UTI gets Rs 500-cr bailout
State Bank net profit leaps 32%
Sensex settles below 3,000
Kotak stock sale keeps bourses guessing
More time to file returns
Lobbying on to water down Competition Bill provisions
Vijay Mallya prepares to raise a Storm
Indal net profit drops
Coal royalty rates go up
Foreign Exchange, Bullion, Stock Indices

 
 
UTI GETS RS 500-CR BAILOUT 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, July 30: 
The government today announced a Rs 500-crore bailout package for Unit Trust of India (UTI) — the country’s largest mutual — as part of a Rs 8,007 crore-supplementary demand for grants for the current fiscal.

UTI, on its part, today announced a trigger option that will allow investors a fast-track entry and exit mechanism into its flagship mutual fund — US-64 — at pre-determined prices. It also said it would reduce the equity component of the popular fund scheme from 59 per cent to 55 per cent.

The Rs 500-crore budgetary support will be used to cover the shortfall between assured repurchase price and net asset value of US-64.

This, however, does not take into account the estimated Rs 1,000-1,500 crore needed to bridge the gap between its reserves and earnings and the funds required to service other schemes coming up for redemption between now and 2004.

The government had earlier tried to avoid giving UTI fresh fund infusion by simply trying to rope in more sponsors for UTI who would instead infuse money by buying fresh equity. Besides IDBI and LIC who are UTI’s promoters, the government has managed to convince certain state-run banks to provide monetary support.

But keeping in mind the long-term needs of the mutual fund and realising that short-term packages may not put it back on its feet, the government has now decided to chip in with a Rs 500-crore package which forms part of the supplementary demands for grants moved in the Lok Sabha by minister of state for finance, Gingee Ramachandran.

The demand involves a cash outgo of only Rs 3,913 crore as the additional expenditure is matched by savings by departments concerned and enhanced receipts and recovery totalling Rs 4,094 crore.

UTI chairman M. Damodaran told newspersons here today that UTI would be introducing trigger options in US-64 just as it had in 14 other schemes, including several open-ended equity and bond schemes. This comes a year after it placed restrictions on entry and exit from the scheme.

He also said UTI had decided to reduce the equity component in its Rs 25,000-crore corpus of US-64 by 4 percentage points, from 59 per cent to 55 per cent, by the end of the year.

The move had been recommended by several committees set up to look into the functioning of the UTI, which had been badly hit after last year’s stock scam which had seen its net asset value scorched and investors deserting it in droves for safer pastures.

“We plan to cut the equity component down to 55 per cent by the end of this financial year,” Damodaran told reporters. He also said UTI has sought Sebi’s permission to start four new schemes, including an index-linked one.

The mutual fund giant will also be slowly moving out of assured income schemes into variable income ones. The problem that UTI has been facing is that it has been running mostly 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.

As a result, 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 market.

Repeated market crashes have eroded the unit’s base value, while repeated cuts in interest rates in the debt market, which now stand at 9.5-10 per cent, has meant even the assured income has been badly hit now.

With nearly Rs 35,000 crore invested in UTI’s MIP schemes, the gap between promised returns and actual money in the kitty could well increase in future as markets show little signs of reviving. Unless the government package takes this into account, UTI’s problems will continue to linger.

The UTI chief said his institution was also concentrating on improving the quality of its assets to ensure better returns to investors. “We are taking the non-performing assets of each fund and striving to recover them. We have already provided for 90 per cent of the assets, which had been written down at minuscule values. So, whatever we recover now is our gain.”

UTI has recently set up an Asset Reconstruction Fund, which is segregating NPAs from the individual schemes in order to recover them, he added.

   

 
 
STATE BANK NET PROFIT LEAPS 32% 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 30: 
Helped by a robust rise in treasury income, State Bank of India (SBI) today announced a 32 per cent increase in first-quarter net profit at Rs 763.20 crore against Rs 579.78 crore in April-June 2001.

Net interest income inched up 9 per cent at Rs 2415.67 crore from Rs 2217.82 crore in the corresponding quarter last year. This was largely the result of rising interest income from treasury management.

The operating profit at Rs 1715.96 crore represented a 17.29 per cent increase over Rs 1463 crore in the first quarter of 2001. The jump has been attributed to an increase in net interest income and other income, besides progress in keeping a lid on operating expenses.

Net interest income grew 8.92 per cent and other income 12.64 per cent; the rise in operating expenses was kept at 3.64 per cent.

However, provisions made against sticky loans and impaired assets went up to Rs 952.76 crore from Rs 883.22 crore in April-June last year. This includes Rs 400 crore set aside for non-performing assets, down from Rs 450 crore last year; provision for taxes was Rs 474.95 crore (Rs 420.53 crore), while the amount set aside for investment depreciation was Rs 65.85 crore (Rs 1.63 crore).

The good numbers failed to impress investors, who sent the scrip sliding 1 per cent to close at Rs 226.10 on BSE.

The bank said advances during the quarter went up by Rs 10,555 crore or 10.11 per cent over the same quarter last year. This was accompanied by a reduction in the average yield on advances to 9.38 per cent from 10.17 per cent in the wake of falling interest rates.

Average resources in treasury operations rose by Rs 22,107 crore, or 14 per cent over the same quarter last year. Deposits swelled 12 per cent to Rs 2,22,912 crore on the last Friday of June from Rs 20,5626 crore last year.

Advances were up 10 per cent at Rs 1,20,278 crore from Rs 1,09,377 crore. Retail advances grew Rs 1059 crore while outstanding personal advances stood at Rs 18,770 crore at the end of June.

The bank said it continued to perform well in the housing finance too. It lent Rs 1018 crore more at Rs 9218 crore in June from Rs 8200 crore at the end of March. Fresh disbursements in the first quarter stood at Rs 1250 crore.

   

 
 
SENSEX SETTLES BELOW 3,000 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 30: 
An overnight bounce on Wall Street was not enough for Dalal Street to hold its nerve as the BSE slid below 3,000 points to end at 2990 on a day retail investors appeared to be less sure of a quick recovery.

Broking houses sold off holdings, though there were reports of a few institutions playing the White Knight. One of them was Life Insurance Corporation, while the rest happened to be a small band of FIIs. “LIC and a few other institutions were keen value buyers,” said a dealer affiliated to an institutional brokerage.

Opening on a cautious note, the sensex peaked at 3080.70 on the back of good buying spurred by strong gains abroad — Tokyo’s Nikkei soared 337.05 points and Hong Kong’s Hang Seng edged up by 179.26 to 10155.25. Later however, the 30-share index plumbed a low of 2983.10 and closed at 2990.91 in a steep fall of 39.15 points.

The broadbased BSE-100 declined 22.02 points at 1504.05 from its last close of 1526.07. Elsewhere, the BSE-200 fell to 360.97 from 366.92, BSE-500 to 1079.94 from 1097.88.

The market was digesting statements made by finance minister Jaswant Singh that a special task force to be set up by the Prime Minister would start relief in areas that are wilting because of poor rains. Some in the market were spooked by the prospect of special drought tax, throttling hopes of a recovery.

There is a feeling that bulge bracket operators have escaped the bear carnage, but small operators have come out bruised.

   

 
 
KOTAK STOCK SALE KEEPS BOURSES GUESSING 
 
 
BY A STAFF REPORTER
 
Calcutta, July 30: 
Kotak Securities, the stockbroking arm of the Kotak Mahindra group, appears to be in trouble as it copes with the stock market slide.

Over the last few days, Kotak Securities is said to have sold shares in large volumes on fears of default by its clients. Most of the selling took place in second-rung software stocks like Aftek Infosys and Polaris Software, which had shot up sharply in the recent past.

However, Kotak Securities, which is one of the largest retail brokers in the country, scotched the rumour. The company has a large number of high net-worth clients, some of whom are said to be in difficulty.

“We have not faced any extra-ordinary selling pressure from our clients and whatever we sold was done on instructions from them,” said a senior executive of Kotak Securities. “We normally take 20-25 per cent of the open positions as margin up front. It is the standard industry practice. Some brokers take less. Though share prices have tanked, we are in no difficulty,” he added.

Kotak Securities is an arm of Kotak Mahindra Finance (KMFL), which lends money against shares. K.V.S. Manian, chief operating officer of KMFL, said: “We have had some margin calls following the fall in the market, but nothing significant.” He refused to comment on the selling pressure on Kotak Securities.

There are rumours of some operators defaulting on payment obligations outside the official market. With surveillance of markets having been tightened since the payment crisis in Calcutta Stock Exchange last year, the default is unlikely to creep into the official system.

At least, it will not have any significant impact on the finances of the stock exchanges. Even if some brokers fail to fulfil their obligations in the official market, the stock exchange authorities should be able to sell securities pledged by the defaulters to recover the dues.

   

 
 
MORE TIME TO FILE RETURNS 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, July 30: 
In view of the heavy rush at tax counters all over the country, the Centre today extended the last date for filing income tax returns by individuals to August 9. The earlier deadline was July 31.

The government also announced that it was relaxing the earlier rule that PAN (permanent account number) and TAN (tax-deduction account number) needed to be quoted on all tax forms.

Tax-payers who have applied for PAN/TAN numbers may either produce a copy of their application for the allotment of such numbers or else give a declaration in writing stating they have made such an application while filing tax returns.

   

 
 
LOBBYING ON TO WATER DOWN COMPETITION BILL PROVISIONS 
 
 
FROM RAJA GHOSHAL
 
New Delhi, July 30: 
India Inc is lobbying hard for a dilution of the provisions of the Competition Bill—especially those relating to mergers and amalgamations—even as a Parliamentary standing committee begins a two-day review on Wednesday to trawl through a trainload of suggestions it has received from various quarters.

The biggest beef is over the proposal that will allow the proposed Competition Commission to scrutinise every single merger that creates a combined entity with aggregate assets of Rs 1,000 crore and a turnover of Rs 3,000 crore.

The Competition Bill, approved by the Cabinet in June last year, will be forwarded to Parliament for approval by both Houses after the committee submits its report. However, no time-frame has been set for the passage of the Bill.

Sources say certain sections of the industry do not want any authority to scrutinise mergers—which flies in the face of an accepted world-wide trend. Others feel that the low-ball trigger points need to be raised for it to be really effective.

In the next two days, the Standing Committee of Parliament will consider all suggestions, that run into 300 pages, in the form of summarised questions from industry and responses from the government. The committee will consider both suggestions and responses.

Apart from industry, suggestions have come in from the chambers of commerce, consumer organisations, financial institutions, stock exchanges and corporate experts.

According to S. Chakravarthy, the main author of the Competition Bill, who is a consultant to the government, regulating mergers and amalgamations is a world-wide practice. “In the European Union and the US, there is no threshold limit; all cases have to pass the regulator’s scrutiny. Here we have a threshold limit which will keep many of the smaller companies out of its ambit.”

   

 
 
VIJAY MALLYA PREPARES TO RAISE A STORM 
 
 
FROM SHASHWATI GHOSH
 
New Delhi, July 30: 
He brews beer and he races horses. He owns a yacht that Richard Burton once owned, and he collects Souzas and Husains. Vijay Mallya is just getting ready to indulge in another passion: cars.

The flamboyant liquor maker, who raced cars as a young scion, is preparing to make a corporate pitstop to pick up a 20 per cent stake in Bangalore-based sports car maker San Motors Limited.

San Motors, originally a subsidiary of the locomotive-engine maker San Engineering and Locomotive Engine, was a brain child of Milind S. Thakkar who invested Rs 65 crore to make India’s first sports car—the San Storm—which wowed audiences at the Delhi Auto Expo in January.

The financial details of the deal are not known. But Mallya plans to rename the small and peppy car, which sports a Rs 5-lakh price tag, as the Kingfisher Storm. India’s cricket captain Sourav Ganguly is likely to endorse the vehicle. Sourav is already a brand ambassador for Kingfisher beer.

The four-seater convertible, powered with 1150 cc Renault petrol engine, was originally planned to cater only to the carefree crowds of Goa and other coastal cities. The company has the capacity to build only one Storm a day.

But Mallya’s backing is likely to ratchet up interest in the indigenously built sports car.

“Negotiations are still going on,” said San Motors sources. “There was a proposal to turn the car into some sort of a mascot to sell Kingfisher products. But it has now been turned into an investment proposal by United Breweries that is expected to be firmed up soon. Ganguly will be contracted to endorse the car once it is launched all over the country.”

Ravi Nadingari, president and chief financial officer of United Breweries, refused to confirm the investment.

“We wanted to have an exclusive product to complement Kingfisher beer. We were supposed to give some money to San Motors on this account. But it has still not been decided in what form this will go,” he added.

Nadingari added: “We are definitely not planning to go into automobile manufacturing seriously. If at all, we will remain a minority partner in the company.”

Last Saturday, the Kingfisher Storm was displayed at the Kingfisher Fashion Awards held in the capital.

San Motors is still a little wary of making a high profile launch of the car. But with the industrialist-turned-Rajya Sabha MP backing them to the hilt, it plans to ramp up production capacity to 9 vehicles a day.

Mallya, who flits between Delhi, Mumbai, his farm house-cum-stud farm at Kunigal and his palatial home in the San Francisco Bay Area, has won a number of trophies on the pro-racing circuit in his youth. He is just about to add one more: the Storm.

   

 
 
INDAL NET PROFIT DROPS 
 
 
BY A STAFF REPORTER
 
Calcutta, July 30: 
Indian Aluminium Company Ltd (Indal) has registered a 13 per cent decline in net profit at Rs 24 crore in the first quarter ended June 30, compared with Rs 28.6 crore a year ago.

The company’s turnover has dipped to Rs 310.2 crore, from Rs 332.2 crore in the first quarter last year. The Aditya Vikram Birla group company has cited the natural calamity in Sambalpur, which severely affected operations at its Hirakud smelter and power unit.

Moreover, low international prices for metal and alumina, coupled with lower domestic metal prices and higher energy costs, put margins under pressure, affecting overall profitability.

However, the expansion programme at the Hirakud unit is on, according to a release issued by the company. Post-expansion, the unit will have an installed capacity of 57,200 tonnes per annum against the current capacity of 30,000 tonne per annum.

   

 
 
COAL ROYALTY RATES GO UP 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, July 30: 
The Centre today raised coal royalty rates to a range of 15-19 per cent, from the existing 12.76 per cent.

The decision will benefit major coal-producing states like Orissa, Jharkhand, Madhya Pradesh and Maharashtra.

However, Bengal will not benefit from the 3-7 percentage point increase in the royalty rates since the state government had already levied a cess of 25 per cent on coal produced in the state.

The cess has already been struck down by the Calcutta High Court, but the government has filed a special leave petition on the issue before the Supreme Court. The new royalty rates for coal were approved by the Cabinet Committee on Economic Affairs (CCEA) on Monday and are being revised after eight years. The royalty earnings of coal producing states in aggregate are likely to go up by about Rs 500 crore, which is expected to increase the production in future.

Royalty on minerals including coal is payable under section 9 (1) of the Mines and Minerals (Development and Regulation) Act, 1957, by the holder of a mining lease. The Act allows the Centre to raise or reduce royalty rates of any mineral, with the stipulation that it cannot enhance the rate of any mineral more than once in three years.

The CCEA also approved the statutory minimum price (SMP) of sugarcane at Rs 64.50 per quintal linked to a basic recovery of 8.5 per cent for the sugar season 2002-03. An official spokesperson said that the SMP of sugarcane was linked to the basic recovery of 8.5 per cent, subject to a premium of Rs 0.76 for every 0.1 per cent increase in the recovery above that level.

The CCEA also approved a power ministry proposal to raise the cost estimate for the Tehri transmission system to Rs 702.29 crore.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 48.69	HK $1	Rs.  6.15*
UK £1	Rs. 76.14	SW Fr 1	Rs. 32.30*
Euro	Rs. 47.95	Sing $1	Rs. 27.30*
Yen 100	Rs. 40.82	Aus $1	Rs. 26.10*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 5160	Gold Std(10 gm)	Rs. 5065
Gold 22 carat	Rs. 4870	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7975	Silver (Kg)	Rs. 7997
Silver portion	Rs. 8075	Silver portion	NA

Stock Indices

Sensex		2990.91		- 39.15
BSE-100		1504.05		- 22.02
S&P CNX Nifty	 960.65		- 11.00
Calcutta	 109.82		-  1.14
Skindia GDR	 467.56		+  6.96
   
 

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