UTI Bank caught in the parental act
Slow reform draws S&P rating fire
Penalty for delays in bad loans spotting
Sterlite offers Rs 200 a share to buy back 25%
CSE fails to decide on ED’s extension
Rs 354-cr Agrani proposal cleared
Unity mantra for infotech firms
Subramanyam, 3 others get bail
Mobile mystery deepens
Foreign Exchange, Bullion, Stock Indices

New Delhi, Aug. 7: 
Big brother is in deep trouble—but the little sibling has created a small mess of its own.

UTI Bank went way over the top by racking up an equity exposure of a whopping Rs 519 crore, or nearly 11 per cent of its total advances as late as May 31 this year. That’s more than twice the prescribed “safe exposure” limit for banks set by the Reserve Bank of India.

The central bank has already issued a letter of displeasure to the bank which has been floated and run by the Unit Trust of India. RBI also ordered the bank to freeze its existing limits to stock brokers and initiate moves to reduce its capital market exposure.

UTI Bank, which was forced to pull back from a merger with Global Trust Bank at the start of this year, was quietly extending huge overdraft facilities to a number of market players, including Cyberspace-linked Century Consultants. Century, which is run by Anand Johri, now in CBI custody, was sanctioned overdraft limit of Rs 20 crore.

Banned broker Nirmal Bang was also among those who enjoyed an overdraft limit of Rs 10 crore with the bank through his firm Nirpan Securities. Bang was reportedly part of a bear cartel that tore down the Bombay Stock Exchange sensitive index within days of the last Union budget’s announcement.

With UTI and its links with Johri’s Cyberspace already coming under a cloud, links between a sister concern also run by Johri and a bank run by the giant mutual are likely to pose new difficulties for the BJP government, especially as there are allegations that undue pressure from the Prime Minister’s Office (PMO) was brought on UTI to force it to invest in Cyberspace.

Two other big broker firms to enjoy a huge overdraft limit were Ajay Kayan’s Calcutta-based SMIFS Securities and C. Mackertich Ltd with sanctioned sums of Rs 35 crore and Rs 20 crore respectively.

Bull broker Param Kalra’s CFL Securities also enjoyed an overdraft limit of Rs 30 crore.

The total outstandings from brokerages to the bank as on March 31 this year stood at more than Rs 216 crore.

A report on UTI Bank’s shenanigans, which is now before the finance ministry, clearly reveals it contravened RBI’s prescription that banks should not have an exposure of more than five per cent to the capital market during both the bull and bear phases faced by the stock markets.

The bank, in fact, had an even higher exposure in January when the bulls were rampaging through the bourses. It had lent out for share purchases or itself invested in shares worth Rs 633 crore or 18 per cent of its total advances. Ministry officials were appalled by the revelation which they felt “was extremely dangerous.” Much of the money was advanced in the form of overdrafts to stockbrokers.

Attempts are still being made to find out why the bank was so keen on playing the market. “We have found out it did not have any exposure to big bull Ketan Parekh or his associates personally ... but that still does not explain the heavy market investments,” officials said.

Among others who were granted huge overdraft limits by the bank were Tropical Finance & Investments which had a sanctioned limit of Rs 30 crore, Keynote Securities and Motisons Securities with limits of Rs 15 crore each and Claridges Finance, Shubhkam and Milton Finance with permitted limits of Rs 20 crore each.

In two cases, the amount outstanding as on March 31 was higher than the overdraft limit sanctioned—Motisons Securities whose outstanding stood at Rs 15.57 crore (Rs 57 lakh higher than the sanctioned limit) and Rolta Brokers which had crossed its sanctioned limit by Rs 12 lakh.


Mumbai, Aug. 7: 
Standard & Poor’s (S&P), the international credit rating agency, today ticked off a reform-challenged government by downgrading the sovereign long-term rating outlook from stable to negative for messy public finances and the stop-go privatisation of lumbering public sector undertakings (PSUs).

The long-term local currency credit rating has been brought down to “triple B minus” from “triple B” but the “double B” long-term foreign currency rating and the “B” short-term foreign currency rating have been left unchanged in the rejig.

The move is likely to send the forex, money and stock markets into a tailspin when trading opens on Wednesday. Signs of it were witnessed in the government securities market today, when gilt prices tumbled on the report of the downgrade. The yield on the benchmark 10-year government security jumped to 9.35 per cent from 9.30 per cent. Money markets are expected to be buffeted by a selling wave in the days ahead as the jitters spread.

The inter-bank forex and stock markets came to know about the revision after trading closed, so there wasn’t much of a reaction. Even so, the feeling is the rupee will open weak against the dollar on Wednesday, and pessimists predict a plunge to 47.20.

Bank officials were more tempered in their response, saying the impact of the rating drop will be limited to the markets and will not affect the investment climate. “There would be some correction in the markets. I don’t think it will affect sentiment in a big way,” said N Balasubramanian, general manager of ICICI.

According to S&P, the local currency rating downgrade reflects its concern over unchecked budget deficits and rising domestic indebtedness. The government budget deficit, which includes those of the central and state governments, is likely to shoot past 10 per cent of gross domestic product (GDP) this year. Government debt could touch 70 per cent of GDP, or more than 400 per cent of its revenues — higher than most similarly rated countries.

“The outlook revision reflects mounting worries that public finances might worsen further in the years to come as vested interests continue to thwart public sector reforms,” the agency said.

The country’s political leadership, it said, was reluctant to forego patronage opportunities which arise from a bloated public sector, undermining the credibility of a plan to privatise the country’s 240-odd PSUs.


Calcutta, Aug. 7: 
The Reserve Bank of India (RBI) is examining delays in the identification of banks’ non-performing assets (NPAs), especially in the case of big loans. It has told officers they face deterrent action, including imposition of monetary penalties, if they are found stalling the process of tracking down bad loans in time.

Top officials of RBI’s department of banking operations and development (DBOD) told The Telegraph from Mumbai that they have come across instances of banks not complying with prudential requirements and cases where auditors, RBI’s inspecting officers and banks have presented conflicting assessments on non-performing assets. “The RBI’s board for financial supervision, therefore, wants to find out why such wide differences have persisted over time.”

High-value loans account for more than half of Rs 60,000crore NPAs that have saddled banks in the country. “The delay or postpone the identification of NPAs, especially in the case of high-value accounts, is a serious offence. We have asked the banks to fix a minimum cutoff point to decide what would constitute a high-value account, depending on their respective business levels.

This point should be valid for the entire accounting year. “Doubts on asset classification should be cleared through internal channels within a month from the day the account would have been classified an NPA,” the RBI official said.

The central bank has identified three major areas of concern: non-compliance with guidelines, improper asset classification/provisioning and differences in valuation of security by banks, statutory auditors and RBI.

“We have noticed that banks have not identified working capital accounts as NPA even though the company has not submitted its stock statement regularly. Banks should ensure that drains in working capital accounts are covered by adequate assets. Current assets are first appropriated in times of distress.

Stock statements that banks rely on to determine drawing power of big borrowers should not more than three months old. Drawing power calculated on the basis of statements older than three months would be deemed irregular,” the RBI official said.

A working capital account will become an NPA if such irregular drawals are permitted in the account for a continuous period of 180 days, irrespective of the unit’s operational status and borrower’s financial soundness.


Mumbai, Aug 7: 
Sterlite Industries (India) Ltd today announced a price of up to Rs 200 per share for its proposal to buy back 25 per cent of its equity capital.

News about the buy-back saw the scrip rising sharply on the bourses today and it represents a handsome premium to the prevailing market price. Opening at Rs 111.80, the scrip rose to an intra-day high of Rs 125.35 upon the announcement. It finally closed at Rs 119.85, a jump of over 8 per cent.

The company, in a communication to the exchanges today, said it intends to buy back a maximum of 1.39 crore shares, of face value Rs 5. It added the offer will open on August 13 and close on November 30, or when the company has completed the buy-back under the offer, whichever is earlier.

The group had only recently announced a buy-back proposal for another company, Sterlite Optical Technologies Ltd.

Earlier, Sterlite Industries had demerged its telecom business into a separate company, while merging group company Madras Aluminium Company Ltd (Malco) into itself, to create a focussed non-ferrous mining and metals company.

This was based on a restructuring proposal recommended by Arthur Andersen India.

Sterlite Opticals now plans to move up the value chain, instead of merely remaining a manufacturer of optical fibre, optical fibre cables.

The company plans to emerge as a telecommunications infrastructure provider.


Calcutta, Aug. 7: 
A meeting of the Calcutta Stock Exchange (CSE) board to decide whether executive director Tapas Dutta should be given another term ended without an agreement. It will meet again on Saturday to discuss the matter.

The board decided to seek the approval of the registrar of companies (ROC) to extend its accounting year 2000-01 by three months. The exchange, which will now have to finalise its accounts by December, managed to avert a constitutional crisis that would have emerged when the year ended in September. If that happened, an annual general meeting would have had to be convened and fresh broker-directors elected in consonance with the laws of the exchange.

However, with the finance minister having told Parliament that stock exchanges would be demutualised and the trading rights, ownership and management separated, electing fresh broker-directors would have been a pointless exercise.

It is widely expected that the ministry will come up with guidelines for demutualisation by the end of this year. There are a couple of models that can be followed: the National Stock Exchange or London/New York Stock Exchange.

Giving reasons for the delay in preparing the accounts of the exchange, executive director Tapas Datta said: “There are various problems relating to the accounts for this year. For instance, the auditors will have to decide what provisions are made for the liabilities incurred with defaulters.”

Meanwhile, the board today made up its mind to suspend trading in DSQ Software soon. The share has already been booted out of the National and Bombay stock exchanges.


New Delhi, Aug. 7: 
Foreign direct investment proposals worth Rs 980 crore, including one from the Subhash Chandra-promoted Agrani Satellite Services, were approved by the government today. The Rs 354.31-crore project of Agrani Satellite Services was one of the 88 FDI proposals cleared by Union commerce and industry minister Murasoli Maran today. While the Agrani project, launched by Zee Telefilms’ promoter Chandra, envisages a 74 per cent equity divestment in favour of a foreign partner to own and operate satellite communication systems, a Rs 178.6-crore proposal by GDF International for restructuring equity also got the nod.

GDF International has sought permission to bring in FDI to develop, import and transport liquid fuel natural gas projects.

HFCL-Nine Broadcasting India Limited proposes to bring in 49 per cent foreign investment, which translates into a Rs 5.9 crore FDI inflow, to develop television software and other related activities. Bharti Telecom Ltd proposes to bring in around Rs 7.35 crore for manufacturing and marketing telecom equipment. Bharti Televentures Ltd will induct a foreign collaborator who will invest Rs 29.4 crore.

Human resources management consultancy Noble & Hewitt (India) Pvt Ltd will increase its paid-up capital by infusing Rs 10.5 crore as FDI.

Among the other proposals is a Rs 20-crore FDI inflow in Vertigo’s advertising hardware purchase and manufacture, involving 100 per cent foreign equity. While the US-based Veritas Software proposes to bring in Rs 23.5 crore over five years to set up software development operations, Timex Watches will get Rs 1.7 crore foreign funds for making quartz analogue watches by increasing foreign equity level to 79.47 per cent.

Schenectady (India) Holdings Ltd’s proposal to acquire equity in HCL has been cleared; the company will bring in Rs 26.32 crore as downstream investment in the field of chemicals and petrochemicals.


New Delhi, Aug. 7: 
Indian infotech companies can take on the world if they rally together to develop products that will raise the consciousness of Indian brands in overseas markets.

“It is important for a few top-drawer software companies to come together and build a brand. Nasscom is doing a fine job, but more needs to be done. Leading companies like Wipro and Infosys should jointly develop software that will create the India brand. They can take on the biggest software companies in world,” said Rolf Jester, regional director and chief analyst of Gartner Dataquest (IT services) for the Asia-Pacific region.

Presenting a roadmap that Indian software companies would do well to follow to fight their way out of the doom-and-gloom scenario that the jeremiads have been painting, Jester said, “Price is no longer a criterion in the US market. It’s quality that matters. The Indian software professionals have proved that they are the best and if Indian companies can produce a ‘India brand’ product, it will be accepted without any doubt.” The IT research consultancy, which is holding a two-day seminar in Delhi, has uncorked a barrel of statistics to show that there is no reason to be spooked by the spectre of an IT slowdown because it simply doesn’t exist. Its analysts have suggested that the Indian infotech companies should focus on applications development integration to tap the resurgence in the worldwide IT sector.

Gartner suggested Indian IT companies should use more sophisticated segmentation techniques and focus on psychographics not demographics. In its roadmap for IT service vendors, the IT research firm suggested that Indian companies should try to extend their market reach to European and Asia Pacific markets.

The firm also recommended that IT companies should focus on projects with short-term payback and invest in relationships with chief executive officers as this will help translate into higher value and greater stability.

An interesting finding was that an increasing number of companies abroad—56 per cent—are “re-centralising” decision making. As a result, buying decision are being taken more by chief executives and his cabal rather than plant and division managers.

Ravindra Datara, principal analyst (India) for IT services and printers, said, “Gartner believes that the composition of revenue will change significantly due to the changing market scenario. Indian IT services companies have already started aggressive efforts to establish presence in the EU countries.”

Gartner has projected that a phase of consolidation wherein the weaker players will fail or be acquired as a result of the intense global competitive pressure.

“We are also likely to witness a large number of strategic tieups as businesses try to focus on their core competencies and outsources other non-core activities to other companies that have these activities as their core competencies,” Jester said.

“There would also be a lot of tieups to gain access to newer markets and technologies in an effort to achieve symbiotic growth through mutual benefits,” he added.


Mumbai, Aug. 7: 
Former Unit Trust of India (UTI) chief P.S. Subramanyam, executive directors M.M. Kapur and S.K. Basu, and stock broker Rakesh Mehta were today granted bail by the special court here. CBI special judge S. R. Mehra, however, rejected the bail plea of Lucknow-based Cyberspace Infosys promoter Arvind Johri and remanded him in judicial custody till August 14. The court stipulated that the Subramanyam-Kapur-Basu trio be released on a bail of Rs 1.5 lakh each, while Mehta was asked to pay Rs 3 lakh.

The judge ordered all the three not to leave the country and the jurisdiction of the special court. The accused have also been directed to co-operate with the probe being conducted by the Central Bureau of Investigation (CBI) and attend the office of the economic offences wing in the city from Wednesday regularly till September 15. All the four were also barred from visiting the UTI offices or those of any public institutions like the Life Insurance Corporation, General Insurance Corporation, SBI Capital Markets and the Bombay Stock Exchange (BSE) till the same period.

The court ordered that the four accused could pay the bail amount in cash and arrange a surety of the same amount.

Earlier, the proceedings, scheduled to start at 11 am sharp, were delayed as the four accused were not produced before the court. It was a long wait for both the court and the relatives of the four accused as the police took their time to bring the four accused from Arthur Road jail, much to the consternation of the judge. A shortage of police staff was later cited as the main cause for the delay in escorting the four accused to the court.

However, the judge took note of the breach and passed orders stating the jailer should ensure that the accused are produced before the court on time. Finally, the judge, after obtaining consent of all parties, decided to go ahead with the proceedings in the absence of the four accused. The quartet finally arrived in the court at around 4 p.m.

Satish Maneshinde, counsel for Subramanyam, told the court that his client was even willing to leave the city if the court feared that his very presence in the city would influence the CBI probe. Mahesh Jethmalani, representing Arvind Johri, told the court that the predicament of his client was like being between the devil and the deep sea. He said even if he was released on bail in this case, the Uttar Pradesh Police would take him to judicial custody in Lucknow.


Mumbai, Aug. 7: 
The mystery of the former UTI chairman P. S. Subramanyam’s second mobile phone took another interesting turn with the Central Bureau of Investigation (CBI) today revealing that the phone was actually registered in the name of a person called Shri Darji.

In its application for the extension of Subramanyam’s remand to police custody, the CBI said the reason behind its application was to “ascertain information available in call details of his personal mobile subscribed in the name of another person, Shri Darji, who is absconding since August 4, 2001.”

The investigating agency claimed that “Subramanyam has admitted to using a personal mobile phone, the particulars of which were disclosed by him only on August 2, not voluntarily, but as a sequel to the examination of some important witnesses and following sustained interrogation.”

Technical data and details of this phone were requisitioned from the cell phone company, and are still awaited. So far the cell phone company has provided the particulars of the subscriber, who is evading appearance before the investigating agency.



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