Ministry proposes loans to priority sector via NBF
WBIDC enlists Icra to speed up appraisals
UTI Bank looks at ways to boost capital base
Committee set up to select Sidbi chairman
NSE, three firms line up commodity exchange
Job guarantee for Hindustan Cables may be extended

New Delhi, Oct 7: 
The ministry of finance has prepared a note suggesting scheduled banks should be allowed to channel funds earmarked as priority sector credit to non-banking finance companies (NBFCs), local area banks (LABs), co-operatives and informal financing companies for targeted on lending.

Even as this is done, says the note, direct bank loans to the priority sector could be subsidised by 1 to 2 per cent, either through loan discounting by the Reserve Bank, or by creating a collateral fund which could partially compensate for defaults.

The note, which the ministry says it will discuss with public sector banks, points out that large banks do not have the wherewithal or the expertise to lend to agriculture, tiny and small scale units (SSIs), traders and the highly diversified service sector.

Being large organisations with huge overheads, their cost of lending is inversely related to the size of their loans. The smaller the loan, the costlier it is for banks to service it.

Global experience, too, indicates that organised banks face a higher level of risk in lending to small borrowers.

That explains why even in India, they tend to lend only to large farmers from the established agricultural belts, well-known SSI entrepreneurs, not to unknown small entrepreneurs or small farmers or farmers from remote and tribal areas.

The ministry has calculated that for the banks to lend to these sectors in a viable manner, they need to charge interest rates that are at least 4 to 8 per cent higher. “Instead of forcing banks to lend below cost to a host of small borrowers, they should channel funds NBFCs, local area banks, co-operatives and non-governmental organisations (NGOs),” the note states.

Currently, when a bank fails to fulfil its priority lending requirements, it has to deposit the shortfall to Nabard’s Rural Infrastructure Development Fund (RIDF). The apex rural finance institution then on-lends these funds to states, and other government agencies in a mechanism that helps these bodies complete various rural infrastructure projects.

The ministry wants to include NGOs and NBFCs because it feels co-operatives and rural banks may not be efficient in advancing priority sector loans, especially because they are burdened with massive non-performing assets (NPAs).

Officials point out that these organisations should be considered because they actually account for an overwhelming 70 to 80 per cent of all credit disbursed in the country.    

Calcutta, Oct 7: 
West Bengal Industrial Development Corporation has appointed Icra to beef up its project appraisal system and management information system. Confirming the move, WBIDC managing director D P Patra said, “Earlier Icra was appointed to identify the strength and weakness of the corporation. Now we have appointed the credit rating agency to suggest proposals to strengthen our project appraisal system.”

Icra will provide a software to further the transparency in WBIDC’s accounting norms. “Our accounting norms should be at par with other financial institutions. We would like to modernise our revenue and cash flow analysis,” a senior WBIDC official said.

Earlier, the study of Icra focused on three areas — analysing performance of loan and investment portfolio, understanding the underlying processes, systems and structure of the asset creation and management functions and reviewing the promotional efforts.

WBIDC is beefing up the project appraisal system because 50 per cent of its term loan to metal, agriculture, chemical, paper and packaging industries have become non-performing assets. “We would not like to take any chance factor while giving loans,” the official added.

While WBIDC’s term loan portfolio has grown at a moderate rate of 7.6 per cent in the last five years, growth of interest income has been at a modest 2.6 per cent much lower than the growth rate of loan portfolio.

The yield on loan portfolio has been much lower than lending rate. It has declined from 13.3 per cent in 1995-96 to 10.9 per cent in 1998-99 due to spurt in NPAs and decline in interest rates on fresh loans from 1997 onwards.    

Mumbai, Oct 7: 
UTI Bank is considering two options — inviting a strategic equity partner in the bank, or coming out with another public issue — to strengthen its capital adequacy ratio.

Though developments on this front are yet tentative, sources said that the bank is likely to go in for the second option and approach the capital markets again by the end of this fiscal.

In fact, if senior UTI Bank officials are to believed, the bank has even zeroed in on an amount that could be raised from the issue. While the present capital adequacy ratio of the bank stands at over 12 per cent, it is expected to rise to around 15 per cent consequent to the issue.

Speaking to The Telegraph, P J Nayak, chairman & managing director, UTI Bank, said that though the bank is tentatively considering the idea of a public issue, a decision is yet to be taken on the issue. He, however, did not comment on the amount proposed to be raised through the issue or the equity holding pattern in the bank consequent to such a move.

UTI Bank was promoted in 1994 by the country’s largest mutual fund, Unit Trust of India, which invested Rs 100 crore. With support from other institutions such as the Life Insurance Corporation and the General Insurance Corporation with its four subsidiaries, the bank’s total capital stood at Rs 115 crore. Following this, UTI made an offer for sale of 2 crore shares and the bank made a simultaneous public issue of 1.5 crore shares, at a premium of Rs 11. This saw the bank’s paid-up capital rise to Rs 131.9 crore.

In line with the focus on technology among new generation private sector banks, UTI Bank has decided to move to a centralised database against the earlier practice of maintaining it at various points, Nayak said.

The task relating to centralisation of database is expected to be completed within a span of two years, with a significant portion to be completed by the end of this fiscal.

Further, he said that the bank planned to establish around 90 branches, to increase its presence from its over 60 branches.

For the year ended March 31, 2000, the bank’s deposits rose to Rs 5700 crore and advances stood at Rs 3500 crore. The bank with a total ATM network of over 135 is planning to expand it to over 300 by the end of this year.

Despite the bank’s impressive performance in recent times, analysts are however, sceptical about its huge investment in government securities. As of March 31, 2000, investment in such securities stood at around 66 per cent of its total investments. The ratio is higher than fellow banks, which is expected to result in a higher provision for depreciation in the value of the investments.    

New Delhi, Oct 7: 
The Union ministry of finance has set up a committee comprising officials of the Reserve Bank of India, finance ministry and experts to select a chief for the Small Industries Development Bank of India (Sidbi).

The move follows differences between the minister of state for finance Balasaheb Vikhe Patil and the finance ministry over the top slot in Sidbi. Patil is in favour of appointing the present executive director and the senior most official at Sidbi, P B Nimbalkar, as chief, finance ministry does not approve this.

“Currently, S S Kohli, chairman and managing director of Punjab National Bank has been asked to take additional charge as CMD of Sidbi till a new person is selected. This selection is going to take time,” said sources.

The choice of new Sidbi chief has been a contentious issue with finance minister Yashwant Sinha favouring an extension to Dr Shailendra Narain. Patil opposed this move.

Meanwhile, restructuring of Sidbi is not making much progress. Industrial Development Bank of India (IDBI) intends divesting 51 per cent of its stake in 25 institutions including public sector banks and insurance companies by the end of the year. The government had earlier passed a bill permitting reduction of IDBI equity. IDBI would divest its stake in Sidbi too.

Sidbi chief has to be selected soon because the board will be restructured after IDBI’s stake in the bank is divested. Currently the board comprises eight members — a joint secretary from the banking division, secretary, SSI department of industry ministry, and IDBI nominee. Besides these, two executive directors assist the CMD in the day to day operations.    

Mumbai, Oct 7: 
The National Stock Exchange (NSE), ICICI, Mahindra & Mahindra and Punjab Warehousing Corporation are joining hands to set up a national commodities exchange. NSE managing director R H Patil told The Telegraph a blueprint is being drawn up for the venture, which will be a separate entity and have nothing to do with the stock exchange. NSE, it is believed, was roped in later by the three partners.

However, the infrastructure available with the exchange may be shared with the new outfit, Patil said. An expert committee will be formed to identify the commodities which can be traded on the bourse. “We will go by the recommendations that the expert group made to us,” he added.

The exchange will follow the strategy NSE adopted when it was set up. “We started in a small way, facilitating trading in 200 shares. In the same manner, we will hand-pick a few commodities which are currently outside the government’s price-control mechanism, and where the possibilities of futures trading are promising,” the NSE chief said. The volume that a commodity can notch up will also be crucial in deciding whether it should be traded on the exchange.

This being the basis for inclusion, agricultural commodities such as paddy, jowar, bajra, maize, ragi, wheat, barley, tur, moong, groundnut, sugar cane and tobacco will be automatically ruled out. The reason is that their procurement and statutory minimum prices are fixed by the government.

Industry circles expect futures trading in commodities to take off in the country once the exchange is set up. According to them, there are only few big players interested in commodity futures. The reason it is largely due to the absence of a proper trading-house mechanism in the country.

Futures trading, and trading volumes, will pick up once a proper infrastructure is in place. Experts feel the commodities exchange might initially go in for edible oil, cotton, coffee and soyabean before venturing into other commodities. According to experts, volumes in edible oil futures — one of the items they hope will make it to the initial list — could touch Rs 50,000 crore by 2001.

The national commodities exchange is expected to have a wide reach across the country. The exchange is expected to fulfil a long-felt need among buyers and sellers to determine prices on a transparent scale by depending solely on demand and supply.    

Hyderabad, Oct 7: 
Hindustan Cables Ltd is likely to get a work order guarantee from the department of telecommunications for another two years, besides the existing agreement, Union minister for public enterprises Manohar Joshi said here.

The Union minister who was on a visit to three public sector units — Bhel, HMT and HCL — said that eight of the 21 public enterprises lined up for disinvestment will be wound up.

“Only three of the 18 enterprises to which revival packages were extended — Scooters India, Burns and Standard and HCL — have shown signs of recouping,” he said.

Joshi said according to the agreement on the reservation of orders of telecom cables for DoT/Mahanagar Telephone Nigam Ltd (MTNL), HCL would get 30 per cent of its total requirement per annum in the first year and 25 per cent in the second year.

In view of the pace of recovery achieved by HCL, the Cabinet has agreed in principle to provide another two years support to HCL if necessary, he added. HCL posted a turnover of Rs 1320 crore and reduced its accumulated losses to Rs 40.14 crore during 1999-2000 and is projected to reduce its losses further to Rs 11 crore.

The revival package of Rs 5678 crore was provided to HCL in January 1999 in the form of conversion of its outstanding loans to equity for Rs 167.12 crore, non-Plan budget support of Rs 75 crore, an interest waiver up to Rs 122.20 crore and a waiver of guarantees up to Rs 5.68 crore. A separate fund of Rs 68 crore was created for a VRS to reduce surplus staff, the minister said.

Earlier, N. K. Agrawal, chairman and managing director of HCL said that the company had only 20 per cent of the market share of cables at 80 lakh conductors KM (CKM) out of a total of 500 lakh CKM.

“Although there were 30-40 players, HCL is still competitive due to its huge installed capacity, the only drawback being its focus on copper cables rather than optical fibre cables, though it has established a small unit for OFCs,” he added.    


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