Adviser evaluation should be done on the basis of their experience, expertise and integrity, and not based on the activities of the organization they represent
No amount of regulatory changes and rule tightening seems to be providing any succour to beleaguered investors. Barely had investors recovered from the rude shock of the global financial crisis in October/November 2008, then came the Irish and Greek crises. Add to that, frequent regulatory changes such as abolition of entry loads on mutual funds (MFs) and insurance reforms. This has seen many intermediaries deserting investors, who have now been left to fend for themselves. Poor inflows into equity schemes, despite a strong rally in the equity markets, and dwindling MF folio numbers is an ominous sign that the retail investor is not in a hurry to return.
What is even more disturbing is the recent industry data and the subsequent media coverage, showing that the malaise of churning continues unabated, especially from the banking and institutional segment. This defeats the very purpose of doing away with entry loads. It seems the lure of upfront charges has been replaced with transaction charge.
Mis-selling, too, continues, albeit in a different form. This should include underselling risk products such as equity funds to the investor, when his/her risk tolerance permits that, and pushing monthly income plans (MIPs) instead. Recent bias towards pushing MIPs for the reasons of higher upfront is gross injustice. Many investors’ portfolios have underperformed, missing large parts of the ongoing rally. Otherwise, how does one explain growth in the assets of MIPs over the last 15 months, vis-à-vis equity funds? Some of these MIPs have seen five-six times growth in assets, when the same asset management company’s (AMCs) top performing equity schemes have seen marginal growth, considering rise in the value of the underlying stocks in the same period. Here, too, banks and institutional channels have been more aggressive in pushing MIPs.
What I find redeeming is that independent financial advisers (IFAs) and boutique firms have seen the least churn and outflows even during turbulent times. This and previous industry data reveals that assets garnered by this segment are considered more stable and stay longer with the AMCs. This is in the investors’ interest. In spite of substantial evidence to the contrary, what is baffling is the average investor’s undue reliance on banks and institutional channels for seeking financial advice and investment products.
Adviser evaluation should be done on the basis of their experience, expertise and integrity, and not based on the activities of the organization they represent. Successful placement of $100 million (Rs460 crore) worth foreign currency convertible bonds by an institution is of no relevance to an average investor, when an adviser assigned to his relationship can’t comprehend the risk associated with sector/theme fund.
There is a compelling case for investors to consider IFAs.
Continuity: There is continuity in their services and consistency in dealing. This is critical even for a high networth client, who may not be well-versed with financial products and may need hand holding at times. It also provides personal attention.
Strong bonding: Over time many advisers and boutique firms develop a deep relationship with investors. Indeed, many handle relationships that span across generations. Financial matters are very personal; the same cannot be shared and disclosed to everyone and privacy is of utmost importance.
Third-party products: Most investment products have third-party originators. The manufacturer of these products is keen to see his actual customer, irrespective of the distribution medium. An average investor can be adequately served with simple products such as MFs, insurance, and fixed income instruments and, in some cases, portfolio management services. Alternative products and structured notes are opaque and serve limited purpose and may not be suitable to all investors.
Client centric: In the absence of the sales targets for the period, an IFA/boutique firm is more likely to be client centric than product centric. Deeper understanding of the client’s needs also brings in some degree of accountability.
Requisite expertise: Many IFAs and boutique firms are owned and managed by qualified professionals, who have worked in the financial services industry and are experienced to handle large clients. With a focus on selected products, there is a sound knowledge base of products and process.
Acquisition through referrals: Since client acquisition is only through referrals, this brings in a dimension of seriousness and accountability. Client acquisition is the key growth driver; referrals can’t be expected from a bunch of disillusioned clients. Thus, there will be efforts to retain and cultivate clients.
Availability of quality research from independent agencies and technology that can be bought off the shelf has further dented the advantage that institutions enjoy.
After the collapse of Lehman Brothers, the belief that large banks and institutions are self-serving has gained momentum in evolved markets such as the US. Many wealthy investors have moved their portfolios to IFAs, who they have found to be more sincere and reliable.
It may be fine for a client who has a certain degree of financial sophistication to engage any adviser, but a normal investor should lay sufficient emphasis on adviser selection. In the absence of this, the investment venture may turn out to be a mug’s game.
Source : Livemint
Tuesday, November 30, 2010
You can bet on the India story, BSE tells the world
The London Stock Exchange does it. Nasdaq and NYSE do it. Now, it’s the turn of Mumbai to show the world that its capital markets have come of age, and it can emerge as a global financial centre — even without massive government investment or focus.
In a first ever, the Bombay Stock Exchange (BSE) has now started doing international roadshows to market itself to global investors as an ideal location to raise capital — especially through IDRs, the first of which was done by Standard Chartered Bank .
“There’s a general misconception that Indian capital markets are over-regulated , that regulation is intrusive, so it’s important to let global investors know that Indian markets have evolved, the pace of reforms is fast. It is also important that we all came together as a group to address concerns of international investors ,” says Nehal Vora, head of planning and policy at BSE, who was in London recently to host road-shows for IDRs, along with a phalanx of experts from diverse fields, like merchant banking, taxation, legal, and of course, Standard Chartered executives.
It could sound a bit ambitious to tell investors in a global financial centre to move to the BSE for their capital needs, but given the level of interest from international investors, who stuck through the road-shows despite a short sojourn in freezing cold, thanks to a fire alarm, it seems everyone wants a slice of the Indian stock exchange action.
According to Ranganath Char, managing director of JM Financial’s investment banking, they’ve had a number of enquiries from global companies, including the likes of Nokia and IBM to issue IDRs.
“We haven’t actually actively started marketing IDRs. These are just some of the routine enquiries we’re getting,” he says.
Roadshows like these also help identify what key issuer concerns are — as far as IDRs go, the two major concerns are about use of proceeds. During the StanChart IDRs, regulators decreed that proceeds of IDRs have to be sent overseas, and then if at all reinvested in India. While investors are aware of the need to monitor roundtripping, most potential IDR issuers would have a strong presence or interest in the Indian market.
Standard Chartered, which raised $500 million for general corporate purposes, had to “just coincidentally” invest a similar amount in investing in a Chinese bank, even though Stan-Chart routinely invests heavily in India , says Mark Stride, who handles StanChart’s group corporate development out of Singapore.
Another key issue is clarity on taxation, the question of whether IDRs are subject to STT or capital gains, says Mr Vora. While some experts believe that the true growth of IDRs will be when companies in emerging countries, which actually need to raise capital and don’t have deep enough domestic capital markets to do so, realise they can tap both international and Indian funds — like Asian or African companies.
As of now, though, expect only showcase names like StanChart. Mr Vora is clear that IDRs are BSE’s very new, very pet project, and the important thing is to set precedents and establish credentials with the first few major issues. “Everyone will be watching how the first few work out, plus it will give us time to sort out any regulatory hitches and learnings,” he says.
IDRs might still be a new kind of product, and take some time to establish itself, but the experts expect that the action will hot up after the one year lock-in period for StanChart, when the scrip starts seeing activity.
Source : ET
In a first ever, the Bombay Stock Exchange (BSE) has now started doing international roadshows to market itself to global investors as an ideal location to raise capital — especially through IDRs, the first of which was done by Standard Chartered Bank .
“There’s a general misconception that Indian capital markets are over-regulated , that regulation is intrusive, so it’s important to let global investors know that Indian markets have evolved, the pace of reforms is fast. It is also important that we all came together as a group to address concerns of international investors ,” says Nehal Vora, head of planning and policy at BSE, who was in London recently to host road-shows for IDRs, along with a phalanx of experts from diverse fields, like merchant banking, taxation, legal, and of course, Standard Chartered executives.
It could sound a bit ambitious to tell investors in a global financial centre to move to the BSE for their capital needs, but given the level of interest from international investors, who stuck through the road-shows despite a short sojourn in freezing cold, thanks to a fire alarm, it seems everyone wants a slice of the Indian stock exchange action.
According to Ranganath Char, managing director of JM Financial’s investment banking, they’ve had a number of enquiries from global companies, including the likes of Nokia and IBM to issue IDRs.
“We haven’t actually actively started marketing IDRs. These are just some of the routine enquiries we’re getting,” he says.
Roadshows like these also help identify what key issuer concerns are — as far as IDRs go, the two major concerns are about use of proceeds. During the StanChart IDRs, regulators decreed that proceeds of IDRs have to be sent overseas, and then if at all reinvested in India. While investors are aware of the need to monitor roundtripping, most potential IDR issuers would have a strong presence or interest in the Indian market.
Standard Chartered, which raised $500 million for general corporate purposes, had to “just coincidentally” invest a similar amount in investing in a Chinese bank, even though Stan-Chart routinely invests heavily in India , says Mark Stride, who handles StanChart’s group corporate development out of Singapore.
Another key issue is clarity on taxation, the question of whether IDRs are subject to STT or capital gains, says Mr Vora. While some experts believe that the true growth of IDRs will be when companies in emerging countries, which actually need to raise capital and don’t have deep enough domestic capital markets to do so, realise they can tap both international and Indian funds — like Asian or African companies.
As of now, though, expect only showcase names like StanChart. Mr Vora is clear that IDRs are BSE’s very new, very pet project, and the important thing is to set precedents and establish credentials with the first few major issues. “Everyone will be watching how the first few work out, plus it will give us time to sort out any regulatory hitches and learnings,” he says.
IDRs might still be a new kind of product, and take some time to establish itself, but the experts expect that the action will hot up after the one year lock-in period for StanChart, when the scrip starts seeing activity.
Source : ET
Fiscal deficit down 33.76% at Rs 1.62 lakh cr in Apr-Oct
The Centre's fiscal deficit narrowed by 33.76 per cent year-on-year to Rs 1.62 lakh crore in April-October, 2010, on the back of better-than-expected revenue from the sale of spectrum and robust tax collections.
In comparison, the Centre's fiscal deficit stood at Rs 2.45 lakh crore in the corresponding period of the previous financial year.
The government collected Rs 2.71 lakh crore in taxes during the seven-month period, which was 50.9 per cent of the Budget target for the entire fiscal. In comparison, tax collections during the same period last fiscal only amounted to 45.1 per cent of the whole-year target.
Non-tax revenue in April-October, 2010, stood at Rs 1.48 lakh crore, higher than the Budget estimate for the entire fiscal, primarily because of higher realisation from the auction of spectrum, which raked in approximately Rs 70,000 crore more than the government estimated.
However, expenditure also rose by 15 per cent during the period to Rs 6.17 lakh crore from over Rs 5.36 lakh crore in the year-ago period.
At Rs 1.62 lakh crore, the fiscal deficit in April- October, 2010, amounted to 42.6 per cent of the Budget estimate of Rs 3.81 lakh crore for the entire 2010-11, according to data released by the Controller General of Accounts.
This time last year, the fiscal deficit was 61.1 per cent of the Budget estimate for the entire 2009-10 financial year.
Fiscal deficit targets went away after the government provided a stimulus to the economy in the aftermath of the global financial crisis that broke out in 2008. Among the measures, the government slashed taxes and stepped up public expenditure to spur growth of the economy. However, this also led to widening of the fiscal deficit.
As a result, the fiscal deficit doubled to over 6 per cent in 2008-09, as against the maximum permissible limit of 3 per cent stipulated by the Fiscal Responsibility and Budget Management Act. The deficit rose further to over 6.5 per cent last fiscal.
After the government partially rolled back the stimulus by raising excise duty, the Budget estimates pegged the fiscal deficit at 5.5 per cent of GDP.
However, despite higher realisation from the sale of spectrum for high-speed telephony and broadband services, the government expects the fiscal deficit to be contained at the same level as its Budget estimates or marginally lower.
"I feel that fiscal deficit target that we have set for ourselves of 5.5 per cent, I expect that target to be met and maybe for us to do a little better than that. So we are on track on our fiscal policy," Chief Economic Advisor Kaushik Basu told reporters.
This is because the government has also stepped expenditure. In the first supplementary demand for grants, it got parliamentary sanction for spending an additional Rs 54,000 crore over the Budget estimate.
It had also sought separate approval for additional expenditure of another Rs 20,000 crore, which would drain out all the extra money garnered from the spectrum auction.
Source : ET
In comparison, the Centre's fiscal deficit stood at Rs 2.45 lakh crore in the corresponding period of the previous financial year.
The government collected Rs 2.71 lakh crore in taxes during the seven-month period, which was 50.9 per cent of the Budget target for the entire fiscal. In comparison, tax collections during the same period last fiscal only amounted to 45.1 per cent of the whole-year target.
Non-tax revenue in April-October, 2010, stood at Rs 1.48 lakh crore, higher than the Budget estimate for the entire fiscal, primarily because of higher realisation from the auction of spectrum, which raked in approximately Rs 70,000 crore more than the government estimated.
However, expenditure also rose by 15 per cent during the period to Rs 6.17 lakh crore from over Rs 5.36 lakh crore in the year-ago period.
At Rs 1.62 lakh crore, the fiscal deficit in April- October, 2010, amounted to 42.6 per cent of the Budget estimate of Rs 3.81 lakh crore for the entire 2010-11, according to data released by the Controller General of Accounts.
This time last year, the fiscal deficit was 61.1 per cent of the Budget estimate for the entire 2009-10 financial year.
Fiscal deficit targets went away after the government provided a stimulus to the economy in the aftermath of the global financial crisis that broke out in 2008. Among the measures, the government slashed taxes and stepped up public expenditure to spur growth of the economy. However, this also led to widening of the fiscal deficit.
As a result, the fiscal deficit doubled to over 6 per cent in 2008-09, as against the maximum permissible limit of 3 per cent stipulated by the Fiscal Responsibility and Budget Management Act. The deficit rose further to over 6.5 per cent last fiscal.
After the government partially rolled back the stimulus by raising excise duty, the Budget estimates pegged the fiscal deficit at 5.5 per cent of GDP.
However, despite higher realisation from the sale of spectrum for high-speed telephony and broadband services, the government expects the fiscal deficit to be contained at the same level as its Budget estimates or marginally lower.
"I feel that fiscal deficit target that we have set for ourselves of 5.5 per cent, I expect that target to be met and maybe for us to do a little better than that. So we are on track on our fiscal policy," Chief Economic Advisor Kaushik Basu told reporters.
This is because the government has also stepped expenditure. In the first supplementary demand for grants, it got parliamentary sanction for spending an additional Rs 54,000 crore over the Budget estimate.
It had also sought separate approval for additional expenditure of another Rs 20,000 crore, which would drain out all the extra money garnered from the spectrum auction.
Source : ET
Oil firms hike ATF prices by 1.4 pc
State-owned oil firms today hiked jet fuel prices by 1.4 per cent, the fourth increase in rates in two months.
Aviation Turbine Fuel (ATF) rates in Delhi have been hiked by Rs 636.46 per kilolitre, or 1.4 per cent, to Rs 45,240 per kl with effect from midnight tonight, an official of Indian Oil Corp (IOC), the nation's largest fuel retailer, said.
The latest hike comes on the back of a massive 5.5 per cent increase in ATF prices effected on November 16, in sync with the rise in global rates.
With this hike, IOC and sister public sector retailers Bharat Petroleum and Hindustan Petroleum have raised prices of jet fuel, or ATF, on four occasions since October.
The ATF price in Delhi on October 1 was Rs 40,728.52 per kl. The rates were increased by over 11 per cent in four hikes since then, in tandem with a surge in global oil prices past the USD 80 per barrel mark.
Jet fuel, will cost Rs 45,379.62 per kl in Mumbai, home to the nation's busiest airport, from tomorrow, as against Rs 44,716.65 per kl currently.
No comment could be immediately obtained from airline companies on the impact of the latest price increase.
The three state-owned oil retailers revise jet fuel prices on the 1st and 16th of every month, based on the average international price in the preceding fortnight.
In Kolkata, the ATF price has been hiked by Rs 649 to Rs 52,452.14 per kl, while in Chennai, it will cost Rs 48,496.70 per kl as against Rs 47,812.51 per kl currently.
Source : ET
Aviation Turbine Fuel (ATF) rates in Delhi have been hiked by Rs 636.46 per kilolitre, or 1.4 per cent, to Rs 45,240 per kl with effect from midnight tonight, an official of Indian Oil Corp (IOC), the nation's largest fuel retailer, said.
The latest hike comes on the back of a massive 5.5 per cent increase in ATF prices effected on November 16, in sync with the rise in global rates.
With this hike, IOC and sister public sector retailers Bharat Petroleum and Hindustan Petroleum have raised prices of jet fuel, or ATF, on four occasions since October.
The ATF price in Delhi on October 1 was Rs 40,728.52 per kl. The rates were increased by over 11 per cent in four hikes since then, in tandem with a surge in global oil prices past the USD 80 per barrel mark.
Jet fuel, will cost Rs 45,379.62 per kl in Mumbai, home to the nation's busiest airport, from tomorrow, as against Rs 44,716.65 per kl currently.
No comment could be immediately obtained from airline companies on the impact of the latest price increase.
The three state-owned oil retailers revise jet fuel prices on the 1st and 16th of every month, based on the average international price in the preceding fortnight.
In Kolkata, the ATF price has been hiked by Rs 649 to Rs 52,452.14 per kl, while in Chennai, it will cost Rs 48,496.70 per kl as against Rs 47,812.51 per kl currently.
Source : ET
Wednesday, November 24, 2010
Realty loan racket: RBI to examine modus operandi
The Reserve Bank of India (RBI) will begin examining the modus operandi of the alleged bribes-for-loans allegations made by the Central Bureau of Investigation (CBI) against officials of three banks, Life Insurance Corporation of India (LIC), and a finance company. The National Housing Bank (NHB) discourages housing finance companies from excessive exposures to builders and ensures that there are sufficient checks in place.
The CBI said officials of the private finance company were bribing senior officials of public sector banks and financial institutions for facilitating large scale corporate loans.
RBI would alert banks to exercise caution on their exposure to the real estate sector according to the process usually followed, sources said.
“The property sector is a sensitive sector and is always under the RBI scanner due to volatile nature of prices of realty assets,’’ a RBI official said, declining to be identified.
The central bank carries out offsite investigation to keep track of sectoral exposures, but in normal course, it does not get into the details about exposure to specific entity, according to the official.
The CBI might take the help of other agencies, including RBI, based on the nature of leads the investigation yielded, an official of CBI said.
NHB Chairman R V Verma said it would have to see the details of the LIC Housing Finance scandal before deciding on the future course of action.
“This does not seem to be a systemic issue,’’ Verma said. “There are regulatory checks and balances in place and NHB has discouraged excessive exposures to builders. The housing finance companies have to do due diligence in each case of loan to builders.”
More than 80 per cent of the loan portfolio of housing finance companies consists of home loans. Their direct exposure to developers and builders is usually small as a share of the total asset portfolio.
The central bank has been telling banks to exercise caution on over-exposure to the property sector. The central bank in its last monetary policy on November 2 set the loan–to-value on housing loans at 80 per cent of the value of the property being funded by any lender. It also raised the risk weights on residential housing loans of more than Rs 75 lakh to 125 per cent from 100 per cent.
The RBI increased the standard asset provisioning for all so-called ‘teaser loans’ to two per cent from 0.4 per cent. While RBI didn’t see a bubble in the housing sector, it did see a price build-up, Governor D Subbarao said on November 2.
“Home prices in most metros have not only reached pre-crisis levels, but have even crossed that. We wanted to ensure that this is not credit-driven. There are also some loose practices developing such as 90/10 (loans up to 90 per cent of property value). We wanted to curb that. There is no bubble. We just wanted to rein in the housing sector’s credit growth,” the governor had said.
Source : Business Standard
The CBI said officials of the private finance company were bribing senior officials of public sector banks and financial institutions for facilitating large scale corporate loans.
RBI would alert banks to exercise caution on their exposure to the real estate sector according to the process usually followed, sources said.
“The property sector is a sensitive sector and is always under the RBI scanner due to volatile nature of prices of realty assets,’’ a RBI official said, declining to be identified.
The central bank carries out offsite investigation to keep track of sectoral exposures, but in normal course, it does not get into the details about exposure to specific entity, according to the official.
The CBI might take the help of other agencies, including RBI, based on the nature of leads the investigation yielded, an official of CBI said.
NHB Chairman R V Verma said it would have to see the details of the LIC Housing Finance scandal before deciding on the future course of action.
“This does not seem to be a systemic issue,’’ Verma said. “There are regulatory checks and balances in place and NHB has discouraged excessive exposures to builders. The housing finance companies have to do due diligence in each case of loan to builders.”
More than 80 per cent of the loan portfolio of housing finance companies consists of home loans. Their direct exposure to developers and builders is usually small as a share of the total asset portfolio.
The central bank has been telling banks to exercise caution on over-exposure to the property sector. The central bank in its last monetary policy on November 2 set the loan–to-value on housing loans at 80 per cent of the value of the property being funded by any lender. It also raised the risk weights on residential housing loans of more than Rs 75 lakh to 125 per cent from 100 per cent.
The RBI increased the standard asset provisioning for all so-called ‘teaser loans’ to two per cent from 0.4 per cent. While RBI didn’t see a bubble in the housing sector, it did see a price build-up, Governor D Subbarao said on November 2.
“Home prices in most metros have not only reached pre-crisis levels, but have even crossed that. We wanted to ensure that this is not credit-driven. There are also some loose practices developing such as 90/10 (loans up to 90 per cent of property value). We wanted to curb that. There is no bubble. We just wanted to rein in the housing sector’s credit growth,” the governor had said.
Source : Business Standard
Another scam breaks, top finance execs held
The Central Bureau of Investigation (CBI) has arrested eight finance executives, including the chief of LIC Housing Finance, accusing them of taking bribes to give big corporate loans and sending shockwaves through stock and property markets at a time when the government is buffeted by a series of high-profile scandals.
LIC Housing Finance chief executive Ramachandran Nair , Life Insurance Corporation secretary for investments Naresh K Chopta, Bank of India general manager RN Tayal, and Central Bank of India director Maninder Singh Johar were among those arrested in the nationwide swoop by investigators.
The agency also arrested Rajesh Sharma, chief executive of Money Matters Group, a specialist loan arranger that was the go-between for lenders and corporates and is at the centre of the scandal.
CBI said Money Matters ‘either bribed or attempted to bribe’ bankers to get loans for many companies, including wind energy developer Suzlon, hill station township builder Lavasa, and Mumbai developer DB Realty. The bankers were accused of seeking bribes of as much as Rs 50 lakh on transactions. CBI did not share details.
News of the arrests, which broke during the closing hours of trade, hit stocks of some of the companies involved. Shares in Money Matters led the tumble, losing 20%, while LIC Housing Finance and DB Realty lost 19% and 17%, respectively. Central Bank of India lost 8.1% and Bank of India fell 5.3%.
“Officers of top management and middle management of various public sector banks and financial institutions were receiving illegal gratifications from the private financial services company who were acting as mediators and facilitators for corporate loans and other facilities from financial institutions,” a CBI statement said. The arrests come at a time the government is on the defensive and is accused of condoning a culture of loot.
These are the biggest and most high-profile arrests since the Unit Trust of India corruption scandal a decade ago and the 1992 securities scam.
Some saw the arrests and the publicity around them as diversionary tactics by the government. “While the corruption in these financial institutions needs to be thoroughly probed, the timing of this action is suspect. CBI is directly controlled by the government. At a time when the government is feeling the heat in Parliament over the 2G scam, asking CBI to conduct raids across the country makes one suspect the motive behind this,” said Arvind Kejriwal, founder of NGO Parivartan and a Magsasay award winning activist.
All the accused will be in CBI custody until Monday. They have been charged under the Prevention of Corruption Act and, if convicted, could be jailed for up to seven years and lose retirement privileges.
Experts said the arrests could choke liquidity in the market, as banks apply the brakes on fresh lending, especially to property firms that have been classified as ‘sensitive’ by the Reserve Bank of India, which fears a speculative bubble building in the real estate sector.
“Liquidity will get tight as banks get more cautious towards financing real estate projects,” said Vikas Oberoi, managing director of Oberoi Realty , a Mumbai-based property developer.
Shankar Sharma, vice-chairman and joint managing director at First Global, said the crisis for the markets may blow over. “It will have some sentiment value may be for half a day tomorrow (Thursday), but I think the markets are smarter and would discern the good guys and the bad guys.”
The domino effect of the arrests could force other lenders in the system, notably mutual funds and high net worth individuals, to also curb lending to real estate firms.
“Liquidity in real estate papers has always been low and most investors hold them to maturity. Also, the repaying capabilities of companies have been under question. So, to that extent, there are concerns with such a scam breaking out,” said Nandkumar Surti, chief investment officer, JPMorgan Asset Management India.
Source : ET
LIC Housing Finance chief executive Ramachandran Nair , Life Insurance Corporation secretary for investments Naresh K Chopta, Bank of India general manager RN Tayal, and Central Bank of India director Maninder Singh Johar were among those arrested in the nationwide swoop by investigators.
The agency also arrested Rajesh Sharma, chief executive of Money Matters Group, a specialist loan arranger that was the go-between for lenders and corporates and is at the centre of the scandal.
CBI said Money Matters ‘either bribed or attempted to bribe’ bankers to get loans for many companies, including wind energy developer Suzlon, hill station township builder Lavasa, and Mumbai developer DB Realty. The bankers were accused of seeking bribes of as much as Rs 50 lakh on transactions. CBI did not share details.
News of the arrests, which broke during the closing hours of trade, hit stocks of some of the companies involved. Shares in Money Matters led the tumble, losing 20%, while LIC Housing Finance and DB Realty lost 19% and 17%, respectively. Central Bank of India lost 8.1% and Bank of India fell 5.3%.
“Officers of top management and middle management of various public sector banks and financial institutions were receiving illegal gratifications from the private financial services company who were acting as mediators and facilitators for corporate loans and other facilities from financial institutions,” a CBI statement said. The arrests come at a time the government is on the defensive and is accused of condoning a culture of loot.
These are the biggest and most high-profile arrests since the Unit Trust of India corruption scandal a decade ago and the 1992 securities scam.
Some saw the arrests and the publicity around them as diversionary tactics by the government. “While the corruption in these financial institutions needs to be thoroughly probed, the timing of this action is suspect. CBI is directly controlled by the government. At a time when the government is feeling the heat in Parliament over the 2G scam, asking CBI to conduct raids across the country makes one suspect the motive behind this,” said Arvind Kejriwal, founder of NGO Parivartan and a Magsasay award winning activist.
All the accused will be in CBI custody until Monday. They have been charged under the Prevention of Corruption Act and, if convicted, could be jailed for up to seven years and lose retirement privileges.
Experts said the arrests could choke liquidity in the market, as banks apply the brakes on fresh lending, especially to property firms that have been classified as ‘sensitive’ by the Reserve Bank of India, which fears a speculative bubble building in the real estate sector.
“Liquidity will get tight as banks get more cautious towards financing real estate projects,” said Vikas Oberoi, managing director of Oberoi Realty , a Mumbai-based property developer.
Shankar Sharma, vice-chairman and joint managing director at First Global, said the crisis for the markets may blow over. “It will have some sentiment value may be for half a day tomorrow (Thursday), but I think the markets are smarter and would discern the good guys and the bad guys.”
The domino effect of the arrests could force other lenders in the system, notably mutual funds and high net worth individuals, to also curb lending to real estate firms.
“Liquidity in real estate papers has always been low and most investors hold them to maturity. Also, the repaying capabilities of companies have been under question. So, to that extent, there are concerns with such a scam breaking out,” said Nandkumar Surti, chief investment officer, JPMorgan Asset Management India.
Source : ET
US banks warned on loan-loss provisions
US banks showed further signs of recovery in the third quarter, helped by the lowest level of loan-loss provisions since before the 2007-2009 financial crisis, but drew a warning from a top regulator not to go too far.
Federal Deposit Insurance Corp Chairman Sheila Bair said banks should not cut reserves too quickly given the fragile economy.
"Many institutions came into the recent crisis with inadequate reserve levels, and they need to exercise restraint in drawing them down now," she said.
Bair gave her quarterly assessment of the industry just before rushing off to attend only the second meting of a new council of regulators designed to curb undue risk-taking by financial institutions.
The Financial Stability Oversight Council (FSOC) took a step on Tuesday toward bolstering supervision of certain derivatives clearinghouses and giving them access to the Federal Reserve's emergency lending facilities.
A Treasury official also updated panel members on a regulatory investigation of foreclosure practices, with banks and other mortgage servicers’ under fire for sloppy documentation.
"The bulk of the examination work to date focused on the foreclosure process has found widespread and, in our judgment, inexcusable breakdowns in the foreclosure process," said Michael Barr, assistant Treasury secretary for financial institutions.
The FDIC's quarterly report card on the banking industry's third quarter performance showed both profit growth, which was partly due to reduced loan-loss provisions, and an increasing divergence between the nation's mega-banks and its smaller ones.
The FDIC reported aggregate industry earnings rose to $14.5 billion in the third quarter versus $2 billion a year earlier. Profits would have been up sequentially from the second quarter, as well, if not for a massive charge-off recorded by the industry's largest player, Bank of America.
The number of banks on the regulator's "problem list" hit its highest level since 1993, despite better loan performance, while loan-loss reserves fell for the first time since late 2006, mostly due to large banks' actions, the agency said.
"Bair's comments are aimed primarily at mid-sized and smaller banks that have yet to show consistent credit quality improvement. This supports our broad thesis that the very large banks are improving much faster than the rest of the industry," said MF Global financial services analyst Jaret Seiberg.
RISK COUNCIL GATHERS
As head of the FDIC, Bair is a member of the new risk oversight council, an inter-agency panel of regulators created to keep an eye on precisely the sort of broad risk that might be posed by lower loan-loss reserves.
The council, set up under sweeping banking and Wall Street reforms enacted in July, met behind closed doors on Tuesday, then held a brief open session later in the day.
Almost four months since Democrats and President Barack Obama pushed through the reforms over the opposition of banks and Republicans, government regulators are consumed with the implementation of hundreds of new rules and regulations.
Industry lobbyists are moving to soften the Dodd-Frank law at the implementation level, where Congress left reams of important details to be hammered out by federal authorities.
The FSOC is empowered to tag certain organizations as "systemically important" to the stability of the economy. Firms thus labeled must answer to stricter oversight.
The council last month began sketching out the criteria it will use for deciding which non-bank financial firms get named as "systemically important." It did the same on Tuesday for exchanges, clearinghouses and data repositories that are being set up for off-exchange derivatives trading.
These institutions constitute the critical internal workings of the U.S. financial system. For them, the "systemically important" label also would bring access to the Federal Reserve's discount window during a liquidity crunch.
The council, led by Treasury Secretary Timothy Geithner, has 10 voting members.
Source: Business Standard
Federal Deposit Insurance Corp Chairman Sheila Bair said banks should not cut reserves too quickly given the fragile economy.
"Many institutions came into the recent crisis with inadequate reserve levels, and they need to exercise restraint in drawing them down now," she said.
Bair gave her quarterly assessment of the industry just before rushing off to attend only the second meting of a new council of regulators designed to curb undue risk-taking by financial institutions.
The Financial Stability Oversight Council (FSOC) took a step on Tuesday toward bolstering supervision of certain derivatives clearinghouses and giving them access to the Federal Reserve's emergency lending facilities.
A Treasury official also updated panel members on a regulatory investigation of foreclosure practices, with banks and other mortgage servicers’ under fire for sloppy documentation.
"The bulk of the examination work to date focused on the foreclosure process has found widespread and, in our judgment, inexcusable breakdowns in the foreclosure process," said Michael Barr, assistant Treasury secretary for financial institutions.
The FDIC's quarterly report card on the banking industry's third quarter performance showed both profit growth, which was partly due to reduced loan-loss provisions, and an increasing divergence between the nation's mega-banks and its smaller ones.
The FDIC reported aggregate industry earnings rose to $14.5 billion in the third quarter versus $2 billion a year earlier. Profits would have been up sequentially from the second quarter, as well, if not for a massive charge-off recorded by the industry's largest player, Bank of America.
The number of banks on the regulator's "problem list" hit its highest level since 1993, despite better loan performance, while loan-loss reserves fell for the first time since late 2006, mostly due to large banks' actions, the agency said.
"Bair's comments are aimed primarily at mid-sized and smaller banks that have yet to show consistent credit quality improvement. This supports our broad thesis that the very large banks are improving much faster than the rest of the industry," said MF Global financial services analyst Jaret Seiberg.
RISK COUNCIL GATHERS
As head of the FDIC, Bair is a member of the new risk oversight council, an inter-agency panel of regulators created to keep an eye on precisely the sort of broad risk that might be posed by lower loan-loss reserves.
The council, set up under sweeping banking and Wall Street reforms enacted in July, met behind closed doors on Tuesday, then held a brief open session later in the day.
Almost four months since Democrats and President Barack Obama pushed through the reforms over the opposition of banks and Republicans, government regulators are consumed with the implementation of hundreds of new rules and regulations.
Industry lobbyists are moving to soften the Dodd-Frank law at the implementation level, where Congress left reams of important details to be hammered out by federal authorities.
The FSOC is empowered to tag certain organizations as "systemically important" to the stability of the economy. Firms thus labeled must answer to stricter oversight.
The council last month began sketching out the criteria it will use for deciding which non-bank financial firms get named as "systemically important." It did the same on Tuesday for exchanges, clearinghouses and data repositories that are being set up for off-exchange derivatives trading.
These institutions constitute the critical internal workings of the U.S. financial system. For them, the "systemically important" label also would bring access to the Federal Reserve's discount window during a liquidity crunch.
The council, led by Treasury Secretary Timothy Geithner, has 10 voting members.
Source: Business Standard
Monday, November 22, 2010
China Inflation May Be Too Hot for Controls Amid Cash Glut
Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent.
“I’m struggling to make ends meet with costs going up like this,” said Liu, a native of Sichuan province who pays his workers as much as 1,800 yuan ($271) a month, or 88 percent more than the Beijing minimum wage, to serve up a staple Chinese meal. “Raising prices is the only way out,” he said, predicting he won’t be able to hold out beyond two months.
Premier Wen Jiabao cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food.
Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.
“They are just not addressing the fundamental problem at all,” said Patrick Chovanec an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.
Lagging Behind
The People’s Bank of China has raised its benchmark interest rates once this year, lagging behind Malaysia, Thailand, Taiwan and South Korea as emerging Asian economies led the global economic rebound. Policy makers have instead relied on guidance to banks to scale back lending and on increases in reserve ratios, with the PBOC announcing the fifth boost of the year four days ago.
The Shanghai Composite Index tumbled 2.5 percent to 2,812.55 as of the trading break at 11:30 a.m. local time. The decline is an extension of the benchmark’s biggest two-week slide since May, sparked concern accelerated monetary tightening will crimp economic growth.
China’s plans to rein in prices include selling state food reserves, stabilizing the cost of natural gas and cracking down on speculation in and hoarding of agricultural products, the State Council said. The aim is to damp food inflation that reached 10 percent in October, more than twice the 4.4 percent headline rate.
Inflation Outlook
Standard Chartered Plc economists anticipate the consumer price index will rise by an average of 5.5 percent next year, with a peak gain of 6.3 percent in June. The bank estimates this year’s increase at 3.2 percent. That compares with a 0.7 percent decline in 2009.
China will sell soybeans and vegetable oil from its stockpiles starting this week to stabilize prices, the State Administration of Grain said in a statement Nov. 19. State news agency Xinhua reported the next day that the cabinet ordered local governments to ensure food supplies ban toll collections for vehicles carrying fresh foods.
The People’s Daily, a newspaper published by the Communist party, called on the government to expand the number of commodities for which reserves are kept. The quantities of and distributions from existing stockpiles should also be increased, the paper said in an editorial on its front page today.
Chinese corn, sugar and rice futures have reached records in the past two weeks on concern supplies may lag behind demand.
Food Aid
The State Council meeting last week came amid concern at the threat increased food costs pose to the poorest people in the world’s most populous nation. More than 81 million people in disaster-affected parts of China may need food assistance from the government this winter, the Ministry of Civil Affairs said on its website on Nov. 18.
At a food market in Beijing’s Deshengmennei Avenue, fruit- stand owner Wang Yanling says sales of apples have slumped from as much as 250 kilograms (551 pounds) a day a year ago to about 100 kilograms a day after prices soared more than 60 percent.
“People are buying less with prices jumping up,” said Wang. “It’s getting harder and harder to sell.”
McDonald’s Corp. the world’s largest restaurant chain, said Nov 17. that it increased prices for its burgers, drinks and snacks in China to offset costs.
A slowing pace of economic growth may prove helpful in damping down inflation. China’s gross domestic product expanded 9.6 percent in the third quarter from a year before, down from 10.3 percent in the previous three months and 11.9 percent in January to March.
Vegetable Dilemma
A rate increase “can’t encourage farmers to grow more vegetables, it can’t discourage people from eating less vegetables,” Qu Hongbin co-head of Asian economic research at HSBC Holdings Inc. in Hong Kong, said in a Bloomberg Television interview.
China also is grappling with inflows of cash sparked by monetary easing abroad, bets on yuan gains and a trade surplus that surged last month to $27 billion. Officials have faulted the U.S. Federal Reserve’s plan to buy $600 billion of Treasury securities for contributing to asset-price pressures in Asia.
“Quantitative easing in the U.S. puts China’s seat to the fire because it forces more inflationary pressure onto them,” said Diana Choyleva, a Hong Kong-based economist at Lombard Street Research Asia. “They cannot avoid what they need to do,” which is raise rates or let the yuan strengthen, she said.
Currency Policy
Policy makers have limited the currency’s appreciation to less than 3 percent since scrapping in June an almost two-year crisis policy of keeping the yuan level with the dollar to protect the nation’s exporters. It was at 6.6449 as of 12:32 p.m. Hong Kong time.
The PBOC will raise the benchmark one-year deposit and lending rates by year-end, from the current levels of 5.56 percent and 2.5 percent, according to a Bloomberg News survey of nine economists last week.
While price controls may help with inflation expectations, they will either be ineffective because producers circumvent them or create shortages if suppliers suffer losses and are not compensated, said Goldman Sachs Group Inc. economists Yu Song and Helen Qiao in a Nov. 17 note.
“Prices for everything are rising every day -- no exception,” said Zhu Fulong, 35, who has run a grocery shop in Hangzhou, a city near Shanghai, with his wife since 2006. “A lot of people won’t increase their spending much, so they instead choose products at lower grade which we sell at thinner margins, and that’s hurting our business.”
Rising prices are also prompting housewives like Lily Huang, 50, to travel once a month to Hong Kong from Shenzhen in southern China to stock up on items including toothpaste, shampoo and tissues.
“Things are much cheaper here,” said Huang, carrying a suitcase and three bags full of groceries at Sheung Shui train station next to Hong Kong’s border with China. A packet of Tempo tissues is 30 percent cheaper in Hong Kong, she said. “It’s really worth the trouble for us to come here to shop.”
“I’m struggling to make ends meet with costs going up like this,” said Liu, a native of Sichuan province who pays his workers as much as 1,800 yuan ($271) a month, or 88 percent more than the Beijing minimum wage, to serve up a staple Chinese meal. “Raising prices is the only way out,” he said, predicting he won’t be able to hold out beyond two months.
Premier Wen Jiabao cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food.
Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.
“They are just not addressing the fundamental problem at all,” said Patrick Chovanec an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.
Lagging Behind
The People’s Bank of China has raised its benchmark interest rates once this year, lagging behind Malaysia, Thailand, Taiwan and South Korea as emerging Asian economies led the global economic rebound. Policy makers have instead relied on guidance to banks to scale back lending and on increases in reserve ratios, with the PBOC announcing the fifth boost of the year four days ago.
The Shanghai Composite Index tumbled 2.5 percent to 2,812.55 as of the trading break at 11:30 a.m. local time. The decline is an extension of the benchmark’s biggest two-week slide since May, sparked concern accelerated monetary tightening will crimp economic growth.
China’s plans to rein in prices include selling state food reserves, stabilizing the cost of natural gas and cracking down on speculation in and hoarding of agricultural products, the State Council said. The aim is to damp food inflation that reached 10 percent in October, more than twice the 4.4 percent headline rate.
Inflation Outlook
Standard Chartered Plc economists anticipate the consumer price index will rise by an average of 5.5 percent next year, with a peak gain of 6.3 percent in June. The bank estimates this year’s increase at 3.2 percent. That compares with a 0.7 percent decline in 2009.
China will sell soybeans and vegetable oil from its stockpiles starting this week to stabilize prices, the State Administration of Grain said in a statement Nov. 19. State news agency Xinhua reported the next day that the cabinet ordered local governments to ensure food supplies ban toll collections for vehicles carrying fresh foods.
The People’s Daily, a newspaper published by the Communist party, called on the government to expand the number of commodities for which reserves are kept. The quantities of and distributions from existing stockpiles should also be increased, the paper said in an editorial on its front page today.
Chinese corn, sugar and rice futures have reached records in the past two weeks on concern supplies may lag behind demand.
Food Aid
The State Council meeting last week came amid concern at the threat increased food costs pose to the poorest people in the world’s most populous nation. More than 81 million people in disaster-affected parts of China may need food assistance from the government this winter, the Ministry of Civil Affairs said on its website on Nov. 18.
At a food market in Beijing’s Deshengmennei Avenue, fruit- stand owner Wang Yanling says sales of apples have slumped from as much as 250 kilograms (551 pounds) a day a year ago to about 100 kilograms a day after prices soared more than 60 percent.
“People are buying less with prices jumping up,” said Wang. “It’s getting harder and harder to sell.”
McDonald’s Corp. the world’s largest restaurant chain, said Nov 17. that it increased prices for its burgers, drinks and snacks in China to offset costs.
A slowing pace of economic growth may prove helpful in damping down inflation. China’s gross domestic product expanded 9.6 percent in the third quarter from a year before, down from 10.3 percent in the previous three months and 11.9 percent in January to March.
Vegetable Dilemma
A rate increase “can’t encourage farmers to grow more vegetables, it can’t discourage people from eating less vegetables,” Qu Hongbin co-head of Asian economic research at HSBC Holdings Inc. in Hong Kong, said in a Bloomberg Television interview.
China also is grappling with inflows of cash sparked by monetary easing abroad, bets on yuan gains and a trade surplus that surged last month to $27 billion. Officials have faulted the U.S. Federal Reserve’s plan to buy $600 billion of Treasury securities for contributing to asset-price pressures in Asia.
“Quantitative easing in the U.S. puts China’s seat to the fire because it forces more inflationary pressure onto them,” said Diana Choyleva, a Hong Kong-based economist at Lombard Street Research Asia. “They cannot avoid what they need to do,” which is raise rates or let the yuan strengthen, she said.
Currency Policy
Policy makers have limited the currency’s appreciation to less than 3 percent since scrapping in June an almost two-year crisis policy of keeping the yuan level with the dollar to protect the nation’s exporters. It was at 6.6449 as of 12:32 p.m. Hong Kong time.
The PBOC will raise the benchmark one-year deposit and lending rates by year-end, from the current levels of 5.56 percent and 2.5 percent, according to a Bloomberg News survey of nine economists last week.
While price controls may help with inflation expectations, they will either be ineffective because producers circumvent them or create shortages if suppliers suffer losses and are not compensated, said Goldman Sachs Group Inc. economists Yu Song and Helen Qiao in a Nov. 17 note.
“Prices for everything are rising every day -- no exception,” said Zhu Fulong, 35, who has run a grocery shop in Hangzhou, a city near Shanghai, with his wife since 2006. “A lot of people won’t increase their spending much, so they instead choose products at lower grade which we sell at thinner margins, and that’s hurting our business.”
Rising prices are also prompting housewives like Lily Huang, 50, to travel once a month to Hong Kong from Shenzhen in southern China to stock up on items including toothpaste, shampoo and tissues.
“Things are much cheaper here,” said Huang, carrying a suitcase and three bags full of groceries at Sheung Shui train station next to Hong Kong’s border with China. A packet of Tempo tissues is 30 percent cheaper in Hong Kong, she said. “It’s really worth the trouble for us to come here to shop.”
Crisil puts 12 microfinance lenders on ratings watch
The crisis facing the Indian microfinance sector following the chain of events in Andhra Pradesh (AP) “threatens to permanently damage the business model of MFIs (microfinance institutions), by impairing their growth, asset quality, profitability and capital raising ability,” according to credit rating firm Crisil Ltd.
Crisil made these observations in a press statement issued on Monday, along with placing the credit ratings of 12 MFIs under “rating watch with negative implications”.
They include SKS Microfinance Ltd, Asmitha Microfin Ltd, Bharatiya Samruddhi Finance Ltd, Equitas Micro Finance India Pvt. Ltd, Grameen Financial Services Pvt. Ltd, Spandana Sphoorty Financial Ltd and Ujjivan Financial Services Pvt. Ltd. The rating company said the trouble brewing in the microfinance industry could impact credit flow to the rural poor. Microfinance is a Rs.33,000 crore industry in India, with MFIs reaching out to an estimated 30 million people, mostly in rural areas.
After a series of suicides in Andhra Pradesh, allegedly due to the coercive recovery methods resorted to by some MFIs, the state government issued an ordinance on 15 October seeking to check such measures, prohibiting MFIs from taking their business to doorsteps, giving multiple loans to borrowers and collecting weekly payments.
As a consequence of the ordinance, MFIs with significant exposure to Andhra Pradesh found it difficult to not only collect repayments on time but disburse fresh loans as well.
According to Crisil, collections in Andhra Pradesh have “plummeted below 20% from nearly 99% prior to the ordinance”, and this, it expects, will lead to a sharp increase in delinquencies for MFIs that have a significant exposure in the state. Fresh disbursements in Andhra Pradesh have been negligible over the last few weeks and disbursement growth in other states have also fallen sharply.
Hyderabad-based SKS Microfinance, India’s largest and only listed MFI, has seen its shares drop 36.79% on the Bombay Stock Exchange (BSE) since 15 October, while the bourse’s benchmark Sensex has fallen 0.83%. As much as 26% of SKS’ loan portfolio is in Andhra Pradesh. “We believe we are in a better position than others to face the situation in Andhra Pradesh as we have secured Rs.380 crore of debt from eight banks, and have a line of credit of another Rs.2,500 crore. The issue that Crisil has raised is valid but we see hope for the sector following the finance minister’s remark that the government’s objective is not to strangulate the sector,” an SKS spokesperson said.
Finance minister Pranab Mukherjee made the statement last week at the Hindustan Times Leadership Summit. In a notice to the stock exchanges dated 9 November, SKS said the ordinance would have a “material impact” on operations in Andhra Pradesh.
Even MFIs that have little or no exposure to Andhra Pradesh agree that credit from banks may dry up until there is clarity on the future course of action. P.N. Vasudevan, managing director of Equitas, stated that banks were likely to wait until the regulatory framework for MFIs is drawn up by the central government.
“Till now, the government has tried to regulate the liabilities side of MFIs. Now they are trying to regulate the asset side. Until the regulatory uncertainty is over, both banks and MFIs are going to be cautious in their lending practices,” Vasudevan said.
Vasudevan also clarified that Equitas continued to get support from its lenders
as its exposure to Andhra Pradesh was minuscule, around 2.5% of its total loan book size. “Even as we look to grow, we will exercise caution,” Vasudevan said.
“Banks have been lending to MFIs because they were creditworthy. Given that rating agencies have put them under watch, this will definitely have an impact on bank lending to this sector,” said Arun Kaul, chairman and managing director of UCO Bank.
Ujjivan, which has no exposure in Andhra Pradesh, has contested its name
being included in the “rating watch” list. “It is ridiculous that Ujjivan’s name is on that list as neither do we have exposure in Andhra, nor do we face any liquidity problem. We haven’t been rated recently by them and have asked them to take our name off that list after following a due process,” said Samit Ghosh, managing director of Ujjivan.
Ghosh, however, agreed that the developments in Andhra Pradesh and its consequences have posed a systemic problem for micro credit lenders to deal with.
“Banks are taking a cautious approach to lending. Fortunately, we have some unutilized limit with Small Industries Development Bank of India (Sidbi), which will help us in the next two to three months,”
Crisil made these observations in a press statement issued on Monday, along with placing the credit ratings of 12 MFIs under “rating watch with negative implications”.
They include SKS Microfinance Ltd, Asmitha Microfin Ltd, Bharatiya Samruddhi Finance Ltd, Equitas Micro Finance India Pvt. Ltd, Grameen Financial Services Pvt. Ltd, Spandana Sphoorty Financial Ltd and Ujjivan Financial Services Pvt. Ltd. The rating company said the trouble brewing in the microfinance industry could impact credit flow to the rural poor. Microfinance is a Rs.33,000 crore industry in India, with MFIs reaching out to an estimated 30 million people, mostly in rural areas.
After a series of suicides in Andhra Pradesh, allegedly due to the coercive recovery methods resorted to by some MFIs, the state government issued an ordinance on 15 October seeking to check such measures, prohibiting MFIs from taking their business to doorsteps, giving multiple loans to borrowers and collecting weekly payments.
As a consequence of the ordinance, MFIs with significant exposure to Andhra Pradesh found it difficult to not only collect repayments on time but disburse fresh loans as well.
According to Crisil, collections in Andhra Pradesh have “plummeted below 20% from nearly 99% prior to the ordinance”, and this, it expects, will lead to a sharp increase in delinquencies for MFIs that have a significant exposure in the state. Fresh disbursements in Andhra Pradesh have been negligible over the last few weeks and disbursement growth in other states have also fallen sharply.
Hyderabad-based SKS Microfinance, India’s largest and only listed MFI, has seen its shares drop 36.79% on the Bombay Stock Exchange (BSE) since 15 October, while the bourse’s benchmark Sensex has fallen 0.83%. As much as 26% of SKS’ loan portfolio is in Andhra Pradesh. “We believe we are in a better position than others to face the situation in Andhra Pradesh as we have secured Rs.380 crore of debt from eight banks, and have a line of credit of another Rs.2,500 crore. The issue that Crisil has raised is valid but we see hope for the sector following the finance minister’s remark that the government’s objective is not to strangulate the sector,” an SKS spokesperson said.
Finance minister Pranab Mukherjee made the statement last week at the Hindustan Times Leadership Summit. In a notice to the stock exchanges dated 9 November, SKS said the ordinance would have a “material impact” on operations in Andhra Pradesh.
Even MFIs that have little or no exposure to Andhra Pradesh agree that credit from banks may dry up until there is clarity on the future course of action. P.N. Vasudevan, managing director of Equitas, stated that banks were likely to wait until the regulatory framework for MFIs is drawn up by the central government.
“Till now, the government has tried to regulate the liabilities side of MFIs. Now they are trying to regulate the asset side. Until the regulatory uncertainty is over, both banks and MFIs are going to be cautious in their lending practices,” Vasudevan said.
Vasudevan also clarified that Equitas continued to get support from its lenders
as its exposure to Andhra Pradesh was minuscule, around 2.5% of its total loan book size. “Even as we look to grow, we will exercise caution,” Vasudevan said.
“Banks have been lending to MFIs because they were creditworthy. Given that rating agencies have put them under watch, this will definitely have an impact on bank lending to this sector,” said Arun Kaul, chairman and managing director of UCO Bank.
Ujjivan, which has no exposure in Andhra Pradesh, has contested its name
being included in the “rating watch” list. “It is ridiculous that Ujjivan’s name is on that list as neither do we have exposure in Andhra, nor do we face any liquidity problem. We haven’t been rated recently by them and have asked them to take our name off that list after following a due process,” said Samit Ghosh, managing director of Ujjivan.
Ghosh, however, agreed that the developments in Andhra Pradesh and its consequences have posed a systemic problem for micro credit lenders to deal with.
“Banks are taking a cautious approach to lending. Fortunately, we have some unutilized limit with Small Industries Development Bank of India (Sidbi), which will help us in the next two to three months,”
Sunday, November 21, 2010
US in vast insider trading investigation; Charges could involve a wide range of bankers and funds
Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the US, according to people familiar with the matter.
The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.
The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in US financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.
One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide “expert network” services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.
Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, California, firm that connects experts with investors seeking information in the technology, health-care and other industries. “I have no comment on that,” said Phani Kumar Saripella, Primary Global’s chief operating officer. Primary’s chief executive and chief operating officers previously worked at Intel Corp., according to its website.
In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.
Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Oregon, sent an email on October 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”
The email, which Mr. Kinnucan confirms writing, was addressed to traders at, among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management. SAC, Wellington and MFS declined to comment; Janus and Citadel didn’t immediately comment. It isn’t known whether clients are under investigation for their business with Mr. Kinnucan.
The investigations have been conducted by federal prosecutors in New York, the FBI and the Securities and Exchange Commission. Representatives of the Manhattan U.S. Attorney’s office, the FBI and the SEC declined to comment.
Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms, including First New York Securities LLC, improperly gained nonpublic information about pending health-care, technology and other merger deals, according to the people familiar with the matter.
Some traders at First New York, a 250-person trading firm, profited by anticipating health-care and other mergers unveiled in 2009, people familiar with the firm say.
A First New York spokesman said: “We are one of more than three dozen firms that have been asked by regulators to provide general information in a widespread inquiry; we have cooperated fully.” He added: “We stand behind our traders and our systems and policies in place that ensure full regulatory compliance.”
Key parts of the probes are at a late stage. A federal grand jury in New York has heard evidence, say people familiar with the matter. But as with all investigations that aren’t completed, it’s unclear what specific charges, if any, might be brought.
The action is an outgrowth of a focus on insider trading by Preet Bharara, the Manhattan U.S. Attorney. In an October speech, Mr. Bharara said the area is a “top criminal priority” for his office, adding: “Illegal insider trading is rampant and may even be on the rise.” Mr. Bharara declined to comment.
Expert-network firms hire current or former company employees, as well as doctors and other specialists, to be consultants to funds making investment decisions. More than a third of institutional investment-management firms use expert networks, according to a late-2009 survey by Integrity Research Associates LLC in New York.
The consultants typically earn several hundred dollars an hour for their services, which can include meetings or phone calls with traders to discuss developments in their company or industry. The expert-network companies say internal policies bar their consultants from disclosing confidential information.
Generally, inside traders profit by buying stocks of acquisition targets before deals are announced and selling after the targets’ shares rise in value.
The SEC has been investigating potential leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. The SEC sent subpoenas last fall to more than 30 hedge funds and other investors.
Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009, say people familiar with the matter. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement. Merck said it “has a long-standing practice of fully cooperating with any regulatory inquiries and has explicit policies prohibiting the sharing of confidential information about the company and its potential partners.”
Transactions being focused on include MedImmune Inc.’s takeover by AstraZeneca Plc in 2007, the people say. MedImmune shares jumped 18% on April 23, 2007, the day the deal was announced. A spokesman for AstraZeneca and its MedImmune unit declined to comment.
Investigators are also examining the role of Goldman bankers in trading in shares of Advanced Medical Optics Inc., which was taken over by Abbott Laboratories in 2009, according to the people familiar with the matter.
Advanced Medical Optics’s shares jumped 143% on January 12, 2009, the day the deal was announced. Goldman advised MedImmune and Advanced Medical Optics on the deals.
A spokesman for AstraZeneca and its MedImmune unit declined to comment.
In subpoenas, the SEC has sought information about communications—related to Schering-Plough and other deals—with Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.’s Jennison
Associates asset-management unit, UBS AG’s UBS Financial Services Inc. unit, and Deutsche Bank AG, according to subpoenas and the people familiar with the matter.
Representatives of Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche Bank declined to comment.
Among hedge-fund managers whose trading in takeovers is a focus of the criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon Group in 2008 to go out on his own, the people close to the situation say. A spokesman for Mr. Deutsch, who has specialized in health-care and technology stocks, declined to comment.
Prosecutors also are investigating whether some hedge-fund traders received inside information about Advanced Micro Devices Inc., which figured prominently in the government’s insider-trading case last year against Galleon Group hedge fund founder Raj Rajaratnam and 22 other defendants.
Fourteen defendants have pleaded guilty in the Galleon case; Mr. Rajaratnam has pleaded not guilty and is expected to go to trial in early 2011.
Among those whose AMD transactions have been scrutinized is hedge-fund manager Richard Grodin. Mr. Grodin, who received a subpoena last fall, didn’t return calls. An AMD spokesman declined to comment.
Source : Live Mint
The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.
The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in US financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.
One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide “expert network” services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.
Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, California, firm that connects experts with investors seeking information in the technology, health-care and other industries. “I have no comment on that,” said Phani Kumar Saripella, Primary Global’s chief operating officer. Primary’s chief executive and chief operating officers previously worked at Intel Corp., according to its website.
In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.
Independent analysts and research boutiques also are being examined. John Kinnucan, a principal at Broadband Research LLC in Portland, Oregon, sent an email on October 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation.
“Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information,” the email said. “(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman’s gracious offer to wear a wire and therefore ensnare you in their devious web.”
The email, which Mr. Kinnucan confirms writing, was addressed to traders at, among others: hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management. SAC, Wellington and MFS declined to comment; Janus and Citadel didn’t immediately comment. It isn’t known whether clients are under investigation for their business with Mr. Kinnucan.
The investigations have been conducted by federal prosecutors in New York, the FBI and the Securities and Exchange Commission. Representatives of the Manhattan U.S. Attorney’s office, the FBI and the SEC declined to comment.
Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms, including First New York Securities LLC, improperly gained nonpublic information about pending health-care, technology and other merger deals, according to the people familiar with the matter.
Some traders at First New York, a 250-person trading firm, profited by anticipating health-care and other mergers unveiled in 2009, people familiar with the firm say.
A First New York spokesman said: “We are one of more than three dozen firms that have been asked by regulators to provide general information in a widespread inquiry; we have cooperated fully.” He added: “We stand behind our traders and our systems and policies in place that ensure full regulatory compliance.”
Key parts of the probes are at a late stage. A federal grand jury in New York has heard evidence, say people familiar with the matter. But as with all investigations that aren’t completed, it’s unclear what specific charges, if any, might be brought.
The action is an outgrowth of a focus on insider trading by Preet Bharara, the Manhattan U.S. Attorney. In an October speech, Mr. Bharara said the area is a “top criminal priority” for his office, adding: “Illegal insider trading is rampant and may even be on the rise.” Mr. Bharara declined to comment.
Expert-network firms hire current or former company employees, as well as doctors and other specialists, to be consultants to funds making investment decisions. More than a third of institutional investment-management firms use expert networks, according to a late-2009 survey by Integrity Research Associates LLC in New York.
The consultants typically earn several hundred dollars an hour for their services, which can include meetings or phone calls with traders to discuss developments in their company or industry. The expert-network companies say internal policies bar their consultants from disclosing confidential information.
Generally, inside traders profit by buying stocks of acquisition targets before deals are announced and selling after the targets’ shares rise in value.
The SEC has been investigating potential leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. The SEC sent subpoenas last fall to more than 30 hedge funds and other investors.
Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009, say people familiar with the matter. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement. Merck said it “has a long-standing practice of fully cooperating with any regulatory inquiries and has explicit policies prohibiting the sharing of confidential information about the company and its potential partners.”
Transactions being focused on include MedImmune Inc.’s takeover by AstraZeneca Plc in 2007, the people say. MedImmune shares jumped 18% on April 23, 2007, the day the deal was announced. A spokesman for AstraZeneca and its MedImmune unit declined to comment.
Investigators are also examining the role of Goldman bankers in trading in shares of Advanced Medical Optics Inc., which was taken over by Abbott Laboratories in 2009, according to the people familiar with the matter.
Advanced Medical Optics’s shares jumped 143% on January 12, 2009, the day the deal was announced. Goldman advised MedImmune and Advanced Medical Optics on the deals.
A spokesman for AstraZeneca and its MedImmune unit declined to comment.
In subpoenas, the SEC has sought information about communications—related to Schering-Plough and other deals—with Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.’s Jennison
Associates asset-management unit, UBS AG’s UBS Financial Services Inc. unit, and Deutsche Bank AG, according to subpoenas and the people familiar with the matter.
Representatives of Ziff Brothers, Jana, TPG-Axon, Jennison, UBS and Deutsche Bank declined to comment.
Among hedge-fund managers whose trading in takeovers is a focus of the criminal probe is Todd Deutsch, a top Wall Street trader who left Galleon Group in 2008 to go out on his own, the people close to the situation say. A spokesman for Mr. Deutsch, who has specialized in health-care and technology stocks, declined to comment.
Prosecutors also are investigating whether some hedge-fund traders received inside information about Advanced Micro Devices Inc., which figured prominently in the government’s insider-trading case last year against Galleon Group hedge fund founder Raj Rajaratnam and 22 other defendants.
Fourteen defendants have pleaded guilty in the Galleon case; Mr. Rajaratnam has pleaded not guilty and is expected to go to trial in early 2011.
Among those whose AMD transactions have been scrutinized is hedge-fund manager Richard Grodin. Mr. Grodin, who received a subpoena last fall, didn’t return calls. An AMD spokesman declined to comment.
Source : Live Mint
Ireland Faces `Outsized' Problem, Seeks EU, IMF Bailout
Ireland sought international aid, becoming the second euro country to need a rescue as the cost of saving its banks threatened a rerun of the Greek debt crisis that destabilized the currency.
Ireland will channel some of the money from the European Union and International Monetary Fund to lenders through a “contingent” capital fund, Irish Finance Minister Brian Lenihan told reporters late yesterday. The rest of the package, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($130 billion), would help Ireland avoid selling bonds.
“The banks were too big a problem for the country,” Lenihan said in Dublin. “The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector.”
The aid, which Irish officials said as recently as Nov. 15 they didn’t need, marks the latest blow to an economy that more than doubled in the decade ending in 2006. The bursting of the real-estate bubble in 2008 plunged the country into a recession and brought its banks close to collapse. With Irish bond yields near a record, policy makers are trying to keep the crisis from engulfing Portugal and Spain, the fourth-largest euro economy.
“Ireland had no choice,” said Nicholas Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for money managers. “The market will still be waiting for the details of the assistance and the conditionality, but there should be a relief rally.”
The euro rose to $1.3740 as of 5:57 a.m. in Tokyo from $1.3673 in New York on Nov. 19, when it climbed 0.2 percent. The single currency gained 0.4 percent to 114.65 yen.
Funding Needs
The U.K. and Sweden may contribute bilateral loans, the EU said in a statement. Lenihan declined to say how big the package will be, saying that it will be less than 100 billion euros. Goldman Sachs Chief European Economist Erik Nielsensaid yesterday the government needs 65 billion euros to fund itself for the next three years and 30 billion euros for the banks.
Nielsen said investors will be looking to the final agreement for details on how creditors will be treated in any burden sharing among bank stakeholders.
Talks will focus on the government’s deficit cutting plans and restructuring the banking system, the EU said in a statement. Irish Prime Minister Brian Cowen, who spoke at the same press briefing as Lenihan, said the banks will be stress tested. Ireland nationalized Anglo Irish Bank Corp.in 2009 and is preparing to take a majority stake in Allied Irish Banks Plc, the second-largest bank.
Lenihan and Cowen appeared minutes after finance chiefs issued their statement endorsing an aid request to calm markets. Allied Irish emphasized the fragility of the system on Nov. 19, reporting a 17 percent decline in deposits this year.
No Doubt
“In the short term, it will stabilize the situation, there’s no doubt about that,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, who estimates a package of between 80 billion euros and 100 billion euros. “But as we’ve seen in the case of Greece, uncertainty will remain.”
Cowen plans to announce the government’s four-year budget plan this week and said an agreement with the EU and the IMF will come “in the next few weeks.” Cowen also faces an election in Donegal in northwest Ireland on Nov. 25 to fill a vacant parliamentary seat. The vote threatens to erode Cowen’s majority. He has the support of 82 lawmakers, including independents, compared with 79 for the combined opposition.
The bailout follows two years of budget cuts that failed to restore market confidence as the cost of shoring up the financial industry soared. The head of the Organization for Economic Cooperation and Development urging officials to agree as large a bailout fund as possible.
Bullet Proof
“If you bullet proof the process, if you do some armor plating, you’re probably not going to need the money,” Angel Gurria secretary general of the OECD, said in an interview yesterday. “Don’t give the impression that you are saving on these amounts and therefore not giving the necessary assurance to the market.”
Lenihan cancelled bond auctions for October and November and announced 6 billion euros of austerity measures for 2011 on Nov. 4 in a bid to restore investor confidence. Those efforts failed after German Chancellor Angela Merkel triggered an investor exodus by saying bondholders should foot some of the bill in any future bailout.
The risk premium on Ireland’s 10-year debt over German bunds, Europe’s benchmark, widened to a record 652 basis points on Nov. 11, with the yield reaching a record 9.1 percent. In 2007, it cost Ireland less than Germany to borrow. Its 10-year spread then fell to as low as 77 basis points less than bunds. The ISEQ stock index has plunged 70 percent from its record in 2007.
Undermining the Euro
Ireland will draw on the 750-billion-euro fund set up by the EU and IMF in May as part of the Greek bailout to prevent euro members woes from undermining the currency shared by 16 countries.
Europe’s sovereign debt crisis erupted after Greek Premier George Papandreou said the budget deficit was twice as big as the prior administration had disclosed. The EU and IMF approved a 110 billion-euro aid package on May 2 in exchange for cuts in public-sector wages and pensions and increased taxes on fuel, alcohol and cigarettes.
Irish officials initially resisted pressure from the EU to take any aid, saying they were fully funded until the middle of 2011. European leaders sought to head off contagion from Ireland and reduce pressure on the European Central Bank to prop up the country’s lenders by providing them with unlimited liquidity.
Yields on bonds of Spain and Portugal have jumped amid concern that fallout from Ireland would spread. The extra yield that investors demand to hold Portuguese 10-year bonds instead of German bunds climbed to a record 484 basis points on Nov. 11.
“It probably won’t halt contagion. The sovereign crisis isn’t yet over,” said Sylvain Broyer chief euro-region economist at Natixis in Frankfurt. “Ireland is in the middle of a difficult crisis.”
Source : Bloomberg
Ireland will channel some of the money from the European Union and International Monetary Fund to lenders through a “contingent” capital fund, Irish Finance Minister Brian Lenihan told reporters late yesterday. The rest of the package, which Goldman Sachs Group Inc. estimates may total 95 billion euros ($130 billion), would help Ireland avoid selling bonds.
“The banks were too big a problem for the country,” Lenihan said in Dublin. “The key issue all the time for the government is to ensure that we do not have a collapse of the banking sector.”
The aid, which Irish officials said as recently as Nov. 15 they didn’t need, marks the latest blow to an economy that more than doubled in the decade ending in 2006. The bursting of the real-estate bubble in 2008 plunged the country into a recession and brought its banks close to collapse. With Irish bond yields near a record, policy makers are trying to keep the crisis from engulfing Portugal and Spain, the fourth-largest euro economy.
“Ireland had no choice,” said Nicholas Stamenkovic, a fixed-income strategist in Edinburgh at RIA Capital Markets Ltd., a broker for money managers. “The market will still be waiting for the details of the assistance and the conditionality, but there should be a relief rally.”
The euro rose to $1.3740 as of 5:57 a.m. in Tokyo from $1.3673 in New York on Nov. 19, when it climbed 0.2 percent. The single currency gained 0.4 percent to 114.65 yen.
Funding Needs
The U.K. and Sweden may contribute bilateral loans, the EU said in a statement. Lenihan declined to say how big the package will be, saying that it will be less than 100 billion euros. Goldman Sachs Chief European Economist Erik Nielsensaid yesterday the government needs 65 billion euros to fund itself for the next three years and 30 billion euros for the banks.
Nielsen said investors will be looking to the final agreement for details on how creditors will be treated in any burden sharing among bank stakeholders.
Talks will focus on the government’s deficit cutting plans and restructuring the banking system, the EU said in a statement. Irish Prime Minister Brian Cowen, who spoke at the same press briefing as Lenihan, said the banks will be stress tested. Ireland nationalized Anglo Irish Bank Corp.in 2009 and is preparing to take a majority stake in Allied Irish Banks Plc, the second-largest bank.
Lenihan and Cowen appeared minutes after finance chiefs issued their statement endorsing an aid request to calm markets. Allied Irish emphasized the fragility of the system on Nov. 19, reporting a 17 percent decline in deposits this year.
No Doubt
“In the short term, it will stabilize the situation, there’s no doubt about that,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, who estimates a package of between 80 billion euros and 100 billion euros. “But as we’ve seen in the case of Greece, uncertainty will remain.”
Cowen plans to announce the government’s four-year budget plan this week and said an agreement with the EU and the IMF will come “in the next few weeks.” Cowen also faces an election in Donegal in northwest Ireland on Nov. 25 to fill a vacant parliamentary seat. The vote threatens to erode Cowen’s majority. He has the support of 82 lawmakers, including independents, compared with 79 for the combined opposition.
The bailout follows two years of budget cuts that failed to restore market confidence as the cost of shoring up the financial industry soared. The head of the Organization for Economic Cooperation and Development urging officials to agree as large a bailout fund as possible.
Bullet Proof
“If you bullet proof the process, if you do some armor plating, you’re probably not going to need the money,” Angel Gurria secretary general of the OECD, said in an interview yesterday. “Don’t give the impression that you are saving on these amounts and therefore not giving the necessary assurance to the market.”
Lenihan cancelled bond auctions for October and November and announced 6 billion euros of austerity measures for 2011 on Nov. 4 in a bid to restore investor confidence. Those efforts failed after German Chancellor Angela Merkel triggered an investor exodus by saying bondholders should foot some of the bill in any future bailout.
The risk premium on Ireland’s 10-year debt over German bunds, Europe’s benchmark, widened to a record 652 basis points on Nov. 11, with the yield reaching a record 9.1 percent. In 2007, it cost Ireland less than Germany to borrow. Its 10-year spread then fell to as low as 77 basis points less than bunds. The ISEQ stock index has plunged 70 percent from its record in 2007.
Undermining the Euro
Ireland will draw on the 750-billion-euro fund set up by the EU and IMF in May as part of the Greek bailout to prevent euro members woes from undermining the currency shared by 16 countries.
Europe’s sovereign debt crisis erupted after Greek Premier George Papandreou said the budget deficit was twice as big as the prior administration had disclosed. The EU and IMF approved a 110 billion-euro aid package on May 2 in exchange for cuts in public-sector wages and pensions and increased taxes on fuel, alcohol and cigarettes.
Irish officials initially resisted pressure from the EU to take any aid, saying they were fully funded until the middle of 2011. European leaders sought to head off contagion from Ireland and reduce pressure on the European Central Bank to prop up the country’s lenders by providing them with unlimited liquidity.
Yields on bonds of Spain and Portugal have jumped amid concern that fallout from Ireland would spread. The extra yield that investors demand to hold Portuguese 10-year bonds instead of German bunds climbed to a record 484 basis points on Nov. 11.
“It probably won’t halt contagion. The sovereign crisis isn’t yet over,” said Sylvain Broyer chief euro-region economist at Natixis in Frankfurt. “Ireland is in the middle of a difficult crisis.”
Source : Bloomberg
Top US banks face $100 bn Basel shortfall
The new Basel III banking rules will leave the biggest US banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.
The newspaper said the study by the investment banking arm of Barclays assumes the banks will need to hold top quality capital equal to 8 per cent of their total assets -- a one point cushion against falling below the effective global minimum of 7 per cent set in September by the Basel Committee on Banking Supervision.
The regulations mean banks may need to increase their capital through retained earnings or issuing equity or they can cut their risk-weighted assets by selling off assets and cutting back riskier business.
"These shortfalls are entirely manageable ... The more difficult question is what affect the new rules will have on the cost and availability of credit and bank profitability," the FT quoted Tom McGuire, head of the Capital Advisory Group at BarCap, as saying.
McGuire estimates that US banks can cut their equity needs by $10 billion with each $125 billion reduction in risk-weighted assets
Source : Business standard
The newspaper said the study by the investment banking arm of Barclays assumes the banks will need to hold top quality capital equal to 8 per cent of their total assets -- a one point cushion against falling below the effective global minimum of 7 per cent set in September by the Basel Committee on Banking Supervision.
The regulations mean banks may need to increase their capital through retained earnings or issuing equity or they can cut their risk-weighted assets by selling off assets and cutting back riskier business.
"These shortfalls are entirely manageable ... The more difficult question is what affect the new rules will have on the cost and availability of credit and bank profitability," the FT quoted Tom McGuire, head of the Capital Advisory Group at BarCap, as saying.
McGuire estimates that US banks can cut their equity needs by $10 billion with each $125 billion reduction in risk-weighted assets
Source : Business standard
Thursday, November 18, 2010
PM asks attorney general to defend him in Supreme Court
Prime Minister Manmohan Singh has turned to India's top legal official to represent him at the Supreme Court over why he failed to probe what is emerging as one of the country's biggest corruption scams.
The last minute change to have the attorney general represent the prime minister suggests increased concern within ruling Congress party circles over a widening scandal that has touched both political and corporate India.
The Prime Minister's Office confirmed the change, but declined to give further information.
Telecoms Minister Andimuthu Raja was sacked at the weekend over accusations he sold telecoms licences too cheaply, potentially losing the state up to $31 billion in revenues, according to a government audit. Raja has denied the accusations.
On Tuesday, the Supreme Court took a rare step of publicly criticising Singh's slowness in deciding if Raja should be charged and investigated, a blow to the image of a prime minister seen as one of the country's most honest politicians.
"Manmohan Singh has certainly squandered some moral capital over this spectrum scandal," said an editorial in The Indian Express on Friday.
"The image of integrity is arguably the biggest strength he has, and by letting this scam fester for so long, the prime minister and the Congress party have put that at risk."
Attorney General GE Vahanvati must file an affidavit on behalf of Singh by Saturday, according to a court request.
Vahanvati will then defend the prime minister in person at the Supreme Court on Tuesday. Singh, who has not commented on the court criticism, is not expected to attend.
While Singh and his coalition government are likely to survive the scandal, the criticism has tarnished Singh's image and is expected to further weaken the federal government's ability to move key economic reforms through parliament.
The opposition wants a parliamentary probe after a report from the government auditor said the state may have lost up to $31 billion in revenues, roughly equivalent to the defence budget, in the granting of licences in 2007-2008.
Raja is accused of selling the licences at deliberately low prices to companies, some of which were ineligible, a charge he denies. The process also violated several rules, the report said.
Raja is a member of the DMK, a regional party from Tamil Nadu that helps give the Congress party a majority in parliament. The opposition has stalled parliament as it claims Singh failed to act because he feared upsetting his coalition partner.
"The desire to continue in office has made the leadership of this government a prisoner of coalition politics," Arun Jaitley, leader of the opposition in the upper house, told NDTV late on Thursday.
India was ranked 87th in Transparency International's 2010 ranking of nations based on the perceived level of corruption. India lies behind rival China, which is in 78th place
Source : Reuters
The last minute change to have the attorney general represent the prime minister suggests increased concern within ruling Congress party circles over a widening scandal that has touched both political and corporate India.
The Prime Minister's Office confirmed the change, but declined to give further information.
Telecoms Minister Andimuthu Raja was sacked at the weekend over accusations he sold telecoms licences too cheaply, potentially losing the state up to $31 billion in revenues, according to a government audit. Raja has denied the accusations.
On Tuesday, the Supreme Court took a rare step of publicly criticising Singh's slowness in deciding if Raja should be charged and investigated, a blow to the image of a prime minister seen as one of the country's most honest politicians.
"Manmohan Singh has certainly squandered some moral capital over this spectrum scandal," said an editorial in The Indian Express on Friday.
"The image of integrity is arguably the biggest strength he has, and by letting this scam fester for so long, the prime minister and the Congress party have put that at risk."
Attorney General GE Vahanvati must file an affidavit on behalf of Singh by Saturday, according to a court request.
Vahanvati will then defend the prime minister in person at the Supreme Court on Tuesday. Singh, who has not commented on the court criticism, is not expected to attend.
While Singh and his coalition government are likely to survive the scandal, the criticism has tarnished Singh's image and is expected to further weaken the federal government's ability to move key economic reforms through parliament.
The opposition wants a parliamentary probe after a report from the government auditor said the state may have lost up to $31 billion in revenues, roughly equivalent to the defence budget, in the granting of licences in 2007-2008.
Raja is accused of selling the licences at deliberately low prices to companies, some of which were ineligible, a charge he denies. The process also violated several rules, the report said.
Raja is a member of the DMK, a regional party from Tamil Nadu that helps give the Congress party a majority in parliament. The opposition has stalled parliament as it claims Singh failed to act because he feared upsetting his coalition partner.
"The desire to continue in office has made the leadership of this government a prisoner of coalition politics," Arun Jaitley, leader of the opposition in the upper house, told NDTV late on Thursday.
India was ranked 87th in Transparency International's 2010 ranking of nations based on the perceived level of corruption. India lies behind rival China, which is in 78th place
Source : Reuters
Wednesday, November 17, 2010
Four cross-border deals like Vodafone under Income tax Department scanner
The government on Tuesday said it was looking into at least four more cross-border mergers like Vodafone for a possible tax loss that may have taken place. The deals under scanner include GE Capital International Services, Intelnet Global Services, Sanofi-Shantha Biotechnics, and New Cingular Wireless Services Inc-AT&T Maritius’s deal for Idea Cellular.
“A few cases relating to cross-border merger and acquisition deals have been identified for further examination by the (Income Tax) department. These deals are being examined for possible tax implications,” finance minister Pranab Mukherjee told Parliament.
In the three-year old Vodafone tax case, the tax department has already slapped a tax bill of over Rs 11,000 crore on Vodafone for the Hutchison Essar deal. Vodafone denies any such capital gains tax liability. The dispute in the case was over the Indian tax department's jurisdiction over the deal when the parties engaged in the deal may not be inIndia but the underlying assets may be in India
Mukherjee said, as and when any tax evasion relating to mergers and acquisitions is detected, appropriate action is undertaken in accrodance with the provisions of the Income Tax Act
Cross-border deals that are under the scanner by the revenue authorities are deal of SKR BPO Sevices with Barclays Mauritius for Intelnet Global Services, transfer of stake in GE Capital International Services.
Another such deal where tax was to be paid were on transactions between Sanofi Pasteur, Merieux Alliance and Groupe Industriel Marcel Dassault for acquiring Shantha Biotechnics Ltd where the tax department has already raised a tax demand of Rs 648 crore. Sanofi did not deduct tax at source before making payment of Euro 55 million to Merieux Alliance and Groupe Industriel Marcel Dassault for acquiring Shantha Biotechnics. Further, the deal between New Cingular Wireless Services Inc and AT&T Maritius for Idea Cellular is also under the scanner.
New Cingular Wireless and MMM Holding sold their shares to AT&T Cellular to Tata Industries for $150 million and no tax deduction at source was done by Tata Industries. Later the Indian company has paid Rs 45.50 crore towards tax to the department after they took up the case.
“A few cases relating to cross-border merger and acquisition deals have been identified for further examination by the (Income Tax) department. These deals are being examined for possible tax implications,” finance minister Pranab Mukherjee told Parliament.
In the three-year old Vodafone tax case, the tax department has already slapped a tax bill of over Rs 11,000 crore on Vodafone for the Hutchison Essar deal. Vodafone denies any such capital gains tax liability. The dispute in the case was over the Indian tax department's jurisdiction over the deal when the parties engaged in the deal may not be in
Mukherjee said, as and when any tax evasion relating to mergers and acquisitions is detected, appropriate action is undertaken in accrodance with the provisions of the Income Tax Act
Cross-border deals that are under the scanner by the revenue authorities are deal of SKR BPO Sevices with Barclays Mauritius for Intelnet Global Services, transfer of stake in GE Capital International Services.
Another such deal where tax was to be paid were on transactions between Sanofi Pasteur, Merieux Alliance and Groupe Industriel Marcel Dassault for acquiring Shantha Biotechnics Ltd where the tax department has already raised a tax demand of Rs 648 crore. Sanofi did not deduct tax at source before making payment of Euro 55 million to Merieux Alliance and Groupe Industriel Marcel Dassault for acquiring Shantha Biotechnics. Further, the deal between New Cingular Wireless Services Inc and AT&T Maritius for Idea Cellular is also under the scanner.
New Cingular Wireless and MMM Holding sold their shares to AT&T Cellular to Tata Industries for $150 million and no tax deduction at source was done by Tata Industries. Later the Indian company has paid Rs 45.50 crore towards tax to the department after they took up the case.
Diamond prices to rise till March as roughs get costly
If you are planning to postpone buying diamond jewellery till Christmas end, than you must not delay it anymore as rough stone prices, which have soared 50-100 % since first quarter of 2009, is likely to continue to be costly till March.
The export-oriented Indian diamond industry is passing through a curious phase, wherein, despite a good demand, there is a supply crunch. For the first time after recession , Indian diamond cutting and polishing units, a 80,000-crore industry, that cuts and polishes nine out of 11 stones in the world, is operating at 6-7 % losses.
Jewellers too are reluctant to buy diamonds at peak prices as diamond units are hardly getting 3-4 % margin on good stones, for which they were getting more than 8% margin post recession. With the Surat diamond industry, that controls 80% of the country’s diamond polishing business in the midst of Diwali vacation, the stage is set for shortage of polished stones and a subsequent price rise. Industry estimates that the early part of next year might see a 25% short supply.
Every year, over 4.50 lakh workers, employed across 4,500 units in Surat work on diamonds worth 60,000 crore that go to the best brands of the world like Richline Group, Lev Leviev and JCPenny and top Indian brands like Gitanjali, Orra, Tanishq and Forever .
Rough prices have almost doubled since March 2009. Rough diamond types like ABC that was priced at 960 per carat in the first quarter of 2009 today costs 1,875-1 ,900 per carat. Similarly, Low Makeable 755 stone that was available at 1,300 per carat around onea-half-years ago is now being sold at Rs 2,600 per carat.
“There is a short supply of polished diamonds . Price is the main issue now as prices of polished diamonds have increased by almost 15% in the last three months and it is not easy for us to buy at such high rates. Buyers too hesitate to buy at such high levels,” Forever Jewellery MD Jai Begani told ET.
A good demand not withstanding, prices are proving to be prohibitive. Diamond units, which have signed contracts for 3-4 months, have to bear the loss as they have to purchase roughs at higher levels and yet they cannot raise polished stones prices due to the contract agreement.
Many manufacturers are not ready to sell polished products at lower rates and instead prefer to hoard their stock. Further, the short supply forced by lower production and vacation , would result in jewellers passing on the price rise burden to consumers.
Gitanjali Gems chairman Mehul Choksi says prices will rise as much by 20% till March. “Rough diamond prices have increased sharply due to a good demand. Three months ago, average price of polished diamonds was 8,500-9 ,000 per carat, which has now reached 10,000-12 ,000 per carat. With vacation going on in Surat, shortage will remain and Christmas season will see good exports. So, we believe till March 2011, prices will rise by around 15-20 % in India,” Choksi told ET.
He added that overall jewellery demand in the world is expected to increase by 10% and diamond jewellery demand will increase by 30% this year.
“However, supply is less and many diamond unit holders do not want to sell their polished diamonds below their expected rates which will led to a further price rise,” he said.
Special offer for Shree Financial Members :
"We can help you out in getting Quality Diamonds at reasonable price with an GIA certificate(Gemologigal Institue if America ) "
The export-oriented Indian diamond industry is passing through a curious phase, wherein, despite a good demand, there is a supply crunch. For the first time after recession , Indian diamond cutting and polishing units, a 80,000-crore industry, that cuts and polishes nine out of 11 stones in the world, is operating at 6-7 % losses.
Jewellers too are reluctant to buy diamonds at peak prices as diamond units are hardly getting 3-4 % margin on good stones, for which they were getting more than 8% margin post recession. With the Surat diamond industry, that controls 80% of the country’s diamond polishing business in the midst of Diwali vacation, the stage is set for shortage of polished stones and a subsequent price rise. Industry estimates that the early part of next year might see a 25% short supply.
Every year, over 4.50 lakh workers, employed across 4,500 units in Surat work on diamonds worth 60,000 crore that go to the best brands of the world like Richline Group, Lev Leviev and JCPenny and top Indian brands like Gitanjali, Orra, Tanishq and Forever .
Rough prices have almost doubled since March 2009. Rough diamond types like ABC that was priced at 960 per carat in the first quarter of 2009 today costs 1,875-1 ,900 per carat. Similarly, Low Makeable 755 stone that was available at 1,300 per carat around onea-half-years ago is now being sold at Rs 2,600 per carat.
“There is a short supply of polished diamonds . Price is the main issue now as prices of polished diamonds have increased by almost 15% in the last three months and it is not easy for us to buy at such high rates. Buyers too hesitate to buy at such high levels,” Forever Jewellery MD Jai Begani told ET.
A good demand not withstanding, prices are proving to be prohibitive. Diamond units, which have signed contracts for 3-4 months, have to bear the loss as they have to purchase roughs at higher levels and yet they cannot raise polished stones prices due to the contract agreement.
Many manufacturers are not ready to sell polished products at lower rates and instead prefer to hoard their stock. Further, the short supply forced by lower production and vacation , would result in jewellers passing on the price rise burden to consumers.
Gitanjali Gems chairman Mehul Choksi says prices will rise as much by 20% till March. “Rough diamond prices have increased sharply due to a good demand. Three months ago, average price of polished diamonds was 8,500-9 ,000 per carat, which has now reached 10,000-12 ,000 per carat. With vacation going on in Surat, shortage will remain and Christmas season will see good exports. So, we believe till March 2011, prices will rise by around 15-20 % in India,” Choksi told ET.
He added that overall jewellery demand in the world is expected to increase by 10% and diamond jewellery demand will increase by 30% this year.
“However, supply is less and many diamond unit holders do not want to sell their polished diamonds below their expected rates which will led to a further price rise,” he said.
Special offer for Shree Financial Members :
"We can help you out in getting Quality Diamonds at reasonable price with an GIA certificate(Gemologigal Institue if America ) "
LIC with Rs.14,000 crore notional loss?
Life Insurance Corp. of India (LIC), the country’s largest financial institution with an asset base of Rs. 12 trillion, is running a valuation deficit of around Rs. 14,000 crore in three plans of its guaranteed-return annuity policies—Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay. Not all plans under these three brands are affected.
There are at least 1.3 million customers of these three plans, but none will be affected.
In a parallel development, all investments made by LIC during fiscals 2007-08 and 2008-09 are under the government’s scanner, following Complaints made about its investments in a few companies.
The finance ministry is also closely looking at the exposure of its subsidiary, LIC Mutual Fund Asset Management Co. Ltd (LIC MF), to Liquid and money market schemes that led to a Loss of Rs. 120 crore. “The unitholders have nothing to worry. We’ll fix the responsibility and take stern action (against those responsible), said a ministry official familiar with the development, who asked not to be identified.
Another person, who also did not want to be identified, said “heads will roll” in LIC MF.
While LIC MF has disclosed its loss in its half-yearly earnings and reported this to the capital market regulator, the notional loss or valuation deficit of LIC’s three guaranteed return pension schemes is not mentioned in its balance sheet as the insurer does not disclose its profits or losses across segments.
These plans were launched in the 1980s and the 1990s with assured returns of 11-12%, but with the drop in interest rates the actual yield on investments is much less than what investors have been earning. They were launched under the Jeevan Dhara, Jeevan Suraksha and Jeevan Akshay brands. Subsequent schemes launched under the same brands are not suffering from any notional losses.
These three loss-making old schemes are annuity plans, offering periodic payments after the retirement of a policyholder. They address the longevity risk and in some cases, inflation risk in a limited manner.
As the payout phase is usually long and uncertain, such schemes require the matching of assets and liabilities over a fairly long period.
“The valuation gap varies according to the movement of interest rates. In future, it can widen or even shrink. At the current interest rate scenario, the net present value of the deficit for these schemes, which will expire after a few decades, is around Rs. 14,000 crore,” said an LIC official, who asked not to be named.
Apart from the interest rate trend, the mortality rate will also have a bearing on the actual loss that LIC will suffer eventually. Mortality rates have been progressively coming down and this means longer payouts to the investors.
The LIC official said that there is no plan to discontinue these schemes and added that LIC has a solvency margin of Rs. 46,000 crore and this is being used to take care of the valuation gap. “We’re using surpluses to make good this gap and not using other policyholders’ money,” he said.
A senior Insurance Regulatory and Development Authority (Irda) official said the regulator would not have approved these LIC schemes had it been in existence when they were launched. “There is indeed a deficit… This is not a good practice. We’d not have cleared such products if they were to come to us for approval,” the Irda official said, asking not to be identified.
“It would be unwise for LIC to build up such losses in their accounts. Pension funds are required to be handled very carefully,” he added.
If interest rates keep falling and the people covered under these LIC policies do not claim their incomes, the losses could build up further. “If it calls for a corrective action, we’d certainly act,” said Irda chairman J. Hari Narayan.
Irda came into being in 1999.
The schemes
LIC introduced two personal pension plans, a deferred pension plan by name Jeevan Dharaand an immediate pension planby name Jeevan Akshay in 1987-88, offering 1% assured return per month. The government had allowed premium on these two plans up to Rs. 40,000.
Both plans had managed to attract millions of customers due to tax incentives offered. Investments in such schemes were exempted from one’s income while computing tax. Demand for the schemes continued till 1992, when the government withdrew the tax incentive.
In 1996, once again, LIC introduced a deferred pension plan, Jeevan Suraksha. The government allowed premium of up to Rs. 10,000 for the policy.
The Latest data available for these schemes shows that till March 2003, LIC had nearly 1.3 million customers covered under them.
Source : Live Mint
'RBI policy may change if growth slides further'
Within days of India reporting a 16-month low industrial growth of 4.4 per cent for September, a top government economic advisor said on Tuesday industry is expected post a recovery in October, else the Reserve Bank of India will have to change its tight money policy stance.
"The data that you will get on December 12 (for October) should see a reasonably good recovery. If that does not happen then we will have to think in terms of policy change," chief economic advisor Kaushik Basu said on the RBI monetary stance.
Speaking on the sidelines of a summit at International Management Institute, he said that growth in the Index of Industrial Production in the last two months has been a disappointment.
"But going by the base effect. . .I expect a sharp recovery, especially in the manufacturing sector, over the next month (October)," Basu said, adding that the country is on track for a good fiscal despite the slowdown.
He said, "I think the RBI policy has been a very matured and balanced policy. .
.What it does on policy rates and such things will of course have to be evaluated and decided." The CEA said he also expected a sharp decline in inflation within weeks.
"I think we are going to see in the next couple of weeks, including December, pretty sharp decline in inflation.
"So I expect us to move into a pretty good zone of inflation over the next month. . .next three weeks...the data you will get on food. And the middle of December should be an improvement," Basu said.
Industrial growth fell for the second consecutive month to a 16-month low of 4.4 per cent in September.
It was 6.91 per cent in the previous month.
The wholesale price inflation has also come down to 8.58 per cent in October, after being in double digit during the initial months of the year.
However, food inflation is still high and clocked 12.30 per cent for the week ended October 30.
Combined with declining inflation and industrial growth numbers, many analysts feel that RBI will press a pause button in its tight money supply stance, an indication of which was given by the central bank itself in its November 2 policy review.
The RBI has hiked the short-term lending (repo) and borrowing (reverse repo) rates by 150 and 200 basis points, respectively, this year.
On November 2, it had hiked both the rates by 25 basis points for sixth time this year.
"The data that you will get on December 12 (for October) should see a reasonably good recovery. If that does not happen then we will have to think in terms of policy change," chief economic advisor Kaushik Basu said on the RBI monetary stance.
Speaking on the sidelines of a summit at International Management Institute, he said that growth in the Index of Industrial Production in the last two months has been a disappointment.
"But going by the base effect. . .I expect a sharp recovery, especially in the manufacturing sector, over the next month (October)," Basu said, adding that the country is on track for a good fiscal despite the slowdown.
He said, "I think the RBI policy has been a very matured and balanced policy. .
.What it does on policy rates and such things will of course have to be evaluated and decided." The CEA said he also expected a sharp decline in inflation within weeks.
"I think we are going to see in the next couple of weeks, including December, pretty sharp decline in inflation.
"So I expect us to move into a pretty good zone of inflation over the next month. . .next three weeks...the data you will get on food. And the middle of December should be an improvement," Basu said.
Industrial growth fell for the second consecutive month to a 16-month low of 4.4 per cent in September.
It was 6.91 per cent in the previous month.
The wholesale price inflation has also come down to 8.58 per cent in October, after being in double digit during the initial months of the year.
However, food inflation is still high and clocked 12.30 per cent for the week ended October 30.
Combined with declining inflation and industrial growth numbers, many analysts feel that RBI will press a pause button in its tight money supply stance, an indication of which was given by the central bank itself in its November 2 policy review.
The RBI has hiked the short-term lending (repo) and borrowing (reverse repo) rates by 150 and 200 basis points, respectively, this year.
On November 2, it had hiked both the rates by 25 basis points for sixth time this year.
5 lakh demat accounts frozen by CDSL and NSDL
Close to five lakh demat accounts have been frozen by the Central Depository Services Ltd (CDSL) and the National Securities Depository Ltd (NSDL) for want of PAN details. This makes up for about three per cent of the total number of demat accounts in the market today, which stands at 1.8 crore.
CDSL had 78,000 frozen demat accounts as on September 30, 2010, while NSDL had the lion's share with around 4.3 lakh frozen demat accounts, as on October 31, 2010. SEBI had mandated that from August 16, 2010, accounts not providing Permanent Account Number (PAN) would be suspended.
Earlier the suspension was with respect to debit only, whereas now the suspension is with respect to credit too. CDSL has about 70 lakh demat accounts, while NSDL has around 1.1 crore accounts. What is a bigger concern is the fact that of the 5.1 lakh accounts that have been frozen, around 4.91 lakh accounts are the ones with balance in them.
“This is a huge number and a very serious issue that such a large number of active account holders have not provided PAN details,” said Mr Jagannadham Thunuguntla, Head of Equity, SMC Global Securities.
Common identity
The decision to freeze demat accounts without PAN details was taken by SEBI for ensuring better tax compliance as well as the identity of investors.
“Often investors open multiple demat accounts and forget about them. Thus, with multiple accounts it becomes difficult to keep track of them unless there is a common identity such as PAN,” said Mr Vinay Agrawal, Executive Director — Equities Broking, Angel Broking.
Earlier, with only address and other contact details available, keeping track of all the investors was difficult. But providing PAN details streamlines the entire process for taxation purposes.
It is also possible that many may now give up their accounts altogether.
“There are many who are into speculative trading, but do not fall into the taxable income bracket. Therefore, they do not require PAN. Such investors may choose to close their accounts altogether,” explained Mr Thunuguntla.
CDSL had 78,000 frozen demat accounts as on September 30, 2010, while NSDL had the lion's share with around 4.3 lakh frozen demat accounts, as on October 31, 2010. SEBI had mandated that from August 16, 2010, accounts not providing Permanent Account Number (PAN) would be suspended.
Earlier the suspension was with respect to debit only, whereas now the suspension is with respect to credit too. CDSL has about 70 lakh demat accounts, while NSDL has around 1.1 crore accounts. What is a bigger concern is the fact that of the 5.1 lakh accounts that have been frozen, around 4.91 lakh accounts are the ones with balance in them.
“This is a huge number and a very serious issue that such a large number of active account holders have not provided PAN details,” said Mr Jagannadham Thunuguntla, Head of Equity, SMC Global Securities.
Common identity
The decision to freeze demat accounts without PAN details was taken by SEBI for ensuring better tax compliance as well as the identity of investors.
“Often investors open multiple demat accounts and forget about them. Thus, with multiple accounts it becomes difficult to keep track of them unless there is a common identity such as PAN,” said Mr Vinay Agrawal, Executive Director — Equities Broking, Angel Broking.
Earlier, with only address and other contact details available, keeping track of all the investors was difficult. But providing PAN details streamlines the entire process for taxation purposes.
It is also possible that many may now give up their accounts altogether.
“There are many who are into speculative trading, but do not fall into the taxable income bracket. Therefore, they do not require PAN. Such investors may choose to close their accounts altogether,” explained Mr Thunuguntla.
Saturday, November 13, 2010
China Online Gold Trading Starts
Private investors can now buy gold through the Internet in China. Online Gold Trading is the latest move that will bost gold deamand in China.
Individuals can now buy gold for investment online from the Bank of China and other selected banks which are members of the Shanghai Gold Exchange. By using Intrnet Banking, investors can transfer money from their bank account into a gold saving account, making gold trading more convenient.
Gold has always been revered in the Chinese culture. But not until 2003 have Chinese citizens legally been allowed to buy gold. One might think that 1.2 billion Chinese now able to invest in gold would have sent the gold price much higher. The reason it has not is until now is due to poor gold distribution. There hasn't been the resources to get gold to the people. Now the four major Chinese banks are providing customers with the ability to buy gold.
China has also recently cut the import tax on gold jewellery to 21.3 percent from 23.3 percent to help encourage foreign investors to set up jewellery factories as well as to boost China's gold consumption.
China is gradually liberalising its gold market, although a few restrictions including the import tax, remain. Local dealers in China still have to pay a 17% tax to import gold jewellery into China.
Currently China has one of the lowest gold ownership rates in the world with just 0.1 grams of gold owned per capita. In contrast gold ownership in India is 0.73 grams of gold per captia and the U.S. is 1.41 grams per captia.
Once Chinese banks increase distribution, a lot of gold will be sold in a relatively short time. This huge increase in gold demand in China has the potential to dramatically increase the gold price in years to come.
Individuals can now buy gold for investment online from the Bank of China and other selected banks which are members of the Shanghai Gold Exchange. By using Intrnet Banking, investors can transfer money from their bank account into a gold saving account, making gold trading more convenient.
Gold has always been revered in the Chinese culture. But not until 2003 have Chinese citizens legally been allowed to buy gold. One might think that 1.2 billion Chinese now able to invest in gold would have sent the gold price much higher. The reason it has not is until now is due to poor gold distribution. There hasn't been the resources to get gold to the people. Now the four major Chinese banks are providing customers with the ability to buy gold.
China has also recently cut the import tax on gold jewellery to 21.3 percent from 23.3 percent to help encourage foreign investors to set up jewellery factories as well as to boost China's gold consumption.
China is gradually liberalising its gold market, although a few restrictions including the import tax, remain. Local dealers in China still have to pay a 17% tax to import gold jewellery into China.
Currently China has one of the lowest gold ownership rates in the world with just 0.1 grams of gold owned per capita. In contrast gold ownership in India is 0.73 grams of gold per captia and the U.S. is 1.41 grams per captia.
Once Chinese banks increase distribution, a lot of gold will be sold in a relatively short time. This huge increase in gold demand in China has the potential to dramatically increase the gold price in years to come.
Subscribe to:
Posts (Atom)