FII stake cap in banks at 49%
Branch muscle not enough, says Sinha
Govt wary of partner for UTI
Open offer exemption for Thapars
Tatas’ offer for CMC at Rs 281
Air-India cuts jobs, closes units overseas
Gilt auction fires rate cut hopes
Rakesh Mohan puts in papers
Tatas to invest Rs 3,555 cr in basic telephony
Foreign Exchange, Bullion, Stock Indices

 
 
FII STAKE CAP IN BANKS AT 49% 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 12: 

Investment tied to FDI ceiling

Foreign institutional investors (FIIs) can increase their stake in banks up to 49 per cent — the sectoral limit set for foreign direct investment.

The Reserve Bank of India (RBI) had shot off a letter to the finance ministry seeking clarification on whether the FII limit is in addition to the present FDI cap.

Clearing the air, the finance minister Yashwant Sinha today told reporters on the sidelines of a conference organised by Infosys Technologies that the maximum upper limit of investments by foreign financial institutions and foreign direct investment together in banks and financial institutions has been pegged at the maximum permissible limit for the sector.

There was some confusion over whether FII investments can go up to the levels set for FDI or whether the two — FDI and FII— together make up the sectoral limit. The problems arose out of a government notification in the past stating that the portfolio investment of FIIs cannot be clubbed with FDI till further clarifications.

While private banks enjoy a limit of 49 per cent, public sector banks and State Bank of India have a maximum limit of 30 per cent and 20 per cent respectively. The new FII limits will be pegged around those levels, he indicated.

Sinha also indicated that his government borrowing programme would be limited to the budgetary estimates as the economy continued to be under strains, following difficult external situation.

Speaking informally to the press, Sinha said his ministry had already announced various incentives including enlargement of duty drawback schemes to exporters, who are currently facing a severe adverse environment to boost their exports, particularly, after the imposition of high war time insurance premiums on shipping and aviation sectors.

On the million dollar question of whether the Reserve Bank would bring about a bank rate cut, Sinha said his ministry does not tread into RBI domain. The Reserve Bank of India would deal with the level of interest rate, currency valuation and other monetary matters at an appropriate time and he has nothing to say on this.

Sinha said any changes in domestic interest rates would be decided by the central bank. “I have always maintained that monetary policy is strictly the domain of the central bank. Any decision on cutting interest rates, the depth of the cut, the timing of the cut, will be decided only by the Reserve Bank of India,” he said.

Debt market circles have been expecting the Reserve Bank of India to lower the benchmark bank rate in the forthcoming monetary policy to be announced in October 22, in line with trends overseas. Asked about the expected gross domestic growth rate for the current fiscal, Sinha said he did not have any target in mind.

   

 
 
BRANCH MUSCLE NOT ENOUGH, SAYS SINHA 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 12: 
Public sector banks may find their that having branch muscle will not be enough to take on their nimbler private counterparts, who add customers simply by setting up automated teller machines (ATMs).

Arguing that branches will not drive growth of the banking industry in future, finance minister Yashwant Sinha said technology must be embraced to face the heat of competition. He cited the example of off-site ATMs, which are fast obviating the need for branches and delivering better-quality services to customers.

“The vast network of branches of public sector banks may turn from strength to liability,” Sinha suggested. He gave the example of Citibank, which added 1.5 lakh new customers without opening any new branch. The customers of this account are offered all the services through ATM or Tele/internet banking.

With technology, better care is being taken of the security aspect of transactions, Sinha said, touting the benefits of new-age banking. “Earlier, signature/cheque-book series were used for security; today, it is PIN/password. Tomorrow, it will be smart cards or even Biomatrix whereby keyboards enabled to read finger prints or codes of smartcards will be in vogue.”

In such a scenario, the size of branch network will not be as important as its ability to use the network for your business development and profit maximisation. The branch concept may take a back seat in the next three to four years and the banks, even without branches would be attracting customers customers and those would be happiest who shall not have to wander to pillar to post for their various banking needs.

Banks have to prepare themselves for such a scenario from now itself, and have to equip their staff and technology in such a way that they meet the growing demands of the customers.

The minister declared that technology, legal reforms and international standards alone can provide an enabling framework for globalising banks. Declaring that legal reforms are under way, he said: “You cannot have a financial system in which there is no sanctity of contract.”

   

 
 
GOVT WARY OF PARTNER FOR UTI 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Oct. 12: 
A tussle has broken out between the finance ministry and the Unit Trust of India over the Malegam panel’s recommendation that a strategic partner be brought in to run the country’s largest mutual fund. While the Malegam panel and a section of the UTI board favour bringing in a strategic partner to infuse professionalism, the finance ministry does not feel this is the right time.

Though the finance ministry’s economic advisor Rakesh Mohan indicated to newspersons here today that the Malegam report is yet to be circulated to the board and would take some time to be studied, sources said the ministry was not happy with the move to bring in a strategic partner. The Malegam panel has been appointed by the UTI to help it restructure and improve functioning.

“We don’t want to draw more adverse attention to UTI. Nor will privatisation of UTI help matters at this juncture,” officials said, explaining why they opposed the move to rope in a strategic partner.

UTI, which has the savings of some 2 crore investors under its care, may itself need some special care and another bail-out package from the government. With redemption for several key UTI schemes due next year, it is feared the mutual fund major may face another crash crunch around that time. Finance ministry officials argue if UTI remains a state run company, it would be easy for the government to extend help.

   

 
 
OPEN OFFER EXEMPTION FOR THAPARS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct. 12: 
The Securities and Exchange Board of India (Sebi) has exempted the Thapar group of companies from the provisions of the takeover code, a move which the Thapars had long been demanding on the plea that the group re-organisation being undertaken was part of a family settlement.

The market regulator exempted the acquisition and realignment of voting rights of the Thapar group from the provisions of the takeover code, especially from the need to make an open offer on acquiring more than a 20 per cent share in a company.

The applications for exemption were made after the four Thapar brothers, sons of the Late Lala Karam Chand Thapar, reached an amicable settlement on November 9 last year for dividing the family wealth amongst them.

A presentation was also made to the financial institutions at that time. The arrangement provides for the total businesses and assets to be divided into four groups. Now, with Sebi’s seal of approval, last year’s settlement now becomes effective, a company spokesperson said.

In the four-way split arrangement finalised last year, Inder Mohan Thapar got KCT Coal sales, Water Base and India City properties. Brij Mohan Thapar got BILT Chemicals, English India Clays, Bharat Starch Industries and Crompton Greaves.

Lalit Mohan Thapar got Ballarpur Industries and APR, while JCT, Greaves and JCT Electronics was assigned to Manmohan Thapar. It was decided that affiliates of the principal companies will be under the control of the main company.

The acquiring companies have been asked by Sebi to complete the acquisition order within 30 days, that is by November 8 this year.

The spokesperson added the Thapar group has about 100 listed and unlisted companies, which will now be divided into four major groups. After Sebi’s approval, formalising the family settlement will take more than a year, he said. These include steps to reconstitute the boards of companies, consolidation of group holdings and restructuring of holdings of the four groups through reconstruction under the relevant sections of the Companies Act.

The implementation of the family settlement will be co-ordinated by S. K. Khandelwal, vice-president, Ballarpur Industries Limited.

   

 
 
TATAS’ OFFER FOR CMC AT RS 281 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 12: 
Tata Sons today came out with the much-awaited open offer for CMC Ltd at a price of Rs 281.26 per share, putting an end to speculation on whether it would abide by the Securities and Exchange Board of India’s (Sebi) guidelines on the issue.

The Tatas had acquired the government’s stake in CMC Ltd at their bid price of Rs 197 per share, which was way below the market price.

Once it bagged CMC at a cost of Rs 152 crore, there were doubts as to whether the Tatas would make the open offer at Rs 197 per share, or whether they will stick to Sebi rules, which stipulate the open offer price should take into account the six months’ average price.

In a communication issued to the stock exchanges, DSP Merrill Lynch Ltd, on behalf of Tata Sons Ltd, said the holding company of the Tata group is making an open offer to the shareholders of CMC for acquiring up to 25,27,800 fully paid-up equity shares, representing around 17 per cent of the outstanding equity share capital of CMC at a price of Rs 281.26 per share, payable in cash.

The total fund requirement for the acquisition of these equity shares from the public shareholders under the offer in CMC is Rs 71.09 crore. The offer, which will open on November 27, closes on December 26.

On the Bombay Stock Exchange (BSE) today, the scrip today closed at Rs 271.55 after opening at Rs 273 and dipping to a day’s low of Rs 267.80. The counter saw 694 trades, resulting in a turnover of Rs 2.39 crore.

CMC had once seen several bidders pitching in for the government’s stake.

However, many of them withdrew from the race. Among the domestic conglomerates, the A V Birla and the Reliance groups were the key players which withdrew from the race.

   

 
 
AIR-INDIA CUTS JOBS, CLOSES UNITS OVERSEAS 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Oct. 12: 
The government today asked Air-India to shut down some 20 out of its 67 overseas stations and retrench 142 of its employees there.

The move, which also involves abolishing four director level posts is expected to save the airline some Rs 21 crore annually.

The directive follows the recession gripping the airline industry after the September 11 attacks in the US which employed hijacked aircraft to reduce the twin tower World Trade Center to rubble.

Airline bottomlines have already shrunk and A-I is expected to turn in a hefty loss in the third quarter of this year.

Several global airlines such as KLM have announced massive lay-offs, others including United Airlines cuts in schedules and some including Swissair have even grounded their fleet.

Ministry sources said the airline has been asked to shut down 20 out of its 34 offline stations, including those at Boston, Prague, Belgrade, Manchester, Cairo, Teheran and Johannesburg. Besides, 10 stations including Washington, Rome, Brussels and Sydney are being downsized drastically. These alone will save the airline some Rs 7 crore annually.

Out of 76 staff at these stations, some 52 are being handed pink slips immediately.

Another 90 employees will be retrenched in two phases from 33 online overseas stations where a similar downsizing plan is being put in place, which means savings of another Rs 21 crore annually.

The airline, with a staff strength of 17,690 and a fleet of just 24 aircraft, has a staff-aircraft ratio at over 730, which is undoubtedly the highest in the world.

Airline officials said the decision to shut down or downsize stations was taken after a detailed study of the revenue earned by them, their establishment cost, geographical territory covered by them and operation of code-share flights with foreign carriers flying to those destinations.

   

 
 
GILT AUCTION FIRES RATE CUT HOPES 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 12: 
Expectations that the cash reserve ratio (CRR) would be cut by 25-50 basis points have mounted after a huge auction of dated securities — likely to suck away Rs 8,000 crore from the system — was fixed for Monday.

The feeling is that the Reserve Bank of India (RBI) may announce the CRR cut before the October 22 monetary and credit policy with some optimists of the belief that it may happen even within the next couple of days.

It is largely expected that the central bank may announce a 50 basis point cut in CRR to 7 per cent that may release Rs 4,500 crore into the system and thus ease the tight liquidity conditions following the auction. Such an optimism today led to government security prices recovering from their lows and inter-bank call money rates also closing steady at 7.10 per cent, after rising to an intra-day high of 7.50 per cent.

“The cut in CRR can be expected, if one were to go by the RBI’s stance of providing liquidity and easy interest rates. However, the big question is when’’, avers Sanjeet Singh,” senior debt analyst at ICICI Securities.

Singh added that with the credit policy around the corner, the central bank is likely to go ahead with the CRR cut only on October 22.

However, there are others who disagree. A dealer from one of the private sector banks said that the cut is likely to happen within the next few days as the upcoming credit policy will focus only on developments with regard to the economy and omit any monetary policy announcements.

The official added that apart from CRR, the central bank could also use other instruments like a reduction in repo rate to enhance liquidity in the system.

The RBI had yesterday announced the auction of 10.18 per cent, 2026 stock for an amount of Rs 2,000 crore and a 14-year stock for Rs 6,000 crore.

While these two auctions, would thus take away Rs 2,000 crore from the market, sources say that the state government auction earlier had also seen an outflow of over 2,000 crore from the banking system.

“We are thus witnessing an outflow of Rs 10,000 crore from the system. Therefore, liquidity could come under pressure and call money rates may go close to 8 per cent. In such conditions, expectations of a CRR cut today comforted the markets’’, a dealer commented.

Money market circles opine that of these two securities for which auction will be held on Monday, while the 25-year security is likely to sail through, the 14-year bond may witness devolvement as it does not command much appetite.

Earlier, speculations were rife that the RBI would indulge in a Bank Rate cut. However, optimism in this front have receded and it is now believed that there would be a reduction in CRR.

   

 
 
RAKESH MOHAN PUTS IN PAPERS 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Oct. 12: 
Top economist Rakesh Mohan is quitting his job with the government to go back to a tenure with the Infrastructure Development Finance Corporation (IDFC).

Sources said finance minister Yashwant Sinha had tried to get Mohan to stay back and had in fact held out promises of re-designating him chief economic advisor, a coveted title which he was never accorded even though he was doing the job.

Mohan who had joined as advisor to the ministry, announced his decision to quit today, just nine months after he took over from Shankar Acharya. “I have indicated to the finance minister that I would like to be relieved,” he told newspersons.

There have long been speculations of Mohan not being able to get along with finance secretary Ajit Kumar and of being piqued with Kumar for denying him the CEA rank and status. However, Mohan tried to make light of these rumours, stating he was leaving for “personal reasons.”

“I have indicated that I would like to be relieved by October 31 and go back to IDFC,” Mohan said.

   

 
 
TATAS TO INVEST RS 3,555 CR IN BASIC TELEPHONY 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct. 12: 
Tata Teleservices will invest Rs 3,555 crore in the Delhi, Gujarat, Tamil Nadu and Karnataka circles to roll out its basic telephone services.

The company has also decided to merge its internet service company Tata Internet, which offers services under the Tatanova brand name, with Tata Teleservices Ltd.

The company will also provide national long distance services (NLD).

TTL plans to invest about Rs 1,700 crore in the first phase of its operations and the rest would be added after two years. It will have a debt component of Rs 1,780, with in a debt equity ratio of 1:1.

“Initially, we will bring in resources from three group companies—Tata Electric, Tata Industries and Tata Steel—and after the end of the first phase of operations we may allow other partners, like vendors, to pick up a stake, or we may also go public,” said S. Ramakrishnan, managing director, Tata Teleservices Limited. “Multilateral institutions and banks, both domestic and foreign, may be roped in as strategic or financial partners. We will soon take a decision on this aspect.”

TTL has already paid the entry fee of Rs. 175 crore and has also furnished performance bank guarantees amounting to Rs 700 crore as part of signing the four licences.

The company has received the letter of intent for 15 basic service licences and has been given an extension of the letter of intent for Maharashtra, Haryana, Punjab, Rajasthan and Kerala till the end of this month.

“We have more or less decided on signing the licences for the five circles for which we have letter of intent, but a final decision will be taken in the last week of this month. We may have to drop a few circles if the strategy to connect all the circles does not fall in place,” a senior company official said.

The company will also set up village public telephones in 500 villages in Andhra Pradesh.

The company had earlier claimed that it longer needed to fulfil its VPT obligations since it was a component of the licence signed in the pre-revenue sharing regime and post-migration, it should be treated as a new licencee. This was rejected by the telecom ministry and the company will now have to connect about 10,000 villages in Andhra Pradesh.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.03	HK $1	Rs.  6.10*
UK £1	Rs. 69.46	SW Fr 1	Rs. 28.80*
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*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4765	Gold Std (10 gm)Rs. 4700
Gold 22 carat	Rs. 4500	Gold 22 carat	    NA
Silver bar (Kg)	Rs. 7575	Silver (Kg)	Rs. 7610
Silver portion	Rs. 7675	Silver portion	    NA

Stock Indices

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BSE-100		1358.39		+ 5.41
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