HDFC Bank's proposal and FIPB's Take

FIPB to decide on HDFC Bank proposal to increase foreign investment limit

 HDFC Bank's fresh proposal seeking enhancement of foreign investmentlimit in the country's second largest private lender is likely to be taken up by the Foreign Investment Promotion Board on October 1. 

The interministerial body's decision on the proposal is very significant for the bank that is now looking to come out with a rights offer for its existing shareholders. "FIPB could take it up in the next meeting," said a government official privy to the development. 

In December last year the Reserve Bank of India had stopped further foreign purchase of HDFC Bank's shares, saying overall foreign shareholding limit of 49% had been reached.

As a result of the ban, the bank's share has underperformed the sector benchmark - against a 54% gain by the Bank Nifty over the past year, HDFC Bank's shares have risen only 33% during the period. 

HDFC Bank had subsequently moved a proposal to seek an increase in the foreign investment limit to 67.55% from 49% but the proposal hit a wall after the Reserve Bank of India, the department of industrial policy and promotion (DIPP) and the department of economic affairs in the finance ministry said that the bank had already breached 74% cap for banking sector. 

All the key authorities had held that its parent housing finance major HDFC's stake in the bank would be considered foreign investment as per a policy change in 2009.

According to a 2009 FDI policy guideline for calculation of foreign investment, any investment by a company in which foreign investors have majority ownership or control is considered foreign investment. Since HDFC has more than 50% foreign investment and qualifies as foreign-owned all the downstream investment it makes is classified as foreign. This implies foreign investment tag for its 22.64% in HDFC Bank. 

Counting this, the total foreign investment in the bank is about 74%, the maximum allowed. Keen to end the uncertainty, HDFC Bank submitted a fresh proposal with adequate changes even before FIPB could take a call on its original proposal. 

The new proposal submitted in August has sought recognition of its existing foreign investment of up to 74%. 

Foreign investments - which include FDI, foreign institutional investment, shares owned by non-resident Indians, foreign currency convertible bonds and convertible preference shares, and ADRs/GDRs - up to 49% in private banks are allowed through the automatic route but any subsequent increase has to be approved by the FIPB. 

HDFC Bank, which went beyond the automatic limit without FIPB's permission, is therefore seeking approval to regularise its move now. 

However, experts say it is unclear whether FIPB will choose to impose 'compounding', or a penalty for violation of foreign investment norms since the breach was a result of a policy change even though the bank had adequate time to meet the new norm. 

VODAFONE AFFAIR

It's not easy to do business in India: Vodafone Group CEO Vittorio Colao

  Vodafone Group CEO Vittorio Colao said the new government had good intentions but needs to overcome bureaucratic delays, take quick decisions and make available enough resources such as spectrum to spur investments. Colao said the company's board would take a decision on increasing its investment inIndia in two week's time. "Do I see this government as a pro-business government, absolutely yes. But, I go around many countries...there are some good intentions, but then the issue is implementation. Therefore, it is very important that India capitalises," Colao, the global head of the world's largest telecom operator, said after unveiling Vodafone India's fourth annual sustainability report. He added it isn't easy to do business in India. "It's complicated, too many relations, too many people can have a say, too many people can block."

He said he would love to list Vodafone India, but the conditions had to be right. "Currently there are lots of complexities or uncertainties."

Vodafone India head Marten Pieters said the next round of spectrum auctions was critical for the company's India growth plans. "Our business has been put up for sale, so anyone can bid for our business."

He explained that in the seven circles where the company's permits expire by March 2016, Vodafone India doesn't have the fallback option of airwaves in another band that it had in the case of the metros where its spectrum was auctioned in February.

"If we don't get spectrum (in the seven circles), we simply have to close down our business because we don't have the fallback option. An IPO today wouldn't really be a realistic option." India's No. 2 carrier is also in the midst of an arbitration to resolve a long-standing .Rs 20,000-crore tax dispute with the Indian government — a result of the retrospective tax amendment of 2012 brought about by the then UPA-I government.

Colao claimed the retrospective issue had backfired on the Indian government. "Was I surprised at the international backlash post the retrospective taxation, I was not surprised. Has this really backfired on India, the answer is yes. This was such an extraordinary thing. I wasn't surprised when India's public image suffered," Colao said. He described the arbitration process to resolve the dispute a "civilised" one but hinted that the company was open to a settlement outside it. "Anything can be done, and nothing can be ruled out."

The Vodafone CEO did not specifically comment on media reports of a possible acquisition of the Tatas' telecom business but said the company was open to consolidation opportunities. Other issues which add to the regulatory uncertainty for Vodafone include lack of clarity on issues such as mergers and acquisitions, and guidelines on spectrum trading and sharing — recommended some months back by the sector regulator but which are yet to be cleared by the telecom department. "We have been discussing M&A rules for may be 4-5 years now," Colao said.

"The government needs to understand that fewer and larger players are better and this pattern is unfolding all over the world." Despite the regulatory uncertainties and the tax issue, Vodafone is betting big on India, which is currently its thirdlargest market, but could soon become the second largest after Germany, given the pace of growth. "We have two hearts — one is Germany and the other is India, provided I am the brain." Showing commitment towards India, Vodafone recently bought out its minority partners to raise its stake to a 100% in its Indian unit. It has invested some .Rs 70,000 crore in the country so far. Speaking on the new government's telecom initiatives, Colao said he applauded the government's Digital India project.

Source : Economics Times

COAL BLOCKS & BANK EXPOSURE

Banks with Rs 1 lakh crore exposure sitting on mine of worries 

The mass cancellation of coal blocks by the Supreme Court has sent banks in a jittery mode as they have extended over Rs 1 lakh crore loans to power plants that were fed by these mines. 

Almost all banks including country's largest lender State Bank of IndiaBSE -2.83 % and private sector ICICI BankBSE -2.89 % have lent to power plants that were put up based on coal from 214 coal blocks alloted since 1993. 

While none of the bankers were willing to go on record on the impact of the Supreme Court ruling, sources said the lenders were assessing their exposure to the cancelled mines. 

"We are glad that this is over with the SC verdict on coal blocks allocation. We now look forward for a quick plan of action for ensuring that coal supplies are not disrupted and thereafter a swift and transparent bidding process for reallocation," SBI Chairperson Arundhati Bhattacharya said. 

Earlier this month she had said: "for SBI, the exposure is only around Rs 4,000 crore, most of which are lent to power units which have fuel linkages with the affected coal blocks." 

According to estimates, another public sector lender IDBI BankBSE -7.70 % has an exposure of Rs 2,000 crore. 

Commenting on Supreme Court judgement, Yes Bank Managing Director Rana Kapoorsaid the exposure of his bank is minimal. 

"As the the court has said that coal supply would be maintained to the power plants, therefore there would not be too much of an adverse impact on banks," he said. 

Risks of banks are well diversified and fairly well spread, he added. 

Bank of BarodaBSE -2.26 % Executive Director Rajan Dhawan said the bank is still making assessment of the exposure to the coal blocks. 

ICICI Bank and HDFC BankBSE 0.25 % when contacted said they are still assessing the impact of the judgement. 

A bench, headed by Chief Justice R M Lodha, quashed allocation of 214 out of 218 coal blocks which were alloted to various companies since 1993. The four blocks saved from cancellations are one each to NTPCBSE -1.09 % and SAIL and two mines allocated to Ultra Mega Power Projects. 

The bench, also comprising justices Madan B Lokur and Kurian Joseph, granted six months breathing time to mining companies to wind up their operations in the coal blocks.

Source: Economic Times

COAL BLOCK CANCELLATION - Impact on Economy!

Supreme Court ruling on coal blocks likely to hit economy

The Supreme Court's mass cancellation of coal block licences will cause serious supply disruptions and accentuate the power crisis, and is likely to impact the economy by jeopardising investments in the sector, India Inc said today.

"The decision taken by the Supreme Courtto cancel all but four coal blocks is likely to adversely impact the domestic coal supplies in the country and will erode investor confidence," CII President Ajay Shriram said.

Currently, about 42 blocks are producing coal to the tune of 53 million tonnes and account for 10 per cent of the total coal supplied in the country.

"This judgement will lead to serious supply disruptions as mining from these blocks will be hampered, further exacerbating the coal shortages in the country. Any disruption in the coal supplies will accentuate power crisis and force higher imports impacting the current account deficit," Shriram said.

Terming the Supreme Court's ruling cancelling 214 coal blocks as "a bit harsh", Assocham President Rana Kapoor said: "Our main concern is on the kind of negative impact on the economy which has just been showing signs of recovery after over two years of slowdown".

"Being largely dependent on the thermal power, it is the coal which fires the economic growth, which will be halted, besides, the dependence on coal imports will increase," he added.

In a blow to the corporate sector, the Supreme Court today quashed allocation of 214 out of 218 coal blocks which were alloted to various companies since 1993.

"While the judgement may have been intended to bring in transparency, it will jeopardise the investments made in the sector. It will raise questions on sanctity of government policies impacting the investment climate. The government will need to expedite reallocating the cancelled producing blocks so that production is not affected in the short term," Shriram said.

"The court's decision has created uncertainty and is likely to impact key sectors including power, steel and mining. In particular, given that the power sector is the largest consumer of coal in India (coal-based power generation accounts for 2/3rd of India's electricity mix), this development is likely to exacerbate the shortage of fuel for the power sector," he added.

According to CII, acute fuel shortages are already impacting the power sector and currently close to 80 million tonnes of coal is being imported to meet the sector's requirements.

"Another sector that will be impacted by this ruling is the financial sector as the exposure of public sector banks to the power and steel sectors is considerable. In fact, banks account for over 60 per cent of the overall investments in these blocks," Shriram said.

Ficci President Sidharth Birla said: "The cancellation of coal blocks involves significant investments and will obviously impact the economy and investment climate, therefore a quick response from Government will help allay the apprehensions".

"I am hopeful that this decision would act as a precursor to review of coal sector policy paving way for full-fledged coal reforms starting with amendment in Coal Mines Nationalisation Act, 1973 and Mine Minerals (Development and Regulation) Act, 1957 to facilitate entry of private entities in coal exploration and mining," he added.

Source: EconomicsTimes

Developing nations need more time to tackle climate change: Environment Minister Prakash Javadekar

NEW DELHI: India has made it clear that the global climate compact cannot ignore the fact that developing countries need more time, financial and technological support to deal with climate change.

It stressed that the industrialised countries, responsible for the bulk of the global warming, should lead by example. New Delhi has asked industrialised countries to do more to reduce emissions, improve the flow of funds and technology in the pre-2020 period "with a view to setting the ambit .. 

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CLIMATE & DEVELOPING ECONOMIES

End of the World is Not Nigh, Not by a Long Shot

By Bjørn Lomborg

UN secretary general Ban Ki-moon gathered the heads of government from more than 125 countries for a climate summit yesterday “to make climate change a top priority for all leaders”. Of the world’s many ills, he unequivocally finds that “top of the priority list is climate change”.

While it is important to find smart solutions to the real problem of global warming, claiming “top of the priority list is climate change” is misplaced. Perhaps that was why Indian Prime Minister Narendra Modi, Chinese President Xi Jinping and German Chancellor Angela Merkel declined the invitation.

Moreover, the UN already knows the world doesn’t place global warming first. With its outreach programme, The World We Want, almost five million people from every nation say the top priorities are better education and healthcare, less corruption, more jobs and affordable food. At the very last place, as priority number 17, comes global warming.

Is this surprising? If you’re Samson Banda from Zaire, having been sick from malaria for six months and faced with appalling healthcare, your priority is health. As he says, “If I die from malaria tomorrow, why should I care about global warming?”

This is also true for India, whose 9,00,000 voters in the UN poll rank global warming second last, recognising there are many and more important things to fix. Even Europeans, with the world’s strongest climate policies, rank global warming 10th.

Yet, politicians use catastrophic alarmism to bolster the claim that climate is our ‘generational mission’. Christiana Figueres, the UN climate chief, tells us that we should focus more on global warming because of the “increase in the frequency and intensity of natural events and disasters”. Yet, this is simply wrong.

If we look at the total cost of weatherand climate-related disaster costs, the UN Climate Panel finds it is only increasing because of more people with more wealth. When normalised for this, the long-term trends “have not been attributed to natural or anthropogenic climate change”. If we want fewer future disasters, we should focus on better policies, better warnings and better adaptation.

In an analysis of climate communication, the University College of London found that appeals to fear are ineffective and often lead to a suspicion that “they are trying to manipulate me”. Remember, in 2007, when Al Gore told us in his Nobel speech that the North Polar ice cap is “falling off a cliff” and it could be gone in “as little as seven years. Seven years from now.” That is now. Arctic ice shows a longterm decline, but from the low point in 2012, it has actually increased 47%.

Ban Ki-moon declares that climate poses “sweeping risks” while we’re heading towards a “cataclysm”. Yet, the UN Climate Panel finds the total cost of climate change by the 2070s is less than 2% of GDP. This is a problem, but not the end of the world.

Weigh the 2% loss to the 800% richer the UN expects the world to be in 2070. Yet, well-meaning western leaders descended on New York yesterday to reiterate the solution to global warming that has failed for more than two decades: we must switch to renewables.

This is hypocritical. According to the International Energy Agency, the rich world gets just 8% of its energy from renewables and 0.9% from solar and wind. Africa gets almost 50% from renewables, but that is because it is poor. The renewables are mostly wood that kills more than half a million a year with indoor pollution and have women waste 10 hours collecting firewood each week. Even the climate-worried World Bank president accepted that “there’s never been a country that has developed with intermittent power”.

This does not mean we shouldn’t tackle global warming. But we need to realise renewables are still too expensive. Instead of wasting billions in current subsidies, we should invest much more in green innovation to reduce the cost of future generations of clean energy. When we innovate the price of green energy below fossil fuels, everyone will switch.

But in a world where four million die each year from burning renewable wood and dung in open fires inside, while poverty, lack of clean water, infectious diseases, poor education and too little food afflict billions, we cannot with a straight face claim that climate should be our top priority.

ABG Acquiring EDUCOMP Schools..

Aditya Birla Group in talks to acquire Educomp schools 

The Aditya Birla Group has been in talks to acquire the schools business of Educomp Solutions, once the country's largest diversified education service provider, as the debt-laden company has been restructuring its business portfolio to deleverage its balance sheet. 

GEMS Education — spearheaded by Dubai-based NRI education billionaire Sunny Varkey — and Zee Learn of Subhas Chandra's Essel Group have also shown interest in the business, as private schools continue to grow at a faster ra .. 

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SBI's Recent Stance on Mergers

SBI Hits Pause Button on Merger, Some Associate Banks May Stay

Bank sees no value in the move this fiscal, hopes to work out balance sheets & HR issues
State Bank of India, the country's biggest lender, is likely to put on hold the plan to merge some of its subsidiary banks with itself, as it does not see “value“ in the move in the current fiscal. The bank may also decide not to merge all of its five associate banks, allowing some of them to continue in their existing structure, a senior official who was aware of the deliberations said.
“The road map for merger is being worked out. At present, the bank does not see value in merging all associate banks,“ this executive said, adding that SBI may seek necessary approvals and then pursue the merger plan next fiscal.

“In principle approval from the government, RBI, our board and the identified associate bank can be sought, so as to work out the initial modalities,“ he said.

Earlier this year, the bank had in a statement to the stock exchanges said that when appropriate, it may examine the merger options afresh. “But preparation of a possible road map would take a few months,“ it had noted.

SBI was widely expected to merge at least one of its five associate banks in this fiscal, but may defer the process tak ing into account its long-term capital plans under the Basel III norms.

“There is no hurry for merger. In the next six months, it will be difficult to amalgamate even a non-listed entity,“ said an SBI executive, adding that inprinciple approval will help the bank to recapitalise and strengthen the identified associate bank during this duration. Among the five associate banks, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed entities. SBI was widely expected to merge either State Bank of Patiala or State Bank of Hyderabad.

“We are committed towards merger in the longer run. But, before that, we need to strengthen some of these banks in terms of balance sheet and work out the human resource issues,“ said the above quoted executive. The five associate banks have about 75,000 employees.

SBI has estimated ` . 32,831 crore as total capital requirement under the Basel III capital adequacy framework for all of its subsidiary banks from 2014-15 to 2018-19.

“So, there is this huge fund requirement. A decision has to be taken on which is the best route for such capital infusion,“ said the executive quoted above. So far, neither SBI nor any of its associate banks have taken up the issue of merger at their respective boards.

SBI first merged its associate State Bank of Saurashtra with itself in 2008.Two years later, it merged State Bank of Indore. The state-run lender is in talks with government to raise around ` . 20,000 crore through various instruments over the next two years. The government holds 58.6% in SBI, which is also exploring ESOP option for its employees.

Sigh of relief for PSU Bank's Investors

Investors positive as PSU banks to benefit with dilution of Basel III norms

Over the past two years, investors have been sceptical of public sector banks due to two reasons -- continued rise in stressed assets, and the need to raise capital to meet the Basel III norms.

However, investors' concerns on capital requirement of major public sector banks may ease after RBI recently relaxed the norms for issuing Tier 1 instruments. Moreover, easing of liquidity may lead to an expansion in net interest margins (NIMs) in the next few quarters. \

As a result, large-sized public sector banks such as SBI, Bank of Baroda, Punjab National Bank and Canara Bank may be back on investors' radar.

Such banks will be the major beneficiaries with the dilution of a few guidelines of the Basel III norms. Some of the noteworthy amendments made by the central bank include allowing retail investors to participate in Tier 1 instruments and a revision of loss absorption mechanism for non-equity instruments as temporary or permanent compared to permanent earlier.

These measures will lower banks' cost of raising Tier 1 capital. In July, Bank of India had raised Tier 1 capital at 11% interest rate. But with the new norms, the cost of these instruments for larger banks may come down. Also, the equity requirement will be lower as Tier 1 debt capital may be raised at a cheaper rate.

Another positive for banks will be the lower cost of funds. In FY14, NIMs of large public sector banks such as SBI, Bank of Baroda, Punjab National Bank and Canara Bank had fallen to their respective three-year lows.

"The NIMs of these banks declined in the range of 45 to 90 basis points in the last three years owing to higher slippages, asset liability mismatch and falling CASA proportion," said Darpin Shah of HDFC Securities, in his latest report.

However, this trend may reverse as sufficient liquidity in the bond market has resulted in lower rates in the past few months.

As per the latest data available from FIMMDA, oneyear certificate of deposit is trading at an yield of 9.05%, down 38 basis points since the last six months.

Given sufficient liquidity, the country's largest lender, SBI, has reduced its one-year to three-year deposit rates by 25 basis points to 8.75%. It is believed that other large-sized banks may follow suit soon. Given this scenario, NIMs of banks may see an expansion in the next few quarters. Despite this, asset quality stress may still persist for some time.

Analysts believe that it may take another couple of quarters to see any decline in non-performing assets for these banks.

At present, stocks of largesized public banks are trading at around 10% lower than their 52-week highs, while largesized private banks such as ICICI Bank and Axis Bank are trading near their life highs.

But, with the gradual improvement in operations, the stocks of large-sized public sector banks may spring back to reckoning.

Source: http://m.economictimes.com/markets/stocks/news/investors-positive-as-psu-banks-to-benefit-with-dilution-of-basel-iii-norms/articleshow/43280095.cms

PM's US Visit...

CEOs of six top US companies including Boeing and GE to have meetings with Narendra Modi 

The chief executive officers of six top US companies including Boeing and General Electric will have separate one-on-one meetings with Prime Minister Narendra Modi in Washington early next week, hoping to hear about his government's plan to create a conducive business environment and explore opportunities to increase their footprint in India.

Goldman Sachs Chairman and CEO Lloyd C Blankfein, Boeing Chairman and CEO W James McNerney Jr, BlackRock Chairman and CEO Laurence D Fink, IBM Chairman and CEO Ginni Rometty, General Electric Chairman and CEO Jeff Immelt and Kohlberg Kravis Roberts co-Chairmen and CEOs Henry R Kravis and George R Roberts will have separate meetings with Modi on his maiden visit to the US as Prime Minister, Ministry of External Affairs spokesperson Syed Akaruddin told reporters. 

The PM will also meet a group of 11 CEOs over breakfast on September 29, including Google Executive Chairman Eric E Schmidt, Carlyle Group co-Founder and co-CEO David MRubenstein, Cargill President and CEO David W MacLennan, Merck & Co CEO Kenneth C Frazier, Citigroup CEO Michael L Corbat, Caterpillar Chairman and CEO Dough Oberhelman, MasterCard President and CEO Ajay Banga and Pepsico Chairman and CEO Indra Nooyi. Banga and Nooyi are India-origin executives.

In the interactions,  .....

Read More At The PM will also meet a group of 11 CEOs over breakfast on September 29, including Google Executive Chairman Eric E Schmidt, Carlyle Group co-Founder and co-CEO David MRubenstein, Cargill President and CEO David W MacLennan, Merck & Co CEO Kenneth C Frazier, Citigroup CEO Michael L Corbat, Caterpillar Chairman and CEO Dough Oberhelman, MasterCard President and CEO Ajay Banga and Pepsico Chairman and CEO Indra Nooyi. Banga and Nooyi are India-origin executives.

In the interactions,  .. 

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Reasons Why DALAL STREET Took The Beating!!

Here are five reasons that could have led to the fall on Dalal Street:

1) FII woes: Brokers told PTI that the stock market turned volatile and participants preferred to offload positions on reports that foreign funds, which was a major force behind the recent bull run, have slowed down buying on the Indian bourses even turning net sellers, mainly dampened the trading sentiments.

2) F&O expiry: The market always remains volatile ahead of F&O expiry which is due on September 25 (Thursday). This is because traders roll over positions in the futures & options (F&O) segment from the near month September 2014 series to October 2014 series, say analysts.

3) Economic woes: Manufacturing PMI for Germany, Europe's largest economy, slumped to 50.3, its lowest reading since June 2013; and below all forecasts in aReuters poll of 32 economists, while a services industry PMI for France, the bloc's second-biggest economy, faltered after just two months in growth territory, reports the agency.

Stock markets in London, Frankfurt andParis fell 1, 0.8 and 1.3 per cent, respectively, as new tax pressures hit pharma and tobacco firms.

4) Global tensions: Problems like conflict in Ukraine, sanctions on Russia and Hungary's crackdown on banks, are in turn hitting Western companies, reports PTI.

Meanwhile, Syria said on Tuesday that Israel had shot down a its warplane in what it described as an act of aggression, confirming the first such incident in three decades.

5) Weak Asian markets: Emerging market shares tumbled to new three-month lows on Tuesday, unimpressed by an uptick in Chinese factory data and focusing instead on the lacklustre growth outlook in Europe and the developing world.

South Korea and Taiwan, which together make up a quarter of the emerging index, fell 0.5 per cent taking MSCI's emerging equity benchmark down half a per cent.

"We are still dealing with the idea that emerging markets growth remains underwhelming and export growth is weak," Manik Narain, a strategist at UBS, told Reuters.

He estimates that emerging markets' growth rate premium compared to developed peers had shrunk to an 11-year low.