Reality ruffles rate revellers
Fresh rider to IBP divestment
Death sentence for unviable PSUs
Fillip to bank plan propels ICICI share
Corporation Bank takes wait-&-watch stance
LIC stake rises to 27%
SAIL joins hands with NMDC for iron plant
Leyland moves ahead, Eicher falls back
More FI say in sick small unit revival
Foreign Exchange, Bullion, Stock Indices

 
 
REALITY RUFFLES RATE REVELLERS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 23: 
A day after the announcement of the mid-term review of monetary and credit policy, several banks are waking up to a harsh reality that the concessions offered by way of a two percentage cut in CRR and a 50 basis points reduction in bank rate are a mirage after all.

Most of the banks to be hit by the withdrawal of CRR exemptions on certain liabilities are the ones in Kerala, with a heavy reliance on NRI and FCNR (B) deposits. A few foreign and nationalised banks, such as State Bank of India, Bank of Baroda and Bank of India — which sit on large chunk of funds stashed by Indians working abroad — are also expected to be shaken.

The RBI plans to pre-empt funds worth Rs 12,000 crore by removing the exemptions NRI deposits, foreign currency non-resident (B) and export earners’ foreign currency (EEFC) accounts, while the reduction in reserve ratio will infuse Rs 8,000 crore into the system.

While State Bank of India, where foreign deposits as a proportion of the total is significantly smaller, may be less buffeted, others like Bank of Baroda and Bank of India may find themselves in a flap. These are the two banks with a large presence abroad, bank officials said.

“Certainly, banks from Kerala would be the most affected by the move,” said an analyst at Crisil, one of the two big rating agencies. A broad spectrum of banks led by SBI’s subsidiary, State Bank Of Travancore (SBT), and smaller ones such as Federal bank, South Indian Bank, Lord Krishna Bank and Catholic Syrian Bank are likely to see a large volume of their deposits return to the vaults of the Reserve Bank.

Z Cama, the chief executive of HSBC, a leading foreign bank, conceded his operations would be hit by the end of exemptions. “HSBC and other foreign banks will not benefit from the cut in CRR as exemptions previously available to NRI accounts have been removed. Most foreign banks hold massive chunks of such deposits.”

Banks will now have to set aside 5.5 per cent of the foreign deposits, which were out of the CRR obligation so far. For foreign banks, NRI deposits are a veritable cash cow, a source of funds for making lucrative investments.

There is a small section of bankers, however, which feels the end of exemptions is a blessing in disguise. These are banks that are finding it difficult to get borrowers, and would rather have their funds parked with the RBI. The cuts in the CRR and bank rate, they argue, cannot persuade entrepreneurs to come for loans if problems in the economy show no signs of receding.

According to RBI figures for the period ended March 31, the total FCNR (B) deposits in the Indian banking system stood at $ 9076 million, NR(E)RA deposits at $ 7147 million while NR(NR) RD deposits at $ 6,849 million. This takes the aggregate foreign deposits to $ 23 billion — half of the country’s forex reserves.

   

 
 
FRESH RIDER TO IBP DIVESTMENT 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Oct. 23: 
Giving a new twist to the divestment process in IBP Ltd, the government today laid down a fresh pre-condition that the successful bidder will have to invest Rs 2,000 crore in the Calcutta-based company over a period of 10 years.

The focus of the investment should be more on refining or exploration activities and not on expanding retail outlet network so that IBP can be turned into a full-fledged petro-product company.

The detailed investment plan will have to be readied within three years and part of the investment should be made within five years from the date the company is sold. The investment programme has to be completed within a decade.

Disinvestment minister Arun Shourie, who made the announcement here today, said the government is planning to insert a clause in the shareholders’ agreement which would allow it to buy back IBP at 50 per cent of the sale price if the new buyer did not comply with the investment plan.

Ministry officials also said that an earlier clause which stipulated that bidders should submit a Rs 500-crore bank guarantee was likely to be scrapped.

Analysts, however, felt the new clause on investment was going to prove even more restrictive as only behemoths in the petroleum sector would be able to commit such huge funds as a pre-condition to buy IBP.

ITDC, HZL bids

The government today finalised transaction documents for the sale of 13 hotels of India Tourism Development Corporation Ltd and Hotel Corporation of India as also Hindustan Zinc Ltd and said price bids for these would be invited by next month.

It also decided to allow Sterlite Industries to bid for HZL as the Securities Appellate Tribunal had struck down Sebi’s order barring the company from accessing capital markets for two years. The company has been accused of rigging its own share prices.

Draft shareholders’ and share purchase agreements for eight hotels of ITDC, five properties of HCI and sale of 26 per cent stake in HZL were finalised at today’s meeting. Only two ITDC properties—Ashok, New Delhi and Ashok, Bangalore—would be given out on long lease of 30 years while the rest would be sold off outright. All Centaur brand hotels of HCI except for the Centaur, Srinagar would be sold off.

Shourie described this as a “big step forward” and emphasised that the timetable to sell 11 more PSUs this year was more or less on schedule.

“In case of one or two PSUs, such as Bharat Heavy Plates & Vessels and Instrumentation Ltd, bidders have asked for more time which may lead to a minor slip-up in the time schedule,” he added.

   

 
 
DEATH SENTENCE FOR UNVIABLE PSUS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Oct. 23: 
Union finance minister Yashwant Sinha has said the government will have to take hard decisions such as closing unviable public sector units (PSUs) and discontinuing subsidisation of “inefficiencies” in the system to make Indian economy globally competitive.

“We have to take hard decisions for India to survive in a competitive global economy. We tend to continue with temporary devices. But these won’t work,” Sinha said while addressing the National Institute of Financial Management here yesterday.

Pointing to inefficiencies that were persisting under the veil of “social and political obligations”, Sinha said “many inefficiencies are hidden under the concept of subsidisation. We have to look into what has to be subsidised and what not. What must not be subsidised are inefficiencies in the system.”

Citing the example of railways, he said it was a challenging task to improve the financial health and remove inefficiencies.

Sinha said he was not averse to assisting companies or departments facing financial problems but expressed reservations on bailing out inefficient units.

“Whatever assistance is needed (by loss-making companies or departments) should be provided upfront through budgetary provisions. But inefficiencies should also come to the fore,” he said.

Defending government’s stance on closing down unviable PSUs, Sinha said “this is because things have changed. Every thing has to be determined on a competitive basis now.”

Sinha said the government was engulfed with problems regarding unviable PSUs and their closure.

   

 
 
FILLIP TO BANK PLAN PROPELS ICICI SHARE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 23: 
With universal banking now looking like a reachable destination for financial institutions after the 2 percentage point reduction in cash reserve ratio (CRR), the ICICI share perked up on stock exchanges on hopes that the makeover was imminent.

The stock vaulted almost 10 per cent, closing at Rs 55.65 compared with its previous finish of Rs 50.75. In all, 798 deals were reported on a turnover of Rs 77.34 lakh.

The market feels ICICI will realise its universal banking plan earlier than expected due to the CRR reduction — seen as a big boost to other FIs such as IDBI.

Though officials refused to comment on whether a draft plan would be presented to the central bank, there are indications the ICICI board will discuss the proposal at a meeting scheduled later this week to consider second quarter results. Many believe the clearance for universal banking, which entails a reverse merger with ICICI Bank, could come through on the occasion.

IDBI chief P. P. Vohra, encouraged by the CRR reduction, told The Telegraph on Monday that the institution would present the roadmap for universal banking by the month-end.

The high CRR level, which banks have to maintain with the RBI, has been seen as one of the biggest factors holding back the transformation of institutions into banks.

Therefore, the two percentage point in CRR has been widely seen as a major shot in the arm for institutions, even though RBI governor Bimal Jalan denied that the ratio has been scaled down to make it easy for institutions that have lined up universal banking plans.

It is felt that with their massive asset base, high reserve requirements would have an adverse impact on the bottomline of FIs. Therefore, the institutions had asked the central bank to give them a relaxation, including the imposition of CRR on an incremental basis.

Recently, in a submission before the US Securities and Exchange Commission (SEC), ICICI has said its merger with ICICI Bank would bring it under a raft of banking laws, including those on directed lending, statutory reserve ratios and higher effective income tax rates.

The institution told the US stock regulator that meeting the conditions could leave an adverse impact the profitability of the combined businesses of the merged entity.

   

 
 
CORPORATION BANK TAKES WAIT-&-WATCH STANCE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 23: 
Corporation Bank has decided to wait for clear signals from other banks before taking a decision on reduction of interest rates in the wake of the mid-term review of monetary and credit policy announced by the Reserve Bank of India (RBI) on Monday.

Speaking to reporters here today, chairman and managing director of the Mangalore-based bank, Cherian Varghese, indicated he was not inclined towards a cut in its lending rates at this juncture because it has to be followed with a similar reduction in deposit rates as well.

The problem reflects the concern among bankers that further cuts in deposit rates will not go down well with depositors, who could flock to other options that offer higher returns. Varghese said there is a resistance to bring down deposit rates. “Let us see how the industry responds. We will then take a decision on how to adapt to the changing market situation,” he added.

Hinting there was no need to bring down lending rates, Varghese said his bank has already been following a flexible lending rate policy by funding highly rated companies at rates below its prime lending rate (PLR). The disbursements on this count so far in this year, he said, have surpassed Rs 900 crore.

Reserve Bank governor Bimal Jalan has conceded in his monetary policy announcement 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 spate of reductions in deposit rates and return on small savings have caused widespread concern among depositors who are worried at the fact that they have few risk-free avenues for financial savings.

This, the central bank said, has constrained the ability of banks to make further reductions in lending rates without leaving an adverse impact on deposit mobilisation and the growth of financial savings in the medium term.

Most banks are expected to announce revisions in their deposit and lending rates within the next few days following the RBI’s move to bring down the bank rate by half a percentage point and cash reserve ratio by two percentage points.

Cherian was speaking after a board meeting that announced a 28.25 per cent increase in net profit at Rs 171.28 crore for the first half ended September 30. Its business increased to Rs 26,706.27, registering a growth of 21.63 per cent, despite adverse market conditions. Net advances increased 20 per cent to Rs 9253.26 crore.

While there was a marginal rise in its net NPA ratio to 2.18 per cent, bank officials said it was successful in recovering over Rs 30.48 crore in sticky loans during the period.

   

 
 
LIC STAKE RISES TO 27% 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 23: 
Mumbai, Oct 23: Life Insurance Corporation of India (LIC) has bought a 15.28 per cent stake in Corporation Bank at Rs 196 per share in a deal worth Rs 459.42 crore.

The insurance monolith will own 27 per cent of the bank’s paid-up capital in an acquisition cleared by the Insurance Regulatory Development Authority, Varghese said. At the same time, the government’s holding will come down to 57.17 per cent from 68.33 per cent.

Of the total amount paid out, Rs 435.98 crore will go into the premium account and Rs 23 crore would be added to capital account to purchase 2.4 crore shares.

“The bank’s net-worth will go up from Rs 1,509 crore to Rs 1,969 crore while capital adequacy ratio will rise to 17.5 per cent,” he added.

Initially, Rs 435.98 crore will be invested and later used in the lending business, he added.

   

 
 
SAIL JOINS HANDS WITH NMDC FOR IRON PLANT 
 
 
BY A STAFF REPORTER
 
Calcutta, Oct. 23: 
The Steel Authority of India Ltd (SAIL) will set up an iron manufacturing plant jointly with the National Mineral Development Corporation (NMDC) and three Russian firms — Moscow Institute of Steel & Alloys (MISA), AMET and TyazPromExport — at Nagarnar in Chhatisgarh.

The initial investment for the project would be a little over Rs 300 crore. While SAIL and NMDC will together hold a 40 per cent stake in the project, the three Russian firms will jointly hold the remaining 60 per cent.

This is the first time in the country that iron will be produced using the latest Romelt technology, which, SAIL sources said, converts environment polluting iron bearing wastes into iron and granulated slag, a useful input for producing cement. It uses iron bearing wastes in its natural form without any preparation, using only ordinary non-coking coal and burnt lime for process conversion.

“This technology will aid mines which generate huge amounts of iron-bearing pollutants,” they said. The proposed project— Romelt (India)Ltd (RISL)—will use the tailing slimes generated in mining operations at Bailadila as the principal feed stock. The technology has been developed by MISA after two decades of intensive research.

SAIL will provide a wide range of project engineering services for setting up the plant.

The value of the services to be provided by SAIL is estimated at around Rs 4 crore.

The land for the project has been acquired by NMDC on September 29. The company has set a target of completing the project by the second quarter of 2003.

“This is of course a formidable task, but we are ready to take the challenge and do it,” they said.

SAIL sources added that the capacity of the proposed plant will be increased to 1 million tonnes very soon. Moreover, it is slated to be one of the most cost-effective iron making facilities in the world.

   

 
 
LEYLAND MOVES AHEAD, EICHER FALLS BACK 
 
 
OUR BUREAUX
 
Oct. 23: 
Putting up an impressive performance in the second quarter of the current financial year, Ashok Leyland, the Hinduja group flagship, notched up a net profit of Rs 18.52 crore compared with Rs 14.91 crore in the same period last fiscal, a rise of over 24 per cent.

The company’s turnover rose to Rs 637.46 crore during the quarter as against Rs 618.69 crore in the same period in 2000-01, registering an increase of three per cent.

The net profit during the first half (April-September) of the current fiscal stood at Rs 9.11 crore as against a net loss of Rs 4.77 crore in the year-ago period.

The company’s turnover during the half year ended September 30 rose to Rs 1220.54 crore from Rs 1064.19 crore in the same period of the last fiscal.

Commenting on the results, Ashok Leyland chairman R. Seshasayee said a favourable product mix in the domestic market helped the company to perform better. Substantial contributions to the improved profitability have come from cumulative and incremental benefits from organic internal efficiency improvements, he added.

While Ashok Leyland moved ahead, Eicher Motors, the commercial vehicle maker, suffered a 14.3 per cent drop in net profit during the second quarter due to higher provision for taxation.

Net profit stood at Rs 4.73 crore compared with Rs 5.52 crore in the year-ago quarter, according to unaudited financial results released by the company..

Net sales, however, increased by 20.3 per cent to Rs 112.57 crore during July-September this year from Rs 93.52 crore in the previous year.

During the second half of this fiscal, Eicher posted a 7.5 per cent rise in net profit at Rs 7.27 crore while net sales rose 17 per cent at Rs 196.89 crore from Rs 168.27 crore a year ago. It sold 3,959 vehicles during April-September, up 10 per cent as against 3,601 vehicles sold last year.

The company has also increased its market share to 33 per cent from 30 per cent in the 7-11 tonne vehicle segment.

“Our performance is the result of a constant focus on providing better value to our customers through superior products and after sales service that enables customers to minimise the cost of owning and operating the vehicles while maximising their revenues,” Eicher managing director Rakesh Kalra said.

HCL Tech income up

HCL Technologies today reported a marginal 1.76 per cent rise in its net income (after non cash charge and extraordinary provisions) for the first quarter ended September 30 at Rs 97.9 crore compared with Rs 96.2 crore in the same period of the previous year.

The net income of the company (non cash charges and before extraordinary provisions) was up 20 per cent during the period to touch Rs 119.9 crore, from Rs 100.2 crore in July-September last year.

During the quarter, Rs 24 crore had been provided towards doubtful debts and diminution in the value of investments.

HCL Tech’s gross revenues were at Rs 372.4 crore in the first quarter of this fiscal compared with Rs 317.7 crore in the same period of the previous year, reflecting a year-on-year growth of 17 per cent.

The company’s earnings after tax was pegged at Rs 112.2 crore, up from Rs 91.2 crore in the same period of the previous year.

HCL Tech’s chairman Shiv Nadar said, “The recent acquisitions will start contributing to revenues from the second quarter and I am confident that we will achieve the revenue target of Rs 1750 crore and net profit of Rs 575 crore after provisioning for the financial year 2001-02.”

Highlights of the quarter included addition of six new Fortune 500 clients during the quarter and total number of customers increased by 20 to 360 as on September this year.

Some of the new clients which were acquired during the quarter include General Motors, Hitachi, World Bank, Motorola, and Seagate among others.

   

 
 
MORE FI SAY IN SICK SMALL UNIT REVIVAL 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Oct. 23: 
The Reserve Bank of India (RBI) has given banks and financial institutions the freedom to stipulate a higher promoters’ contribution for the rehabilitation of small scale units, barring those in the decentralised sector where such rule may not be insisted upon.

In the revised draft guidelines for rehabilitation of sick small-scale units, the RBI said at least 50 per cent of the promoters’ contribution should be brought in immediately and the balance within six months.

RBI was also of the view that the repayment period for restructured (past) debts should not exceed seven years from the date of implementation of the package.

In the case of tiny/decentralised sector units, the period of reliefs/concessions and repayment period of restructured debts which were hitherto, two years and three years respectively have been revised, so as not to exceed five and seven years respectively, as in the case of other SSI units.

It also said in cases where rehabilitation is involved, the rate of interest on term loans may be reduced, where considered necessary, by not more than three per cent in the case of tiny/decentralised sector units and by not more than two per cent for other SSI units.

An SSI unit, according to the central bank, should be considered sick if any of the borrowal accounts of the unit remains sub-standard for more than six months in case of principal or interest in respect of any of its borrowal account has remained overdue for more than one year.

It could also be called sick if there is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year and the unit has been in commercial production for at least two years.

On the other hand, it said that a unit may be regarded as potentially viable if it would be in a position, after implementing a relief package spread over a period not exceeding five years from the commencement of the package from banks, financial institutions, government (central /state) and other concerned agencies, to continue to service its repayment obligations

However, those units becoming sick on account of wilful mismanagement, wilful default, unauthorised diversion of funds, disputes among partners/promoters, have been left out of such rehabilitation and the RBI called for steps being taken for recovery of bank’s dues.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 47.99	HK $1	NA*
UK £1	Rs. 68.17	SW Fr 1	NA*
Euro	Rs. 42.59	Sing $1	NA*
Yen 100	Rs. 39.12	Aus $1	NA*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta	Bombay

Gold Std (10gm)	NA	Gold Std(10 gm)	Rs. 4575
Gold 22 carat	NA	Gold 22 carat	NA
Silver bar (Kg)	NA	Silver (Kg)	Rs. 7315
Silver portion	NA	Silver portion	NA

Stock Indices

Sensex		3061.91		+ 60.05
BSE-100		1417.17		+ 23.63
S&P CNX Nifty	 993.20		+ 16.80
Calcutta	 NA		   —
Skindia GDR	 466.25		+  1.84
   
 

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