Home loan majors lose ground
Govt draws up rules on money transfer services
Groupe Danone seeks nod to increase stake in arm
Centre to intervene in Indian Oil, Reliance row
Promoters pare DSQ pie to 1.95%
Global Tele arm ties up with IBM subsidiary
CEOs divided on duty cuts

 
 
HOME LOAN MAJORS LOSE GROUND 
 
 
FROM SATISH JOHN
 
Mumbai, Jan. 27: 
Housing finance firms are a worried lot these days. As if losing prospective customers to banks was not enough, they are now witness to their existing customers being lured away by cheaper loans offered by the upstarts.

“In the last six months we have faced pre-closures (pre-payment) of housing loans to the tune of around Rs 250 crore,” said sources at LIC Housing Finance, a leading housing finance player and a subsidiary of life insurance major Life Insurance Corporation of India.

HDFC Ltd, the biggest player in the arena has also been affected by the strategy adopted by banks, say analysts.

According to industry circles, the dormant housing finance market which used to see a long lasting relationship of over 15-20 years with customers till they repaid the entire loan, has seen a sudden surge in pre-closures of loans.

This is due to the sops offered by banks, such as the monthly reducing balance scheme, which compares favourably with the annual reducing balance on loans extended by housing finance companies. In many cases, it shaves off over Rs 1 lakh from the borrowing cost, say analysts tracking the marketplace.

While housing finance companies have reconciled themselves to an onslaught from banks for new business, what has upset them is the fact that the banks are increasingly poaching on their existing customers.

“It is easier for them to woo our customers instead of getting new business, but it’s a national wastage,” an official from a housing finance firm said.

In fact, the State Bank of India’s (SBI) aggressiveness has stirred up the dormant home finance market, with well entrenched players losing market share to the banking monolith, which has over 8000-plus branches.

All the three leading market players—HDFC, LIC Housing Finance and ICICI Home Finance—have already lost part of their business to SBI, which is slated to clock a blistering triple digit growth rate in the housing finance segment this year. SBI’s share in the home finance market has grown by leaps and bounds after it drastically reduced interest rates, forcing other players to follow suit.

Market leader HDFC is however still well-entrenched in view of its fast-track customer service and brand image. The size of the market is perceived at Rs 22,000 crore and the industry is expected to clock a healthy annual growth rate of 45 per cent in the coming years.

Analysts say HDFC’s target for this year is around Rs 9,000 crore, while SBI has set an ambitious but attainable target of Rs 4,200 crore.

Another player making its presence felt in the industry is ICICI Ltd, which has been in the business for more than two years now and has adopted the same strategy of wooing existing clients of housing finance companies.

HDFC sources aver that the market potential is huge and there is enough business for everyone.

An industry analyst said HDFC has financed 1.8 million homes in the last 25 years and put potential in the next 2-3 years at over 19.6 million new homes.

“Collectively, we have not even touched the tip of the iceberg,” says Madhabi Puri Buch, managing director, ICICI Home Finance.

When the market opens up, the first effect is on the leader, analysts argue. With a monopolistic hold over the market, their market shares hovered around 75 to 80 per cent. Naturally, while they have sustained a 45 per cent growth, the same growth is on a larger base unlike the new players. “New entrants will take some share,” they reasoned.

The sudden spurt in business in the housing finance segment is attributed to the combination of three factors.

Realistic prices now prevailing in the real estate market, the surpluses in household incomes and the tax incentives doled out by the government apart from attractive interest rates, which are now at a new low.

These, along with the product innovations offered by the players have generated a lot of interest among the consumers.

   

 
 
GOVT DRAWS UP RULES ON MONEY TRANSFER SERVICES 
 
 
FROM DEVLIN ROY
 
New Delhi, Jan. 27: 
The ministry of finance (MoF) is working on draft guidelines for domestic money transfer services as there is a lack of policy clarity on how to treat this service.

The guidelines, to be worked out by the Department of Economic Affairs, comes in the wake of representations from foreign investors seeking to set up subsidiaries which will undertake domestic money transfer business. These applications have been stalled as incoming MNCs are unwilling to bring in the $ 50 million needed to set up an NBFC. Their point is that such a service does not warrant such high initial investments.

Domestic money transfer services, much like the money order system, primarily consists of accepting money from a person at one location to be paid to another at a different location with the remittance order being forwarded instantly, using a high-speed communications network.

Unlike money order, there is no limit to the amount of money that could be transferred from one location to other, or one person to other. However, as the task involves accepting money (to be forwarded to other party), there is a fear that companies with low levels of capitalisation may accept amounts far in excess of their capital and then refuse to pay up.

Among the issues that will be decided by the government is spelling out whether such an activity is among those done by NBFCs. If the government decides to exempt it from the list of activities of NBFCs, it has to lay down new minimum capitalisation levels. Also to be sorted out is the issue of the regulator in case of firms which are exempt from being registered as NBFCs.

The first representation to the Foreign Investment Promotion Board (FIPB) for setting up a money transfer business came from Western Union Financial Services (WUFS), sometime in the middle of last year. The case was deferred as initially the finance ministry felt the business was reserved exclusively for the postal department. Subsequently, it was found that no such provision existed, and so it got a nod for setting up the subsidiary with certain riders.

The first condition was that only domestic money transfer services were permitted. Second, the activity itself was treated as fund-based activity done by NBFCs, attracting the minimum capitalisation norm of $ 50 million laid down by RBI.

WUFS contested the decision and said domestic money transfer does not involve any investment-related activity. However, the company’s revised application for exemption from meeting the $ 50 million NBFC capitalisation norm was rejected by FIPB in its meeting early this month.

Even as the case was going on, another foreign company, Wall Street Finance, submitted its application for undertaking domestic money transfer services with a capital of $ 0.5 million.

Strangely, the department of economic affairs reversed its earlier stand taken in case of WUFS and rejected the proposal altogether stating that domestic money transfer services do not figure in the list of 18 approved activities reserved for NBFCs.

   

 
 
GROUPE DANONE SEEKS NOD TO INCREASE STAKE IN ARM 
 
 
FROM DEVLIN ROY
 
New Delhi, Jan. 27: 
Groupe Danone has sought the government’s permission to convert its Indian subsidiary into a 100 per cent arm. It has also drawn up plans to invest Rs 14.5 crore over the year in the venture, where it now holds an 80 per cent stake.

In its application made to the Foreign Investment Promotion Board (FIPB), Groupe Danone has said foreign equity will be increased to 100 per cent through a transfer of shares currently held by M.P. Bharucha and Cyril S. Shroff. The company has expressed its intention to raise its investment in the Indian operations to Rs 150 crore over a period of five years.

Danone has already received approvals to manufacture and market its range of dairy and milk-based products such as yoghurt, yoghurt drinks, yoghurt snacks, dairy deserts and cheeses. Its current equity investment in the local outfit amounts to Rs 245 crore. However, it has not been permitted to charge royalty from its Indian subsidiary. It has also been barred from manufacturing ice-cream or any other item reserved for the small-scale industry.

Hughes Escorts

Hughes Escorts Communications Ltd (HECL) has sought the government’s nod to set up a wholly-owned subsidiary to provide telecom and internet-related services, besides importing and marketing telecom hardware.

HECL, a joint venture between the Hughes and Escorts group, has already got the government approval for installation, maintenance of V-sat equipment/services in India, besides manufacturing, designing, developing, operating and maintaining telecom products and services, with an approved foreign equity of 49 per cent amounting to Rs 7.35 crore.

The company has indicated a proposed investment of Rs 10 crore in the wholly-owned subsidiary and said this amount can be expected to come in over a span of 3-5 years. It has, however, yet to decide on the proposed location of the project.

In its application HECL has stated that the wholly-owned subsidiary will be downstream in nature and will concentrate on providing internet and telecom related software, hardware and services, including installation, operation and maintenance of communication networks.

   

 
 
CENTRE TO INTERVENE IN INDIAN OIL, RELIANCE ROW 
 
 
BY PALLAB BHATTACHARYA
 
Calcutta, Jan. 27: 
The central government is expected to intervene to resolve the dispute between Indian Oil Corporation and Reliance on the marketing contract issue.

The dispute has reached a stalemate following IOC’s reluctance to continue the existing marketing contract with Reliance after the oil sector is deregulated in April.

Sources said the petroleum minister Ram Naik will meet the top brass of the two companies shortly in order to settle “differences” between the two.

IOC plans to snap marketing ties with Reliance because of certain clauses like ‘take-or-pay’ that figured in the proposed contract.

Reliance, which has the largest refinery at Jamnagar with a capacity of 27 million tonnes, is believed to have offered its entire range of petroleum products to IOC for marketing. The private sector behemoth has no independent marketing network because oil marketing has so far been under government control.

Naik said the differences between the two companies have to be bridged because it is near impossible to set up a marketing network by anybody within this short span of time. But he felt that both companies will have to come closer with mutually beneficial terms. IOC sources said the current arrangement, if it continues, will have an adverse impact on the oil major’s production capacity.

“The contract was signed for the controlled products since the oil sector was under the administered price mechanism. But now, with the APM being abolished, the contract is being reviewed,” they said.

IOC has already obtained legal opinion on this matter and the board will examine the pros and cons of the existing contract. Reliance has also sought legal opinion on the matter.

The earlier contract between IOC and Reliance had contained plans for setting up a marketing joint venture after the deregulation of the oil sector. But indications now suggest that the plan has been shelved.

   

 
 
PROMOTERS PARE DSQ PIE TO 1.95% 
 
 
BY ANIEK PAUL
 
Calcutta, Jan. 27: 
The promoters of DSQ Software — Dinesh Dalmia & Co — have sold out much of their stake to the public. Their official holding now stands at a measly 1.95 per cent, down from 17.28 per cent at the beginning of the current financial year.

The public holding in the Chennai-based firm is close to 92 per cent; institutions hold 6.26 per cent, of which around 3 per cent is in the hands of Unit Trust of India (UTI).

Dalmia now controls 9.22 lakh shares, more than half of the 17.48 lakh shares traded on the Bombay and National stock exchanges today. The average daily traded volume on both bourses over the past 10 days was more than three times the promoter stake in the company, which has a total equity of Rs 47.25 crore.

Dalmia — who is the managing director of the company — confirmed he had pared his stake in the past nine months. “Some pledged shares were acquired by the lenders, others were sold in the market,” he said. He, however, said his small holding has not left him vulnerable to raiders who intend to topple him from management.

Brokers close to Dalmia said 10-15 per cent of the company’s shares were held by his associates, though the company did not make an announcement to this effect. Though Dalmia refused comment on the issue, brokers said the voting rights that go with these block of shares have been vested in him. “I cannot raise my stake because Sebi has barred me from accessing the market for a year,” he said.

   

 
 
GLOBAL TELE ARM TIES UP WITH IBM SUBSIDIARY 
 
 
BY ALOKANANDA GHOSH
 
Calcutta, Jan. 27: 
Global E-Secure (GESL), the 51 per cent subsidiary of Global Telesystems, has entered into an agreement with IBM Global Services to provide integrated solutions for built-in systems security. The partnership mainly aims at capturing the $ 6.5 billion global security market.

Says Rajeev Wadhwa, chief operating officer, Global E-Secure, “To start with, we plan to focus on providing security solutions in the Asia-Pacific region. The huge base of IBM will help us gain entry into the market.”

The security market in India is expected to be worth around Rs 125 crore. Wadhwa, however, says that this market is expected to expand, especially with investments on security expected to go up to 3 per cent of the total spending on infotech in the course of two years.

The company has also tied up with Tech-Pacific as reseller in the country, besides concluding alliances with CMS for facilities and GTL for services.

GESL plans to set up seven security technology competency centres across the country.

The first centre in Mumbai, built with an investment of Rs 1.5 crore, is already operational.

The competency centres will develop applications around existing security platforms and help customise products to suit the requirements of the domestic market.

“We expect 40 per cent of our revenues to come from the domestic market and the remaining from the international market. We also plan to increase our strength from 60 to 250 professionals by March this year. In India, we will concentrate on the banking and non-banking financial sectors. In the US, the healthcare sector will be our main focus,” says Wadhwa.

The company plans to explore the security market in Singapore, Japan, Asia-Pacific and West Asia.

   

 
 
CEOS DIVIDED ON DUTY CUTS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Jan. 27: 
The majority of India Inc’s CEOs have voted for the reintroduction of an investment allowance in the forthcoming budget, for revival of the manufacturing sector, even as a sharp division has cropped up among them regarding lowering of import duty and moving towards a single duty structure, a snap poll conducted by the Confederation of Indian Industry (CII) has revealed.

The poll, conducted on CEOs expectations from the Union Budget 2002-03, saw most of them predicting a revival in the manufacturing sector only after a year. However, on the issue of lowering import tariffs, there is a division between those who believe that the time is right for doing so and those who are against such a move. There is also a division on whether to lower import duties to a single rate by 2004-05 or stick on with the two-three tier structure.

“The advocates of a single rate of customs duty argue that a single rate was not only essential to eliminate anomalies, but also a means to put a stop to various kinds of classification disputes. The rationale for a two or three-tier structure, on the other hand, is that it would help in value addition within the country,” CII said.

On the issue of lowering of import duties, those in favour of the move argued the move will bring duties in tune with ASEAN levels, adding that the soft international oil prices and the D-Day for dismantling the APM nearing are reasons enough to go ahead with it.

Those against it believe that indigenous manufacturers need more time before being exposed to international competition, citing the example of most South East Asian economies that protected domestic manufacturers through tariffs till they achieved the capability to compete globally.

Touching upon the areas of overall economic development and direct and indirect tax related issues, the poll revealed that most CEOs want the investment allowance to be reintroduced, combined with a further reduction in interest rates by the Reserve Bank of India (RBI) which could potentially revive the “spirit of investment” in the economy.

Commenting on measures other than those related to tax to solve the investment crisis, the CEOs suggested an increase in public sector investments to spur demand, besides introducing more fiscal incentives and procedural simplification for aiding corporate restructuring.

A majority of the CEOs felt that any measure to simplify the fiscal structure for corporate restructuring would significantly affect their company. “In their bid to restructure, companies both in the public as well as private sectors have used voluntary retirement schemes. The recent change in treating VRS payments as capital expenditure rather than revenue expenditure would also create problems for companies that had planned to introduce a VRS,” CII said.

The CEOs said with financial infrastructure under the purview of the finance ministry, the budget can drive future reforms in the sector, particularly so in the banking system. A majority supported the move to set up Asset Reconstruction Companies (ARCs) to clean up the NPAs in the banking system, CII said.

   
 

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