[aaykarbhavan] Business standard news updates 18-12-2013

'McDonald's breached CLB interim order'

BS REPORTER New Delhi, 17 December The counsel of Vikram Bakshi, the joint venture ( JV) partner of American fast- food chain McDonald's in north and east India, on Tuesday told the Company Law Board (CLB) McDonald's had breached CLB's interim order by referring arbitration on the dispute between the company and Bakshi to the London Court of International Arbitration. The lawyer argued the company had been trying to oust Bakshi from the venture in various ways since 2008, adding this was part of the company's strategy to force Bakshi to sell equity at low valuation. CLB will take up the matter again on Wednesday. On Monday, lawyers of McDonald's told CLB the company could seek reference for arbitration, as the law didn't prohibit this, even if an appeal regarding the matter was pending in a different court. McDonald's had sent a notice regarding a dispute with Bakshi to the London Court of International Arbitration, about three months before it published a public notice announcing the end of Bakshi's term as managing director of Connaught Plaza Restaurants Pvt Ltd, the joint venture. In his application before CLB, Bakshi's counsel stated the termination notice was ex facie untenable. The application added the termination notice interfered with the course of CLB's judicial proceedings and was liable to struck down by CLB. In his application, Bakshi requested CLB to pass an order directing the initiation of proceedings against McDonald's for willful and intentional contempt. Earlier, Bakshi had said the attempt by McDonald's to terminate its agreement with him was illegal and not binding, adding it would have no bearing on the shareholding pattern (the partners hold 50 per cent each), board composition (both sides have two nominees) and the working of the company. Vikram Bakshi, partner of McDonald's in north & east India, has alleged the US chain was trying to force him to sell equity at a low value BS PHOTO

 

RBI's thumbs- down for exporters

NAYANIMA BASU New Delhi, 17 December The Reserve Bank of India (RBI) has apparently turned down a long- pending demand of exporters, to bring the sector under priority lending norms for both Indian and foreign banks. As a result, it is unlikely that this would be taken up during the monetary policy review on Wednesday. A committee on this issue was set up last year, headed by GPadmanabhan, executive director, RBI, which gave its report in May with recommendations. In addition to inclusion of exports in priority sector lending, the panel recommended an extension of the swap facility, setting up a nodal agency for borrowing in foreign currency from abroad on a pool basis and further lending to these companies in India at competitive rates. "RBI found these recommendations too lenient towards the exporting community and have decided to scrap it," a senior commerce department official told Business Standard. The official said the central bank was now considering another committee to " analyse and examine" demands made by other sectors to also come into the priority lending bracket. RBI is concerned that sectors deserving priority will lose attention if a large number of segments are brought into the category. The commerce and industry ministry has taken up the matter with RBI Governor Raghuram Rajan. The latter, it seems, has expressed apprehension that such a move could affect the flow of priority sector lending to other such sectors already under its ambit, such as agriculture, micro and small enterprises, and advances to weaker sections. Exporters have also taken up the matter with the finance ministry. Recently, Federation of Indian Export Organisations (FIEO) president Rafeeque Ahmed took up the matter with Finance Minister PChidambaram. " We have told them of the 40 per cent ( credit) allocation to the priority sector, keep five per cent separately for exports," said Ajay Sahai, director general of FIEO. It is not guaranteed that exporters would, under priority sector lending, get a lesser interest rate than now but it will make lending mandatory for banks. In other words, banks will have to give a certain percentage to the sector, Sahai added. Export credit as a percentage of total exports was down to 11.36 per cent at ₹ 185,803 crore in 2012- 2013 from 19.82 per cent in 2007- 2008 at ₹ 129,983 crore. Similarly, export credit as a percentage of net bank credit fell to 3.7 per cent in 2012- 13 from 9.8 per cent in 1999- 2000, according to official statistics. Currently, export credit interest is between nine and 11 per cent. State Bank of India, Canara Bank, Indian Overseas Bank and Bank of Baroda are among the top lenders. India- based banks and foreign banks with at least 20 branches in this country have to lend at least 40 per cent of their total net credit to priority sectors. These currently include agriculture, micro and small enterprises, and advances to weaker sections. For foreign banks with less than 20 branches, priority sector lending has to be 32 per cent of total net advances. At present, export credit is not a part of mandatory priority sector lending for domestic commercial banks and foreign banks with over 20 branches. Merchandise exports rose 6.3 per cent to $ 204 billion over the first eight months of this financial year. The government has set a target of $ 325 bn of exports, against $ 300 bn in 2012- 13. Declines to accede to plea, upheld by Padmanabhan panel, for priority sector tag; feels move would dilute claims of those needing it more After exporters, real estate companies are demanding a priority sector tag for loans to the low- cost housing sector. "RBI ( Reserve bank of India) should expand its scope of ' priority lending' to cover lending to developers involved in low- cost and affordable housing, as cheap funding is extremely critical for them to develop low- cost housing projects," says a report by the Confederation of Real Estate Developers' Associations of India and Cushman & Wakefield. The report, which comes ahead of RBI's midquarter monetary policy review scheduled for Wednesday, doesn't specify what is meant by low- cost housing. Budget 2012- 13 had provided interest subvention of one per cent on housing loans of up to ₹ 15 lakh, provided the cost of the house didn't exceed ₹ 25 lakh. Housing loans of up to ₹ 15 lakh to individuals already come under priority sector. Real estate companies want this to be extended to loans availed by developers. These companies also want RBI to declassify the real estate sector as high- risk. This, the report said, would be possible if the sector was given infrastructure/ core sector/ industry status. " Housing should be recognised on a par with the infrastructure sector and should be given cheaper project finance. Also, the roll- over facilities should be on a par with those of other industries," the report said. Real estate companies have said currently, the sector has a high risk weight of 1.25. Lowering of risk weights will result in lower interest rates on loans and increased availability of banking and financial institutional funds to developers, as well as individuals. The companies also want RBI to promote the secondary mortgage market through mortgage- backed securities and collateralised mortgage obligations, with safeguards to avoid a sub- prime crisis. BS REPORTER Realty firms seek priority sector status for low- costhousing

 

Central bank moots stringent norms on stressed loans BS REPORTER Mumbai, 17 December Amid stress rising in banks' credit portfolio, the Reserve Bank of India ( RBI) on Tuesday proposed guidelines to enable lenders to identify stress at an early stage. Banks would face increased provisioning for delayed identification of non- performing assets ( NPAs), while they would also be incentivised for early detection and resolution. In a discussion paper on early recognition of financial stress, the banking regulator proposed banks identify signs of stress before these loans turned into NPAs. It suggested such assets be classified as specialmention accounts ( SMA), if repayment was overdue for a month — no additional provisioning would be required for these. The central bank has sought feedback on its discussion paper by January 1 and expects to issue final guidelines by early 2014. Apart from asking banks to deal with stress more efficiently, RBI has also proposed aliberal framework for asset sales and to allow nonbanking finance companies (NBFCs), and private equity firms to participate in the auction process. Currently, a loan is classified as sub- standard — the first NPA category — if principal or interest payment is overdue for 91 days. Banks have to increase provisioning to 15- 20 per cent for sub- standard assets, against 0.4 per cent for standard advances. Within the SMA category, depending on the level of stress and the overdue period, three more sub- categories have been proposed. Notably, within SMA, a sub- category is to identify non- financial stress — fall in sales or operating profit below projection, return of three or more cheques within a month due to non- availability of funds or increase in frequency in overdrafts, among others. Also, RBI will set up a central repository of information on all loans of more than ₹ 5 crore value and make this available to all lenders. Banks and systemically important non- banking financial companies (with assets of more than ₹ 100 crore) will have to mandatorily give such information to RBI. " Banks will have to furnish details of all current accounts of their customers with outstanding balance ( debit or credit) of ₹ 1 crore and above," RBI said. The new norms have been proposed at a time of a sharp rise in NPAs, as well as debt recast, mostly by public sector lenders, over the past couple of years. The average gross NPAs of banks were 4.2 per cent of gross advances as on September 2013, a sharp increase from 3.4 per cent a year before, according to data compiled by RBI. Public sector banks contribute 86 per cent of the total NPAs in the banking system. Banks have been asked to form a joint lenders' forum and decide on a corrective action plan as soon as servicing of a loan becomes overdue for 61 days. Such a forum will be mandatory for all loans of ₹ 100 crore and above. Regarding making such a forum mandatory, RBI officials said in many instances, lenders were not aware about exposure of other creditors and status of loans. There have been cases where borrowers have payed one lender against another. The central bank has proposed such a forum, as well as action, if a loan is under stress for three quarters in a year due to non- financial reasons or remains overdue for more than 30 days ( but less than 60 days) for any two quarters during a year. Higher provisioning will be prescribed by RBI if lenders conceal the actual status of the account or fail to report the SMA status to the central repository. "The intention of this framework is not to encourage aparticular resolution option —restructuring or recovery, for example — but to arrive at an early and feasible resolution to preserve the economic value of the underlying assets, as well as lenders' loans," RBI said. The central bank has laid down three broad contours for corrective action plans — rectification, restructuring and recovery. Under the rectification method, banks will have to obtain specific commitment from borrowers, within a specific time period, to regularise the accounts so that those do not become NPAs. On the second method, RBI said: " Consider the possibility of restructuring an account if it is prima facie viable and the borrower is not a wilful defaulter; that is, there is no diversion of funds, fraud or malfeasance." The recovery process has been advised only after the first two steps fail to yield results. The discussion paper also proposed steps likely to boost stressed asset sales to asset reconstruction companies. Not only are NBFCs allowed to sell their bad loans but these entities, along with private equity firms, are now also allowed to participate in the NPA auction process and will be provided authority under the stringent Sarfaesi Act. RBI officials said the main objective is that creditors should recover their dues. " It is very much relevant for public sector banks, which bear a much higher burden of NPAs and restructured loans. We also want to give a reasonable deal for promoters hit by circumstances," an official said. Banks to flag loans overdue for 30 days as stressed; feedback on suggestions in two weeks EASING THE STRESS RBI' s proposals LENDERS' PANEL: Early formation of a lenders' panel with deadline for resolution of the issue INCENTIVES: For lenders agreeing collectively and quickly to a plan PROVISIONING: To be accelerated if no agreement can be reached FUTURE TROUBLE: Expensive future borrowings for those not cooperating with lenders in resolution NPA SALE: Lender can spread loss on sale over two years PARTIES: Sector- specific companies/ private equity firms encouraged to play active role in stressed asset market Sahara to seek clarity from SC on new SAT appeal BS REPORTER Mumbai, 17 December The Sahara group has sought time to seek clarity from the Supreme Court on an appeal it is seeking to file in the Securities Appellate Tribunal. The appeal was listed for hearing on Tuesday. The group sought time till Monday for a fresh clarification from the apex court on whether the tribunal was the appropriate forum. The tribunal suggested it might not be appropriate for it to hear a matter already being heard at the SC. Sahara lawyers subsequently sought time to gain clarity on whether the matter could be heard at SAT. A source suggested the appeal followed a showcause notice from the Securities and Exchange Board of India for non- compliance with multiple regulatory directions. The Sebi counsel did not respond to a request for clarification and an email sent to the regulator did not receive a reply. The SC had in July expressed its displeasure with the matter being heard at other forums. It had ordered the transfer of matters pending before the SAT and the Allahabad High Court on the Sahara matter to the apex court. The Sahara group companies and its directors had earlier moved the Lucknow bench of the Allahabad HC against a Sebi direction issued in February, ordering attachment of group properties. It had also filed an appeal in SAT. The SC had earlier asked two Sahara group companies to refund ₹ 24,029 crore raised from investors, in an order passed in August 2012. Sebi had said the capital was raised without adequate regulatory oversight, astand upheld by the SC. Sebi to make IPO grading voluntary BS REPORTER Mumbai, 17 December About seven years after introducing ratings of initial public offerings ( IPO), the Securities and Exchange Board of India (Sebi) might make the concept voluntary. "There is a unanimous view that IPO grading should not be compulsory. We will consider that," Sebi Chairman U K Sinha said at a conference organised by the Association of Investment Bankers of India. He added the board would make a formal announcement on the matter in a week. Sebi had made it mandatory for companies to secure an IPO grade from at least one credit rating agency for all offer documents filed on or after May 1, 2007. " The IPO grading process is expected to take into account the prospects of the sector in which the company operates, the competitive strengths of the company that would allow it to address the risks inherent in the business( es) and capitalise on the opportunities available, as well as the company's financial position," said to a Sebi note. IPOs are graded on a fivepoint scale, with grade 1 being the lowest. The grade does not take into account the valuations or the price at which the shares are offered. ' Mandatory IPO grading: Does it help pricing efficiency', a recent study by Indian Institute of Management- Ahmedabad's Joshy Jacoby and Sobhesh Kumar Agarwalla, said certification didn't result in more efficient pricing of IPOs. "There is no evidence to support IPO pricing improvement due to the introduction of IPO grading. This is contrary to the evidence reported by some earlier studies. This suggests the failure of grading as an IPO certification," said the report, dated December 2012. Currently, IPO grading is voluntary for companies listing on SME platforms. Scrapping of IPO grading won't impact rating agencies, as its share in their revenue is very small. Separately, Sebi is planning to expand the list of companies that can raise funds by filing a shelf prospectus ( A type of offer where securities can be sold without a separate prospectus for each set). " We want to expand the eligibility of companies that can issue shelf prospectus," Sinha said. "There is a unanimous view now that IPO grading should not be compulsory. We will consider that" UK SINHA Chairman, Sebi

 

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CS A Rengarajan

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