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.

Sundaram BNP Paribas Home Finance to raise Rs 2,500 crore this fiscal

"The company is targeting to raise Rs 2,500 cr in FY16 through a mix of debt and deposits as part of the fund raising plans this year.

CHENNAI: City-based Sundaram BNP Paribas Home Finance, the home finance subsidiary of Sundaram Finance Ltd, is looking at raising funds worth Rs 2,500 crore this fiscal as part of its expansion plans.

"The company is targeting to raise Rs 2,500 crore in FY16 through a mix of debt and deposits as part of the fund raising plans this year. National Housing Bank has sanctioned a funding of Rs 1,000 crore," Sundaram BNP Paribas said in a statement.

The mortgage lender eyes Rs 100-crore business from the rural housing segment during the current financial year, Sundaram BNP Paribas Home Finance Managing Director Srinivas Acharya said.

The smart cities project announced yesterday could be a trigger to aid the recovery in the real estate sector that has been sluggish for the last couple of years, he added.

Meanwhile, Sundaram BNP Paribas Home Finance has registered a net profit of Rs 146.42 crore for the year ended March 31, 2015.

The Chennai-based company had registered a net profit of Rs 150.73 crore in the previous fiscal.

"The figures are not comparable as there was a deferred tax liability on special reserves, introduced for the first time in financial year 2015, to the tune of Rs 9.59 crore", Sundaram BNP Paribas Home Finance said in a statement.

On the aquisition of housing finance companies, Acharya said, "The company added business close to Rs 25 crore through acquisition of home loan portfolios of housing finance companies and through securitisation in the second half of last year."

"We will continue to explore opportunities in the area of acquiring home loan portfolios of HFCs. The company believes there is a potential to acquire home loan portfolio of HFCs to the tune of Rs 100 crore this year," he said.

On the outlook for the financial year 2015-16, Acharya said, "...in the short to medium term we may not see a rapid recovery in the real estate space. For the moment, we are adopting a wait and watch approach on the growth prospects for the year."

Sundaram BNP Paribas Home Finance is a 50.1 and 49.9 per cent joint venture between Sundaram Finance and France-based BNP Paribas.

Income from operations for the financial year ending March 31, 2015, grew to Rs 954 crore from Rs 887 crore registered during the corresponding period last year.

Loans under management stood at Rs 7,486 crore as on March 31, 2015. The total home loan disbursements for the financial year ending March 31, 2015 declined to Rs 1,939 crore from Rs 2,493 crore registered during same period of previous year.

Sundaram Home Finance crossed more than 50,000 customers in FY 2015. The company has 108 offices across the country, the statement said.

Andhra Pradesh presents a tax-free budget

Plans expenditure of Rs. 1,35,689 cr; State sees revenue deficit to be around Rs. 4,568 crore.

Balancing development with social welfare, Andhra Pradesh Finance Minister Yanamala Ramakrishnudu today presented a tax-free budget which has planned an expenditure of Rs. 1,35,689 crore during 2016-17.

While the non-Plan expenditure is pegged at Rs. 86,554 crore, up 10 per cent, the Plan is projected at Rs. 49,134 crore, an increase of about 43 per cent over the revised estimates this fiscal. The Budget for 2016-17 entails an outlay of over 20 per cent over the budget estimates of 2015-16.

Fiscal deficit

The State has projected a revenue deficit to be around Rs. 4,568 crore, at 2.99 per cent of the Gross State Domestic Product (GSDP), the fiscal deficit is expected to be Rs. 20,457 crore, 0.71 per cent of GSDP, according to the Finance Minister.

In his 120-minute speech, the third Budget presented after the bifurcation of the State, Ramakrishnudu said, “The Budget will contribute to the growth momentum and ensure a sustained double-digit growth for many years to come. Apart from opening new vistas, it will fuel construction boom, especially housing for the economically and socially weaker sections, infrastructure development and launch of Amaravati capital city.”

Looking to Centre

He said the State was banking on the Centre to extend necessary financial support to develop the Polavaram irrigation project and the new capital city of Amaravati.

The State registered a growth of 10.9 per cent in spite of adversities and the hardship caused due to bifurcation. The Minister hoped the State would strive to ensure a double digit growth on a sustained basis. However, it continues to carry the revenue deficit of Rs. 13,897 crore inherited in 2014-15, as a consequence of “irrational bifurcation.”

Under the debt redemption scheme, the State has disbursed Rs. 7,433 crore to 54.06 lakh accounts benefiting 35.15 lakh farmer families. It is proposed to disburse another Rs. 550 crore for horticulture crops. A provision of Rs. 3,512 crore has been made for further debt redemption.

The services sector constitutes 46.6 per cent of the GDSP and the focus is to expand its contribution to the economy.

The development of the infrastructure, including industrial corridors of Vizag-Chennai, Chennai-Bengaluru and Kurnool-Bengaluru, Peninsular Regional Corridor of Donakonda, Mega Industrial Hub, rail freight corridors, ports and waterways, he hoped would accelerate the growth of the economy.

The setting up of National Investment Manufacturing Zone in Prakasham, on 14,231 acres, is expected to attract Rs. 43,700 crore, and another one proposed at Chittoor is likely to attract Rs. 30,000 crore, he said.

Seed equity for Amaravati

Andhra Pradesh has provided Rs. 1,500 crore for development of the Greenfield capital city of Amaravati towards seed equity of the State government.

This equity contribution would enable the Capital Region Development Authority to mobilise additional resources required for the construction of the capital from the infrastructure financing institutions and the markets. This would be in addition to the assistance from the Centre for capital city works.


The Finance Minister hoped the Centre would provide Rs. 3,500 crore for the construction of Polavaram and Rs. 1,000 crore for Amaravati.

Sun Capital

Crompton Greaves to sell overseas power unit to First Reserve for $126M

Crompton Greaves sells global power biz 

Parent Avantha Group has been selling non-core assets to cut debt. 

Crompton Greaves has inked a deal with US private equity fund First Reserve International to sell its global power business for an enterprise value of €115 million (about Rs. 846 crore). The sale will enable the company to reduce debt and focus on its faster-growing Indian businesses.

The company’s consolidated debt stood at Rs. 2,744 crore in FY15. Earlier, Crompton Greaves had announced the de-merger of its consumer products business into a wholly owned subsidiary Crompton Greaves Consumer Electricals.

Paring debt

In October 2015, the company sold its Canadian Power Transformer business to PTI Holdings Corp. These deals will help Crompton Greaves bring down its debt and expand its consumer products business.

On Wednesday, the Avantha Group company’s shares rose 8.81 per cent to Rs. 151.85 on a steady BSE, which closed 0.55 per cent higher.

On May 28, 2015, the company informed the stock exchanges that it had got non-binding proposals from “interested parties” from across Europe, North America and Indonesia. Later, on February 4, it said that discussions with a potential buyer were on.

Sun Capital

Paragon Partners launches $200-m India-focused mid-market PE fund

PE firm Paragon Partners has raised $50 million, marking the close of its $200 million growth fund, PPGF-I to invest in mid-size companies.

PPGF was established in 2015 by Siddharth Parekh and Sumeet Nindrajog. It is an AIF-Category II Private Equity fund, investing in high growth mid-market private companies in India.

The fund will focus on five key sectors — consumer discretionary, financial services, infrastructure services, industrials and healthcare services. The fund has an advanced pipeline of investment opportunities across these sectors.

Paragon Partners advisory board includes Deepak Parekh (Chairman, HDFC Ltd), Harsh Mariwala (Chairman, Marico Ltd & Founder Member), Sunil Mehta (Chairman, SPM Capital Advisors Pvt Ltd) and Jeff Serota (ex Sr. Partner at Ares Private Equity).

Siddharth Parekh, co-founder, Paragon Partners said: “We believe the next decade in India will see a strong resurgence of growth in key sectors such as manufacturing, financial services and infrastructure.”

The company said with its first close, PPGF-I has completed the funding of its first investment in Capacite Infraprojects Ltd, a leading EPC player based in Mumbai. Capacite is engaged in the construction of buildings (including super high rise structures) and factories, for large real estate developers, corporates and institutions.

The company currently has a footprint across Mumbai, NCR and Bengaluru regions and will look to grow this on a selective basis. Capacite is promoted by Rahul Katyal, Rohit Katyal and Subir Malhotra.

PPGF-I has seen significant interest from onshore and offshore institutions, family offices and HNIs. Domestic investors include India Infoline, Edelweiss Group and Infina Finance Private Ltd (an associate of Kotak Mahindra Bank Ltd).

Sun Capital

Banks disburse over Rs 1.15 lakh crore under PM Mudra Yojana

Banks have so far disbursed over Rs 1.15 lakh crore under Pradhan Mantri Mudra Yojana (PMMY), financial services secretary Anjuly Chib Duggal said on Tuesday.

Micro Units Development and Refinance Agency Ltd (Mudra) focuses on 5.75 crore self-employed who use funds totalling Rs 11 lakh crore and provide jobs to 12 crore people.

Under PMMY, loans between Rs 50,000 and Rs 10 lakh are provided to small entrepreneurs.

"We have been working with Mudra. It has been a runaway success ... we are looking at Rs 1.15 lakh crore plus right now," she said at an event organized by MFIN here.

The scheme was launched by Prime Minister Narendra Modi in April last year.

Three products available under the PMMY are Shishu, Kishor and Tarun, to signify the stage of growth and funding needs of the beneficiary micro unit or entrepreneur.

Shishu covers loans of up to Rs 50,000 while Kishor covers those above Rs 50,000 and up to Rs 5 lakh. Tarun category provides loans of above Rs 5 lakh and up to Rs 10 lakh.

With regard to Banks Board Bureau, Duggal said, she would be meeting newly appointed chairman Vinod Rai this week to discuss operationalisation of this specialised body.

Last month Rai, a former CAG, was appointed head of Banks Board Bureau by Prime Minister Narendra Modi.

The bureau will give recommendations on appointment of directors in public sector banks and advise on ways to raise funds and mergers and acquisitions to the lenders.

There are 22 state-owned banks in India including SBI, IDBI Bank and Bhartiya Mahila Bank.

Besides, she said that there would be meeting of heads of the bank on March 22 to discuss about the recently launched crop insurance scheme by Prime Minister.

The crop insurance scheme scheme has already been approved by the Cabinet that would replace the existing ones to ensure that farmers pay less premium and get early claims for the full sum insured.

Investment Banking

Banks will have to lower lending rates in April

Mumbai Irrespective of whether the Reserve Bank of India (RBI) cuts its policy rate on or before the April 5 policy review, banks will have to cut their lending rates by at least 25-30 basis points (bps) in April, to catch up with the lag in transmission.

The central bank has, so far, cut its repo rate by 125 bps and banks have passed on between 60-70 bps of the cut. If the central bank cuts some more, as is expected by the market, banks' lending rate cuts should be steeper, too. One basis point is 0.01 per cent.

But, the lending rate cuts might not happen immediately in March, as banks would ideally want to shore up their treasury profits by taking advantage of the recent dip in bond yields, and also enjoy an improvement in spreads in the last month of the financial year, when credit demand generally picks up.

The resultant profit will also mend their bottom line to some extent, as they have been severely hit by RBI's asset quality review programme, which will continue to exert pressure in the March quarter as well. "Transmission will happen, irrespective of the rate cut quantum (by RBI)," said Soumya Kanti Ghosh, chief economist, State Bank of India.

However, that will likely not be in March, said A Prasanna, chief economist at ICICI Securities Primary Dealership Ltd.

"There is pressure on bank balance sheets now. Transmission will improve with liquidity in April," Prasanna said.

From April 1, RBI's marginal cost-based lending rate (MCLR) would kick in, which will prod banks to use their incremental cost of funds, rather than average cost of deposits to arrive at the lending rate. Since money market rates move faster than deposit rates and banks tap into these money markets, the incremental cost will add dynamism in lending rate calculations. And, 10-year bond yields have fallen 15-20 bps since the Budget. If this trend continues till March-end, banks would have to factor in this drop.

Finally, with RBI infusing longer-term liquidity in the system through secondary bond market purchases, banks should have less reason to complain that system liquidity tightness is not letting them pass on rate cuts. Under the new liquidity framework, RBI ensures call money rates are anchored at around the repo rate, no matter how much liquidity infusion is needed. However, bankers have complained that the liquidity infused is short-term, and more permanent liquidity needs to be infused through secondary market bond purchase. The central bank does so through its open market operations, or OMO. Including a scheduled Rs 15,000-crore OMO purchase on Thursday, RBI's liquidity infusion is close to Rs 50,000 crore in recent months.

The OMOs, and with government spending picking up, have ensured that from an acute shortage of Rs 1.6 lakh crore at the end of January, banking system liquidity has improved to less than Rs 1 lakh crore now.

But there would be stress on the liquidity front again, starting March 15, when advanced tax outflow starts, pointed out Gaurav Kapur, India economist at Royal Bank of Scotland.

The tight liquidity condition would be needed to be evened out first before banks can move with rate cuts and that would be by the next financial year, Kapur said.

However, whether the rate cut would be of any meaning to revive growth is a different question altogether, articulated IDFC Bank's Chief Economist Indranil Pan.

"With MCLR pricing the incremental cost, pass-through of the cumulative 125-basis point rate cut is expected to be at 25-30 bps. So, even after a transmission of 85-90 bps if credit growth doesn't take place, one needs to ask if the problem lies with the RBI rate cuts and transmission mechanism or the credit channel itself," Pan said.

Investment Banking 

Tata Motors ties up with Bharat Forge, General Dynamics for Rs 50,000 crore infantry combat vehicle project

NEW DELHI: The home-grown auto major Tata Motors today announced a tri-partite partnership with Bharat Forge and US-based General Dynamics Land Systems (GDLS) to bid for India's Rs 50,000-crore future infantry combat vehicle (FICV) project.

Tata Motors will lead the consortium with Bharat Forge as a partner while General Dynamics Land Systems (GDLS) will bring in its much-proven expertise in-combat vehicle platforms, the company said in a statement.

On the partnership, Tata Motors Executive Director, Commercial Vehicle, Ravi Pisharody said: "Through this partnership, we will be better-positioned to help the country realise its 'Make in India' vision, for the first completely indigenised combat vehicle and at the same time cater to the opportunities available right here in India."

Bharat Forge Chairman and MD Baba N Kalyani said: "Our proposed partnership will constitute an important milestone to help meet the Indian government's objectives to strengthen indigenous defence capabilities, and particularly in land systems, with FICV."

GDLS Vice-President (Tracked Combat Vehicles) Donald Kotchman said the partnership will help meet the requirements of the Ministry of Defence FICV programme.

"At General Dynamics Land Systems, we have established a track record of delivering and sustaining international programmes, in a timely and cost-effective manner throughout the platform's life," he added.

The Tata Motors-led consortium's response to the Ministry of Defence EoI (Expression of Interest) commits to indigenise through various Tata Group companies that play a vital role in the defence and aerospace sector, the company said, adding that it will also partner with firms with the most advanced competencies in development of ICVs, for the global market.

In January this year, Tata Motors had said it would discuss with the government to include consolidated revenues in determining eligibility to bid for the FICV project despite being "confident" of its domestic turnover meeting the financial criteria.

The company is among the 10 reported Indian firms in race for building FICV - a tracked, armoured vehicle that will protect infantrymen riding into battle.

Reports had suggested that Tata Motors may not qualify for the tender if its London subsidiary JLR's is not considered.

The Rs 50,000-crore FICV project is spread over 25 years and other Indian firms, including L&T and Mahindra, are in the fray for the project. Other firms reported to be in the running include L&T, M&M, Bharat Forge, Pipavav Defence, Punj Lloyd and the Ordnance Factory Board.

The Army needs an amphibious FICV that is air-portable and can fire anti-tank guided missiles that destroy tanks at ranges of 4,000 metres.L The home-grown auto major Tata Motors today announced a tri-partite partnership with Bharat Forge and US-based General Dynamics Land Systems (GDLS) to bid for India's Rs 50,000-crore future infantry combat vehicle (FICV) project.

Tata Motors will lead the consortium with Bharat Forge as a partner while General Dynamics Land Systems (GDLS) will bring in its much-proven expertise in-combat vehicle platforms, the company said in a statement.

On the partnership, Tata Motors Executive Director, Commercial Vehicle, Ravi Pisharody said: "Through this partnership, we will be better-positioned to help the country realise its 'Make in India' vision, for the first completely indigenised combat vehicle and at the same time cater to the opportunities available right here in India."

Bharat Forge Chairman and MD Baba N Kalyani said: "Our proposed partnership will constitute an important milestone to help meet the Indian government's objectives to strengthen indigenous defence capabilities, and particularly in land systems, with FICV."

GDLS Vice-President (Tracked Combat Vehicles) Donald Kotchman said the partnership will help meet the requirements of the Ministry of Defence FICV programme.

"At General Dynamics Land Systems, we have established a track record of delivering and sustaining international programmes, in a timely and cost-effective manner throughout the platform's life," he added.

The Tata Motors-led consortium's response to the Ministry of Defence EoI (Expression of Interest) commits to indigenise through various Tata Group companies that play a vital role in the defence and aerospace sector, the company said, adding that it will also partner with firms with the most advanced competencies in development of ICVs, for the global market.

In January this year, Tata Motors had said it would discuss with the government to include consolidated revenues in determining eligibility to bid for the FICV project despite being "confident" of its domestic turnover meeting the financial criteria.

The company is among the 10 reported Indian firms in race for building FICV - a tracked, armoured vehicle that will protect infantrymen riding into battle.

Reports had suggested that Tata Motors may not qualify for the tender if its London subsidiary JLR's is not considered.

The Rs 50,000-crore FICV project is spread over 25 years and other Indian firms, including L&T and Mahindra, are in the fray for the project. Other firms reported to be in the running include L&T, M&M, Bharat Forge, Pipavav Defence, Punj Lloyd and the Ordnance Factory Board.

The Army needs an amphibious FICV that is air-portable and can fire anti-tank guided missiles that destroy tanks at ranges of 4,000 metres.

International Fund Raising 

Banks now have room to raise funds via tier 2 bonds: RBI

With the Reserve Bank of India (RBI) tweaking of banks’ core capital to include a part of real estate assets and foreign exchange, lenders will now have additional headroom to raise funds through tier 2 bonds, RBI deputy governor R Gandhi said on Thursday.

He told reporters on the sidelines of Gyan Sangam, a brainstorming session with financial sector players convened by the finance ministry, that Rs 25,000 crore of capital allocated for public sector banks in FY17 should be enough. “Banks can also go to the markets next year, so we believe it will be enough,” he said

On asset quality review, Gandhi said it is unlikely bad loans will spill over from FY16 to the next fiscal. “Spillover of bad loans unlikely in FY17 after the asset quality review,” he said. State-owned banks have been under severe stress arising out of delinquency in loans mostly belonging to infrastructure, power and steel sectors. As of September 2015, the stressed asset ratio — a combination of bad loans and recast assets — of public sector banks stood at 14.1%, versus 4.6% in private sector banks.

As per the RBI’s latest move, which is in sync with the Basel III capital norms, banks can account for 45% of their revalued real estate assets as tier 1 capital subject to riders.

The revised regulations on tier 1 capital include treating revaluation reserves, subject to conditions, as Common Equity Tier 1 (CET1) capital at a discount of 55%, instead of as tier 2 capital; treating foreign currency translation reserves, subject to conditions, as CET1 capital at a discount of 25%; and several directives on how to treat deferred tax assets vis-à-vis CET1 capital. These changes could improve the capital adequacy ratio of major PSBs by up to 100 basis points.

According to estimates, these relaxations, particularly that of treating revaluation reserves as CET1 capital, given the huge amounts of physical assets PSBs are sitting on, will free up capital upwards of Rs 30,000 crore-35,000 crore for them and upwards of Rs 5,000 crore for private sector banks.

Hinting that the RBI is looking at all such possible measures to augment the existing capital of banks, which would reduce the burden on them to raise fresh capital to a certain extent, governor Raghuram Rajan had hinted that the RBI is trying to identify non-recognisable capital, such as undervalued assets, already on bank balance sheets and could allow some of these to count as capital under Basel norms, provided a bank meets minimum common equity standards.

Sun Capital

Raghuram Rajan to wait until April to cut rates again

The Reserve Bank of India will wait a month to cut interest rates again, according to economists in a Reuters poll who mostly said New Delhi's latest fiscal deficit target looked optimistic.

Finance Minister Arun Jaitley committed to fiscal discipline in his Feb 29 budget, lowering the deficit target further for the fiscal year that starts next month, but offered little in the way of reforms investors have been waiting for.

Investors and traders in financial markets have been hoping RBI Governor Raghuram Rajan will follow soon with a rate cut, like he did last year.

But the majority of economists polled said he would not repeat the surprise cut of 25 basis points he delivered just a few days after last year's budget, with 20 of 28 saying a cut was unlikely before next month's policy review on April 5.

"Although we doubt the fiscal math, the fact that the government has been sticking to the stated math, in whatever way they are doing it, creates room for Rajan to cut rates soon," said Kunal Kundu, India economist at Societe Generale.

"They will probably bring the fiscal deficit down in a way that is not desirable, by cutting public capex, but Rajan has indicated that even if fiscal consolidation leads to lower growth he would still be OK with it," he said.

Asked what they thought about the fiscal deficit target for the next fiscal year, nearly two-thirds of the economists said Jaitley was being optimistic. The rest felt it was about right.

About two-thirds, 17 of 25, also predict the RBI will cut its benchmark repo rate by 25 basis points to 6.50 percent next month. Two predicted a deeper 50 basis point cut to 6.25 percent, while six saw no change.

After an April cut, the RBI is set to ease policy again in the last quarter of the year, according to the consensus view.

That is a very different outlook from what happened last year, when the RBI sliced 125 basis points off rates, twice unexpectedly and in-between meetings.

Last year's rate cuts came as inflation cooled rapidly around the world, triggering a wave of similar easier policy from major central banks. Consumer price inflation in India was 5.7 percent in January.

That exceeds Rajan's inflation target of 5 percent set for March 2017. Coupled with a weakening rupee, predicted to fall to record lows in the coming 12 months, rising inflation could stall the RBI's easing cycle.

There is a roughly one-in-three chance of the rupee falling to 70 per dollar, a Reuters poll of currency strategists showed on Thursday.

India is set to raise wages by almost 25 percent for its millions of public sector employees, a once-in-a-decade bonanza that will cost roughly $16.6 billion dollars, something that economists widely agree is inflationary.

Despite that extra expenditure, as well as planned outlays on farming and schemes to guarantee minimum employment for people in rural areas, Jaitley surprised investors by pledging to cut the fiscal deficit to 3.5 percent of gross domestic product in the 2016-17 fiscal year.

The RBI, however, is not yet convinced.

A possible source of revenue next fiscal year is sales of government stakes in public sector companies, the budget says.

But successive governments have had a poor track record selling off companies and it could be especially hard amid global stock market turmoil.

Three policymakers aware of the RBI's budget deliberations said they were combing the numbers to test how Jaitley struck a balance and whether the impact of the public pay rise had been fully accounted for.

Sun Capital

Nabard likely to get nod for Rs 5,000 crore tax free bonds

The finance ministry is likely to allocate a tax-free bond quota of Rs 5,000 crore to National Bank for Agriculture and Rural Development (Nabard) this financial year — a quota which was earlier surrendered by the National Highways Authority of India (NHAI), according to two sources aware of the development.

The finance ministry is likely to allocate a tax-free bond quota of Rs 5,000 crore to National Bank for Agriculture and Rural Development (Nabard) this financial year — a quota which was earlier surrendered by the National Highways Authority of India (NHAI), according to two sources aware of the development.

“We have received a communication from the finance ministry regarding the allocation of the Rs 5,000-crore tax-free bond limit. We are yet to receive an official communication from the CBDT. If we get the official go-ahead, we will have to raise the entire amount by the end of March this year,” a senior executive from Nabard told FE.

NHAI, which was allotted a tax-free bond quota of Rs 24,000 crore for this year, had surrendered a quota of Rs 5,000 crore back to the government a few weeks back, according to sources.

The company has raised between Rs 13,000 crore and Rs 14,000 crore via tax-free bonds this fiscal year and may further raise Rs 5,000 crore according to bond arrangers. NHAI’s recently conducted public issue of tax-free bonds received considerable response from investors who bid more than twice the issue size of Rs 10,000 crore.

Bond market sources had indicated that close to eight entities had written to the finance ministry requesting to be allotted the newly freed-up limit.

If Nabard gets the final notification from CBDT, it will have to raise at least Rs 3,500 crore through the public issue of tax-free bonds while the rest could be raised through the private placement route, according to the government notification on tax-free bonds which says at least 70% of the allotted amount has to be raised through public issue.

In FY16, NHAI, Indian Railway Finance Corporation, Housing and Urban Development Corporation, Indian Renewable Energy Development Agency, Power Finance Corp, Rural Electrification Corp and NTPC had been permitted to raise a total of Rs 40,000 crore through tax-free bonds.

The instrument had made a comeback this fiscal after remaining absent in FY15. Tax-free bonds were introduced in 2011-12 with an overall limit of Rs 30,000 crore to boost infrastructure spending.

In 2012-13, the limit was doubled to Rs 60,000 crore.

However, companies just raised Rs 18,000 crore through these bonds which was way below the target. In FY14, the limit was kept at Rs 50,000 crore, against which companies had borrowed Rs 49,200 crore.

Sun Capital

Large-value accounts responsible for rising NPAs: CBI chief

A group of "large-value" corporate accounts has pushed up non-performing assets (NPAs) and associated financial frauds in the country since 2008, CBI chief Anil Sinha said this week, at a time when dozens of Indian banks are swamped with bad loans.

The crisis runs deep, Sinha said at a financial conference in Mumbai on Wednesday, weeks after the Supreme Court asked the Reserve Bank of India (RBI) to provide details of companies that have each defaulted on loans of more than Rs500 crore.

However, the Central Bureau of Investigation (CBI) director did not give details of the accounts that are being examined by the agency.

India's banking sector, dominated by about two-dozen state-run lenders, has been bruised by its highest bad-loan ratio in years as lagging economic growth hit companies' abilities to service debt.

In August 2013, then CBI director Ranjit Sinha told a gathering of government officials that the "bulk of the NPAs is from the top 30 accounts, which is learnt to be running into thousands of crores."

A loan is recognised as a non-performing asset when the repayment is delayed beyond 90 days. This forces the bank to make provisions by setting aside funds, further restricting its lending capacity.

At the Mumbai meet, Anil Sinha said defaulters are not getting deterred because of "weak and diffused" accountability mechanisms in banks and financial institutions.

"Added to this is the unduly slow and long process by which such loans and advances are red-flagged, declared NPAs, then wilful defaulters and finally fraudulent," he said. It "allows large borrowers ample time to walk with the funds.to tax havens."

According to government figures, gross NPAs of 39 listed banks stood at Rs 4.43 lakh crore in December 2015, nearly ten times the 2009 level.

"The CBI has recently registered a case of cheating and fraud against Kingfisher and its erstwhile management involving allegations of defrauding banks to the tune of Rs 7,000 crore," Sinha said.

"This case was registered in July 2015, but the loans or advances were taken during 2004-2012. However, despite our repeated requests, the banks did not file a complaint with the CBI. We had to register the case on our own initiative."

RBI governor Raghuram Rajan has set banks a March 2017 deadline to clean up their balance sheets and treat some troubled loan accounts as bad and make provisions for them by the end of this March.

Sinha also underscored the need for pre-emptive action to thwart deposit scams that thrive in India's vast informal financial sector.

"The second case relates to PACL -Pearls Agrotech Corporation Ltd-which has reportedly collected over Rs 51,000 crore of illegal deposits from nearly 5.5 crore investors," he said, referring to the scandal that illustrated the risks faced by millions of low-income Indians who live outside the banking system.

"It needed the Supreme Court to step in to order investigations. Should not the regulator have suo moto (on its own) stepped in?"

Sun Capital

Budget 2016: Impact on alternative fund industry.

In the backdrop of slow global growth, turbulent financial markets and volatile exchange rates,one may say that expectations from the Union Budget 2016 were overall low. Amid a need to maintain fiscal discipline and with limited avenues to mobilise additional resources (except by increasing taxes), aspects like no substantial increase in service tax, no change in the structure of taxation for listed securities and no change in extension in holding period for an asset to qualify as longterm capital asset, all are signs of relief and indicators of a stable regime.

Having said that, the alternative fund industry, being the source of risk capital for Indian
entrepreneurs, had significant expectations from the Budget. They were hoping that the
government will significantly accept the recommendations of the Alternative Investment Policy Advisory Committee (AIPAC) formed by the Securities and Exchange Board of India (SEBI) under the chairmanship of NR Narayana Murthy. In fact, the report had a chapter dedicated to tax reforms required for the alternative funds industry.

While many of those recommendations could have been accepted, the Budget proposals fell
short of expectations in this regard. However, some proposals relevant to the alternative fund industry made their way and are summarized below: Withholding tax on distributions by Alternative Investment Funds (AIF): It is proposed that distribution of income by AIFs to nonresident investors shall not be subject to 10 per cent withholding tax provided such nonresident investor is eligible for tax treaty benefits.

This proposal will be warmly welcomed by the AIFs, specifically, the fund managers based in India, who were looking to raise capital from offshore investors, to capitalise on the recent FDI liberalisation allowing 100 per cent FDI in AIFs under the automatic route. However, it would have helped if the government had taken distributions to exempt resident investors or distributions of exempt income to residents out of 10 per cent tax withholding.

Applicable longterm capital gains tax rate to foreign funds: The issue of applicability of
reduced rate of 10 per cent tax on longterm capital gains arising on transfer of unlisted
securities for nonresidents is proposed to be resolved. It is proposed that such rate shall be
available on longterm capital gains derived on transfer of unlisted securities or shares of
company in which public is not substantially interested. While taxation of gains arising to most of the foreign funds would be protected under the applicable tax treaty, this amendment should help foreign funds in tax indemnity related discussions on exits.

Reduction in holding period: In another welcome move, the finance minister said that the
holding period of securities of unlisted companies to be treated as longterm capital asset is
proposed to be reduced from three to two years. However, enabling provisions to enact such amendment in the law seems to have been missed out.

Safe harbor rules largely unchanged: Allowing onshore asset management of offshore pool of capital has been a key demand of the alternative fund industry for more than three years. If enacted, the amendment will help the government not only in restricting export of intellectual capital but also raise additional revenues by way of income tax on fund management fees.

While two small amendments have been made (explained below), a lot was expected about
investment diversification, investor diversification and provisions relating to arm’s length
management fees. One hopes that these will be dealt through a separate notification for which the law provides for – though this needs some sense of urgency.

(i) Safe harbor rules were applicable to an eligible investment fund resident of a country /
specified association, with which India has entered into a double taxation avoidance agreement.

This section is proposed to be amended to also include a country which may be notified by the government. Here also instead of a country to be notified, what the industry expects is that the fund could be set up or established or incorporated in the countries with which India has a tax treaty.

(ii) Currently, an eligible investment fund is not permitted to carry on or control and manage,
directly or indirectly, any business in India or from India. This condition is now proposed to be restricted to controlling any business in India and not from India.
Place of Effective Management (POEM) effective from April 1, 2016: In order to provide clarity for implementation of the POEMbased residency test and also to address concerns of the stakeholders, it is proposed to defer the applicability of such rule by a year. However, it is expected that the government will soon finalise the detailed guidelines relating to determination of POEM for effective implementation.

MAT on foreign companies: With a view to provide certainty in taxation of foreign companies, it is proposed that MAT provisions shall not apply to foreign companies if it is from a treaty country and does not have a permanent establishment in India or it is not from a treaty country and is not required to register under the Companies Act.

New asset classes: Probably the last hurdle from tax standpoint for REIT/ InvIT, is proposed to be cleared in this Budget. Once enacted, dividend received by an REIT / InvIT from wholly owned special purpose vehicles (SPV) shall not be taxable in the hands of the trust nor will it be subject to dividend distribution tax (DDT) in the hands of the SPV.

Similarly, a new taxation regime for securitisation trusts and its investors has been provided.
Amongst others, tax passthrough status has been provided to income of securitisation trust
and income from securitisation trust would be taxable in the hands of investors. Further, 100
per cent FDI is proposed to be allowed under the automatic route in asset reconstruction
companies. For foreign portfolio investors regulated by SEBI, it is proposed that they shall also be allowed to invest 100 per cent of security receipts issued by the securitisation trust. Both provisions should help fund managers focusing on these asset classes in short to medium term.

Other important amendments include introduction of the Organization for Economic
Cooperation and Development's (OECD) recommendation on certain action plan of Base Erosion and Profit Shifting (BEPS) project, tax incentives for units located in International Financial Services Center, systematic phase out of tax incentives currently available under the tax laws and replacing it with tax incentive for startups and entities generating employment.

The industry still craves for clarity around characterisation of gains of an AIF to be treated as ‘capital gain’, extension of tax passthrough to all categories of AIFs and allowing retirement and pension funds invest in AIFs – though the circular issued yesterday should address one of the concerns in this regard (regarding characterization).

One would hope the government issues the necessary guidance to provide certainty on the
above issues, as these are a must for better development of the alternative fund industry.
Vikram Bohra is partner and Devang Ambavi is associate director manager, Financial Services Tax and Regulatory Services, PwC India.