New Delhi: The Union Cabinet on Thursday cleared a Bill to raise the foreign investment ceiling in private insurance companies from 26 per cent to 49 per cent, but inserted a provision that the management and control of these companies must be with Indians. This cap will be composite — both foreign direct investment (FDI) and foreign portfolio investment. Experts said this meant voting rights of foreign investors would not be capped at 26 per cent but they cannot have contractual agreements for control of insurance companies. The Cabinet Committee on Economic Affairs this morning gave its approval to changes in the Insurance Laws (Amendment) Bill, which will now be taken up in the current session of Parliament. “The Cabinet has cleared raising the foreign investment cap in insurance to 49 per cent, subject to Indian management and control,” said a senior government official who did not wish to be named. Later in the evening, Finance Minister Arun Jaitley said in the Rajya Sabha: “The decision to have a 49 per cent foreign investment cap for insurance was taken by the National Democratic Alliance government in its previous term, but we had agreed for a 26 per cent ceiling after the Congress party insisted on that. We have gone back to 49 per cent, our earlier decision.” Officials said the definition of control would include the right to appoint a majority of directors or to influence management decisions, including by virtue of shareholding or management rights, or shareholders’ agreements or voting agreements. http://www.business-standard.com/article/economy-policy/cabinet-clears-49-foreign-investment-cap-for-insurance-114072400371_1.html
ARUN JAITLEY, SAYS NO NEW NOTICE FOR RETROSPECTIVE TAX
NEW DELHI: Finance minister Arun Jaitley called the retrospective tax a ‘retrograde idea’ that sent a very negative signal to the world of investors and as a result investments dried up. Replying to the budget debate in Rajya Sabha late on Thursday night he said the government will not create any fresh controversies on retrospective tax. He said the government recognised the Parliament’s sovereign right to legislate retrospectively, but said “as a policy our government won’t use that power”. He also assured the house that assessing officer will not issue new notices that they could have issued after the retrospective amendment. These cases will be referred to a mechanism created under the Central Board of Direct Taxes (CBDT). In respect of cases that are under dispute, finance minister said there were two options, either by legislation those cases are decided against the government or litigations are contested. “We consulted various people and finally found that the second course was a more prudent course. Legislation is a methodology of solving dispute so is legal methodology a course of solving dispute. We have left it to that,” Jaitley said. He said there were some early signs that the growth was picking up, but these were only very early signs. Similarly, inflation was showing some early signs of easing and if it eased sufficiently the Reserve Bank of India could cut rates. Finance minister also strongly took on the charge that the government was pro business. If you say that I have helped the businesses and this budget is pro business, yes it is. I have no hesitation in saying it is pro business, Jaitley said. “Does it help the middle class? Does it help the neo middle class? It does. Does it help the poor? It does,” FM said adding that being pro business did not mean being anti poor. http://economictimes.indiatimes.com/wealth/tax-savers/tax-news/arun-jaitley-says-no-new-notice-for-retrospective-tax/articleshow/38983462.cms?prtpage=1
BUDGET PROPOSALS TO GENERATE GROWTH WITH EMPLOYMENT: JAITLEY
New Delhi: Finance Minister Arun Jaitley on Thursday ruled out the possibility of a real estate bubble in the country which might engulf the entire economy, on the lines of a sub-prime crisis in certain countries like the US and Japan. Jaitley said the Budget proposals would boost the realty sector, which would help meet the housing needs of a vast section of the population. Citing findings of the National Sample Survey Office (NSSO), his deputy, Nirmala Sitharaman, accused the United Progressive Alliance (UPA) government of jobless growth and said the Budget proposed incentives and rebates to the manufacturing sector, which will lead to economic expansion along with employment generation. Replying to a debate on the Budget in the Rajya Sabha, Jaitley, however, remained silent on the Congress’ demand that the incumbent regime should maintain the tradition of not reversing the policies of earlier governments by retaining 51 per cent foreign direct investment (FDI) cap in multi-brand retailing. Jaitley said the economies, which witnessed the sub-prime crisis had a saturated realty sector, while housing needs of 60 per cent of the population are yet to be realised in India. The sub-prime crisis of the US had ultimately resulted in the global financial crisis of 2008-09. http://www.business-standard.com/article/economy-policy/budget-proposals-to-generate-growth-with-employment-jaitley-114072500170_1.html
RBI ASKS PROMOTERS TO CHOOSE BETWEEN NBFC AND BANK
Mumbai: Non-banking finance companies (NBFCs) eager to enter the banking space might have to wait for more time, since the banking regulator will not yet permit co-existence of both banks and NBFCs of the same promoter group. Following the recent issue of draft norms on licensing of small and payment banks, NBFCs were not sure if opening of such an entity would mean they’d have to give up their existing business. “We are sticking to our stance that an NBFC which is a subsidiary of a bank will not be permitted to undertake activities which the bank itself can do,” a top central bank official told Business Standard. The large NBFCs are involved in lending activity. RBI had said it will only allow a bank to have an NBFC as a subsidiary if it undertakes certain activities like credit cards, factoring or primary dealership. “Existing NBFCs, micro finance institutions and local area banks (LABs) can also opt for conversion into small banks after complying with all legal and regulatory requirements from various authorities if they conform to these guidelines,” the draft norms for small banks said. In the guidelines on new licences for universal banks, issued last year, the regulator had clearly said a bank could not undertake any activity through an NBFC which could be done from within the bank. http://www.business-standard.com/article/finance/bank-nbfc-of-same-promoter-group-can-t-coexist-rbi-114072401299_1.html
FIIs CONTINUE TO BUY INTO INDIA STORY, INJECT $25 BN INTO EQUITIES, DEBT IN CY14
Mumbai: Foreign institutional investors (FIIs) have pumped in a combined $25 billion in stocks and bonds so far in 2014, strongly endorsing the country’s political stability and growth potential in a manner not seen before. FIIs have picked up $12 billion worth of equities while investing around $13 billion in debt; on Thursday the BSE Sensex soared to yet another lifetime high of 26,271.85 points. Despite the rich valuations and only a moderate pick-up in earnings, the Street remains bullish on the Indian market. Brokerage Credit Suisse, for instance, has acknowledged that after the sharp re-rating in the Indian market, several investors have turned uncomfortable citing India’s premium to other EMs (emerging markets). Nevertheless, it finds the comparison with other EMs, as a basket, inappropriate, arguing the expected recovery off the bottom for the other EMs is much more tepid than in India. “Even if the pace of change driven by the new government disappoints consensus (as we expect), the market should still do well,” it wrote in a report. Meanwhile, Mark Mobius, executive chairman of Templeton Emerging Markets, said in a Bloomberg Television interview that Indian stocks won’t rise much more in the near term and may start “correcting” after the initial euphoria. “Still, there will be other opportunities to enter India and the country’s stocks have long-term upside,” Mobius observed. http://www.financialexpress.com/news/fiis-continue-to-buy-into-india-story-inject-25-bn-into-equities-debt-in-cy14/1273613
RBI LIKELY TO MAINTAIN STATUS QUO IN AUGUST POLICY: SBI CHIEF
New Delhi: State Bank of India Chairperson Arundhati Bhattacharya on Thursday said the Reserve Bank is likely to keep interest rate intact in its upcoming monetary policy review next month. “I think status quo is more likely,” she said when asked what her expectation was from RBI policy review. On capital requirement, Bhattacharya said: “There are various scenarios, various requirements…at this point of time when the credit growth is not too much I am not seeing any immediate requirement. But going ahead, of course there will be requirement on the capital front.” For the current fiscal, the bank has not taken a decision on how much to raise, she said on the sidelines of an event in New Delhi. Reserve Bank is scheduled to announce its bi-monthly monetary policy on August 3. It is largely believed that RBI is going to keep interest rate intact as there is pressure on inflation due to deficient rainfall in the country. Prices of some of the food articles like onion, tomato and potatoes have firmed up in the recent past. In the last policy review in June, RBI chose not to tinker with the policy rate. Thus it was the second consecutive time that RBI Governor Raghuram Rajan kept interest rates unchanged. http://www.business-standard.com/article/finance/rbi-likely-to-maintain-status-quo-in-august-policy-sbi-chief-114072400896_1.html
CREDIT OFF-TAKE TO IMPROVE IN SECOND HALF: SBH
Hyderabad: State Bank of Hyderabad (SBH) managing director Santanu Mukherjee, who took charge on Wednesday, expects credit off-take in the corporate sector to grow in the second half of the current financial year driven by infrastructure activities in particular. “So far the credit growth in this segment had been muted and will continue to be so in the second quarter as well. But I hope the second half of the year will be different,” he said on the sidelines of a conference here on Thursday. Responding to a question on agriculture loan overdues, Mukherjee said the NPA levels of the bank would go up since the government was yet to implement the loan waiver scheme as it had promised. However, he said, these NPA levels would come down as and when the government starts implementing the scheme for the farmers. As Telangana’s lead bank and convenor of the State level Bankers Committee (SLBC), the SBH is currently collecting data on loan dues and providing information to the government on various scenarios depending on the scope of the proposed loan waiver, according to its managing director. http://www.business-standard.com/article/finance/credit-off-take-to-improve-in-second-half-sbh-114072400488_1.html
UCO BANK TO GIVE FINANCE LIFELINE TO FARMERS
Chandigarh: Punjab Agro Industries Corporation (PAIC) on Thursday signed an agreement with UCO Bank to encourage agriculture diversification, particularly through precision farming related to greenhouse cultivation. Agriculture Minister Jathedar Tota Singh said, “Punjab government has taken this initiative to facilitate financing for the setting up of greenhouses by farmers in the state.” He said greenhouse farmers had been facing difficulties in getting high-value projects financed by banks. Establishment of greenhouses on one acre costs Rs 35-40 lakh and banks are generally hesitant to finance such high-value farming operations.He said this was also the case in organic farming. To tackle the paucity of financing such projects and to promote agriculture diversification in the state, Punjab Agro and UCO Bank have decided to work closely and provide requisite finance to farmers through 182 branches of UCO Bank in the state. He added the state will extend 50 per cent subsidy on construction of greenhouses under the National Horticulture Mission and 300 farmers have already setup high-tech greenhouses in the state. http://www.business-standard.com/article/finance/uco-bank-to-give-finance-lifeline-to-farmers-114072401542_1.html
STATE-OWNED RUSSIAN BANKS FACE EU SANCTIONS
The European Union would target state-owned Russian banks and their ability to finance Moscow’s faltering economy in its most serious sanctions so far over the Ukraine crisis under proposals considered by EU governments on Thursday, diplomats said. Ambassadors of the 28-nation bloc met in Brussels to discuss options drafted by the executive European Commission in response to the downing of a Malaysian airliner in an area of eastern Ukraine held by Russian-backed separatists. In the key measure, European investors would be banned from buying new debt or shares of banks owned 50 % or more by the state. These banks raised almost half of their 15.8 billion euro ($21.29 billion) capital needs in EU markets last year. “If implemented such sanctions would be a serious blow to the Russian economy, exacerbating an already very likely recession this year and sustaining an economic depression for longer,” said analyst Michal Dybula of BNP Paribas. The proposals also included an arms embargo, although diplomats said it would apply to future deals and would not bar delivery of a French helicopter carrier built for Russia under a 2011 contract. The EU is also considering restricting exports of technology for deep-sea drilling, shale gas and Arctic energy exploration under one of the options. http://www.financialexpress.com/news/stateowned-russian-banks-face-eu-sanctions/1273561
HIGHER FDI LIMIT: INSURERS MIGHT ATTRACT INFLOWS UP TO $3.5 BN
Mumbai: Opening up the insurance sector by increasing the cap on foreign shareholding to 49 per cent, as proposed by the Cabinet, could bring in inflows worth $3.5 billion or Rs 22,000 crore into the country. While insurance companies have welcomed the proposal, the emphasis on Indian management control is seen as a dampener for foreign investors. In addition, there was not much clarity if voting rights will be capped. TS Vijayan, Chairman of Insurance Regulatory and Development Authority (Irda) said increase in FDI is a positive move and it will boost insurance penetration. He said the insurance industry needs capital to grow, whether it comes from Indians or foreign entities. Going forward, he said that it will enable companies in this space (who were waiting for FDI cap hike) to list on the stock exchanges thereby leading to better scrutiny of management by shareholders. More foreign companies who are not yet present in the Indian market may also enter the space. Deepak Mittal, managing director and chief executive of Edelweiss Tokio Life Insurance said that more international players in the sector waiting in the wing would be motivated to enter India if FDI cap is raised. The Cabinet on Thursday cleared the Insurance Laws (Amendment) Bill proposing raising the foreign direct investment (FDI) cap in insurance from 26 per cent to 49 per cent through the Foreign Investment Promotion Board (FIPB) route. http://www.business-standard.com/article/finance/higher-fdi-limit-insurers-might-attract-inflows-up-to-3-5-bn-114072500056_1.html
IRDA CHAIRMAN EXPECTS INSURANCE COS TO GET LISTED
Mumbai: Welcoming the hike in foreign holdings in the insurance sector, IRDA (Insurance Regulatory and Development Authority) Chairman T S Vijayan on Thursday expressed the hope that the move would finally enable companies to enter capital markets. “Now I expect insurance companies to get listed (following the hike in FDI in the sector to 49 per cent),” Vijayan told reporters on the sidelines of an industry function here this evening. However, he was quick to add that details would be known once the Insurance (Amendment) Bill is passed by Parliament, “as the increase in FDI limit to 49 per cent from 26 per cent is comparatively a small development”. Addressing a function to celebrate the foundation day of New India Assurance Company, Vijayan, who was a former chairman of the Life Insurance Corporation (LIC) before being appointed to the office of the regulator, asked insurers to come out with innovative products and reduce their expenses. “Losses are being reported because of high expenses. Either you have to reduce your expenses or increase your efficiency,” he said, suggesting that adopting new distribution channels could help achieve this. It may be noted, that out of the more than two dozen life insurance players, and an equal number in the general category, not a single company has so far approached the market to go public despite the regulatory cap of 10 years of operation was completed two years ago. http://www.thehindubusinessline.com/industry-and-economy/banking/irda-chairman-expects-insurance-cos-to-get-listed/article6246089.ece
SKS Q1 NET UP EIGHTFOLD AT RS 49 CR
Hyderabad: SKS Microfinance Limited, the only listed microfinance company in India, has reported a more than eightfold increase in net profit at Rs 49.32 crore for the quarter ended June, 2014, on the back of higher revenues and near flat expenditure. The company’s net profit stood at Rs 5.18 crore in the year-ago period. Total income of the company in the quarter under review increased by 37.80 per cent to Rs 168.95 crore from Rs 122.60 crore in the corresponding previous quarter while the expenditure grew only 1.43 per cent at Rs 71.79 crore despite the increase in employee costs. SKS announced a one per cent reduction in the interest rate charged from borrowers to 23.55 per cent with effect from October 1, 2014. “The announcement is consistent with the company’s policy of passing on the cost advantages accruing from economies of scale, operational efficiency and reduction in the cost of borrowing to its borrowers,” SKS said in a statement. The company was able to reduce the cost of borrowing by one per cent to 12.6 per cent in the first quarter of the current financial year from 13.5 per cent rate of interest in the previous year, according to the company. http://www.business-standard.com/article/company/sks-q1-net-up-eightfold-at-rs-49-cr-114072401329_1.html
SEBI TWEAKS FPI CAP ON G-SEC INVESTMENT
Mumbai: Market regulator Sebi has tweaked the investment limits for foreign portfolio investors (FPI) in government securities by increasing the threshold for general investors from $20 billion to $25 billion. At the same time, the sub-limit for longer time FPIs such as sovereign funds has been reduced by $5 billion as there was less demand in this category. The overall cap remain unchanged at $30 billion. The previous cap of $10 billion had been utilised by only about 20% in this category. The $20 billion limit for general FPIs has been always fully exhausted. The decision comes after Reserve Bank of India (RBI) relaxed sub-limit for foreign institutional investors in government bonds by $5 billion. “It has been decided to enhance the investment limit in government securities available to all FPIs by $5 billion by correspondingly reducing the amount available to long term FPIs from $10 billion to $5 billion within the overall limit of $30 billion,” Sebi said in a circular. Long-term investors include sovereign wealth funds (SWFs), multilateral agencies, pension, insurance funds and foreign central banks registered with Sebi. Earlier this year, the limit for long-term investors for investment in government securities was raised from $5 billion to $10 billion within the total limit of $30 billion available to them. Sebi, however, said the increment investment limit of $5 billion shall be required to be put in government bonds with a minimum residual maturity of three years. http://www.financialexpress.com/news/sebi-tweaks-fpi-cap-on-gsec-investment/1273576
SEBI TO FACILITATE TIMELINES FOR MCF TWIN OFFERS
Bangalore: With two competing open offers for the Vijay Mallya-controlled Mangalore Chemicals and Fertilisers (MCF) awaiting necessary approvals, the Securities and Exchange Board of India (Sebi) has allowed a proposal to facilitate uniform timelines for both the offers in order to protect the interests of investors. The two rivals would now be able to launch their offers within 12 days after receiving approvals from the Competition Commission of India. Deepak Fertilizers had announced an open offer for a 26% stake in MCF, following which Zuari Fertilizers and Chemicals, owned by the Saroj Poddar-led Adventz Group, teamed up with Mallya to make a counter offer. Zuari is offering to buy the 26% stake at R68.55 per share, while the offer from Deepak Fertilizers is for R63 per share. The methodology for the timing of the offer was proposed at a meeting with representatives of the offer managers on July 21 to address the concerns regarding the coordination of the timelines of the original offer and the competing offer. http://www.financialexpress.com/news/sebi-to-facilitate-timelines-for-mcf-twin-offers/1273596
DEBT MFs LOSE SHEEN AFTER TAX-ARBITRAGE BENEFIT REMOVED
The Budget provision relating to taxing of long-term capital gains on sale of debt mutual fund units could have far-reaching implications. The nature of gain on sale of units of such funds would now be considered long term only if these units are held by the seller for more than 36 months, which earlier was only 12 months. Since the long-term nature of capital gains entitles the seller to apply indexation on the cost of acquisition, unit holders of debt mutual funds will now have to hold these for over three years to claim the benefit. On the other hand, if such units of debt funds are sold before three years, any capital gains arising on such sale shall be short term in nature and taxed at the applicable slab rates of the investor. Another noteworthy change in relation to taxability of non-equity oriented mutual funds is the tax rate applicable on long-term capital gains. Before the budgetary proposal, long-term gains on sale of non-equity oriented mutual funds were taxed at 20% of gains (computed after indexation of cost) or 10% of gains (computed without indexation). Under the proposed law, long-term gains on sale of non-equity oriented mutual funds — sale by the unit-holder after holding it for more than three years — shall be taxed at a flat 20% after giving indexation benefit. This is a major change in the taxation rules of non-equity oriented funds, since the option of beneficial taxation of 10% without indexation is proposed to be withdrawn. A clarification is awaited on whether this change is effective from the current financial year, i.e., April 1, 2014 or from the Budget Day, i.e., July 10, 2014. http://www.financialexpress.com/news/debt-mfs-lose-sheen-after-taxarbitrage-benefit-removed/1273566
SEBI’S SEARCH & SEIZURE POWER TO CONTINUE, BUT AFTER COURT NOD
New Delhi: The Securities and Exchange Board of India will continue to have search and seizure power against manipulators and fraudsters, but with a rider. The Union Cabinet on Thursday approved a revised Bill for empowering the regulator, which will also help in curbing the menace of Ponzi and illegal deposit schemes. “One of the new provisions prescribes taking approval from a court before ordering search and seizure,” a senior Government official told BusinessLine. The official said the court will be based in Mumbai and will consider applications from the regulator for action in any part of the country. This will thwart any attempt being made by a person or company to get a stay order from a local court. Once the request is accepted, a team positioned at the location will act, he added. The Securities Laws (Amendment) Bill will replace an Ordinance, which was promulgated thrice by the previous UPA Government. The Government will now introduce the Bill during the ongoing session of Parliament and try to get it passed lest the Ordinance lapses. This provision of taking approval from a court has been made in response to criticism alleging ‘sweeping powers’ given to SEBI. In fact, while promulgating the Ordinance on March 28, the UPA Government had added a provision that the SEBI Chairman will record the reasons in writing while issuing an order for search and seizure. http://www.thehindubusinessline.com/todays-paper/tp-markets/sebis-search-seizure-power-to-continue-but-after-court-nod/article6246768.ece
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