AMC’s profit declined a big 30 per cent in FY12. The numbers of UTI AMC were not available. (For details log on to : http://www.business-standard.com/india/news/top-amcs-rake-in-more-profits-despite-hard-times/474964/)
UTI MF BOARD MEETS TO FINALISE SELECTION PROCESS FOR NEW CEO
MUMBAI: The board of UTI Asset Management Company met on Monday to finalise the selection process to appoint a chief executive officer for the firm. Imtaiyazur Rahman is acting as the interim CEO at present. UTI MF’s board of directors includes PR Khanna, Sachit Jain, Pradeep Gupta, PN Venkatachalam, James Sellers Riepe and Flemming Madsen. The board would be keen on ensuring that the selection process is seen as transparent this time round and the new appointment is made as soon as possible. However, the final selection is likely to take about 4-5 months, according to a person familiar with the matter. He added that the fund house will invite applications through advertisements placed in the print media to widen the search process. (For details log on to : http://www.financialexpress.com/news/uti-mf-board-meets-to-finalise-selection-process-for-new-ceo/952066/)
AIF NORMS GIVE BOOST TO MANAGERS OF HEDGE FUNDS
MUMBAI: The Securities and Exchange Board of India (Sebi) has fixed a higher share of continuing interest for fund managers of hedge funds when compared to those managing private equity/venture funds, infrastructure funds or those looking at the small and medium enterprises (SMEs). According to the Alternate Investment Funds (AIF) norms notified on Monday, the regulator has pegged the continuing interest level in Category III AIF at 5% or R10 crore, whichever is lower. For all other funds, the same has been fixed at 2.5% or R5 crore, whichever is lower. At the board meet, the regulator had laid down that the manager or sponsor will have a continuing interest in the AIF of not less than 2.5% of the initial corpus or R5 crore, whichever is lower, and such interest will not be through the waiver of management fees. (For details log on to : http://www.financialexpress.com/news/aif-norms-give-boost-to-managers-of-hedge-funds/952070/)
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