Jalan does a Greenspan in cash burst
Breather for urban co-op banks
FIs’ dream set to come true
Chambers happy
Bankers sharpen rate-cut knife
Bold, says Sinha
Sebi snubbed on Sterlite ban
NIIT net plummets 57%
Oil bonds in pipeline
Foreign Exchange, Bullion, Stock Indices

 
 
JALAN DOES A GREENSPAN IN CASH BURST 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 22: 
Cutting to cure and pruning for progress — Bimal Jalan’s therapy for an economy floundering on the shoals of a recession and slump-stalked entrepreneurs is to hand out more cash on the cheap.

Following the trail of Alan Greenspan, America’s top money manager and the inspiration for central bankers all over, the Reserve Bank governor opted for a two-way route to high growth. He cut the bank rate by 50 basis points to 6.5 per cent and slashed the cash reserve ratio (CRR) by 2 percentage points to 5.5 per cent in two stages, starting November 3 and December 29.

While a lower benchmark rate — the bank rate as we know it is largely a signalling device — heralds a downward course in rates, a reduction in the reserve ratio puts more money at the disposal of banks for lending.

The CRR cut — taking it to the lowest level in 28 years — will release Rs 8,000 crore into the banking system, of which Rs 6,000 crore will start sloshing around from November 3. A reduction of this size would have normally unlocked Rs 18,000 crore, but for the withdrawal of several exemptions on liabilities (except inter-bank ones). The NRI, FCNR(B), NRE, RFC deposits — all out of the CRR net so far — have been brought into the fold. Banks with large chunks of these deposits are expected to feel the impact of the measure.

In a surprise bonanza, the rate on CRR balances maintained with the central bank has been raised to 6.5 per cent, gifting banks another Rs 1,000 crore in extra cash.

Bank stocks perked up after the package. State Bank closed Rs 25.25 higher at Rs 220.30, Bank of Baroda gained Rs 25.25 at Rs 56, ICICI Bank shot up Rs 5.35 at Rs 89.65 and HDFC Bank edged up Rs 1.25 at Rs 225.60.

The larger-than-expected cuts, Jalan said, were aimed at creating an environment conducive to faster growth.

He pointed to the moderate inflation, softening of interest rates across the spectrum — long-term yields have declined 90 basis points recently — as factors that prompted the central bank to slash rates so sharply.

While he said adequate liquidity should induce the industry to step up borrowings, the removal of exemptions on liabilities are a message to banks to rework asset and liabilities in tune with reserve norms.

In a much-anticipated move, the growth estimate for 2001-02 has been pruned to 5-6 per cent (against 6-6.5 per cent earlier) in the wake of the turbulence in the global economy.

The policy unveiled several initiatives to make the private placement market more transparent, and sought to strengthen prudential guidelines by asking banks to keep close tabs on investments in the non-SLR category.

   

 
 
BREATHER FOR URBAN CO-OP BANKS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 22: 
Urban co-operative banks today got some respite when the RBI extended the deadline for raising their statutory liquidity ratio (SLR) floor. The central bank also relaxed the rules regarding lending against security of shares by these banks.

As of now, urban co-operative banks (UCBs) with net demand and time liabilities of Rs 25 crore and above are allowed to hold a minimum SLR holding of 12.5 per cent. For less than Rs 25 crore the minimum SLR holding is 7.5 per cent. According to the earlier RBI guidelines, urban co-operative banks were supposed to raise their minimum SLR holdings to 15 per cent and 10 per cent respectively by March 31 next year. This deadline has now been extended by six months to September 30.

However, the central bank said those UCBs which have already achieved or were nearer to the target set for end-March or end-September 2002 should not bring down their present level of SLR holding in government and other approved securities.

The apex bank said it had submitted a draft Bill to the central government on the proposed supervisory body for scheduled and non-scheduled UCBs.

In the lean season credit policy, RBI had directed UCBs not to entertain any fresh proposals for lending directly or indirectly against security of shares. This was applicable to individuals and any other entity. RBI said in view of the representations received from UCBs and their federations, it is now proposed to allow UCBs to grant loans to individuals against security of shares.

Loans against shares/debentures can be granted to individuals to meet contingencies or for subscribing to rights or new issues or for purchase in the secondary market.

Loans against primary/collateral security of shares/debentures will be limited up to Rs 5 lakh, if the security is in physical form, and up to Rs10 lakh, if the security is in demat form.

   

 
 
FIS’ DREAM SET TO COME TRUE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 22: 
The much-touted concept of universal bank is now likely to become a reality. With the RBI cutting the CRR by an unprecedented 200 basis points, the financial institutions think that the last impediment to attaining the universal bank status has been removed.

While RBI may be reluctant to admit that CRR reduction was to enable FIs to become universal banks, IDBI chairman P.P. Vora told The Telegraph that, “we will submit our application to RBI before the end of this month.” IDBI will be the first off the block, he said.

Kalpana Morparia, executive director of ICICI Ltd, was not as forthcoming as Vora on her institution’s plan on universal banking but generally welcomed the RBI’s measures.

The reduction in CRR was a long-standing demand of the FIs which have been firming up plans to convert themselves into universal banks. According to sources, this was one of the major irritants during ICICI’s discussions with RBI on universal bank.

The RBI, it is learnt, had told the institutions that the prudential and supervisory norms for banks would not be diluted as it believed in a consolidated approach to supervision and regulation.

The sudden U-turn by the central bank may be the reason why RBI is hesitant to admit that the cut in CRR was done mainly to help financial institutions to attain the status of universal bank.

Jalan, however, ruled out any relaxations in CRR and SLR to those FIs keen to become universal banks.

While IDBI and ICICI are buys charting strategies to convert themselves into universal banks, sources said it would at least take them a year or two to achieve their dream.

IDBI has in this direction roped in the services of Boston Consulting Group to prepare a roadmap.

ICICI officials on the other hand said that though they too were considering such a transition, the time frame necessary to achieve this process would largely depend on the stance adopted by the central bank.

   

 
 
CHAMBERS HAPPY 
 
 
OUR BUREAUX
 
Oct. 22: 
The apex chambers of the country have welcomed the RBI move to cut bank rate by 50 basis points and the cash reserve ratio (CRR) by two 2 percentage points. Chirayu Amin, president of the Federation of Indian Chambers of Commerce and Industry, said “The overall monetary policy stance will help the economy overcome the present slackness.” Lauding the move, Sanjeev Goenka, president of the Confederation of Indian Industry, said it will lead to reduction in lending rates.

Dubbing the RBI move as “bold” and “investor-friendly”, Assocham president Raghu Mody said the central bank has provided what the business community had asked for and it is now up to the latter to respond.

A.V. Lodha, president of the Indian Chamber of Commerce, said the cut in bank rate and CRR will boost industrial growth However, he added that the banks should also made these funds available to the industry for the growth of the manufacturing sector.

H.M. Bangur, president of the Bharat Chamber of Commerce, said the move to allow urban co-operative banks to grant loans to individuals against security of shares is a step in the right direction.

   

 
 
BANKERS SHARPEN RATE-CUT KNIFE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 22: 
Commercial banks are set to reduce their lending and deposit rates in a week’s time.

When contacted, heads of nearly all the leading banks were unanimous in bringing down interest rates and said a decision would be taken by their asset-liability committees (Alcos) soon. It is felt that while lending rates are likely to come down by 50-100 basis points, deposit rates could be down by 50-125 basis points.

State Bank of India chairman Janki Ballabh, whose Alco will meet in “few days’ time” to decide on the new interest rate structure, said the policy has a balanced approach towards addressing expectations of various segments, including industry and the banking sector.

Bank of Baroda chief P.S. Shenoy said his bank will decide next week on the new interest rates.

However, the euphoria of bankers over the two percentage point reduction in CRR was cut short by the withdrawal of exemptions on certain categories of liabilities for the CRR requirement. Analysts said this is likely to affect the large nationalised banks, including SBI and BoB, apart from various other foreign and private sector banks.

Some pointed out that the move may lead to a change in the interest rate structure for the deposits in which exemptions have been withdrawn and it is likely that costs will be passed on to the depositors.

With the bank rate setting the stage for a reduction in interest on deposits, Jalan also tried to allay fears that the rate cut will change the basic pattern of investors’ preference for deposits.

“We do not see a fundamental change in the structure of investment with this measure (rate cut) introduced by us,” he told newspersons

Jalan made this remark after stating in the policy that the scope for further softening in lending rates by banks and other financial intermediaries was limited in view of certain structural characteristics of the financial system.

It said that the scope for further softening in lending rates by banks and other financial intermediaries was limited in view of certain structural characteristics of the financial system.

The recent reductions in deposit rates and return on

small savings have caused wide-spread concern among depositors because of lack of other risk-free avenues for financial savings.

This, the RBI said, constrained the ability of banks to effect further reduction in their lending rates without affecting deposit mobilisation and the growth of financial savings over the medium term.

   

 
 
BOLD, SAYS SINHA 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Oct. 22: 
Terming the RBI measures as “bold and pro-growth”, finance minister Yashwant Sinha today said this should “impart liquidity in the markets and stimulate industrial growth.”

“It’s a forward-looking policy. and it is now up to the trade and industry and government to play their part,” Sinha said.

He said the decision to cut CRR to 5.5 per cent should “pour more money into the market”, hastening economic recovery.

Sinha said it was up to the banks to cut interest rates now. “I am given to understand that State Bank of India is looking at both deposit and lending rate cuts.”

“I would, however, continue to insist on banks reducing transaction cost,” he said and added that reduction in non-performing assets has been encouraging while voluntary retirement schemes in over-staffed banks have been a success.

“If all of us work in tandem right now then we can see growth rates forecast by the RBI materialising. I would like to believe it would be on the higher side of the band suggested by the bank,” Sinha said.

   

 
 
SEBI SNUBBED ON STERLITE BAN 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 22: 
In a significant ruling, the Securities Appellate Tribunal (SAT) today struck down the order of the Securities and Exchange Board of India (Sebi) barring Sterlite Industries Ltd and its three directors from accessing the capital markets for two years.

The order has come as a blow to Sebi—it may dent its reputation as a competent market regulator giving credence to accusations that Sebi’s orders have been knee-jerk and without any legal foundation.

The SAT ruling said in the absence of sufficient material evidence to establish that Sterlite Industries had directly or indirectly indulged in market manipulation, the Sebi order holding the appellant guilty of market manipulation cannot be sustained.

While Sebi chairman D.R. Mehta was not available for comment, Anil Agarwal, chairman and managing director of Sterlite, said the Sebi order had unduly hurt the company. Sterlite adheres to best corporate practices and the SAT ruling bears testimony to that fact, he added.

Today’s order paves the way for Sterlite to access capital market as well as bid for any public sector undertakings’ disinvestment if it is interested and also allows it to buy back its share unless the aggrieved market regulator appeals before the high court.

Sebi had earlier prohibited the company from making any buyback offer on the ground that such act also amounted to accessing the capital market.

The market regulator’s use of provisions of section 11 of the Sebi Act were preventive and remedial in nature. However, in the tribunal’s view Sebi’s order was neither remedial nor preventive but “punitive in effect as it takes away the right to mobilise funds from public to carry on its business”.

“By no stretch of imagination, the said direction can be considered even remedial as barring of a prospective public issue cannot remedy an act of market manipulation allegedly indulged for a specific purpose three years ago,” the SAT order said.

The tribunal said the order had been issued on the basis of findings that Sterlite Industries had violated regulations. It only strengthens the view that Sebi’s order was a penalty imposed on the company, it added.

The three directors who were barred by Sebi are Anil Agarwal, Tarun Jain and Shashikant.

   

 
 
NIIT NET PLUMMETS 57% 
 
 
OUR BUREAUX
 
Oct. 22: 
NIIT Ltd today reported a 57 per cent decline in its net profit to Rs 95.96 crore for the year ended September 30 while its net profit plummeted 86 per cent to Rs 12.51 crore during the fourth quarter July-September.

During the year ended September the company clocked a net profit of Rs 95.96 crore compared with Rs 224.13 crore in the previous year.

NIIT’s global revenue was down 7.9 per cent at Rs 1,138.92 crore from Rs 1,237.10 crore last year. Income from operations was Rs 687.51 crore as against Rs 749.94 crore last year, reflecting a decline of 8.32 per cent.

Chairman Rajendra S Pawar said that there is a contraction in the education market and people are not going for short-term IT courses.

HM net at Rs 2.68cr

Hindustan Motors has registered a net profit of Rs 2.68 crore in the quarter ended September 30 as against a loss of Rs 24.13 crore in the previous consecutive period. The net sales of the company plummeted to Rs 257.98 crore against Rs 369.12 crore in the previous year.

However, the company has refused salary and bonus to its 9,500 employees at the Uttarpara factory. It has also given a notice to its employees to freeze dearness allowances from September.

IBP net up 159%

IBP’s net profit was up 159 per cent at Rs 35.66 crore in the second quarter compared with Rs 14.1 crore registered in the previous corresponding period. The total income of the company was up at Rs 2,004.41 crore during the period as against Rs 1,958.81 crore last year.

Kesoram net down

Kesoram Industries Ltd’s net profit dipped by over 77 per cent at Rs 2.05 crore during the second quarter despite registering a marginal increase in net sales.

Board of directors said, “The net profit is down mainly due to extremely high provision of Rs 4.77 crore for deferred tax for the first half of the current fiscal as per the government directive.”

The net profit during the first half, however, still stands higher by over 200 per cent to Rs 13.34 crore as against Rs 4.42 crore last year mainly due to encouraging performance in the first quarter of this fiscal.

   

 
 
OIL BONDS IN PIPELINE 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Oct. 22: 
The Union government is considering issuing tradeable oil bonds worth Rs 10,400 crore to state-owned oil companies to liquidate up to four-fifths of the country’s oil pool deficit. A meeting between petroleum minister Ram Naik and finance minister Yashwant Sinha held today considered this recommendation made by an expert group. “Four fifths of the oil pool deficit could be liquidated by issuing 7-year bonds which would be backed by sovereign government guarantees. These bonds could be traded in the marketplace by the oil companies who buy them,” Naik told newspersons.

Today’s meeting also decided to go ahead with a legislation to set up twin regulatory bodies for the petro sector. While one regulator will look after upstream products such as crude and gas, the other will control downstream activities like pipelines.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.01	HK $1	Rs.  6.10*
UK £1	Rs. 68.78	SW Fr 1	Rs. 28.80*
Euro	Rs. 43.10	Sing $1	Rs. 25.95*
Yen 100	Rs. 39.45	Aus $1	Rs. 24.15*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4685	Gold Std(10 gm)	Rs. 4620
Gold 22 carat	Rs. 4425	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7275	Silver (Kg)	Rs. 7345
Silver portion	Rs. 7375	Silver portion	NA

Stock Indices

Sensex		3001.86		- 14.98
BSE-100		1393.54		+  0.24
S&P CNX Nifty	 976.40		-  0.25
Calcutta	 101.74		-  0.98
Skindia GDR	 464.41		+  7.96
   
 

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