| Bankers sing FM tune, agree to cut interest rates |
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BS REPORTERS
New Delhi/ Mumbai, 3 July After resisting for several months, despite the central bank's prodding, banks have finally signalled they are willing to cut their base rate — the benchmark lending rate to which all the loan rates are linked. The change of heart happened after Finance Minister P Chidambaram held a meeting with chief executives of publicsector banks in New Delhi on Wednesday. Though the meeting was meant to review banks' first- quarter performance, the finance minister made it clear at a press conference that lenders had the scope to cut interest rate. "I impressed upon the banks... that RBI had cut rate by 125 basis points and some part of that should be passed on to customers. The base rate of SBI is 9.7 per cent. The average base rate of other banks is 10.2 or 10.25. We have asked them to take a look at base rates," Chidambaram said. After the meeting, Bank of India, one of the largest publicsector banks, announced a 25- basis- point cut, to 10 per cent. This will come into effect from Monday. Other banks are expected to follow suit. Most large lenders — Bank of Baroda, Punjab National Bank, Canara Bank and Union Bank of India —have their respective base rates at 10.25 per cent. "The scope to cut the rate is limited, but there may be a reduction of 10- 25 basis points when banks review their base rates this month. As credit demand picks up and profit margins improve, interest rates can be reviewed again," Indian Overseas Bank Chairman M Narendra said. State Bank of India, however, is unlikely to do anything. " We are already at the lowest, at 9.7 per cent (base rate). Other banks have been asked to come to our level. Our home- loan rate is 9.95 per cent, while those of all else is 10.2 per cent. We are ahead of the curve," SBI Chairman Pratip Chaudhuri said. Chidambaram said banks did say that the room to pass on RBI's repo rate cut was restricted. " Nevertheless all assured me they would review their base rates in July and take appropriate decisions. Reduction in rates will be a powerful booster to the economy and credit growth," he added. BoI reduces base rate 25 bps; others to follow suit (From right) Finance Minister P Chidambaram, SBI Chairman Pratip Chaudhuri and PNB CMD K R Kamath, in New Delhi on Wednesday TOUCHING ALL BASES Current base rates of various banks (%) State Bankof India 9.70 HDFCBank 9.60 ICICI Bank 9.75 IDBI Bank, PNB, Union Bank, BankofBaroda, Canara Bank 10.25 Bankof India 10.00* *Wef July 8 Source: Banks PHOTO: SANJAY K SHARMA |
| NBFCs get breather on fund raising via NCDs | |
BS REPORTER
Mumbai, 3 July The Reserve Bank of India ( RBI) on Wednesday gave a breather to nonbanking financial companies (NBFCs) on norms regarding raising funds through privately placed non- convertible debentures (NCDs). Last week, RBI had said NBFCs and primary dealers ( PDs) that raise money through privately placed NCDs should keep a gap of minimum six months between two private placements and the number of investors should not exceed 49. The central bank in a clarification issued on Wednesday deferred the six- month gap clause and said the appropriate gap would be reviewed. It added the guidelines issued last week would not be applicable to PDs as they have obligations in government securities market. However, it has left the cap on the maximum number of investors in private placement unchanged. NBFCs' boards should approve a policy before September with regards to planning and periodicity of private placements of NCDs. NBFCs welcomed the move. However, they said capping the number of investors would be a problem for the companies which raised money through retail resources. "There are many companies that raise money through retail and they will be impacted including bigger NBFCs" said R Sridhar, chairman, Finance Industry Development Council ( FIDC), a self regulatory body for asset financing companies. " Companies will have to look at alternative resources, so ultimately, the cost of funds will go up and it has to be passed to borrowers." He also said when there were capital adequacy norms in place, there shouldn't be any restrictions on raising resources. "For large NBFCs, the removal of periodicity restriction is certainly abreather. Most of them do multiple issuances in the year," said Prakash Agarwal, associate director, financial institutions, India Ratings and Research. "Capping the number of investors and putting a floor on minimum subscription amount can be an issue for some smaller non- deposit taking NBFCs and gold loan companies that have traditionally relied on raising funding through retail debentures." In today's clarification, RBI also said core investment companies could raise the money through NCDs for the group and parent companies. RBI in last week's order had banned NBFCs to deploy the money raised by privately placed NCDs in the parent or group company of NBFC. The central bank deferred the sixmonth gap clause and said the appropriate gap would be reviewed | | Mutual funds: A selective saving grace | |
Twenty years on have they been a success? The answer depends on who you are asking Two decades after the Indian mutual fund industry began, the obvious question to ask is... well, that's the problem, actually. What is the obvious question to ask? In general terms, I guess one should ask whether ( or to what extent) mutual funds have achieved their goal. However, there can be no consensus on what that goal was. Along the way, Indian mutual funds have collected a variety of goals, some stated explicitly and others implicit. Depending on what's important to you and who you are, you might decide whether the funds have succeeded or failed.
One can look at the impact of Indian mutual funds on two separate groups of people — those who have invested in them, and those who could have invested in them but didn't or couldn't. And then there's the impact on the economy at large. An important part of the reason is the question of why we consider 2013 the 20th anniversary of the Indian mutual funds business even though the Unit Trust of India – UTI Mutual Fund's ancestor – was founded in 1964 and during the eighties, a whole host of public sector banks and insurance companies launched mutual funds. The reason is that these outfits launched products that they called mutual funds, but they weren't actually funds. For the most part, their so- called funds were deposit- like products, which had a fixed tenure and were seen by consumers as just another product – or scheme, which was the chosen word – from a government organisation. In the mindset that savers had in the eighties, there was little difference between a post office deposit and a mutual fund launched by, say, Canara Bank. Eventually, this confusion came back to bite some of this issuers hard when it turned out that the managements of these worthy organisations were also equally confused. They had issued guaranteedreturns mutual funds, which eventually had to be paid out of the organisations' own funds. Clearly, these schemes were not mutual funds. Still, by the late eighties, some of them had launched at least some products that were like modern equity mutual funds in concept and execution. UTI's Mastershare and Canbank's Canshare and Cangrowth were notable examples. Even so, it was only when private and foreign mutual funds were allowed from 1993 that a broad- based, competitive mutual fund industry was created. The basics of customer service and transparency, like daily calculation of net asset value ( NAV) were started. The biggest innovation was the launch of open- ended funds. Given the poor market mechanics of the time, announcing daily NAVs and redeeming investors' funds within three days, any time they ask for it, were the kind of innovations that actually created the modern mutual fund industry. The old public sector faux- funds either died out or eventually shaped up. But how far did the funds succeed in building a market for investments? During these two decades, the total assets managed by the industry has grown from two per cent to eight per cent of the gross domestic product (GDP). This certainly looks like decent growth and in a sense, it is. But there is one more number that one must look at and that's the growth of equity assets. The reason is that the mutual fund industry is really two separate industries: aretail- oriented equity investment management industry and a very different wholesale, corporate deposit service, that comprises the fixed- income funds. There is some overlap but this is the basic division. Inherently, there's nothing wrong with this — parking large amounts of corporate cash is an important service in a financial system and mutual funds do it better than banks. Still, on running the numbers, we find that in 1993, equity assets were 1.2 per cent of the GDP, while now they are 2.2 per cent. This isn't significant growth. If the original intent was that funds would allow household savings to flow into equity and the returns from well- managed equity investments to flow back to households, then we haven't reached very far in doing this. One, however, has to contend with the nature of the equity investments culture in India. In all these years, the Indian investor sees equity as a punting vehicle where long term means a few months or a year. The inherent variability of equity- backed investments has meant that it's seen as a trading rather than a savings asset. Ideally, Indian mutual funds would have had a larger corpus of equity funds with all of it coming from steady systematic investment plan investments of retail investors. More, the retail investors should not just be from the big cities but smaller ones as well. This is where the glass is half- empty, and is likely to remain so for a long time. Pick arandom person who is prosperous enough to save and you'll find that awareness and interest in mutual funds is far lower than it should be. But this is not the " investor awareness" issue that is often talked about. For the most part, it is a symptom of the same problem that we see elsewhere — financial investments in general are on the back foot compared to real estate or gold. We've settled into a mode of thinking in which financial vehicles are like deposits meant for parking money while real estate and gold are investments. This hasn't changed and is unlikely to change, while the fund industry has been busy earning its daily bread from easy- to- sell products and the government has focussed more on making funds safe and less on encouraging people to invest. If nothing much changes, then mutual funds will remain a niche product for corporations on one side and mostly high net- worth individuals on the other. In other words, for those who understand them and actively seek them out. The writer is CEO, Value Research We've settled into a mode of thinking in which financial vehicles are like deposits meant for parking money while real estate and gold are investments DHIRENDRA KUMAR REUTERS | | SAT rejects Gillette's public holding proposal | |
SAMIE MODAK
Mumbai, 3 July The Securities Appellate Tribunal ( SAT) on Wednesday dismissed an appeal filed by Gillette India against market regulator Securities and Exchange Board of India ( Sebi) for rejecting its proposal to achieve the minimum public shareholding requirement. The consumer goods firm, in which promoters, including Procter and Gamble ( P& G), hold an 88.76 per cent stake, had proposed a complex threestage approach, which included reclassification of certain promoters as public shareholders. The tribunal, which hears appeals against Sebi orders, also vacated the temporary stay it had granted to the company from complying with the 25 per cent public float requirement, the deadline for which has ended on June 3. SAT termed the company's proposal for reducing promoter holding as " dubious" and said the company should instead adopt a " simple and straight- forward approach" suggested by Sebi. "We fail to understand as to why the appellant ( Gillette) does not comply with the requirement of 25 per cent of public shareholding by adopting a simple and straight forward approach and offering the shortfall in 25 per cent public shareholding to the public through one of the methods elucidated by Sebi… instead of adopting a contentious and circuitous method which is against the spirit of law, as one proposed by them presently," said Jog Singh, presiding officer ( officiating), SAT. The SAT verdict is a setback to Gillette India, which will now have to sell up to 14 per cent shares to public investors through the offer for sale (OFS) route or some other Sebiapproved method. Shares of Gillette on Wednesday ended 2.46 per cent higher at ₹ 2,231.4 on BSE, while the benchmark Sensex lost 1.47 per cent to 19,177.76. JN Gupta, managing director, Stakeholders Empowerment Services, said: " It's a fair judgement. You can't just say that I was related to you yesterday and today, I am not related. As you require three years to become promoters, to become a nonpromoter also there has to be a cooling off period. Now, the company will have to sell shares in the open market to genuine public." The verdict is a victory for the market regulator, which has been against allowing companies reclassification of promoters for merely increasing the public holding. Sebi is of the view that such inter se transfer of shares doesn't lead to ' broad- basing or dispersing of ownership.' The SAT judgement could also impact a couple of more companies, including Blackstone- backed Gokaldas Exports, which, too, has reclassified some of its promoters as non- promoters. The tribunal has already asked Sebi to check whether there have been any instances of violation of minimum public holding norms by corporates. Amit Tandon, managing director, IiAS, believes more clarity is needed on the area of re- classification of promoters. "Leaving out certain cases, for the most part, the basis ( of reclassification) has remained fuzzy. Clear guidance which will then spell out the rights and the responsibilities of the ' residual' promoter' needs to be established. Reclassification impacts not just the capital markets, but also banks and other lenders, who may have taken commitments by way of personal guarantees or shortfall undertakings from promoters," he said. Turn to TSI, Page 19 > Setback for firms who reclassified promoter holding for increasing public float GILLETTE VS SEBI: NOT A SMOOTH SHAVE THIS >October 2012 Gillette India seeks Sebi guidance on its proposed ' sell down' transaction for meeting the 25 per cent minimum public shareholding requirement >November 2012 Sebi through a letter conveys Gillette India that its proposed transaction is not acceptable as means of achieving minimum public shareholding requirements >January 2013 Gillette India moves SAT, as its transaction is ' summarily rejected without assigning any reasons' >February 22 SAT directs Sebi to pass a 'reasoned order' for rejecting Gillette's proposal >April 15 Gillette again files application in SAT. The tribunal directs Sebi to give its decision in two weeks >May 30 SAT grants temporary stay to Gillette on MPS norm >June 12 SAT reserves judgment on Gillette India appeal >July 03 SAT dismisses Gillette appeal; uphelds Sebi order rejecting firms proposal | |
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| Adding ' Spice' to the banking licence |
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SOMESH JHA
New Delhi, 3 July On June 21 when the Reserve Bank of India (RBI) said incomplete applications or those received after July 1 would not be considered for new bank licences, anew company got registered itself under the Companies Act, and exactly 10 days later, it was in the queue at the central bank headquarters in Mumbai for a bank licence. SMobility, which was formerly known as Spice Mobility, got the new company, Smart Global Ventures Pvt Ltd, registered with the Registrar of Companies on June 21. On Monday, Noidabased Smart Global Ventures applied for a banking licence along with 25 other aspirants. Preeti Malhotra, currently executive director with S Mobility, registered Smart Global Ventures in her capacity as a non- executive director, according to documents reviewed by Business Standard. Asked why they chose a different name to apply for the licence, Malhotra said: "We want to instill the smart ways of banking by the usage of mobile banking technology and hence, we wanted to choose this name." She added the group, promoted by industrialist B K Modi, was hopeful of getting a licence as it had full " knowledge of smart banking". " We fulfil all the fit- and- proper criteria and have a clear track record. We already provide mobile banking solutions to all the customers of State Bank of India." However, according to a sector expert, who did not want to be named, the firm has no chance of getting banking licence as " they are not eligible at all as they have no reputation in the market". Interestingly, in a board of directors meeting held last Friday, the company had decided to shut two of its handset manufacturing units, both at Baddi, Himachal Pradesh. Also, the board had decided to transfer the mobile handset business to Spice Retail Ltd, a wholly- owned subsidiary of the company. "The board believes the assembly/ production will be unviable at the current low volumes and also due to fast changing technology", said a company notification. However, Malhotra said this had nothing to do with its application for the banking licence. RBI had received 26 new applications for banking licences on Monday. Of these, four firms — INMACS Management, Suryamani Finance, UAE Exchange and Financial Services and Smart Global Ventures — were among the surprise entries as little was known about them. BK Modi- promoted group registers company 10 days before the deadline |
Source Business line
From Oct, service tax to make LIC policies pricier
Rajalakshmi Sivam
Deepa Nair
Chennai/Mumbai, July 3:
From October, LIC policies will cost more. Life Insurance Corporation, which accounts for 83 per cent of the market share, will levy service tax of around 3 per cent on all non-unit-linked products beginning October 1.
This means if the annual premium for your money-back policy from LIC is Rs 10 lakh, you will have to pay an additional Rs 30,000.
While private insurers add a service tax component to the premium paid by customers, LIC has not been levying the tax on its popular endowment and money-back plans.
From October, however, all LIC policies will attract a separate service tax, says a senior company official. LIC collected Rs 1,87,000 crore as premiums towards its non-unit linked polices in 2011-12.
IRDA diktat
In a recent announcement, insurance watchdog IRDA (Insurance Regulatory and Development Authority) mandated that service tax shall not be included in the contractual premium, but collected from policyholder separately.
Speaking to Business Line, a senior official from LIC said, "We will start charging service tax of about 3 per cent upfront to policyholders from October 1, as prescribed by the IRDA.
"We are currently absorbing the service tax as a part of the policyholder's funds, as the share capital of the Government (which is our owner) is just around Rs 100 crore."
He further explained that when service tax is charged separately, LIC may be able to pay higher bonuses on the policies.
All along LIC has been paying the service tax from the money in the policyholders' account (which holds the premium collected and income from investments). It is the surplus in this account that is declared as bonus on traditional plans.
Customers may, however, see this move only as an additional burden.
A few LIC agents whom Business Line spoke to said the service tax was a deterrent particularly for immediate annuity plans and single premium products where the premium is usually large.
"LIC may lose the advantage over other traditional plans from private insurers now, and though this may come as a shock to customers initially, they will slowly get accustomed to the new normal", said an LIC agent.
rajalakshmi.sivam@thehindu.co.in
deepa.nair@thehindu.co.in
(This article was published on July 3, 2013)
Source The Hindu
Award "just compensation" in motor accident cases: apex court
J. Venkatesan
Law values life and limb in generous scales, says Bench
The Supreme Court has asked the Motor Accident Claims Tribunals and High Courts to be liberal and award "just compensation" to claimants in motor accident claim cases.
A Bench of Justices P. Sathasivam and M.Y. Eqbal said, "It is true that determination of just compensation cannot be equated to a bonanza. On the other hand, the concept of just compensation suggests application of fair and equitable principles and a reasonable approach on the part of the tribunals and the courts."
The Bench said that the determination of quantum in motor accidents cases must be liberal "since the law values life and limb in free country in generous scales."
Writing the judgment on Tuesday, Justice Sathasivam said: "The adjudicating authority, while determining the quantum of compensation has to take note of the sufferings of the injured person which would include his inability to lead a full life, his incapacity to enjoy the normal amenities which he would have enjoyed but for the injuries and his ability to earn as much as he used to earn or could have earned. While computing compensation, the approach of the tribunal or a court has to be broad based and sometimes it would involve some guesswork as there cannot be any precise formula to determine the quantum of compensation."
In the instant case, appellant S. Manickam sustained injuries while alighting from a bus due to the negligence of the driver, resulting in amputation of his right leg in January 1997. He claimed a compensation of Rs. 21 lakh but the Tribunal directed the Metropolitan Transport Corporation to pay a compensation of Rs. 9, 42,822. On an appeal by the Corporation, the Madras High Court reduced the award to Rs. 6,72,822. The present appeal is directed against this judgment.
Allowing the appeal in part, the Bench said: "altogether the appellant is entitled to a total compensation of Rs. 8, 52,822 with interest at the rate of 9 per cent from the date of claim petition till the date of deposit."
Keywords: motor accident cases, compensation
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