RBI eases credit rules for exports

The Reserve Bank of India (RBI) has simplified the rules for credit to exporters. They can now get long-term advance from banks for up to 10 years to service their contracts, easing the previous norms that only allowed on loans above one year.

Banks can make such payments to exporters with a satisfactory record of three years and adjust these payments against future exports.

“This measure will help exporters get into long-term contracts. It will help the overall export performance and help the rupee in the short to medium term,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.

"This move will help boost our exports,” said Rupa Rege Nitsure, chief economist, Bank of Baroda.

RBI also said banks cannot charge interest rates exceeding 200 basis points above the London Interbank Offer Rate. Banks should ensure compliance with anti-money laundering norms and know your customer guidelines.

According to RBI such export advances shall not be permitted to be used to liquidate rupee loans. Double financing for working capital and execution of export orders should be avoided.

Also exporters who receive loans of $100 million or above need to report the transaction immediately to RBI.

Source: Business Standard

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SC to HC: Decide on Sun-Ranbaxy merger in 2 days

A bench of the Supreme Court on Wednesday asked the Andhra Pradesh High Court to decide on a suit against the merger of Sun Pharmaceutical Industries and Ranbaxy Laboratories in two days. The apex court will consider the appeals of the two companies next Tuesday.

The vacation bench of judges B S Chauhan and A K Sikri said it would be appropriate for the high court to hear the case and decide on it before the apex court considered the matter.

The vacation bench of the high court had ordered a temporary stay against the merger, after which the companies had moved the vacation bench of the Supreme Court, challenging the former’s order. According to the petition moved by Sun, the high court order was hurting its 139,546 and Ranbaxy’s 182,721 shareholders.

A M Singhvi, counsel for Sun Pharma, said the high court order was “lacking in jurisdiction as both companies are outside that state.”

He added the investors who had moved the high court, alleging insider trading in Ranbaxy’s stock by a Sun subsidiary before the merger was announced, had abused the process of law and indulged in “forum shopping” as suits had been also filed in the high courts of Gujarat and Punjab & Haryana. One of these petitioners held only 350 shares of the total 40 million. The $4-billion merger, thus, could not be held up by an interim order, the Singhvi said.

A few shareholders, led by T Shiva Kumar, have alleged that before the announcement of merger, there was transaction in Ranbaxy’s stock tripled in three sessions and Silver Street Developers, one of the buyers, was owned by two subsidiaries of Sun.

Daiichi Sankyo, from which Sun is buying Ranbaxy, also has appealed to the Supreme Court against the high court stay on the merger.

Source: Business Standard

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IPO investors may get modified safety net

To infuse life into the moribund primary market, the Securities and Exchange Board of India (Sebi) is planning to introduce the concept of ‘stabilising agents’ to protect investors and boost participation in initial public offerings (IPOs).

The capital market regulator wants issuers to put in place a price-stabilising mechanism, on the lines of market-making, to ensure the market price of a company doesn’t fall below the IPO price for a stipulated period. Under this mechanism, a company will have to appoint a stabilising agent---a broker or an investment banker. The agent will have to support the secondary market price by transacting in shares through the open market for up to six months.

“Now that the idea of a mandatory safety net has been dropped, we are deliberating whether we can tweak existing provisions under ‘green-shoe’ to protect investors in IPOs. We intend to bring in some of the measures proposed in the safety net to ensure price stability,” said a senior Sebi official.

Currently, the appointment of stabilising agents is compulsory for follow-on public offerings (FPOs) that have the green-shoe option, under which issuers can retain excess subscription of up to 15 per cent of the issue size. ICICI Bank and Tata Steel are among the handful of issuers that have exercised this option in their FPOs.

Though investment bankers aren’t very keen on further obligations, they say the concept of stabilising agents was better than that of a safety net. A safety net, they said, was against the concept of equity investing “Extending the concept of price stabilising agents to IPOs is feasible. It will help the market and provide much-needed confidence to investors for investing in IPOs,” said B Madhuprasad, chairman, Keynote Corporate Services, an investment banking firm.

Last year, Sebi had floated a concept paper on safety net, under which retail investors were to be compensated for a fall in share prices after listing. The move was prompted by the wariness of investors towards IPOs, after they lost money in about 80 per cent of the issues between 2011 and 2012. Since then, India’s IPO market has shrunk dramatically.

Sebi is also said to be considering issuing convertible securities to protect investors from down-side risks in IPOs.

Under this mechanism, investors can either earn a fixed coupon or convert the security into equity, depending on the performance of the company’s share price after listing.

“A number of steps are being discussed for IPOs. At the moment, reviving the capital market is one of the top agendas, as the IPO market is crucial for kick-starting the investment cycle,” said a senior finance ministry official.

Sebi is considering mitigating costs for primary-market issuances. Steps planned to cut IPO costs include using secondary market infrastructure for IPO distribution, simplifying application forms and abridging offer documents.

Source: Business Standard

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RBI relaxes gold import norms

The Reserve Bank of India (RBI) on Wednesday liberalised gold import norms under the 80:20 rule. Though the ratio hadn’t been changed, star and premier export houses had been allowed to import the commodity, while banks and nominated agencies had been allowed to provide gold for domestic use as loans to jewellers and bullion traders, said a notification issued by RBI.

The new norms come into force with immediate effect.

Under the 80:20 scheme, the government had, on August 14 last year, allowed nominated agencies to import gold on the condition that 20 per cent of the import would be exported.

It is expected Wednesday’s move will increase monthly average gold import from 25-30 tonnes to 50-60 tonnes. Also, jewellers’ cost of funds could decline with the resumption of gold loan facilities.

The spot delivery premia for gold in the market here fell from $120 an ounce a fortnight ago to $80/ounce on Wednesday. Speculation on liberalisation in gold import had gained ground through the last few days, after the Bharatiya Janata Party secured a majority in the Lok Sabha elections.

It is likely the spot premia could fall to $20 an ounce in the next two-three weeks. Considering the rupee’s current value and international gold prices, gold could see an additional four-five per cent fall in prices. On Wednesday, the commodity closed at Rs 28,725/10g in the market here. The RBI’s notification on import relaxation came after the market closed.

On the Multi Commodity Exchange, gold futures expiring in June fell by Rs 400/10g to trade at Rs 27,853/10g five minutes after RBI uploaded the notification on liberalising gold imports. A broker active in the futures market confirmed in the last few days, some large traders had built short positions in gold on expectations of import relaxations.

The RBI announcement said the decision to liberalise gold import norms had been taken in consultation with the Centre.

Mohit Kamboj, president, Indian Bullion and Jewellers Association, said, “Now, gold import will happen according to demand and jewellers will start getting gold on loan at four-five per cent interest, against the existing condition of making full payments for the gold bought. This will save huge interest cost for them.”

According to the RBI notification, star/premier trading houses can import an initial tranche of gold under this scheme, based on the highest monthly import during the 24 months prior to RBI’s notification dated August 14, 2013, subject to a cap of two tonnes. An analyst said in 2012, the market share of these trading houses in total gold import was 12 per cent, which rose to 25 per cent last year.

“At that rate, subject to these star/premium houses exporting 20 per cent of the imported quantity and the impact of the other measures, the import entitlement will rise to about 130 tonnes, replacing unofficial gold by a large extent,” said Sudheesh Nambiath, precious metals analyst, GFMS, Thomson Reuters. The World Gold Council had estimated in 2013, 200 tonnes of gold was smuggled into India. The analyst said as long as the duty was very high, smuggling wouldn’t stop, but an improvement in supply through the official route would improve. He added as investment demand for gold had fallen, attractiveness for smuggled gold, too, would decline.

Currently, average gold import a month is about 25-30 tonnes; this could well rise to 60 tonnes.

Vipul Shah, chairman of Gems and Jewellery Export Promotion Council, said, “Export of gold jewellery has already shown signs of an improvement. With today (Wednesday)’s liberalisation, flow of gold to small exporters will also improve, as new players such as export houses have been allowed to import gold.” He estimated the recent move to have an impact of at least 10 tonnes per month on monthly import and spot delivery premia to fall below $20 an ounce.

In its notification, RBI has also prescribed a few procedures for export houses. These include providing an import plan.

Banks importing gold will find it easy to import for domestic use, subject to 20 per cent export. While gold loans cannot be more than the allowed sale limit in the domestic market, after meeting export requirements, they will be able to import gold for the domestic market on a consignment basis and give this to jewellers as loans.

Source: Business Standard

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Rupee at 11-month high, RBI intervention seen

The victory of the Bharatiya Janata Party-led National Democratic Alliance (NDA) resulted in the rupee ending the day at an 11-month high, due to dollar flows into domestic markets.

Though state-run banks were buying dollars on behalf of the Reserve Bank of India (RBI), dollar sales by exporters and custodian banks helped the rupee. The earlier such high was on June 19 last year, when the rupee ended at 58.72.

The rupee ended at 58.78, compared with the previous close of 59.29 a dollar. It had opened at 58.96 and during intra-day trade, touched a high of 58.62. Experts had earlier said the rupee might not strengthen above 58.50, due to intervention by RBI to safeguard exporters’ interest.

“A lot of custodian flows were coming in. RBI sees this as an opportunity to build reserves. If RBI was not present in the market, the rupee would have appreciated more,” said Mohan Shenoi, president, group treasury and global markets, Kotak Mahindra Bank.

Since the start of 2014, the rupee has appreciated by nearly five per cent. Shenoi thinks the rupee might trade next week in the range of 58.75 to 59.25 a dollar.   

RBI has often said it is not targeting any level for the rupee. However, Brijen Puri, executive director and head of markets, JPMorgan says, “It might not be very comfortable with a level materially lower than 58-58.50 to a dollar. It is also a good opportunity for them to add reserves, as that also bolsters confidence in case of any risk-off moves. The market (then) perceives RBI has an augmented war chest”.

The latest data shows RBI's foreign exchange reserves rose $1.97 billion for the week ending May 9, to $313.83 bn, a level not seen since November 2011. The central bank has been intervening in the forex market in the past few months, which checked the rupee's appreciation against the dollar. According to RBI data, it purchased $8.75 bn in March. Market participants said in the wake of foreign fund inflows in the past few days, after exit polls predicted a victory for the NDA, intervention was in the range of $15 bn daily.

“Given the political strength and dilution in external headwinds, the medium and long-term outlook for the rupee is bullish. The concerns, however, in the near term are on possible removal of the import curbs on gold and the need to retain rupee stability at 59-60 (to a dollar) to support exports till current account deficit-related woes are out of the way,” said Moses Harding, group chief executive officer (liability and treasury management), Srei Infrastructure Finance.

Government bond yields rose due to profit booking by traders. Besides, bond auctions by RBI worth Rs 20,000 crore dampened the sentiment. Earlier during the day the yield on the 10-year bond touched 8.68 per cent, its lowest since February 6. However, the gains were short-lived. The yield on the 10-year bond ended at 8.83 per cent, compared with the previous close of 8.78 per cent. “The bond market will be looking forward to the Budget. It will be difficult for the 10-year benchmark yield to break 8.65-8.70 per cent,” said Puri.

Source: Business Standard

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RBI's foreign reserves rise $1.97 bn

Foreign currency assets, a key component of reserves rose by $1.98 billion to $286.55 billion

Foreign exchange reserves rose $1.97 billion for the week ending May 9 to $ 313.83 billion, shows Reserve Bank of India data released on Friday. The reserves are near a level last seen in the week that ended on November 11, 2011 at $314.34 billion. Foreign currency assets rose $1.98 bn to $286.55 bn.

Gold reserves remained unchanged during the week. For the week under review, the Special Drawing Rights fell $3.6 million to $4.48 billion, while India's reserve position with the International Monetary Fund was down $1.7 million to $1.84 billion.

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Adani to buy Dhamra Port for Rs 5,500 crore

Adani Ports and Special Economic Zone (APSEZ) announced on Friday that it had signed a definitive agreement with L&T Infrastructure Development Projects (L&T IDPL) and Tata Steel to acquire 100% stake in Dhamra Port Company (DPCL), in Odisha, for R5,500 crore.

The all-cash transaction is expected to bring Adani Ports closer to its 200-million-metric-tonne target for the ports business by 2020, Sudip Bhattacharya, managing director, APSEZ, told newspersons in a conference call. As per the agreement, the transaction is subject to the customary

‘condition precedent’, including lender/third-party approvals.

Bhattacharya said there will be no equity infusion, but Adani will raise funds for the project. "We will be raising some funds later, but we would not like to talk about the quantum just yet. Adani Port's net debt is very low and our debt-to-equity ratio is below 1:1," he said.

According to industry sources, Adani Enterprises is looking to raise $1.5 billion in bonds, and some part of that could go towards funding this acquisition.

Dhamra Port, which has an installed capacity of 24 million tonne, currently handles close to 14.3 million tonne of cargo, which, Bhattacharya said, is expected to grow by 15-20% in the next few years.

"Following the acquisition, the second phase of development will be initiated within 90 days and completion is targeted in 30 months. This continued expansion will allow the Dhamra port exceed 100 million tonne of cargo capacity by the year 2020," he said.

“The Dhamra port acquisition now gives us an opportunity to replicate the development and phenomenal growth of the Mundra port on the eastern coast of India and thereby continue to execute on our pan-India strategy,” Adani Group chairman, Gautam Adani said.

Highlighting the rationale for the acquisition, Bhattacharya said Dhamra has the advantage of being a naturally protected all-weather port. It has a deep draft with the ability to berth capesize vessels, gives access to hinterland, and is close to the mineral-rich areas of the country.

Commenting on the stake sale, K Venkatesh, CEO, L&T IDPL, said, "The funds will be used for the equity requirements of IDPL's existing and ongoing projects. The sale was part of our regular exercise to churn our portfolio".

The stake sale was in the works for a long time, with various issues surrounding the project. Issues ranged from green clearances (the port is allegedly destroying breeding grounds of the endangered Olive Ridley turtle) to fall in traffic due to the slowdown.

Dhamra, a multi-cargo handling port, commenced operations in May 2011 and handled total cargo of 14.3 million tonne in FY14. The port has two fully mechanised existing berths and 63 kilometers of a private rail line connecting the Bhadrak station to the main trunk line. It has already received environmental clearance for the development of 12 additional berths.

In a separate statement, L&T IDPL and Tata Steel said, "As part of Tata Steel’s review of its investments portfolio, the board of the company has approved the divestment of its equity holding in the JV at an attractive valuation".

DPCL is a 50:50 joint venture between L&T IDPL and Tata Steel.

To secure its long-term requirement and access to a deep-water port for operations in Jamshedpur and Odisha, Tata Steel has also entered into a long-term cargo handling arrangement with DPCL.

Elaborating on the contract, Bhattacharya said, "The contract with Tata Steel is for handling a minimum of 5 million tonne cargo for a duration of 15 years, with the option to reduce it".

Source: Financial Express

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Ab ki baar, investment ki dhaar?

That’s the $125-billion question on India Inc’s mind as the BJP-led NDA gets ready to take office.

That’s the $125-billion question on India Inc’s mind as the BJP-led NDA gets ready to take office. With roughly R7.5 lakh crore of projects stalled because companies are not able to acquire land, sort out fuel linkages, get an environment clearance or tie up the funds, corporate India has been desperate for a decisive government, one that will act quickly to help revive growth.

No one believes the economy is returning to an 8% or 9% growth trajectory in the next couple of years, but they’re hoping the new government will work towards it. Bharat Forge chairman Baba Kalyani put it plainly enough when he said on Friday: “We expect the government to put the stalled projects on a fast-track mode, push for better investments and focus on the anufacturing sector.”

Industry understands it’s not going to be an easy ride even if the BJP has a clear majority in the 543-seat house. As Sunil Kant Munjal, joint MD at Hero MotoCorp, points out, the government needs to take tough decisions on the goods and services tax and foreign direct investment. “Modi should review his party’s opposition to FDI in multi-brand retail. It is easy to put in caveats to protect small traders, if that’s the concern,” Munjal said.

However, there’s confidence and belief the government will get to work fast. For instance, Pawan Goenka, CEO, Mahindra & Mahindra, expects GST to be implemented very soon.

That the NDA, between 1999 and 2004, played a key role in initiating the nation’s infrastructure build-up is what convinces corporates that Narendra Modi’s government can deliver. The BJP manifesto promises it will quickly complete the freight corridors and industrial corridors, spruce up airports and build new ones, roll out a high-speed train network, develop waterways and construct 100 new cities, all of which is comforting. The problem is whether the government and private players will be able to find the resources — estimated at $1 trillion — to fund the projects given corporates remain highly leveraged and banks inadequately capitalised.

Which is why the BJP government’s handling of foreign investors will be critical. As Adi Godrej, chairman, Godrej Group, put it, the government needs to improve the ease of doing business in India, “which was never very good but deteriorated in the last three years”. Multinational corporations such as Vodafone, Nokia and Shell have been at the receiving end of the UPA government in tax matters — transfer pricing cases — often retrospective in nature, forcing them into long-drawn litigation.

While attracting MNCs is necessary to boost investment in core spaces such as oil and gas, what India’s youth will be looking for is an environment that’s entrepreneur-friendly. As experts point out, small business has been strangled in red tape even as crony capitalism thrives. A recent industry ministry report showed there were states in India that had industry-friendly rules whether for land acquisition, single-window clearances, indirect tax management systems or labour management. While reviving industry will be the immediate objective, the larger agenda, over a period of time, would be to facilitate entrepreneurship.

Meanwhile, the stock market continued its celebrations on Friday, although the Sensex came off its highs by the end of the session. Samir Arora, founder and fund manager, Helios Capital, said that markets typically do not discount events like these so soon.

“This will go on for months and years. The rally is a new cycle, a new phase, and a new round of optimism and unless something breaks it, I believe it is going to go for a long, long time,” Arora said.

According to Nilesh Shah, global investors will now view India positively. “ Within our peer group, China is busy resolving its credit bubble, Russia is involved in a political crisis with Ukraine, Brazil has weaker macroeconomic fundamentals and Indonesia and Turkey have political risks,” Shah said, pointing out that a resurgent economy would encourage local investors to allocate more of their savings to equities.

Source: Financial Express

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SEBI to pitch for tax relief on mutual fund pension products

The Securities and Exchange Board of India will petition the new Government for more tax sops for mutual funds and the equity market to incentivise and channel savings into long-term investment products.

IT Act Amendment

“The SEBI board has approved these measures and sent them to the Finance Ministry. We will push for implementation of these measures with the new government,” a senior SEBI official told Business Line . The measures require amendments to the Income Tax Act, which is why Government support is needed.

One of the proposals is for providing tax benefits on pension products by mutual funds. “A long-term product, such as the Mutual Fund Linked Retirement Plan, with an additional tax incentive of Rs. 50,000 under Section 80C of the Income Tax Act, may be introduced,” says the proposal. If this happens, pension products of mutual funds will be at par with those of insurance companies.

Though there is no restriction on mutual funds launching pension products, the lack of tax benefits at the time of investing (except in two schemes) makes them unattractive. Only two pension schemes by mutual funds — UTI Retirement Benefit Pension Fund (launched in 1994) and Templeton India Pension Plan (formerly known as Kothari Pioneer Pension Plan; launched in 1997) — can offer tax benefits on investment. During the past 17 years, mutual funds have not launched any pension plan.

Alternative option

SEBI has suggested that if no separate limit can be provided, the limit of Section 80C of the IT Act, 1961 could be enhanced to Rs. 2 lakh from Rs. 1 lakh. This will make mutual fund products attractive. SEBI feels the Rajiv Gandhi Equity Savings Scheme may also be brought under the enhanced limit.

Source: The Hindu - Business Line

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Brokers scamper to emergency exit

In the past financial year, about 819 stock brokers called it quits, driven by declining profitability and the dominance of low-yielding options volumes, according to figures made available by the Securities and Exchange Board of India (SEBI) in its monthly bulletin.

Volumes in the options segment rose further, after accounting for about three quarters of the trading volume in FY13. The proportion of options, as percentage of overall market volumes, has risen from 9.33 per cent in FY08 to 77.43 per cent in FY14. Trades in the derivatives segment earn lower brokerage than those in the cash segment. Within the derivatives space, options earn the least.

"The trend of the business has been more towards the derivatives segment,” said Alok Churiwala, vice-chairman, BSE Brokers' Forum. "The business of stock broking has not been good through the last few years. So, for brokers to have shut shop was expected…at current levels, the economies of business don't bear out. Costs have also been rising; some brokers who exited could be from regional exchanges, which have been on their way out."

C J George, managing director of Geojit BNP Paribas, said, “A number of brokers are not from the mainstream; they are likely from regional exchanges. With the end of regional exchanges, they likely exited.”

In FY14, the Coimbatore, Saurashtra and Mangalore stock exchanges had shut, after the regulator tightened net worth norms and mandated minimum volumes for stock exchanges.

“Such brokers were good for last-mile connectivity with retail investors in regional centres. Their loss is bad in the long run. While large brokers might attempt to penetrate the same space, employees of such organisations might have a tough time matching the approach of such local brokers,” said George.

A total of 913 brokers exited the cash market, while 94 were added to the derivatives segment.

The number of brokers in the cash segment rose from 13,969 in FY10 to 15,241 at the end of FY13, before falling to 14,328 at the end of FY14. Volumes in the cash segment, the most profitable for brokerages, have fell from Rs 20,370 crore in FY08 crore to Rs 13,214 crore in FY14.

Derivatives accounted for 93.48 per cent of the total turnover in FY14. The larger proportion of derivative trades translates into lower profitability for brokerages, with about 17,000 brokers fighting for a revenue pie of less than Rs 10,000 crore.

At the end of FY14, the total number of stock brokers, in the cash and derivatives segments, was 17,379; the lowest since 2011 (17,088).

Source: Business Standard

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PEs bullish on Indian banking sector

The Indian banking sector is witnessing a sudden wave of interest from private equity (PE) investors. The past two months have seen large PE deals in listed entities such as Ratnakar Bank, Karur Vysya Bank, ING Vysya Bank and Dhanlaxmi Bank.

PE players with long-term outlook can also be good equity partners for distressed banks. Apart from bringing in capital, they could provide inputs for turning around struggling banks. Notably, the Reserve Bank of India's panel for governance of bank boards has also advised a larger controlling stake (up to 40 per cent) for PE investors. PEs with their long average investment duration can be a valuable source of capital for such banks, said the panel headed by P J Nayak, former CEO of Axis Bank.

According to experts, banks will need more equity as they begin to implement stringent capital adequacy norms under Basel-III. Since the global financial crisis in 2008, banking regulators the world over have been insisting banks hold more equity capital at all times to absorb shocks and losses. Also, the pace of fund-raising has increased as there is expectation of better business (higher credit demand) from FY15 after two years of slow business expansion.

Monish Shah, senior director with multinational professional firm Deloitte, says PE investors will be interested in new banks, as they will not have legacy baggage. "They will have the latest technology support and cost advantage compared to existing players. Also, banking and financial sectors have grown at 2-2.5 times the pace of economic expansion in the country. So, the potential is high for banking due to high unmet needs and the scope for spread of financial services. Banking companies will need capital to fuel growth, which PEs are in a position to provide, backed by knowledge and risk-taking potential."

SAIF Partners, a PE firm, has invested for the first time in this space with Rs 150 crore in Karur Vysya Bank, while another PE major ChrysCapital keeps investing in ING Vysya and currently holds 4.6 per cent. Ratnakar Bank got $55-million investments from UK-based CDC, Asia Capital and existing investors. In February 2013, the bank raised $60.64 million from a group of investors, including Aditya Birla Private Equity, International Finance Corporation, IDFC Alternatives and Ascent Capital.

Vishal Sood, managing director of SAIF Partners, said: "We believe that financial services/banking as a sector plays a pivotal role in a growing economy such as India. Therefore, we are bullish on the sector to create a significant value over a long term and keep looking for an opportunity to invest in and partner with quality institutions such as Karur Vysya Bank."

During the past year, the BSE banking Index has gone up 4.5 per cent; it stood at 14,182 points on May 6 with a change of 647 points.

In April this year, UK-based CDC group invested $28 million (about Rs 168 crore) in Ratnakar Bank, in its first direct equity investment in an Indian bank. CDC - a leading investor in Indian PE funds as a limited partner (LP or investor) - acquired a 4.8 per cent stake, valuing the bank at Rs 3,500 crore ($583 million). Earlier, CDC had made a $27.5-million deal with apparel e-tailer Jabong.com.

Ratnakar Bank currently has a network of over 160 branches with 350 ATMs across 12 Indian states. The funding will help the bank expand its presence in states such as Rajasthan, Madhya Pradesh and West Bengal.

Early in April, the Reserve Bank of India issued banking licences to two entities - infrastructure finance company IDFC and micro-finance lender Bandhan Financial Services. Being a listed entity backed by institutional investors, IDFC has strong risk management setup and corporate governance practices. It also has a very comfortable capital base.

Bandhan might support in the form of capital injection and expertise to further tone up governance as it takes steps to transform into bank. PE players will be inclined to invest in Bandhan as they understand the activity and have risk appetite for the same, according to Ashwin Parekh, managing partner, Ashvin Parekh Advisory Services.

Sanjiv Kaul, managing director of ChrysCapital, said: "The increase in stake in ING Vysya was based on our continued optimism in the Indian financial services sector including the banking and NBFC (non-banking financial company) space. ING Vysya is one of the best-performing banks in terms of asset quality despite the not-so-encouraging macro environment in India witnessed over the past few quarters."

Last month, Kerala-based private-sector lender Dhanlaxmi Bank Ltd raised Rs 233 crore ($37.5 million) through a preferential allotment to a group of investors, including Kapil Wadhawan, chairman and managing director of Dewan Housing Finance Corp Ltd (DHFL). The lender plans to use the money to augment the long-term tier-1 capital base of the bank to meet growing business needs and to facilitate the additional capital requirements under Basel-II norms.

In another deal last week, ChrysCapital, through its arm Lavender Investments Ltd, picked a four per cent stake in City Union Bank at Rs 63 a share, aggregating to a total trade price of Rs 139.7 crore in an open market transaction.

Source: Business Standard

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All govt banks violate SEBI listing norms

Former Axis Bank chairman and Morgan Stanley India chief, P J Nayak, who headed the Reserve Bank of India (RBI) —appointed committee on governance requirement at banks, says one of the focus areas of his report is providing a level playing field to public-sector banks (PSBs), which are facing deep stress.

In a wide-ranging interaction with Business Standard — his first after giving the report that RBI made public on Wednesday — Nayak said, contrary to some misleading reports, the committee did not make any case for privatisation of PSBs. Rather, it focused on an urgent need to remove discriminatory external shackles, so that these banks could compete fairly with private peers. The shackles included the government’s failure in distancing itself from several governance functions and dual regulation by the RBI and the government.

For example, Nayak said, there were  almost no independent directors on the boards of government banks, despite the Securities and Exchange Board of India (Sebi) regulation for listed companies mandating that 50 per cent of directors must be independent. “This is wholesale violation of Sebi’s listing requirements. We have to bring everything under the Companies Act.”

Nayak said the Bank Nationalisation Act talked about eight different categories of boards of directors. Similarly, the SBI Act had seven different categories of directors. This, he said, was like splitting the board into tiny components and finding people for each component. The companies law, on the other hand, has three categories of directors — full-time directors, part-time directors and part-time non-independent directors.

Talking about the need to move to a uniform licence regime across banks, irrespective of ownership, Nayak said the report talked about many banks that defied ownership logic. Bank of Nainital, despite Bank of Baroda having a 99 per cent ownership stake in it, is classified as an old private-sector bank. ING Vysya Bank, in which ING (42 per cent stake) is the only foreign shareholder, is also an old private-sector bank. “There clearly are historical reasons for these specific forms of licensing but they appear illogical from an ownership standpoint.”

On the proposed Bank Investment Company (BIC), Nayak said it was like a passive alternative investment fund. All the government functions will have to be transferred to the BIC, whose only accountability would be to give adequate returns to the government on its investment in banks. “It should act like a private equity fund which manages the asset and ensures returns to investors,” Nayak said, adding the chief executive of BIC should be a professional banker or someone who has worked in the private equity sector. The return he delivers on the capital he manages is a major parameter by which his performance will be analysed.

“The choice for the government is obvious. I am sure it wants the banks it owns to be well governed, by giving it to a professional intermediate investment company,” he said.

Nayak said the committee identified many other areas where government banks did not have a level playing field. On the contentious proposal to reduce the government’s stake to below 50 per cent, he said it would actually be a good bargain for the government, which would still remain the owner of these banks.

For example, even with a 45 per cent stake, the government can exercise complete dominance at shareholder meetings. “All we are saying is that the government disadvantages the very banks in which it has invested in. What could be more ironical,” he asked.

Nayak said the government's ability to provide capital to its banks would have an impact on fiscal consolidation. “We have made some projections on how much Tier-I capital government banks would need till 2018. The most prudent projection suggests they will need Rs 5.87-lakh-crore capital infusion till that year according to the Basel-III norms”.

Nayak also said he had no idea whether the government would agree with the contents of the report. "I can only hope the RBI can use this document in its dialogue with the finance ministry." Giving examples of how governments encroached on the RBI's turf, Nayak said the instruction on uniform card rates for deposits were against the interest of depositors and also against the RBI policy of deregulated interest rates. If telecom or FMCG companies could compete on prices, there was no reason why banks could not compete as well, he said.

The first step, he said, was to empower public-sector banks' boards, which should choose the CEO. For example, DBS is the foremost bank in Singapore and its board selects the CEO, though the bank is owned by Temasek, which is a private equity fund owned by the Singapore government.

On private sector banks, Nayak said it was a good idea for an entrepreneur to be a CEO, provided the bank was governed by an adequately independent and professional board.

On allowing private bank promoters to retain 25 per cent stake, against the current limit of 15 per cent within 12 years, Nayak said promoters would have little incentive left if the maximum shareholding was set very low. In Indonesia, he said, a 25 per cent stake was defined as a controlling stake.

Source: Business Standard

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