NEW DELHI: The government may adopt a three-pronged strategy to cushion the rupee against the potential impact of large-scale capital outflows. This includes curbs on imports of unproductive products like gold and consumer items, easier FDI policy, and an enhanced focus on exports. The government’s new thinking is apparently sparked by realisation that the existing policy of using foreign investment inflows to finance current account deficit (CAD) is not a great idea. The country’s CAD in the current fiscal is estimated to hit 3.6%, up from 2.8% from the previous year, on the back of a high trade deficit. Trade deficit in the current year is estimated to hit 15% of the GDP as exports falter while imports remain high. In comparison, the trade deficit in the past year was estimated at 8.9% of the GDP. The outlook for the coming year is also grim given eurozone woes. (For details log on to : http://www.financialexpress.com/news/three-strategies-to-cushion-r-against-large-capital-outgo/924465/)
GROWTH FORECAST ROSY, GOVERNMENT FOCUSES ON 6 REFORM AREAS
NEW DELHI: The pre-Budget Economic Survey, tabled in Parliament here on Thursday amidst a scenario of economic and political gloom, has projected a sharp improvement in the growth rate of gross domestic product from 6.9 per cent in the current year to 7.6 per cent in 2012-13 and to 8.6 per cent in the following year. Presenting an optimistic outlook for the economy, the Survey said the “weakness in economic activity has bottomed out and a gradual upswing is imminent”. Its forecast draws inspiration from calculations based on tracking several statistical indicators and projections of incremental capital-output ratios. The World Bank’s latest economic update projected India’s growth rate for next year at 7-7.5 per cent and the PM’s Economic Advisory Council has projected it even higher at 7.5-8 per cent. The highlight of this year’s Survey, however, is not its rosy growth forecast, but its focus on six key areas of reform that it believes can help the economy grow at a rapid pace. The six areas are: Efficient contracts, minimal intervention in fixing prices, flexible labour laws, acquisition of land by the government for industrial projects, giving subsidies directly to users, and a fixed subsidy on diesel. (For details log on to : http://business-standard.com/india/news/growth-forecast-rosy-govt-focuses6-reform-areas/467941/)
SMALL RISE IN ADVANCE TAX COLLECTIONS
MUMBAI: A day ahead of the Budget, there could be another reason for the finance ministry to worry. The initial numbers of the last instalment of advance tax collections for the last quarter showed a tepid growth. While banks and financial institutions led the collections, oil marketing companies paid zero tax. Banks such as State Bank of India (SBI) and HDFC Bank paid higher taxes. SBI paid the highest tax Rs 1,650 crore compared to Rs 1,500 crore last year. Similarly, HDFC Bank paid Rs 600 crore versus Rs 550 crore. And insurance behemoth Life insurance Corporation (LIC) has paid Rs 970 crore compared to Rs 930 crore. Private sector bank, ICICI, paid marginally lower taxes. It paid Rs 425 crore vis a vis Rs 450 crore last year. (For details log on to : http://business-standard.com/india/news/small-rise-in-advance-tax-collections/467954/)
RBI’S U-TURN: INDIAN COMPANIES LOSING PRICING POWER
India Inc’s top line growth remains robust, but the picture pales on the margin front. While the Reserve Bank of India (RBI) governor Duvvuri Subbarao blamed poor pricing power for this, his stance is a break from the past. In previous monetary policy reviews, the apex bank had said pricing power remained intact despite a slowing environment and corporate Indiawas able to pass on higher costs to customers. So what has caused this change of stance? Corporate honchos say persistent inflation has left no more room for companies on the pricing front. This is beginning to show. Sample this: The fall in margins in refineries, hospitality, packaging and aviation has been in the region of 300 to 1,000 basis points in the past nine months of the financial year ended March 31. (For details log on to : http://business-standard.com/india/news/rbis-u-turn-indian-companies-losing-pricing-power/467909/)
BOND YIELDS, SWAP RATES JUMP
Government bond yields and overnight indexed swap (OIS) rates soared after the Reserve Bank of Indiakept repo rate unchanged at 8.5 per cent at its mid-quarter policy review announced on Thursday. Yields on the 10-year benchmark government bond jumped 12 basis points (bps) to 8.38 per cent soon after the policy announcement, but eased marginally in the later part of the trading session. Yields closed on Thursday at 8.36 per cent, eight bps higher from the close of 8.28 per cent on Wednesday. “There is sign of disappointment on RBI not getting into the rate cut mode,” said Moses Harding, head-economic and market research at IndusInd Bank. He said he expects the yields to shift into the 8.25-8.50 per cent range. OIS rates also inched up by 10-12 bps after the policy announcement. Three-month OIS rates closed at 8.65 per cent, 10 bps higher than the previous close. The one-year OIS rates rose 11 bps to 8.17 per cent in the same period. (For details log on to : http://business-standard.com/india/news/bond-yields-swap-rates-jump/467908/)
DEBT WRITE-OFFS AIDED ASSET QUALITY IMPROVEMENT
MUMBAI: The Economic Survey said asset quality of banks improved in percentage terms in 2010-2011 from the previous year. But the improvement was due to write-offs of bad debts. “The banking sector has written off almost 10 per cent of the outstanding gross non-performing (GNPA) assets at the end of March 2010, which helped in limiting their growth of gross non-performing loans,” said the survey conducted by the finance ministry. The GNPAs increased in absolute terms in 2010-11 over the previous year, it added. The survey reveals that gross NPA to gross advances ratio declined marginally to 2.3 from 2.4 per cent during the reporting period. It also said that the private and foreign sector lenders managed asset quality better than public sector counterparts. SBI said increase in NPA are largely due to policies and regulation. “I do not think high interest rates are really responsible for rising NPAs,” Pratip Chaudhuri, chairman, SBI, told a television channel. “It has more to do with project clearances, policy and regulations.” (For details log on to : http://business-standard.com/india/news/debt-write-offs-aided-asset-quality-improvement/467893/)
EPF RATE CUT TO 8.25% FROM 9.5% FOR FY12
NEW DELHI: The government on Thursday slashed interest rate on deposits in Employees Provident Fund from 9.5 per cent to 8.25 per cent for 2011-12, affecting over 4.7 crore subscribers. The cut was proposed by the finance ministry and a notification was issued by the labour ministry, official sources said. The Employees’ Provident Fund Organisation (EPFO) had provided 9.5 per cent interest rate to its subscribers for 2010-11 after it found Rs 1,731 crore surplus in its books of account. The labour ministry had recommended 8.6 per cent rate of interest for this financial year on provident fund deposits to EPFO subscribers. According to EPFO’s income projections, a provision of 8.25 per cent interest for 2011-12 would leave a deficit of Rs 24 lakh. It had further noted that an 8.5 per cent rate of return would translate into a deficit of Rs 526.44 crore. (For details log on to : http://business-standard.com/india/news/epf-rate-cut-to-82595-for-fy12/467957/)
MORE PAIN AWAITS CORPORATE RATINGS IN FY13
India Inc has pinned hopes on the Union Budget for some relief and also steps to get out of an economic slowdown in 2012-13. But rating agencies warn that the next financial year (FY13) might not bring much comfort, as the slowdown might continue. The corporate rating downgrades might remain elevated in FY13, ratings agencies said. Ratings might remain under pressure in 2012-13, as high interest rates, inflation, a weak credit profile and demand slowdown continued to weigh on balance sheets. While the pace of downgrade might moderate, the upgrades are not going to happen in quick time either. According to rating agency Icra the operating environment would remain challenging. The rating volatility might remain high. This is more true in the case of lower-rated issuers. (For details log on to : http://business-standard.com/india/news/more-pain-awaits-corporate-ratings-in-fy13/467890/)
IT INDUSTRY EXPECTS BUDGET TO SET RIGHT TAXATION ANOMALIES
BANGALORE: With the export-oriented information technology industry facing strong headwinds from the global economic slowdown, the sector is expecting the forthcoming Union Budget to set right what it calls “taxation anomalies”, thereby easing some of the pain. The $88-billion Indian technology industry, which includes IT services & BPO and hardware, has been crying hoarse about the lack of various tax incentives which were provided in the past. The end of the Software Technology Park of India (STPI) scheme, providing income tax exemption to the IT companies for a period of ten years, has been replaced by a new special economic zone (SEZ) scheme. A 18.5% minimum alternate tax (MAT) for SEZs has not helped either. The industry body Nasscom in its pre-budget recommendation had said, “The SEZ Act was enacted by the government of Indiain 2005 to stimulate exports and generate large-scale employment. The most salient incentive has been income tax exemption of export profits which had contributed to the scheme’s success in attracting major investments. (For details log on to : http://www.financialexpress.com/news/it-industry-expects-budget-to-set-right-taxation-anomalies/924502/)
FRBM ACT SHOULD BE REVIVED TO CONTROL EXPENDITURE
NEW DELHI: Predictably, chief economic adviser Kaushik Basu has not put a number to where he expects the fiscal deficit for 2011-12 to end up. A day ahead of the presentation of Budget 2012-13, Basu has, however, said structural reforms in expenditure will be the key to achieving fiscal consolidation. He has indicated that the Budget could unveil a new framework for Fiscal Responsibility and Budget Management (FRBM). The survey, however, projects fiscal deficit to come down to 4.1% in 2012-13 and 3.5% in 2013-14. Budget 2011-12 had projected a 4.6% fiscal deficit by March-end 2012, but when finance minister Pranab Mukherjee unveils the revised numbers on Friday, market experts expect it to be close to 5.8% for 2011-12. Predicting a slippage in both the revenue and fiscal deficits targets, the economic survey notes: “There is a need to anchor fiscal consolidation on structural reforms in expenditure.” (For details log on to : http://www.financialexpress.com/news/frbm-act-should-be-revived-to-control-expenditure/924493/)
GOVT GUARANTEES MOOTED TO MAKE INFRA PROJECTS VIABLE
NEW DELHI: A year after he announced the setting up of an infrastructure debt fund mechanism, the finance minister had to take a personal initiative to set up the first such fund in March this year — by LIC, ICICI Bank, Citibank and Bank of Baroda. The time lag shows that financing of the infrastructure sector still poses a big challenge for the economy. While the Economic Survey makes the usual noises about attracting long-term investors, private equity funds, pension funds and sovereign funds to the sector, it has suggested that the government would need to give guarantees more liberally for projects than it does now. The survey has highlighted the need for strengthening domestic financial institutions and developing a long-term bond market. It, however, said the realisation of investment targets for infrastructure during the 11th Plan (2007-12) gives hope that the financing of an even more ambitious 12th Plan target may be possible. (For details log on to : http://www.financialexpress.com/news/govt-guarantees-mooted-to-make-infra-projects-viable/924479/)
SBI MAY CUT RATES ON SELECT LOANS
Your wait for a reduction in lending rates may soon be over, if the country’s largest commercial bank has its way. State Bank of India (SBI) is weighing options to pare interest rates on certain sector-specific loans, despite the Reserve Bank of India (RBI) keeping the repo rate unchanged at its mid-quarter policy review. The bank’s asset-liability committee (ALCO) is scheduled to meet tomorrow to review lending rates. “I see some room for cutting lending rates following the cut in the cash reserve ratio (CRR) last week. It is not right for me to pre-decide on behalf of the ALCO. But when we had a 50 basis point CRR cut last time, we passed it to our customers with significant cut in rates of our educational loans. Similarly, we will definitely cut rates (again), but the segments and extent will need a more granular analysis. That will be done by our ALCO,” Pratip Chaudhuri, SBI chairman, said. (For details log on to : http://business-standard.com/india/news/sbi-may-cut-ratesselect-loans-/467907/)
SYNDICATE BANK AIMS 20% GROWTH IN STATE
KOLKATA/BHUBANESWAR: Manipal-headquartered Syndicate Bank expects to achieve total business of over Rs 3,500 crore in the Orissa region by the end of 2012-13. The bank has already crossed Rs 2,700 crore this fiscal in terms of total business by the end of December and expecting a growth of more than 20 per cent in 2012-13, said SK Mahunta, Deputy General Manager, Syndicate Bank at the inauguration of the bank’s 61st branch here recently. For providing banking services at the door step of the customers, the PSU bank is planning to open 21 more ATMs across the state this year. The bank also intends to open seven more branches by the end of this year and ten more branches next year over and above its network of 60 branches in the state, said Ravi Chaterjee, Executive Director of the bank. However, the bank has failed to achieve the stipulated Credit-Deposit (CD) ratio. It may be noted that Syndicate Bank has CD ratio of 37.35 in the state far below the Reserve Bank of India (RBI) stipulated 60. As per the latest data released by State Level Bankers’ Committee (SLBC), Syndicate Bank’s finance to agriculture sector stood at a meagre 6.78 per cent. (For details log on to : http://business-standard.com/india/news/syndicate-bank-aims-20-growth-in-state/467881/)
BANKS IN NO HURRY TO CUT DEPOSIT RATES
MUMBAI: Bankers are breathing easy with R48,000 crore of liquidity injected into the system by the Reserve Bank of India (RBI). However, despite somewhat improved liquidity conditions, they believe it may take a while before lending rates start trending down. MD Mallya, CMD, Bank of Barodasays that banks would need to feel a tad more comfortable with the liquidity situation before they can drop deposit rates. “It’s hard to predict when money will become cheaper but only when deposit rates come down can we think of bringing down loan rates,” Mallya said. State Bank of Indiachairman Pratip Chaudhuri says that lending rates could start trending down sometime in April, though it would depend on the amount of liquidity in the system and the extent of government borrowings. “When the supply of money increases, rates will come down,” Chaudhuri said. Last Friday, the central bank had cut the cash reserve ratio — the share of deposits that banks have to set aside — by 75 bps to 4.75%. (For details log on to: http://www.financialexpress.com/news/banks-in-no-hurry-to-cut-deposit-rates/924287/)
FEDERAL BANK REVIVES ARM TO EXPAND RETAIL LENDING BUSINESS
MUMBAI: At a time when most banks have failed to convince the Reserve Bank of India (RBI) in allowing them to set up subsidiary companies, Federal Bank has revived its wholly-owned arm to expand its retail loan business. The Kerala-based private sector lender’s arm, Fedbank Financial Services, has started a gold loan business and plans to offer car loans and loans against property, in addition to its distribution business. It would also enter the wealth management space at a later date, to provide services to high net worth clients. While RBI has not issued any formal guidelines, in the recent past it has not allowed banks to form separate subsidiary companies for businesses that can be done through bank branches. The banking regulator had nixed South Indian Bank’s plan to form a gold loan subsidiary, Bank of India’s proposal to set up a company to train its employees, and Lakshmi Vilas Bank’s application for a housing finance arm. Proposals from ICICI Bank and Axis Bank to float infrastructure finance subsidiaries also did not find favour. (For details log on to : http://business-standard.com/india/news/federal-bank-revives-arm-to-expand-retail-lending-business/467892/)
MILESTONE RE-APPROACHES DEWAN HOUSING AFTER OTHER SUITORS PULL OUT
MUMBAI: Patience may well pay off for Kapil Wadhawan, chairman and managing director of Dewan Housing Finance (DHFL). After Britain’s Ashmore Investment Managers walked out of their negotiations, the promoters of Milestone Capital have reached out to DHFL once again to buy them out from the fund. These negotiations had, in the past, fallen through on valuations. Milestone Capital, the real estate-focused fund with assets of Rs 4,000 crore under management, has been on the block since the death of its founder, Ved Prakash Arya, last year. But because of the high valuation expectations, all firms in race, including Dewan Housing Finance Corporation (DHFC), had withdrawn their bids. It is learnt that London-headquartered Ashmore, which was the sole contender for the PE firm, has also withdrawn. According to sources in the know, 2007-incorporated Milestone had approached Wadhawan a few days ago with a sellout proposal — for the second time. Significantly, the Milestone promoters had brought down their expectations. (For details log on to : http://business-standard.com/india/news/milestone-re-approaches-dewan-housing-after-other-suitors-pull-out/467950/)
INDIA INC’S FUND-RAISING TAKES A HARD KNOCK
India Inc’s fund-raising activity, especially through the equities route, plunged during the 2011-12 financial year, due to weak secondary market conditions. Equity fund mobilisation from the primary market, which includes initial public offerings (IPOs) and follow-on public offerings (FPO), saw an 80 per cent drop to Rs 9,683 crore, from Rs 48,654 crore last year. During 2011-12, only Rs 5,043 crore was raised through 30 IPOs, the lowest since 2008-09, according to the Survey. The last financial year saw 53 IPOs, cumulatively raising Rs 35,559 crore. Although all the figures for the current financial year are only up to December 31, the picture hasn’t changed much since then. The average IPO size during the current financial year dropped to Rs 168 crore, compared to Rs 671 crore in 2010-11, indicating poor appetite for large-sized share sales. During 2011-12, only one IPO, of L&T Financial Holdings, raised more than Rs 1,000 crore. This was in a stark contrast with the previous year, which had seven offerings, including the biggest-ever — Rs 15,000 crore — of Coal India. Also, the government is set to miss the Rs 40,000 crore disinvestment target by a huge margin. (For details log on to : http://business-standard.com/india/news/india-incs-fund-raising-takeshard-knock/467895/)
MCX-SX VERDICT MAY CREATE RIPPLES ACROSS FINANCIAL SECTOR
MUMBAI: The landmark judgement by the Bombay High Court, which has upheld an innovative divestment method followed by the MCX Stock Exchange (MCX-SX) to comply with shareholding norms, may have far-reaching impact on various financial sector regulators and entities governed by them. The judgement, has opened possibilities for others who are facing similar regulations across the financial services industry, say legal experts. Pavan K Vijay of Corporate Professionals said, “They (MCX-SX) have shown the way. Others might also look to use similar structures to bring down holdings for compliance. Competition is good for everyone, as long as the new players expand the pie, rather than eat into the existing market.” The court set aside an order by the Securities and Exchange Board of India (Sebi), which had rejected the divestment process followed by MCX-SX, that involved several steps, including a capital reduction scheme, an issue of warrants and several buyback agreements. The court held existing regulations do not limit the modes of divesting stake. Sebi’s lawyers said they will study the order thoroughly before deciding on an appeal. (For details log on to : http://business-standard.com/india/news/mcx-sx-verdict-may-create-ripples-across-financial-sector/467926/)
MUTUAL FUNDS FOR RELAXED QFI NORMS
MUMBAI: Mutual Fund marketers are hoping that the scope of section 80C is increased so that investors can invest more in ELSS schemes. Currently, the ceiling is R1 lakh with an additional R20,000 allowed for investments in infrastructure bonds. MF players also hope the finance minister reduces dividend distribution tax (DTT) on income funds. They also hope that norms for investments in mutual funds by qualified foreign investors (QFI) are eased and that taxes for feeder funds investing overseas are rationalised. Speculation is rife that STT rates may be brought down in this Budget, which will benefit mutual fund investors, who currently pay an STT of 0.125% for delivery-based transactions of units of equity oriented mutual funds (EOFs). EOFs are classified as funds that invest at least 65% of their corpus into equities. (For details log on to : http://www.financialexpress.com/news/mutual-funds-for-relaxed-qfi-norms/924355/)
D-STREET SEEKS MARKET-FRIENDLY MEASURES TO BOOST INVESTMENTS
MUMBAI: The Street will be closely watching finance minister Pranab Mukherjee when he presents the Union Budget on Friday. Apart from measures to boost the economy, its wish list includes a reduction in transaction costs and tax benefits that would encourage equity investments. As is the case every year, any mention of securities transaction tax (STT) in the Budget will be keenly followed. Ever since STT was introduced in the Union Budget 2004-2005, market players have been demanding either a complete rollback or at least a partial reduction in the rates. Currently, STT is charged at 0.125% for delivery transactions and 0.025% on non-delivery trades. In derivatives (futures and options), STT is pegged at 0.017% and goes up to 0.125% if an option is exercised. (For details log on to : http://www.financialexpress.com/news/dstreet-seeks-mktfriendly-measures-to-boost-investments/924361/)
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