NEW DELHI: With growth being his top priority amid grim economic data, Prime Minister Manmohan Singh may unequivocally support the finance ministry’s stance favouring another rate cut by the Reserve Bank of India (RBI) at the June 18 policy review. This comes in the wake of senior RBI officials sending out mixed signals on this front last week.
Sources in the PM’s economic advisory council said Singh, who took a series of steps last week to salvage investments in infrastructure and manufacturing, is convinced that monetary easing was imperative.
Singh’s view, likely to be conveyed to the central bank in informal confabulations, stems principally from the worrisome contraction (0.3%) in manufacturing output in the March quarter. What bolsters the case for a rate cut is that the fall in core inflation to below 5% and the expectation that it would tread a flat trajectory in coming months.
A rate cut is seen also because of the steep fall (up to 35%) in global prices of major commodities including crude oil, coal, copper and aluminium since January. Prices are expected to remain subdued in the near term due to the slowing growth in China, the world’s largest commodities consumer.
The RBI cut its short-term lending rate or repo rate by a larger-than-expected 50 basis points in April. But subsequently the country’s economic growth fell to 5.3% in fourth quarter of the last fiscal – a nine year low, and much below expectations of the government as well as the central bank.
While the RBI was widely believed to be weighing another rate cut, deputy governor KC Chakrabarty last week surprised the markets by saying that the economic slowdown was not primarily due to a high interest rate regime but for a variety of other reasons as well.
Economic affairs secretary R Gopalan and chief economic adviser Kaushik Basu last week pitched for lower interest rates.
COMPETITION WATCHDOG MAY LOOK AT ALL SECTORS
NEW DELHI: A corporate affairs ministry note prepared for a group of ministers has sought to bring all sectors of the economy under the Competition Commission of India’s (CCI) purview. Objections to that by the Department of Financial Services (DFS) and the Department of Telecommunications (DoT) have been contested. The DFS and the DoT had asked for the banking and telecom sectors to be exempted. To ensure no conflict between the CCI and sector regulators, the note has sought amendments in the Competition Act so that coordination between them becomes “mandatory” through suitable provisions added to the Act and the relevant sector-wise laws. It has suggested the Cabinet committee on competition to be set up under a proposed National Competition Policy be the forum of last resort and be empowered to give directions in the event of any difference of opinion between the CCI and a sector regulator on competition-related issues. (For details log on to : http://www.business-standard.com/india/news/competition-watchdog-may-look-at-all-sectors/476953/)
MNCs GET FLEXIBILITY IN TRANSFER PRICING
NEW DELHI: The government has allowed multinationals flexibility in valuing their transfer of intangibles such as brand to their Indian subsidiaries without any fear of the tax department. The government hopes it will dispel the fears that Indiawas gunning for foreign companies after it changed income tax law retrospectively and announced tough tax avoidance rules. The new rule will allow multinationals to use any arms-length methodology to value intangibles such as brand name, goodwill, and dealer network that are transferred to their Indian subsidiary, withdrawing any discretion to the tax officer to question the value so determined. “The government has already introduced advance pricing arrangement in the budget to bring down tax litigation and give certainty to taxpayers…the rule complements this,” an I-T department official said. This is also expected to help check the unusually high litigation in respect of transfer pricing. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/mncs-get-flexibility-in-transfer-pricing-move-will-dispel-fear-among-foreign-companies/articleshow/14007012.cms)
PUBLIC SECTOR BANKS TOLD TO GET TOUGH ON DEFAULTERS
NEW DELHI: Concerned at the spurt in bad loans of public sector banks (PSBs), the Union finance ministry has asked them to clearly turn down requests for more loans or facilities from wilful defaulters and to also bar promoters of these companies from getting institutional finance to float new ventures for five years. Banks and other financial institutions should make formal complaints against auditors found negligent or deficient in auditing the books of borrowers with the accounting regulator, The Institute of Chartered Accountants of India, said a ministry official. To check fresh slippages in recovery of dues, banks have been advised to devise a strategy for minimising non-performing assets (NPAs) and diversifying their portfolio by sticking to the limits prescribed for individual borrowers, as well as industries or sectors. A system will be put in place for regular review of credit quality to identify problems areas at an early stage. (For details log on to : http://www.business-standard.com/india/news/psbs-told-to-get-toughdefaulters/476963/)
YIELDS SEEN DOWN AS RBI GOES FOR OPEN MARKET OPERATIONS
MUMBAI: Yields on government bonds may ease as the Reserve Bank of India (RBI) will purchase Rs 12,000 crore worth of securities under Open Market Operations (OMOs) on Tuesday. On Friday, the central bank announced after market hours that it would buy 8.19 per cent bonds maturing in 2020, 8.79 per cent bonds maturing in 2021, 8.08 per cent bonds maturing in 2022 and 7.35 per cent bonds maturing in 2024, under OMO. The yield on the 10-year benchmark government bond closed at 8.35 per cent last week. The government had issued a new 10-year benchmark bond at a coupon rate of 8.15 per cent. Traders said yields may ease further to 8.2-8.25 per cent levels, following the bond purchase by RBI. Liquidity deficit in the system improved to Rs 80,000-70,000 crore last week, from above Rs 1 lakh crore a fortnight ago. This week, liquidity pressures may ease, as there is no bond sale auction scheduled according to the issuance calendar. Also, data on industrial production and inflation will be closely watched for rate cut signals. (For details log on to : http://www.business-standard.com/india/news/yields-seen-down-as-rbi-goes-for-open-market-operations/476938/)
FINANCE MINISTRY HOLDING WEEKLY MEETINGS TO MONITOR EXPENDITURE
NEW DELHI: Worried over high fiscal deficit, the Expenditure Department in Finance Ministry has started holding weekly review meetings to monitor expenditure and is also looking at the possibility of reducing Plan outlay. “We are trying to reduce the number of centrally sponsored schemes (CCS) by aligning them. Already a few ministries are doing that. The Expenditure Department is holding weekly review meetings… so that optimum utilisation (of fund) is made,” a Finance Ministry official said. In its bid to control expenditure, the Finance Ministry last month launched austerity drive and asked all ministries and departments to reduce non-Plan expenditure by 10 per cent. As part of the austerity drive, the government had banned creation of new posts, holding of meetings in five-star hotels and imposed curbs on foreign travel by officials. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/finance-ministry-holding-weekly-meetings-to-monitor-expenditure/articleshow/13996024.cms)
PRANAB MUKHERJEE TO MEET STATE-RUN BANKS HEADS; MAY DISCUSS CREDIT FLOW, NPA
NEW DELHI: Amid concerns over moderation in economic growth and rising bad loans, Finance Minister Pranab Mukherjee will meet on Tuesday with heads of public sector banks to discuss credit flow to productive sectors and review their performance in the last fiscal. The meeting will take stock of financial performance of the banks in 2011-12 fiscal, sources said, adding it would also dwell upon credit flow to productive sectors. Besides, focus of the meeting would also be on providing banking facilities to unbanked areas. The Finance Ministry would seek information about the progress on financial inclusion front carried out by individual banks. The Finance Ministry will deliberate on non-performing assets (NPAs), agriculture loan, credit to infrastructure sector and matters related to human resources in public sector banks, they said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/pranab-mukherjee-to-meet-state-run-banks-heads-may-discuss-credit-flow-npa/articleshow/13992535.cms)
NO-FRILLS, ZERO-BALANCE ACCOUNTS RISE OVER TWO-FOLD IN LAST 2 YEARS
MUMBAI: The number of no-frills or zero-balance account holders more than doubled to 103.21 million in the year to March 31, 2012 from 49.33 million in March 2010, RBI has said in its financial inclusion update. During March 2010-March 2012, total number of banking outlets grew to 1,47,534, from 54,258 outlets, the Reserve Bank said in the update on financial inclusion. The Reserve Bank (RBI) has launched the financial inclusion programme to provide financial services to people in unbanked areas. RBI’s approach to financial inclusion is aimed at connecting people with the mainstream financial institutions like banks, the apex bank said. “Goal of financial inclusion is better served through mainstream banking institutions as only they have the ability to offer the suite of products required to bring in effective or meaningful financial inclusion,” RBI said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/no-frills-zero-balance-accounts-rise-over-two-fold-in-last-2-years/articleshow/13997309.cms)
MACRO-ECONOMIC SITUATION CALLS FOR A PRO-GROWTH MONETARY POLICY
The RBI will be announcing its Mid-Quarter Review of Monetary Policy on June 18 in the backdrop of a complex, uncertain and volatile global and domestic macroeconomic scenario. Advanced economies have exhausted their fiscal and monetary stimulus options. Moreover, the stimulus which has already been administered by them is not resulting in favourable economic outcomes. Instead, it is only resulting in adverse market outcomes. The contours of European Monetary Union have made it almost impossible to administer monetary policy actions that are appropriate to all its members at the same time. Whether global markets experience a “risk-on” rally or a “risk-off” decline will be determined by the outcome of the new legislative elections in Greecescheduled on June 17, a day before RBI’s policy review. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3513117.ece)
BANK OF INDIA, EXIM BANK LOOK AT MYANMAR
MUMBAI: Bank of Indiaand Export Import Bank of India(Exim Bank) plan to establish presence in Myanmarthrough branches and representative offices, to push Indian investments and support growth in bilateral trade. This plan follows Prime Minister Manmohan Singh’s visit to Myanmarfrom May 27 to 29. Bank of India, a Mumbai-based public sector lender, plans to set up a branch in the neighbouring country. Senior BOI officials said this is a part of its efforts to expand presence in the East and far East Asia. It already has branches/subsidiaries in Singapore, Cambodiaand Vietnamand Indonesia, countries which are members of the Association of Southeast Asian Nations (Asean). Myanmaris a member of this group. The bank would approach Reserve Bank of Indiaand later the regulator in Myanmarfor approvals, the official said. However, he declined to give a time frame for the plan. (For details log on to : http://www.business-standard.com/india/news/bankindia-exim-bank-look-at-myanmar-/476937/)
PUBLIC SECTOR BANKS’ PROFIT GROWTH SLOWS TO 10.3% IN FY12
MUMBAI: Profit growth of public sector banks as a group slowed in FY12 compared with the previous year. This is mainly because they had to set aside more funds to cover loans which increasingly turned sour. Net profit of the 26 PSBs put together grew at a slower clip — 10.3 per cent — in FY12, as against 15.3 per cent in FY11. The central bank, in its latest macroeconomic and monetary review, has flagged the issue of loan quality deterioration in PSBs, attributing it to deceleration in economic growth and introduction of system-driven identification of bad loans. The slow profit growth of PSBs is reflective of this phenomenon. In absolute terms, net profit of PSBs in FY12 aggregated Rs 49,513 crore (Rs 44,901 crore in FY11 and Rs 38,948 crore in FY10). Leading the pack in profit growth is India’s biggest lender, State Bank of India, with its net profit rising by a robust 42 per cent to Rs 11,707 crore in FY12. The top five PSBs in terms of percentage growth in net profit are: SBI, followed by Allahabad Bank, Dena Bank and Bank of Maharashtra(31 per cent each); and Syndicate Bank (25 per cent). (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3513116.ece)
MUCBF APPEALS CKP COOP BANK DEPOSITORS NOT TO WITHDRAW FUNDS TO AVOID RBI ACTION
MUMBAI/THANE: Stepping in to support the CKP Cooperative Bank, Maharashtra Urban Co-op Banks’ Federation (MUCBF) has appealed the bank’s depositors not to withdraw their deposits, else a moratorium from the RBI was imminent. Addressing the depositors of the troubled bank here today, chairman of the Federation Vidyadhar Anaskar said that unlike some other banks, there has been no swindling of funds in this bank and the Reserve Bank recently appointed an administrator for some violation of norms by the previous Board of Directors. However, the RBI action led to many depositors withdrawing their funds with about Rs 100 crore being withdrawn since the administrator was appointed. Anaskar told depositors that the bank’s position was sound. However, if the depositors continue to withdraw, the bank may face liquidity crunch and in that case, the RBI could impose moratorium and put a cap on further withdrawals. He also said that the Federation had never taken up the case of any co-op bank against which the RBI had taken action but in case of CKP Bank the issue was different and hence the Federation was supporting it, he said. The bank itself had also come up with an advertisement recently saying that its position was sound and the depositors’ money was secured. (For details log on to : http://www.business-standard.com/india/news/mucbf-appeals-ckp-coop-bank-depositors-not-to-withdraw-funds-to-avoid-rbi-action/476896/)
REPCO BANK LOOKS AT RBI POLICY TO OPERATE AS COMMERCIAL BANK
CHENNAI: Chennai-based Repco Bank, a co-operative bank under the Union Ministry of Home, is waiting for the Reserve Bank of India (RBI) to come up with licensing policy, to join the group of commercial banks in the country. The bank is expecting an infusion of around Rs 100 crore in the next three years, to double its business from the present Rs 7,061 crore to Rs 15,000 crore by 2014-15, said a senior executive from the bank. The bank was incorporated as The Repatriates Co-operative Finance and Development Bank in 1969 by the Government of India with the main objective of rehabilitating repatriates from Burmaand Sri Lanka. The Board of Directors appointed by Centre governs the operations of the institution under administrative control of the Ministry of Home Affairs, under special powers conferred in the byelaws. It would look at opportunities to work as a commercial bank under the RBI regulations, though the administrative control would remain with the Ministry of Home, said R Varadarajan, chief executive and managing director of Repco Bank. (For details log on to : http://www.business-standard.com/india/news/repco-bank-looks-at-rbi-policy-to-operate-as-commercial-bank/476888/)
BORROWING BY BANKS PLAGUES EUROPE
Europe may have sidestepped its latest catastrophe, at least for the moment, by hammering out a euro 100-billion bailout plan for Spain’s failing banks over the weekend. But the intervention will do little to address the problem that continues to plague the Continent’s increasingly vulnerable financial institutions. Namely: a longstanding addiction to the borrowed money that provides the day-to-day financing that they need to survive. It is a weakness that afflicts many Euro zone banking systems — most notably that of Italy, whose fragile economy is even bigger than Spain’s and whose banks also rely heavily on borrowed money to get by. In Spain’s case, the flight of foreign money for safer harbours, combined with a portfolio of real estate loans that has deteriorated along with the Spanish economy, led to the collapse of Bankia, the mortgage lender whose failure set off the country’s current banking fiasco. (For details log on to : http://www.business-standard.com/india/news/borrowing-by-banks-plagues-europe/476971/)
BANKS TOLD TO GO FOR RADICAL RETHINK
COPENHAGEN(DENMARK): Banks need a radical overhaul to boost profitability against the backdrop of tougher new rules and a grim economy — and they expect their customers to share some of the pain. That is the view of bankers, investors and regulators meeting in Copenhagenthis week to assess how banks need to adapt to meet new regulations that require them to hold more capital and to cope with the deepening Euro zone debt crisis. “Let’s not waste a good crisis. Banks really need to focus on being quite radical in what they do,” David Hodgkinson, chairman of Allied Irish Banks and a former senior banker at HSBC, said on Friday. “It is easier to do things when times are tough than when you are in good times.” Bank bosses have been rethinking their business models since the global financial crisis erupted almost five years ago. However, many are now stepping up efforts as their return on equity (RoE), a key financial yardstick, is below their cost of capital. (For details log on to : http://www.business-standard.com/india/news/banks-told-to-go-for-radical-rethink-/476972/)
NEW INSURERS MAY NEED MORE START-UP CAPITAL
MUMBAI: Promoters of new insurance companies would have to come up with nearly twice the statutory capital requirement. The insurance regulator has indicated to prospective entrants that the mandatory Rs 100-crore start-up capital for life and general insurance is too low and companies will have to start with at least Rs 200-250 crore. The reasoning behind this is that the capital requirement was fixed more than a decade ago when the Insurance Regulatory and Development Authority Bill was passed in 1999. Since then, start-up expenses of a company have increased substantially. Among the prospective entrants, Videocon has tied up with Liberty Mutual and has already announced its intent to start with a capital base of $67 million, which is around Rs 350 crore. Automaker Mahindra & Mahindra is reported to be in talks with USinsurer Travellers to set up a general insurance company. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/new-insurers-may-need-more-start-up-capital/articleshow/14009389.cms)
WEIGH YOUR OPTIONS BEFORE CHOOSING SINGLE PREMIUM PLANS
MUMBAI: The Life Insurance Corporation of India (LIC) has recently launched Jeevan Vaibhav, a single premium product, despite the the Union Budget excluding single premium products from insurance plans that qualify for tax breaks under section 80C. The insurance behemoth’s confidence seems to emanate from the popularity of single premium products among insurance customers. Even the Insurance Regulatory and Development Authority (IRDA) had reservations on this product category, though it has decided later to allow single premium policies to continue. And, it is not difficult to understand why they are in demand. The obvious advantage is the elimination of recurring payments – you don’t have to worry about a financial crunch in future depriving your family of a protection cover. It will also appeal to those with inconsistent or seasonal income flows. Moreover, if you are one of the lucky few to have been rewarded with a bonus this year, single premium plans act as a convenient investment avenue. This apart, since charges in such products are lower than regular premium plans, a larger portion of your premiums will be directed towards investment. Ceiling on commissions for single premium products is 2%, while annual administration charges are nil. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/weigh-your-options-before-choosing-single-premium-plans/articleshow/13996537.cms)
LIC SEEKS HIGHER EQUITY HEADROOM TO CASH IN ON TRADING OPPORTUNITIES
MUMBAI: Life Insurance Corporation, the country’s largest investor, wants higher equity headroom to cash in on trading opportunities and book profits. In an interview with ET, LIC Chairman DK Mehrotra indicated the present exposure cap of 10% in a single stock restricts it from managing its investment book more actively. “We have been investors since 1956, and over the years we have been picking up stakes in companies. When Irda (the Insurance Regulatory & Development Authority) came up with its guidelines in 2008-09, we had very small headroom left,” he said. “Companies where we are reaching 10% or are beyond 10%, we cannot trade in them, not even for booking profit. If I trade, as per the regulation, I cannot go above 10% again. That’s preventing me from booking profits in good scrips,” Mehrotra said. Irda, the insurance regulator, had said that rules could not be eased for just one company and there should be a level playing field in the industry. The rule says no insurer should own more than 10% in a company. Under the circumstances, if LIC offloads, say, 2% of its 12% stake in a firm, it cannot buy back the shares at a later date as the shareholding will be capped at 10%. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/lic-seeks-higher-equity-headroom-to-cash-in-on-trading-opportunities/articleshow/14008029.cms)
CARLYLE MAY ROPE IN EX-APAX INDIA HEAD
MUMBAI: Private equity (PE) giants are busy trying to fill the top deck of their Indian wings. After Temasek appointed investment banker Promeet Ghosh as managing director for India, the US-based Carlyle is in the process of appointing another MD for its Indiaoperation. According to sources, Carlyle is likely to bring Neeraj Bharadwaj, a veteran with more than a decade of experience in the sector, for its Mumbai office. A former Indiahead of Apax Partners, he’d left the company in 2009 to join Accel Partners. During his tenure, Apax made one of its largest investments in India, by acquiring about 15 per cent stake in Apollo Hospitals. Before coming into India, he was a partner with Apax in the US, with a focus on the technology segment. Prior to Apax, he’d worked with McKinsey & Co, Goldman Sachs and Morgan Stanley Mails to Carlyle’s spokesperson and to Bharadwaj did not elicit any response. Currently, Carlyle has two MDs in its Indiaoffice in Mumbai, Shankar Narayanan (Asia Growth Fund) and Devinjit Singh (Asia Buyout Fund), former mergers and acquisitions head of Citi India, who joined Carlyle in 2008. Carlyle had seen the exit of MD and Indiahead of its buyout fund, Rajeev Gupta, in January 2011. (For details log on to : http://www.business-standard.com/india/news/carlyle-may-rope-in-ex-apax-india-head/476947/)
RELIANCE CAPITAL GETS RBI NOD FOR MUTUAL FUND BUSINESS STAKE SALE
NEW DELHI: The Reserve Bank of Indiahas approved Anil Ambani-led Reliance Group’s Rs 1,450 crore stake sale in its mutual fund business unit to Japan’s Nippon Life. The diversified conglomerate’s financial services arm Reliance Capital is selling 26 per cent stake in RCAM (Reliance Capital Asset Management Company) to Nippon Life for Rs 1,450 crore – making it the largest ever Foreign Direct Investment (FDI) in the Indian mutual fund space. Sources said that RBI has cleared the deal, bringing it a step closer towards its completion. The transaction has already been cleared by the Competition Commission of India (CCI) and might be completed soon after achieving a couple of more remaining regulatory approvals, they added. “We have no objection to your company transferring 26 per cent of the issued and paid-up equity shares in RCAM to Nippon Life,” RBI communicated to the company in a letter dated June 7, 2012. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/reliance-capital-gets-rbi-nod-for-mutual-fund-business-stake-sale/articleshow/13992963.cms)
MF DISTRIBUTORS NEED TO BE PAID WELL FOR NEW BIZ
CHENNAI: With the markets plagued by low sentiment, Mr V. Ramesh, Deputy CEO, Association of Mutual Funds in India (AMFI), admits that adding investor base is always a challenge for mutual fund industry. In an interview to Business Line, Mr Ramesh, who has vast experience in the financial services industry, shares his thoughts on other key challenges faced by MF industry. Why are MFs struggling to add investor base both in terms of folios as well as in value? Is it due to excessive dependence on distributors? Mutual fund products are always sold and not bought. In a market situation like today’s, with the investor not sure of the stock market condition, selling MF products is an effort. This cannot be termed as distributor dependence. Distributor or no distributor, the major issue today is the market condition, besides other issues that have its impact in bringing in more clients into the industry. Therefore, at these times, adding investor base is always a challenge. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-markets/article3513105.ece)
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