Content Development Team, Chennai 1 Vol -1, Issue-31

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1 FIIs CONTINUE OVERSEAS LENDING DESPITE WARNINGS Foreign institutional investors (FIIs) continue to lend stocks to overseas investors despite a warning issued by the Securities and Exchange Board of India (Sebi) and Finance Minister P. Chidambaram against such transactions. ( Business Standard Oct 27, 2008) (971) NEW VALUATION NORMS TO HIT NAV The new set of norms prescribed by the Securities and Exchange Board of India (Sebi) to value bonds may affect the net asset value (NAV) of fixed maturity plans (FMPs) and other debt funds as fund houses may be forced to mark down their holdings. Under the new method of valuing bonds, Sebi has allowed mutual funds to lower or increase the price of bonds by a greater margin. For instance, bonds with durations up to 2 years can now be priced at 150 basis points (bps) lower (earlier 50 basis points) than the Crisil valuation (a valuation matrix designed by Crisil to value bonds on a day-to-day basis). ( Business Standard Oct 27, 2008) (972) FOREX RESERVES JAB TO RESCUE INDIAN BANKS GLOBAL BIZ The committee, appointed by the finance minister to assess the liquidity situation, has said a portion of India s forex reserves aggregating $273 billion could be used to invest in securities such as bonds issued by the foreign offices of Indian banks, a source said. This will boost the resources of these banks at a time when access to lines of credit or funds from banks overseas, with whom Indian lenders have arrangements, has been severely curtailed. ( The Economic Times Oct 27, 2008) (973) ICELAND CENTRAL BANK RAISES KEY INTEREST RATE TO 18 PER CENT Iceland s central bank unexpectedly raised the benchmark interest rate to 18 per cent, the highest in at least seven years, after the island reached an aid agreement with the International Monetary Fund. ( Business Standard Oct 29, 2008) (974) LOCAL ISSUE MAY BE MUST WITH ADR/GDRs Corporate houses planning to raise capital abroad through ADR or GDR issues may soon have to offer in the Indian market a third of the incremental equity which they propose to issue overseas. The idea is to allow local investors more opportunity to participate in the Indian issuer s fortunes by way of an extra slice in its equity. The finance ministry has asked the capital market regulator Sebi to amend the scheme in this regard, it is understood. ( The Economic Times 29, 2008) (975) CRISIS TAKES SHEEN OFF LETTERS OF CREDIT The shoots of the credit crisis that has its roots in foreign shores are spreading across India s real economy. The unwillingness of foreign banks to discount suppliers invoices under letters of credit (LCs) is having a fallout on the working capital cycle of Indian commodity traders. A large south-based trader of edible oils has been unable to procure degummed soya bean oil from a South American exporter whose bank refused to discount the latter s invoice owing to a shortage of dollars. Our banker, State Bank of India, opened a letter of credit favouring the exporter, but the supplier s bank refused to discount the exporter s bill and pay him. We will now have to negotiate with another banker to get the consignment totalling 1.5-milliontonne degummed soyabean oil, said a company source. ( The Economic Times Oct 29, 2008) (976) SBI BETTERS Q2 EXPECTATIONS State Bank of India (SBI) on Monday reported a higher-than-expected net profit of Rs. 2, crore for the quarter ended September 30, up 40.23% from Rs. 1, crore in the year-ago period. The Results include the business of State Bank of Saurashtra which was merged with SBI in August 08. ( The Economic Times Oct 29, 2008) (977) RBI POLICY RATES LAST ( ) CURRENT RATES THIS ( ) BANK RATE 6.00% 6.00% EXCHANG E RATES (As On) LAST ( ) THIS ( ) REPO RATE 9.00% 8.00% 1U.S $ Rs Rs REVERSE REPO 6.00% 6.00% 1 EURO Rs Rs RBI RESERVE RATIOS 1 POUND Rs Rs CRR 6.50% 6.50% 1 YEN Rs Rs SLR 25.0% 25.0% 1 YUAN Rs Rs INTEREST RATE SPECTRUM ( ) ( ) 10 YEAR GOVT. PAPER 7.57% 7.79% CALL RATE 6.10% 13.50% PLR RANGE (TOP 5 BANKS) % % US $ LIBOR (6 MONTHS) SOURCE: RBI & BUSINESS STANDARD ( & ) Content Development Team, Chennai 1 Vol -1, Issue-31

2 ICICI REPORT FLAT NET, BEATS STREET Lower expenses helped ICICI Bank report a flat profit for the second quarter ended Sep 30, ICICI Bank reported a net profit of Rs. 1,014.2 crore against Rs.1,002.6 crore in the corresponding period of the previous quarter. However, the bank s UK subsidiary has reported a $46 million loss against a $17.2 million profit last year on the back of higher provisioning. The bank has reported a marginal drop in profit for the first half year ended September 30, 08 to Rs. 1,742.2 crore against Rs. 1,777.7 crore the previous year. ( The Economic Times Oct 29, 2008) (978) US BAILOUT HOLDS PROMISE OF LEGAL OUTSOURCING DEALS The Financial crisis in the US may open up a Y2K-like opportunity for India s legal processing outsourcing (LPO) firms. The $700 billion US treasury bailout package will mean a steady stream of ancillary work-in legal and financial analysis of the troubled assets to LPOs in India. ( The Financial Express Oct 29, 2008) (979) ARBITRAGE FUNDS BUCK NEGATIVE TREND Arbitrage funds, in the hybrid category, seem relatively untouched by the market meltdown. It is the only fund category amongst equity-linked funds that has offered positive returns, as against negative returns by most other equity-oriented schemes, over the one-year period ended October 27, 08. In fact, arbitrage funds thrive on market volatility. According to Value Research, arbitrage funds have recorded a positive return of 7.90% over the oneyear period ended October 27, 08. Compared to this, debt-oriented funds have given a negative return of 10.90%. Equity-oriented funds have also offered a negative return of 39.77% during the period. ( The Financial Express Oct 29, 2008) (980) LIC TO OPEN OFFICE IN SINGAPORE Life Insurance Corporation of India would be opening a representative office in Singapore next month. The office will initially explore opportunity for selling insurance products to people of Indian origin, said Mr. D.K. Mehrotra, Managing Director, LIC. ( The Hindu Oct 30, 2008) (981) CREDIT GUARANTEE SCHEME FOR MICRO, SMALL ENTERPRISES State Bank of India has signed a memorandum of understanding with the Credit Guarantee Fund for Micro and Small Enterprises (CGFMSE) under which the risk of providing collateral-free credit facilities to micro and small enterprises will be shared between the two. The scheme, known as the Risk Sharing Facility (RSF), aims to help micro and small enterprises access institutional finance without the hassle of providing collateral. ( The Hindu Oct 30, 2008) (982) BANKS MUST STICK TO CORE COMPETENCY Reports quoting the Finance Minister, Mr. P. Chidambaram, are a case in point. Speaking in New Delhi at a banking summit on the north-eastern States earlier this month, the Minister is reported to have said: A banker can only be a banker. If he tries to be something else, we will face the same crisis as the US and Europe are facing. ( The Hindu Oct 30, 2008) (983) HCL TECH BAGS NATIONAL INSURANCE CONTRACT Software exporter HCL Technologies Ltd has pipped larger rivals, TCS and Wipro, to clinch a large CIS (core insurance solution) implementation deal from the public sector National Insurance Company Ltd (NICL). ( The Hindu Oct 30, 2008) (984) CARD COS WARY ABOUT RISE IN STORE SWIPES Credit card transactions in the country went up by as much as 20% in September 08 compared to the previous month. Ordinarily, it would bring cheers to credit card companies. But this time, it is worrying them. Credit card companies fear significant growth in plastic money usage may eventually result in higher defaults. ( The Economic Times Oct 30, 2008) (985) BANK S Q2 CRAR DIPS WITH LENDING GROWTH Notwithstanding the global meltdown jitters, Indian banks are expanding their business in a big way. That s good news, considering the hesitation of American and European bankers to lend. However, rapid growth in advances has led to a decline in capital adequacy ratio (CAR) of several banks. A large number of them have witnessed a dip in their capital to risk weighted asset ratio (CRAR) also called CAR) for the second quarter of this fiscal compared to that of the first quarter of ( The Economic Times Oct 30, 2008) (986) Content Development Team, Chennai 2 Vol -1, Issue-31

3 STATE BANKS TO GET DEPOSIT LARGESSE FROM GOVT FIRMS State owned commercial banks are expected to garner at least Rs. 20,000 crore of additional bulkdeposits from public sector enterprises following an advisory from the finance ministry that governmentowned companies should park their surplus cash with state-controlled banks. ( Business Standard Oct 30, 2008) (987) NOW, SBI PLANS TO ROPE IN HEADHUNTERS In a departure from the usual practice of direct recruitment, State Bank of India (SBI) plans to use the services of headhunters for engaging talent for senior specialist jobs in areas such as information technology and risk management. The bank has limitation in accessing talent for specialist positions; it cannot canvass on a proactive basis. Hence, we have decided to have a panel of search firms that will help us reaching and selecting persons for assignments, a senior SBI official said. ( Business Standard Oct 30, 2008) (988) DEPOSITS GROW Rs. 1 K CR A DAY Deposits with State Bank of India (SBI) have been growing daily by Rs. 1,000 crore on an average in the last 10 days, an executive of the bank said today. ( Business Standard Oct 30, 2008) (989) WIPRO IMPLEMENTS PEOPLE SOFT IN J&K BANK Wipro InfoTech, the IT business arm of Wipro Ltd, has announced that it has implemented Oracle s People soft Enterprise Human Capital Management 9.0 for Jammu and Kashmir Bank. It will help streamline the HR management of the bank which has an employee strength of more than 8,000. ( The Hindu Oct 31, 2008) (990) FEW INSURANCE PLANS FOR WOMEN Women, in India, have little option when it comes to taking an insurance cover. As a matter of fact, in a country with 930 women per 1,000 men, Bajaj Allianz is the only company which offers insurance policies exclusively designed for women. ( The Hindu Oct 31, 2008) (991) INSURERS MOVE INTO T-BILLS, CERTIFICATES OF DEPOSITS With the downturn in the equity market, insurance companies have shifted investments to certificates of deposits and short-term Treasury bills. Industry sources said that the pull-out from equities was short-term measure and stemmed from fears of depreciation in investments. They said the preference was more CDs that offered coupons of close to 12 per cent. ( The Hindu Oct 31, 2008) (992) KARUR VYSYA BANK, SME RATING AGENCY TIE UP Karur Vysya Bank (KVB) has signed a memorandum of understanding (MOU) with SME Rating Agency of India Ltd (Smera). The MOU proposes co-operation between the two institutions in the area of SME financing by leveraging the strengths of both the organizations. Smera will provide external credit rating by taking into account the financial position and qualitative factors that have a bearing on the credit worthiness of the SME. ( Business Standard Oct 31, 2008) (993) BANKS MAY BE FREED OF MSS BONDING In what could prove to be a bigger liquidity booster than the 2.5% cut in the cash reserve ratio, the government is considering converting funds impounded under the market stabilisation scheme (MSS) into regular government borrowing. This would result in banks being free to lend money that they would have otherwise used to lend to the government. ( The Economic Times Oct 31, 2008) (994) MARGIN MONEY FOR HOME LOAN NOW TOUCHES 40% Banks have started increasing the margin money required for taking a home loan following the stress in the real estate markets. Banks want to ensure that even if prices declined sharply, the remaining value of the house is enough to cover the loan should the borrower default. Many banks have recently increased the margin money by 5-25 percentage points depending on the amount borrowed. The country s largest lender State Bank of India (SBI), for instance, now prescribes margin money of 25% for loans upto Rs. 30 lakh against the requirement of 20% earlier. ( The Economic Times Oct 31, 2008) (995) INVEST UNCLAIMED DEPOSITS TO EARN BETTER RETURNS, PANEL TELLS EPFO The Parliamentary standing committee on Labour has asked the Employee s Provident Fund Organisation (EPFO) to invest part of its huge unclaimed deposits to earn better returns for workers under its coverage. As per EPFO data, the balances in inoperative EPF accounts stood at Rs. 1, crore in March 2007, but existing provisions do not allow unclaimed amounts to be invested. ( The Financial Express Oct 31, 2008) (996) Content Development Team, Chennai 3 Vol -1, Issue-31

4 NO RELIEF IN SIGHT FOR NBFCs On Wednesday, the Reserve Bank of India allowed non-banking financial companies (NBFCs) to raise funds by issuing perpetual debt instruments that can be included in their Tier-I capital. But market players and analysts feel this is unlikely to help NBFCs brimming cup of woes. Who will give them perpetual debt now? asked Axis Bank economist Saugata Bhattacharya. ( The Financial Express Oct 31, 2008) (997) S&P OUTLOOK ON INDIA S LONG-TERM RATING REMAINS STABLE International ratings agency Standard and Poor s affirmed its BBB- long-term and A-3 short-term sovereign credit ratings on India. The outlook on the long-term rating remains stable. ( The Hindu Nov 1, 2008) (998) NBFCs CAN RAISE SHORT-TERM FOREIGN CURRENCY LOANS Non-Banking Financial Companies (NBFCs) have been allowed to raise short-term foreign currency loans to help them meet their short-term liabilities. NBFC can borrow up to 50 per cent of their Net Owned Funds or $10 million (or its equivalent), whichever is higher for a maximum period of three years. The all-in-cost ceiling should not exceed 6 months Libor+200 bps (for the respective currency of borrowing) or applicable benchmark. ( The Hindu Nov 1, 2008) (999) CALL RATES AT 3-S HIGH Call rates rose to a three-week high of Friday after outflows towards treasury bills drained cash from the system, even as banks stepped up borrowing ahead of fresh bond supplies due later in the day. At 2:30 p.m. overnight call money quoted at 20.00/21.00 per cent, a level last seen on October 10 when it rose to 23 per cent. There is a huge shortage of liquidity again, the market is now waiting for the central bank to cut rates again, a dealer with a private bank said. ( The Hindu Nov 1, 2008) (1000) DEBT FUNDS EXTEND NFO PERIOD, IMPOSE EXIT LOAD Stung by redemption pressure as well as questions over the transparency with regard to their holdings, mutual funds are now finding it hard to raise money through fixed maturity plans (FMPs). At least three fund houses Franklin Templeton Mutual Fund, Kotak Mutual Fund and Taurus Mutual Fund have extended the new fund offer (NFO) period for their fixed maturity plans (FMPs) in the last few days. ( Business Standard Nov 1, 2008) (1001) GOVT TO RAISE LIC s PAID-UP CAPITAL TO Rs 100 CR The Union Cabinet today approved a proposal to table a Bill in Parliament to increase the paid-up capital of state-run Life Insurance Corporation (LIC) from Rs. 5 crore to Rs. 100 crore to bring it capital structure on a par with other players. ( Business Standard Nov 1, 2008) (1002) NO CORRECTION IN GDP FORECAST: FM Finance minister P. Chidambaram has said that India s growth rate forecast of 7.5% will not be revised downward even if the economic scenario in the US and Europe worsens. The global slowdown has been factored into the Reserve Bank of India s FY09 growth forecast of 7.5%, he said. India is a domestic consumption and investment driven market where the contribution of exports to the growth is not as big as China s. ( The Economic Times Nov 1, 2008) (1003) GOVT GIVES NOD FOR UCO BANK CAPITAL REVAMP The government has given its go-ahead to capital restructuring of UCO Bank. UCO Bank has equity capital of Rs crore, the highest among all the listed public sector banks. The reduction in the pure equity capital will improve the EPS and other financial so that the bank will have more attractive capital structure, Finance Minister P. Chidambaram told reporters on Friday. ( The Economic Times Nov 1, 2008) (1004) LVB REPROTS 29% RISE IN NET PROFIT Karur-based Lakshmi Vilas Bank (LVB) has reported a 28.86% year-on-year increase in net profit at Rs crore for the quarter ended September 2008 against Rs crore a year back. The operating profit for the quarter has gone up to Rs crore 18.72% higher than the same period in ( The Economic Times Nov 1, 2008) (1005) Content Development Team, Chennai 4 Vol -1, Issue-31

5 INSURERS CHEER GOVT DECISION TO HIKE FDI The Insurance (Amendment) Bill 2008, okayed by the Union Cabinet, seeks to increase the foreign direct investment (FDI) cap in private sector life and non-life insurance companies from 26% to 49%. Though the bill itself will be tabled only in December, industry officials have cheered the decision and said it is a step in the right direction. ( The Economic Times Nov 1, 2008) (1006) STAN CHART LINING UP INDIA S FIRST IDR ISSUE British bank Standard Chartered has started preparing for an Indian depository receipts (IDRs) offering. The bank has hired investment bankers for the issue, which is slated for the second quarter of next year. Sources said that the group is looking at an offering of $1 billion. However, a final decision will depend on certain regulatory approvals and market conditions. ( The Economic Times Nov 1, 2008) (1007) RBI CUTS CRR & SLR BY 1% EACH Citing evident signs of a global recession, the Reserve Bank of India has opened the sluice gates further making available close to Rs. 1,60,000 cr to banks for on lending. Repo rate cut by 50bps to 7.5% CRR cut 1% to 5.5% New 7.5% 90-day refinance window for banks Banks can borrow longer term money from RBI at a cheap rate RBI to lend to banks against gilts for on lending to MFs Banks allowed special line of credit against gilts to fund NBFCs. ( The Economic Times Nov 2, 2008) (1012) CHOLA DBS GETS RBI NOD FOR $50M ECB Cholamandalam DBS has received the approval of the Reserve Bank of India to raise $50 million (Rs 225 crore) via external commercial borrowings. The company is the first Non Banking Finance Company to get the regulator s nod for an ECB after about half a decade of ban on NBFCs raising funds from abroad. ( The Hindu Nov 2, 2008) (1008) FOREIGN LAW FIRMS SET TO OPERATE IN INDIA: CJI Foreign law firms would soon be allowed to operate from India and the Bar Council shall not be able to resist their entry, says Chief Justice of India K G Balakrishnan. ( The Financial Express Nov 2, 2008) (1009) SEBI REVISES SLB GUIDELINES Capital market regulator, Sebi, has revised the Securities Lending and Borrowing (SLB) system in an effort to get the stock lending and borrowing mechanism in the local markets more functional. The tenure of borrowing and lending contract has been increased to 30 days from the present seven days. ( The Economic Times Nov 2, 2008) (1010) CITIGROUP LOSES $1. BLN Citigroup Inc lost $1.4 billion from packaging credit card loans into bonds in the third quarter, a regulatory filing showed on Friday. The loss reflects in part the worsening performance of credit card loans as the US economy deteriorates. ( The Economic Times Nov 2, 2008) (1011) Content Development Team, Chennai 5 Vol -1, Issue-31