[aaykarbhavan] Business standard news updates 16-7-2013

RBI squeezes liquidit

LAF capped at ₹ 75,000 cr, marginal standing facility rate increased 200 bps to rein in rupee BS REPORTER Mumbai, 15 July In a move to check the currency's volatility, the Reserve Bank of India has decided to lower rupee liquidity in the system by capping the liquidity adjustment facility at ( LAF) ₹ 75,000 crore from Wednesday. As a result, the marginal standing facility ( MSF) rate has been raised 200 bps to 10.25 bps. The MSF rate is considered a penal rate and banks avail of this as a last resort. Accordingly, the bank rate also stands adjusted at 10.25 per cent. RBI has also decided to conduct open- market sales of government securities worth ₹ 12,000 crore on July 18 which will further suck rupee liquidity out of the system. The move also raises concerns over the continuation of the policy- easing path that had been adopted by the central bank, as it has now decided to cut the comfortable liquidity the market had been enjoying. As an immediate impact, overnight rates, hovering around seven per cent, will shoot up. Also, yields on bonds across maturities will harden. "The market perception of alikely tapering of the US' quantitative easing has triggered outflows of portfolio investment, particularly from the debt segment," RBI said in a late- evening press statement. Foreign investors pulled out nearly ₹ 8,500 crore from the debt market in the past fortnight amid concerns over a falling rupee. Turn to Page 20 > FINANCE 7 > >Firms can use ECB to repay loans for foreign ventures Liquidity adjustment facility Rupee vs dollar Inverted scale POLICY REVERSAL? Alookatborrowings under LAFand the rupee's movement so far this year RBI Governor D Subbarao met FM P Chidambaram on Monday and discussed the macroeconomic situation 4 >

 

Firms can use ECB to repay loans for foreign ventures BS REPORTER Mumbai, 15 July The Reserve Bank of India (RBI) on Monday said companies from manufacturing, infrastructure and hotel sector having ventures abroad can raise money through external commercial borrowings (ECB) to repay loans taken for foreign investments and acquisitions. This is a step to boost flow of foreign exchange into the country. At present, Indian companies in manufacturing, infrastructure and hotel sectors are allowed to avail of ECBs to repay outstanding rupee loans. They are also permitted to use ECB proceeds for fresh rupee capital expenditure under the approval route. ECB raised under this route is capped at $10 billion. RBI has put conditions to use ECB money to pay- off debt. ECB can be used to pay back loans ( having average residual maturity of five years and above) from domestic banks to invest in foreign joint venture and wholly- owned subsidiary ( WOS). ECBs availed of under the scheme will have to be repaid from foreign exchange earnings from the foreign JV, WOS and assets. ECB usage has been linked to the average foreign exchange earnings in the past three financial years. Alternatively, companies can submit assessment for average foreign exchange earnings they can generate from the JV/ WOS/ assets abroad for the next three years. This assessment has to be certified by any statutory auditors, chartered accountant, certified public accountant, categoryImerchant banker registered with Securities and Exchange Board of India. An investment banker outside India registered with the appropriate regulatory authority in the host country could also provide such certification. The past earnings like dividend, repatriated profit and other forex inflows like royalty, technical know- how, fee, etc, from overseas ventures ( JV/ WOS/ assets) will be treated as foreign exchange earnings. ECB can be used to pay back loans ( having average residual maturity of 5 years and above) from domestic banks to invest in overseas joint venture and wholly- owned subsidiary YES Bank row: HC allows Madhu Kapur to amend plea PRESS TRUST OF INDIA Mumbai, 15 July The Bombay high court on Monday allowed Madhu Kapur to file an amended petition that seeks to revoke the appointment of three new wholetime directors and questions the modalities by which YES Bank appointed three other directors recently. The court posted the matter for final hearing to July 29. On Madhus request for a direction from the court to the bank to share the minutes of the June 8 annual general meeting as well as the video recordings, the High Court, without giving any direction on the plea, asked the petitioner to write to the bank today ( Monday) itself and also asked the bank to reply by Tuesday. "You write a letter. If they refuse inspection and the court later during arguments finds that the refusal was wrong then we will pass adverse order," judge SJ Kathawala said. The petition alleged that the business at the banks annual general meeting held on June 8 was not conducted properly, saying the minutes did not have important details like the number of shareholders and the proxies present or why S L Kapur, who was neither ashareholder nor a director, was allowed to speak at the AGM. Hence, the petitioner sought to access the video recording of the AGM to ascertain facts. UPA comfortably placed as monsoon session nears BS REPORTERS New Delhi, 15 July The controversy over the sood security ordinance notwithstanding, the United Progressive Alliance ( UPA) seems comfortably placed on the cusp of the monsoon session of Parliament, to be held from August 5 to 30, with a slew of important legislation waiting to be cleared. While in the Lok Sabha the Congress has a sizeable number, in the Rajya Sabha, where it usually is on shaky ground, the UPA now looks comfortably set. It is likely to bag the support of 135 members, while the Opposition would be outnumbered with its 100. This would be the scenario, should the Samajwadi Party continue to support the UPA. Besides, the alliance has a new source of support. The Janata Dal ( United), which recently broke ranks with the National Democratic Alliance, on Monday publicly committed itself to supporting the government. Its nine members in the Upper House, would shift allegiance and support the UPA. The important pieces of legislation to be discussed in the session include the food security ordinance, insurance Bill, companies Bill, pension fund regulatory and development authority Bill, land acquisition Bill, Lok Pal Bill and banking law Bill. The food security ordinance is the most important. While the main Opposition party, the Bharatiya Janata Party, has questioned the UPA's decision to issue an Ordinance on food security, it also wants to make amendments before the Bill can be passed in Parliament. The BJP doesn't want to be seen opposing the crucial Bill. The BJP leaders are likely to help the Union government pass the Bills other than the food security ordinance, unless the government accepts the recommendations by the Yashwant Sinha- headed standing committee on finance. "The food security Bill is just one issue but the government would have to explain a lot on price rise, corruption, misuse of the Central Bureau of Investigation, state of the economy and devaluation of the rupee," said a senior BJP leader. Senior Congress leaders concede the UPA could be safe in terms of numbers but it does not solve the problem totally. " Even if we have the numbers, these are important bills. We can't pass them without a discussion. They need to be debated and discussed and cannot be passed in the din. Only when the Opposition agrees to let the house function and have a discussion, can the bills be passed." Congress 72 Bhartiya Janata Party 49 National Conference 2 RJD 2 AGP 1 CPI 1 SAD 3 Shiv Sena 4 AIADMK 5 TMC 9 CPM 9 TDP 5 NCP 6 DMK 7 Independent 8 Nominated 9 Samajwadi Party 9 JD( U) 9 Bahujan Samaj Party 9 HOUSE STRENGTH The numbers, as they stack up for and against the UPA in the Rajya Sabha, on crucial Bills Sebi approves Neyveli Lignite compromise TE NARASIMHAN Chennai, 15 July The Securities and Exchange Board of India ( Sebi) has agreed to the proposal that Tamil Nadu government- run companies buy 3.56 per cent stake in centrally- run Neyveli Lignite Corporation ( NLC), to meet the public shareholding rule of no more than 90 per cent to be held by the promoter. The Centre, which has 93.56 per cent stake, had proposed to divest per cent in the open market and this had triggered an indefinite strike by all the worker unions in the Corporation, from July 5, which said it was a precursor for privatisation. The state government had supported the unions, denounced the Union's move and then offered its own undertakings buy the required number of shares as an alternative. With the announcement of the Centre's and Sebi's okay, the joint strike by the worker unions ( there are 17,500 workers at NLC) has also been called off. State chief minister J Jayalalithaa made the announcement on behalf of both governments. She said the agreement was done in Mumbai; four government companies would together spend ₹ 500 crore to buy the said stake. These are the Tamil Nadu Industrial Development Corporation, State Industries Promotion Corporation of Tamil Nadu, Tamil Nadu Urban Finance & Infrastructure Development Corporation and Tamil Nadu Power Finance & Infrastructure Development Corporation. "The victory is due to my government's continued action, my own independent steps, workers struggle and due to the united voice of the people of the state," declared Jayalalithaa. NLC is also an important source of electricity for Tamil Nadu, which faces a daily shortage, at the present level of demand, of 4,000 Mw. Of the generation from NLC units of 2,490 Mw, the share of Tamil Nadu is 1,178 Mw. The labour unrest had stopped all this. It should be noted that apart from Jayalalithaa, all other political parties in the state had the same attitude on the Centre's move. After Jayalalithaa wrote to the Prime Minister on her counter- offer, on July 7, the latter replied on July 12, asking her government to nominate anodal officer to finalise the said transaction. The CM directed a team from the state to meet the Union government and Sebi officials. The state team met the Union's secretary, department of disinvestment, on July 10 and discussed the details. Then came Monday's meet in Mumbai and the victory announcement. Previous attempts to divest NLC shares to private investors, in 2002 and 2006, had to be aborted due to the pressure from trade unions and from the state government. The government is required to bring down its stakes in state- owned companies below 90 per cent before August 9 to meet the minimum public shareholding requirements. The deadline for private companies to meet the norm— of 75 per cent in their case — was June 3. Sebi imposed various restrictions on shareholder rights of company promoters who did not comply with the rules. Workers call off strike; four Tamil Nadu government undertakings would buy Centre's shares, earlier to be divested in market, for ₹ 500 crore Government holding (%) Ircon Intl. 99.73 Haryana Fin. Co. 99.36 HMT 98.88 FACT 98.56 National Fertilisers 97.64 Scooters India 95.38 Neyveli Lignite 93.56 AndrewYule & Co 93.30 ITI 92.98 ITDC 92.11 STC 91.02 Hindustan Photo Films 90.68 PSU that are yet to comply with the MPS requirement Approaching deadline Neyveli Lignite shareholding Some respite THUMBS UP Agrees to Centre, Tamil Nadu government's proposal for state PSUs buying enough stake to meet 90% cap for promoter holding Compiled by BS Research Bureau Source: Capitaline & BSE 93.56 Govt of India %0.06 FII 3.65 LIC 2.73 Others As on March 2013

 

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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
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