Current Affairs -- October to December 2014 for Interviews

RBI review PSL norms for foreign banks

The foreign banks’ reluctance to create subsidiaries in India is known.  Even a promise of near-national treatment in branch expansion has failed to convince them.  Their biggest fear, it appears, is priority-sector lending (PSL) targets.  This has prompted the Reserve Bank of India (RBI) to review the PSL norms for these banks, before persuading them to set up wholly owned subsidiaries (WOS)  here.  The reason behind this is most foreign banks’ operations in India relate to wholesale and commercial banking and their skill sets, resources and experiences are built around this type of business and they lack rural exposer.  Also, over the past decade India’s GDP has grown by eight per cent while agriculture sector has only grown by four per cent.  Lending to agriculture sector requires deeper reach in rural areas but at present, close to 99 per cent of foreign bank branches in India are in metropolitan centres.

PSL target for banks in India

·         At present , Indian banks are required to achieve PSL target of 40 per cent of aggregate advances, with 18 per cent sub-limit for the farm sector.

·         The same applies to WOS of foreign banks.

·         Foreign lenders with 20 or more branches in India are being brought on par with local banks in PSL targets, in a phased manner over five years starting Apr.2013.

·         For foreign banks with less than 20 branches, the overall target is fixed at 32 per cent.

RBI allows structuring, refinance of projects

   As a step to ease the pressure on stressed assets, the Reserve Bank of India (RBI) has allowed lenders to restructure certain loans to infrastructure and core industries’ projects.

Highlights

·         The RBI has allowed lenders to restructure existing loans above  500 cr. to infrastructure and core industries  projects.

·         According to Union finance ministry data, the stressed loan books of commercial banks were 12.57 per cent of the total of loans as of end-Sep.                                

·         Non-performing assets  (NPAs)had a share of 5.32 per cent and restructured assets were 7.25 per cent.

·         While giving the flexibility, the banking regulator  has attached some riders, to ensure the exercise happens within a framework of prudential norms.

·         Banks can fix a fresh loan repayment (amortisation) schedule for existing project loans once during their lifetime.

·         This could be done only after the date of commencement of commercial operations, based on the reassessment of project cash flows.

·         The exercise will not be treated as a `restructuring’ provided it is a standard loan as on the date of change of the repayment schedule.  The Net Present Value of the loan should remain the same before and after the change in repayment schedule .

·         Refinancing can be done by existing lenders, a new set of lenders or a combination of both or by issuing corporate bonds.  Such refinancing can be repeated till the end of the repayment schedule.

India 3^rd on black money list

    As India continues its pursuit of suspected black money stashed abroad, an international think tank has ranked the country third globally with an estimated $94.76bn (nearly   6 lakh cr) illicit wealth outflows  in 2012.  As a result, the cumulative illicit money moving out of the country over a ten-year  period from 2003 to 2012 has risen to $439.59 bn ( 28 lakh cr),  as per the latest estimates released by the Global Financial Integrity (GFT). Russia is on the top with  $ 122.86 bn, followed by China at the second position ($249.57 bn) in terms of the quantum of black money moving out of a country for 2012.  The Washington based research and advocacy group further said that the illicit fund outflows from India accounts for nearly 10 per cent of a record $ 991.2 bn worth illegal capital that moved out of all developing and emerging nations in 2012 to facilitate `crime, corruption, and tax evasion’.

Single verification for small e-transactions

   The Reserve Bank of India (RBI) has said that it is working on a system that would allow small-value electronic transactions without a second level of verification that is now required for most credit cards transactions.  The RBI Deputy Governor HR Khan said that currently the bank has a `tap and go’ method wherein the second factor authentication is required.  He added that some guidelines will be issued in a couple of months for a certain amount of transaction for which the second factor authentication will not be required.  There are some issues in removing the second-factor authentication and the RBI is in discussions with banks and Nasscom for the same.

RBI keeps interest rate unchanged

    The RBI Governor Raghuram Rajan on 2 Dec. kept interest rate unchanged but hinted that a cut may come early next year if inflation continues to ease and govt. acts on the fiscal side.

Highlights

·         Short-term lending (Repro) rate unchanged at 8 per cent

·         Cash reserve ratio (CRR) unchanged at 4 per cent

·         Statutory Liquidity Ratio retained at 22 per cent to unlock banking funds.

·         GDP growth for current fiscal estimated at 5.5 per cent

·         Projects retail inflation at 6 per cent by Mar 2015-end

·         Projects retail inflation to lower in Nov. rise again in Dec.

·         Weak revenue realization a threat to fiscal deficit target.

·         Next bi-monthly policy statement on Feb.3

SBI launches first domestic economic indicator

   The State Bank of India (SBI) has launched two indices, namely the SBI Monthly Composite Index and the SBI Yearly Composite Index, that will primarily track manufacturing activity and offer a forward – looking economic trends.  The SBI Chairperson Arundhati Bhattacharya said that the Index will analyse data from both manufacturing and services industries to determine expansion or contraction in the economy.  Both these indices will fulfill complementary purposes such as month-on-month sentiment movement and year-on-year growth forecast respectively.  The SBI index has been developed on the basis of the bank’s internal loan portfolio, which mirrors the credit demand in the country. The index will also take into account other indicators of economic activities such as consumer spending, mining, interest, rates, inflation and exchange rates on a monthly basis.  The indices will be released every month post-RBI’s credit growth numbers.

    Currently, Markers at present depend on HSBC India Purchasing Managers’ Index (PMI) and HSBC India Services Business Activity Index to get clues about economic trends.

CAPITAL MARKET

Sebi sends defaulter to six months in jail

   For the first time since its inception 20 years ago, the Securities and Exchange Board of India (SEBI) on 18 Dec. ordered the imprisonment of a defaulter Vinod Hingorani, non-executive chairman of Kolar Biotech and Adam Comsof for failing to pay a penalty for making misleading disclosures.  This is the first time Sebi has ordered the imprisonment of a defaulter since it was given expanded powers by a constitutional amendment last year.

   Sebi said Vinod Hingorani, non-executive chairman and a major shareholder of Kolar Biotech, was ordered to serve six months in civil prison for not paying  1.64 cr in dues.  Hingorani and other major shareholders of Kolar were charged in 2010 with providing misleading information to boost the firm’s share price.

Flipkart files application to become public

   The e-commerce major Flipkart on 20 Dec. filed with ACRA Singapore for conversion to a Public Company.  This is a mandatory procedure for all companies where the number of shareholders exceeds 50.  The recent USD 700-mn fund raised by Flipkart added new investors on company’s board.  The e-commerce powerhouse, which is on a fund-raising spree, has raised funding for the third time in 2014.  In May, it had raised $210 mn (about  1,200 cr).  It had raised funding worth $1 bn (about   6000) in Jul.  The latest fund-raising has pegged Flipkart’s valuation at $ 11 bn.  Flipkart’s rival Snapdeal had received $ 627mn from Japan’s SoftBank in Oct.

Commission

14^th Finance Commission files report

   The 14^th Finance Commission, headed by former Reserve Bank of India (RBI) governor YV Reddy, on 15 Dec. submitted its report to the President’s Office.

Highlights

·         As mandated by the Article 280 of the Constitution, the Govt. had constituted the Fourteenth Finance Commission consisting of Dr. YV Reddy, former Governor Reserve Bank of India, as the Chairman and four other members, namely Abhijit Sen, Sushma Nath, M Govinda Rao and Sudipto Mundle.

·         Ajay Narayan Jha was the Secretary to the Commission.

·         The Commission’s report covers a period of five years commencing 1 Apr. 2015.

·         The Commission shall make recommendations regarding the sharing of Union taxes, principles governing grants-in-aid to States and transfer of resources to local bodies.

·         The panel was appointed on Jan.2, 2013  to give its report by Oct.31 this year but was later extended by two months till Dec.31.  The panel had sought more time to examine financial projections and carry out consultations with the Andhra Pradesh  and Telangana govts.

·         The panel was also to took into the Goods and Services Tax (GST).  The commission’s terms of reference also included the pricing of public utilities such as electricity and water in an independent manner and the sale of non-priority public-sector units.

Disinvestment

Govt. kicks off disinvestment drive

    Kicking off its disinvestment drive on a positive note, the govt.’s share sale offer in steel major SAII.  got over-subscribed on 5 Dec. The govt. is selling 5 per cent stake in SAIL through this one-day offer, which received bids for more than 30 cr. Shares.  The SAIL offering is the first PSU share sale undertaken by the new govt. which targets to raise    43,425 cr through selling stakes in various state-owned  firms during the current fiscal. It is also first disinvestment during the current fiscal.  It was probably the first offer-for sale (OFS) in which the stock exchange showed the retail and general category subscription with their respective indicative price separately.  At the floor price of   83, a 5 per cent stake or over 20.65 cr shares in SAII.  could garner around   1,714 cr to the exchequer, which is expecting a minimum amount of   1500 cr after taking retail discount in to account.  The govt. currently holds 80 per cent stake in the company, which will fall to 75 per cent after this offer.

Roadblock in achieving disinvestment target

   The govt. has an uphill task ahead of it of achieving the target of raising   43,000 cr in 2014-2015 through sale of stake in PSUs.  It has so far managed to raise only   1700 cr.  By divesting a 5 per cent stake in Steel Authority of India (SAIL).   Stake sales in Coal India and Oil and Natural Gas Corporation (ONGC), estimated to raise about  20,000 cr and  15000 cr, respectively, are critical to meeting the target.  The major roadblock is LIC may run out of investing capacity as premium collections are yet to gain traction this year.  In 2011-12, it had invested around  12000 cr in picking up nearly 95 per cent of shares on offer in ONGC.  The falling crude-oil price might pinch investors while investing in ONGC, an upstream oil company.   In the case of coal India, the Centre might struggle to fend off resistance from trade unions.  Flows from global investors, especially sovereign wealth funds (SWFs), is critical for any large share-sale offering.  Most SWFs belong to oil-producing countries, whose investment capabilities have taken a hit with oil prices nearly halved.  The govt. has fallen short of its disinvestment targets almost every time in the past. In the past five years, it has raised an average   20000 cr every year, half of the average Budget target of   40000 cr.

IOC is India’s biggest company

    The state-run Indian Oil Corporation (IOC)  is the country’s largest company in terms of revenue, followed by Reliance Industries and Bharat Petroleum in the second and third place respectively, according to the Fortune 500 list of Indian companies for 2014.  Indian Oil Corp. (IOC) tops the chart with an annual revenue of   5,00,973 cr. While Mukesh Ambani-led Reliance Industries Ltd’s (RIL) full-year revenue is   4,44,021 cr. Bharat Petroleum (BPCL) is at the third spot with a revenue of  2,67,718 cr.  Hindustan Petroleum’s (HPCL)  2,36,797 cr revenue earned the fourth place in the Fortune 500 list.  This list is complied by global business magazine Fortune’s Indian edition.  Others in the top 10 list include Tata Motors (5^th in the ranking, with a revenue of  ( 2,36,502 cr), State Bank of India ( 2,26,944 cr), ONGC ( 1,82,084 cr), Tata Steel ( 1,49,663 cr), Essar Oil ( 99,473 cr) and Hindalco Industries ( 89,175 cr) figure in the list in that order.

Insurance

Tihar inmates to get life insurance cover

   Inmates of Delhi’s high-security Tihar jail will soon get life and accidental insurance cover as the prison administration, in collaboration with India Bank, has decided to get their accounts opened under the Jan Dhan Yojna.  As per the scheme, the inmates will come under accidental insurance cover of  1 lakh  and a life insurance cover of  30000 even while serving their sentence.  Jan Dhan Yojna, launched by Prime Minister Narendra Modi on 28 Aug, aims at providing access to banking facilities to all the citizens of the country.  As many as 4500 convicted inmates will be made beneficiaries of the scheme with the help of India Bank, which also provides banking facility to officials and staff on the jail premises.

Investment

SoftBank largest investor in Indian-e-Com

    Japanese technology major SoftBank has become the largest investor in the Indian e-commerce segment.  With its latest investment of $90 mn in Housing-com.  Soft Bank’s overall investment in Indian e-commerce stands at about $ 1 bn.  In Oct, the company had invested $ 627 mn in Snapdeal.com, while about $ 210 mn was deployed into ANI Technologies’ taxi-booking service Ola Cabs.  In Nov. Bharti SoftBank, a joint venture between Bharti Enterprises and SoftBank Corp. acquired 36.5 per cent stake in ScoopWhoop, an India-focused media start-up, for an undisclosed amount.  It is believed SoftBank owns 30 per cent stake each in Snapdeal.com and Housing.com.  Recently, the Japanese company said it aimed to invest about $ 10 bn in India through the next few years.  SoftBank’s $ 20-mn investment in Chinese e-commerce group Alibaba in 2000 is now worth $86 bn, following the Chinese Company floating an initial public offering (IPO) in the US.  Through 10 years, Masayoshi Son, the founder of SoftBank, has increased the value of his investments from $3.3 bn to $99 bn.

FIPB clears FDI proposals

   The HDFC Bank and Ratnakar Bank (now known as RBL, Bank) on 19 Dec. got clearance from the Foreign Investment Promotion Board (FIPB)  for their respective foreign direct investment (FDI) proposals.  The HDFC bank had applied for yet another FIPB approval, this time for expanding its equity base by up to 10000 cr.  Besides, the board has also cleared Ratnakar Bank’s proposal for capital raising.  Earlier, the FIPB cleared the long-pending proposal of HDFC Bank to hike foreign holding in the bank to 74 per cent.  Banks can have up to 49 per cent foreign investment without regulatory approval but require approval from RBI and the FIPB if they want to increase the foreign investment limit to 74 per cent. While India allows FDI in most of the sectors like pharmaceutical and defence considered sensitive for the economy.

Others

GSLV Mark-III launched successfully

  The Indian Space Research Organisation (ISRO)’s first sub-orbital flight and India’s latest –generation launch vehicle- Geo-Synchronous Satellite Launch Vehicle Mark-III- was successfully launched from the Sriharikota space station near Chennai on 18 Dec.

Highlights

The vehicle also carried the Crew Module Atomospheric Re-entry Experiment (CARE). The crew module can carry up two to three astronauts and withstood a heat of around 1600 degrees Celsius while it travelled towards the surface of the Earth attracted by gravity.

During the test, the module separated from the rocket at an altitude of 126 km and re-entered Earth’s atmosphere (about 80 km from sea level).

The LVM3-X flight was powered by active S200 and L110 propulsion stages and a passive C25 stage with dummy engine.  The 630-tonne three-stage rocket carried active solid boosters, liquid core stage and a passive cryogenic engine stage.

This rocket is capable of doubling the capacity of payloads India can carry into space and it can deposit up to four-tonne class of communication satellites into space.

The cost of this experimental mission is  155 cr.

The heavy-duty cryogenic engine necessary for this rocket is still under development by ISRO and a full-fledged launch of the rocket can be expected in a few years.  Cryogenic engines use fuels like oxygen and hydrogen in liquid form  stored at extremely low temperatures to produce enormous amounts of thrust per unit mass.

ISRO plans to send two astronauts into space at some point as part of its human space flight programme.

The GSLV now needs just one more test flight to become commercially operational and enter the niche market for four-tonne satellites, currently the exclusive preserve of American space boosters and the European Space Agency’s Ariane rockets.

An operational Mk III will even give ISRO t