[aaykarbhavan] Business standard news updates 11-12-2013

Ministries spar over due- diligence reports

SURAJEET DAS GUPTA New Delhi, 10 December The Department of Financial Services (DFS), in the finance ministry, has criticised the corporate affairs ministry for not responding to the Reserve Bank of India's (RBI's) request for " due- diligence reports" on 22 of the 25 companies that had applied for banking licences earlier this year. The intervention is significant because RBI Governor Raghuram Rajan had set January 2014 as the deadline for awarding these licences. And, the availability of "due- diligence" reports on these companies are critical for the committee set up under former governor Bimal Jalan to meet that deadline. The need for these reports to be completed becomes more crucial as the committee is expected to carry out the first- level screening of applications to set up new private banks at its second meeting, scheduled for December 16. Intervening on RBI's behalf, DFS said in a communication a few days ago that the central bank had written in September and October to various investigative agencies, as well as domestic and foreign regulators, requesting information on the 25 applicants and their group entities. However, making its unhappiness clear, DFS said the departments requested to give their views had not responded in most cases; in others, the response was limited. Talking specifically about the corporate affairs ministry, the department said no response had been received in the case of 22 applicants. It has now asked the ministry to expedite submission of the duediligence report to RBI, so that grant of licence to eligible entities can be processed. DFS has sent similar communications to the Enforcement Directorate, the Department of Revenue Intelligence, the Central Bureau of Investigation, and the Securities and Exchange Board of India. Among the companies whose applications are being examined are the Aditya Birla Group, Bajaj Group, Reliance ADAG, Larsen & Toubro, SREI, Religare, LIC Housing Finance, JM Financial, Muthoot Finance, Edelweiss, IDFC, India Infoline, Shriram Capital, Indiabulls and IFCI. The plan was that the Jalan- led committee, based on a screening on December 16, would reject applications that did not meet the eligibility yardstick or the ' fit and proper' criteria for securing licences. The advisory committee had its first meeting on November 2. Besides Jalan, the committee has former RBI deputy governor Usha Thorat, former Sebi chairman CB Bhave and RBI Director Nachiket MMor as members. Of the applicants for banking licences, two — Tata Sons and Value Industries — have withdrawn from the race. The Bajaj Group is also trying to resolve some internal issues, as all of a group's financial service businesses are required to be consolidated in the bank, if it gets a licence. Bajaj Auto says the move will adversely affect its business, as 30 per cent of its automobile loans are through Bajaj Finance, which has applied for a licence. DFS writes to departments that haven't responded to RBI's request for information NEW BANKING LICENCES RACING AGAINST TIME |APPLICANTS: 26 companies applied for banking licences earlier this year |DUE DILIGENCE: RBI sent letters to various agencies and domestic & foreign regulators in September and October, requesting them to share information on the applicants and their group entities |DEADLINE: RBI set January 2014 as the deadline for issuing the first batch of licences |COMMITTEE: RBI set up an advisory panel, under former governor Bimal Jalan, which met for the first time on November 2 |OUT OF FRAY: Tata Sons and Value Industries have already pulled out of race for licences

Corporate debt recast: More failure than success

BS REPORTER Mumbai, 10 December With banks resorting to restructuring debt to delay the formation of non- performing assets ( NPAs), the performance of the corporate debt restructuring ( CDR) cell has taken a hit. For the first time in five years, the number of cases referred to the CDR cell and withdrawn on account of failure (even after restructuring, the accounts slipped into the NPA category) exceeded the number of successful cases, latest data from the CDR cell showed. A total of 103 cases worth ₹ 24,915 crore slipped into the NPA category till September, compared with 67 cases aggregating ₹ 51,104 crore that were upgraded to standard category. "For the first time in the last five years, cases withdrawn on account of failure are higher than the cases exited successfully. The majority of the slippages were on account of nonpayment (interest and principal repayments)," broking firm Macquarie said in a note to clients. Bankers said the number of cases slipping into the NPA category had increased in the last couple of years. For some state- run banks, 18- 20 per cent of their restructured loans are slipping into the NPA category, against 10 per cent two years ago. " Small accounts populate the failed cases. Banks show more urgency to give support to large units, as the cost of failure could be high. Also, big units have managerial capability to make changes and bring in required contribution. Small units suffer from managerial deficiency and their capacity to ride through adverse times is limited," said asenior State Bank of India official. To stop misuse of the CDR mechanism, a Reserve Bank of India committee headed by Executive Director B Mahapatra had recommended from April 2015, banks don't enjoy regulatory forbearance while recasting debt. It suggested from April 2015, all restructured assets attract provisioning of 15 per cent. Currently, after restructuring, a loan continues to remain a standard asset, subject to certain conditions. Restructured standard assets have a provisioning requirement of five per cent, compared with 0.4 per cent for standard advances. In October, seven cases worth about ₹ 22,000 crore were referred to the CDR cell, compared with cases worth ₹ 24,900 crore in the quarter ended September. In the first quarter, cases worth ₹ 39,400 crore were referred. Some of the cases referred to the CDR cell this quarter include ABG Shipyard (₹ 10,000 crore), Era Infra (₹ 5,200 crore), Coastal Projects (₹ 3,800 crore) and Gujarat NRE Coke (₹ 2,200 crore). Companies approaching the CDR cell were primarily from the power, roads, construction and small and medium iron & steel sectors. The CDR cell data doesn't include bilateral restructuring between banks and companies. In the past two years, CDR restructuring accounted for only 30 per cent of the overall restructuring. Public sector banks have accounted for most of the debt restructuring, though a few large private banks, excluding HDFC Bank, are also facing a similar situation. "With regard to asset quality, the problems seem to be concentrated to old- generation banks— public sector banks and old private banks. I would urge the managements of these banks to be sensitive about this trend and to be more willing to recognise the problem at the initial stages so that an early resolution can be found to the NPA problem," RBI Deputy Governor K CChakrabarty had said recently. The central bank is also mulling incentives to banks that detect asset quality pressures early. The top 30 loan defaulters of public sector banks ( PSBs) account for a little more than a third of total gross non- performing assets (NPAs) of state- run lenders, Finance Minister P Chidambaram informed Parliament on Tuesday. "The ratio of the top 30 bad loans as a percentage of gross NPAs, in respect of PSBs, as on September, is 35.5 per cent, and for all banks, it is 38.8 per cent," he said. The gross NPAs amount of the top 30 accounts of PSBs stood at ₹ 72,174 crore, while for all banks it was ₹ 91,667 crore as on September. In the case of nationalised banks, the top 30 defaulters contributed 43.8 per cent to gross NPA, with ₹ 55,663 crore. PTI 'Top 30 NPAs of PSBs accountfor one- third of total bad loans' PChidambaram, Finance Minister Cases withdrawn Cases exited Live cases in on account of failure successfully CDR No of cases Aggregate debt No of cases Aggregate debt No of cases Aggregate debt 103 24,915 67 51,104 261 196,276 Source: CDR cell, as on 30, September, 2013 PERFORMANCE OF CDR CELL Aggregate debt in ₹ crore ₹ 10,000 cr ₹ 5,200 cr ₹ 3,800 cr ₹ 2,200 cr DEFAULTERS

 

Brokers ask Sebi to defer compulsory voice recording SACHIN P MAMPATTA Mumbai, 10 December Rahul Nangalia, chief executive officer of Nangalia Stock Broking, does not record the telephone conversations his clients have with his dealers. "They have a long- term relationship with us; they trust us," he says. The Securities and Exchange Board of India (Sebi), however, believes this might not be enough. It has been considering making voice records mandatory for all broking firms. It is felt Sebi's plan is aimed at settling cases involving accusations that brokers placed trades in client accounts without their consent. RM C V Prasada Rao, president, Association of National Exchanges Members of India (ANMI), said the move would place a significant burden on smaller players. " Ninety per cent of the industry is made up of small and medium brokers. It will be expensive for those with small offices in remote places," he said. Siddharth Shah, chairman of the BSE Brokers' Forum, said, " Once the recording is done, there will be a need to maintain records of this for a certain period of time. Brokers will also have to maintain a back- up of these records… our main concern is the cost." Smaller players may find it difficult to bear the costs associated with such a requirement, according to an ANMI letter to Sebi. The smallest level implementation of the system was said to cost at least ₹ 50,000, a major ask in a bad market, the letter said. " It may please be appreciated that the stock broking business currently is passing through one of its most challenging phases and the imposition of such stipulation will result in additional costs that may be difficult to bear for most of the brokers," The letter said many orders were placed through mobile phones, rather than a phone connected to a recording system, adding voice recording would not be effective in such cases. It said in case this was made mandatory, brokers would need to seek the consent of their clients, further increasing the burden on brokers. "We suggest implementation of the voice- record mechanism be deferred till the pros and cons of the mechanism are fully considered and debated with all the agencies involved," the letter said. An email sent to Sebi on the status of the plan did not receive a reply. BOTH SIDES OF THE STORY |The regulator plans to make voice recording compulsory for all broking companies |It is felt that Sebi's plan is aimed at settling cases involving accusations that brokers placed trades in client accounts without their consent |Brokerage associations oppose the move |Brokerages say it will add to the costs of running the business |Smaller brokers would be hit harder by the move   Sebi panel asks it to ' name and shame' entities involved in insider trading BS REPORTER Mumbai, 10 December The Indian securities market regulator should make use of heavy penalties and a ' name and shame' policy to tackle the menace of insider trading. The Securities and Exchange Board of India ( Sebi) has been so recommended by its International Advisory Board ( IAB). IAB, which advises Sebi on organisational changes based on international trends, met in Bangalore on Monday and Tuesday. At present, banks do use a 'name and shame' tactic against borrowers who default, by publishing photographs and other details in newspapers and at notice boards of their branches. Insider trading refers to purchase or sale of a company's shares by its 'insiders', on the basis of information not available to public shareholders. An insider can be a promoter senior management, directors and even an entity not connected with the company but with such information. "IAB suggested that Sebi should publicise major insider trading cases in a separate section on the Sebi website for easier access; may have provisions to compensate victims, if any, of insider trading offences; and should encourage an effective whistle- blowing framework in the securities market by ensuring adequate legal protection," Sebi stated on Tuesday. The market regulator is soon expected to announce new norms on insider trading after an experts' panel it had set up gave its recommendations last week. IAB also discussed the framework proposed by Sebi on Real Estate Investment Trusts (REITs). It suggested the REIT framework have an ' internationally competitive tax regime', by giving it a pass- through status. "Gradual expansion of REITs to include retail investments and a separate framework for infrastructure investment trusts," Sebi stated. The advisory board also deliberated on Sebi's new consent mechanism framework, where serious violations such as insider trading and front running have been excluded. "IAB, after deliberating on the formula- based determination of consent mechanism, suggested judgmental variations in consent amount on a case to case basis, so as to make it effectively deterrent in nature," the Sebi statement added. IAB noted the concerns for market infrastructure due to cyber security issues and the need to strengthen internal systems. The advisory body also made observations on the economic slowdown as "... more attributable to internal factors than external. It was further observed that share of manufacturing output in Indian GDP has been stagnant despite faster growth in Indian economy in the last two decades, a phenomenon different from other growing economies like China, Korea, Taiwan," said Sebi. Sebi is expected to announce new norms on insider trading soon

 

--

 

CS A Rengarajan

9381011200

CS Benevolent Fund is a collective effort towards extending the much needed financial support to the community of Company Secretaries in times of distress  Let us lend support and join for noble cause.

SHARING KNOWLEDGE SKY IS THE LIMIT

This mail and its attachments (if any) are confidential information intended for persons to whom the email is planned for delivery by the sender. If you have received this mail in error please notify the sender of the error by forwarding the email and its attachments (if any) and then deleting the mail received in error and the relevant email trail in this connection without making any copies or taking any prints.

__._,_.___

receive alert on mobile, subscribe to SMS Channel named "aaykarbhavan"
[COST FREE]
SEND "on aaykarbhavan" TO 9870807070 FROM YOUR MOBILE.

To receive the mails from this group send message to aaykarbhavan-subscribe@yahoogroups.com

Your email settings: Individual Email|Traditional
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch to Fully Featured
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe

__,_._,___