Vysya Bank in a cleft stick
Customs duty exemptions to be slashed
Maruti selloff talks kept under wraps
Trai bonanza awaits cellphone subscribers
Industrial growth slides to 1.6% in Dec
Annapurna Foils set to delist from bourses
Philips cuts loss to Rs 21 cr
A riot of colour in paints market
Poor response prompts SBI to rejig film funding
Foreign Exchange, Bullion, Stock Indices

 
 
VYSYA BANK IN A CLEFT STICK 
 
 
FROM VIVEK NAIR
 
Mumbai, Feb. 12: 
A grey area in the statute book is casting a shadow on Vysya Bank’s insurance venture with ING. At the heart of the legal tangle is the question of how much foreign equity is allowed in private banks.

Existing provisions allow foreign banks to own up to 20 per cent of their private sector counterparts, but the issue has taken a new turn after efforts by Bank Brussels Lambert (BBL), a part of the ING group, to gain control of Vysya.

The Bangalore-based bank is on the horns of a dilemma because ING holds a 26 per cent stake — the maximum it can under rules laid down by the Insurance Regulatory Development Authority (IRDA) — in the insurance JV. This has thrown up a conundrum: What will be the fate of insurance subsidiaries of banks in which a foreign partner gets control?

Last year, the government said foreign investment in a local bank from all sources would be allowed up to 49 per cent. If that is so, the point is whether BBL can raise its stake above the current sub-limit of 20 per cent and take it to a level that gives it management control.

Even as this question goes unanswered, there is another riddle: Will Vysya Bank’s stake in the insurance venture need to be adjusted once BBL gets a majority holding?

“If BBL is successful in acquiring management control, Vysya, for all practical purposes, becomes a foreign bank. The issue is whether such a bank can hold a majority stake in a insurance venture,” an analyst said.

Senior Vysya Bank officials told The Telegraph that since the government and the Reserve Bank are wrestling with the question of foreign holdings in banks, they would like to wait for the precise legal position.

Clear directions are expected to come through on the important aspect once the norms on foreign holding in Indian Banks and their subsidiaries are given a final shape. “It will cover the important aspect in the context of our life insurance venture,” they added.

Asked whether they would have to look for an Indian partner for the life insurance business to adhere to IRDA guidelines, Vysya officials said it was a possibility if the government were to lay down such a rule.

“Based on the information available today, we see no need for looking at an Indian partner. However, the issue may be discussed at after the government speaks out its mind in this regard. Perhaps, the finance minister’s forthcoming budget speech may throw more light on this aspect,” the official told The Telegraph.

Most foreign banks are optimistic that the finance minister’s budget will cap FDI in private banks at 74 per cent. If that hope is met, it will enable the likes of Citibank, ABN Amro, BNP Paribas and BBL to acquire significant stakes in some of the country’s leading new private banks.

Already, IDBI Bank, Centurion Bank, Global Trust Bank are planning to bring in a strategic partner. There were unconfirmed reports recently about Citibank being in negotiations to buy a stake in Centurion Bank.

   

 
 
CUSTOMS DUTY EXEMPTIONS TO BE SLASHED 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Feb. 12: 
The government is planning to bring down the median customs rate to a level between 25 and 30 per cent and the basic tariff rate to 20 per cent. It also aims to scrap most of the 103 customs duty exemptions now in vogue and levy a uniform 16 per cent countervailing duty on all imports.

CBEC officials argue that by reducing the basic rate, the need for a large number of exemptions would disappear. This would help easier administration of customs. At present, the basic customs rate is 25 per cent while the median customs duty rate is about 35 per cent.

“The exciting tax reforms will now be in the indirect and more specifically in the customs duty field,” top CBEC officials said.

CBEC’s contention on slashing exemptions—which they want to do as it makes administration of customs duty messy for them—is also supported by the Parthasarathi Shome committee which had pointed out that exemptions on import duty on capital goods by the power sector had not helped in any way.

Finance minister Yashwant Sinha is also keen to move in this direction in order to stave off requests from various ministries on all kinds of conflicting exemptions. Commerce and industry minister Murasoli Maran has been trying to persuade Sinha to agree to reductions in import duty on a host of products used as raw material by the capital goods industry on the plea that duties on finished products were either too low or nil.

Administrative ministries looking after these sectors naturally oppose this. The steel ministry is still fighting last year’s decision to allow capital goods manufacturers to import steel by paying a 25 per cent duty. Now, the mines ministry is fighting another move by industry ministry to reduce duty on copper imported by electrical goods makers as it would hurt copper makers here.

The finance ministry, egged on by most industry chambers and the Swadeshi lobby, also wants to scrap all exemptions and slap the 16 per cent countervailing duty uniformly.

The logic is that excise duty on domestic products is at a median rate of 16 per cent and imports which are exempt from excise should face some form of taxation besides customs duty which places them at par with domestic products.

“The reason why this is being done is that most chambers have been complaining that the landed cost of many products is often lower than that of domestic production costs and imposing dumping duties have proved a cumbersome and difficult process,” officials said.

   

 
 
MARUTI SELLOFF TALKS KEPT UNDER WRAPS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 12: 
Suzuki Motor of Japan and the government today held talks on the modalities for the selloff of the government’s stake in Maruti Udyog but officials on both sides were cagey about the details.

Sources said, “The disinvestment department hopes to float a Rs 400-crore rights issue in early March. The government will renounce its right to subscribe to the shares and Suzuki Motor will bid for it for which it will have to pay a premium.”

It was not known if the two sides discussed the report on Maruti Udyog submitted by the valuation experts and whether they discussed how to fix the share premium that Suzuki would have to pay. The negotiation is a followup to a meeting that the two sides held in Japan last December.

“We came here today for the first round of talks,” said Shinzo Nakanishi, director, overseas automobile marketing division of SMC, but refused to divulge any details about the talks.

Nakanishi was heading a three-member delegation of Suzuki. The Indian side was represented by divestment secretary Pradeep Baijal and heavy industry secretary Ravindra Gupta.

Baijal said, “The talks will continue.” He also refused to say anything about the nature of the discussions.

The rights issue will bring down the government’s stake which currently is around 49 per cent. The share premium that Suzuki has to pay will determine how much of the government’s stake will be divested in the first phase.

   

 
 
TRAI BONANZA AWAITS CELLPHONE SUBSCRIBERS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 12: 
Cellphone users can look forward to lower rentals and a possible waiver of one-time charges.

The Telecom Regulatory Authority of India is scheduled to unveil a new tariff structure for cellular operators and a fresh tariff order for other telecom services, besides resolving bitterly divisive issues like interconnectivity. The regulator is also examining a proposal to introduce a calling party pays (CPP) regime under which mobile users will not have to pay for incoming calls. The cost of the call will be borne entirely by the person who makes the call—either on his fixed-line phone or a mobile phone.

“We are in process of evaluating cellular tariffs. The details will be presented for final approval by the month end and the decision could be taken by early next month,” Trai sources said.

The cellular industry was forced to slash its airtime rates following the cut announced by Mahanagar Telephone Nigam Ltd. Later, the competition forced players to bring down other charges as well.

The regulator is also in the process of preparing a new telecom tariff order to replace the Telecom Tariff Order (TTO) of 1999. According to a senior Trai official, “The third tranche of the TTO-99 is scheduled to come into effect from April 1, 2002. However, we are exploring the possibility of an entirely new telecom tariff order in view of the various changes both in terms of technology and services in this sector.”

In view of the convergence of voice, data and video, the regulator is taking a relook at the TTO-99. “Interconnectivity issues are very sensitive. Their profile keeps changing with the emergence of every new service based on a new or existing technology. We will have to see that a level playing field is maintained while tariff rates and other related issues are addressed,” the official said. The regulator is also likely to formulate a reference document for interconnection.

Four bids for ILD

The communications ministry has received four applications to offer international long distance (ILD) services—Bharti, Data eXpress, Pacific Internet and I-way (Satyam). The last date for applications is March 15.

Speaking on the sidelines of the seminar on telecommunications, Shyamal Ghosh, secretary in the communications ministry said: “We have received four applications till now and the process to award licences will be initiated soon.” Ministry officials said more companies are likely to enter the fray.

Earlier, Bharat Sanchar Nigam chairman and managing director D.P.S Seth said the demand for fixed line phones have come down to 14 lakh from 40 lakh. He alleged that the one-by-six scheme introduced by the finance ministry to widen the tax net was one of the reasons for the fall in demand.

   

 
 
INDUSTRIAL GROWTH SLIDES TO 1.6% IN DEC 
 
 
OUR BUREAU
 
New Delhi, Feb. 12: 
Continuing its downward trend, industrial growth slid to 1.6 per cent in December 2001, due to poor performance in the mining and manufacturing sectors.

The growth in the first nine months of the current fiscal was only 2.3 per cent compared with 5.8 per cent in the same period last fiscal as per quick estimates of the index of industrial production (IIP).

The mining sector declined to 0.5 per cent in December as against a robust growth of 4.0 per cent in the same period a year ago, while the manufacturing sector posted a growth of 1.4 per cent against 3.5 per cent in December 2000.

Electricity registered a marginal fall to 3.8 per cent in December 2001, as compared with 4.2 per cent in the same month in the previous year.

In the first nine-months of the current fiscal, mining ticked a 1.1 per cent growth, which was one-fourth the growth in the corresponding period in 2000.

Growth in manufacturing and electricity was also lower than the previous year’s figure, which pulled down the overall industrial production to 2.3 per cent. Manufacturing clocked 2.4 per cent during April-December 2001, compared with 6 per cent last year, while electricity posted a 2.7 per cent growth against 4.8 per cent in the previous corresponding period.

In sector-wise classification, the fall in the growth rate in capital goods was felt more since it clocked a negative 4.1 per cent in December 2001, compared with 2.2 per cent in the same period in the previous year.

In the first nine months of the present fiscal, growth in the sector was even more pronounced as it fell to a negative 4.8 per cent as against 3 per cent in the year-ago period.

Growth in intermediate goods slid to 1.1 per cent in December compared with 3.8 per cent, while in April-December 2001, it was 2 per cent as against 4.8 per cent in the previous corresponding period in 2000.

   

 
 
ANNAPURNA FOILS SET TO DELIST FROM BOURSES 
 
 
BY A STAFF REPORTER
 
Calcutta, Feb. 12: 
Small shareholders of Annapurna Foils are set to get an exit option at an administered price, as the company will have to delist from the stock exchanges with non-promoter shareholding having fallen below 10 per cent.

The company has informed the bourses, in a notice on Monday, that its shares were being delisted.

Annapurna Foils was taken over by Indal—now part of the AV Birla Group after its take-over by Hindalco—which holds over 90 per cent stake in the company. Indal paid Rs 24.77 crore to the banks and financial institutions to settle Annapurna Foils’ term loan dues. The amount was paid as an unsecured loan, giving Indal the option to convert it into equity. This was part of a rehabilitation package for Annapurna Foils approved by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) on September 26 last year.

Indal held a 26.51 per cent stake in Annapurna Foils till it began exercising the option of converting the unsecured loan into equity. It is understood that Indal has so far converted only a part of the amount it had paid as the unsecured loan, and its stake could increase further.

Under the Securities and Exchange Board of India’s guidelines, companies with less than a 10 per cent free float will have to delist their shares. Normally, companies with less than a 10 per cent public shareholding offer to buy out small investors at a predetermined price. Once the scheme is finalised, shareholders are advised to deposit their shares with capital market intermediaries appointed by the company to collect the shares.

   

 
 
PHILIPS CUTS LOSS TO RS 21 CR 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 12: 
Philips India (PIL) has pruned its 2001 net loss to Rs 21.2 crore from Rs 34.2 crore in the previous year.

Showing signs of improvement after a long spell of mounting losses, the consumer electronics major said it made an operating profit (after depreciation and interest, but before exceptional items) of Rs 38.7 crore against an operating loss of Rs 3.8 crore in 2000.

The improvement has been attributed to higher price realisations, cost management and lower interest charges. The performance was peppered with an increase in higher expenditure on extraordinary and exceptional charges at Rs 78.8 crore from Rs 35.6 crore in 2000.

Post-tax loss, after a restructuring charge of Rs 94.9 crore, was pegged at Rs 21.2 crore, down from Rs 34.2 crore in 2000. The company said the entire cost of Rs 81.8 crore on voluntary separation schemes was met from internal cash generation.

Commenting on the turnaround, company CEO and managing director K. Ramachandran said: “In 2001, we focussed on improving operational efficiencies and performance through better cost and people management. This enabled us to better operational profitability, deliver positive cash flows and improve our overall market share despite difficult market conditions.”

Its lighting division delivered strong results and retained its position as the leader in a market that was sluggish through much of the year. Consumer electronics was in fine fettle as well: sales of colour TVs were up 31 per cent, audio 27 per cent and DVD players 30 per cent. Margins improved, owing to greater efficiencies in purchasing, and through localisation.

Meanwhile, parent Royal Philips Electronics of the Netherlands has tightened its grip over the company by acquiring an additional 8 per cent of the company’s shares through its second open offer, taking its stake to 91 per cent.

The fact that it garnered only 8 per cent is being seen as a sign that the offer was a moderate success.

   

 
 
A RIOT OF COLOUR IN PAINTS MARKET 
 
 
BY ANIEK PAUL
 
Calcutta, Feb. 12: 
Asian Paints and ICI India are trying to increase their share in the decorative paints market by way of mergers and acquisitions. Both the companies appear to be armed with a kitty of over Rs 150 crore each to invest in the business.

While Asian Paints is looking at acquiring weaklings both in India and other developing countries, ICI says it will reinforce its existing portfolio of brands as well. Meanwhile, Berger Paints has decided to abandon its expansion drive, and will focus on organic growth, managing director Subir Bose said.

Asian Paints vice-chairman and managing director Ashwin Dani said: “We are in talks with some companies, both in India and abroad. We have always preferred to grow by this route and this should continue for the next couple of years.”

Indications are the company is prepared to invest Rs 150-200 crore to increase its market share.

Dani said Asian Paints could raise its debt-equity ratio, which stood at 0.5 as of March 31 last year, to 1. The total shareholders’ fund was pegged at Rs 411.2 crore—comprising equity of Rs 64.19 crore and the rest reserves and surplus—and total debt, at Rs 226.82 crore, at the end of the last financial year.

ICI director Daljit Singh said the company would not only seek to grow through acquisitions, it would also invest to strengthen its key brands in the decorative segment. ICI is in the process of exiting the automotive paint business. The company had earlier turned its automotive business into a 50:50 joint venture with Berger.

“The consideration for the entire (automotive paint) business has already been received by ICI. It is now a question of withdrawing our nominees from the board of the company and selling off our shares in the joint venture at face value,” Singh said. The company intends to get out of the joint venture within the next couple of months, he added.

Singh said the company was likely to divest its stake in Indian Explosives as well, by this calendar year. Indian Explosives is a joint venture between ICI and Orica of Australia, in which the former holds 51 per cent. The divestment of the stake is expected to rake in Rs 80-90 crore.

ICI recently sold off its pharmaceutical business at Rs 70 crore to Nicholas Piramal. “The proceeds of the divestment of these non-core businesses are going to be invested in the paints business,” Singh said. ICI has turned around its rubber chemicals business. It is now going to be put on the blocks. ICI will also divest its nitrocellulose business. “This is part of the ICI group’s global strategy,” Singh said.

   

 
 
POOR RESPONSE PROMPTS SBI TO REJIG FILM FUNDING 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, Feb. 12: 
State Bank of India’s film financing scheme has evoked a poor response even after four months of its launch and disbursal on this account has not been substantial. Based on the feedback from different circles, SBI has decided to come up with a revamped scheme, with more flexible terms for investment.

Under the present scheme, SBI will fund only up to 30 per cent of the film’s total cost of production (which should not exceed Rs 10 crore), subject to a ceiling of Rs 3 crore. What’s more, the number of projects of a producer financed at any point of time should not exceed three.

But producers have to measure up to several stringent standards. Under the scheme, as it stands now, the bank will finance only established film producers with at least three films under their belt—of which at least two ventures should not have suffered losses as per audited financial statement (to be obtained for each film separately).

Initially, only companies with a positive net worth and a profit-making track record during the last three years will be financed. Non-corporates with a good track record may also be considered selectively, subject to their net worth (net of all liabilities) being a minimum of Rs 3 crore. The producer will, however, have to provide collateral security which is equal to 50 per cent of the loan amount.

“The response from all the 14 circles has not been encouraging. Maybe the scheme is too young to get a good response. But according to the feedback that we have received, the main areas that need to be addressed are the stringent rules set out for getting a loan. Secondly, producers are not agreeable to the idea of coming up with 70 per cent finance for a 30 per cent loan from the bank,” SBI officials from Mumbai said.

For example, only two proposals have been sanctioned in the Bengal circle and the amount involved is far below the Rs 3-crore mark. “The bank is currently taking a fresh look at the scheme, based on the feedback and may come up with some changes in the present norms,” they added. However, the officials pointed out that film financing has been traditionally perceived to be highly risky.

“The success rate in the Indian film industry is reportedly as low as 15 per cent. There are no standard cost models to follow, making it difficult for banks to assess the viability of individual projects. There is a general perception that financial and accounting practices followed by the industry lack transparency. Even insurance companies do not provide any comprehensive policy to cover industry-specific risks. So, the bank has to be cautious before financing this industry, to avoid non-performing assets.”

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.67	HK $1	Rs.  6.15*
UK £1	Rs. 69.42	SW Fr 1	Rs. 28.55*
Euro	Rs. 42.72	Sing $1	Rs. 26.25*
Yen 100	Rs. 36.44	Aus $1	Rs. 24.60*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5005	Gold Std (10 gm)Rs. 4940
Gold 22 carat	Rs. 4725	Gold 22 carat	  NA
Silver bar (Kg)	Rs. 7600	Silver (Kg)	Rs. 7615
Silver portion	Rs. 7700	Silver portion	  NA

Stock Indices

Sensex		3497.68		-17.77
BSE-100		1705.28		- 1.92
S&P CNX Nifty	1129.50		- 2.05
Calcutta	 120.15		- 0.95
Skindia GDR	 546.16		+ 1.97
   
 

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