New Delhi: Prime Minister Narendra Modi, who prefers to cut hierarchy and have direct interaction – be it bureaucrats or students – will next meet chiefs of public-sector banks. The proposed meeting comes amid rising bad loans and reports of various irregularities in state-owned banks. The prime minister is likely to take stock of the banks’ performance – an exercise usually undertaken by the finance minister. “Credit offtake has remained low. He wants to discuss with bankers how to increase it,” said a finance ministry official, who did not wish to be identified. The credit offtake fell to Rs 72,100 crore between April 1 and August 22 this year from Rs 2.35-lakh crore in the same period last year. The incremental growth in credit since the start of the financial year slowed to 1.3 per cent from 4.7 per cent. While overall non-food credit grew a mere one per cent so far this year incrementally, credit to industry actually fell 0.6 per cent since April. The meeting is likely to happen after the vacant posts of chairman and managing directors (CMDs) in public-sector banks in November. The National Democratic Alliance government had recently scrapped the selection of six bank chiefs recommended by the previous United Progressive Alliance regime, after a high-level panel found irregularities in the process followed. http://www.business-standard.com/article/economy-policy/now-pm-to-meet-psu-bank-chiefs-114110300034_1.html
FINANCE MINISTRY TO START BUDGETARY EXERCISE ON MONDAY
New Delhi: The Finance Ministry will start the budgetary exercise on Monday, November 3, with the Expenditure Secretary meeting various ministries starting with Law and Justice and Information & Broadcasting. The ministry will finalise the revised estimates for 2014-15 and Budget Estimates for 2015-16 for Plan and non-Plan expenses. The meetings with various ministries will go on till December 12, according to an office notice. They will delve on the performance of past programmes and schemes to check actual performance against the estimates or targets. The departments would be required to give projected physical outcome during 2015-16 and 2016-17 and financial resources required for that. The meetings will also discuss “any new expenditure commitments arising out of the policy change, and disbursal and availability of funds at various tiers of scheme implementation”, the notice said. As the BJP-led NDA came to power in May, Finance Minister Arun Jaitley will present his first full Budget in February for the next financial year – April 1, 2015 to March 31, 2016. The Plan expenditure is government spending on social sector schemes such as Bharat Nirman, rural employment guarantee scheme and National Rural Health Mission. Besides, it includes Centre’s assistance to various states and Union Territories Plans. http://profit.ndtv.com/news/economy/article-finance-ministry-to-start-budgetary-exercise-on-monday-687888
RBI POLICY HURTING MANUFACTURING
It has been more than a year since RBI began to target CPI inflation as its nominal anchor, replacing WPI inflation. On September 20, 2013, RBI Governor Raghuram Rajan signaled the change by raising the policy or repo rate by 25 bps, beginning the alignment with the much higher CPI inflation, though a formal announcement came four months later. In its January 28, 2014, policy review, RBI accepted the “glide path” recommended by the Patel committee report on a new monetary policy framework. Expectedly, there were oppositions to RBI’s move from several quarters to which we too contributed. Our concerns were manifold, but the main focus was upon a potential, secular rise in cost of funds and its consequent impact upon output persisting into the long run. In a recent FE column, we highlighted how poor credit off-take as a leading indicator was pointing to low manufacturing activity amidst extraordinary market optimism. The subdued manufacturing growth of recent months has brought our concerns to the fore. Today’s column looks back at all the issues that we raised to examine their worth. The issues raised against adoption of the new CPI as nominal anchor were threefold: i) statistical; ii) representativeness; and iii) timing. The statistical issues flagged if the new CPI series launched in January 2011 was long enough to instil confidence about its use as a policy variable; a related issue was an observed stickiness in CPI-core (excluding food and oil). http://www.financialexpress.com/news/column-rbi-policy-hurting-manufacturing/1303763
GOVT BOND YIELDS FALL, RUPEE RISES
Mumbai: The fall in government bond yields continued the past week due to expectations of a softer inflation number for October. The rupee, on the other hand, appreciated due to foreign flows in domestic markets. The bond market is factoring in hopes of a repo rate cut by the Reserve Bank of India (RBI) in the current financial year itself. “The yield on the 10-year bond may trade in the range of 8.23 to 8.29 per cent this week. The bias is towards yields falling,” said a treasury official with a state-run bank. The yield on the 10-year bond ended at 8.28 per cent on Friday compared with previous close of 8.29 per cent. Consumer Price Index inflation cooled down to 6.46 per cent in September, lowest since January 2012, due to falling prices of fruits and vegetables. It is expected that the CPI inflation numbers for October may fall below 6 per cent. Domestic markets have been attracting foreign flows and the RBI has been mopping them in a bid to boost its foreign exchange reserves. Latest data shows that foreign exchange reserves rose by $495.5 million for the week ending October 24 to $314.18 billion. http://www.business-standard.com/article/finance/govt-bond-yields-fall-rupee-rises-114110100689_1.html
SBI SEEKS FLEXIBILITY FOR DEBT RECAST IN TWO SECTORS
Mumbai/ New Delhi: State Bank of India has sought more flexibility in restructuring exposures to metal and power companies hit by the Supreme Court verdict deallocating coal mines and curbs on operating iron mines. In a communication to the Reserve Bank of India last week, the country’s largest lender said the problem of raw material shortages will be resolved over medium to long-term. However, the power and metal industry need short-term relief to tide over the problem of raw material shortage and weakening pricing outlook. Owing to these factors, the existing project may need flexible restructuring in line with the economic life of the underlying assets. The 5/25 scheme may be allowed for existing projects to relieve the stress on companies, SBI said. Under the 5/25 structure, the bank may fix longer amortisation period (about 25 years) for loans to projects in infrastructure and core industries sectors, with periodic refinancing, say every five years. Such restructuring would enable loan repayment to be co-terminus with cash flows from the projects. It would also improve debt-servicing capacity and viability of the operational projects. http://www.business-standard.com/article/finance/sbi-seeks-flexibility-for-debt-recast-in-two-sectors-114110300007_1.html
USERS, BANKS WORRY ON RBI’S NORMS ON ATM
Mumbai: “At least I hope my own bank does not charge me. I will not withdraw and keep money for a later date. What is the point of an ATM,” said Viren, a first year engineering student. While Siddhant Pattnaik, a geophysicist with an MNC, said, “It is just a computer (ATM machine), how much more maintenance can it have. I cannot understand why my own bank should be allowed to charge me?” Using ATMs (Automated Teller Machines) to withdraw money or for other purposes such as balance enquiry beyond five times in home bank ATMs and beyond three times in a non-home bank ATM in a month will attract Rs. 20 charge per transaction from November 1. Though customers are worried, banks are slowing deployment of ATMs as the loss due to customers transacting at non-home bank ATMs is worrisome. It costs banks Rs. 75-100 for the five transactions done by customers at non-home bank ATMs, as per RBI. According to Romesh Sobti, MD and CEO, IndusInd Bank, “It is not a big hardship for customers. It is just that they have to manage their cash better to avoid transactions beyond the prescribed limit. I cannot draw money daily for my expenses.” Even as customers are worried about cash management starting this month, some private banks such as ICICI Bank, HDFC bank and Axis bank are maintaining a status quo and not charging customers transacting at their own ATMs. http://www.thehindubusinessline.com/todays-paper/tp-news/users-banks-worry-on-rbis-norms-on-atm/article6558892.ece
PRIVATE BANKS TRUMP GOVERNMENT PEERS ON EFFICIENCY
Kolkata: In the second of a five-part series, looking at the impact the opening up of crucial sectors has had on public sector entities, we turn the spotlight on the changes banking & insurance saw after the introduction of private banks. The entry of private players in banking and insurance hasn’t curbed the influence of state-run entities, which continue to dominate in terms of market share. While government-owned banks now command more than 70 per cent of the loan and deposit market, India’s only state-run life insurer, Life Insurance Corporation of India (LIC), collects about 72 per cent of the life insurance premium in the country. However, that is only a part of the story. Private banks have been more profitable and better managed than their state-run peers. For instance, the return on assets of new private banks was at 1.74 per cent, while the return on equity was 16.51 per cent at the end of FY13. In comparison, the return on assets of public sector banks was 0.78 per cent and the return on equity was 13.24 per cent. New private banks also scored over state-owned lenders with better asset quality (net bad loan ratio of 0.52 per cent versus 2.02 per cent) and stronger capital base (capital adequacy ratio of 16.84 per cent versus 12.38 per cent). http://www.business-standard.com/article/economy-policy/private-banks-trump-government-peers-on-efficiency-114103100383_1.html
AFTER BANK OF JAPAN SURPRISE, EUROPEAN CENTRAL BANK STIMULUS HOPES MAY HELP NIFTY TOP 8400
MUMBAI: Indian markets may scale new peaks this week as global investors are likely to continue their buying streak in emerging markets, including India, especially after Bank of Japan’s (BoJ) surprise announcement to expand its additional stimulus package, and similar expectations from the European Central Bank (ECB). “We expect markets to extend gains this week as FIIs have resumed buying on a strong note. Bank of Japan’s stimulus package and encouraging US Q3 GDP numbers will keep the momentum going. Nifty’s immediate target is seen at 8,400, and then it may try to touch 8,600,” said Alex Mathews, head research, Geojit BNP Paribas Financial Services. BSE Sensex rallied over 1000 points, or 3.77 per cent, last week to end at 27,865 points, while the Nifty surged 3.85 per cent to close at 8,322 points during the week ended Friday. FIIs have recently stepped up purchases of Indian stocks, which are likely to continue with the Bank of Japan’s stimulus package, said analysts. These investors have bought shares worth Rs 5,500 crore in the past eight days, after net sales of close to Rs 7,200 crore in a month. However, market participants may not build aggressive positions this week like they did last week, as there won’t be trading due to public holidays — November 4 being Muharram, and November 6 is Gurunanak Jayanti. http://economictimes.indiatimes.com/markets/stocks/news/after-bank-of-japan-surprise-european-central-bank-stimulus-hopes-may-help-nifty-top-8400/articleshow/45017266.cms?prtpage=1
LOW RATES, RISKIER LOANS MAY HURT LIFE INSURERS: IRDA
MUMBAI: The Insurance Regulatory and Development Authority (IRDA) has said that falling interest rates will pose challenges to the life insurance industry, which has to continue to deliver good returns to policyholders. The regulator has also pointed out that, globally, there are signs that riskier loans to corporate and infrastructure are moving to insurance companies following exit of banks due to stringent regulation. The country’s largest insurer Life Insurance Corporation of India has said that, while low rates pose a challenge, they are not a risk. “In a recent auction of government bonds, we were completely outbid by banks. While falling rates are a challenge for every fund manager, they are not a risk as LIC is in a position to meet every obligation,” said S K Roy, chairman, LIC. Speaking at the ET Edge Insurance Summit organized by The Economic Times, R K Nair, member, IRDA, said there were two developments taking place globally, which might come to India as well. http://timesofindia.indiatimes.com/business/india-business/Low-rates-riskier-loans-may-hurt-life-insurers-IRDA/articleshow/45017434.cms
LIC OFFLOADS SHARES IN 14 SENSEX FIRMS
Public sector life insurer LIC lowered its exposure to 14 blue-chip firms during the July-September quarter by offloading shares worth about Rs 7,700 crore. At the same time, it increased stake in 10 Sensex firms by purchasing shares to the tune of over Rs 5,000 crore, as per the shareholding data of 30 bluechip companies on the BSE. In five companies — Wipro, GAIL, BHEL, HeroMoto Corp and Dr Reddy’s Laboratories — LIC’s stake remained unchanged. The public sector insurance behemoth has not held any stake in Hindustan Unilever in the past few quarters. LIC holds 16.97 per cent stake in Larsen & Toubro, the highest among all Sensex firms. At current share prices, LIC offloaded shares worth 7,700 crore in 14 Sensex constituents during the quarter. Market analysts attributed the cut in exposure to profit booking. The trimming of gains by the Life Insurance Corporation of India coincided with a surge of around five per cent in BSE’s benchmark index Sensex during the quarter. http://www.mydigitalfc.com/stock-market/lic-offloads-shares-14-sensex-firms-411
ULIPS ARE CHEAPER, YET NOT USEFUL
With the stock market going up, unit-linked insurance plans (Ulips) seem to be making a comeback. In recent times, a number of top insurance companies – HDFC Life, Bajaj Allianz and others – have launched online Ulips that are cheaper, as the insurers are able to pass on the savings on agents’ commission as lower premium allocation charge and hence, the low-cost proposition. Add to that, the surge in the stock market, and suddenly, we have a heady cocktail of low cost, a good likelihood of a high returns and, of course, tax benefits under Section 80C – a perfect investment product. Yet, it isn’t for a number of reasons. For one, if you are looking at it as a pure investment product, you will be grossly disappointed simply because of the cost. For one, in the offline version, the cost continues to be high. For example, for a five-year policy, the maximum commission that can be paid in the first year is 15 per cent and for a 10-year policy, it is 30 per cent. In addition, five per cent can be paid in the subsequent years for the entire premium-paying term. But in the online version, this cost is down significantly. Deepak Yohannan, CEO of MyInsuranceClub.com, a web aggregator approved by the Insurance Regulatory and Development Authority (Irda), explains that the gap between mutual funds (MFs) and Ulips have come down, especially with the entry of the online Ulips with charges of 2-2.5 per cent. But there is a small question of mortality charges which go up as you grow older. http://www.business-standard.com/article/pf/ulips-are-cheaper-yet-not-useful-114110200781_1.html
PREFER SKS MICROFINANCE: SUDARSHAN SUKHANI
Sudarshan Sukhani of s2analytics.com told CNBC-TV18, ” SKS Microfinance had a sharp correction but it has already started a bull market. It is one of the few NBFCs which we like and which means consistently it has come down from lofty levels. Now it is renewing its advances. There was a big gain on Friday, that gain should be build-up on because it is coming out of a double bottom. It is not just a day trade, you could take a position here.” At 09:43 hrs SKS Microfinance was quoting at Rs 332.55, up Rs 6.75, or 2.07 percent. It has touched an intraday high of Rs 333.80 and an intraday low of Rs 329.30. http://www.moneycontrol.com/news/stocks-views/prefer-sks-microfinance-sudarshan-sukhani_1217935.html
SEBI MAY ANNOUNCE NEW INSIDER TRADING NORMS BY NEXT WEEK
New Delhi: In its efforts to make listed firms more responsible towards investors, Sebi may announce new insider trading norms as early as next week and also revamp the listing as well as delisting regulations. The changes are being made after taking into account suggestions made by the industry and other stakeholders— including market entities and investors —and are aimed at protecting the interest of minority investors without making the regulatory compliance cumbersome for the companies. These new norms — to check insider trading menace, to enforce better compliance to continuous listing regulations and to revamp delisting norms for a faster and easier process for those desiring to delist from the stock market — will be put up for approval of Sebi’s board in its next meeting. Sources said that the final sets of regulations in all these areas may be in place this month itself, beginning as early as next week. The proposed tightening of norms assumes significance in the wake of Sebi coming across cases of insider trading at not just small companies, but at big corporates as well. Besides, another set of new regulations would help Sebi take prompter and stricter action against the entities found to be violating listing norms. http://www.millenniumpost.in/NewsContent.aspx?NID=74306
AIFs LEAD IN INVESTMENT FUND GROWTH
Mumbai: India’s alternative investment funds (AIFs) grew at a scorching pace in the last one year, outpacing traditional investment avenues like mutual funds, regulatory data shows. The total investment commitments of AIFs rose almost fivefold to touch `17,452 crore from last September’s `3,800 crore, as per data from the Securities and Exchange Board of India (Sebi). The high-risk, high-return AIFs invest in a vast array of sectors including real estate, infrastructure, private equity, credit derivatives, distressed assets, currency and art. They are not allowed to accept investments below `1 crore, which makes them a wealthy investors’ clubs. “We expect the AIF industry to be a $20-billion one in the next five years,” said Andrew Holland, chief executive officer (investment advisory) at Ambit Investment Advisors Pvt. Ltd, which has launched an AIF. Three top fund managers, who did not want to be named, said that in the regulated space, AIFs have grown much faster than mutual funds, portfolio management services and insurance products. “Given the ease and flexibility of launching and managing AIFs, along with regulations for investor confidence, AIFs have a huge potential in India,” said Sundeep Sikka, CEO of Reliance Mutual Fund, India’s third largest asset manager. Its Reliance Yield Maximiser AIF scheme-I invests primarily in real estate, and expects its `500 crore assets to double by the year-end. “AIFs provide a much larger investment scope than other routes. For instance, even if an investor wants to invest in a particular property in a particular location, he can approach an AIF manager and get it done, which is not possible in any other regulated investment avenue. So, the trend is likely to continue,” Sikka said. http://www.livemint.com/Money/fS6UvXTrY4tWW26SFB7E7K/AIFs-lead-in-investment-fund-growth.html?facet=print
