CRR - The cash
reserve ratio has been reduced to nine per cent, a reduction of one percentage point. This
is a clear indication from the RBI that it wants interest rates to climb further down.
Banks have been exempted from adhering to the cash reserve ratio requirements for deposits
collected through the foreign currency non-resident (FCNR) scheme. These two measures will
release around Rs.8,060 crore worth liquidity into the system
Interest rates - The 30
per cent interest rate surcharge on import finance has been done away with. The RBI has
also removed the 20 per cent minimum interest rate limit on export bills that are overdue.
Banks are now free to charge interest on overdue bills as they wish to. Banks will also be
allowed to lend below their prime lending rates in a few sectors.
Mutual Funds - Mutual
funds have been allowed to conduct interest rate swap and forward rate agreement
operations with banks, financial institutions and primary dealers. The money market mutual
funds will come under the purview of the Securities and Exchange Board of India. Banks
that set up money market mutual funds have to set up a separate trust.
Gilt and income funds of mutual funds can
now take advantage of the cheque writing facility. Thus, mutual funds can now almost
compete with commercial banks for deposits.
FDI - Henceforth,
companies that raise funds or issue shares to foreign collaborators through the automatic
approval mechanism, need not seek RBI permission.
Infrastructure - The priority
sector limit for housing loans in urban areas and the metros has been increased to Rs.10
lakhs from Rs.5 lakhs. Investments made in National Housing Bank and Hudco bonds will be
treated as priority sector loans.
Y2K - Banks will
be provided with liquidity support for tackling the Y2K problem. Foreign banks have also
been granted permission to bring in funds from their parents, provided these funds are
repatriated between the period 1 December 1999 and 31 January 2000.
FCNR(B) - The minimum
tenure for foreign currency non-resident (B) deposits has been increased to one year from
the current six months. The RBI has thus indicated that it discourages short term inflows
Risk weightage - Banks
have been asked to provide an additional 2.5 per cent on investments made in all
securities, as a cover for the market risk undertaken. This 2.5 per cent will be
applicable to all investments, including those made in securities outside the statutory
First impression - In an immediate
feedback to the Reserve Bank of India announcements, bankers felt that a reduction in
interest rates was a little too premature. State Bank of India, which has been
historically the benchmark-fixer in the Indian banking industry, has said that it will not
reduce its prime lending rates. Currently, the PLR of SBI stands at 12 per cent. Bank of
Baroda and Bank of India have also shown disinterest in reducing their PLRs.
The six-month forward premium in the
foreign exchange market slipped to 5.2 per cent on 29 October 1999 from the closing of
5.47 per cent on 28 October 1999. The three-month forward premium dropped to 4.87 per cent
from 5.38 per cent, while the one year forward premium slided to 5.31 per cent from 5.49
per cent. The general view is that for a cut in the cash reserve ratio by one per cent,
the forward premia should go down by about 30 paise.
In the gilt markets, the government
securities prices went up by a few paise. If call rates go down, as it is expected, there
would be a fall in the yield on gilt-edged securities in the secondary market.
Bankers and financial institutions are
confused as to 2.5 per cent risk weightage provision that has been announced on
investments made in all securities.
findings - The RBI feels that though interest
rates should ease, banks may not be in a position to slash their lending rates. It is also
worried about the rising oil prices internationally and the low exports performance.
It has brought down the expected GDP
growth rate range for the year 1999-2000 to 6-6.5 per cent from the 6-7 per cent that was
projected earlier. It is to be noted here that the Central Statistical Organisation has
estimated GDP to grow by around 5.8 for the year 1999-2000.
The RBI is of the view that industrial and
agricultural production will be higher during 1999-2000 than in the previous years.
The annual money supply growth also called
M3, has gone down to 16 per cent from 21.1 per cent during same period during the last
year. The RBI says that there has been a good growth in bank credit. Non-food credit has
grown by 4.2 per cent as compared to the 2.6 per cent in 1998-99.
On the inflation front the RBI has reduced
its expectations to 4.8 per cent from the earlier range of 5 to 6 per cent.
The current account deficit is also
expected to remain below 2 per cent of GDP in spite of an increase in oil prices.
The index of industrial production has
gone up by six per cent, mainly on account of the performance of the manufacturing sector.
The rise in credit off-take has also been attributed to the higher industrial production.
Insurance cos to provide
product details: IRDA
New Delhi: Private insurance companies will be required to provide their
launch and product details to the Insurance Regulatory and Development Authority (IRDA).
The rates fixed by the private operators
will be controlled by the Tariff Advisory Committee, under the IRDA.
Upon filing an application, the IRDA will
send its set of queries to the insurance companies within 30 days. If companies are not
contacted within 30 days, they can proceed with their launch.
Govt. introduces two bills
New Delhi: The government introduced the insurance bill and the
amendments to the Securities Contracts (Regulation) Act, 1956 (SCRA) that will open up the
insurance sector and permit derivatives trading in the Indian markets respectively.
The Samajwadi Party, the Rashtriya Janata
Dal and the Left have dubbed the Insurance Bill as anti-national.
More than 200,000 insurance personnel
throughout the country will strike work today (29 October 1999) protesting against the
privatisation of the insurance sector.
Minimum capital norms for
LIC, GIC wings
New Delhi: Within six months of the ratification of the Insurance
Regulatory and Development Authority Bill, the Life Insurance Corporation and arms of the
General Insurance Corporation will have to increase their minimum capital base to Rs.100
crore. The Rs.100 crore capital limit is the same as that fixed for the new entrants into
the private sector.
SBI net down
Mumbai: The State Bank of India has reported a drop in net profit of
around 18 per cent to Rs.702.4 crore during the first half of the fiscal year 1999-2000.
During the corresponding period in the previous year, the net profit was Rs.857.7 crore.
Interest income and other income have gone
up by 19.5 per cent and 10.2 per cent respectively. For the half year-ended September
1999, the interest income was Rs.10,507.3 crore while other income was Rs.1,610.4 crore.
Interest expenses and operating expenses
grew by 25.1 per cent and 11.1 per cent respectively. The public sector major managed to
post an operating profit of Rs.1,745.4 crore for the half-year ended September 1999 which
is a growth of 4 per cent from the corresponding period in the previous year.
The bank has stated that the decision to
make a larger-than-required provision for non-performing assets has caused a drop in the
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RBI may impose money market
Mumbai: The Reserve Bank of India may set limits on the overnight
inter-bank borrowings. This may be done when the RBI reviews the credit and monetary
Such limits, it is felt, would control
volatility in the money market and thus reduce the risk of perennial borrowers.
Meanwhile, the RBI may introduce new forms
of funding for primary dealers. This is because almost all of RBIs Rs.14,252 crore
credit to the commercial sector has been through refinancing by the primary dealers.
HDFC in search on CEO for MF
Mumbai: Housing Development and Finance Corporation is looking for chief
executive officer to head its mutual fund venture. Though the chief investment officer and
back office employees will be transferred from HDFC, the CEO will be an outsider.
Milind Barve, general manager, treasury at
HDFC in now in charge of the mutual fund venture. But, because of his indispensability at
HDFC, he is not being made the CEO of the mutual fund.
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Private insurance firms face
New Delhi: The Insurance Bill, when passed, will contain tough solvency
margins, maximum foreign equity limits and mandatory rural exposure norms.
For life, general and re-insurance
companies, a maximum limit of 26 per cent will be allowed as foreign equity. The Indian
promoter, should initially hold a minimum 74 per cent stake and will have to bring it down
to 26 per cent in ten years.
The minimum capital base for life and
general insurance has been fixed at Rs.100 crore while for re-insurance it has been fixed
at Rs.200 crore.
Private sector insurance firms will be
compulsorily made to conduct business in rural areas. The exact ratio of such business to
the total will be announced soon by the Insurance Development and Regulatory Authority.
Solvency margin, which is the excess of
assets over liabilities, should be maintained by life and general insurers to the extent
of Rs.50 crore, while for re-insurers, it is Rs.100 crore.
Syndicate Bank issue
New Delhi: The public sector Syndicate Bank, which had opened its maiden
public issue on 25 October 1999, has met with an over-subscription of about two times the
issue size of Rs.125 crore. The issue will be open until 30 October 1999.
The bank will use the issue proceeds to
strengthen its capital base and increase long term resources.
Corporation Bank profit up
Mumbai: The net profit of Corporation Bank has increased to Rs.111.7
crore for the first half of the financial year 1999-2000, from the Rs.106.7 crore recorded
during the corresponding period last year. Total income for the first half of the current
fiscal stood at Rs.907.9 crore, up 26.5 per cent from last year.
On 14 January 2000, the bank will launch a
gold deposit scheme with a three to seven year maturity period and a minimum gold deposit
requirement of 500 gm. The bank plans to bring down the average cost of deposits to 8.5
per cent by the end of the financial year 2000 from the current 8.9 per cent.
SBH likely to become
Hyderabad: The State Bank of Hyderabad may become autonomous since it has
passed the four eligibility criteria laid down by the ministry of finance. The parameters
specified by the ministry of finance include a capital adequacy ratio of more than 8 per
cent, net owned funds of over Rs.100 crore, net non-performing assets of less than 9 per
cent and a three-year net profit track record.
SBH has a capital adequacy ratio of 10.65
per cent, net owned funds of Rs.496 crore, net non-performing assets of 8.78 per cent and
has been having a 30-year net profit track record.
SBI cuts board size
Mumbai: The State Bank of India has removed the nominated and elected
board of directors who have completed six years from the local boards. This follows an
amendment made to the SBI Act.
Local boards oversee each of the 13
circles in SBI, and include chief general managers and general managers of the bank.
StanChart apologises to
Mumbai: Standard Chartered Bank has apologised to the UKs Mount
Banking Corporation and its owners, the Kenya-based Suresh Shah and Navin Shah for having
accused the latter of money laundering during the 1992 securities scam in India.
The apology follows the UKs banking
tribunal stating that StanCharts allegations were not proved as there was no
evidence. StanChart has also made a donation to a charitable trust in Kenya.
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Banks asked to form Y2K
Mumbai: The Reserve Bank of India has asked banks to set up Y2K
information centres that will provide information relating to Y2K problems and their
resolution during the period December 1999 to March 2000. Banks are expected to set up
such centres by 15 December 1999.
ABN-Amro takes over BankAm
New Delhi: Dutch bank ABN Amro has completed the takeover of the Indian
retail division of Bank of America. ABN says that it is looking for further takeovers.
ABN Amro has taken over around 250
employees and 1,00,000 retail customers of BankAm. The Dutch bank has taken over Bank of
America 's retail divisions in Taiwan, India and Singapore at a cost of $200 million.
IFC to invest in power
Hyderabad: The International Finance Corporation will invest $9 million
in a 28 megawatt power co-generation project developed by Astha Power Corporation. The
total project cost is $25.8 million and will be located in Pashamylaram, near Hyderabad.
IFC has signed an agreement to this effect
with Astha Power. The power generated will be transmitted by the Transmission Corporation
of Andhra Pradesh. IFC will invest through $1.9 million equity and provide a loan of $7.1
M&A advisory services
tie-up in Japan likely
Tokyo: Japan's Bank of Tokyo-Mitsubishi and Lehman Brothers of the US are
likely to join hands in advising the Japanese companies that are entering into mergers and
acquisition deals. The tie-up is likely to fructify by mid-November 1999.
SEB to buy BfG Bank
Stockholm: Swedens SEB will buy German BfG Bank AG for $1.7
billion. This will help SEB expand in northern Europe. SEBs total assets under
management go up to $13.5 billion after the deal.
BfG went up for sale when the European
Commission asked Credit Lyonnais to sell 50 per cent of its stake in the former.
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Rural areas not to
be ignored: IRDA
New Delhi: The Insurance Regulatory and Development Authority has said
that private sector insurance players will be compulsorily made to conduct business in
rural areas. The IRDA will issue minimum exposure norms for the private sector in rural
The private sector insurance
applicants will be issued licences only when the IRDA is satisfied with the rural area
business plans spelt out by the applicants.
Automatic FDI list
New Delhi: The automatic approval list for foreign direct investment is
likely to be expanded to include retail chain stores and retailing of imported cars. By 31
December 1999, dividend balancing, an issue widely talked about by foreign investors, is
likely to be removed, as per a commitment given to the World Trade Organisation.
Non-banking finance companies may
get exemption from capitalisation norms for fee-based activities.
MTNL revokes links
New Delhi: The basic telephone services operator in New Delhi and Mumbai,
Mahanagar Telephone Nigam Ltd., has cancelled the interconnect links it had given to
cellular operators Hutchison Max, BPL Mobile and Bharti Telecom. The public sector
MTNL says that the decision was taken as the three companies had not paid security
deposits to MTNL for inter-connection.
The cellular operators will
henceforth be disallowed from routing cellular calls to the MTNL network, once the latter
gets permission to delink from the communications ministry.
Little impact of
New Delhi: The transport strike called by the All India Motor Transport
Congress has weakened as some sections of the organisation are willing to withdraw from
the strike. The government has refused to give in to the transporters' demand of a
roll-back of diesel prices since a diesel price hike was long overdue. The oil pool
deficit has widened due to the firming up of international oil prices.
HDFC to be 74:26
partner in MF foray
Mumbai: The Housing Development Finance Corporation may offer a 26 per
cent stake to Standard Life, the UK-based life insurance company, in a mutual fund joint
venture. The rest of the 74 per cent stake will be held by HDFC.
According to a report in the Business
Standard, Deepak Satwalekar, managing director, HDFC, has said that a final decision
is yet to be taken on the issue.
Currently, HDFC is advisor to two
offshore funds with a corpus of more than $70 million.
SBI plea rejected
Calcutta: The Calcutta High Court has ruled that all shareholders of the
State Bank of India will be eligible to vote from 1 January 2000, notwithstanding the fact
that they hold 50 shares or less. A minority shareholder had earlier filed a petition in
the Calcutta High Court arguing that he should be eligible to vote. But the SBI had asked
for a stay in the proceedings.
The SBI has 8.69 lakh
shareholders, of whom 61,395 held less than 50 shares as of August 1998.
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