Tisco to go on borrowing binge
Banks asked to set up specialised panels
Oriental Bank weighs ADR issue

 
 
TISCO TO GO ON BORROWING BINGE 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, June 30: 
Tata Steel plans to create a fresh charge of Rs 500 crore on its assets to raise more funds for its ambitious expansion plan. This will be in addition to the Rs 520 crore it has already earmarked.

The plan to raise an additional charge will take the total available margin for creation of charges to Rs 1,020 crore.

In a note to shareholders, Tata Steel said it would seek their approval for the creation of fresh charge. With this additional charge on assets, the company hopes to meet its capital expenditure and other requirements. “To secure borrowings, the company would have to mortgage, charge or hypothecate its assets and properties, both now and in future, as may be required by the lenders or trustees,” Tata Steel said.

The explanatory note to shareholders said in the coming years, Tisco intends to raise more credit from financial institutions, banks, investing agencies by way of loans, issue of bonds, and other instruments on a private placement basis, or through ways set out in the resolution.

The company raised funds to the tune of Rs 700 crore in the financial year 2001-02, leaving a balance of Rs 520 crore for creating further charges. The communication to investors says there is an anticipated that the available limits of Rs 520 crore will not be sufficient to secure financial assistance that will be required during the coming years.

Of late, Tisco has been restructuring its debt portfolio by prepaying some of the high-interest loans and raising new ones with lower coupon rates. The effect of this could be seen in lower gross interest charges of Rs 419.90 crore against Rs 481.90 crore in the previous year.

The private sector steel behemoth said its net interest outgo has not fallen proportionately due to a lower capitalisation of interest after the completion of its cold rolling mill.

During 2001-02, Tisco incurred a capital expenditure of Rs 535 crore. The company also exercised a call option and redeemed secured redeemable non-convertible bonds of Rs 500 crore issued in 1996, along with an accrued interest of Rs 212 crore. These amounted to Rs 712 crore — its single largest redemption of debt.

During the year, Tata Steel’s major focus has been on consolidating its market position in high-end cold rolled steel products and establishing its branded products in the market to distinguish itself from other steel producers.

Significantly, domestic demand for flat products has been showing some growth in the past three months. Much of this increase has been fuelled by an increase in the number of buyers for consumer durables, automobiles and capital goods. The government’s expenditure on major infrastructure projects, such as roads, is also expected to increase the demand for long products.

   

 
 
BANKS ASKED TO SET UP SPECIALISED PANELS 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, June 30: 
The finance ministry and the Reserve Bank of India have asked all banks to set up three separate board-level committees—one to look into redressal of shareholders’ complaints, another for handling risk management and a third to act as a supervisory committee to monitor all exposures.

All banks that have issued shares or debentures to the public will have to set up a shareholders’ redressal committee, a key recommendation made by the Sebi committee on corporate governance. This committee will be set up under the chairmanship of a non-executive director and will look into redressal of shareholders’ complaints. A senior finance ministry official said state-owned banks have been asked to implement this system immediately, especially as many of them are likely to approach the market soon to raise Tier-I or Tier-II capital.

Banks have also been asked to ensure that risk management committees are set up quickly and that they function properly on the basis of RBI guidelines notified earlier. Both the ministry and the RBI said that where such committees do exist, they have virtually little or no powers to actually manage credit risk.

“However, the third and most important panel—a supervisory committee to monitor exposures—has been set up by many banks already,” officials said.

While a few banks have yet to set them up, supervisory panels have been woefully absent in the case of most co-operative banks both in the past and even now. The supervisory committee is supposed to not only monitor credit and investment exposures but also review the adequacy of the risk management process and the internal control system.

At the same time, the RBI has stipulated that banks and financial institutions will have to compulsorily disclose exposures of more than the 10 per cent of their capital to any individual. Similarly “connected lendings” to the firm’s top management and their relatives will also have to be mentioned.

The new rules, which are likely to come into effect sometime later this year, will also limit group exposure to 30 per cent of a bank’s capital.

   

 
 
ORIENTAL BANK WEIGHS ADR ISSUE 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, June 30: 
Oriental Bank of Commerce plans to hit the market with a Rs 300-crore non-convertible debenture issue this year in order to shore up its Tier-II capital, even as it mulls an American Depository Receipt (ADR) issue sometime after that.

OBC chairman and managing director B. D. Narang told The Telegraph, “We are waiting for the market to pick up before we launch a non-convertible bond issue with a five-year maturity.” At present, the bank has a capital adequacy ratio of 11 per cent, capital on its books of Rs 192 crore and a reserves and surplus position of Rs 1,427 crore.

The bank wants to convert itself into a financial supermarket by retailing not only normal banking services but also insurance and other financial products to small companies and individuals. Prior to an ADR issue, the bank is drawing up a balance sheet that meets the US General Accepted Accounting Practice Standards. It has also reduced its NPA level to just over 3 per cent.

“We are concentrating on technological upgradation to be able to provide internet banking, anywhere-banking and ATMs all over the country. Once the technological tools are in place, we will go all out to turn ourselves into a marketer of financial products whether they are insurance policies or gilts or mutual fund instruments,” Narang said.

OBC has been negotiating with several foreign insurance giants for a possible tieup to set up an insurance arm here but gave up the plans after it realised most partners wanted management control even though OBC would invest 74 per cent of the equity in the venture. Instead it now wants to play up its strength of having one of the best employee-to-turnover ratio of Rs 3.2 crore per employee.

The bank chief believes that the future belongs to financial super-marts, not to mere banking institutions. “Of course core strengths have to be there and have to be exploited. Our core strength is our relationship with small and medium enterprises as well as with individual customers—so they will form our main client base for whatever we sell,” he said.

“With the kind of inter-personal relationships we have and our network, we can beat the MNCs hands down in this game, once we are up to the mark technologically,” Narang said.

OBC, which reported a total business of Rs 42,974 crore in 2001-2002, will also cut down its cost of deposits from a current 7.7 per cent to 7 per cent by increasing efficiency and reducing dependence on call money market investments. “We will focus on short-term loans which give about 9.5 per cent,” he explained.

OBC managed to push up its gross profit by 71.7 per cent in 2001-02 to Rs 917 crore and net profit by 58 per cent to Rs 320 crore.

   
 

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