Monday, 9 May 2016

Raghuram Rajan coy about second term as RBI Governor

New Delhi has not yet asked Raghuram Rajan whether he would like to pad up for a second innings at the Reserve Bank of India after his term ends on September 4. In the past one month, there has been endless speculation about the equations between the government and the RBI governor — whether Rajan would be given a cold shoulder, or offered another term, or invited to play a different role.

"That question, I can't answer. First I have to be asked, 'Do you want to continue?' Then, I can answer," said Rajan at the Shiv Nadar University on Saturday when ET asked him whether he would like a second term as the RBI boss. There is a widely shared perception in financial markets and banking circles that the Centre may find it difficult to refuse a second term to Rajan if he were keen on continuing. But as of now, the Chicago school economist — who in the past three years has positioned himself as an inflation warrior — is keeping options open.

"I love teaching. I will go back to academia once I am done with my work here," Rajan said in a meeting with the Shiv Nadar University's faculty. The governor was the chief guest at the second convocation of the university, which was founded in 2011. Even though corporate India and local markets have criticised Rajan's policy to keep interest rates high and liquidity tight, foreign portfolio managers, who have gained from high rates and a stable rupee, have been vocal admirers of Rajan.

Last week, Christopher Wood, equity strategist at brokerage and investment group CLSA, said the biggest risk to the Indian bond and currency market will be if the RBI governor is not given a second term. "He (Prime Minister Narendra Modi) must recognise the constructive role played by RBI under Rajan in both imposing a tighter NPL (non-performing loan) system on banks, carrying out a stress test on banks and putting pressure on them to go after defaulting creditors," Wood wrote in the widely circulated CLSA newsletter.

Before taking over as the RBI governor in September 2013, Rajan was the chief economic adviser in the ministry of finance. Prior to that, he was a professor of finance at the University of Chicago Booth School of Business and chief economist at the International Monetary Fund. "I have no problems with India's growth. It could be better. The best is yet to come," said Rajan.

Rajan also stressed the need to have research-oriented universities. "As a country, as we grow in stature, we have to contribute ideas. We are always protesting — this doesn't look good, that doesn't look good. We are always underprepared and that's why we shout." Back in the '50s, he pointed out, ideas and concepts such as Panchsheel emerged in India, but today "we are a shouting lot".

"If we contribute ideas based on facts, based on research, we could very quickly become leaders," he said. Addressing students at the convocation, Rajan said, "India is changing, in many ways for the better. You will be able to help shape our country, the world, and your place in it. Play to your strengths." Referring to the Shiv Nadar University, founded by billionaire tech czar Shiv Nadar, Rajan said, "I would like to see places like this flourish. Thoughtful philanthropy, as reflected in the founding of this school, can further help enhance society's acceptance of great wealth."

However, adding a word of caution, the RBI governor said, "We should make sure that unscrupulous schools do not prey on uninformed students, leaving them with high debt and useless degrees." Greater Noida, where Shiv Nadar University is located, is emerging as an educational hub with around 50 colleges attracting students from across the country.

Three NBFCs to bet on as CV sales recover

Piggy backing on a visible recovery in sales of commercial vehicles, Shriram Transport Finance, M&M Financial and Cholamandalam Finance emerge as favourites

With many quarters of earnings disappointment on account of weak net interest income (NII) growth or elevated non-performing assets (NPAs), stocks such as Shriram Transport, M&M Finance and Cholamandalam Finance have remained under pressure. But now with the better than average monsoon season forecast, sales of commercial vehicles (CVs) are showing steadfast signs of improvement. These stocks have gained 14-30% in the last month. Their March 2016 quarter (Q4 FY16) results too exceeded the Street’s expectations. This too fuelled their stock performance, regenerating interest in these stocks.

For instance, Shriram Transport, which is the market leader in CV lending segment, saw its NII for Q4FY16 expand to Rs 1,273 crore, up 34% year-on-year. However, higher provisioning (Rs 1,073 crore; up 33%) dented net profit to Rs 143 crore, which was down 55% year-on-year. But as this was due to consolidation of its commercial equipment business, analysts regard it as a one-off. In fact, the 23% year-on-year growth in assets under management or AUM (Rs 72,750 crore) and positive surprise from share of new CVs expanding from 8% a year-ago to 10% in Q4FY16 offset the decline in profit. Used vehicles business accounting for the rest of its business grew by 21% year-on-year. AUMs in FY17 are expected to grow by 15%, contingent to monsoon. Consequently, analysts at Jefferies have raised their earnings per share (EPS) target for FY17-18 by 100–200 basis points (bps) as Shriram Transport should benefit from strong CV credit demand and lower borrowing cost.  

Likewise, for M&M Financial Services, after a watered-down December'15 quarter, NII and net profit posted 16% and 12% year-on-year growth in Q4FY16, respectively. Elevated provisioning for bad loans which was the major pain point for many quarters showed remarkable improvement in Q4FY16 as provisioning declined by 23% year-on-year to Rs 116 crore in Q4’FY16. Also, with fairly high levels of repossession and collection efforts in place, analysts at Credit Suisse note that the provision coverage for M&M Financial remains intact at 62%. Though loans grew at 11% year-on-year (versus 18-20% for peers), with the asset quality improving, Credit Suisse has recently upgraded its EPS target for FY17 by 300 basis points to Rs 23.6.

In case of Chalamandalam Finance, too, Phillips Capital has increased its EPS estimate for FY17 by 350 basis points to Rs 48 on the back of strong NII, net profit and disbursements in the March 2016 quarter. While NII at Rs 600 crore grew by 33% year-on-year, net profit expanded by 42% to Rs 192 crore in Q4FY16. Vehicle finance (mainly CVs) account for 67% of Cholamandalam’s assets. In FY17, the company expects to maintain 20% growth in its advances, with higher focus on heavy commercial vehicles.

However, there is a word of caution for all NBFCs. While the asset quality may improve in FY17 with above-average monsoon, the crunching of provisioning norms from 120 and 150 days per dues (dps) to 90 dpd by FY17 (or FY18 in case of Shriram Transport) may put some stress on asset quality. But as this is a structural change, the Street is not too wary of it.

Sebi plans to ease funding, listing norms for start-ups

A revamp of the listing, fundraising norms on the anvil; Sebi to also expand definition of high-tech start-ups
Mumbai: The capital markets regulator is planning to expand the categories of investors eligible to fund start-ups; relax rules for listing shares; and ease promoter-holding and minimum trading-lot norms to help the country’s 3,100-odd start-ups to raise capital, two people directly familiar with the development said.

The Securities and Exchange Board of India (Sebi) also plans to further liberalize the norms related to alternative investment funds (AIFs) introduced in 2012, to increase access of capital to start-ups. The AIF route has made investments in start-ups more transparent and easier for private equity (PE) funds, venture capitalists and high networth individuals.
“Within the existing norms, certain changes in definition of eligible investors could be made to encourage more investors to put money in promising early-stage businesses,” said one of the two people cited above. “We are also examining if the minimum investment amount in the AIFs could be brought down slightly.”
Rules may also be relaxed to allow more early-stage companies to get listed.
The existing norms allow only so-called high-tech and new-age start-ups.
As many as 40 start-ups are ready to get listed either in India or overseas, according to Harish H.V., partner (India leadership team) at Grant Thornton India.
“Sebi’s thinking is in the right direction to liberalize the norms for start-ups, but the regulator should be careful while expanding the definition of a start-up eligible for listing,” said Harish.
“While amending the norms to attract more start-ups to get listed, it has to be ensured that no fly-by-night operator takes advantage.”
In June 2015, Sebi allowed the exchanges’ institutional trading platform (ITP) to be used for capital raising by start-ups which are intensive in their use of technology, information technology, intellectual property, data analytics, biotechnology or nano-technology, to provide products, services or business platforms with substantial value addition.
However, even among these companies, only those that have at least 25% of their pre-issue capital being held by qualified institutional buyers (QIBs) were allowed to access the exchange platform.
For other categories of startups to be eligible for getting listed, at least 50% of the pre-issue capital in the company has to be held by QIBs. Additionally, no person (individually or collectively with persons acting in concert) could hold 25% or more of the post-issue share capital in a listed start-up.
The norms laid down by Sebi, however, failed to attract any start-up to get listed.
The regulator is now considering expanding the definition of so called “high-tech” and “new-age” firms, which could opt for listing on ITP, said the second person. “The definition could be modified to include more categories of start-up companies to be eligible for the platform,” said the second person.
Further, the present norms allow only two categories of investors—institutional investors (with net worth of more than Rs.500 crore) and non-institutional investors (NIIs) other than retail individual investors to access the proposed ITP.
While getting listed on ITP, the minimum application size from such investors cannot be less than Rs.10 lakh and the minimum trading lot post-listing cannot be less than Rs.10 lakh.
These promoter-holding and minimum trading-lot norms are discomforting for startups, if and when they plan to get listed, according to a person associated with Indian Angel Network.
Sebi is planning to relax these norms, said the two people cited above.
“Sebi has received representations that the current cap on promoter holding on the company which is willing to list on the start-up platform, at 25% be relaxed to around 50-75%,” said the second person.
Also, the trading lot size at Rs.10 lakh is too high for any investor, and market participants have requested its reduction to Rs.5 lakh as earlier proposed. The regulator is actively considering these recommendations.
Although Sebi may not explicitly encourage retail investors to buy shares of start-ups, a lower minimum trading lot will enable more investors to invest in these early-stage companies.
“In order to make listing feasible for start-ups, it is very important to keep the minimum trading lot size less than the minimum required subscription amount,” said Harish. “The suggestion we made is to keep the minimum trading lot-size at Rs.2.5 lakh if the minimum subscription amount in the listing issue of the startup is fixed at Rs.5 lakh. Otherwise, if the value of the stock comes down even slightly after listing, it will be difficult for the investor to trade in the start -up stock.”
In January, an advisory panel headed by Infosys co-founder N.R. Narayana Murthy had suggested changes to facilitate capital raising.
Sebi’s latest plans are somewhat in line with the panel’s recommendations.
Th panel had suggested that Sebi change its eligibility norms for investors to put money in alternative investment funds.
The current norms require a person to invest at least Rs.1 crore in an AIF. The rules also say that any individual with total annual income of at least Rs.50 lakh should be allowed to put money in AIFs.
According to market experts who deal with AIFs, Sebi may consider easing some of these restrictions.
“The minimum investment required in the AIFs could be reduced to include more potential investors,” said the first person.
AIFs collect funds from high net-worth investors to invest primarily in unlisted securities and start-ups to promote entrepreneurship.
According to latest available Sebi data, AIFs got funding commitments worth Rs.30,687 crore by the end of December. Of this, at least Rs.14,031.39 crore has been already invested.
According to the Murthy panel, pension funds, insurers, domestic financial institutions and banks should contribute more to develop the AIF industry. Domestic pension funds in India, including the National Pension System (NPS) and the Employee Provident Fund Organization (EPFO) should allocate up to 3% of their assets to AIFs by 2017 and 5% by 2020, the panel had suggested.

Saturday, 7 May 2016

Obama: new tax rule will fight corruption, help economy

WASHINGTON - U.S. President Barack Obama said on Friday a long-delayed rule requiring the financial industry to identify the real owners of companies will help fight corruption and tax evasion and boost the economy.

His administration on Friday issued the Customer Due Diligence rule in the works since 2012 and proposed legislation meant to stop prevent criminals from using shell companies to evade taxes, launder money, and finance terror.

"These actions are going to make a difference," Obama told reporters. He said they would help the administration to do a better job of tracking financial flows and making sure companies are "paying the taxes they owe rather than using shell corporations and offshore accounts to avoid doing the things that ordinary Americans are doing every day."

Obama also called on Congress to pass legislation that requires all companies formed in the United States to report information to the financial crimes enforcement network at the Treasury Department.
"That's going to help law enforcement better investigate and prevent financial crimes," Obama told reporters.
Obama also urged Congress to raise the federal minimum wage, pass new trade agreements, and simplify the tax code.
"Only Congress can fully close the loopholes" that wealthy individuals or corporations can take advantage of, Obama said.
He singled out Senator Rand Paul, a Republican and libertarian, who in years past has single-handedly blocked tax treaties or treaty updates between the United States and Spain, Japan, Britain, and other countries. Paul has been "a little quirky on this issue," Obama said, and urged him "to stop blocking the implementation of tax treaties."
Paul's office did not immediately comment.
(Reporting by Timothy Gardner, Jeff Mason and Susan Heavey; Writing by Doina Chiacu; Editing by Chizu Nomiyama)

Friday, 6 May 2016

Burnpur Cement to invest Rs 500 crore for capacity expansion

KOLKATACement maker Burnpur Cement plans to invest Rs.500 crore for expansion of its production capacity to 3 million tonnes per annum (mtpa) in the next 3-4 years, a company official said on Wednesday.

“Presently, our installed capacity stands at 0.6 mtpa and we are planning to enhance the capacity to 3 mtpa (million tonne per annum) in the coming 3-4 years,” the company’s vice chairman and managing director Ashok Gutgutia said.
He said the investment for capacity expansion would be around Rs.500 crores which will be spent in the next 3-4 years.
The cement producer has two plants, one in Asansol in West Bengal and the other in Patratu district in Jharkhand. Each plant has 0.3 mtpa installed capacity.
The company also aims to increase its sales revenue to Rs.250 crore in the next year from Rs.100 crore in the last fiscal.
The cement producer plans to build a 2 mtpa greenfield plant in West Bengal.
“For which, we are in a process of procuring 100 acres of land. The location for the greenfield project is not yet finalised, it may be in Bankura or Purulia district,” he said.
The company has already bagged two limestone mines through auction mode.
“In addition, we plan to bag 5-6 limestone mines. We are planning to increase the capacity of our Jharkhand plant to 1 mtpa having raw materials reserve for minimum 50 years,” he said.

RBI releases ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks for December 2015'

The Reserve Bank of India today released the web publication ‘Quarterly BSR-1: Outstanding Credit of Scheduled Commercial Banks (SCBs), December 2015’. Under BSR-1, information on occupation/activity and organisational sector of the borrower, type of account, interest rate, credit limit and amount outstanding are collected for each loan account. Such information is aggregated at the bank group, population group and state level using locational parameters of the reporting bank offices.
This web publication contains comprehensive quarterly data on gross bank credit of SCBs (other than RRBs) since December 31, 2014. The data can be accessed at!12 through the website: Database on Indian Economy (DBIE) (
  • Bank credit registered a growth of 9.7 per cent in December 2015 as compared to December 2014 largely due to higher credit growth of private sector banks. In terms of total number of credit accounts, banking sector registered a growth of 12.2 per cent.
  • More than four-fifth of the total credit accounts of the banking sector were concentrated in agriculture and personal loan segment. However, the concentration in terms of outstanding credit in these segments was only 30 per cent. The proportion of credit in terms of amount outstanding to industry was highest at 42 per cent in December 2015.
  • Though large credit accounts (credit limit above ₹ 250 million) registered a y-o-y growth of 3.1 per cent in December 2015, their share in total amount outstanding declined marginally to 46.5 per cent from 47.8 per cent registered in December 2014.
  • The weighted average lending rate (WALR) of all rupee loans and advances was estimated as 11.39 per cent in December 2015 as compared to 11.59 per cent in September 2015. The reduction in WALR was observed in all sectors.
Sangeeta Das
Press Release : 2015-2016/2572

Tallest govt building: A 61-storey headquarter for Surat civic body on the cards

SMC officials said that they are checking the feasibility for this project on the 22,000 sq m land on the Ring Road where old sub-jail once stood

SURAT: The Chinese dragon has set tongues wagging in the Diamond City by proposing that it could help build a towering 61-storey headquarters for the Surat Municipal Corporation (SMC).

If the project, which sounds like a fanciful hope for now, is executed this could be the tallest government building in India. SMC has been operating from the historical Mughal Sarai building that was built way back in 1644 during the reign of Shahjahan.

The Chinese delegation comprising government firms that are into construction business had visited Surat last year and claimed that they could construct this fully environment-friendly skyscraper in very short time using pre-fabricated technology.

SMC officials said that they are checking the feasibility for this project on the 22,000 sq m land on the Ring Road where old sub-jail once stood. At least 13 consultants have been asked to prepare designs and submit them to SMC authorities for selection and approval.

Milind Torwane, municipal commissioner, said, "We are awaiting a feasibility report on building a multi-storeyed structure on the chunk of land with us. The mega project of SMC headquarters will take shape through public-private partnership (PPP)."

Standing committee chairman Rajesh Desai said, "We have to take a policy decision on linking the local body's administrative office with commercial establishments. It has not been seen anywhere else." He added, "We will have to shift the site if the 61-storey structure can't be built on the sub-jail land. We will soon take a decision on it."

Sources said that the concept of skyscraper for SMC headquarters was suggested by the Prime Minister's Office following which the Chinese team visited Surat.

Manoj Gandhi, India head of Anuj Infra Tech, which is an associate partner of seven companies of government of China, said, "Prefabrication construction technology means things are prepared in a factory and later assembled at the site.

Sun Capital

Alibaba sales surge as Chinese consumers defy economic gloom

Alibaba is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of China growing at the slowest pace in 25 years

Hong Kong: Alibaba Group Holding Ltd. posted a 39% surge in revenue as China’s dominant e-commerce operator shrugged off a slowing economy with promotions to woo cash-rich consumers.
Asia’s largest Internet company posted better-than-expected sales of 24.2 billion yuan ($3.7 billion) in the March quarter and said it will start providing annual forecasts. Its shares rose 5.3% in pre-market trading.
Alibaba, often regarded as a proxy for Chinese consumer spending, is capitalizing on the liquidity of households and expanding into rural areas, helping limit the impact of an economy growing at the slowest pace in 25 years. The company’s platforms, which link buyers and sellers, hit a 3 trillion-yuan milestone of goods sold during the period and the online emporium made more from mobile advertising and expanded overseas.
“Alibaba is still growing very nicely and sustaining very high margins in the face of the concerns about Chinese consumers and the face of competition,” said Gil Luria, an analyst with Wedbush Securities Inc. “It’s good results for Alibaba and it seems like their business is holding up.”
Spending weighs
Net income rose 855 to 5.3 billion yuan, just shy of the 5.4 billion-yuan average of estimates. Affiliate Zhejiang Ant Small & Micro Financial Services Group, which owns Alipay, incurred a net loss after spending to drive user growth. Adjusted earnings-per-share were 3.02 yuan, trailing analysts’ projections for 3.52 yuan.
The marketing push helped spur a 21% jump in active users to 423 million. That in turn underpinned a 41% jump in revenue on Alibaba’s Chinese retail e-commerce platforms. Mobile shopping on local retail sites almost tripled and now accounts for 63% of sales.
Vice chairman Joseph Tsai highlighted the $4.6 trillion of net cash reserves held by Chinese households as a key driver of ongoing spending and growth at Alibaba. After free cash flow reached $8 billion last year, he has pledged to keep investing to pursue growth—despite the potential drag on the bottom line.
“Going forward we are prepared to continue investing in high-potential businesses that are highly strategic to Alibaba, from digital entertainment to local services to international expansion,” Tsai said on Alibaba’s blog Thursday. “These businesses contribute to losses in our current income statement.”
New businesses
Alibaba expects last month’s $1 billion deal for control of Lazada Group SA, which gives it access to six Southeast Asian markets, will help Chinese merchants expand sales in the region.
“Lazada is a very important acquisition, Lazada has a very great brand recognition,” chief executive officer Daniel Zhang said. “This is a good vehicle for us to expand to this area.”
Alibaba has also expanded into on-demand services and entertainment, areas that have shown promise but aren’t expected to yield much profit for now. Its cloud computing business almost tripled revenue to more than 1 billion yuan in the quarter, has more than half a million paying customers and is close to breaking even.
Rural push
The company has also pulled out the stops to get its platforms in front of villagers, setting up free Internet-equipped computers and working with local officials to train potential buyers and sellers. It had a presence in 14,000 villages across the country by the end of March, out of about 600,000. That effort to diversify comes as Alibaba is trying to tap more of the 620 million Chinese who access the Internet from their smartphones and tablets.
“Advertisers are finding efficacy on the Alibaba platforms and they’re putting more money in, that’s a big driver,” said Rob Sanderson, an analyst at MKM Partners LLC. “If you’re an investor that wants them to harvest the assets for near term cash generation, then you should find a different stock, because that’s not what this is.”
Tsai said the company isn’t involved in shareholder Yahoo! Inc.’s potential sale of its core business.
“If they sell the core business, then they’ll continue to be a company that would continue to be a 15% shareholder in our company so nothing will change,” he said.

Lok Sabha clears Finance bill: India will grow faster if monsoon forecasts hold true, says Arun Jaitley

The passage of the Finance Bill will allow formation of the six-member monetary policy committee, which will include the RBI Governor and three government nominees. 

After two consecutive years of drought, finance minister Arun Jaitley said, India can grow faster if forecasts of a better monsoon hold true as that will improve agriculture and raise rural income.
While replying to a debate on the Finance Bill in Parliament, Jaitley said: “Economy, which had been expanding on strength of public investment, highest foreign direct investment (FDI) and urban demand, can grow faster if rural demand is added.”
Even though global economic outlook remains bleak, India remains the fastest growing major economy and has the potential to grow at “an even faster pace”, he added. Indian economy grew by 7.6 per cent in 2015-16 and is projected to grow by 7.5 per cent in the current year. Latest forecasts predict above-average rainfall in India after two years of drought.
After the reply, the House passed the Finance Bill that marks the culmination of the three-stage budgetary process in the Lok Sabha. The Bill will now go to Rajya Sabha.
Jaitley also ruled out rollback of 1 per cent excise on non-silver jewellery saying the levy was not applicable on small traders and artisans and only jewellers with more than Rs 12 crore turnover last year and Rs 6 crore for this year will attract the duty.
“I have not been able to understand the politics of hatred for ‘suit’ but love for gold,” he said, adding that if the Congress has objections to the levy, it can begin by removing the 5 per cent VAT on bullion in Kerala where it is the ruling party.
Jaitley also introduced amendments to the Finance Bill, 2016, for capital gains clarifying that the long-term capital gain period in case of unlisted securities has been reduced to 24 months from 36 months.
Separately, the Central Board of Direct Taxes, in a recent order to field formations, said that income arising from transfer of unlisted shares, irrespective of period of holding, would be taxable under the head capital gain. This has been done to reduce disputes and litigation as the assessing officer could earlier treat these gains as business income.
On black money, he said efforts of government have brought Rs 71,000 crore of undisclosed assets to the books. He, however, ruled out bringing agriculture income under the tax net, saying large farm-based income was rare and people using agriculture as front to hide income from other sources would be dealt with tax authorities.
Jaitley said tax notices have been sent to all the names of those holding offshore accounts that have been disclosed in the Panama papers and action will be taken against those illegally parking money abroad.
Highlighting the problem of non-performing assets (NPAs) of banks, Jaitley said, “NPA issue with banks is an issue of concern. Some loans may have been given wrongly. I am not going into who is responsible for it. But weakened business cycle due to global economy has also impacted bank balance sheets.” He added, “Hiding NPA will not resolve the problem. It should be reflected in balance sheet and addressed via capitalisation.” Jaitley said the government has drafted the amendments to the RBI Act, which will pave the way for creation of monetary policy committee, as was announced in the Budget.
The passage of the Finance Bill will allow formation of the six-member monetary policy committee, which will include the RBI Governor and three government nominees.

RBI releases “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”

The Reserve Bank of India today released on its website, “Draft Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector”.  It has sought views/comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large. Suggestions and comments on the draft guidelines may be sent by June 30, 2016 to the Chief General Manager, Reserve Bank of India, Department of Banking Regulation, Central Office, 13h floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001. Suggestions/comments can also be emailed by clicking here.

Final guidelines will be issued and the process of inviting applications for setting up of new universal banks in the private sector will be initiated after receiving feedback, comments and suggestions on draft guidelines.
In a departure from the earlier guidelines on universal banks dated February 22, 2013, the present guidelines include (i) resident individuals and professionals having 10 years of experience in banking and finance as eligible persons to promote universal banks; (ii) large industrial/business houses are excluded as eligible entities but permitted to invest in the banks to the extent of less than 10 per cent; (iii) Non-Operative Financial Holding Company (NOFHC) has now been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities; (iv) The NOFHC is now required to be owned by the promoter/promoter group to the extent of at least 51 per cent of the total paid-up equity capital of the NOFHC, instead being wholly owned by the promoter group; and (v) Existing specialised activities have been permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to it being ensured that similar activities are not conducted through the bank as well.
Key features of the guidelines:
(I) Eligible Promoters
  1. Existing non-banking financial companies (NBFCs) that are ‘controlled by residents’ and have a successful track record for at least 10 years.
  2. Individuals / professionals who are ‘residents’ and have 10 years of experience in banking and finance.
  3. Entities / groups in the private sector that are ‘owned and controlled by residents’ [as defined in FEMA Regulations, as amended from time to time] and have a successful track record for at least 10 years, provided that if such entity / group has total assets of ₹50 billion or more, the non-financial business of the group does not account for 40 per cent or more in terms of total assets / in terms of gross income.
(II) ‘Fit and Proper’ criteria
Promoter/promoting entity/promoter group should have a past record of sound financials, credentials, integrity and have a minimum 10 years of successful track record.
(III) Corporate structure
The requirement of Non-Operative Financial Holding Company (NOFHC) is not mandatory for individual promoters or standalone promoting/converting entities who/which do not have other group entities. Individual promoters/promoting entities/converting entities that have other group entities, shall set up the bank only through an NOFHC. The NOFHC shall be owned by the promoter/promoter group to the extent of not less than 51 per cent of the total paid-up equity capital of the NOFHC. Specialised activities would be permitted to be conducted from a separate entity proposed to be held under the NOFHC subject to prior approval from the Reserve Bank and subject to being ensured that similar activities are not conducted through the bank.
(IV) Minimum capital requirement
The initial minimum paid-up voting equity capital for a bank shall be ₹5 billion. Thereafter, the bank shall have a minimum net worth of ₹5 billion at all times.
The promoter/s and the promoter group/NOFHC, as the case may be, shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked-in for a period of five years from the date of commencement of business of the bank. The promoter group shareholding shall be brought down to 15 per cent within a period of 12 years from the date of commencement of business of the bank.
(V) Foreign shareholding in the bank
The foreign shareholding in the bank would be as per the existing foreign direct investment (FDI) policy subject to the minimum promoter shareholding requirement indicated in paragraph (IV) above. At present, the aggregate foreign investment limit is 74 per cent.
(VI) Corporate governance prudential and exposure norms
The bank shall comply with the provisions of Banking Regulations Act, 1949 and the existing guidelines on prudential norms as applicable to scheduled commercial banks. The bank is precluded from having any exposure to its promoters, major shareholders who have shareholding to the extent of 10 per cent or more of paid-up equity shares in the bank, the relatives of the promoters as also the entities in which they have significant influence or control.
(VII) Business plan for the bank
The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to achieve financial inclusion.
(VIII) Other conditions
The bank shall get its shares listed on the stock exchanges within six years of the commencement of business by the bank.
The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census). The bank shall comply with the priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks. The board of the bank should have a majority of independent directors.
(IX) Procedure for application
  • The licensing window will be open on-tap, and the applications in the prescribed form along with requisite information could be submitted to the Reserve Bank at any point of time.
  • The applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by the Reserve Bank.
  • The Committee will submit its recommendations to the Reserve Bank for consideration.
  • The decision to issue an in-principle approval for setting up of a bank will be taken by the Reserve Bank.
  • The validity of the in-principle approval issued by the Reserve Bank will be 18 months from the date of granting in-principle approval and would thereafter lapse automatically.
  • The Reserve Bank’s decision in this regard will be final.
  • In order to ensure transparency, the names of the applicants for bank licences and the names of applicants that are found suitable for grant of in-principle approval will be placed on the Reserve Bank’s website periodically.
It may be recalled that the Reserve Bank of India (RBI) had last issued guidelines for licensing of new banks in the private sector on February 22, 2013. Consequently, the Reserve Bank issued in-principle approval to two applicants and they have since established the banks.
Recognising the need for having an explicit policy on banking structure in India in line with the recommendations of the Narasimham Committee, Raghuram G. Rajan Committee and other viewpoints, the Reserve Bank came out with a policy discussion paper on Banking Structure in India – The Way Forward on August 27, 2013. After a thorough examination of the pros and cons, the discussion paper made out a case for reviewing the current ‘Stop and Go’ licensing policy and for considering a ‘continuous authorisation’ policy on the grounds that such a policy would increase the level of competition and bring new ideas into the system. The feedback on the discussion paper broadly endorsed the proposal of continuous authorisation with adequate safeguards. The first Bi-monthly Monetary Policy Statement 2014-15 announced on April 1, 2014, among other things, then indicated that after issuing in-­principle approval for new licences, the Reserve Bank will start working on the framework for on-tap licensing as well as differentiated bank licences, Building on the Discussion Paper and using the learning from the recent licensing process, such as, the experience of licensing two universal banks in 2014 and granting in-principle approvals for Small Finance Banks and Payments Banks, the Reserve Bank has now worked out the framework for granting licences to universal banks on a continuous basis.

Thursday, 5 May 2016

HDFC Ltd to raise Rs 1,135 cr via debentures

Issue of the NCDs to be on a private placement basis will open for a day on May 6

HDFC Ltd today said it will raise Rs 1,135 crore by issuing debentures this week to meet funding requirements.

"The object of the issue is to augment the long term resources of the Corporation. The proceeds of the present issue would be utilized for financing/refinancing the housing finance business requirements of the Corporation", it said in a regulatory filing.

The issue of the non-convertible debentures (NCDs) to be on a private placement basis will open for a day on May 6.

The NCDs carry coupon rate of 8.34%. ICICI Bank and SBI Capital Markets are the arrangers to the issue. Shares of the mortgage lender closed 2.86 per cent higher at Rs 1,131 a piece on BSE.

Kishore Biyani plans to merge HomeTown with FabFurnish

HomeTown may be spun off from Future Retail to create a new firm by combining it with

Mumbai: Kishore Biyani, group chief executive officer of retail conglomerate Future Group, may hive off the home retail business HomeTown from its flagship Future Retail Ltd and create a new home furnishing company by combining it with, which it acquired last month.
Future Group is the parent of listed companies such as Future Retail Ltd, Future Lifestyle Fashions Ltd and Future Consumer Enterprise Ltd.
The company has been operating the HomeTown retail chain for the last 10 years and creating a standalone home furnishings company is a move towards unlocking value, the company said.
“We are looking at creating value as we merge and create an independent identity for our home furnishing business,” Biyani told a press conference on Wednesday to announce the re-launch of on 5 May along with a campaign and discounts in the marketplace.
HomeTown is expected to become a Rs.1,000 crore business by the end of the current financial year which makes it the largest home furnishing company in the country, said Mahesh Shah, chief executive officer, HomeTown.
There are 42 HomeTown retail stores and the plan is to add eight more in this fiscal year, he added.
Globally, very few retailers sell everything from fashion to furniture and groceries, with most large companies specializing in a particular area of operations, said Abhishek Malhotra, leads the consumer industries and retail products practice for India at AT Kearney. “It makes sense to start creating separate specialist companies now that these businesses are gaining scale,” he said.
However, in India, not many home furnishing firms have gained success or scale. Reliance Industries Ltd’s retail arm Reliance Retail exited from its home furnishings retail business Reliance Living in 2014. Even hypermarket chain HyperCITY Retail India Ltd exited the furniture and electronics retail business two years ago.
Meanwhile, Swedish furniture and home furnishings maker Ikea’s first India store is expected to launch in 2017, which could further disrupt the sector.
Biyani, however, feels that by the time Ikea launches, HomeTown will be a sizeable business, with Rs.1,500 crore revenue and, hence, would not be impacted.
HomeTown will be a vendor on, which will also sell home and furnishing products from other retailers.
Ashish Garg, co-founder, FabFurnish, said the company will turn profitable in the next three months, adding that it will be one of the first online retailers to achieve profitability in India as it looks to keep costs low and boost business.
Over the next three months Future Group will also launch its eZone app and online shopping portals for Big Bazaar, shoe brand Clarks and plus-sized women’s clothing brand All, said Vivek Biyani, director Future Group.
The group’s original listed entity Pantaloons Retail India Ltd and Future Venture India Ltd have over the years changed forms and names to become three listed entities spanning across groceries retail—Future Retail, Future Lifestyles (fashion) and Future Consumer Enterprise (an integrated packaged consumer goods company).
Currently, Future Retail is in the process of merging with Bharti Retail Ltd which will see the creation of two companies—one with the front-end retail operations and the second a back-end, infrastructure and investments company.
The home furnishings company, if created will be the fifth listed company of the group.

Sundaram BNP Paribas Home Finance Q4 profit up 4.28%

Sundaram BNP Paribas Home Finance on Saturday said Q4 profits rose only 4.28% to Rs 31.73 crore from last year attributing the less than stellar performance to the downturn in the real estate market.

For the full year, the Chennai-based lender's profit was up only 4.3% to Rs 153 crore from last year, as year-over-year revenue from operations fell 2.8% to Rs 927 crore. The home lender's net NPA stood at 0.98%.

"We see good potential in the rural segment and have stepped up our efforts in this segment. Also, we have been actively pursuing buying portfolios of affordable housing finance companies and will continue to focus on the opportunities in this segment," said Srinivas Acharya, MD, Sundaram Home Finance, which aims to raise Rs 2,500 crore this year through a mix of funding instruments. The company's fixed deposits crossed the Rs 1,000 crore mark and stood at Rs 1,022 crore as of March 31, 2016.

With 10 branches, first small finance bank kicks off operations

The bank’s business is projected to increase four-fold from Rs 3,000 crore as on March 31, 2016 to Rs 12,000 crore and branch network to 216 by March 2021.

Jalandhar-based Capital Small Finance Bank Ltd, India’s first small finance bank, has commenced operations. The bank kicked off operations with ten branches.

In the current fiscal, the bank would consolidate in Punjab by adding 29 branches. The bank’s business is projected to increase four-fold from Rs 3,000 crore as on March 31, 2016 to Rs 12,000 crore and branch network to 216 by March 2021.
Capital Small Finance Bank has been set up by converting the erstwhile Capital Local Area Bank Ltd. “Consequently, the bank ceases to exist with effect from April 24, 2016. It was one of the 10 applicants to be given in-principle approval for setting up SFBs as announced by the Reserve Bank in its press release dated September 16, 2015,” the RBI said.
Ten selected applicants include Au Financiers (Jaipur), Capital Local Area Bank (Jalandhar), Disha Microfin (Ahmedabad), Equitas Holdings (Chennai), ESAF Microfinance and Investments (Chennai), Janalakshmi Financial Services (Bengaluru), RGVN (Northeast) Microfinance (Guwahati), Suryoday Micro Finance (Navi Mumbai), Ujjivan Financial Services (Bengaluru) and Utkarsh Micro Finance (Varanasi).
The small finance bank will primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.
There won’t be any restrictions in the area of operations of small finance banks. The minimum paid-up equity capital for small finance banks shall be Rs 100 crore.
The promoter’s minimum initial contribution to the paid-up equity capital of such a small finance bank should at least be 40 per cent and gradually brought down to 26 per cent within 12 years from the date of commencement of business of the bank.
The RBI had granted approval to 11 entities for launching payments banks in August 2015. It had given approval to IDFC and Bandhan to start universal banks last year.
Meanwhile, microfinance player Ujjivan Financial Services, which got the RBI nod for a small finance bank, will hit capital markets on Thursday to raise nearly Rs 885 crore through an initial public offering.

Wednesday, 4 May 2016

Government raises Rs 8,152 crore via NTPC bonus debenture sale to EPFO

NEW DELHI: The government raised Rs 8,152 crore in 2015-16 by selling bonus debentures of NTPC to EPFO, Parliament was informed today. 

Disinvestment in central public sector enterprises (CPSEs) is undertaken as per the extant disinvestment policy of the government, Minister of State for Finance Jayant Sinha said in a written reply in the Rajya Sabha today. 

He said the government raised as much as Rs 23,997.29 crore in 2015-16 by diluting its stake in various CPSEs. 

"Further, the government has raised Rs 8,152 crore on account of sale of bonus debentures of NTPC to EPFO," Sinha said in the reply. 

Besides, an additional amount of Rs 1,023 crore (approximately) was realised as buyback tax on account of buyback transactions undertaken by unlisted CPSEs during 2015-16, he added. 

Buyback helps a company reduce equity by using idle cash and hence, provide better returns to shareholders. 

The Department of Investment and Public Asset Management (DIPAM) has helped the exchequer garner Rs 4,500 crore through buyback of shares by Hindustan Aeronautics and Bharat Dynamics in March. 

In the Budget 2016-17, Finance Minister Arun Jaitley said the government will leverage the assets of CPSEs for generation of resources for investment in new projects. 

The NITI Aayog will identify the CPSEs for strategic sale. 

"We will encourage CPSEs to divest individual assets like land, manufacturing units, etc to release their asset value for making investment in new projects," Jaitley had said.

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