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 and outflows.

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 liquidity ratio.

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.

RBI’s 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 net profit.
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RBI may impose money market limits
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 policy.

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 RBI’s 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 stiff norms
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 oversubscribed
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 autonomous
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 Mount Banking
Mumbai: Standard Chartered Bank has apologised to the UK’s 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 UK’s banking tribunal stating that StanChart’s 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 centres
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 retail division
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 projects
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 million.

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: Sweden’s SEB will buy German BfG Bank AG for $1.7 billion. This will help SEB expand in northern Europe. SEB’s 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 areas.

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 go up
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 transport strike
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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