No relief for UTI lenders
Tatas line up grocery chain
Austerity drive at Modi Rubber

 
 
NO RELIEF FOR UTI LENDERS 
 
 
FROM VIVEK NAIR
 
Mumbai, Aug. 12: 
The Reserve Bank of India (RBI) has turned down a proposal from banks providing rescue loans to US-64 to classify the credit as general purpose loans.

Instead, they will now be treated as loans against shares. Sources close to the central bank said the request for exemptions was denied after the equity exposure of all banks participating in the bailout plan were examined.

The scrutiny convinced the RBI top-brass that banks investing in the revival of UTI’s flagship scheme would retain their exposure within 5 per cent of their incremental deposits.

“We examined whether the assistance would push up banks’ equity exposure surpassing the limit and found that it will be well within this cap. Therefore, there is no need for us to give them an exemption or to classify these loans separately,” the sources said.

Figures available for the previous financial year (2000-01) show that public sector banks that account for the bulk of advances and deposits pumped in 0.49 per cent in equity, down from 0.53 per cent in 1999-2000. On the other hand, the entire banking sector invested 1.76 per cent of its total advances in stocks.

The RBI move is likely to come as a disappointment to banks which had feared an increase in equity exposure because of the investments made in the rescue package for UTI’s crisis-racked fund.

They had, therefore, approached the central bank, asking it not to classify the loans to the mutual fund major as exposure to the capital market.

A consortium of banks has indicated its willingness to lend a beleaguered Unit Trust of India around Rs 3,000 crore, of which State Bank of India alone has made a commitment of Rs 1,500 crore.

Despite the promises, sources said the disbursements will ultimately hinge on the requirements put forward.

Senior officials of UTI said though they have tied up the lines of credit with several nationalised banks, they expect to tide over their present cash crunch without actually borrowing from them. One reason for this is that US-64 has not been buffeted by the wave of redemptions feared when the scheme opened to partial repurchases this month.

The reluctance of investors to encash 10,000 units each at a face value of Rs 10 has given the UTI brass time for a much-needed repair job.

Early this year, the RBI had stipulated that the 5 per cent ceiling on investments in shares will apply to total exposure of a bank to stock markets in all forms. It will cover direct investments in equity shares, convertible debentures and units of equity oriented mutual funds, advances against shares and debentures, and guarantees issued on behalf of brokers.

According to the RBI, the 5 per cent ceiling will be computed in relation to the total advances (including commercial paper) as on March 31, of the previous year as against total outstanding domestic credit as on March 31 of the previous year under the earlier guidelines.

   

 
 
TATAS LINE UP GROCERY CHAIN 
 
 
FROM SATISH JOHN
 
Mumbai, Aug. 12: 
Trent Ltd, the Tata group’s retail arm, is planning to set up a chain of grocery stores in the country. Recently, the company had set up Westside, a premium readymade apparel chain, in leading metros across the country.

The board has approved opening of 100 grocery stores. The company is yet to decide on a suitable name for the supermarket chain. “We are still working on it,” said a senior official.

The stores are expected to be set up in the self-service supermarket formats, he added. It will sell food and non-food items, including wet groceries.

The official did not rule out possibilities of acquisitions by Trent in this segment.

Considering the huge logistics involved in such a project, the company will initially concentrate on setting up supermarkets in the west and north.

The supermarkets will retail meat, vegetables and in-house farm produce, like mushrooms, strawberries from Tata Tea.

Meanwhile, the company has positioned Westside as a family store aimed at the middle and upper end of the market. Trent has already set up seven stores in leading metros and plans to penetrate further in the metros and mini metros.

Interest income, Trent’s major source of revenue, is likely to be impacted as interest rates decline. However, the company will carry out treasury operations for some time pending utilisation of funds in its retail business. The shortfall is expected to be made up by the retail business.

The textile and clothing business is around Rs 87,000 crore , 22 per cent of which comprises readymade garments with only Rs 4000 crore in branded apparel. The company feels this sector has tremendous market potential.

   

 
 
AUSTERITY DRIVE AT MODI RUBBER 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Aug. 12: 
Alok Modi, son of V.K. Modi, is expected to shortly take over as the new chief executive of Modi Rubber. The ailing tyremaker—in which the promoters Bhupendra and Vinay Kumar Modi raised their stake to over 50 per cent through an open offer early this month— also plans salary cuts as part of a cost-cutting drive and is mulling the sale of its non-core assets.

Sources said the company was also considering a proposal to shift its corporate headquarters to Modipuram from Delhi.

“Talks are on to induct Alok Modi as the new CEO and also slash our staff costs,” managing director B.K. Modi said, hinting at even retrenchment of surplus labour. The company is also planning to appoint a professional as its new chief financial officer.

According to B.K. Modi, the company is hoping to secure a Rs 80-crore short-term cash infusion from banks.

The funding plans had been stalled because of the battle with the financial institutions and banks over management control and the adoption of a group approach to lending which resulted in MRL being considered as a wilful defaulter on previous loans.

“We have embarked on a major cost-cutting exercise which includes selling off our non-tyre assets, cutting the salary of staff and streamlining our operations which will raise our capacity utilisation from the current level of 65 per cent,” B. K. Modi told The Telegraph.

For the quarter ended June 30 this year, MRL reported a higher net loss of Rs 8.66 crore on net sales of Rs 166.5 crore against a net loss of Rs 7.83 crore on sales of Rs 218.54 crore during the same period previous fiscal.

“MRL’s in-house strategy group is about to finalise the future plan in a week’s time based on which we will draw up our plans,” Modi said.

He said the long-pending plans for expansion with Continental Tyres will only be taken up once the Modis have the required 51 per cent controlling stake in MRL.

“We hope to have a 51 per cent stake soon even if we exclude the disputed 12 per cent shareholding of Life Insurance Corporation which was tendered in response to our open offer and the Modipon and Modi Spinners stake. The rest we can buy from the market if required,” B.K. Modi added.

   
 

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