Market seen range-bound around 18000 level: Morgan Stanley

Adverse global cues have been pulling Indian equities towards consolidation. In fact, according to Sridhar Sivaram, ED at Morgan Stanley Investment Managers, the market is already in consolidation phase. He sees it trading in a tight range around 18,000 levels for the next three to six month as he doesn't see improvement in the macro front till then. "Lack of reforms is a worry for the market. And, on back of that we may end the year flat."

Moreover, he sees some slowdown in consumption and infrastructure sectors. He is also underweight on the consumer discretionary space and neutral on consumer staples. On retails, he says investors have moved to commodities, especially gold and silver. "Retail volumes on the equity side have dwindled as investors are currently on the sidelines," he explained.

Being overweight on pharma and IT space, Sivaram says, "We may see value emerging in the industrials. We also see money coming into debt funds."

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: The market has been range bound for the last many weeks. How much longer do you see things continuing?

A: It’s a consolidation phase for the market. The market will not do too much until and unless the macro for the country improves. We don’t see that improving at least in the next three-six months. If inflation starts to tick down, then there is a possibility that RBI would pause.

The market would trade in a range for at least three-six months. Towards the end of this year, we could see some movement depending on how the macros behave by then. We would get more sense on the numbers towards the second half.

Q: What kind of numbers are you expecting to see? Is it going to be time correction or is there room for sharper price correction in this market?

A: I would be in that camp where around 18,000 plus or minus 5% market is range bound. Once we see some sort of positive signals from the macro side which also is a precursor of how the micro for respective companies would behave. Be it on the infra side or the consumption side, we have been seeing slowdown because of high inflation and high interest rates. So, the market would start to look ahead and build momentum from there.

Q: This year, only defensives have done well and the high beta sectors have languished. Tactically, how are you positioned now?

A: They are broadly defensive bear. Our over weights are slightly outward looking at this stage which is overweight on pharmaceuticals and IT which is broadly immune to domestic negative news. They are underweight on the consumer discretionary and are neutral on the staples segment. They are underweight on industrial that we are closely monitoring.

Some of these stocks have got beaten down substantially and there might be some value emerging out there. If the macro improves, we could see some of these sectors moving ahead. We have been trying to evaluate how much is already priced in and what is the worst case possibility.

Q: The retail participation is extremely low in the equity market. Are you getting a sense that in another asset classes like in commodities (gold and silver), the participation is picking up?

A: They are pretty much on the sideline. We see money coming into the debt fund. FMPs saw some interesting data that the volumes on the commodity side have gone up substantially in MCX exchanges.

It seems like the retail and some of the speculative elements have moved to the commodity side, especially on gold and silver. The retail volumes on the equity side have dwindled which is a reflection of how the volumes for the market are behaving.

Until the macro improves, it is very difficult to se the micro or the companies starting to do extremely well. To that extent, we are in that tight range right now. It’s the same even for the retail investors. They are currently on the sideline.

Q: The problems largely are global for the last few sessions. Do you see a bit leg down in global equities?

A: It’s very difficult to say what the worst case scenario is because we don’t know if there is some crisis in Europe and things could go bad. If status quo remains and there isn't too much of you know major negatives, then plus-minus 5% or at least minus 5% from here the markets could settle. There could be a time correction. Once that time correction is over and things start to improve, we could see a rally.

Last year till about May, the markets were down 10%. The markets improved last year in the second half and we ended the year by 15%. We saw a rally of almost 20% last year towards the second half. I’m not expecting that sort of a rally this year as it happened because of QE2 last year.

Currently, we are minus 10% for the year. It is highly possible that if things improve, we could close the year flat which could help looking at the next year in 2010 and see how things are playing out there.

Q: Market men have been living in the hope of some reform all through the year. Are you worried about the lack of reforms in India now?

A: It is a worry but, those are the difficulties of a coalition government which is reflecting in the market. Until and unless we see some drastic measures form the government in terms of reforms, the market will not cheer immediately which is a concern.

Most global investors looking at India closely would be worried that there has been policy inaction for almost six-eight months now. We get some indication that this could change in the near future.

The government is now quite seriously looking at building some consensus from the opposition parties to push through some of the reforms, on the FDI, insurance or some policy measure on the oil and energy side. If these things play out over the next six months, that would be a sentiment booster for the markets.

Courtesy -  http://www.moneycontrol.com/news/fiiview/marketseenrange-boundaround18000levelmorganstanley_558177.html

SEBI decision on takeover code likely on June 30

Market regulator SEBI is likely to raise the trigger limit for open offer to 25% when it takes a decision on the new takeover code for merger and acquisitions at its board meeting scheduled later this month.

"SEBI is likely to clear the takeover code in its board meeting scheduled on June 30," an official said. An agreement seems to have emerged between the Finance Ministry and the capital market regulator for raising the trigger limit from 15% to 25%, as recommended by a SEBI panel but the government is not in favour of 100% open offer, sources said.

"Certainly not 100%," the official said when asked if the the open offer would be for the entire stake.

"More or less it would be between 50% and 75%," he added.

The SEBI committee headed by C Achuthan on a new takeover code had suggested that the acquiring company should make 100% open offer, thus giving the exit option to all the shareholders of the target company.

Current norms mandate acquirer to make an open offer of 20% in the target company. The recommendation of 100% open offer was opposed by the industry as it would have made acquisition a very expensive proposition.

As per the SEBI panel's recommendations made in July last year, an entity buying 25% stake in a company should make an open offer to the rest of the shareholders.

India’s Sensex Retreats for Second Week on Greece, Interest Rate - Businessweek

India’s Sensex Retreats for Second Week on Greece, Interest Rate - Businessweek

The perticipation of children from sexual offence bill,2011

The Ministry of Women & Child Development organised a conference of States / UTs Ministers in-charge of the Women & Child Development department, in New Delhitoday.

The discussions included primarily the implementation of ICDS Scheme in the States / UTs specially in the context of the directions given by the Prime Minister’s National Council on Nutrition Challenges regarding strengthening and re-structuring of ICDS, progress and implementation of the ICPS, the newly introduced Rajiv Gandhi Scheme for Empowerment of Adolescent Girls (RGSEAG) – ‘SABLA’ and Indira Gandhi Matritva Sahyog Yojana (IGMSY).

The agenda also included a discussion on the status of two Bills viz. the Protection of Women against Sexual Harassment at Workplace Bill, 2010 and the Protection of Children from Sexual Offences Bill, 2011.

In her inaugural speech Smt. Krishna Tirath outlined the initiatives of the Ministry and the status of the implementation of various schemes. While speaking about ICDS, she mentioned the challenges in universalisation of ICDS, like shortfall in the operationalisation of Anganwadi Centres and Projects, filling up of vacancies and access to the vulnerable sections.

She emphasised on the importance of pre-school education in the Anganwadi Centres and requested participation of States / UTs in consultations on Early Childhood Education ECE policy and curriculum. The Ministry is now considering the Annual Programme Implementation Plans for ICDS to be prepared by States / UTs which would improve their accountability and would be a precursor to bringing ICDS in a Mission Mode.

Smt. Krishna Tirath asked the States / UTs to diligently follow the norms of providing supplementary nutrition under ICDS and ensure supply without disruption.

Since the food grains are provided at BPL rates, care should be taken that the requirement of food grains is projected according to the recipes given to the children. Keeping in view the NCEAR report, the feeding efficiency needs to be improved and monitoring to be strengthened for correct reporting.

She emphasised on improvement of infrastructure at the Anganwadi Centres since the two new Schemes – SABLA and IGMSY, are also to be implemented from the same platform.

The WCD Minister inaugurated the Nutritional Resource Platform (NRP), based in NIPCCD by the click of a button. NRP is a strong ICT platform having digital library, knowledge management platform and mobile telephony based services like voice / SMS broadcast, inter – active voice response based data capturing for monitoring and toll free helpline. Test pilots in some of the select blocks and districts will commence in February 2011.

Smt. Krishna Tirath touched upon the two newly introduced schemes – SABLA and IGMSY which are being piloted in 200 and 52 districts respectively and emphasised the significance of undertaking Baseline Surveys for identification of beneficiaries and validation of data carefully so that only those who are eligible and deserving are included.

It is also important to judge the efficacy of pilot schemes, before upsclaing them to cover the whole country.

The Union Minister exhorted the States / UTs to take advantage of ICPS and ensure a protective and caring environment for all the children so that no child is found on streets or begging or serving in a shop or factory.

Talking about the Protection of Women against Sexual Harassment at Workplace Bill 2010 she shared that efforts are being made to get the Bill passed in the Parliament early. The suggestions given by the States / UTs would be incorporated in the Bill if found feasible.

In view of increasing incidence of child abuse in the country, Bill on Protection of Children from Sexual Offences has been prepared by the Ministry.

It is a step towards developing child jurisprudence in the country. Smt. Krishna Tirath requested the State Governments to expedite the setting up of State Commissions for Protection of Child Rights which exists in eleven States / UTs only as of now. The Ministers of State Governments / UT Administrations highlighted the progress made by them under different Schemes and shared the best practices besides the local initiatives taken by them.

They committed to operationalise the pending AWCs and Projects under the universalisation of ICDS. The Ministers and Secretaries of the States / UTs endorsed and complemented the conceptualisation of SABLA and IGMSY. They also supported the Protection of Women against Sexual Harassment at Workplace Bill 2010.

Among issues of concern raised were like timely release of funds under ICDS including honorarium, requirement of funds for construction of AWCs, inadequacy of funds for uniforms, rent in urban areas and vehicles (for improving mobility), revision of cost norms which were revised in 2008, waiving of population norms for the mini-AWCs and cost norms for SNP.

The States / UTs felt that the cost of implementation of Acts should be borne by Central Government and that the Kishori Shakti Yojana norms under “Sabla” may be improved. Himachal Pradesh and Uttarakhand demanded funding of ICDS in the same pattern as is available to the North – Eastern States.

The Ministers and Secretaries assured that they are committed to the cause of the welfare of children and empowerment of women and that the ongoing as well as new Schemes of the Ministry would all be implemented in true spirit as intended.

Courtesy- http://equalityindia.wordpress.com/category/ncpcr/

EMIs set to rise as RBI hikes repo rate by 0.25%

The Reserve Bank of India has hiked policy rates for the tenth consecutive time in a bid to contain rising inflation. The repo rate, at which the RBI provides credit to banks, has been hiked by 0.25 per cent to 7.50 per cent. The reverse repo rate, which is 1 per cent below the repo rate, now moves up to 6.50 per cent.

Reacting to the policy, former Governor of Reserve Bank C Rangarajan said, “The action was warranted by the circumstances. The May inflation went up contrary to expectations leaving RBI with no option but to raise rates.”

Retail lending rates are bound to follow the policy rates. That means consumers will have to pay a higher EMI on their home loans and auto and personal loans will cost more. In the last two years, interest on home loans has gone up by at least 2 per cent, from about 8 per cent to above 10 per cent.

MV Nair, CMD of Union Bank said, “In the last 4-5 quarters, banks have hiked lending rates by 200-225 bps but lending remains robust except agriculture. Considering this, we will have to pass on the policy rate hike to the Industry.”

The RBI's tough stance on monetary policy emerges from the fact that despite several rate hikes, inflation continues to be northbound. Inflation has risen despite a favorable base effect. Headline inflation in May went up to 9.06 per cent on the back of a rise in prices of manufactured products and petrol. The core inflation in May rose to 7.20 per cent and real interest rates continue to be negative.

Sajjid Chinoy, India Economist at JP Morgan said the central bank is definitely not at the end of the rate cycle and another 50-75 bps rise should be expected through the course of the year.

In its statement, the Reserve Bank said, "Domestically, inflation persists at uncomfortable levels. Moreover, the headline numbers understate the pressures because fuel prices have yet to reflect global crude oil prices...Going forward, notwithstanding both signs of moderation in commodity prices and some deceleration in growth, domestic inflation risks remain high.


Against this backdrop, the monetary policy stance remains firmly anti-inflationary; recognizing that, in the current circumstances, some short-run deceleration in growth may be unavoidable in bringing inflation under control."

Courtesy- http://profit.ndtv.com/news/show/emis-set-to-rise-as-rbi-hikes-repo-rate-by-0-25-160540

New Interface Wednesdays: Multi-dimension reporting - Inside AdSense

New Interface Wednesdays: Multi-dimension reporting - Inside AdSense

Financial health seems fine

The Reserve Bank of India came out today with its health check report for the country’s financial sector — the third in the past 12 months — and pronounced that it was in fine fettle but admitted there were some wobbles ahead for the economy.

The report said the economy faced downside risks from a slowdown in global recovery, high oil and commodity prices, and sovereign debt problems in the Euro area and a decline in domestic investment demand.

However, it added that the Indian financial system was stable despite some fragility in the global macro-financial environment.

For the banking sector which has been witnessing a hike in key interest rates because of stubborn inflation, the report said that increasing interest rates, hike in the savings account rate, amortisation of pension and gratuity liabilities and potentially enhanced provisioning requirements for non performing assets might impact their profitability.

The report also raised some caution on the structure of bank’s loan books. Though the credit portfolio of commercial banks was diversified across industries, geography and sectors, the report said that during the last few years, incremental credit growth was observed to be mainly propelled by credit growth in a few sectors — retail, commercial real estate and infrastructure.

In March 2011, these sectors accounted for 19 per cent, 4 per cent and 13 per cent, respectively of the gross advances of banks and the combined contribution of the three sectors to the incremental gross outstanding credit was to the extent of 40 per cent.

“Each of these sectors were characterized by unique asset quality features and, given their large share in credit portfolio of banks, required careful monitoring,” the report noted.

On real estate loans, which registered a growth of 24.6 per cent in 2010-11, more than the overall credit growth of 22.6 per cent, the financial stability report said the sector posed some concerns given the large and growing share of these loans in the credit portfolio of banks. “Going forward, the asset quality in this segment may come under further pressure given the increasing interest rate environment. There is also some anecdotal evidence of increasing inventory levels in the sector even as prices continued to remain elevated,” it observed.

Banks have also been told to monitor the rise in growth of retail loans. Here the worry is that bad loans in this category could rise as interest rates keep rising. “The robust rebound in retail loans witnessed during recent quarters warrants close monitoring as the asset quality of such loans could come under pressure given the increasing interest rate environment. The performances of these loans are closely linked to the individual income and wealth levels, which could be affected if the risks to economic growth were to materialise,” the report said.

Admitting that the elevated inflation and interest rate may also impact the balance sheet of financial entities, the report said the central bank needed to manage the volatility in the liquidity situation in the financial system which had been in a deficit mode for almost a year.

Burning Fuels

Oil minister Jaipal Reddy today pressed for a hike in diesel and domestic LPG cylinder prices before Prime Minister Manmohan Singh.

PSU retailers Indian Oil, BPCL and HPCL were suffering daily revenue losses of Rs 450 crore, and officials said the oil ministry was lobbying for a hike of at least Rs 3-5 per litre in diesel and Rs 25-50 per LPG cylinder.

Reddy’s meeting comes a day after the CAG criticised the oil ministry’s role in approving Reliance Industries’ KG-D6 field cost. The oil minister briefed the Prime Minister about his ministry’s stand on the CAG’s draft report.

While Reddy refused to comment on his 15-minute meeting with the Prime Minister, officials said the meeting was fixed much before the CAG submitted its draft report on June 8.

Reddy’s meeting today with the Prime Minister was on fuel prices.

The oil minister had last week met Mukherjee to push for a fuel price hike. Oil companies are losing Rs 14.22 on the sale of every litre of diesel. In addition, they lose Rs 27.47 on a litre of kerosene and Rs 381.14 per 14.2-kg domestic LPG cylinder.

The three firms may end the fiscal with a revenue loss of Rs 160,568 crore, at least half of which will have to be met by the government from its budget. The rates for the three products were last hiked in June 2010, when crude was ruling at $72 per barrel.

The basket of crude India buys averaged $110 a barrel this month.

The CAG report alleged that the oil ministry bent the rules to allow Reliance Industries to benefit at the cost of the government’s own financial stake in the development of the country’s largest gas fields in 2004-06.

Reliance is developing the D-6 gas field in the Krishna-Godavari basin.

The report by the Comptroller and Auditor General (CAG) states that the company revised the costs of developing the field by more than $6 billion.

“However, at this stage, based on the information provided, we are unable to comment on the reasonableness, or otherwise, of the increase in cost, both overall and in respect of individual line items,” the CAG said.

Why Piracy is Good and Copyright Sucks: An Excerpt From “Sell Your Own Damn Movie!” - indieWIRE

Why Piracy is Good and Copyright Sucks: An Excerpt From “Sell Your Own Damn Movie!” - indieWIRE

Bill to trace black money ready

The government has prepared a bill to confiscate illegal money stashed in India by foreigners or put away by Indians in offshore banking accounts.

“We will introduce the bill in Parliament in the monsoon session,” finance minister Pranab Mukherjee told reporters.

The bill will allow India to discharge its international obligations and enable it to put pressure on other countries to help identify and confiscate illegal funds put away by Indians in offshore banking accounts.

Last week, the government had set up an eight-member panel headed by Prakash Chandra, chairman of the Central Board of Direct Taxes (CBDT), to recommend a mechanism to recover illegal money, whether parked in India or abroad, and suggest a legal and administrative framework to deal with the menace of illegal money.

Any money earned through corrupt or illegal means or possessed by evading income or other taxes such as excise or customs duty is black money.

India, Mukherjee said, was also negotiating Double Taxation Avoidance Agreements (DTAA) with several countries and will sign Tax Information Exchange Agreements (TIEA) with tax havens.

“We are getting substantial co-operation,” he said.

The government, the minister added, is in a position to make changes in the income tax act to tackle non-cooperative jurisdictions.

One option is to slap a withholding levy, or tax deducted at source, of 30 per cent or more on payments to entities in countries and tax jurisdictions that refuse to share information.

“We have developed a toolbox... We have enabled ourselves to declare (tax havens) as non-cooperating jurisdiction and countries as and when the situation arises. We will take appropriate steps,” said Mukherjee.

However, as of now “no country” has been put in the category of a “non-cooperating jurisdiction”, he said.

The G20 leaders had asked each country at their Seoul summit last year to develop counter-measures against non-cooperative jurisdictions.

Under the provisions, the government will notify the countries that are reluctant to share banking information and other details.

Twin perils

Mukherjee today also called for stepping up multilateral co-operation to end banking secrecy and deal with the “abusive” transfer pricing mechanism.

“While the countries have agreed to end bank secrecy in general, some countries have agreed to do so only from a prospective date and are not willing to exchange past banking information,” he said.

Such issues put a question mark on the efficacy of the present legal provisions for exchange of banking information, he said. “There is an urgent need to revisit the existing legal framework developed by the OECD.”

The Organisation for Economic Co-operation and Development (OECD) is a 34-member grouping of developed and developing countries. India is also strengthening its transfer pricing provisions to stop the shifting of profits outside the country.

Source- The Telegraph, Kolkata, 14/06/2011

Twin cost threats refuse to recede

Higher interest rates and input costs, which ate into the fourth-quarter earnings of corporate India, still remain a potent threat, brokerages believe.

Market watchers said investors should be cautious on their stock picks as the twin threat could erode values.

“While the macro headwinds led by slower industrial activity, higher interest rates and cost inflation had been threatening the earnings growth momentum, the toll is worse than expected in fourth quarter aggregates,’’ a report by Motilal Oswal said.

According to the brokerage, the underperformance of several heavyweights in the fourth quarter was disappointing and resulted in an earnings decline of 0.4 per cent in the sensex pack.

Analysts are advising caution to investors as the interest rate and inflation threats are yet to die down.

The disappointments that we are seeing in the fourth quarter may continue in the current period as well and, therefore, investors should be cautious in their approach. They could look at specific stocks in defensive sectors such as FMCG and pharma.

While the RBI was likely to keep jacking up rates to tame inflation, input pressures were unlikely to subside and could impact margins.

Besides auto and infrastructure, banking (largely PSU lenders), telecom, metals, oil and gas and real estate disappointed during the quarter.

The IT sector came up with a mixed performance as a seasonally weak period saw some companies disappointing on the volume growth front, while the others registering positive revenue growth. Pharmaceuticals and FMCG put up a good show with the latter benefiting from lower advertisement spend.

According to observers, banking and metals may see a dip in their margins because of high borrowing and raw material costs.

Maruti insurance arms court trouble

Problems are adding up at Maruti Suzuki, which is fighting a labour turmoil at its Manesar plant. Storm clouds are now hovering over the car maker’s six subsidiaries that have been selling insurance policies as corporate agents of various general insurance companies.

The Insurance Regulatory and Development Authority (IRDA) has fined six general insurance companies — National Insurance Company, New India Assurance Company, ICICI Lombard, IFFCO Tokio, Royal Sundaram Alliance and Bajaj Allianz General Insurance Company — a sum of Rs 5 lakh each for granting corporate agency licenses to six Maruti Suzuki subsidiaries violating regulations.

Following this, the insurers are likely to cancel their agency license to Maruti subsidiaries.

Maruti Suzuki India had formed six subsidiaries —Maruti Insurance Business Agency Ltd, Maruti Insurance Distribution Services Ltd, Maruti Agency Network Ltd, Maruti Insurance Agency Solutions Ltd, Maruti Insurance Agency Services Ltd and Maruti Insurance Agency Logistics Ltd.

The car maker holds 99.99 per cent equity in each of the subsidiaries and has procured corporate agency licenses between 2002 and 2007 for selling policies from various general insurance companies.

IRDA noted that insurers granted licenses to Maruti subsidiaries “grossly violating” the IRDA (licensing of corporate agents) Regulations, 2002.

According to the regulation, only one license (of the corporate agent) can be granted to one business group provided that the group doesn’t have any other insurance activity, including brokering, agency or product manufacturing.

The regulation also defines that all companies in which a single promoter group holds 10 per cent equity or more will be considered belonging to the same business group.

For granting corporate agency licenses to group companies, insurers need prior approval from the insurance regulator.

However, the six Maruti subsidiaries were granted licenses by insurers without complying with these regulations. “This was clearly possible by circumventing the provisions and guidelines to their advantage and such blatant violations itself calls for stringent action,” the insurance regulator said.

Indians most upbeat on housing, money

India has emerged as the most optimistic housing market in the world, as Indian home-buyers are upbeat about the country's economy as well as their personal finances, says a survey by a global mortgage insurer.

According to a survey by mortgage insurer Genworth Financial Inc, 64 per cent of surveyed respondents in India felt positive about the outlook for their national economy over the next 12 months compared to just 30 per cent across all surveyed countries.

Respondents in India, Mexico, Canada and Australia were the most positive about their countries' economies, while the US, Ireland, the UK were least confident, the study said.

Explaining the factors behind the high optimism of Indian and Mexican home-buyers the study said cultural factors have a large affect on home-buyers.

Potential home-buyers in India and Mexico save by living with their parents and extended family.

Over 80 per cent of potential home-buyers in these countries were living with at least one other generation, and over 30 per cent were living with at least two other generations, the study said.

By living at home, potential home-buyers are able to reduce their living expenses, unlike in countries like Canada, the US and UK, where half of all respondents were living away from the family home, paying rent and incurring living costs.

Meanwhile, the study, which covered over 9,000 potential homeowners in the US, UK, Canada, India, Ireland, Italy, Mexico and Australia, also noted that housing affordability concerns compounded by rising interest rates are worrying potential home-buyers in India more than in any other country.

Besides, rapid urbanisation has driven up property prices in tier I cities, forcing large number of companies and individuals to tier II as well as tier III cities.

Rapid growth in affluence along with shortage in housing supply would lead to high property prices across major urban centres in India and are likely to keep home ownership out of reach for many Indians.

"A large majority of non-property owners did not believe they would be financially capable of buying their first home for another five years," the study said.

With housing shortage estimated at 25 million units and 0.5 million units added every year, getting onto the property ladder is going to be increasingly difficult for lower income Indian home-buyers.

The study further said that "over the last 40 years, the average age of home-buyers has been rising in all countries except for India, as housing has become increasingly unaffordable."

Courtesy: - http://www.financialexpress.com/news/indians-most-upbeat-on-housing-money/801963/0

SBI breaks rules on loans to Reliance Ind

India's largest bank The State Bank of India (SBI) has breached RBI's credit exposure norms during three consecutive years with regard to its loans provided to Mukesh Ambani-led Reliance Industries (RIL).

The public sector lender, which also has significant exposures to troubled Air India besides certain telecom firms being probed in relation to the 2G scam, has now disclosed that its credit to RIL was in excess of the limits prescribed under the RBI's prudential credit norms.

Detailing the cases where it breached prudential limits for single-borrower exposure during the fiscal ended March 31, 2011, SBI has named RIL as also public sector majors Indian Oil and BHEL as three such borrowers in its annual report.

This is the third straight year when SBI has exceeded the single-borrower ceiling with regard to RIL, as per the bank's annual reports for the past three financial years.

However, the bank brought down its exposure to RIL within the limit on the last date of the previous fiscal, i.e. March 31, 2011, according to the SBI annual report.

The public sector lender had provided credit in excess of prudential norms to RIL during 2009-10 and 2008-09 also.

During the year 2009-10, the bank's credit exposure was in excess of prudential limits for Reliance Industries, Indian Oil Corp (IOC), BHEL and Tata Group.

Prior to that, SBI exceeded prudential credit limits during 2008-09 with regard to its exposure to RIL and IOC.

As per RBI guidelines, the exposure ceiling limits are 15 per cent of capital funds in case of a single borrower and 40 per cent of capital funds in the case of a borrower group.

However, the credit exposure to a single borrower can go up to 20 per cent, if the additional 5 per cent exposure is on account of extension of credit to infrastructure projects.

Similarly, the credit exposure to borrowers belonging to a group may go up to 50 per cent, if the additional 10 per cent exposure is for credit to infrastructure projects.

The bank's exposure to telecom companies recently came under criticism as some of these companies are facing probes in connection with the 2G scam involving alleged breach of regulations in allotment of licenses.

In an analyst conference after the bank's full-year results for 2010-11, SBI disclosed that its exposure to telecom companies was Rs 22,600 crore (3 per cent of its loan book), while exposure to telecom companies under investigation was Rs 1500 crore.

Besides, its exposure to airline companies, including troubled Air India was Rs 4,500 crore.

The bank also disclosed a total exposure of Rs 1,00,000 crore in the infrastructure sector, including Rs 30,000 crore to the power sector.

With regard to single-borrower exposure limit exceeded in 2010-11, SBI said in its annual report, that its credit to RIL breached the prudential ceiling on three occasions during the year -- between April and July 2010, from August to October 2010 and from November 2010 to February 2011.

Between April and July 2010, SBI's exposure to RIL was Rs 15,815.48 crore, as against a ceiling of Rs 13,646.26 crore, while the exposures exceeded the respective limits by well over Rs 1,000 crore on two other occasions also.

The outstanding exposure to RIL as on March 31, 2011 stood at Rs 5,645.44 crore, which was within the limits.

For IOC and BHEL also, the credit exposure exceeded the ceiling on three occasions during 2010-11.

During the year 2009-10, the credit exposure exceeded the prudential ceilings on three occasions each for IOC, RIL and BHEL, while the exposure was in excess of the limit for Tata Group on two occasions.

For 2008-09 also, the credit exposure was in excess of the permitted level on three occasions for both RIL and IOC.

Courtesy: - http://www.financialexpress.com/news/sbi-breaks-rules-on-loans-to-reliance-ind/801927/0

Turf lock on commodity ETFs

The Securities and Exchange Board of India (Sebi) and the Forward Markets Commission (FMC) have reached an understanding that the capital markets regulator will not clear any more commodity asset-based exchange traded funds (ETFs) till they sort out their disagreement over who should regulate the product.

At present, ETFs come under Sebi’s purview.

The FMC, which is the regulator for the commodity futures markets, has argued that it has the right to regulate gold and silver exchange traded funds since the underlying asset is a commodity which comes under its bailiwick.

FMC chairman B.C. Khatua told reporters here today that the two regulators had agreed to resolve their differences through dialogue.

Khatua said approvals that had been granted to some fund houses over certain commodity-based ETFs had now been put on hold.

“In the larger interests of investors, both of us have agreed that other ETFs (gold, silver) will be allowed only when the issue is resolved,” he said.

Recent reports have indicated that several mutual funds were keen to float silver ETFs to take advantage of the surge in silver prices in the past 18 months.

The differences between Sebi and FMC have been brewing for close to a year, fuelling another turf battle between regulators.

Last year, Sebi and the Insurance Regulatory and Development Authority (IRDA) had locked horns over unit-linked insurance products (Ulips).

The National Stock Exchange was also forced to defer the launch of derivatives based on gold exchange traded funds as the FMC had raised objections. The regulator for commodity futures market had objected on the ground that options were not allowed in commodities.

Some of the issues that figured in today’s meeting of the FMC with members of the national commodity exchanges were the introduction of mini contracts in agricultural commodities, standardisation of know-your-client (KYC) agreements across exchanges, and extra delivery centres for bullion contracts. Exchanges also wanted to put a halt to trading on Saturdays.

The total value of trade in Indian commodity futures market during 2010-11 stood at Rs 119.49 lakh crore.

The market registered a growth of 54 per cent during the year compared with Rs 77.65 lakh crore in the previous year.

Audit glare on SBI provisions

The Institute of Chartered Accountants of India (ICAI) has asked the State Bank of India — the country’s largest commercial bank — to explain the reasons for the surge in the provisions it made against bad loans in its results for the fourth quarter ended March 31. The SBI had raised its provisions against bad loans by 49 per cent to Rs 3,264 crore from Rs 2,187 crore in the year-ago period. Total provisions at the bank rose 82 per cent to Rs 6,059 crore during the same period. The sharp jump in provisions was the principal reason behind the PSU banking giant reporting a net profit of Rs 21 crore compared with Rs 1,867 crore in the same period last year. The resultant fall in the SBI’s profits drew a caustic remark from RBI deputy governor K.C. Chakrabarty recently. Although Chakrabarty did not name the bank, he said whenever the chairman of a bank retired, its profits went down as the successor wanted to start with a clean slate. “If we don’t audit or create the standard then anybody will report anything that will not be meaningful and nobody will rely on that. Books should not be as per the minds of the chairman but reporting should be as per books,” he had said. It is now learnt that the accounting regulator will soon take up the reasons behind the rise in provisions at the SBI during the fourth quarter, not only with the bank, but also with its auditors. ICAI president G. Ramaswamy was quoted as saying that a letter would be sent to the SBI asking it to state the reasons that led to the increase in provisions in the March quarter. The letter is expected to be sent within a week and further action will depend on the SBI’s response, the ICAI chief added. It, however, could not be ascertained as to whether the accounting regulator will look into specifics such as the jump in provisions for NPAs or its overall provisioning procedures. Meanwhile, the SBI has also breached the Reserve Bank of India’s credit exposure norms with respect to loans it provided to Reliance Industries Ltd (RIL) in the past three consecutive years. In its annual report, the SBI has disclosed that its credit to RIL was in excess of the limits prescribed under the RBI’s prudential credit norms. The bank added that apart from RIL, Indian Oil Corporation and Bhel were the other two clients who had benefited from a breach in the prudential credit limits. Under the RBI norms, loan exposure to any entity has to be capped at 15 per cent of capital funds in the case of a single borrower and 40 per cent of capital funds in the case of a borrower group. However, the exposure to a single borrower can go up to 20 per cent if the additional 5 per cent is on account of extension of credit to infrastructure projects.

RIL buys Bharti insurance stake

Mukesh Ambani today stormed into the crowded insurance business arena by acquiring Bharti group’s 74 per cent stake in its life insurance and general insurance entities for an undisclosed sum of money. The move will pit the elder Ambani scion against his sibling Anil Ambani who scrapped a non-compete agreement in May last year that removed virtually all turf restrictions that they had decided on when they carved up patriarch Dhirubhai Ambani’s empire in January 2006. Two Mukesh Ambani companies — group flagship Reliance Industries and Reliance Industrial Infrastructure Ltd (RIIL) —will acquire the stake that the telecom giant held in the two entities: Bharti AXA Life Insurance Company Ltd (Bharti AXA Life) and Bharti AXA General Insurance Company Ltd (Bharti AXA GI). Both insurance entities have raked in losses in 2009-10 with Bharti Axa Life suffering a loss of Rs 478.17 crore and Bharti Axa GI of Rs 142.30 crore. It isn’t clear how much Ambani has had to fork out for the insurance companies but it won’t be hard for him to pay. Reliance Industries is sitting on a $9.5-billion (Rs 42,393 crore) cash mountain and will rake in another $7.2 billion as soon as the government clears the deal it struck with British Petroleum in February under which the UK exploration giant will acquire a 30 per cent participating interest in the 23 oil and gasfields that RIL operates. Under the terms of the deal with the Bharti group, RIL and RIIL will effectively hold 57 per cent and 17 per cent, respectively, in both the insurance companies and will become AXA’s joint venture partners in India. The Paris-based group will retain its current 26 per cent shareholding in the insurance joint ventures and will continue to manage the day-to-day operations. Interestingly, there is an option under which AXA can acquire from RIL and RIIL up to 24 per cent in both the insurance companies if the FDI regulations and other norms permit such a purchase. It is contemplated that if this option is exercised, the two Reliance companies will effectively hold 50 per cent with RIL owning 45 per cent and RIIL the rest. AXA will then hold the remaining 50 per cent in both companies. However, it is assumed the life insurance business of Bharti AXA was alone valued at over Rs 3,000 crore. In March this year, Nippon Life had acquired a 26 per cent stake in Anil Ambani’s Reliance Life for Rs 3,062 crore. Analysts had then said the valuation given to Reliance Life was higher than anticipated. For Mukesh Ambani and Reliance which began with textiles, the acquisition of Bharti’s stake is another instance of it diversifying into areas other than oil and gas or petrochemicals. While RIL has already entered the organized retail business, last year, it had stunned observers when it entered the hospitality business by checking into EIH. In June last year, it acquired a 95 per cent stake in Infotel Broadband for Rs 4,800 crore. In March this year, RIL announced that it was entering financial services by joining hands with the DE Shaw group. Though insurance is a capital intensive business with a long gestation period, for a cash rich company like RIL, it can withstand the challenges in these businesses. Bharti AXA Life started operations in 2006 and has a market share of a little over one per cent in the insurance arena. During 2010-11, it collected total premium of Rs 790 crore. Data from IRDA show that the company’s new business premium income dropped to Rs 362 crore, a fall of 17 per cent. On the other hand, the gross premium underwritten by Bharti AXA GI stood at Rs 551.48 crore, an increase of 77 per cent over that in 2009-10.

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