Centre guarantees UTI loans for monthly plans
US-64 beats sensex
Ordinance to speed up loan recovery cleared
PNB told to find new ally for insurance
Tata Power’s smart card
Famous five vie for tea logo contract
Bluechips melt as mutual funds, FIIs scamper out
VSNL can stand sans Tata Tele props
Cognizan tready with back-up plan
Foreign Exchange, Bullion, Stock Indices

 
 
CENTRE GUARANTEES UTI LOANS FOR MONTHLY PLANS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, June 18: 
The finance ministry has decided to give mutual fund giant UTI a kind of sovereign guarantee to help it cope with the redemption rush in two monthly income schemes maturing this month.

With banks and financial institutions still less than enthusiastic about turning sponsors for the scam-hit mutual fund, the government has decided to stand guarantor to any short term borrowings it takes on to help pay back on the two schemes. The government is likely waive the guarantor fee it normally charges from PSUs.

Even as two monthly income schemes floated by the UTI will come up for redemption this month-end, the fund faces a combined shortfall of Rs 1,050 crore on this account, while its liquid development reserves are estimated at about Rs 600-700 crore.

With a government guarantee and a pledge to place its receivable from sale of stockholdings in various blue-chips, UTI is likely to be able to contract any bridge loan it takes at sub-PLR rates of around 7.5-8.5 per cent, said officials.

However, finance ministry officials said they would continue to proceed with plans for floating an asset management company with sponsors from among top financial institutions and banks as this was the only long-term solution to UTI’s problems.

Several other MIP schemes are expected to come up for redemption over the coming two years and the mutual is expected to get ready about another Rs 1,500 crore in all to handle these redemptions.

“The sponsor plan stands and has not been scrapped. We will continue to work on it for UTI’s long-term revival. However, for the short term, bridge loans are the only solution.

The finance ministry has already committed a supplement infusion of funds by UTI’s sponsors but does not really wish to see this scenario, as that would require a budgetary allocation.

The problem before UTI, ministry officials said, is that these are all assured income schemes promising fixed rates of return varying between 10.5 to 14 per cent, whereas the real value of these schemes have been falling.

UTI has been paying the assured returns by dipping into the capital base of these schemes. About a quarter of the MIP money is invested in stocks while the rest is invested in the debt markets. Market meltdowns have depressed the unit value while cuts in rates on debt has meant even the assured income of the schemes has taken a beating.

   

 
 
US-64 BEATS SENSEX 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, June 18: 
Unit Trust’s flagship scheme US-64 has outperformed the sensex over weekly, monthly, quarterly period ever since the scheme went NAV based from December 31, 2001, says the mutual fund major.

Since then its NAV has appreciated 7.85 per cent while the sensex has gained 1.50 per cent. The one week performance is 3.19 per cent as against the sensex gaining only 1.59 per cent. While the monthly and quarterly appreciation in US-64 has been 0.31 and 1.57 per cent as against the sensex shedding 3.81 per cent and 7.24 per cent.

UTI has also managed to prune equity exposure in the last five months from 65 per cent to 60 per cent of the total assets as on May 2002. Its objective is to bring equity exposure between 25 to 55 per cent of the total assets in the next one year.

   

 
 
ORDINANCE TO SPEED UP LOAN RECOVERY CLEARED 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, June 18: 
The Cabinet tonight cleared a debt securitisation Ordinance that makes it easier for banks and financial institutions to take over mortgages, appoint receivers and trade these instruments in the market through asset reconstruction firms.

With the passage of the Ordinance, the government will scrap the slower debt recovery tribunals, which currently go into debt defaults and try to recover bad loans.

All loans, except small ones given to individuals and farm credit, will be covered by the new law, which will allow banks to foreclose mortgages in case of persistent defaults.

The decision to promulgate an Ordinance to clean up the financial sector’s non-performing assets (NPAs) was taken at a meeting chaired by Prime Minister Atal Bihari Vajpayee. “This step is necessary to tackle the problem of NPAs with banks and will mark a major reform in the financial sector,” law minister Arun Jaitley said.

The Ordinance is based on an earlier Cabinet-approved Bill, called the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Bill, 2002. However, the Bill could not be approved since there wasn’t enough time for its consideration and passage in both houses of Parliament.

Some Rs 84,000 crore of assets are stuck up before DRTs, which have left the country’s banking system hobbled and plunged several banks into the red.

The situation had arisen largely because of the ability of companies to get away without paying their debts by simply using clauses of the Sick Industrial Corporation Act (Sica). This law allowed them to delay recovery by taking the case to various quasi-legal authorities.

The Cabinet also cleared a Rs 3,750-crore investment by ONGC Videsh in the Greater Nile Oil project in Sudan. The money is being used to buy a 25 per cent stake in the project from the Canada’s Talisman Oil Company. Other partners are Chinese and Malaysian oil firms and the Sudanese government.

Also approved was a National Seeds Policy, which sets up a systemic procedure for import and plantation of controversial transgenic seeds as well as import of other foreign seeds.

The policy will also allow “free and faster imports” “with adequate quarantine checks” to allow Indian farmers access to “best quality seeds and planting material.” It will protect the rights of farmers to save, use, exchange, share and sell farm produce.

The Cabinet cleared a reconstruction package for the Calcutta-based National Instrumentation Ltd which involves conversion of Rs 60.34 crore in loans into equity and write off of outstanding interest over Rs 138 crore.

The government will also try to set up a joint venture to revive the company. If this fails then the government will take steps to wind it up after a golden handshake package for all employees.

   

 
 
PNB TOLD TO FIND NEW ALLY FOR INSURANCE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, June 18: 
Delhi-based Punjab National Bank (PNB) is examining the issue of retaining DCM Shriram Consolidated Ltd (DSCL) as one of its partners in the bank’s insurance foray.

This follows a directive from the Reserve Bank of India (RBI) asking PNB to approach them for approval only after identifying a new partner “in lieu” of DSCL. This directive has come about since DSCL is availing of credit limits with PNB, the bank informed the stock exchanges today.

Apart from DSCL, the other partners in the insurance venture include the leading Swiss insurance group, Zurich Financial Services and Vijaya Bank. Earlier this year, Zurich Insurance had announced its entry into the country’s life insurance and general insurance sectors when it was part of a four-way insurance venture.

It was then decided that Zurich would hold a 26 per cent stake in each of the two ventures. DSCL, which is active in the fertiliser, sugar, chemicals and plastics businesses, will hold a 35.5 per cent stake in each of the two ventures.

The other partners PNB and Vijaya Bank would hold a 26 per cent and 12.5 per cent equity stake respectively in both the joint ventures. In the country, Zurich already owns Zurich Asset Management Company (India) Pvt Ltd and Zurich Risk Management Services (India) Private Ltd.

The induction of Vijaya Bank and DSCL came after an earlier attempt by PNB when it had approached RBI for venturing into this sector. On that occasion, the bank had disclosed that it would take an 15 per cent equity stake in the insurance company being promoted by Zurich Financial Services and Hero Honda Group for both life and non-life insurance business.

PNB, sources say, plans to use its vast retail network for distribution of the insurance products.

PNB recently came out with a VRS package that saw the total number of employees in the bank getting reduced to over 58,000 from around 65,000 earlier.

The RBI had last year, come out with regulations for banks venturing into insurance, where it stipulated that while non performing assets (NPAs) of the applicant bank should be reasonable, there should be an arms length relationship between the bank and the insurance outfit.

It had also said that banks planning to be part of a joint venture should have at least 10 per cent capital adequacy, a reasonable level of NPAs and a net profit for the last three years.

PNB had announced an ambitious information technology initiative. The bank has also organised itself into business units that concentrated on separate customer segments apart from also setting up separate business units for large corporates, mid-corporates and retail and small business segments.

   

 
 
TATA POWER’S SMART CARD 
 
 
FROM SATISH JOHN
 
Mumbai, June 18: 
Tata Power, the private sector energy major, is in the process of developing pre-paid electronic meters.

The pilot study initiated by Tata Power in their research centre in Bangalore is in the early stage of completion. If it takes off, industry circles are confident that it will be a panacea for state electricity boards (SEBs) who are reeling under huge outstandings, totalling a whopping Rs 40,000 crore.

Tata Power is learnt to have already created a prototype of the pre-paid electronic meters. The device would work only when the consumer inserts a pre-paid card, like a pre-paid SIM card, for the meter to run.

The electricity will flow as long as there is value left in the card. The meter will sound a beep when it is about to exhaust the credit limit. Tata Power has devised this card entirely on its own.

Industry circles say that this concept is already working in certain European countries. In India, this concept is quite popular with mobile phone users.

The tamper-proof meters work only if the pre-paid cards are installed. Tata Power is developing this new concept with its group company Nelco. The concept could be used even by Tata Power as it has recently gained distribution rights in Delhi and also in Mumbai where it has been distributing power for years.

If the idea works, SEBs can collect their dues in advance and they need not even bill the customer.

The outstandings of SEBs in turn hurt the bottom lines of other well managed companies. For instance, the SEBs owe a whopping sum of Rs 3,743 crore to the state-run Nuclear Power Corporation (NPC), with Madhya Pradesh being the biggest defaulter with Rs 1,385.42 crore. Other major defaulters include Uttar Pradesh Rs 486.80 crore, Jammu & Kashmir Rs 463.12 crore, Haryana Rs 374.27 crore, Delhi Rs 226.91 crore, Andhra Pradesh Rs 164.79 crore, Gujarat Rs 157.94 crore, Rajasthan Rs 156.40 crore, Karnataka Rs 129.96 crore and Tamil Nadu Rs 122.32 crore. Commercial losses of the SEBs have increased from Rs 11,305 crore in 1996-97 to Rs 26,013 crore in 2000-01.

A significant portion of the shortfall is due to the poor realisation of revenues and heavy pilferage of power. Of the total energy generated, only 55 per cent, that is Rs 62,000 crore is billed and only 41 per cent, or Rs 46,000 crore is realised.

   

 
 
FAMOUS FIVE VIE FOR TEA LOGO CONTRACT 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, June 18: 
The top five advertising agencies—McCann Ericsson, HTA, Mudra, Ogilvy & Mather and FCB Ulka—are in the race for bagging the contract to develop an exclusive logo for Indian tea.

International consultant Accenture, which was appointed by the Tea Board for working out a mid-term export strategy, suggested development of a logo for identification of Indian tea in the international market.

Senior Tea Board officials said, “The ad agencies have already made presentations to the task forces set up to implement the mid-term export strategy. The final selection will be done this week.” The Tea Board has set up nine task forces comprising representatives from producers, exporters, traders and packers.

Accenture feels that though India’s current expenditure of Rs 6.8 crore on overseas promotional activities is higher than that of Kenya and Sri Lanka, the industry still needs to devise an overall promotion scheme and also market-specific strategies.

The consultant pointed out that to create a strong brand image of the Indian brew, a single identity has to be promoted for all varieties of tea, which will stand for country of origin, quality and other specific attributes that need to be defined.

The task forces are also in the process of finalising market research agencies that will carry out detailed study of certain markets such as Syria and Egypt, which consume black tea.

India has established a high brand equity in most premium niche segments, except flavoured tea where China and Sri Lanka enjoy an advantage. Accenture feels that India must strengthen its competitive advantage to increase value of its exports.

In the medium term, India’s domain of competition should be mainly black tea. At present, India has minimal equity in green tea, and building this equity may not be feasible in the immediate term.

The consultant has suggested that the resources should rather be utilised in leveraging India’s existing equity in black tea and consolidating market share in that segment.

Meanwhile, the Indian tea industry has started the year with a bad note both in the production and export fronts.

The production of Indian tea till April is down by 5.5 million kg, while exports are down by 1.5 million kg.

Tea Board officials said, “We are aware of the situation. We are taking steps to boost exports in the current financial year.”

The board has also placed some proposals before the Union commerce ministry for providing some incentives which would lead to incremental exports.

The board also plans to work out some strategy for boosting exports to countries like Syria, Afghanistan, Egypt, Russia. “The media plan for the Russian market is almost ready. We are trying to enter into a tieup with some Russian companies who will sell pure Indian tea. Tea Board chairman N. K. Das also had a meeting with leading exporters to discuss export targets,” officials said.

   

 
 
BLUECHIPS MELT AS MUTUAL FUNDS, FIIS SCAMPER OUT 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, June 18: 
Pivotals received a drubbing on stock exchanges as foreign institutional investors (FIIs) and mutual funds continued to remain net sellers.

FIIs have sold heavily this month, after remaining buyers through much of last year. In June, they sold almost Rs 245.5 crore worth of shares, most of it on Monday, when their tally was Rs 114.9 crore. Mutual funds were also sellers but by a smaller margin. Their net sales so far have been to the tune of Rs 130.10 crore only.

On being asked why FIIs have turned truant, majority of the dealers touted different views. “Nobody has a clue”, rued Ajay Menon from Geojit Securities a leading NSE broking outfit.

“Redemption pressure faced by MFs especially the UTI” said an analyst while another claimed that it was profit booking as many PSUs have made attractive gains. Interestingly, side counters continued to be in demand while the index stocks moved southwards.

The index moved in the direction set by leading technology stocks and PSUs. Sluggish foreign fund inflows and the absence of fresh peace moves rattled investor confidence, brokers said.

The BSE 30-issue benchmark index closed down 1.17 per cent (39 points) at 3,284.54 points after rising 1.15 per cent in opening deals. Early trades in the markets were stark contrast to the subsequent mood in the markets which mirrored the desolate climactic conditions in the city.

“The sell-off by foreign funds have created some despair in the market place,” Menon added. The fact that the two armies are still face to face in the Indo-Pak border has created apprehensions in the minds of local investors.

While FIIs have been selling in the market, a few foreign investors were reaffirming their buy ratings on pivotal stocks. Goldman Sachs and Credit Lyonnais were among the foreign broking outfits to remain bullish and recommend stocks to their clients.

In the specified group, 116 including 25 index-based counters registered sharp to moderate losses while 45 others finished with gains. However, on the BSE gainers outnumbered losers 813 to 781.

   

 
 
VSNL CAN STAND SANS TATA TELE PROPS 
 
 
FROM M. RAJENDRAN
 
New Delhi, June 18: 
Even though they blinked first in the battle of eyeballs with the government, the Tatas claim that the fortunes of Videsh Sanchar Nigam (VSNL), the Rs 8,000 crore telecom giant that till April this year had the monopoly over overseas call traffic, hinges crucially on its investment of Rs 1,200 crore in Tata Teleservices.

Here’s how the Tata argument runs: VSNL has lost its monopoly over overseas call traffic and soon a couple of private players —read Reliance and Bharti —will be ready to offer the whole suite of services that will undermine VSNL’s ability to generate revenues. Neither Reliance nor Bharti is in a position to offer the services as yet —they only have licences for international long distance services. But the Tatas reckon “in two to three years, the competition will render VSNL out of business.”

Does that sound too dire? The Tatas obviously don’t think so. Their solution: invest Rs 1,200 crore in Tata Telservices, the group’s basic telephony services provider in Andhra Pradesh where it has 170,000 subscribers. TTL has a clutch of licences to provide basic telephony services in other circles including Karnataka, Tamil Nadu, Maharashtra, Gujarat and Delhi.

The reasoning is based on the premise that the telcos no longer operate in a sellers’ market. With fierce competition, the players will be slashing rates and fine-tuning services. The Tatas seem to suggest that VSNL will not be able to fight the competition on the price front. So, the best way to survive is to create a catchment of customers through TTL whose ever-widening pool of subscribers will use the VSNL network to route their calls.

The Tatas’ argument is specious at best and deserves closer scrutiny. To start with the numbers on the ground don’t stack up at all. VSNL handled 3.1 billion minutes of international telephony traffic during 2001-02 generating revenues of Rs 5734.2 crore (against 2.68 billion minutes generating Rs 6386.8 crore in 2000-01). On the other hand, the number of telephone paid minutes has been rising, revenues have been falling because of the lowering of the settlement rates that VSNL negotiates with other countries. Out of the 3.1 billion units of telephone paid minutes in 2001-02, the basic telephony operators (BSNL, MTNL and the handful of private basic operators including TTL) accounted for 80 per cent, or Rs 4,587 crore of total international traffic revenue.

Now let’s take a look at the basic telephony business itself. There are 40.2 million fixed line subscribers in the country. BSNL is the biggest player with 35 million subscribers followed by MTNL with 4.5 million. The six private operators — TTL, Hughes Tele, Bharti Telenet, Himachal Futuristic Communications, Shyam Telecom and Reliance —together have about 700,000 subscribers. Bharti is the biggest private player with 175,000 followed by Hughes Tele and TTL with 170,000 each.

Most of VSNL’s revenues came from the BSNL and MTNL networks as the loss-making private networks have still a long way to go. The Tatas are betting that TTL—in which VSNL is expected to pick up between 20 and 25 per cent if its Rs 1,200 crore goes through —will be able to ratchet up its subscriber base to 7.2 million fixed line subscribers by 2010 who will automatically become VSNL customers. There are no independent studies against which the projections can be benchmarked. But it is safe to say that the others will also be seeking to aggressively build their subscriber pools.

The big question: can VSNL survive on a 7.2 million subscriber base? Given the fact that over 40 million fixed-line subscribers use its services now, it seems unlikely that VSNL’s fortunes will depend on a pool of just 7.2 million subscribers eight years from now. If it loses BSNL and MTNL subscriber (who may gravitate towards competing networks offering cheaper rates), VSNL will go belly up and the TTL subscriber base will not be able to resuscitate it. VSNL has recorded huge revenues and profits solely on the strength of its monopoly on overseas calls till April this year and the special relationship it has shared with both MTNL and BSNL under a state dispensation. Under a Tata dispensation, VSNL may not be able to leverage that relationship. The Tatas have already been pressing for a review of the settlement rate with both BSNL and MTNL. “Without a realistic settlement rate being established for the two-year window defined under the shareholders agreement, you will appreciate that the entire profit levels of VSNL could be eroded immediately,” says a background note prepared by the Tatas for the department of telecommunications, justifying the VSNL board’s decision to invest in TTL.

There’s another little detail that could punch holes in the Tata argument. Industry analysts say there is a rule of thumb to determine how much of capital investment is required to create one customer. At a 30 per cent capacity utilisation of the network (the level at which private operators are working), the cost of creating one customer works out to Rs 50,000. Extrapolate that figure to see how far VSNL’s Rs 1,200 crore will go and you get a figure of 240,000 customers, a far cry from 7.2 million it hopes to have by 2010. The Tatas will have to come up with bags of money to make up for that shortfall. Of course, the rules of the game may change by then and the math may become redundant.

But it’s still going to be tough —and in any case it is unlikely that VSNL will be desperately pinning its fortunes on TTL’s ability to drum up customers.

   

 
 
COGNIZAN TREADY WITH BACK-UP PLAN 
 
 
BY ALOKANANDA GHOSH
 
Calcutta, June 18: 
Cognizant Technology Solutions (CTS) has prepared a detailed contingency and business continuity plan (BCP) to meet any emergency that is likely to disrupt services routed through India. Reiterating the company’s commitment to uninterrupted service, mainly in the US and Europe, chairman and chief executive officer Kumar Mahadeva has assured complete service and support in case of disruptions due to tensions along the Indo-Pak border. Mahadeva issued the letter after US State departments warned citizens regarding travel plans to the subcontinent.

“Although the risk of conflict is currently low, we would advise clients to reschedule any travel they are planning to India,” writes Mahadeva. Outlining the plans in case of an emergency, Mahadeva says, “Each of our centres has full business continuity plan with failover capability to other centres. This plan encompasses physical infrastructure, communications infrastructure, computing facilities, applications and data and workforce.” CTS has 11 development centres in India and employs a workforce of more than 3900.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.96	HK $1	Rs.  6.20*
UK £1	Rs. 72.58	SW Fr 1	Rs. 31.00*
Euro	Rs. 46.41	Sing $1	Rs. 27.00*
Yen 100	Rs. 39.27	Aus $1	Rs. 27.00*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5385	Gold Std (10 gm)Rs. 5230
Gold 22 carat	Rs. 5085	Gold 22 carat	   NA
Silver bar (Kg)	Rs. 8275	Silver (Kg)	Rs. 8270
Silver portion	Rs. 8375	Silver portion	   NA

Stock Indices

Sensex		3284.54		-38.96
BSE-100		1673.94		-21.54
S&P CNX Nifty	1074.95		-13.95
Calcutta	 119.07		- 0.43
Skindia GDR	 533.18		+ 4.34
   
 

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