NEW DELHI: A few weeks before the Reserve Bank of India announces the monetary policy, Finance Minister Arun Jaitley has made his preferences clear in the raging debate over whether governor Raghuram Rajan should cut interest rates on December 2. “Reduction in the cost of capital will give a good fillip to the Indian economy,” Jaitley said at the Citi Investor Forum, but added that the decision was the RBI’s to make. The finance minister also listed the reforms that his government will roll out, including the constitutional amendment Bill for goods and services tax, the insurance amendment Bill and changes to the land acquisition law to speed up infrastructure projects. Wholesale inflation dipped to a fiveyear low of 1.77 per cent in October while retail inflation was down to 5.5 per cent. The retail inflation for October was below RBI’s January 2016 target of 6 per cent. The downward trend has triggered a call from industry and some economists to cut rates. “Inflation, especially food inflation, has moderated in the last few months and global fuel prices have also come down. Therefore, if RBI, which is a highly professional organisation, in its wisdom decides to bring down the cost of capital, it will give a good fillip to the Indian economy,” Jaitley said in his keynote address. Most experts expect Rajan to begin easing interest rates only sometime in late 2015 after making sure that inflation has stabilised at lower levels. But he will have to present a very cogent case as there is rising resentment against higher interest rates in the face of an uncertain recovery, a benign outlook for inflation and falling global commodity prices. The industrial sector posted a dismal July-September quarter, posting highest 2.5 per cent rise in September. http://economictimes.indiatimes.com/news/economy/indicators/rate-cut-by-rbi-will-give-good-fillip-to-economy-arun-jaitley/articleshow/45178776.cms?prtpage=1
RBI, GOVT CONSIDER MORE IMPORT CURBS
New Delhi: The Reserve Bank of India (RBI) and the finance ministry are considering fresh curbs on gold imports, as inbound shipments of the yellow metal surged four times to $4.18 billion in October from a year ago. “With the surge in gold imports, it warranted a relook. Discussions are still going on between RBI and the government. Once we know what the discussions are, a further view will be taken,” RBI Deputy Governor S S Mundra told reporters on Monday. Crude oil and gold are two major items adding to the import bill. This time, the government has little comfort on oil import, as global crude oil prices are trading low. Gold imports touched 115-120 tonnes in October, as against 24 tonnes a year ago. Officials from the central bank and the finance ministry had met on Thursday to discuss ways to restrict inbound shipments of gold but no final decision was taken. The increase in gold imports will widen the trade deficit, which in turn will make the current account deficit (CAD) swell. Curbs on gold were introduced by former finance minister P Chidambaram to contain the CAD, which had touched a record high of $88.2 billion or 4.8 per cent of gross domestic product in 2012-13. http://www.business-standard.com/article/economy-policy/rbi-govt-consider-more-import-curbs-114111701710_1.html
FINMIN, BANKS TO DISCUSS SETTING UP ULTRA SMALL BRANCHES IN RURAL AREAS
New Delhi: The Government’s plan to set up ultra small bank branches in about 74,000 villages, along with the quarterly performance of public sector banks and progress in the Pradhan Mantri Jan Dhan Yojana (PMJDY), will be discussed at the meetings between the Finance Ministry and bank heads on November 20. Financial Services Secretary Hasmukh Adhia will chair two meetings to be attended by the chief executives of public sector banks and financial institutions. The first meeting will be on performance review, while the second will be of the steering committee on the PMJDY. This will be the first formal interaction Adhia will have with bank chiefs after taking charge from GS Sandhu earlier this month. The agenda for the meeting of the steering committee on the new financial inclusion scheme has listed 13 items. One talks about the plan for ultra small branches in villages. The mission document of the scheme says that depending on the viability, “banks would strive to set up a brick and mortar branch with minimum staff strength of 1+1 (one officer and a subordinate) or 1+2 (one officer and two subordinates) in 74,351 villages having population of 2,000 or more which were covered by BCs (business correspondents) in the earlier campaign. This can be done in a phased manner in a period of 3-5 years.” http://www.thehindubusinessline.com/todays-paper/tp-news/finmin-banks-to-discuss-setting-up-ultra-small-branches-in-rural-areas/article6609509.ece
NOW, BANK TERM DEPOSITS OF UP TO Rs. 1.5 LAKH ELIGIBLE FOR BREAKS
New Delhi: This fiscal, you can deposit Rs. 1.5 lakh in a bank term deposit and get income-tax benefits on it. This follows the Finance Ministry notifying a higher limit under bank term deposits for drawing income-tax benefit, as announced in the Union Budget. The new notification is effective from November 13. For the current fiscal, one can now deposit Rs. 1.5 lakh against Rs. 1 lakh in a bank deposit to get tax benefits under Section 80C of the Income-Tax Act. For instance, if up to Rs. 1.5 lakh is put in a five-year term deposit, the amount will be deducted from income before calculation of personal income-tax. In this year’s Budget, Finance Minister Arun Jaitley had announced enhancing of the tax investment limit under Section 80C to Rs. 1.50 lakh to boost domestic investment in long-term savings. Under Section 80C, one can invest in, apart from bank deposits, instruments such as five-year National Savings Certificates (NSCs), Public Provident Fund (PPF), life insurance policies, equity-linked savings scheme (ELSS), contributions to the Employees Provident Fund. The enhanced limit also includes principal repayment toward home loans. Since PPF is an independent scheme and has different features, the Government issued a separate notification on August 19, followed by the latest separate notification for bank term deposit. Interestingly, ELSS has a lock-in period of three years, whereas a bank term deposit can be of five years for tax saving purpose. Also, though the returns are better, ELSS is riskier as it is affected by stock market volatility. But one positive about ELSS is that these do not attract tax. ELSS is like PPF where investors get EEE (exempt-exempt-exempt) benefit, which means no tax at the time of investing the money on accumulation and on withdrawal. Yet, bank deposits have one advantage — stable and assured returns. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/now-bank-term-deposits-of-up-to-rs-15-lakh-eligible-for-breaks/article6609466.ece
INVESTMENT IN KVP WILL DOUBLE IN 100 MONTHS
New Delhi: As in its previous structure, the relaunched Kisan Vikas Patra (KVP) will double your money in 100 months or eight years and four months. It is likely to have a higher rate of interest, but is unlikely to offer tax benefits, such as by National Saving Certificates (NSCs) or the Public Provident Fund. The KVPs will be re-launched by Finance Minister Arun Jaitley and Communications Minister Ravi Shankar Prasad on Tuesday to provide another option under the small savings scheme. Jaitley had announced the relaunch of the scheme in his Budget speech this year. There will be KYC (know-your-customer) norms in this scheme on the lines of NSC, a statement issued by the Finance Ministry said. KVPs will be available in Rs. 1,000, Rs. 5,000, Rs. 10,000 and Rs. 50,000 denominations, with no upper ceiling on investment. The certificates can be issued in single or joint names and can be transferred from one person to the other multiple times. The facility of transfer from one post office to another anywhere in India and of nomination will also be available. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/investment-in-kvp-will-double-in-100-months/article6609467.ece
ADANI LINES UP $1-BN SBI LOAN FOR AUSTRALIAN COAL ASSET
Melbourne: Adani Enterprises on Monday won support from a state-run bank and an Australian state to help it build a $7-billion coal mine, defying a slump in coal prices to five-and-a-half-year lows that has stalled rival projects. The infrastructure conglomerate, whose founder, Gautam Adani, has close ties to Prime Minister Narendra Modi, has signed a memorandum of understanding (MoU) for a loan of up to $1 billion from State Bank of India (SBI) for the mine, rail and port project, which it aims to build by the end of 2017. The loan, one of the largest extended by an Indian bank for a foreign project, was announced as Adani was in Brisbane with a business delegation for the G20 summit, which Modi attended over the weekend. “The MoU with SBI is a significant milestone in the development of our Carmichael mine,” Adani said in a statement. In recent years, Adani, 52, has enjoyed a rapid rise in Indian business circles, a rise often associated with Modi, who until this year headed the government in Gujarat where Adani is based and where it has a huge coal-fired power plant. http://www.business-standard.com/article/reuters/india-may-provide-up-to-1-billion-loan-for-adani-australia-coal-mine-114111700080_1.html
SBI EXPANDS LIST OF EQUITY FOR INVESTMENTS BEYOND NIFTY
Mumbai: As a step to make gains from a rising stock market, State Bank of India has expanded its list of equities for investments to go beyond the National Stock Exchange’s Nifty 50 index scrips. A senior executive at SBI, the country’s largest lender, said with the change of guard at the central government, the economic outlook was looking up and market sentiment reflected it. This had already improved the value of SBI’s equity investments. The NSE’s 50-stock benchmark index has appreciated by 26 per cent from end-March, to around 8,400 till now. While making investments, the approach will be selective, with the option to choose from a wider universe. A wider choice also provides room to avoid concentration in only 50 stocks in a rising market, the executive said. He, however, declined to name the identified scrips, saying investment ideas are not cast in stone and it was a dynamic situation. SBI’s total investments were pegged at Rs 485,734 crore at end-September. This is predominantly of government and corporate bonds, with a very small share of equity investments. This value could be about Rs 4,000 crore. Direct exposure is capped at 20 per cent of the bank’s net worth. http://www.business-standard.com/article/finance/sbi-expands-list-of-equity-for-investments-beyond-nifty-114111800019_1.html
LENDERS DELAY INFRASTRUCTURE BONDS ISSUE IN HOPE OF RATE CUT
Mumbai: Several banks that were planning to raise funds through long-term infrastructure bonds have been going rather slow on it. Some banks have postponed their plans, thanks to sluggish credit demand and an expectation of a rate cut from the Reserve Bank of India (RBI), which will bring down the cost of fund raising. YES Bank, Bank of Baroda, Andhra Bank, IDBI Bank and Bank of Maharashtra had chalked out plans to raise money through this route. Axis Bank is in the process of raising funds. Andhra Bank, which was earlier planning to raise Rs 1,000 crore through infrastructure bonds, has raised only Rs 200 crore so far. YES Bank had also taken the board approval to raise Rs 3,000 crore, but is yet to take shareholders’ approval. “The market expectation is that interest rates will come down. Raising money at such high rates might not be a very good idea for any bank. Moreover, these are long-term bonds, so the money will be locked in at a high rate of interest for at least seven years and the market has been expecting a rate cut for some time now. On these long-term instruments, a saving of 25-50 basis points will also make a huge difference and that is the reason why banks have been going slow,” said a treasury official from a public sector bank. http://www.business-standard.com/article/finance/lenders-delay-infrastructure-bonds-issue-in-hope-of-rate-cut-114111800018_1.html
IBA GETTING STUDENTS ON THE BANKING BANDWAGON
Mumbai: Indian Banks’ Association (IBA), the self-regulatory body of banks in the country, has drawn up a plan for banks to catch their customers young. In association with Child & Youth Finance International (CYFI), IBA has launched an initiative whereby every bank branch in the country will adopt a school in its vicinity to open accounts and impart financial education. This move aims to transform school students into future economic citizens, the association said in a statement. The plan to open accounts for children comes even as banks are in the midst of an aggressive financial inclusion drive under the Pradhan Mantri Jan Dhan Yojana (PMJDY) to open accounts for individuals from weaker and low-income segments. The banking system has been set a target of opening 7.50 crore basic savings bank deposit accounts by January 26, 2015, under PMJDY. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/iba-getting-students-on-the-banking-bandwagon/article6609458.ece
RURAL OPERATIONS TO TURN PROFITABLE IN 5 YEAR FOR PUBLIC SECTOR BANKS: CRISIL
Mumbai: The rising economies of scale with higher business per branch and usage of low-cost channels such as business correspondents (BCs) will help public-sector lenders, which are currently incurring losses in their rural operations, to turn in profits over a five-year time-frame, according to CRISIL Research. “As for private banks, rural operations are already mildly profitable, generating a 10th of their overall returns, and the situation will get even better,” said a CRISIL report released on Monday. According to CRISIL Research estimates, in the past five years, business per branch in the rural areas has grown at a compounded annual growth rate of seven per cent, despite the overall branch network growing at nine per cent annually. “The economies of scale are set to increase further in the years to come,” CRISIL noted. A case in point is the recently-launched Pradhan Mantri Jan-Dhan Yojana. While this poses challenges for banks in the short term, it would augment business per branch in the long term. Banks are also bringing down operating expenditure and expanding rural reach by experimenting with smaller branches as well as BCs. http://www.business-standard.com/article/finance/rural-operations-to-turn-profitable-in-5-year-for-public-sector-banks-crisil-114111700874_1.html
CENTRAL BANK’S NEW DEPOSIT SCHEME COMES WITH A FREE CREDIT CARD
New Delhi: You can now get the power of liquidity in a fixed deposit scheme. State-owned Central Bank of India has launched a deposit scheme that has a free credit card bundled with it. Under the scheme, Cent Aspire, an individual can get a free credit card against a fixed deposit of Rs. 20,000 and above in the bank, KK Taneja, Field General Manager, Central Bank of India, told newspersons here on Monday. “The main idea is to ensure that our customers in semi-urban and rural areas get a credit card product and liquidity in a fixed deposit scheme,” Taneja said. As much as 66 per cent of the bank’s 4,700 branches is located in rural and semi-urban areas, Taneja said. The card will have a maximum credit limit of Rs. 4,00,000 and comes with a personal accident cover of Rs. 1,00,000 (against death). The credit limit is up to 80 per cent of the deposit amount. Also, the interest rate on the amount outstanding beyond the credit period is lower than the prevailing interest rates on card receivables, Taneja said. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/central-banks-new-deposit-scheme-comes-with-a-free-credit-card/article6609464.ece
ULIPS TO SEE ANOTHER REVAMP SOON
With the Insurance Regulatory and Development Authority (Irda) planning to make unit-linked insurance plans (Ulips) more customer-friendly by giving at least 90 per cent of the premiums paid as fund value, these products may not be pitched to those in the older age group. The chief executive of a large private life insurance firm said the regulator wants them to give back minimum 90 per cent of all premiums paid when the policy reaches maturity. “For people above 50 years, the mortality charges are very high. Hence, we will not pitch this product to people above this age bracket,” he said. Regulatory officials said since there have been cases of customers losing 40 per cent or more of their fund value in their Ulip product, there have been concerns about the depreciating fund value. While a minimum return of four per cent is to be guaranteed, policyholders have complained about not being returned the adequate fund maturity amount. With the rise in misselling complaints, Irda had a re-look at the Ulip products, which had a lot of hidden costs. Hence, it came up with the September 2010 regulations for Ulips. In these regulations, Irda capped the annualised charges of Ulips at 2.25 per cent for the first 10 years of holding. As there was no incentive for the distributors, Ulip sales saw a sharp drop. The average commission in Ulips as a percentage to premiums collected fell to four per cent in 2011-12, from nearly 10 per cent in 2009-10. http://www.business-standard.com/article/finance/ulips-to-see-another-revamp-soon-114111001318_1.html
INSURERS SHIFT TO NON-GUARANTEED PRODUCTS
Mumbai / New Delhi: Insurance companies are now pitching non-guaranteed insurance products to customers, on the back of an increased risk appetite for pure equity and pure debt products and better commissions in unit-linked insurance products (Ulips). “We are seeing a shift from guaranteed products to pure debt and pure equity as markets are doing well. Investors are shifting from guaranteed products because they believe that returns will be better in pure debt and pure equity schemes,” said the head of fixed income at a life insurance company. Guaranteed products are products including traditional life insurance policies like endowment policies that offer 4 per cent or 8 per cent returns. As per the insurance regulations for non-linked products, target purchase price shall mean an absolute amount guaranteed at the outset of the contract or the accumulated value of the premiums/contributions accumulating at an illustrative rate of 4 per cent per annum and 8 per annum, which is expected to meet the policyholder’s pension needs after allowing for commutation. Similarly, the targeted pension rate shall mean the pension that a policyholder expects to receive at the date of vesting at an illustrative assumed rate of interest of four per cent per annum and eight per annum allowed in pricing the annuity. http://www.business-standard.com/article/finance/insurers-shift-to-non-guaranteed-products-114111701035_1.html
THE LATEST NBFC REGULATIONS ARE RETROGRADE
The latest RBI regulations bringing non-banking finance companies (NBFCs) on par with banks flies in the face of several financial-inclusion measures, feels Chennai-based Shriram Group’s Group Director GS Sundararajan. In characteristic style, he is severely critical of the regulator’s move and explains why more thinking needs to go into making regulations for the non-banking finance sector. Edited excerpts: What will be the likely impact of the new RBI regulations on NBFCs? Overall, it is a completely retrograde step for small borrowers and small businesses. Due to the several changes in regulations, the cost of funds could rise by as much as 150 basis points. This will get passed onto the customer. Customers will borrow if it is viable for them or they will stop borrowing. And if they do not borrow, GDP growth is not going to be there. If you give micro and small enterprises finance at reasonable rates, they will continue to grow. They are about 40 per cent of the economy on the GDP side. Also, I see that NBFCs will continue to have higher non-performing assets (NPAs) because of which provisions will go up. http://www.thehindubusinessline.com/todays-paper/tp-money-banking/the-latest-nbfc-regulations-are-retrograde/article6609462.ece
SEBI TO OUTLINE FRAMEWORK FOR PROMOTER-TO-PUBLIC RECLASSIFICATION
Mumbai: The Securities and Exchange Board of India (Sebi) is working on rules to govern how and when promoters will be allowed to reclassify themselves as public shareholders. The move follows instances of promoters reclassifying themselves to meet the minimum public shareholding (MPS) norms. A discussion paper for public comment is likely to be issued soon, multiple sources have said. The scenarios in which Sebi presently allows the reclassification include the signing of a separation agreement, duly disclosed, and promoter holding falling below five per cent. The regulator will also allow reclassification on a case-to-case basis if it feels the move is appropriate. “There was a need for this review. During the implementation of the mandatory requirement of 25 per cent public holding in private listed companies, it was observed that companies attempted to comply with the MPS norms by reclassifying a part of the promoter group entities as public,” said a source. The issue was first highlighted when Sebi disallowed a proposal by Gillette India which involved termination of the existing shareholder agreement, so that the promoters could be termed public shareholders to meet the MPS norms. Similar instances took place involving Gokaldas Exports and Balmer Lawrie. http://www.business-standard.com/article/markets/sebi-to-outline-framework-for-promoter-to-public-reclassification-114111701064_1.html
SEBI MULLS 1-TIME REGISTRATION FOR DEPOSITORY PLAYERS
Seeking to simplify procedural requirements, Sebi plans to put in place a one-time single registration process for depository participants to operate on both depositories. The proposal, which would replace the current practice of requiring separate registration certificate to operate in on both depositories, would be discussed in Sebi’s board meeting on Wednesday. http://www.business-standard.com/article/markets/sebi-mulls-1-time-registration-for-depository-players-114111701705_1.html
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