Mumbai: A strong rally in the debt market helped the mutual fund industry record a 9.5% monthly increase in total assets during January. At the same time, assets under equity schemes showed a dip.
At the end of January, assets under management (AUM) in the fund industry was at Rs 4.6 lakh crore, up from Rs 4.2 lakh crore in December, data released by Association of Mutual Funds in India (AMFI) showed. Industry analysts said that about 40-45% of the industry AUM is in equity assets, translating to about Rs 2 lakh crore. And this segment of the AUM showed some dip last month, they said.
At least two factors contributed to the rise in debt fund AUM last month, said Dhirendra Kumar, CEO, Value Research, a firm which specialises in mutual fund industry research. “Firstly, the debt market did very well. And secondly, the FMP (fixed maturity plan) money that was redeemed last month came into income funds,’’ Kumar said. The twin effect boosted the debt fund AUMs as well as the overall industry AUM, the fund industry analyst said. AMFI data showed that most of the fund houses recorded rise in their January AUM. Among the top five fund houses, Birla Sun Life MF showed a 15.3% rise in assets to Rs 42,157 crore, the highest in this group. While Reliance and HDFC MFs retained the top two slots, ICICI Prudential, UTI and Birla MFs were in the next three slots.
In terms of monthly AUM growth, while LIC MF showed a 30% rise to Rs 18,732 crore, IDFC MF recorded a 29% jump to Rs 11,427 crore. A spokesperson for IDFC MF said that the fund house’s prudent debt fund investment strategy, renewed focus on equity and performanceoriented approach have brought about this rise in AUM. Among the laggards, new entrant Edelweiss MF witnessed a 59% drop in AUM to Rs 32 crore while Bharti AXA MF’s total assets fell 25%.
Tuesday, February 3, 2009
SC permits banks to charge up to 49% interest on card payment defaults
New Delhi: The Supreme Court on Tuesday allowed MNC banks to charge hefty interest up to 49% on defaulted credit card payments, ending the respite that lakhs of card holders have had since September last year when the National Consumer Disputes Redressal Commission capped the penalty at 30%.
The SC stayed the apex consumer forum’s directive to banks not to charge more than 30% interest on defaulted payments on credit card purchases. The SC had last year refused to heed the appeal of banks against the NCDRC’s order. A Bench comprising Justices B N Agrawal, G S Singhvi and Aftab Alam on Tuesday suspended the relief to card holders on a plea by a coalition of foreign banks — Citibank, HSBC, American Express and Standard Chartered — that their business was suffering immensely because of the “unwarranted’’ cap on the quantum of penal interest.
Ironically, the plea of banks may have been allowed because of a lapse by the very same NGO ‘Awaz’ that was instrumental in getting the NCDRC order pegging the penal interest at 30% last year.
Though the bench had issued notice to the NGO four months ago, it has yet not put in its response, possibly helping the court to see merit in the argument of the banks that no penal interest rate, they were only following the guidelines issued by the RBI.
The banks teamed up to apprise the apex court of their compulsions to charge between 36% to 49% interest on defaulted payments on credit cards. “No bank as a credit card issuer would charge undue interest rate as, apart from the regulatory framework that applies, the market would not sustain the same by reason of competitive force,’’ Citibank said. In its application, filed through counsel Rupinder Suri, it said facility of credit cards could be availed of without any interest for a certain stipulated period and it was only after the expiry of that period that penal interest was levied on default of payments.
“The credit card holder is aware of the same at the time of applying for it. It is also relevant to note that credit card transactions de facto constitute unsecured credit availed of,’’ the bank said justifying the high interest rate permitted by RBI on defaulted payments.
The July 7, 2007 order of NCDRC had ruled that “charging of interest rates in excess of 30% per annum from credit card holders by banks for the former’s failure to make full payment on the due date or paying the minimum amount due, is unfair trade practices.’’
It had also said that penal interest could be levied only once for the period of default and should not be capitalised while terming the practice of computing interest on monthly basis as “unfair trade practice’’.
The banks justified the high interest rate on default payments by credit card holders by listing as many as 27 factors that included even the SMS alerts it sends to the card holders.
Even the cost of acquiring a new customer, that is the cost of calls made randomly by authorised call centres urging people to take credit cards, is also taken into account for realisation through charging of penal interest from an defaulting card holder.
“The National Commission has failed to appreciate that the rate of interest on defaulted or partial payments of credit card dues is determined by taking into consideration various factors, including the risks of default, and therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive,’’ the banks said. Higher charge despite lower cost of fund
Prabhakar Sinha | TNN
New Delhi: Though cost of fund is falling, banks continue to charge very high interest rates—up to 51% per annum – on outstanding credit card amount. At present, banks are charging interest on outstanding amount at the range of Rs 2.5%-3.5% per month, which works out to be 34.5%-51% per annum.
In 2008, when interest rates were firming up, banks had increased the rate by around half a percentage point per month or by around 10 percentage point per annum.
In the last couple of months, cost of fund has declined. At present, banks are raising funds at around 8% from depositors. Even if the default rate of around 15% in the credit card segment is taken into account, the present interest rate (35% to 51%) is very high. In the developed market interest rate burden is around 15%-20%.
However, banks claim that cost of servicing a customer is high, as they don’t charge the interest rate during the first 50 days of a credit card purchase. But industry watchers say this is not correct. If you have even Re 1 outstanding left on the card in the previous payment cycle, the interest will be charged from the day one on the entire amount. So, you end up paying the high interest rate on the amount spent by the card from the day one.
CMD of a public sector bank said if RBI can ask banks to reduce lending rate, it can also tell them to lower the interest rates on credit card.
The SC stayed the apex consumer forum’s directive to banks not to charge more than 30% interest on defaulted payments on credit card purchases. The SC had last year refused to heed the appeal of banks against the NCDRC’s order. A Bench comprising Justices B N Agrawal, G S Singhvi and Aftab Alam on Tuesday suspended the relief to card holders on a plea by a coalition of foreign banks — Citibank, HSBC, American Express and Standard Chartered — that their business was suffering immensely because of the “unwarranted’’ cap on the quantum of penal interest.
Ironically, the plea of banks may have been allowed because of a lapse by the very same NGO ‘Awaz’ that was instrumental in getting the NCDRC order pegging the penal interest at 30% last year.
Though the bench had issued notice to the NGO four months ago, it has yet not put in its response, possibly helping the court to see merit in the argument of the banks that no penal interest rate, they were only following the guidelines issued by the RBI.
The banks teamed up to apprise the apex court of their compulsions to charge between 36% to 49% interest on defaulted payments on credit cards. “No bank as a credit card issuer would charge undue interest rate as, apart from the regulatory framework that applies, the market would not sustain the same by reason of competitive force,’’ Citibank said. In its application, filed through counsel Rupinder Suri, it said facility of credit cards could be availed of without any interest for a certain stipulated period and it was only after the expiry of that period that penal interest was levied on default of payments.
“The credit card holder is aware of the same at the time of applying for it. It is also relevant to note that credit card transactions de facto constitute unsecured credit availed of,’’ the bank said justifying the high interest rate permitted by RBI on defaulted payments.
The July 7, 2007 order of NCDRC had ruled that “charging of interest rates in excess of 30% per annum from credit card holders by banks for the former’s failure to make full payment on the due date or paying the minimum amount due, is unfair trade practices.’’
It had also said that penal interest could be levied only once for the period of default and should not be capitalised while terming the practice of computing interest on monthly basis as “unfair trade practice’’.
The banks justified the high interest rate on default payments by credit card holders by listing as many as 27 factors that included even the SMS alerts it sends to the card holders.
Even the cost of acquiring a new customer, that is the cost of calls made randomly by authorised call centres urging people to take credit cards, is also taken into account for realisation through charging of penal interest from an defaulting card holder.
“The National Commission has failed to appreciate that the rate of interest on defaulted or partial payments of credit card dues is determined by taking into consideration various factors, including the risks of default, and therefore, this commission may not determine the issue as to whether the interest at the rates of 36% to 49% per annum is excessive,’’ the banks said. Higher charge despite lower cost of fund
Prabhakar Sinha | TNN
New Delhi: Though cost of fund is falling, banks continue to charge very high interest rates—up to 51% per annum – on outstanding credit card amount. At present, banks are charging interest on outstanding amount at the range of Rs 2.5%-3.5% per month, which works out to be 34.5%-51% per annum.
In 2008, when interest rates were firming up, banks had increased the rate by around half a percentage point per month or by around 10 percentage point per annum.
In the last couple of months, cost of fund has declined. At present, banks are raising funds at around 8% from depositors. Even if the default rate of around 15% in the credit card segment is taken into account, the present interest rate (35% to 51%) is very high. In the developed market interest rate burden is around 15%-20%.
However, banks claim that cost of servicing a customer is high, as they don’t charge the interest rate during the first 50 days of a credit card purchase. But industry watchers say this is not correct. If you have even Re 1 outstanding left on the card in the previous payment cycle, the interest will be charged from the day one on the entire amount. So, you end up paying the high interest rate on the amount spent by the card from the day one.
CMD of a public sector bank said if RBI can ask banks to reduce lending rate, it can also tell them to lower the interest rates on credit card.
IN THE DOCK Sebi gets SC green signal to grill Rajus Interrogation For 3 Days In Jail From Wed
New Delhi: Market regulator Sebi will lay its hands on the big fish in the Rs 7,000 crore Satyam fraud as the Supreme Court on Tuesday permitted it to grill Ramalinga Raju and brother Rama Raju for three consecutive days starting from Wednesday.
Sensing urgency in solicitor general G E Vahanvati’s apprehension that vital evidence relating to the biggest financial fraud in India’s corporate history could be lost because of the market regulator not being allowed to question the key accused, the SC directed the superintendent of Chanchalguda jail, where the two brothers are lodged, to permit the Sebi investigator to question them.
In addition, a bench comprising Chief Justice K G Balakrishnan and Justices P Sathasivam and J M Panchal agreed to permit Sebi investigator Sunil Kumar to take assistance of experts in interrogating the Rajus to crack the scam. Acting swiftly, Kumar started from Chennai to be in Hyderabad in time to undertake questioning of the Raju brothers on Wednesday. In addition, Sebi, within hours of the apex court order, informed the jail superintendent that Kumar and three experts would interrogate the duo from February 4 to 6.
Vahanvati, appearing for Sebi, said the trial court and the Andhra Pradesh high court’s order announcing that Sebi did not have investigating powers had made a laughing stock of the judiciary as it was contrary to the statutory provisions conferring powers on the market regulator to inquire into such corporate frauds and even question the accused.
What probably tilted scales for an order from the bench after a brief hearing was Vahanvati’s stunning statement, “Documents are going out. We want to seize them. If the accused are permitted to carry on with their alleged activities in covering up their trail despite being lodged in prison, then what investigation could be carried out by the market regulator?’’
For a change, the Y S R Reddy government, which is perceived in many quarters to be lenient with a self-confessed scamster, stood solidly behind Sebi in its demand for intense questioning of the duo. Its counsel Bharathi Reddy, while accepting notice on Sebi’s petition, told the SC that the market regulator should be permitted to question the accused.
Though Sebi was happy with the SC order allowing its investigator to have the accused interrogated for three consecutive days, it was unsure whether three days would be enough to unravel a fraud of this magnitude. Most likely, they would come back to SC seeking more time after they complete the initial interrogation. Sebi said it had appointed an investigator and had issued summons to Raju to appear in Hyderabad on January 9.
Sensing urgency in solicitor general G E Vahanvati’s apprehension that vital evidence relating to the biggest financial fraud in India’s corporate history could be lost because of the market regulator not being allowed to question the key accused, the SC directed the superintendent of Chanchalguda jail, where the two brothers are lodged, to permit the Sebi investigator to question them.
In addition, a bench comprising Chief Justice K G Balakrishnan and Justices P Sathasivam and J M Panchal agreed to permit Sebi investigator Sunil Kumar to take assistance of experts in interrogating the Rajus to crack the scam. Acting swiftly, Kumar started from Chennai to be in Hyderabad in time to undertake questioning of the Raju brothers on Wednesday. In addition, Sebi, within hours of the apex court order, informed the jail superintendent that Kumar and three experts would interrogate the duo from February 4 to 6.
Vahanvati, appearing for Sebi, said the trial court and the Andhra Pradesh high court’s order announcing that Sebi did not have investigating powers had made a laughing stock of the judiciary as it was contrary to the statutory provisions conferring powers on the market regulator to inquire into such corporate frauds and even question the accused.
What probably tilted scales for an order from the bench after a brief hearing was Vahanvati’s stunning statement, “Documents are going out. We want to seize them. If the accused are permitted to carry on with their alleged activities in covering up their trail despite being lodged in prison, then what investigation could be carried out by the market regulator?’’
For a change, the Y S R Reddy government, which is perceived in many quarters to be lenient with a self-confessed scamster, stood solidly behind Sebi in its demand for intense questioning of the duo. Its counsel Bharathi Reddy, while accepting notice on Sebi’s petition, told the SC that the market regulator should be permitted to question the accused.
Though Sebi was happy with the SC order allowing its investigator to have the accused interrogated for three consecutive days, it was unsure whether three days would be enough to unravel a fraud of this magnitude. Most likely, they would come back to SC seeking more time after they complete the initial interrogation. Sebi said it had appointed an investigator and had issued summons to Raju to appear in Hyderabad on January 9.
Maha plans to set up knowledge panel
Mumbai: Maharashtra has drawn up plans to set up a state knowledge commission, a thinktank that will recommend the way forward for higher education. While the commission is yet to be appointed, its scope is likely to be vast—to cover all aspects of higher education—on the lines of the National Knowledge Commission (NKC).
According to government officials, there are several areas in higher education that require a ‘re-look’ and many others that call for a revival. “The commission will study the recommendations of the NKC and look at what we can implement locally. Experts on the panel will also look at areas we need to focus on,’’ said J S Saharia, principal secretary (Higher Education). The NKC had drafted broad recommendations for institutes across the country and several states later set up their own regional bodies to work towards achieving excellence at the local level.
The Goa government was the first to emulate the national model of knowledge commission in 2006. Later, Gujarat, Karnataka, and several other states handpicked top academicians to plan the commission which designed a master plan for the growth of higher education. In most states, the commission is chaired by the chief minister.
Academicians say the state’s move to set up a commission has come a little too late. “Look at the number of nursing or BEd colleges we have in our state. A new engineering institute is launched every morning. There has to be a mega plan that will determine where the state will be five years from now,’’ said a faculty member from the Tata Institute of Social Sciences. A chair professor from the University of Mumbai concurred, “Our libraries and laboratories also need attention. There are so many colleges that are coming up, but where is the qualified faculty?’’
According to government officials, there are several areas in higher education that require a ‘re-look’ and many others that call for a revival. “The commission will study the recommendations of the NKC and look at what we can implement locally. Experts on the panel will also look at areas we need to focus on,’’ said J S Saharia, principal secretary (Higher Education). The NKC had drafted broad recommendations for institutes across the country and several states later set up their own regional bodies to work towards achieving excellence at the local level.
The Goa government was the first to emulate the national model of knowledge commission in 2006. Later, Gujarat, Karnataka, and several other states handpicked top academicians to plan the commission which designed a master plan for the growth of higher education. In most states, the commission is chaired by the chief minister.
Academicians say the state’s move to set up a commission has come a little too late. “Look at the number of nursing or BEd colleges we have in our state. A new engineering institute is launched every morning. There has to be a mega plan that will determine where the state will be five years from now,’’ said a faculty member from the Tata Institute of Social Sciences. A chair professor from the University of Mumbai concurred, “Our libraries and laboratories also need attention. There are so many colleges that are coming up, but where is the qualified faculty?’’
Monday, February 2, 2009
Germany Says Hypo Can’t Fail, Mulls Bank Takeover Law
Feb. 2 (Bloomberg) -- Germany’s government said property lender Hypo Real Estate Holding AG is too big to be allowed to fail, as officials hold “intensive” talks on a draft law that may enable the state to take over banks.
Munich-based Hypo Real Estate, already bailed out with public funds last year, is a “systemically relevant” company and the government must ward off risks to the financial system, spokesman Thomas Steg told reporters in Berlin today. At the same time, Chancellor Angela Merkel’s coalition must deliver the “most favorable” solution for taxpayers, he said.
“Taking over stakes may make sense in specific cases if that lowers the cost to taxpayers,” Merkel said, according to today’s Bild newspaper. Steg said that Merkel had “made it clear” that the government may need to step in where institutions are in trouble.
Merkel’s coalition, which has pumped 92 billion euros ($117 billion) into Hypo Real Estate, joins governments worldwide in deliberating how best to save banks worst affected by the global credit crunch. Globally, governments have pledged $7 trillion to back banks, U.K. Prime Minister Gordon Brown said today in London. Merkel will host European leaders in Berlin on Feb. 22 to discuss changes to the global financial system, Steg said.
‘Substantial Recapitalization’
Moody’s Investors Service downgraded Hypo Real Estate’s senior unsecured debt and deposit ratings today to A3 from A2, “reflecting the expectation of a substantial recapitalization by the German government or even nationalization of the group.” It also lowered the outlook on all ratings to negative.
Hypo Real Estate shares dropped as much as 10 percent in Frankfurt trading before closing up 2 cents, or 1.6 percent, at 1.30 euros in Frankfurt trading. The shares have lost 94 percent over the last 12 months, giving the company a market value of 274 million euros.
“If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?” Nobel Prize-winning economist Paul Krugman wrote in a column in the New York Times published today. Yet in the U.S., President Barack Obama’s administration “appears to be tying itself in knots to avoid this outcome.”
‘Possible Option’
In Germany, the Finance Ministry is exploring taking over troubled lenders as “one possible option” to “bolster an institution so it doesn’t go into insolvency,” spokesman Torsten Albig said.
The government is considering taking a stake of between 90 percent and 95 percent in Hypo Real Estate, Handelsblatt newspaper reported, citing unnamed government officials. A bill being drafted by Finance Minister Peer Steinbrueck would allow the government to take over banks if required for the stability of financial markets, the newspaper said. Investors would be compensated based on a company’s share price during the two weeks before nationalization.
U.S. investor J.C. Flowers & Co., which holds about 25 percent of Hypo Real Estate, would like to keep the government stake to 90 percent or less, Handelsblatt said, quoting unnamed people close to the investor.
The government’s commitment so far to Hypo Real Estate means it’s “not too difficult” to imagine putting the public interest above those of shareholders, Albig said.
J.C. Flowers is available for “constructive talks” and supports efforts to stabilize Hypo Real Estate, Thomas Pfaff, a German-based spokesman, said in an e-mailed statement. No German government officials have approached Flowers, he said.
Not Rushing
Steg said that Merkel’s coalition is in “intensive discussions” on how to deal with Hypo Real Estate, though no decision is expected in the next few days and the topic is not on the agenda for the next weekly Cabinet meeting on Feb. 4. The government won’t rush into a decision on the matter, he said.
“Nobody in the federal government has denied that Hypo Real Estate, along with its Depfa unit, is a systemically relevant institution,” he said.
Merkel’s government bailed out Hypo Real Estate with debt guarantees and liquidity lines after the lender’s Dublin-based Depfa Bank Plc unit failed to get short-term funding in September when credit markets seized up.
Hypo Real Estate supports Germany’s purchase of a stake in the property lender and wants it done quickly as that would give the lender enough backing to get new loans and finance its operations, Chief Executive Officer Axel Wieandt told Sueddeutsche Zeitung in an interview published on Jan. 29.
Munich-based Hypo Real Estate, already bailed out with public funds last year, is a “systemically relevant” company and the government must ward off risks to the financial system, spokesman Thomas Steg told reporters in Berlin today. At the same time, Chancellor Angela Merkel’s coalition must deliver the “most favorable” solution for taxpayers, he said.
“Taking over stakes may make sense in specific cases if that lowers the cost to taxpayers,” Merkel said, according to today’s Bild newspaper. Steg said that Merkel had “made it clear” that the government may need to step in where institutions are in trouble.
Merkel’s coalition, which has pumped 92 billion euros ($117 billion) into Hypo Real Estate, joins governments worldwide in deliberating how best to save banks worst affected by the global credit crunch. Globally, governments have pledged $7 trillion to back banks, U.K. Prime Minister Gordon Brown said today in London. Merkel will host European leaders in Berlin on Feb. 22 to discuss changes to the global financial system, Steg said.
‘Substantial Recapitalization’
Moody’s Investors Service downgraded Hypo Real Estate’s senior unsecured debt and deposit ratings today to A3 from A2, “reflecting the expectation of a substantial recapitalization by the German government or even nationalization of the group.” It also lowered the outlook on all ratings to negative.
Hypo Real Estate shares dropped as much as 10 percent in Frankfurt trading before closing up 2 cents, or 1.6 percent, at 1.30 euros in Frankfurt trading. The shares have lost 94 percent over the last 12 months, giving the company a market value of 274 million euros.
“If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?” Nobel Prize-winning economist Paul Krugman wrote in a column in the New York Times published today. Yet in the U.S., President Barack Obama’s administration “appears to be tying itself in knots to avoid this outcome.”
‘Possible Option’
In Germany, the Finance Ministry is exploring taking over troubled lenders as “one possible option” to “bolster an institution so it doesn’t go into insolvency,” spokesman Torsten Albig said.
The government is considering taking a stake of between 90 percent and 95 percent in Hypo Real Estate, Handelsblatt newspaper reported, citing unnamed government officials. A bill being drafted by Finance Minister Peer Steinbrueck would allow the government to take over banks if required for the stability of financial markets, the newspaper said. Investors would be compensated based on a company’s share price during the two weeks before nationalization.
U.S. investor J.C. Flowers & Co., which holds about 25 percent of Hypo Real Estate, would like to keep the government stake to 90 percent or less, Handelsblatt said, quoting unnamed people close to the investor.
The government’s commitment so far to Hypo Real Estate means it’s “not too difficult” to imagine putting the public interest above those of shareholders, Albig said.
J.C. Flowers is available for “constructive talks” and supports efforts to stabilize Hypo Real Estate, Thomas Pfaff, a German-based spokesman, said in an e-mailed statement. No German government officials have approached Flowers, he said.
Not Rushing
Steg said that Merkel’s coalition is in “intensive discussions” on how to deal with Hypo Real Estate, though no decision is expected in the next few days and the topic is not on the agenda for the next weekly Cabinet meeting on Feb. 4. The government won’t rush into a decision on the matter, he said.
“Nobody in the federal government has denied that Hypo Real Estate, along with its Depfa unit, is a systemically relevant institution,” he said.
Merkel’s government bailed out Hypo Real Estate with debt guarantees and liquidity lines after the lender’s Dublin-based Depfa Bank Plc unit failed to get short-term funding in September when credit markets seized up.
Hypo Real Estate supports Germany’s purchase of a stake in the property lender and wants it done quickly as that would give the lender enough backing to get new loans and finance its operations, Chief Executive Officer Axel Wieandt told Sueddeutsche Zeitung in an interview published on Jan. 29.
India Exports Fell in December for 3rd Straight Month
Feb. 2 (Bloomberg) -- India’s exports declined for a third straight month in December as the global recession reduced overseas orders, curbing growth in Asia’s third-largest economy.
Merchandise shipments dropped 1.1 percent to $12.7 billion from a year earlier, the government said in New Delhi today. Imports in December rose 8.8 percent to $20.3 billion, widening the trade deficit to $7.6 billion.
Falling exports may cause 10 million job losses by March, according to estimates from the Federation of Indian Export Organisations trade group, which would be a blow to Prime Minister Manmohan Singh’s re-election bid in polls in April and May. Exporters employ about 150 million people in India, the biggest provider of jobs after agriculture.
“The exports scenario won’t improve unless the global economy recovers,” said D. H. Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi. “Job losses in an election year are bad news for any incumbent government.”
Export growth may slow to 17 percent in the year ending March 31, compared with 25 percent a year ago, Trade Minister Kamal Nath told Bloomberg Television in an interview Jan. 29.
Exports gained 17.1 percent to $131.9 billion in the nine months to Dec. 31, today’s statement said. Oil imports fell 31 percent to $4.7 billion in December, while non-oil imports rose 32 percent to $15.5 billion, the statement said.
Export Finance
Bajaj Auto Ltd., India’s second-biggest motorcycle maker, said today exports rose 24 percent in January from a year earlier, almost half the pace in December.
To help exporters, the central bank in November extended the period for subsidized pre-shipment credit to nine months from six months and increased the export refinance limit for commercial banks.
Nath said Jan. 21 the government will soon unveil steps to end bureaucratic delays faced by exporters to spur overseas sales. He added that India will miss its exports target of $200 billion in the year to March 31.
“There will be job losses due to the global recession but I think domestic demand is going to help us,” Nath said Jan. 29.
Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. China’s exports in December dropped 2.8 percent, the most in almost a decade, while Singapore’s exports contracted the most since early 2002 in the same month.
Interest Rates
International trade will shrink in 2009 for the first time in more than 25 years as economic expansion slows and commodity prices slide, the World Bank said in December. World trade volumes will probably contract next year by 2.1 percent, hampered by exchange rate volatility and flagging import demand.
Measures to spur local consumption and investment began on Oct. 6 when the Reserve Bank cut the amount of money lenders need to set aside with the central bank. On Oct. 20, Governor Duvvuri Subbarao presided over the first interest-rate reduction in four years and the benchmark repurchase rate is now at a record low of 5.5 percent, down from 9 percent in July.
Prime Minister Singh’s government has also announced two fiscal stimulus packages which include tax cuts, the injection of capital into banks, and allowing overseas investors to double purchases of debt.
The Reserve Bank last month cut the growth estimate in India’s $1.2 trillion economy to 7 percent in the year to March 31 from between 7.5 percent and 8 percent it estimated earlier.
Merchandise shipments dropped 1.1 percent to $12.7 billion from a year earlier, the government said in New Delhi today. Imports in December rose 8.8 percent to $20.3 billion, widening the trade deficit to $7.6 billion.
Falling exports may cause 10 million job losses by March, according to estimates from the Federation of Indian Export Organisations trade group, which would be a blow to Prime Minister Manmohan Singh’s re-election bid in polls in April and May. Exporters employ about 150 million people in India, the biggest provider of jobs after agriculture.
“The exports scenario won’t improve unless the global economy recovers,” said D. H. Pai Panandiker, president of RPG Foundation, an economic policy group in New Delhi. “Job losses in an election year are bad news for any incumbent government.”
Export growth may slow to 17 percent in the year ending March 31, compared with 25 percent a year ago, Trade Minister Kamal Nath told Bloomberg Television in an interview Jan. 29.
Exports gained 17.1 percent to $131.9 billion in the nine months to Dec. 31, today’s statement said. Oil imports fell 31 percent to $4.7 billion in December, while non-oil imports rose 32 percent to $15.5 billion, the statement said.
Export Finance
Bajaj Auto Ltd., India’s second-biggest motorcycle maker, said today exports rose 24 percent in January from a year earlier, almost half the pace in December.
To help exporters, the central bank in November extended the period for subsidized pre-shipment credit to nine months from six months and increased the export refinance limit for commercial banks.
Nath said Jan. 21 the government will soon unveil steps to end bureaucratic delays faced by exporters to spur overseas sales. He added that India will miss its exports target of $200 billion in the year to March 31.
“There will be job losses due to the global recession but I think domestic demand is going to help us,” Nath said Jan. 29.
Demand for made-in-Asia goods has slumped amid the deepening global economic slowdown. China’s exports in December dropped 2.8 percent, the most in almost a decade, while Singapore’s exports contracted the most since early 2002 in the same month.
Interest Rates
International trade will shrink in 2009 for the first time in more than 25 years as economic expansion slows and commodity prices slide, the World Bank said in December. World trade volumes will probably contract next year by 2.1 percent, hampered by exchange rate volatility and flagging import demand.
Measures to spur local consumption and investment began on Oct. 6 when the Reserve Bank cut the amount of money lenders need to set aside with the central bank. On Oct. 20, Governor Duvvuri Subbarao presided over the first interest-rate reduction in four years and the benchmark repurchase rate is now at a record low of 5.5 percent, down from 9 percent in July.
Prime Minister Singh’s government has also announced two fiscal stimulus packages which include tax cuts, the injection of capital into banks, and allowing overseas investors to double purchases of debt.
The Reserve Bank last month cut the growth estimate in India’s $1.2 trillion economy to 7 percent in the year to March 31 from between 7.5 percent and 8 percent it estimated earlier.
India May Ease Takeover Rules for ‘Special Cases’
Feb. 2 (Bloomberg) -- India’s market regulator said it will look at easing takeover rules in “special cases,” ahead of a possible acquisition of Satyam Computer Services Ltd., the software company at the center of India’s biggest fraud inquiry.
Satyam’s board has asked for exemptions from the takeover rules, Securities and Exchange Board of India Chairman C.B. Bhave said at a press briefing after the regulator’s board meeting in Mumbai today. Buyers must now offer to pay the higher of the average share price for the past 26 weeks or two weeks.
A relaxation of the rules will make it easier for suitors including Larsen & Toubro Ltd., India’s biggest engineering company, to bid for Hyderabad-based Satyam. Larsen is among at least four bidders that want to buy a controlling stake.
“We recognize the need for this and will look to make amendments for such special cases,” Bhave said.
Larsen may lift its holding in Satyam to 15 percent, betting the value will rise, Larsen Chairman A.M. Naik said on Jan. 27. The Mumbai-based company said after trading ended on Jan. 23 it tripled its stake in Satyam to 12 percent to have a greater say in the company’s rescue plan. A 15 percent stake is the threshold for a mandatory offer to buy 20 percent more from minority holders.
Spice Offer
Spice Corp. Chairman B. K. Modi has offered 20 billion rupees ($408 million) for Satyam, joining Larsen in the race for the software exporter. Holding company Spice Innovation made a preliminary cash offer for preference shares in Satyam, Modi said in a telephone interview from New Delhi on Jan. 30.
The regulator also tightened rules for warrant subscriptions, raising the upfront payment for buying warrants to 25 percent from 10 percent. It also eased rules for pricing equity offerings by allowing companies to set the price two days before the opening date of a public offer.
Rules for bonus share offerings were also modified, with the regulator stipulating all offers where shareholder approval is not required should be completed in 15 days.
The regulator last month tightened disclosure rules for founders of companies asking them to reveal shares pledged in return for loans. Pressure to make more information available to investors has increased since Satyam’s former chairman Ramalinga Raju said he falsified accounts for several years.
The botched attempt to force through the takeover of Raju’s family construction companies in December sparked a 31 percent one-day drop in Satyam’s stock. That triggered so-called margin calls as lenders that held Raju’s stock as collateral for loans demanded more cash to compensate for the slump in value.
Raju said on Jan. 7 the bid to sell the building companies to Satyam was a last attempt to conceal the false accounting. His inability to raise funds to repay loans triggered sales of his shares by the lenders, cutting his family’s stake to 2.34 percent by Jan. 8 from 8.3 percent in December.
Satyam’s board has asked for exemptions from the takeover rules, Securities and Exchange Board of India Chairman C.B. Bhave said at a press briefing after the regulator’s board meeting in Mumbai today. Buyers must now offer to pay the higher of the average share price for the past 26 weeks or two weeks.
A relaxation of the rules will make it easier for suitors including Larsen & Toubro Ltd., India’s biggest engineering company, to bid for Hyderabad-based Satyam. Larsen is among at least four bidders that want to buy a controlling stake.
“We recognize the need for this and will look to make amendments for such special cases,” Bhave said.
Larsen may lift its holding in Satyam to 15 percent, betting the value will rise, Larsen Chairman A.M. Naik said on Jan. 27. The Mumbai-based company said after trading ended on Jan. 23 it tripled its stake in Satyam to 12 percent to have a greater say in the company’s rescue plan. A 15 percent stake is the threshold for a mandatory offer to buy 20 percent more from minority holders.
Spice Offer
Spice Corp. Chairman B. K. Modi has offered 20 billion rupees ($408 million) for Satyam, joining Larsen in the race for the software exporter. Holding company Spice Innovation made a preliminary cash offer for preference shares in Satyam, Modi said in a telephone interview from New Delhi on Jan. 30.
The regulator also tightened rules for warrant subscriptions, raising the upfront payment for buying warrants to 25 percent from 10 percent. It also eased rules for pricing equity offerings by allowing companies to set the price two days before the opening date of a public offer.
Rules for bonus share offerings were also modified, with the regulator stipulating all offers where shareholder approval is not required should be completed in 15 days.
The regulator last month tightened disclosure rules for founders of companies asking them to reveal shares pledged in return for loans. Pressure to make more information available to investors has increased since Satyam’s former chairman Ramalinga Raju said he falsified accounts for several years.
The botched attempt to force through the takeover of Raju’s family construction companies in December sparked a 31 percent one-day drop in Satyam’s stock. That triggered so-called margin calls as lenders that held Raju’s stock as collateral for loans demanded more cash to compensate for the slump in value.
Raju said on Jan. 7 the bid to sell the building companies to Satyam was a last attempt to conceal the false accounting. His inability to raise funds to repay loans triggered sales of his shares by the lenders, cutting his family’s stake to 2.34 percent by Jan. 8 from 8.3 percent in December.
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