IndusInd Bank, Bharat Financial sign pact to explore merger (BL, FE 12.09.17)
The board of directors of IndusInd Bank entered into a ‘confidentiality, exclusivity, and standstill agreement’ with Bharat Financial Inclusion to evaluate a potential merger between the two companies. The development comes in the backdrop of reports in the media over the past year of microfinance company Bharat Financial Inclusion (formerly known as SKS Microfinance) being on the block. Various suitors, including IndusInd Bank, RBL Bank, Kotak Mahindra Bank, and IDFC Bank, were being talked about as being interested in acquiring BFIL. IndusInd Bank, in a notice to stock exchanges, said its management has been authorised to explore strategic opportunities for the expansion of its business and to assess the viability of strategic partnership, collaboration, or restructuring opportunities. The potential transaction would be subject to due diligence, agreement on the appropriate transaction structure, definitive documentation, and board, shareholders, regulatory, National Company Law Tribunal, and other third-party approvals, as applicable. BFIL too notified the stock exchanges that it has entered into an exclusivity agreement with IndusInd Bank for agreeing to have a discussion with the latter about the proposed potential strategic combination by way of amalgamation through a scheme of arrangement, or any other suitable structure. If the merger goes through, then IndusInd Bank will have access to BFIL’s 1,400-odd branches in 17 States and 68 lakh loan customers. As at June-end 2017, BFIL, which is India’s second-largest microfinance company, had a gross loan portfolio of Rs. 9,631 Cr. As of June-end, IndusInd Bank had a network of 1,210 branches and 2,090 ATMs. The private sector bank’s total deposits and advances amounted to Rs. 1,33,673 Cr and Rs. 1,16,407 Cr, respectively. The proposed amalgamation move is in line with the trend of private sector banks acquiring microfinance companies to increase their outreach.
Feluda to keep an eye on UBI debit cards (BL 12.09.17)
Get ready for a shopping date with Bengal’s super sleuth Feluda. The iconic Satyajit Ray creation, private investigator Pradosh C Mitter popularly known by his nickname Feluda, is going to be a part of new customised debit cards launched by the United Bank of India (UBI). “Feluda has a universal appeal. We are riding on him to particularly connect with young citizens,” said Pawan Kumar Bajaj, MD and CEO, UBI. This will be the first time a character from Bengali literature will be featured on a bank’s debit card. Previously, Feluda images have made its way on to T-shirts. According to Sandip Ray, son of Satyajit Ray, a set of eight illustrations, out of a library running into thousands, has been handed over to the lender for a time-bound tie-up. The illustrations, sketched by Satyajit Ray himself, are part of a series of Bengali novels and short stories on the fictional detective character. “As of now there is no revenue-sharing agreement with the bank. UBI approached me, and we found the idea interesting. So we went ahead with a set of eight pictures,” Ray said. UBI’s Platinum Moments Card, launched in December 2016, has seen good traction with nearly 5,000 such cards being issued till date. Customised offerings come at an issuance charge of Rs. 500 and an annual maintenance of Rs. 250 from the second year. The lender is keen to come up with more such customised offerings in line with customer demand.
Janalakshmi Financial Services raises Rs 1,030 cr equity from TPG, others (BL, BS, FE, ET 12.09.17)
Janalakshmi Financial Services (JFS), Bengaluru-based microfinance company which will morph into a small finance bank (SFB), has raised new equity capital of Rs 1,030 Crs. Private equity player TPG is leading the current round of equity funding by investing a significant amount. Other current investors participating in this round are Morgan Stanley Asia managed PE fund (NHPEA), Treeline, QRG Enterprises Limited and Vallabh Bhansali. Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited are new investors in JFS. Ajay Kanwal, chief executive, JFS said the current round of funding is a crucial step in enabling JFS to complete its transition into an SFB. It is expected to commence operations in November-December 2017. "Although there were disruptions for JFS and the Micro Finance industry earlier in the year, business has stabilised. With fresh capital and the support of both current and new investors, JFS expects to launch the SFB and resume its growth," JFS said in a statement. Current plans are for the SFB to have a national presence with nearly 300 store fronts by 2018. JFS will continue serving its core client base of five million plus customers and offer services through the SFB beyond the scope of microfinance. It currently has a network of 462 branches across the country in 17 states and 2 union territories.
Jaypee Infra row: SC gives relief to lenders and homebuyers too (FE 12.09.17)
In a relief to IDBI Bank and others in the consortium of lenders to Jaypee Infratech, the Supreme Court not only restored the insolvency resolution proceedings against the real estate developer that were stayed on September 4 but also expedited it. However, while modifying its previous order, the court continued to lend a helping hand to the firm’s 32,000 flat buyers, by directing the National Company Law Tribunal (NCLT)-appointed interim resolution professional (IRP) to take over the “records and management” of the company and submit an interim resolution within 45 days (against 270 days granted by the Insolvency and Bankruptcy Code of India (IBC), 2016), which shall include the interests of “low- and middle-income home buyers”. To be sure, the apex court also appointed senior counsel Shekhar Naphade and counsel Shubhangi Tuli to participate in the meetings of the Committee of Creditors to “espouse the cause of home buyers and protect their interests”. Also, the court asked the real estate firm’s parent company Jaiprakash Associates to deposit 2,000 Cr with it on or before October 27; of course, without the IRP’s consent, no property can be sold by the firm. The SC’s latest order could set a precedent on how to balance the rights of creditors and home owners under IBC. The code is still ambiguous on the relative rights of home buyers, even though a recent amendment by the government brought them in as stakeholders. In terms of the order of preference among the stakeholders in laying hands on the assets of a company liquidated under the code, secured creditors come first followed by unsecured ones and the government. Describing the turmoil faced by flat buyers of Jaypee Infratech a “human problem of high magnitude”, a bench headed by Chief Justice Dipak Misra said that it is not “concerned about the companies, but only about the interest of home buyers and creditors”. The court will hear the matter next on November 13.
August inflation seen at 5-month high on rising food costs (BL 12.09.17)
Retail inflation is expected to have picked up to a five-month high in August, largely driven by higher food costs, a Reuters poll showed, easing pressure on the central bank to cut interest rates again after poor growth data. Consumer prices were forecast up at 3.20% in August from a year ago, jumping from July's 2.36%, according to the poll taken September 5-8 of nearly 40 economists. Forecasts for the data, scheduled to be released on September 12 at 1200 GMT, ranged from 2.50% to 3.55%. If the consensus is met, it would be the highest since April, but below the RBI's medium-term target of 4.0% for the tenth consecutive month. Tushar Arora, economist at HDFC Bank, said food prices continue to rise in August, mainly driven up by “unfavourable weather conditions and supply chain constraints.” Food and beverage inflation, which accounts for nearly 50% of the consumer price index basket, was expected to have rebounded in August after prices fell in the three previous months. Monsoon rains this year have caused damage to crops of some perishable food items and hindered movement of goods. The resulting hit from a shortage of production and supply of vegetables such as tomatoes and onions - basic ingredients in the kitchen - suggests inflation will be elevated in coming months. “Looking beyond the forthcoming data for August, price pressures are set to rise further,” said Shilan Shah, economist at Capital Economics. Wholesale prices were expected to rise 3% last month from a year ago, from 1.88% in July, the poll forecast.
Direct tax receipts soar 17.5% in April-August (BL, BS, FE, ET 12.09.17)
Direct taxes fetched 17.5% higher receipts to the exchequer for the first five months (April-August) of the current financial year (FY18), more than what was projected for the entire financial year. However, the growth rate slowed in August. Direct tax collections, net of refunds, stood at Rs 2.24 lakh Cr during the April-August period of FY18. The receipts had grown 19.1% in the first four months of FY18. The government had projected 9.8 lakh Cr from the direct taxes — corporation tax and personal income tax — in 2017-18, which would be 15.7% higher than Rs 8.47 lakh Cr in FY17. Till August, 22.9% of the target has been achieved. After adjusting for refunds, the growth in corporation collections was at 18.1% during the period, while personal income tax collections rose 16.5%. Before refunds, corporation tax collections were up five%, while personal income tax receipts went up 16%, highlighting corporates are still struggling to recover, even as net collections are robust due to refunds. A total of Rs 74,089 Cr refunds were given by the government in this period.
We could have managed liquidity better, says Raghuram Rajan (BS 12.09.17)
Former RBI governor Raghuram Rajan has said that in hindsight it appears that the central bank under his governorship could have managed the liquidity in the banking system in a better manner on certain occasions. Rajan, however, added that once the problem of liquidity shortage was thrown up by the data, the central bank acted promptly to retrieve the situation. “There is one place we did not recognise that the liquidity was tightening in the system,” he said, adding that “once I saw it in the data, we took a decision very quickly to move towards neutrality, but it was something that I should have seen earlier”. He was responding to a question if he wanted something to do differently in hindsight during his three-year tenure as RBI governor. In an interview, he said, he wished he could have acted a couple of months in advance to ease liquidity situation. “We were operating from a system of liquidity deficit, which is how the RBI always operated. But it wasn’t working well in that environment. So having recognised that probably a little later than we should have recognised, we moved it to a neutral liquidity position. So, that’s the place I think I could see that happen a couple of months earlier,” he said. There was a tight liquidity situation in the banking system in the second half of 2015-16 and it was addressed at the April 2016 policy. As a result, banks were delaying easing of monetary policy transmission to the customers.
Farm debt waivers may lead to 20-bps permanent rise in inflation: RBI study (BS 12.09.17)
A study by the RBI staff says that if the combined fiscal deficit of the states on account of farm debt waivers goes up by 40 basis points to 5.9% of gross domestic product, there could be around a 20-basis-point permanent increase in inflation, starting 2017-18. One basis point is a hundredth of a percentage point. This is not the official view of the RBI, but of some of its research staff, but the central bank has been warning about the impact of farm debt waivers on inflation and interest rates. RBI Governor Urjit Patel in a recent speech said farm debt waivers eventually pushed up interest rates for the whole economy. The recent spate of farm debt waivers, starting 2014, has reached Rs 1.3 lakh Cr and more states are due to announce their versions of waivers. The RBI staff study estimates other states could end up waiving another Rs 40,000-57,000 Cr of farm loans in all. In 2017-18 itself, the loan waiver amount likely to be released would be around Rs 88,100 Cr, the staff study estimated, which would be 0.5% of gross domestic product. This may lead to additional market borrowing, and pruning wasteful expenditure, and, as result, the consolidated gross fiscal deficit may rise by 20-40 basis points.
RBI's Dollar Buys Hit 3-Yr High in Aug (ET 12.09.17)
The central bank's US dollar purchases in the forward market hit a three-year high of $9.4 billion last month as the regulator sought to cushion the impact of a surge in inflows of the currency. The purchases are the highest since June 2014, when inflows began rising after a record fall that had been induced by the taper tantrum. The Indian rupee is among the best performers this year among emerging markets, and it has climbed about 6% this calendar year against the US dollar. The RBI’s net purchases in the spot market amounted to $2.9 billion in July , according to the latest data released by the central bank. “The RBI may have done swap transactions which are liquidity neutral,“ said Soumya Kanti Ghosh, chief economic adviser at SBI. “The central bank does not want to hurt the liquidity in the system through its intervention measures. Outright forwards purchases may also impact the forwards premia”.
National Pension System joining age limit to be raised to 65 years (BS 12.09.17)
The upper age limit for joining the National Pension System (NPS) will shortly be increased to 65 years from the current 60. Announcing this, the Pension Fund Regulatory and Development Authority Chairman Hemant Contractor said at a conference here, that the board had already approved the change and it would be notified shortly. “NPS is currently open for people between 18 and 60, and our board has approved raising the age limit for joining to 65,” Contractor said. “The scheme anyway has the option of continuing and making contributions up to the age of 70,” he added.
SBI Life gets SEBI’s go-ahead for IPO (BL 12.09.17)
SBI Life has received capital market regulator SEBI’s approval to raise an estimated Rs. 6,500-7,000 Cr through its initial share sale offering. The company had filed its draft red herring prospectus (DRHP) with Sebi in July and got “observations” from the regulator on September 4, which is very necessary for any company to launch a public offer. Besides, three insurance players — HDFC Standard Life Insurance Company, General Insurance Corporation of India (GIC Re) and New India Assurance Company — are awaiting SEBI’s nod to float their respective IPOs, showed the latest update with the markets regulator. SEBI has sought “clarifications” from the insurance watchdog Irdai with regard to initial share sale offer of HDFC Life. Besides, clarifications are awaited from merchant bankers of (GIC Re) regarding its IPO while draft offer documents of New India Assurance are currently “under process“. According to the draft offer documents, SBI Life’s public issue involves its promoters offloading up to 12 Cr shares of face value of Rs. 10 each through the offer of sale route. State Bank of India will dilute up to 8 Cr shares while BNP Paribas Cardif SA will offload up to 4 Cr. Sources said SBI Life is looking at raising Rs. 6,500-7,000 Cr through the issue.
Can govt. staff select own fund manager for NPS? PFRDA expects decision in a month (BL 12.09.17)
Pension regulator PFRDA is hopeful of a final government decision within a month over allowing the nearly three million Central government employees choose their own fund manager as well as investment allocation for their National Pension System (NPS) contributions. Currently, Central government employees have no say on the matter of choice of fund manager or investment allocation, as both are decided by the government. The equity allocation is currently capped at 15% for government employees. All NPS contributions of Central government employees are being distributed evenly across three public sector fund managers — LIC Pension Fund, SBI Pension Fund and UTI. For non-government employees, the equity allocation can be as high as 50%. “Our surmise is that within a month or so, the government will take the final call. We have been pushing for it for one year now. The committee set up under the aegis of Personnel Ministry with representation from Department of Financial Services has finalised its report,” Hemant Contractor, Chairman, PFRDA said. He said PFRDA had no information on the content of the report or whether the committee had recommended flexibility to government employees. The pension regulator had urged the Centre to allow Central government employees to have the “same choices” as available to non-government employees. This would mean government employees getting an option to take their equity allocation up to 50%. It may be recalled that the Seventh Pay Commission, too, had made a case for widening the choice for Central government employees.
Aamby Valley to go under the hammer as SC rejects Sahara plea for more time (BS, FE 12.09.17)
The Supreme Court directed the Sahara group’s Rs 37,000-Cr luxury township Aamby Valley be auctioned as scheduled. Calling the group “an abuser of process of law”, it turned down requests to give a two-month-long extension for paying an instalment, which was due last week. Of the Rs 1,500 Cr due for payment on September 7, the group had paid only around Rs 530 Cr and offered post-dated cheques payable by up to November 11, for the remaining Rs 970 Cr. “We direct without any hesitation that the auction shall be held as per the direction given by this court and the official liquidator is permitted to carry out the auction as per procedure,” a Bench of Chief Justice Dipak Misra, and judges Ranjan Gogoi and A K Sikri said. It appointed the registrar general of the High Court of Bombay as an observer “to remain personally present to oversee the physical auction at the auction venue at Mumbai.”
‘With low jobs growth, investment, consumption story set to end’ (BL, FE 12.09.17)
The ongoing consumption demand that began in fiscal 2012 is unsustainable given the poor employment growth as private sector investments still remains a far cry and this growth story may get hard stop sooner than later, warned a brokerage in a report. According to Ambit Capital, despite the slowdown in income and employment growth between FY12 and FY17, private consumption continued to grow at a rapid pace, especially in categories like FMCG and passenger vehicles “showing resilience”. As per the brokerage, the rise of consumption growth over FY12 to FY17 has been driven by higher retail credit. “As corporate credit demand waned over 2011–12 to 2106–17, both NBFCs and banks pushed retail credit aggressively. The retail credit-GDP ratio rose from 13% to 16% in 2016–17,” Ambit said. However, it noted the “current bout of consumption growth appears unsustainable mainly because consumption boom has uniquely been accompanied by a contraction in the investment-GDP ratio” to 7% during FY12 to FY17, while the ratio for consumption-GDP is 3%. “Cross-country evidence suggests that only consumption booms that are accompanied by an increase in investments tend to be sustainable as this is a tangible proof of jobs being created and/or efficiency improving,” it said where the averages of these have been 4% each. The report also noted that the current retail credit-funded consumption binge is likely to experience a “hard stop” sooner than later on basis of various trends, including a plunge in consumer confidence to a four-year low during the first quarter of the current fiscal. “Besides, households’ savings ratio at an 18 year low and retail NPA problems have begun to emerge particularly in the housing finance segment — are also factors which could effect retail credit-funded consumption,” Ambit said.
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