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Mumbai: Reliance Retail, a subsidiary of Reliance Industries, has decided to make its jewellery foray with the launch of Reliance Jewelry this Diwali. Reliance will be the second corporate after the Tatas to enter the Rs 70,000 crore Indian jewellery industry, which is dominated by almost 3 lakh traditional family jewellers.
The company will launch its first store at Bangalore and will subsequently roll out 400 outlets in the next three years. Apart from gold and diamond jewellery, the stores would offer customised services for high-end jewellery. Reliance Jewelry is likely to sell gold below market rates. The move assumes significance in light of the recent surge in gold prices, which have breached the psychological barrier of Rs 10,000 per 10 gramme.
It is believed that the company has entered into a sourcing agreement with Rosy Blue, one of the largest jewellery manufacturers, for operations. The jewellery foray is part of the company''s lifestyle retail, which includes books and music, cosmetics, lifestyle accessories and home solutions. Reliance is set to compete with Tanishq, the jewellery brand from the Tatas.
Reliance Energy (REL), a part of the Anil Ambani group, will be spin off its infrastructure projects into a separate company. The move is aimed at unlocking the shareholders'' value, the company said in a press statement, indicating that the newly formed infrastructure company is likely to list on the bourses.
The REL board on October 30 cleared the setting up of the separate subsidiary, consisting infrastructure projects worth Rs 30,000 crore. Industry analysts said the move was in line with REL''s plan to emerge as a pure-play power distribution company. Earlier, it had spun off some its power generation projects into Reliance Power, which is in the process of launching a mega public issue. The new company will be a wholly owned subsidiary of REL and execute such projects as the four-laning of five National Highway projects in Tamil Nadu covering a length of 400 km, the 20-km Western Freeway Sealink Project in Mumbai, the Rs 6,000 crore project for the construction of a 12-lane, 150-km highway around Jaipur and the first ever metro rail project in Mumbai.
A consortium led by REL has emerged as the preferred bidder for the development of a new business district spread over 77 acres in Hyderabad, which includes construction of a 100-storey trade tower (likely to be the tallest in South East Asia) at an investment of Rs 6,500 crore. The public issue of Reliance Power is believed to be on tracks. The company''s prospectus has been awaiting the market regulator Sebi''s approval. It is expected that the issue will hit the market towards the end of November to raise around Rs 8,000 crore.
As part of the measures to mop-up excess funds, the Reserve Bank of India on October 30 raised the cash reserve ratio (CRR) by 50 basis points to 7.5 per cent with effect from November 10. This is expected to suck out Rs 16,000 crore from the system, while the liquidity overhang is to the extent of about Rs 30,000 crore.
In the mid-term review of the annual policy announced on October 30, the RBI left the key rates such as repo, reverse repo and bank rate unchanged. CRR was last hiked in July by 50 basis points to 7 per cent. CRR is the proportion of deposits banks have to park with the RBI for statutory requirement. Banks do not earn any interest on cash reserves.
According to the policy, the liquidity increased from Rs 85,770 crore at end-March 2007 to Rs 1,24,632 crore as on August 6, and further to Rs 2,22,582 crore by October 24. The big challenge is the management of capital inflows, which have been in the order of $62 billion during the current fiscal up to October 19. The policy reiterated the RBI projection of GDP growth at 8.5 per cent, assuming no further escalation in international crude prices and barring domestic or external shocks.
NEW DELHI: Steel seems to have outplayed other sectors in wooing investments, both foreign and domestic, as the sector is set to attract investment worth about Rs 3,00,000 crore within the next five years.
“Our steel sector is booming and has emerged as a key investment destination for multinational steel giants like Mittal Steel and Posco. The investment promised by these companies alone total to more than Rs 1,30,000 crore with others making a beeline to invest here,” a top steel ministry official told agencies.
“Going by the ballpark estimate of Rs 4,000 crore investment per million tonne of additional capacity, an investment of Rs 2,76,880 crore is expected by 2011-12 and Rs 8,70,640 crore by 2019-20,” he pointed out.
The optimism of steel ministry could be understood as consumption of steel during the last three years has grown by 12.5% per annum against 6.9% envisaged in the national steel policy.
Enthused by the government’s investment policies, Korean steel giant Pohang Steel Company (Posco) arrived in India in 2005 and pledged to invest Rs 52,000 crore to build a 12 million tonne integrated steel plant in Orissa. Not to be left behind, global steel tycoon LN Mittal too have promised to invest about Rs 80,000 crore for building one plant each in Jharkhand and Orissa.
Sensing stiff competition, state-run steel giant SAIL embarked on modernising all its plants at an estimated cost of Rs 49,000 crore to retain its position as the key domestic player. Besides, the Rashtriya Ispat Nigam (RINL) too is executing its modernisation worth about Rs 9,000 crore.
As per a recent report by an international investment banker, consumption of steel in India is set to grow by 16% per annum during the next five years and 100 million tonne of steel will be consumed by India by 2012, the official pointed out. The country’s raw material availability, coupled with growing consumption, has emboldened domestic steelmakers such as Tata, Essar and JSW to announce major capacity expansions, both greenfield and brownfield.
Tata steel has announced to carry out brownfield expansions in Jamshedpur and greenfield in Chhattisgarh and Orissa to increase its production to 13 MT. JSW too is expanding capacity of its Vijayanagar plant and is setting up greenfield project in West Bengal to take its production up.
Essar steel will up its capacity to 14.5 MT from the current 4.6 MT. Among the greenfield projects pledged by steel utilities are 3 MT by Tata Steel, 6 MT by Essar, 5 MT by BSPL, 1 MT by Monnet Ispat. Even states which do not have iron ore too have attracted huge investments. Gujarat has roped in investment of about Rs 9,577 crore, Maharashtra Rs 4,665 crore, and West Bengal has clinched investments of more than Rs 30,000 crore.
“While the euphoria on the steel sector is heartening, we are keen to ensure that these promised investments translate on the ground and an inter-ministerial group (IMG) has been constituted to ensure the same by removing the bottlenecks impeding the investments,” the official said. The IMG is meeting on October 30 to deliberate on the impediments and suggest ways to remove them, he said and pointed out that it would extensively deliberate on ways to ensure raw material security to the steelmakers.
Sporadic protests against retail biggies in recent months have driven Reliance Retail to tweak its business model a little, to ensure the enterprise isn't derailed before it has really taken off. Under the new scheme of things, it plans to partner local kiranas in smaller outlets, understandably as a pacifist ploy, while going it alone at the higher end of the retail spectrum - the hypermarts.
Jai Bendre, head-marketing, food business, Reliance Retail admitted as much in a recent brand summit. However, while conceding that the company was working on a plan to integrate small retail stores in the overall retail system, she refused to give away further details.
Sources, though, said Reliance Retail has started inviting retailers and individuals to become franchisees. As per the plan, the company will select and revamp the retail outlets, which would then be run on a revenue sharing model by the small retailers.
The company will go for the franchisee model in almost all product categories, including cosmetics, jewellery, watches, books and toys. The outlets will sell both Reliance and other brands.
Retail sector analysts believe such a move augurs well for the company. "It gets ready infrastructure and can eventually buy out these stores, when the dust has settled," said an analyst, preferring anonymity.
From the point of view of a small retailer, taking a franchisee offers an opportunity to both upgrade his store and increase business by stocking more brands.
All the same, not everyone's convinced.
Viren Shah, joint secretary, Federation of Retail Traders Welfare Association said some 20,000 small and medium kirana stores in Mumbai would form area-wise associations to collectively purchase goods, extend credit facilities and negate the big retailers' advantage over them by passing on the discounts derived from collective purchase of goods.
"We are looking at forming 30-50 associations, each having anywhere between 100 and 1,500 kirana stores in that area. Each retailer will have to spend Rs 400 per sq ft to standarise the interiors. Talks are already on and we will have our first meeting after Diwali. Hopefully, by early next year, we will have our action plan ready," said Shah.
Mohan Gurnani, chairman, Federation of Associations of Maharastra (FAM), though, chose to differ.
"Revenue sharing model is a good thing. Look, we are not against big malls or retailers. We are against displacement of lakhs of people dependent on the business model of the small retail," said Gurnani.
Ashok Leyland Ltd has informed that the Company has signed on October 29, 2007 a Master Cooperation Agreement with Nissan Motor Co. Ltd, Japan for manufacture and sale of Light Commercial Vehicles and Powertrains.In this regard the Company has issued the following Press Release:Ashok Leyland Ltd and Nissan Motor Co., Ltd., on October 29, 2007 signed a binding Master Co-Operation Agreement (MCA) for the formation of three joint venture Companies supporting the Light Commercial vehicle (LCV) business. The agreement was signed in Chennai on October 29, 2007 by Mr. R Seshasayee, Managing Director of Ashok Leyland and Mr. Carlos Ghosn, President and CEO of Nissan Motor Co., Ltd.This agreement follows the signing of the Heads of Agreement (HoA) document in August and reflects progress achieved with the detailed project evaluation. It formalizes the partnership between the Companies, which will include the development and manufacture of LCV products under both the Ashok Leyland and Nissan brands as well as cooperation in sales.Vehicle Manufacturing Company - a Company with exclusive rights to manufacture LCV products in India for both the partners. Manufacturing facilities will be located in India and the Company will be owned 51% by Ashok Leyland and 49% by Nissan. Production will start in 2010 and will include the new generation Nissan Atlas F24 light-duty truck, in addition to a range of products covering application from 2.5 to 8 ton gross vehicle weights (GVW). In the medium term, production volume, intended for both Indian and export markets, is expected to grow beyond 100,000 units annually.Powertrain Manufacturing Company responsible for the manufacture and assembly of engines and other drivetrain components to be fitted in LCV products and for export. Manufacturing will be located in India and the Company will be owned 51% by Nissan and 49% by Ashok Leyland.
Jet Airways is looking at the possibility of locating its aircraft maintenance, repair and overhaul (MRO) operations and flight training academy in Chennai, the source said. Jet Airways is looking at Bangalore, Chennai, Hyderabad to set up an MRO facility. However, Chennai will be a priority location for this operation as well as for setting up a flight training academy, the source said. Jet Airways is in discussions with a some international players like Lufthansa on the MRO facility and it expects to finalise plans in the next few weeks. The flight academy will train pilots and engineers, and also staff for ground support, commercial operations and inflight crew. The academy will also train staff for other airlines.
In addition, the government had also created a more liberalised regime for imports. Cargo operations account for 6-7 per cent of the Jet''s revenues and the company intends to increase that to 10 per cent this fiscal. The Airbus 330-200 flight from Chennai to Toronto is the airline''s first long-haul service from the southern region. The flight takes off from Chennai at 0115 hrs and arrives in Brussels at 0715 hrs. It will depart Brussels at 0915 hrs and arrive in Toronto at 1255 hrs. These times will be changed from November 4. The inaugural economy return fare is Rs 36,000 plus taxes.
As expected, after a brief spell of correction, positive sentiment and momentum is back on Dalal Street, courtesy a measured move by the SEBI.
Will momentum continue in the next few eventful and noisy weeks?
Notwithstanding a veiled threat of a likely strong outflow, sounded by the Managed Funds Association, which proclaims to represent the powerful US hedge fund lobby, and a rather muted expression of uneasiness by the US Treasury Secretary ( Henry M Paulson Jr promised not to air his views on capital flow publicly while in India this week) as also some Wall Street experts, who smelt “protectionism” in the move by the regulator in restricting aggressive usage of P-notes - overnight exodus of money from Indian equities may not happen in the short-term.
Liquidity play
On the other hand, inflow of serious long-term big money is preparing for a direct entry into India without the costly and complicated intermediation by the alternative investment vehicles.
This flow may eventually replace the domination of short-term “hot” liquidity sloshing about Dalal Street now. According to market intelligence, many of the sub-account holders are gearing up for a seamless migration to FII status.
However, it would take 12 to 15 weeks to complete the transformation. Surely, some of the P-note users would find transition difficult to swallow and step back, at least for a while.
But compulsions of maintaining the steady return to their clients may deter a large-scale flight of capital.
Interestingly, the domestic players both institutional and retail, who have largely borne suspicion about the overseas liquidity-driven market momentum since the US Fed cut overnight and discount rates, appear circumspect.
Crossroads
The Q2 results scorecard, which would largely end this week, has so far been on the expected lines of a benign average 20 per cent profit growth, has not dented the optimistic fundamental view for the medium to long-term.
However, responses to the changing business and economic dynamics in the next two quarters would be crucial to growth discounting valuation exercise.
In the words of Andrew Serwer, Managing Editor of Fortune magazine, which is holding its 10th global forum this week in Delhi: “As a potential consumer market, emerging global manufacturing centre, and power house in technology and services, India is on the minds of corporate leaders around the world.”
Short-term clues
While recent experience suggests, the year-end inaction for overseas funds hardly bears any significance for flow taps for domestic equities, this time around investment strategies would be determined by adjustments to the new situation in the next few months.
In the immediate term, signals from the central banks RBI and the US Federal Reserves as also movement of rupee are likely to influence flows.
Mid and small-cap and infrastructure related stocks may prove to be the broad-based flavour of the market going forward.
Industrial Finance Corporation of India (IFCI), in less than a fortnight, has revised downwards the coupon it would offer on 70 per cent of the Rs 1,479 crore zero coupon bonds, after it converts the rest into equity shares.
The term lender has decided to offer an interest rate of 150 basis points below the yield on the 10-year government bond and not 50 basis points as stated earlier.
“The company sent another letter yesterday saying that it would offer a yield 150 basis points below the benchmark rate. It said that the earlier offer of 50 basis points was a printing error,” said a senior official of a large public sector bank.
IFCI had on October 15 offered lenders an option to convert 30 per cent of their Rs 1,479 crore zero coupon optionally convertible debentures into equities, according to Sebi guidelines.
The outstanding portion of Rs 1,035.3 crore was to carry a coupon of 50 basis points below the the 10-year government bond yield. The lenders had been asked to consider the offer by October 25.
Public sector banks and financial institutions had converted 50 per cent of their non-SLR exposure into zero coupon optional bonds, which are convertible in 2022, as part of a debt restructuring exercise of IFCI undertaken in 2002-03.
However, lenders wanted to exercise the option for conversion before IFCI offloaded a 26 per cent stake to a strategic private investor.
IFCI has already short-listed eight entities out of 10 which had expressed interest to buy 26 per cent stake. IFCI, which was posting losses earlier, has posted a net profit of Rs 744 crore in the first half of 2007-08, on the back of Rs 874 crore profit for 2006-07.
Banks had demanded conversion of 50 per cent of the zero coupon bonds into equity and a coupon equivalent to the yield on the prevailing benchmark rate on the outstanding amount.
“The general feeling is that banks will seek a revision on the present offer. There were reservations about the previous offer also on benchmarking to a 10-year paper. The residual maturity on the bonds is 15 years. So it should have been benchmarked to a 15-year government security,” said the treasury head of another large public sector bank.
Life Insurance Corporation, which holds around Rs 500 crore of zero coupon bonds issued by IFCI, has already written to the government expressing concerns on the previous offer.
Jet Airways is planning to launch flights to Shanghai, San Francisco and Washington from New Delhi and Mumbai by February. The company also intends to raise Rs 500 crore via equity dilution.
Addressing a ceremony to launch a daily service between Delhi and New York (JFK Airport) via Brussels, Naresh Goyal, chairman, Jet on Friday told reporters that besides Shanghai and San Francisco, the private carrier was also considering flights to Washington DC in the near future.
The company is yet to decide on the date it wants to raise the equity capital and may also reconsider the amount to be raised, company sources said here. Jet had earlier planned to raise funds through a rights issue but the plans were postponed.
The Brussels Airport, the company’s global hub, connects passengers to New York and Toronto via Brussels - from Mumbai, Delhi and Chennai. The company also offers seamless connectivity from Brussels to key cities in Europe and Africa.
The company also appointed Captain Hameed Ali as the executive vice-president (operations and engineering), the airline added.
With Jet establishing a global hub at Brussels, Goyal said the Belgian government was planning to enhance the bilateral air service agreements to provide for 56 flights each week between India and Brussels.
“We are also connecting from Brussels to 14 countries in Africa,” Goyal said, adding that the connectivity to all European countries from the Belgian capital had become easier.
New Delhi: A day after market regulator SEBI tightened norms for Participatory Notes, the government on Friday said it was too early to assess the impact but favoured steps that control capital flows without hurting investment.
"I have said one of the concerns is very sharp increase in capital flows. Without hurting investments, we will like to take some measures to moderate the inflows. Some measures have been taken by SEBI. We will have to wait and see what impact do they have," Finance Minister P Chidambaram said here.
However, Chidambaram refused to answer repeated queries on whether RBI or the government would take some more steps to moderate capital flows.
When asked about a surge in the stock markets Friday, the Finance Minister said: "We cannot take stock (of situation) every day."
The benchmark equity index Sensex regained the 19,000 level Friday on brisk buying activity.
The idea of SEBI's move on P-Notes was to moderate capital flows. As a by-product, SEBI also achieved the objective of greater transparency, said Chidambaram.
SEBI announced new rules on Thursday that prohibit FIIs and their sub-accounts from issuing fresh derivatives-based P-Notes and require them to wind up current positions in 18 months.
It also imposed curbs on PNs in the spot markets by limiting them to 40 per cent of assets under custody of FIIs.
Besides, SEBI also made registration of FIIs and their sub-accounts permanent and they would not have to renew it after every three years as is the case now. The market regulator also allowed unregulated pension funds, education funds and others to register as FIIs.
The liquidity surplus in the banking system is likely to force the Reserve Bank (RBI) to delay a cut in the statutory liquidity ratio (SLR) for banks.
The SLR is a ratio (fixed by the central bank) of the total demand and time liabilities that a bank has to maintain in the form of cash, gold or approved securities with the RBI.
A specially announced ordinance last year gave the central bank the power to cut the SLR from the existing 25 per cent. Analysts had expected a SLR cut in the second half of 2007-08.
Though its original purpose of funding government borrowing has lost relevance due to increased fiscal discipline and the growth of other (non-bank) investors such as insurance and gilt funds, the importance of SLR as a regulatory tool has increased now as the RBI is struggling to reign in liquidity.
DSP Merrill Lynch India economist Indranil Sengupta sees the current minimum threshold of 25 per cent SLR as the key to the success of the central bank's market stabilisation scheme (MSS) bond auctions.
Sengupta expects the RBI to postpone SLR cuts to the second half of 2008-09 - Merrill Lynch expects a 3 per cent cut.
The RBI has been using the MSS auction to drain out excess cash from the system and rein in inflationary pressures. It has hiked the ceiling four times in this financial year - to Rs 2,00,000 crore - to suck out extra money generated by its dollar buying (and rupee sales) in the forex market.
"The current 25 per cent SLR forces banks to buy MSS to fulfil gilt requirements. With $40 billion already bought by the RBI (to curb the rupee rise) in FY08, the central bank is unlikely to take chances with sterilisation," Sengupta wrote in a report titled 'reworking the SLR math' on Friday.
"At the heart of the India growth story is the ability of banks to extend credit (funding growth) without deposit mobilisation (avoiding inflation). Surplus gilts (beyond 25 per cent) allowed banks to fund the loan book by drawing down the gilt portfolio. Sustained credit offtake is putting an end to this rebalancing," Sengupta said.
Credit growth has slowed to 23.3 per cent from 28.8 per cent while deposits have picked up to 24.9 per cent from 20.4 per cent, latest figures from the RBI show. Economists say that though low credit growth suits the aim of the central bank to keep inflation low, going forward SLR will have to be cut to push up credit.
Abheek Barua, chief economist, HDFC Bank, said, "Currently credit is under some kind of a crisis but, with banks cutting lending rates, the RBI will have to accommodate around 25 per cent credit growth and a 22 per cent deposit growth."
In other words, RBI will have to free up some capital by cutting SLR to support credit and through it economic growth next year.
However, it will also depend on how the liquidity situation pans out. Samiran Chakraborty, chief economist, ICICI Bank said, "As long as excess external flows remain SLR cut will be delayed. Liquidity is the most important challenge at present."
Availability of instruments for banks to transfer risks to other banks and leveraged investors has translated into fewer incentives for lenders to effectively screen and monitor borrowers, according to Reserve Bank of India (RBI) deputy governor Shyamala Gopinath.
This wider distribution of credit risk within the global financial system should, in principle, limit risk concentrations and reduce the risk of a systemic shock.
Recent events, however, suggest some reservations about this positive assessment, Gopinath said in her address at a derivatives conference on Wednesday.
The US sub-prime crisis has engulfed a large number of financial institutions as mortgage lenders had transferred the risks from their books to them via securitisation.
One reservation is that banks have become increasingly able to sell even the equity tranches of their loan portfolios (retaining no exposures) quickly. This means they have fewer incentives to effectively screen and monitor borrowers.
A systematic deterioration in lending and collateral standards would, of course, entail losses greater than historical experience of defaults and loss-given-default rates would indicate, she said. “It is not clear whether current risk management practices make enough allowance for this.”
Over the past decade or so, the business models of global banks have evolved from a buy-and-hold to an originate-to-distribute model. Instruments to transfer risks from the balance sheets of the originating institution have developed in size and complexity, Gopinath said.
Risks have been repackaged and spread throughout the economy. The greater part of these risks is sold to other banks and to leveraged investors, very often the originating bank itself funding the investors. Small and regional banks, in particular, were significant buyers of sub-prime and other structured products in the US.
The recent episode of financial turbulence has provoked a debate on the measurement, pricing and allocation of risk by way of derivatives, which can hold important lessons for India, she said.
The government is planning to codify class action as law. A clause to this effect has been included in the new Company Law Bill, which is expected to be tabled in the coming winter session of Parliament.
Once enacted, the provision will empower shareholders to hold companies and their managements responsible for wrong-doing.
Though the principles of class or representative action (and derivative suits) by shareholders against managements have been upheld by various Courts in the past, these are yet to be reflected in law.
Accordingly, the ministry of corporate affairs (MCA) headed by Prem Chand Gupta has circulated a Cabinet note containing the class action clause for inter-ministerial consultation.
“We hope it will be cleared by the Cabinet soon, allowing us to table the Bill in Parliament in the coming session,” an official told Business Standard.
The need to codify class action and derivative suits in Indian law had been recommended by the J J Irani-headed expert committee, which had been tasked with framing a new company law in December 2004. It submitted its report to the MCA on May 31, 2005.
Since then, the ministry has been working on the new law, which aims to update India’s corporate laws and make them globally competitive, transparent and investment-friendly.
Corporate lawyer Naveen Goel said the current law enabled people to file public interest litigation that was limited to the violation of fundamental rights and not for civil claims or torts (the latter being the body of law that governs negligence, intentional interference and other wrongful acts for which civil action can be brought).
“This is the first such instance of a class action provision in Indian corporate law,” he added.
“This will empower consumers and investors, and discourage sharp practices by certain companies. A codified law is always easier to implement and be enforced in a court. Plus, it removes ambiguity and establishes the unequivocal intent of Parliament. Courts in India have always leaned in favour of giving effect to the law as framed by the legislature,” said leading corporate lawyer Ramji Srinivasan.
Class action is common in the developed world, particularly the United States and Europe. In the US, tobacco companies have had to bear massive awards in giant class action suits that held them responsible for misleading smokers about the harmful effects of cigarettes.
Noted lawyer Pavan Duggal said companies will have to start preparing for similar class actions suits in India and set aside funds for meeting any eventualities. “Tobacco, alcohol, drug firms and infotech companies face a high risk for class action,” he said.
Another lawyer said one emerging area for class action suits could be mobile handset companies.
“Some studies claim that there are ill-effects from sustained usage of mobiles. Till now there is nothing firm on this, but a few years later it will become possible to claim damages,” he said.
The country''s second largest lender, ICICI Bank, on Oct 24, declared unveil of a cost-effective money transfer service for its customers in Bahrain. Under the offering, Call and Remit, a customer of ICICI Bank, Bahrain can transfer money to his/her family in India by calling up a toll free number, without visiting the branch. The service is being offered at a nominal cost of 500 fils (Bahraini currency). There is a one-time activity of registering the beneficiary and after this, the customer can transfer the money in two steps, call the bank on the toll free number 80001313 and specify the amount to be transferred. ICICI Bank has been offering remittance services to a large section of Indian expatriates residing in Bahrain through its offshore banking unit, which has now got a retail banking licence from the Central Bank of Bahrain.
Bangalore: BEML Limited, the Rs 2,600-crore public sector undertaking under the ministry of defence, on Oct 23, began its operations in Malaysia with the setting up of its second overseas subsidiary to expand its international presence in the mining and construction business. The company has registered its subsidiary as BEML (Malaysia) Sdn Bhd, at Johor Bharu in Malaysia. With this, the company targets to tap the growing demand for mining and construction equipment, and spares in South Asian region and Australian markets.
BEML (Malaysia) will act as a regional global distribution centre for stocking, selling of spares and servicing its clients. To start with, BEML expects to get a turnover of $35 million for 2007-08 via its Malaysian office-cum-international warehouse. The Malaysian subsidiary will also have a global warehouse for sourcing and supplying mining and construction equipment and spares to over 43 countries and also to India. In the domestic market, BEML secured a major contract worth Rs 648 crore from Northern Coalfields Ltd (NCL), Singrauli for supply and servicing of three electric rope shovels. The contract includes Rs 160 crore towards supply of equipment and Rs 488 crore towards servicing for a period of 17 years. These rope shovels will be serviced from their existing service centre at Singrauli, which will be expanded to carry out service contract for 17 years. All the rope shovels would be supplied during 2008-09 and service contract starts from 2009-10.
Norms to be eased for pension funds, individuals to be registered as FIIs.
The Securities and Exchange Board of India (Sebi) will increase overseas participation in the Indian stock markets and is planning two specific measures in this regard, Sebi Chairman M Damodaran told Business Standard today in an exclusive interview.
First, he said Sebi may waive the requirement that entities need to be regulated in their home country to be registered as a foreign institutional investor (FII) in India. This will be allowed provided there is regulatory comfort about the nature of funds and the kind of investments they make in India.
Damodaran said this waiver could help entities like pension funds, which otherwise are not regulated in their own country, to be registered as FIIs.
Second, Sebi is also thinking of allowing foreign individuals with an investment kitty of over $50 million to operate as sub-accounts to invest in the Indian equity market.
These are some of proposals that are expected to be put up for approval at the Sebi board meeting on Thursday.
Among other things under review is the one-year track record of the foreign entity to become eligible for registering as an FII. Damodaran said this is a problem for new funds. “In that case, what we need to look at is the track record of the manager of the fund,” he said.
“At the end of the day, accessing the Indian market need not be made costlier for the foreign investor,” he added.
Mumbai: The Securities and Exchange Board of India’s (SEBI ) meeting with foreign institutional investors (FIIs) on Monday evening had one clear, underlying message: the efforts to identify anonymous investments through participatory notes will continue till the last dollar that comes in can be traced back.
But by registering new FIIs in double quick time, the regulator is also trying to avert an unwinding shock for the markets.
“We will seek to expedite the process of registration, as well as see what other categories of investors can be included as eligible entities in the registration process,” SEBI chairman M Damodaran said.
Giving an example of expeditious registration process, he said 16 FIIs were registered on Monday itself.
The subtext of yesterday’s videoconference is, FIIs just have to make the perfect, legible, credible application and the registration will be done in a jiffy.
Participatory notes are financial instruments used by foreign investors not registered with SEBI to invest in shares of Indian companies.
On October 16, SEBI had put out a discussion paper that proposed curbs on P-notes based on derivatives, and prohibiting sub-accounts of FIIs from issuing P-notes.
The SEBI board is due to meet on October 25 when it is expected to finalise the guidelines on the issue. The watchdog also gave a breather on registration of proprietary sub-accounts of FIIs. It said such sub accounts can apply for a licence if they are used for their own trading, while those that don’t apply will be barred.
Proprietary sub-accounts wanting to convert to FIIs have been told to send SEBI a letter of intent within 24 hours of the videoconference indicating they would apply to convert.
They should get the completed application to the watchdog within a week, he said.
Damodaran also said the rule that investors must have been in operation for at least a year may be reconsidered.
Representatives of leading FIIs such as UBS, Citibank, Deutsche, Merill Lynch, Goldman Sachs, HSBC, Morgan Stanley and CLSA Asia Pacific Markets were among the 10 who attended the meeting in the SEBI head quarters, while other FIIs participated in the discussion via video conferencing.
“One big business strategy of our clients has been impacted. There will be some quikeffect on our business to that extent,” one of them said after the discussion.
The person also added that the one week’s time allowed by SEBI to file the applications “is more than enough.”
Foreign investors now have to choose between revealing their identities by registering as FIIs or not invest at all in India.
Mumbai: Birla Sun Life Insurance expects to grow faster than the insurance industry this year, by increasing its distribution network. The insurance industry is hoped to grow at 50-60 per cent this year and they expect to grow faster than that. The company opened 200 branches, of its existing 337 network in the past four months. The company''s assets under management stand at Rs 5,700 crore as on October 20, 2007. The company unveiled Saral Jeevan Plan, a unit linked insurance plan, which is positioned as an over-the-counter product, for its simplified application process. The product offers a 10, 15 and 20 year term with a cover that goes up to Rs 10 lakh. BSLI also offers a multiplier fund option, which invests predominantly in mid-cap stocks, with an option to infuse 30 per cent in large cap stocks as well.
New Delhi: Reliance Industries (RIL), which is set to start production from the country''s largest gas block, is in negotiations with Peru for taking stake in two oil blocks. RIL has finished the talks for the two oil blocks for which contracts are likely to be signed soon. The talks come after RIL inked a memorandum of understanding with Peru''s national oil company Petroperu for collaboration in the oil and gas sector earlier this year. RIL, the Mukesh Ambani-promoted company, is also looking at establishing a refinery in Central America. The company is considering a bid for building a 350,000 barrels a day oil refinery in one of the Central American countries of Costa Rica, Guatemala, Honduras and Panama. Another 580,000 barrels a day refinery is being constructed by its subsidiary Reliance Petroleum close to the existing refinery. RIL has a very good track record for finding oil and gas.
Operators of oil and gas blocks commonly sell stake in blocks to other companies in order to share the risks involved. RIL has discovered oil or gas in 31 of the 50 wells it has drilled so far in India, could propel RIL to taking over the stake in the Peru oil blocks. RIL already has 11 overseas oil and gas assets, with the most recent being a block in Australia. The company is looking at purchasing into exploration and producing blocks in Africa, Latin America and West Asia. It is also reported that RIL is also talking with the government-owned Indian Oil Corporation (IOC) for acquiring assets overseas.
Triveni Engineering & Industries has announced that General Electric Company's (GE) Oil & Gas business has signed an agreement with the company to enter the fast growing high speed reciprocating (HSR) compressor market in India.
GE's agreement with the company will consist of an initial term of five years and will involve the import of bare (flange-to-flange) compressors from GE Oil & Gas Oshkosh, Wisconsin, USA facility. The company will do the engineering design, manufacturing and assembly of the package. It will also procure drivers and the rest of the components for packaging in India. The company will be the customer point of contact in India for both selling of the packaged product and the after market sales and service.
GE's world-renowned compressors, formerly known by their popular Gemini brand name, are used across the Oil & Gas sector. Common applications for these compressors are for wellhead gas gathering, vapor recovery, gas re-injection, gas lift, pipeline gas transmission, gas storage and fuel gas boosting.
The company's Bangalore facility which manufactures precision engineering products like steam turbine had undergone significant expansion and modernization with the installation of state of the art equipments and software to produce world-class products backed up by a strong nation-wide service network and is one of the best in the world. The company's entry into oil & gas segment with GE is the result of the building of a world-class engineering facility matching with the requirements of meeting the quality and technology norms akin to GE.
GE's high speed reciprocating compressors are known for their flexibility and reliability. GE offers a full line of high speed reciprocating compressors, ranging from 30 HP (22KW) to 9000 HP (6.7MW) with a variety of piston rod load capacities and frame stroke combinations. Over 10,000 of GE's HSR compressors can be found around the globe, working in gas boosting, gathering, lifting, fueling and injection applications - operating 24 hours a day, seven days a week.
The company made this announcement during the trading hours today, 22 October 2007.
The Insurance Regulatory and Development Authority of India (Irda) has observed that the proportion of unit-linked products has substantially gone up in the overall portfolio of insurance companies.
In its actuarial evaluation report for 2007, the Irda has observed that the proportion of unit-linked insurance plans (Ulips) in the total product portfolio has gone up by 65-70 per cent, which ties the fortunes of the insurance company and its investors to the vagaries of the stock market. Meanwhile, all companies are well above the solvency margin of 150 per cent.
According to R Kannan, member (actuary), Irda, the regulator is in the process of modifying the guidelines for Ulips so that products with high concentration of investments will be treated as mutual funds and term products if the proportion is tilted towards a greater risk.
The review is aimed at bringing in better information, transparency standards and understanding of such products among customers. Customers should have an idea as to what the risk and the return in the policy are when they subscrib to them, he added.
To this effect, the Irda also proposes to make it mandatory for insurance companies to issue sales document with illustrations as a part of the overall policy document.
This would give an idea to policyholders about the instruments they are investing in and risks are taking. The company, in this document, will have to explain what component actually goes towards life cover and what towards investment.
Lack of understanding of customers has always remained a problem with Ulip products. Earlier this year, the Irda had clarified that the policyholders in the unit-linked scheme could remain invested in the policy for another five years after the maturity, but could not withdraw any amount.
The clarification was issued in the wake of the fact that policyholder would have the option to remain with the scheme even after maturity, but they could not engage in fund management activity. To be precise, policyholders will not have the option of switching funds, equity or debt, or withdraw the amount.
The decision to continue with the scheme after maturity will be purely at the option of policyholders. The objective was to ensure that the insurance company cannot act as a fund manager while it can only provide the option to the policy holder for waiting for a better NAV.
LIC, other stakeholders to draw govt's attention to the issue.
Lenders to Industrial Finance Corporation of India (IFCI), who have the option to convert a part of their debt exposure in the financial institution into equity, are unhappy with the conversion proposal.
Life Insurance Corporation of India (LIC), which currently has a majority shareholding (8.4 per cent), is planning to write to the government regarding its concerns.
LIC officials said the insurance major wanted to convert the optionally convertible debentures (OCDs) in such a manner that it was able to maintain the current equity stake in IFCI after the 26 per cent stake sale to a strategic investor.
After the stake sale, LIC’s shareholding in IFCI will fall by 1 to 2 per cent. “We will be writing to the government about our concerns. The concerns relate to the conversion, interest rate and various others issues. The conversion to equity has to be done before the stake sale is done,” officials said.
The conversion will be immediate and will be according to the Sebi formula that stipulates the conversion price at a six months’ high or low or a six-week high, whichever is higher.
General Insurance Corporation of India (GIC) has a 2.37 per cent shareholding in IFCI. A GIC official said, “Thirty per cent of the zero-coupon holding, along with the other debt that was given to IFCI, is eligible for conversion into equity shares. We will bargain for more. Our debt is Rs 15 crore.”
Oriental Insurance, which has a stake of 1.38 per cent, had also subscribed to the debentures, “The rate at which the conversion can take place should not be the market rate, but less than that,” said an Oriental Insurance official.
The IFCI lenders were recently given the option to convert 30 per cent of their combined Rs 1,479-crore zero-coupon OCDs into equity.
The remaining debt amount will draw an interest rate that is 50 basis points lower than the 10-year government securities, according to a letter issued by IFCI to 30 banks and financial institutions, including LIC.
The debentures were issued in 2002 as a part of the overall restructuring package announced for IFCI. LIC had invested Rs 500 crore and also owns some non-convertible debentures.
The Reserve Bank of India will be the regulatory authority for currency futures trading, the draft guidelines for which will be issued soon by the central bank.
In a meeting between the central bank and market participants last week, it was also decided that futures would be introduced both as an exchange-traded product and over the counter (OTC).
The RBI will also be reviving interest rate futures that were introduced in 2003, but failed to take off due to the lack of a well-developed pricing curve in the market across maturiites.
The regulator wants market players in India to have additional trading instruments to minimise the impact of the non-deliverable forward (NDF) market, over which the regulator has no control. NDF is a derivative market based on the rupee-dollar exchange rate operating in south-east Asian markets .
Earlier, the central bank was not in favour of currency futures trading on stock or commodity exchanges as they are regulated by the Securities and Exchange Board of India (Sebi) and the Forward Markets Commission (FMC), respectively.
This could dilute the RBI’s regulatory power on the domestic foreign exchange market which, in turn, could have implications on the exchange rate management, the RBI’s sole prerogative.
An RBI panel also favoured that unlike the OTC currency market in India, it could relax the requirement of the underlying for futures trading to enhance liquidity.
The central bank is of the view that banks, brokers and other fixed-income traders and retail participants could be allowed to participate in futures trading. It has, however, expressed reservations in allowing foreign institutional investors since they do not hedge a major part of their portfolio.
The currency futures position will be settled in rupees and there may be limits prescribed for individuals, banks and traders for taking positions in the futures market to check the impact of futures trading on the exchange rate.
However, there is an ambiguity whether the central bank will participate in futures trading unlike its active intervention in the inter-bank spot and forward markets to control the rupee-dollar exchange rate. This, it feels may reduce the manipulation of the exchange rate since it is the sole authority for managing it.
Market regulator to meet FIIs, hedge funds.
In a move that could be of some relief to foreign institutional investors (FIIs), the Securities and Exchange Board of India(Sebi) is considering a proposal to allow proprietary sub-accounts to issue participatory notes (P-notes).
Sebi Chairman M Damodaran is expected to discuss these and other proposals when he meets representatives of FIIs and hedge funds through a video conference on Monday. Sebi is expected to finalise the guidelines at its board meeting on October 25.
Last week, the market regulator had proposed, among other things, a general ban on sub-accounts of FIIs issuing P-notes, which are offshore derivative instruments used by hedge funds and investors that are not registered in India.
Many FIIs, however, have proprietary sub-account that are formed to invest their own money. These sub-accounts issue P-notes purely as an investment opportunity to earn a good return at minimum cost.
Proprietary sub-accounts are different from other sub-accounts that are largely corporate structures or special purpose vehicles formed in tax havens by unregistered investors, with FIIs investing the money on their behalf.
FIIs are of the view that they are already registered so there should not be a ban on P-notes issued by their own sub-accounts.
Sebi had proposed various controls on P-notes last week as a means of controlling massive capital inflows.
The other proposal that is under Sebi’s active consideration is to allow FIIs to hedge equity investments through P-notes that they issue.
While P- notes on equity instruments are allowed, Sebi had proposed to ban FIIs from issuing P-notes in derivatives, which makes hedging difficult.
Ahmedabad: As part of its efforts to penetrate the semi-urban and rural areas of Gujarat, SBI Life Insurance, a joint venture between State Bank of India and Cardif-A BNP Paribas Company, on Friday announced a strategic bancassurance tie-up with the Valsad District Co-operative Bank Ltd (VDCB).
The tie-up is a referral arrangement wherein SBI Life products will be available throughout all the 43 branches of VDCB.
The life insurance major will offer its entire product portfolio, which ranges from protection, saving and endowment plans to pension and unit-linked life insurance plans to the banks customers, according to a release here.
Anand Pejawar, Country Head-Bancassurance, said the tie-up would enhance integrated bancassurance reach. SBI Life plans to reach out to the semi-urban and rural markets through the cooperative bank route.
VDCB has a customer base comprising over 10,000 individuals, 11,000 societies and about 60 local bodies. It is the apex cooperative bank for Valsad district in South Gujarat, traditionally known for the cultivation of Alphonso mangoes, castor oilseeds, dyes and bricks.
Mumbai: India's stock market regulator has been receiving feedback on its plan to curb the use of participatory notes by overseas investors ahead of a meeting on October 25 on the issue, a board member said on Friday. On Tuesday, the Securities and Exchange Board of India (SEBI) released proposals to limit the use of participatory notes, which can be bought by foreigners to get exposure to Indian shares without registering as a foreign institutional investor (FII).
"We have been receiving the feedback on the paper and the SEBI board will discuss it next Thursday," board member G. Anantharaman told Reuters, adding the meeting would be held in Mumbai.
The SEBI plan, which has been endorsed by the finance minister, has caused shares to tumble this week on worries of a sudden withdrawal of foreign funds from the market.
At 0927 GMT on Friday, the 30-share BSE index was down 1.6 per cent, and down 7.1 per cent from Tuesday's close, before the recommendations were released.
Colombo: Under a special invitation extended by the Sri Lankan government, Indian automaker Mahindra and Mahindra has decided to set up a multi-million dollar IT park in the country that will generate 10,000 jobs in the sector.
The IT park is to be set up in Katunayake (near Colombo) in the next six months under a special invitation extended by Enterprise Development and Investment Promotion Ministry, a senior minister said.
Investments and other formalities of the project, that is to be developed under a joint venture with the Board of Investment of Sri Lanka, will be finalised by the end of this month, the Investment Promotion Minister, Navin Dissanayake said yesterday.
This project is expected to provide employment to 10,000 IT professionals, Dissanayake said, adding Mahindra and Mahindra group is also discussing the possibility of exclusively developing the Trincomalee Trade Zone for which 1,635 acres have been ear marked.
M&M is, however, seeking 3,000 acres in the Eastern region for which the Government is planning to take up the proposal again for cabinet approval.
"We are making arrangements to provide land for their project. Total investment of this project will be nearly $200 million over a five year period," Dissanayake said.
New Delhi: The Board of Approval for Special Economic Zones (SEZs) today gave formal approvals to 10 projects, mostly in the IT sector and in-principle approvals to three projects, including two multi-sector SEZs, besides clearing seven co-developers in Mukesh Ambani promoted Navi Mumbai SEZs.
The BoA meeting under the chairmanship of the Commerce Secretary, Gopal K. Pillai, gave formal approvals to IT/ITES SEZ projects of Malwa IT Park Ltd, Indore, Tata Consultancy Services Ltd, Kolkata and Rakindo Kovai Township Pvt Ltd, besides a free trade warehousing zone SEZ by Jafza Chennai Business Parks Pvt Ltd and a bio-technology park SEZ by Saloni Business Park Pvt Ltd, Thane.
Multi-sector SEZs
Out of the three in-principle approvals granted, two are multi-sector SEZs being promoted by Privilege Power and Infrastructure Pvt Ltd at Maharashtra spread over 2,245 hectares and another by Sengadu Projects Pvt Ltd at Villupuram district in Tamil Nadu over 1,000 hectares.
With today’s meeting of BoA, the number of valid formal approval is 395 out of which notified SEZs number 156. Pillai apprised the members of the BoA that investment worth Rs 50,906 crore has occurred so far and current employment in new SEZs is about 72,168 persons.
Navi Mumbai SEZ
On the clearance of seven co-developers in Navi Mumbai SEZs, Pillai told reporters after the meeting that this has been done “subject to their producing data on net assets of the co-developers”.
Even as the BoA cleared the Navi Mumbai SEZs in its last meeting, this SEZ was first divided into four zones - one multi-product and three for IT and ITES. Later, the promoters took on board seven co-developers with Jai Corp being the holding company for these partners.
With the holding company selling a part of its stakes through an overseas infrastructure fund to raise Rs 2,500 crore to be ploughed back to all the co-developers, the promoters could now go ahead with new financial restructuring.
It is in this context that the Navi Mumbai SEZ will have to furnish all the financial data to the Government by the month-end, Pillai said.
Mumbai: Following are highlights of comments made by P Chidambaram, Finance Minister at functions in the United States on Thursday.
The stock market has fallen in volatile trade over the past two days and the rupee has weakened since the Securities and Exchange Board of India (SEBI) proposed curbs on participatory notes, an investment instrument used by unregistered foreign investors .
Chidambaram explained the motives behind the proposals in two events in the United States late on Thursday. Following are excerpts of what he said.
On managing inflows:
"Let me assure you that we have no intention of imposing controls on capital flows, nor do we intend to keep out certain kinds of funds".
"Developed countries have injected a considerable amount of liquidity into their own markets to overcome their own problems. Part of that liquidity has spilled into India and some other countries. It has therefore become necessary to take some measures t o moderate the flow of funds into India. That was the primary purpose behind the measures announced by the SEBI yesterday."
"We are trying to ward off a bubble in the stock market. It is not often that the index rises from 18,000 to 19,000 in four trading sessions."
On SEBI proposals and measures on external borrowings:
"Besides these there is no measure under contemplation."
On the rupee:
"The rupee has appreciated rapidly since January 2007, nearly 12 per cent. There are one or two economies where the currency has appreciated rapidly. "We have a large exporter base, our foreign exchange earnings through exports are significant and export ers would like a competitive exchange rate. They can adjust to depreciation of the rupee, if it takes place over a period of time."
"The goal is to maintain a competitive exchange rate, without hurting foreign investments in India. As I said 2-3 days ago, the very rapid appreciation of the rupee has put the exchange rate just outside the comfort zone. This is an entirely new situatio n for us and I think we will gain mastery over the situation."
On share market:
"The stock market recovered sharply and splendidly by the end of the day. This was on the 17th of October. The market ended being down by only about 350 points."
"On the 18th of October, in the first session, the market rose 400 points. In the afternoon, there was a motivated rumour in the Bombay broker circles."
"We are not selecting any level for the market or any level for the rupee. What we are trying to do is to manage a new situation in order to balance the interest of different stakeholders and different players in the economy. The market will find its lev el, rupee will find its level."
On FII registration:
"I think registering has become easier since 2003-04. If there are still some niggling problems, which inhibit investors, I am willing to ask the SEBI to take a look at those conditions".
"I am also willing to ask SEBI to call a meeting of potential investors and discuss with them what can be done to make registration easier and simpler."
"I will certainly advise the SEBI to find ways and means by which you can register directly as an FII. I will be extremely happy if you can register directly as an FII rather than channelise investments through brokers in the form of notes."
The Union Minister of Shipping, Road Transport & Highways Thiru. T.R. Baalu has been presented a Demand Draft for Rs197.98mn towards the final dividend for 2006-07 by Capt. S.S. Tripathi, Chairman and Managing Director of the Dredging Corporation of India (DCI), a Public Sector Undertaking under the administrative control of the Ministry of Shipping, Road Transport & Highways.
At the 31st Annual General Meeting held on 28th September 2007, the Members of the Company declared dividend @ 150% (including 60% interim dividend paid in March 2007) on the paid-up capital of the Company for the year 2006-07.
This is the same as that paid for the previous year 2005-06. The final dividend payable would be 90% i.e., Rs252mn. Out of this, an amount of Rs197979300/- (Rupees nineteen crore seventy nine lakh seventy nine thousand and three hundred rupees only) is payable to the President of India as final dividend for the year 2006-07.
The paid-up capital of the Company is Rs280mn divided into 2,80,00,000 equity shares of Rs10/- each of which 78.56% i.e., 2,19,97,700 shares are held by the President of India.
The Dredging Corporation of India (DCI) was established in 1976 to provide integrated dredging service to the Major Ports of the country. The DCI is a Mini Ratna category-I Public Sector Undertaking under the administrative control of the Ministry of Shipping, Road Transport & Highways, Department of Shipping, Government of India. The Company has been upgraded to Schedule ‘B’ from ‘C’ during the year 2002. The clients of the Company include Major Ports, non-major ports, Indian Navy, State Governments, etc.
Larsen & Toubro Ltd (L&T), has bagged four contracts valued at Rs 452 crore for projects in Andhra Pradesh. An engineering, procurement and construction (EPC) contract worth Rs 226 crore has been secured from National Thermal Power Corporation (NTPC) for design, engineering, supply and installation of 2x1600 TPH coal handling plant, for Simhadri Super Thermal Power Project, Stage-II (2x500 MW), which is to be executed in 39 months. L&T’s construction division secured three other contracts worth Rs 226 crore from the Public Health & Municipal Engineering Department in Andhra Pradesh. This includes a Rs 93-crore order for engineering, procurement and construction of an underground drainage scheme for the Nizamabad Township. The second order worth Rs 88 crore is for water supply improvement scheme for the Nellore Town. This involves construction of water treatment plant, reservoirs, pumping stations and laying 88 km of pipelines, with a project completion schedule of 18 months.
Rajkot, October 18: Country's largest public sector lender State Bank Of India (SBI) has launched two new schemes - Reverse Mortgage Loan and SBI Home Cash - for people in Gujarat.
The Reverse Mortgage Loan has been specially designed for senior citizens, SBI Chief General Manager and Gujarat Circle Head H C Patnaik told reporters in Rajkot on Wednesday night.
Under the scheme, as senior citizens have inadequate income to support themselves, bank makes payment to the borrower against mortgage of his property, either by way of periodic instalments or lump sum payment.
The Home Cash product has been launched to meet any personal exigencies, he added.
On the bank's Non Performing Assets (NPA), Patnaik said SBI's performance in its gross NPA has improved. It has
reduced from 3.88 per cent to 3.15 per cent till Sept-07, which is better then the industry average in Gujarat.
Besides banking service, SBI was also concentrating on social works by adopting girl children and organising blood donation camp.
"More than 300 girl children have been adopted so far and our target is to adopt 1,000 girls in all by the current academic year," Patnaik said, adding that the bank will provide financial help and bear their educational expenses.
The bank has also extended support to 85 children affected by thalassemia and organised over 60 blood donation camps to provide blood to needy children, he added.
Reserve Bank of India governor Y V Reddy is using all his experience at the central bank to tide over an unusual monetary challenge - to prevent the rupee from rising sharply despite huge dollar inflows… and to do so without infusing extra money into the banking system.
To prevent the rupee from rising, the central bank has been buying dollars in the forex market. This in turn has pushed up money in the banking system, leading to inflationary pressures.
To negate the impact of this dollar-buying on liquidity, the RBI enters into a sell-buy swap.
"In order to postpone the infusion of liquidity, state-owned banks (on behalf of RBI) are buying dollars and entering into a 'sell buy swap' in the forward market. This allows them to buy forward dollars and delay the rupee sale to the date of the settlement of the forward contract," said L Subramanian, chief manager, global markets group, ICICI Bank.
A swap is an exchange of one currency for another at two specified dates. These are forward contracts which have periods of 1 month to 1 year. Such deals do not affect the exchange rate.
For simplicity, assume the dollar is at Rs 100 today. In a sell-buy swap, the RBI will sell one thousand dollars for Rs 1 lakh. Thus Rs 1 lakh is out of the banking system now. At the expiry of the forward sell-buy swap, say in 3 months, this Rs 1 lakh will come back into the system. In this way, the RBI can buy dollars and at the same time ensure that it does not add extra liquidity to the system.
The beauty of the forward contract is that the RBI can postpone the rupee sales further by just rolling over the contract at the time of maturity.
Forex dealers say this is the first time the central bank is doing this in the Reddy reign. "They haven't done this for a long time. But it was more to soothe the forward market. This is the first time they are challenged with such inflows," said a former dealer with a state-owned bank who is familiar with the RBI's forex tactics and is now with a private sector bank.
"This strategy could also work well to the extent that there is no shortage of dollars in the market that would then lead the forward markets into discount", said Mohan Shenoi, head of treasury, Kotak Mahindra Bank, at a round table discussion on managing capital flows organised by the Bombay Chamber on Wednesday.
However in the last couple of days state-owned banks have not been that active as the rupee has weakened on its own due to high oil prices and weaker dollar inflows.
State-owned banks didn't have to step in on Wednesday too as the over 1000 point crash in the stock market led to the rupee falling by the most in two months.
The markets crashed reacting to a late night proposal by the Securities & Exchange Board of India (SEBI) to curb foreign investors buying derivatives linked to local shares.
Dealers expect the rupee's gains to be cut in the next one month following the SEBI proposal. "The rupee recovered some losses on Wednesday but I think in the near term the SEBI move will lead to some dollar buying which could push the rupee towards 40 rupees per $1 or possibly even Rs 40.20 per $1 in a months time," said R N Subramanian, assistant vice president and head forex spot, Axis Bank.
Liberty Shoes Ltd plans to establish a new plant in Bangalore in two years. It has seven manufacturing units across the country. The Karnal, Haryana-based company launched its ''Winter Collection'' of footwear for men, women and children here on October 17. The collection features 200 new designs and is priced lower than its existing range of footwear.
At present, the company has three manufacturing units in Haryana, two in Himachal Pradesh and two in Uttaranchal. Liberty Shoes achieved sales of Rs 300 crore last fiscal and has a 30-per cent marketshare in the branded footwear segment. The company has 30 stores in Karnataka and has tied up with around 1,000 dealers in the state. Across the country, it has 453 exclusive showrooms, 227 distributors and 10,000 multi-brand showrooms. The Liberty Group has also opened a chain of ''Revolution'' stores in cities like Mumbai, Chennai, Hyderabad, Kolkata and Bangalore, and plans to set up 25 mega showrooms in the present fiscal. It has also formed a subsidiary by way of a joint-venture with Pantaloon India called Footmart Retail India Pvt Ltd, which owns ''Brand Factory'' and ''Shoe Factory'' outlets in several cities. Sixty more such stores have been planned over the next 3-5 years. Apart from footwear, Liberty has diversified into accessories such as ladies'' handbags, leather jackets, wallets, footwear polish and socks and has set up a sanitary ceramic product factory in Jaipur.
Max New York Life Insurance Company is scaling up its business operations to be among the top four life insurers in the country.
Max New York Life will nearly double its equity capital by December 2008 as it expands its presence in emerging towns, increases sales force at its branches, expands distribution reach, launches health insurance and micro-insurance products and develops products customised for different distributions channels.
The life insurer would infuse Rs 750 crore by December 2008 to add to its current capital base of Rs 807 crore, according to MD and CEO, Gary Bennett, with Rs 75 crore being invested every quarter.
The company, a 74:26 joint venture between Max India and US-based New York Life, had launched operations in April 2001.
“We will significantly deepen our presence by setting up 150 new offices and expanding to more than 200 cities by 2008. Of the 150 branches, 50 branches will be by set up next quarter”, said Bennett.
The insurance company currently has 175 offices in 122 cities. It has a sales force of 6,032 people in eight offices and aims to expand this to 24 offices by the end of 2008.
Of the non-agency distribution, which contributes 25 per cent to the new business premium of the life insurer, bancassurance contributes 5 per cent. The company is aiming to strengthen its distribution tie-ups by customising products specific to each distribution.
“There will be significant opportunities to leverage in bancassurance with the bulk of US and European banks likely to enter in 2008-09. Moreover, IRDA has set up a committee to consider allowing one bank to sell products of more than one insurance companies,” said Bennett.
“We aim to reach 100 million unserved population through differentiated products, which will be a combination of protection and investment, as their needs are different from the middle class. We will enhance our presence in the retirement space,” he said.
Speaking about health insurance plans, Bennett said, “We are reviewing the marketplace and opportunities and hope to launch health products in the first quarter of 2009. The products will be hospital cash specific to the defined benefit space. We could look at a health savings account kind of a products too. The products will be easily issued over the counter (OTC) and simple to explain.”
“We are also working on products specific for HNIs, loan products, reverse mortgage products and deposit products that can go with bank products,” he added.
Max New York Life aims to increase the agent activity ratio to 70 per cent by year end from the current 67 per cent.
The company sold 18 lakh policies till September 2007, with a sum assured of Rs 55,000 crore. It has 30 base products and 28,500 agents. The company plans to break even in 2009.
