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| Key Bills to be taken up as Parliament reconvenes today |
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New Delhi, 7 August A slew of Bills that will have a significant effect on India's financial landscape are likely to come up in the fiveweek Monsoon session of Parliament beginning tomorrow against the bleak landscape of deficient rainfall, a power crisis, a weak rupee and repeated downward revisions in the expected economic growth rate. The Public Procurement Bill 2012 (which will streamline all purchases by government and is expected to bring down corruption) and the Food Security Bill 2011 (which will provide vulnerable sections with free food grain) and the Microfinance Institutions (Development and Regulation) Bill 2012 to regulate the microfinance sector will be introduced in Parliament. Slated to be amended and passed are the Prevention of Money Laundering (Amendment) Bill 2011, the Companies Bill 2011 and the Banking Laws (Amendment) Bill. There is little clarity whether the Direct Taxes Code Bill will be tabled in this current session. The Bill sought to tax shareholder funds for life insurance companies at a corporate tax rate of 30 per cent as against the current rate of 12.5 per cent, but which Parliaments standing committee moderated and brought down to 15 per cent. As the government is eager to get as many Bills cleared as possible, the UPA is refraining from bringing Bills that involve contentious issues. Therefore, the Insurance Laws (Amendment) Bill and the Pension Fund Regulatory and Development Authority (PFRDA) Bill are unlikely to be tabled. The Insurance Bill seeks to raise the foreign direct investment limit (FDI) in the sector from 26 to 49 per cent but the proposal has been rejected by the standing committee, which says the capital requirements of the sector should be routed through the domestic market.The main opposition, the BJP, had agreed to the passage of the PFRDA Bill, provided an FDI cap of 26 per cent (the same as in insurance) was explicitly incorporated. In many ways, the government's credibility and the Prime Minister's authority rest on this session. The next session will be held against a background of several Assembly elections, including in Gujarat, and will be clouded by political issues. CRUCIALBILLS TO COME UP AND THEIR LIKELYFATE >The Companies Bill 2011: Introduces the concept of corporate social responsibility, a fixed term for independent directors, etc. Likely to be passed >Banking Laws (Amendment) Bill 2011: Removes the existing cap on voting rights of shareholders and enables easier bank mergers. Unlikely to be passed >The Prevention of Money Laundering (Amendment) Bill 2011: Expands the definition of offences under money laundering to include activities like concealment, acquisition, possession and use of proceeds of crime. May be passed >Land Acquisition, Rehabilitation and Resettlement Bill 2011 Defines acquisition for public purpose, consent of 80 per cent of displaced people needed, stipulates quantum of compensation and defines rehabilitation mechanism. Unlikely to be passed |
| Customs clearances atselect ports, airports now24*7 |
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New Delhi, 7 August The prime minister's office (PMO) has paved the way for round-theclock customs clearances at identified sea ports and airports. The four airports where the facility would be available are Delhi, Bangalore, Chennai, and Mumbai; for the four ports the locations are Chennai, Kolkata, Kandla and JNPT and Mumbai. Round-the-clock non-availability of customs clearances and other facilities at airports and sea ports is seen as a major constraint for global trade. The facility would be made available on a pilot basis, with customs operations and complementary services. With customs clearances, other government agencies, such as the concerned port or airport authority, drug controller, Food Safety and Standards Authority of India, quarantine and private players, Customs House Agents, banks and transporters, would also have to work 24x7 in tandem. "This would be initially for four months, after which efforts would be made to expand similar operations at other locations," the PMO said in a release. A notice in this regard would be issued by August 8, and operations would start August 25. The department of revenue will assess the pilot and proposed expansion of coverage, if required. The facility would be available for certain categories of imports and exports. For imports, the category "No assessment no examination" will be covered, accounting for 70 per cent of imports. The facility would be made available on a pilot basis, with complementary services The 24*7 customs clearances facility would be available for certain categories of imports & exports |
| State Bankwants benchmark prime lending rate scrapped |
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Mumbai, 7 August Led by State Bank of India — the country's largest lender —banks have asked the Reserve Bank of India to invoke the sunset clause on benchmark prime lending rate (BPLR), and has argued such a move will reduce interest rates for customers by 50-75 basis points as they will shift to base rate. BPLR is the erstwhile benchmark rate for all loans, and was replaced by base rate in July 2010. While all new loans were disbursed using base rate as the reference, it was not made mandatory for old customers —who were given loans in the BPLR regime — to shift to base rate. When the base rate was introduced in 2010, even then bankers had demanded the end of the BPLR regime by invoking the sunset clause. The demand for the sunset clause is being made again by banks at a time when the central bank is reviewing the loan pricing mechanism. A committee under RBI Deputy Governor Anand Sinha is looking into the issue of transparency in loan pricing and also studying the efficacy of base rate with respect to transmission of monetary policy. Banks had aggressively hiked BPLR in the last two years, following 13 interest rate increases by RBI between March 2010 and October 2011. The move was also aimed at encouraging borrowers to shift to the base rate regime. Bankers said borrowers were given loans at sub-BPLR rates while in the base rate regime. But a spread was added to the base rate. Yet, effective lending rate under base rate is still 50-75 bps lower than that of the BPLR regime. They said only about 30 per cent of the borrowers are yet to shift to the base rate despite continuing to pay higher interest. "There is an administrative cost in running the BPLR system," said a banker who is involved with the discussion on this matter with the regulator. "SBI has written to the central bank to invoke the sunset clause for all banks, which will not only benefit the banks but also reduce the interest rate burden of the customers." SBI's base rate is 10 per cent while its BPLR is at 14.75 per cent. In 2010, banks had requested RBI to invoke the sunset clause. The regulator refused, citing legal complications as the banks had entered into a contract, which needs to be honoured, while giving a loan, and the customer cannot be forced to shift to base rate. Banks have also asked RBI to allow them to review the base rate formula at least once in three years. When the base rate mechanism was introduced, RBI allowed banks to tweak the formula for one year. But the formula cannot be changed after one year. During interactions with bankers, it was also noticed by the regulator that banks were using various indicator to capture its cost of funds. The committee reviewing the loan pricing suggested that marginal cost of funds could be a better indicator for cost of funds. However, the proposal has not found favour with banks having higher current account and savings account deposit (as a portion of total deposits), as increase in marginal cost will not reflect the overall cost increase of the bank. Says customers would gain up to 75 basis points if they shift to base rate Bank Base rate BPLR (%) State BankofIndia 10.00 14.75 ICICI Bank 9.75 17.50 HDFCBank 9.80 18.30 Punjab National Bank 10.50 14.00 BankofBaroda 10.50 14.00 Union BankofIndia 10.50 15.00 Canara Bank 10.50 14.75 BPLR: Benchmark prime lending rate Source: Banks RATE CARD |
| Investmentbankers to follow uniform due diligence norms |
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Mumbai, 7 August Under pressure from the regulator, the Association of Investment Bankers of India (AIBI), the industry body for investment bankers (ibankers), has issued guidelines for its members to follow while conducting due diligence of companies planning to raise money through public issues. It has been a long-standing demand from experts to tighten norms governing investment bankers after several initial public offerings (IPOs) came under cloud since 2008. Nearly 80 per cent IPOs out of the 173 that hit the market since 2008 are trading below their issue price, show data compiled by BS Research Bureau. Also, promoters and manipulators are under regulatory scanner for trying to siphon off money from the companies. The move to have uniform due diligence norms is aimed at protecting investors and enhancing the quality of companies coming to the capital markets. "This manual will establish a high and uniform standard of diligence across the industry and thereby enhance the credibility of the issuer and the investment banking community," said AIBI. The framework is designed to help investment bankers make meaningful disclosures while drafting offer documents. It will also be a reference point for officials of the Securities and Exchange Board of India (Sebi), while probing investment bankers. Proper disclosures will help investors take informed investment decisions. The due diligence manual prepared by AIBI lays emphasis on physical verification of documents, cross checks and also focuses on material evidence. For instance, merchant bankers are advised to make calls to employees of the issuer company, conduct background checks of promoters and check their profile with rating agency CIBIL. Madhu Prasad, vice-chairman of AIBI, said, "This will ensure that merchant bankers follow a uniform set of rules while conducting due diligence. At present, due diligence procedure differs in every organisation." While Sebis code of conduct seeks bankers to conduct due diligence of a company, it does not specify any criteria. In a due diligence process, a merchant banker collects material information about the issuer company and discloses it in the offer document. On several occasions, the due diligence data published in the prospectus of companies has been faulty and misleading investors. Thus, as a self-regulatory initiative, the AIBI has prescribed certain basic rules to be followed by bankers while conducting due diligence. However, observers doubt the success of this initiative as only 59 of the 170-odd Sebi registered merchant bankers are members of AIBI. Sebi chairman U K Sinha told Business Standard in an interview this week that the regulator will keep up the pressure on investment bankers. "We are trying to put pressure on investment bankers and have asked them to be careful on pricing the IPOs," Sinha had said. The manual lays a lot of emphasis on verification of issuer company documents to ensure credibility. UPPING SURVEILLANCE ANTE Some ofthe procedures listed in the manual thatbankers will have to follow: |Interviews with employees of the issuer company |Site visits |Background check of promoters |Appointment of experts for carrying out checks and verifications |Proper documentation of all the records |Material disclosures to help take proper investment decisions The move is aimed at protecting investors and enhancing the quality of companies coming to the capital markets |
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Company Secretary, Chennai
email csarengarajan@gmail.com
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