Saturday 2 July 2016

India Weekly Market Updates from 25th June to 1st July 2016

India Market Weekly
Economy
·      RBI Governor on Thursday called on Finance Minister as the central bank and the government seek to quickly put in place a broad-based 6-member panel — the Monetary Policy Committee (MPC) which is being set up to decide on lending rates instead of the present practice of RBI Governor taking a call in this regard. MPC will set interest rates by a majority, with a casting vote for the governor in the case of a tie. Out of the six members of MPC, three will be from RBI — the Governor, who will be the ex-officio chairman, a deputy Governor and an executive director. The other three members will be appointed by the government on recommendations of a search-cum-selection committee, which will be headed by the Cabinet Secretary. http://goo.gl/mx94xc
·        Large part of banks' bad loans result of fraud: CAG  http://goo.gl/3Le7UM
·     The World Bank Thursday committed USD 1 billion to support solar energy programme in India, which is reducing dependence on conventional energy sources to reduce greenhouse gas emissions. http://goo.gl/VxLKdR
·         The tax department Thursday notified rules for calculating fair market value of assets located in India in case of indirect transfer by multi-national companies for the purpose of levying tax. http://goo.gl/2Oz7jH
·         The central government on Thursday asked the Odisha government to expedite the process for mines auction, an official said. http://goo.gl/KG5L1B
·         The stressed assets problem affecting the banking sector is still not over and the menace will continue for some more time, SBI chief Arundhati Bhattacharya said today.  "In terms of asset quality, I did not say 2016-17 will be a lot better. In fact, I said there could be pains as well because the numbers we have taken are basically on the fund- based part but the non-fund based part also gets converted subsequent to classification," SBI Chairman Bhattacharya told reporters after the AGM of the bank. http://goo.gl/hRdw6g
·         Owing to policy measures taken by the government, India has improved in global rankings in terms of transparency in real estate sector in Asia Pacific, says a report. http://goo.gl/KgAi6E
·         India telecom market to face ‘massive’ tariff erosion post Jio entry: Sunil Mittal http://goo.gl/LwrVXu
·         The government is mulling an additional Rs 25,000 crore allocation to roads, railways and power sectors over and above the allocation made to them in the Union Budget, potentially providing a mid-year boost to public spending. http://goo.gl/xiujOM
·         Cabinet approves rise in salaries, pension for government employees http://goo.gl/NfRULL
·         Centre clears a move that makes 24x7 malls, movie theatres, eating joints a reality http://goo.gl/H0sjrn
·         Government asks LIC to fund road expansion projects http://goo.gl/j8A7k5
·         World Bank chief Jim Yong Kim said that Reserve Bank of India Governor Raghuram Rajan's decision to not take a second term at the bank will not affect the Indian economy http://goo.gl/LFaSB9
·         Output of India's core industries declined in May after five consecutive months of rise, official data showed on Thursday http://goo.gl/rx55Pu

Corporates
·         DLF promoters to make the company debt-free by infusing Rs 10,000 crore http://goo.gl/LcPXiR
·         Hit by a fire incident at one of its key vendors, Maruti Suzuki India reported 13.9 per cent in total sales in June at 98,840 units as against 1,14,756 in June 2015.  Hyundai Motor India Ltd (HMIL) on Friday said its domestic sales in the month of June grew 9.7 per cent to 39,806 units.  Ashok Leyland Ltd closed last month with a volume growth of seven per cent, the company said on Friday. Eicher Motors Ltd. closed last month with 36 per cent growth in sales volumes
Equitas Holdings Ltd. on Friday said it had got the final licence from the Reserve Bank of India to start operations as small finance bank. http://goo.gl/GfdPeS
Indian Oil Corp (IOC) has cut the price of transport fuel effective on Friday by under a rupee each, of petrol by 89 paise a litre and of diesel by 49 paise
·         Reliance Defence gets Reserve Bank nod to exit CDR http://goo.gl/7snjB3
·        Dairy major GCMMF, which markets milk and dairy products under Amul brand , will invest Rs 3,000 crore over the next four years on its expansion plans.     http://goo.gl/P6bCQI
 
Global events
·         China bank PSBC files for 2016's biggest IPO http://goo.gl/6CFBQs
·        EU decides to block itself as a single market to UK: Europe had made it "crystal clear" that access to the European single market remained contingent on accepting its four principles of free movement - applying to goods, services, capital, and people. "There will be no single market access 'a la carte'," European Council President Donald Tusk Angela Merkel, meanwhile, rejected the idea of treaty change or reform in light of the UK's referendum, saying voters would rather see results - not debate - from Brussels. http://goo.gl/tFRcgq

Politics
·         Modi cabinet reshuffle likely in first week of July, poll-bound UP may get more say http://goo.gl/4vA8Or
·         Government feels it has got numbers in Rajya Sabha to move GST Bill http://goo.gl/Yg26Dv
·         Amid a fresh controversy over its legal validity, the one-man Justice S.N. Dhingra Commission of Inquiry set up by the Haryana government to probe controversial land deals in Gurgaon district has sought extension of time for six weeks to submit its report, state government sources said on Thursday. 
·         Three-year tenure for RBI governor is short, says Raghuram Rajan. On Thursday he pitched for a longer tenure for the central bank head, saying the global practice has to be emulated in India as well. http://goo.gl/9ekNft








Friday 1 July 2016

LIC-led NBFC may offer up to Rs1 trillion credit guarantee


State-run insurer Life Insurance Corp. of India or LIC will structure its credit guarantee company in a manner that will allow it to guarantee infrastructure projects worth Rs.50,000 crore to Rs.1 trillion, said two people familiar with the development.

The credit guarantee firm, which will be set up as a non-banking financial company (NBFC), is part of the government’s plan to aid infrastructure projects by speeding up the flow of funds to the sector. In his Union budget speech in February, finance minister Arun Jaitley said that LIC will set up a dedicated fund to provide credit enhancement to infrastructure projects. The proposal is now starting to get fleshed out.

LIC will hold a 15-20% promoter stake in the proposed NBFC while the rest of the equity in the company would be offered to large foreign funds, domestic insurers and institutional investors, said the two people cited above.

“LIC will hold 15-20% stake or more if allowed by the insurance regulator and the government. Rest of the stake may be held by other public sector insurance companies, domestic financial institutions and global investors,” said one of the people cited above. “Discussions are on and the company should start by September this year,” this person added while requesting anonymity as talks are confidential.
An email sent to LIC on Monday seeking details remained unanswered.

The NBFC will provide credit guarantees to large infrastructure projects, especially those launched by the central and state governments in the road and power sectors.
A well-capitalized credit guarantor would be a good initiative, said Ananda Bhoumik, managing director and chief analytical officer, India Ratings and Research Pvt. Ltd.
“LIC itself is a large investor in the infrastructure space so it will be well-acquainted with the business. Once the product offerings from LIC’s credit guarantee fund start coming in, all credit rating agencies will have to evaluate the risks and help the market understand them in the context of credit guarantee and the structure of the model,” Bhoumik said.
A credit guarantee from an LIC sponsored firm will help bump up the rating of a infrastructure project in return for a fee. This could be particularly helpful for infrastructure projects in the post-completion phase when they can use an enhanced credit rating to raise cheaper funds from the market. These funds can then replace more expensive bank loans taken during construction.

“Throughout the construction period the entire funding is typically from banks, but post the construction if there is a credit enhancement their bonds will be upgraded to AA and it will be easier for them to get funding from the market so that they can free up the bank capital channel again and bring in more lending to develop their other projects,” Bhoumik said.
While bond investors typically want to invest in instruments rated AA and above, most infrastructure projects have ratings no better than BBB.

The LIC-led NBFC, which is likely to be headed by a finance ministry official, will begin with a seed capital of Rs.500-1,000 crore. If the amount of seed capital is high, the company will be in a position to provide a larger quantum of guarantees. Typically, the amount of guarantee offered by a credit guarantee fund or company is linked to the capital base of the entity and pre-determined number of times that the equity capital can be leveraged.

LIC will be the first contributor to the NBFC’s initial seed capital for its new unit, said the first person.
According to Pawan Agrawal, chief analytical officer, Crisil Ratings, the launch of credit enhancement fund will be an important step.

“Usually, the infrastructure projects even after completion are rated in the A or BBB category, primarily due to their highly leveraged nature, and low liquidity cushion. The credit enhancement fund can act as a bridge to enhance the ratings of these infrastructure projects, and enable their access to the bond markets,” Agrawal said.

“This also addresses an important identified need in the Indian market to increase the variety of credit enhancement providers, which can take the first loss risk, thereby providing credit enhancement. This credit enhancement fund, once operationalized, will address this need,” Agrawal added.
The talks between the government and LIC to set up the NBFC are in advanced stages. The government is likely to approach the Reserve Bank of India (RBI) for an NBFC licence in the next few weeks so that the company starts operations latest by September.

The proposed entity will not only provide credit guarantees but also may raise funds for infrastructure projects by issuing bonds at a later stage, the second person said.
To be sure, this is not the first time the government is attempting to use a credit guarantee model to help ease funding constraints faced by infrastructure firms.
At present, the government, through its wholly owned company India Infrastructure Finance Co. Ltd (IIFCL), provides partial credit guarantee facilities to infrastructure companies.

A partial credit guarantee is one which supports only a part of the project cost.

LIC will now join IIFCL in the credit guarantee business.
“It is a good business for LIC. We will prefer to fund only large, viable government-backed infrastructure projects. On a seed capital of Rs.500-1000 crore, the NBFC will be able to provide guarantees to projects costing up to Rs.50,000 crore-Rs.1 trillion,” said the first person cited above.
“LIC will charge fees for providing credit guarantee and unless the project fails in some rare event due to any unforeseen circumstances, the fees earned through credit guarantee will remain as a profit for the NBFC,” this person added.

With assets of around Rs.20 trillion, LIC is the largest and the only state-run life insurer in India. LIC Housing Finance Ltd and LIC Mutual Fund currently its two main subsidiaries.

Thursday 30 June 2016

Bank NPA crisis: Here’s what is crucially missing


RBI Governor Raghuram Rajan will be remembered for his relentless pursuit of India’s monetary policy reforms, controlling inflation and advocating a stable policy framework. His precise diagnosis and direction for “deep surgery” for the chronic NPA problems of the banking sector, especially in public sector banks, is also noteworthy. He minced no words when he said that routine “band-aid” would not clean up the balance-sheet mess and put them back on a healthy trajectory.
RBI has been issuing master circulars from time to time, encompassing entire aspects of ensuring true and fair financial statements of banks. RBI has insisted that the new restructured loans, where the borrower has renegotiated the terms of repayment, must be classified as non-performing assets (NPA) from April 1, 2015, with provisioning of 15% of the outstanding instead of 5% for restructured loans, so that banks can take early recovery action or sell NPAs to asset restructuring companies (a loan turns into an NPA when interest repayments remain due on the 91st day).
Financial audit of banks are done by statutory central auditors (SCAs) and statutory branch auditors (SBAs). On the basis of prescribed eligibility criteria determined by RBI, the CAG prepares graded panel for empanelment and selection of eligible SCAs and the The Institute of Chartered Accountants of India (ICAI) prepares a panel for eligible SBAs in PSBs and send the panels for RBI’s scrutiny before finalisation of the lists. RBI has prescribed the number of SCAs and SCBs to be appointed to audit large, medium and small PSBs, and for audit of their branches.

Also Read: Banking crisis: Why promoters must be removed quickly

The government had delegated selection and appointment of SCAs and SCBs to individual PSBs from 2014-15 from the eligible list of firms, giving enough freedom to choose the auditors of their liking. Banks are free to select statutory auditors from the list with the approval of the Audit Committee of Board (ACB). The selection of audit firms as SCAs and SBAs is subject to RBI approval. The independence of auditors/audit firms is ensured by appointments of SCAs for a continuous period of three years, subject to satisfying the eligibility norms by the firms each year; PSBs cannot remove audit firms during the above period without the prior approval of RBI.
The option to consider whether concurrent audit should be done by bank’s own staff or external auditors is left to the discretion of individual banks. A critical issue is that auditors should be experienced, well-trained and, most importantly, adhere to applicable accounting and auditing standards, mandatory guidelines and the ethical code of conduct. Auditors must be able to function independently with professional autonomy and judgement. Adequate facilities and the requisite records must be made available to auditors with initial and periodical familiarisation of the process. Relevant internal guidelines or circulars or important references including the circulars issued by RBI and/or Sebi and other regulating bodies must be made available to the concurrent auditors.
Remuneration of auditors may be fixed by banks following the broad guidelines framed by the ACB, taking into account coverage of areas, quality of work expected, number of people required for the job, number of hours to be spent on the job, etc. Banks may devise a proper reporting system and periodicity of various check-list items as per risk assessment. Serious irregularities pointed out by the audit should be straight away reported to the controlling offices or head offices for immediate action. The findings of the concurrent audit must be placed before the ACB. An annual appraisal or report of the audit system should also be placed before the ACB.
Whenever fraudulent transactions are detected, they should immediately be reported to the inspection and audit department, and the chief vigilance officer and controlling officers. Follow-up action on the concurrent audit reports must be done promptly by the controlling office and inspection and audit department. When RBI has been insisting on true and fair financial statements by banks through various notifications, master circulars, guidelines and directions time and again, why has the banking sector, especially PSBs, been pursuing window dressing so consistently for years till the position reached the current imbroglio? Statutory auditors finally certify the accounts true and fair. Whenever any falsification of accounts on the part of the borrowers is observed by the banks or financial institutions, the auditors are responsible to bring it to the notice of the management. Auditors must have to follow auditing standards, applicable accounting standards, rules and the professional code of ethics. Being the regulator of chartered accountants, ICAI is duty bound to fix accountability of auditors if they are found lacking in professionalism and ethics.
There should be disciplinary action by ICAI. In fact, ICAI, RBI, the Department of Banking Supervision and Indian Banks’ Association are mandated to circulate the names of guilty chartered accountant firms. RBI is required to share such information with other financial sector regulators, ministry of corporate affairs and CAG. The lenders can obtain a specific certification from the borrowers’ auditors regarding diversion/siphoning of funds by the borrower. The rules also specify that banks and financial institutions may ensure incorporation of appropriate covenants in the loan agreements to facilitate such certification by auditors. RBI stipulates that lenders may engage their own auditors for such specific certification purpose without relying on certification given by borrowers’ auditors for ensuring proper end-use of funds and preventing diversion/siphoning of funds by the borrowers. Bank must invariably exercise basic minimum own diligence in the matter.
Master directions issued by RBI in January 2016 consolidate all regulatory matters under various Acts and are put on the RBI website. Proper medicine is prescribed for chronic NPA infection, but what is missing is strict implementation. Creating more rules, regulators and watchdogs may lead to overlaps, confusion and would prove to be counterproductive. If prompt administration of extant rules is taken care of and due diligence is exercised by regulators, bank management, auditors, audit committee and the board of directors, the NPA crisis can be resolved.

Wednesday 29 June 2016

Edelweiss PE eyes growing tech start-up space


Edelweiss Private Equity, the venture capital and private equity arm of diversified financial services firm Edelweiss Financial Services Ltd, is looking to close at least 8-12 deals in the Indian start-up ecosystem this year itself.
The venture arm, which was set up mid last year on back of the growth in the start-up space, will invest in both early- and growth-stage companies.
While the fund is sector agnostic, the inclination is more towards fintech, artificial intelligence, and other tech-enabled start-ups.
A major focus is also towards the rising consumer space and categories that can drive demand for the next 10-15 years.
Pranav Parikh, head of Edelweiss PE, told BusinessLine that the fund is looking at doubling the investments in growth stage this year. While, he did not disclose the size of the fund, Parikh said a typical early-stage deal would be $1-3 million, while growth-stage investments will be $10-15 million.
The Edelweiss private equity and venture capital fund has already invested in five companies, including fitness wearable start-up GOQii, data analytics company BRIDGEi2i and consumer firm Freshee.
Indian landscape

“We are quite optimistic about the investing landscape in India and are looking at companies that can solve actual problems in healthcare, finance, transport spaces, to name a few. We play across the spectrum and will invest in tech-enabled emerging businesses, such as data analytics, Internet of Things, smart devices, tech products, as well as consumer companies with strong online and offline brands. We look forward to working with entrepreneurs and strive towards making a few of them leading brands or category leaders in their respective fields,” Parikh said.
Parikh, who has over one-and-a-half decades of investment experience in the US and Indian markets, joined Edelweiss last year to drive PE and VC investments. Parikh used to work with multi-asset private investment firm Q Investments, and was leading its Indian arm till 2013. Edelweiss PE fund is an internal fund at present, but may raise more funds from institutional investors in the next 1-2 years.
The company plans to stay invested in all its portfolio companies for at least 5-10 years, Parikh said, adding that the current market is very volatile and that a lot of investors are expected to exit their portfolios.
“The last PE rush was around 2007-08. Investments made during that time are expected to mature by now.”
He said the start-up space will see the next round of funding boom around next March.
Investments


Edelweiss is among a few other financial service firms and diversified conglomerates to have set their eyes on the growing start-up space in India. IIFL has created a corpus of ₹1,000 crore; JSW has set aside about 100 crore to invest in tech-enabled start-ups over the next three years.
Meanwhile, several private-sector and public-sector banks have also turned investors with Kochi-based Federal Bank looking to invest around 90 crore in early-stage start-ups. State Bank of India also recently announced that it has created a corpus of 300 crore for the same.

Tuesday 28 June 2016

India Weekly Market of Economy, Corporates, Global Events & Politics

      India Market Weekly


Economy

·         Brexit drags rupee lower, RBI tries to arrest steep fall. The rupee took a sharp plunge of 96 paise against the US dollar to crash below the 68-level today as Britain's vote for leaving the EU played havoc in global markets. http://goo.gl/KRiOVl

·         India ranks 10th in FDI inflows: UNCTAD report: India’s FDI inflows have increased to $44 billion in 2015 as compared to $35 billion in 2014, and the growth has been across the board, the report said. http://goo.gl/9S9ZbJ

·         LIC Chairman S K Roy, appointed by previous UPA government, has resigned nearly two years ahead of completion of his five-year term. http://goo.gl/FcifyX
·          
·         NITI Aayog member Bibek Debroy said on June 22 reiterating the suggestion made by a panel headed by him last year for scrapping separate railway budget http://goo.gl/rvoBDq

·         Govt said it is revising its drugs law to make it easier for companies to do business while ensuring the safety and efficacy of medicines. Ministers decided the current law cannot effectively regulate areas such as biological drugs, stem cells and regenerative medicines, medical devices, and clinical trials http://goo.gl/tMBo3W

·         Cabinet has given approval for a special package for employment generation and promotion of exports in Textile and Apparel sector. It will have 3years sunset clause.   http://goo.gl/oevtUi

·         The pharma sector is expected to grow by 20% on account of relaxed FDI norms and a separate ministry to focus on the sunrise sector is on the anvil, Chemical and Fertiliser Minister said.
·         The Union Cabinet has approved the establishment of "Fund of Funds for Startups" (FFS) at SIDBI for contribution to various Alternative Investment Funds (AIF), registered with SEBI which would extend funding support to Startups. (PIB)
·         Cabinet gave a go-ahead to auctions across seven bands. The sale will see the government put around 2,300 MHz of spectrum on sale — the highest-ever in a single auction — which is likely to fetch the exchequer at least Rs 5.5 lakh crore if all the mobile airwaves are sold at the reserve price. http://goo.gl/mwHqkC
·         Execution of works in 20 smart cities will kick-start from June 25 with PM launching 14 projects in Pune, while 69 others will commence in other parts of the country (PIB)
·         The railways was also asked to increase its share in freight transport from the current 33% to 37% in the next three years in a NITI Aayog report to the PM. Among other targets are doubling the average speed of freight trains from 24 kmph to 48 kmph in three years, and raising that of mail and express trains to 80 kmph in three years, and 110 kmph in 15 years. The targets take into consideration the fact that the railway’s dedicated freight tracks in the western and eastern corridors are expected to be completed by 2019 and 2021, which will divert many freight trains to these corridors. (PTI)


Corporates

·         As Britain voted to exit the EU, Tata Motors-owned Jaguar Land Rover today said it is "business as usual" and will manage the long-term impact and implications of the decision, insisting "nothing will change" overnight for it and the automotive industry.

·         CARE, CRISIL may face SEBI action in Amtek Auto case: The crisis drew attention to the conduct of the rating agencies in assigning a credit rating to the Amtek Auto bonds and the JP Morgan schemes. CARE Ratings chose to suspend its rating on Amtek Auto on 7 August 2015. The agency had given Amtek Auto an AA- rating. Crisil Ltd had assigned a rating of AAAmfs (signifying the highest portfolio credit quality) to the JP Morgan India Treasury Scheme in May 2015. http://goo.gl/05k2IQ

·         Indiabulls Alternative Investments Ltd (AIF) to raise Rs1,000 cr from NRIs for realty fund having a tenure of four years, extendable by a year. Indiabulls Asset Management Co. Ltd, a unit of Indiabulls Housing Finance Ltd, is currently raising its second fund— Indiabulls High Yield Fund— that aims to raise up to Rs1,000 cr from domestic investors to invest in residential projects in key property markets. http://goo.gl/Y2L3tn

·         The Motherson Sumi Group is mulling a mega restructuring plan that will allow to it raise more funds and expand its business http://goo.gl/Bqy70F




Global events

·         Prime Minister David Cameron on Friday announced his resignation in the wake of defeat in the crucial referendum after Britain voted to leave EU in a deadly blow to the 28-nation bloc that triggered a panic reaction in world markets and raised questions over immigration and other issues in the UK after the divorce.

·         The pound has fallen to levels not seen since about 1985

·         Making the first moves to calm the markets following Britain's vote to leave the European Union (EU), Bank of England Governor Mark Carney on Friday announced that it was ready to provide additional liquidity worth £250 billion and take any other steps needed to ensure market functioning.

·         Bank stocks were pummeled at the open of European trade Friday in the aftermath of a landmark vote by the U.K. to leave the European Union, which has roiled global markets.

·         Gold prices zoomed to 26-month high of Rs 30,885 per ten gram today in the biggest single-day gain of Rs 1,215 since August 2013 as Britain voted to exit the European Union leading to bloodbath in global equity and currency markets.


Politics
·         As Britain voted to leave the European Union in a landmark referendum, India on Friday said it values its ties with both the UK and EU and will strive hard to strengthen these relationships in the years ahead.

·         Meghalaya seeks exemption from coal mining law

·         US reiterates support for India's NSG bid

·         Govt may review provisions of Geospatial Bill that proposes jail term of seven years and a fine up to Rs 100 crore if anyone wrongly depicts India's map http://goo.gl/PlkfYR
                                                                                                               

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