Bourses get two months to shape up
Delhi forces all-state VAT meet on Jan. 23
Reliance-L&T deal in insider trading glare
Parekh, Verma ahead in race for top Sebi post
Premia hike turns tide against all-risk covers
Farm lobby for free movement of foodgrain
Roadmap for co-op bank recast
Foreign Exchange, Bullion, Stock Indices

Calcutta, Jan. 7: 
The Securities and Exchange Board of India (Sebi) has recommended corporatisation of all bourses within two months.

There are 24 recognised stock exchanges in the country, of which only a handful like Calcutta, National and a few others, are registered with the Registrar of Companies (RoC) as corporate entities.

Sebi has adopted the report of the committee headed by former Bombay Stock Exchange (BSE) executive director M.R. Mayya. The panel was constituted to map out the structure and lay down the regulations for a model stock exchange. The report has been sent to bourses for adoption.

Exchanges have been asked to file a compliance report within two months, and to seek approval from their governing boards for implementing the new set of regulations. If they fail to embrace the new model, the market regulator can enforce it on exchanges by exercising powers vested with it under the Securities Contracts (Regulation) Act, 1956.

The Sebi panel on model bourses has suggested capping broker participation on the governing board of exchanges at 40 per cent. If this is done, it would run against finance minister Yashwant Sinha’s avowed objective of keeping the brokers out of stock exchange management.

Even after issuing a circular based on the recommendations, senior Sebi officials feel this may not be the final dispensation. “We are still in a state of transition,” said a Sebi board member in remarks that indicate he expected more changes.

The Mayya panel has suggested that the governing boards be headed by a non-executive chairman, and the posts of president, vice-president and treasurer should be abolished. The chairman would be an independent director, elected from among members of the board.

The market regulator had announced after its meeting on December 28 that broker-directors could not become office-bearers of stock exchanges, though they could become ordinary board members.

The Mayya Committee has also suggested removing the board of trustees, which is now a feature of the Mumbai, Ahmedabad and Madhya Pradesh stock exchanges. “However, a detailed study of conversion of these stock exchanges into corporate entities should be conducted. The office of the Trustees in these stock exchanges may continue till the transition is complete,” the panel has said in its report.

The committee has recommended changing the designation of the executive director to that of a managing director (similar to National Stock Exchange) to “strengthen the position”.

“The managing director should be the sole deciding-authority on all matters concerning the day-to-day management, operations and administration of a stock exchange,” the report says. Also, the governing board can seek an explanation from the managing director only it is armed with the support of three-fourth of its members.

The tenure of the managing director has been fixed at five years, and the retirement age at 60. The governing board shall prescribe the professional qualifications, experience, remuneration and other conditions for appointment to the post.

An independent selection committee will short-list candidates. It will indicate to the board its preferences, which will be sent to the capital market watchdog for approval.

The managing director will have to be given “exclusive disciplinary powers” and these “must clearly spelt out so that it helps him discharge his duties promptly,” the panel has recommended.

In addition, a Disciplinary Action Committee will have to be set up to take appropriate action against offenders.

The managing director will also be responsible for preparing the bourse’s annual budget, which would be placed before the board for approval. Exchanges will be required to compile half-yearly statement of accounts.

Besides the disciplinary action committee, Sebi has recommended setting up of a host of other panels for audit, investor services, member selection and other functions.

In all seven standing committees will have to be formed by exchanges, each with 40 per cent broker-representatives, the rest being independent members. The formation of the panels will require prior Sebi approval.


New Delhi, Jan. 7: 
The empowered committee on value added tax was today stumped by a set of fresh demands by Delhi to slash taxes on certain goods.

To resolve this fresh demand as well as other outstanding issues, the committee in consultation with finance minister Yashwant Sinha has decided to call a meeting of all states on January 23.

Although some 15 states agreed on a model VAT law, Delhi which claimed to be speaking on behalf of certain other states demanded that duty on nine products, including hosiery, papads, flour, salt, gold and poultry feed, be reduced to zero from a proposed 4 per cent. It also wanted duty on utensils and dry fruits be reduced to 4 per cent from a proposed 10 per cent.

While the first lot of duty cuts will help southern states like Tamil Nadu, Pondicherry and Andhra Pradesh, the cuts in duties on utensils and dry fruits will help Delhi, which is the country’s largest market for these products.

Several other states have opposed VAT for various other reasons. For instance, Haryana chief minister Om Prakash Chautala has been objecting to imposing VAT on farm products, claiming it could be politically difficult to sell.

Another general meeting on VAT could open up a Pandora’s box on demands to dilute the concept of a uniform tax across the country.

West Bengal finance minister Asim Dasgupta, who chairs the empowered committee, refused to comment on Delhi’s demands or on differences but confirmed the committee has decided to call an all-state meeting on January 23.

Uniform value added tax will be introduced by all states by April, except north-eastern, hill and newly created tribal states which will be given a year’s time to join.

However, several states still have certain apprehensions of how this will hit their revenues.


Mumbai, Jan. 7: 
The Securities and Exchange Board of India (Sebi) will “look into” alleged insider trading by the Reliance group and brokers in the sale of Reliance Industries Ltd’s 10.05 per cent stake in Larsen and Toubro to Grasim Industries, Sebi chairman D.R. Mehta said today.

Following a complaint by the Investors’ Grievances Forum (IGF) about alleged insider trading in the L&T case, Sebi “will seek information from the concerned parties, including RIL and brokers to ascertain facts,” Mehta told reporters here.

In a written complaint to the market regulator, IGF has alleged that the Reliance group, which held only 6.62 per cent stake in L&T as on March 31, 2001, had acquired the balance 3.40 per cent stake of the engineering and cement company prior to deal with Grasim.

Sebi should probe into alleged breach of insider trading and prohibition of fraudulent and unfair trade practices regulations by reliance, IGF president Kirit Somaiya said.

On November 18, RIL announced the sale of its 10.05 per cent stake in L&T to Grasim at Rs 306 per share at substantial premium to market price on November 15, IGF president said.

Sebi sources said it would need to ascertain if “there was any insider or insiders, whether they had access to information about the l&t deal and finally see if that price sensitive information was used for trading.”

Meanwhile, IGF also made a presentation before the takeover panel headed by P.N. Bhagwati in which the forum has asked for clearer norms for professionally managed companies, like ACC and L&T. IGF has asked for special provisions in view of passive role of FIs in Indian scenario. It has also asked the panel to clarify the definition of “control” and specify what percentage of stake will be needed to show the “control” in different types of shareholding pattern.


New Delhi, Jan. 7: 
The battle for the top job at Securities and Exchange Board of India (Sebi) is hotting up with HDFC chief Deepak Parekh and former State Bank chairman M.S. Verma being considered as the leading contenders.

The finance ministry plans to send a list of names to the Cabinet in early February so that a Sebi chief can be named before the budget is announced.

Senior finance ministry officials said Parekh and Verma were being considered as possible replacement for current Sebi chairman D.R. Mehta who is retiring at the end of February after a five-year tenure.

Though not officially on the list of contenders, economic advisor to the finance minister Rakesh Mohan is also being considered, sources added. Mohan has been unhappy at not being given the status of chief economic advisor though he does the job of one, and had earlier tried to quit, only to be asked to stay back by the finance minister.

Parekh is considered to be an extremely astute financial sector chief executive who has served on several high-powered committees which drafted legislations and prudential policies. Verma, having run the country’s largest bank and with exposure to the working of most corporate houses (as they were his borrowers), is also considered a fit candidate for the job.

D.R. Mehta’s successor will be taking over the reins at a time when Sebi has to go through a metamorphosis and turn it into a far more responsive and tougher regulator.

Many had expected Mehta to be forced out of office after the stock market crash last March because of his failure to take steps in time.


Mumbai, Jan. 7: 
The spike in insurance premium in the aftermath of the September 11 carnage last year has forced companies to go for limited-risk policies, instead of holding out with mega-risk schemes up for renewal.

Many in the general insurance industry expect corporates to walk out of the “all-risk” policies by not renewing them, if the premia rates do not soften soon enough. An indication of this trend was the decision by the Reliance group, one of the country’s largest private sector conglomerates, to opt for a standard fire policy recently. The company, insurance sources say, did not extend its mega-risk policy that had to be renewed on December 26.

It is not known what prompted the change of mind, but the high premia, the result of global re-insurers’ move to hike rates after the September 11 attacks, is seen as the main reason. “Had the group renewed its mega-risk policy, the cost would have been much higher than what it will have to pay now,” the source said.

Despite this, Reliance’s standard fire policy for its Jamnagar, Patalganga and Hazira plants, remains the single-largest of its kind for a corporate. Source put the annual premium payment at Rs 175 crore this year, instead of a little more than Rs 75 crore forked out earlier. As re-insurers jack up rates more than two times, attention is now focused on companies whose all-risk policies that need a fresh lease of life this year. Bharat and Hindustan Petroleum are among the big corporate clients.

“It remains to be seen how long the high rates last. If they persist, we may see companies not renewing their mega-risk policies. However, there could be few who would adopt a wait-and-watch attitude,” sources said.


New Delhi, Jan. 7: 
Agriculturists have asked the government to scrap the Essential Commodities Act (ECA) to allow free movement of foodgrain and introduce futures trading in agri-products if the government is serious about achieving a targeted 7 per cent growth in the farm sector.

At a pre-budget meeting with finance minister Yashwant Sinha, agriculturists said the days of food shortages were over and there was no need for severe restrictions on movement of foodgrain.

Among others, the participants included Nabard chairman Y.C. Nanda and Shankarlal Guru, chairman of International Society for Agricultural Marketing.

Sinha said the state governments had to arrive at a consensus on some of the more prickly issues before the Centre could initiate farm sector reforms.

Later in the day, representatives of the small-scale industries demanded that the investment limit for SSIs should be raised to Rs 5 crore from Rs 3 crore and also pleaded that that the excise duty exemption limit should be raised to at least Rs 2 crore. They also wanted the basic exemption limit for income tax be raised from Rs 50,000 to Rs 75,000.

They demanded a separate exit policy legislation for the SSIs where the limit on compensation payment to retrenched labour could be brought down from 45 days of service for each year worked to 15 days.


New Delhi, Jan. 7: 
The Vikhe Patil committee on co-operative banks has recommended a Rs 10,000-crore restructuring package for the sector with the costs to be shared in a 60:40 ratio between the Centre and the states.

The committee, which was chaired by minister of state for finance Balasaheb Vikhe Patil, has decided that assistance to individual co-operative bank would be worked out on the basis of accumulated losses, interest overdue for more than three years, amount of non-performing accounts (NPAs) in the loss and doubtful category, amount debited to higher financial institutions like Nabard and not accounted in balance sheets.

The money to be pumped into these banks will be raised through a flotation of bonds by the Centre and state governments. These bonds which will have a maturity period of 10 years will be of a self-extinguishing nature, which means the principal amount will not be redeemed.

Obviously, the interest structure will have to be attractive to sell such a bond and it will have to be sweetened with tax or other pecuniary benefits.

The committee had been set up soon after a series of co-operative banks went bust led by the Madhavpura Co-operative Bank.

The co-operative banking sector was in any case extremely weak due to lax implementation of financial prudential norms.

All states willing to stump up 40 per cent of the cost for restructuring co-operative banks will be eligible for central help. The committee, however, recommended up to 90 per cent assistance for north-eastern states and Jammu and Kashmir. This is being done as these states normally get plan funds from the Centre in that ratio as they are considered weak states.

However, states interested in securing the approval of the revival plans for their co-operative banks will have to accept greater RBI control over these banks.

Besides the new prudential norms already being enforced for co-operative banks, a new set of guidelines will be brought forth which virtually gives RBI far more control over these banks instead of the joint control now exercised with the state registrar of co-operatives.

The committee itself has recommended that another national-level panel comprising finance and agriculture secretaries, RBI deputy governor, Nabard chief and four to five representatives from states be set up which will set policy guidelines for running co-operative banks, evolve modalities for selecting states and banks for help and monitor the functioning of similar state level committees.



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