Action plan to ride out slowdown
No takers for unified stock clearing house
Vajpayee takes stock of selloff
Govt throws open KU band to V-Sat services
Boost for infotech spending
Rs 44 cr loan for Bengal power reforms
RBI hope to control coop banks dashed
FDI windfall for private banks
PNB flotation soon
Foreign Exchange, Bullion, Stock Indices

New Delhi, May 10: 
Finance minister Yashwant Sinha today promised a concrete action plan without �substantial tax sops� to crank up demand in the economy and ride out the hump because of the industrial slowdown.

�We will create a policy framework for the industries but we cannot provide substantial (tax) concessions. Nor is it necessary to provide free lunches�, Sinha said after emerging from a series of meetings with top honchos from the world of automobiles, cement and construction � three of the sectors that have been roiled by the slowdown

Officials said the cornerstones of the plan are likely to be the creation of cheaper consumer credit delivery systems and cheaper export finance and guarantees.

Industry barons like Ratan Tata of the Tata group, Rahul Bajaj of Bajaj Auto, Jagdish Khattar of Maruti Udyog, and ACC chief M.L.Gupta were huddled with finance ministry officials for over three hours to decide the contours of the proposed plan.

Sinha said the government had deliberately chosen to talk to the auto, construction and the cement sectors because they had taken the biggest hits in growth rates last year. Even this year, the index for industrial production for the month of February rose by a piffling 0.6 per cent, compared with last month. Industry expectations of growth for the next six months remain bleak with forecasts of negative growth for the auto sector and below 5 per cent growth for the other two sectors.

Finance ministry officials said the action plan was likely to be thrashed out with bank and financial institution chiefs at another meeting later this month. �All three groups wanted cheaper credit and tax sops to help people buy cars and build houses, so we need to work with bankers on this,� a top finance ministry official said.

Tata told reporters that the meeting was �all about demand generation�, adding the way out of the current impasse was the �need to have cheaper finance in the marketplace.�

Ministry officials said they were willing to help by trying to persuade the banks to shovel out cash at cheaper rates but ruled out any further tax concessions since revenue collections have been way below expectations. As a result, the fiscal deficit has shot up to 5.3 per cent of the GDP.

Besides cheaper finance, the automobile industry representatives sought a ban on plying any vehicle, commercial or passenger, more than 12 years old in metropolitan cities, Rahul Bajaj told reporters.

The auto industry, which was also represented by Ford chief Philip Spender and Hyundai managing director Y.S. Kim, also sought help by way of cheaper and more liberal export finance. Bajaj said he had made it clear that the government still needed to do far more to help Indian industry beat world competition abroad �the way the US does.�

The government had promised in the budget a higher rate of depreciation for commercial vehicle purchases this financial year. Late tonight, it notified that the depreciation rate would be increased to 50 per cent from the current level of 40 per cent.

Bajaj also sought 25 per cent depreciation on two-wheelers for individual buyers so that, �consumers would be encouraged to buy new vehicles.� But ministry officials said this might be difficult to concede.

Cement industry representatives who included heads of Birla Cement and ACC also sought greater tax sops for those building houses besides quicker implementation of the government�s planned golden quadrilateral expressway project. �That should boost demand,� Gupta said.


Mumbai, May 10: 
The Securities and Exchange Board of India�s (Sebi) plan to set up a common clearing corporation appears to be a non-starter with most stock exchanges having baulked at an arrangement they feel will undermine their independence.

The market regulator had mooted the proposal to iron out wrinkles in the existing system of payment and settlement, but the Bombay and National Stock Exchanges � rivals who are fiercely protective of their turfs and happier left alone � have frowned at a move which requires them to forge alliances.

The market watchdog has now suggested that clearing houses at individual exchanges will have to work overtime to grapple with the anticipated increase in delivery-based transactions. The introduction of mandatory rolling settlement from July is expected to increase the ratio of deliveries to total turnover per settlement to the range of 20-40 per cent on most bourses.

To cope with the spurt in clearing deals, intermediaries may have to toil through the night. �This a practice prevailing in all developed markets across the world. There will be more pressure on banks. Sebi has always advocated a modern payment system, which sets the limits within which the modern securities market will have to function,� Sebi board member J.R. Varma told The Telegraph here today.

Varma expects a fall in turnovers as investors grapple with the new system, but says it will be a temporary phenomenon.

�I won�t be surprised if it falls from the present levels. The drop, however, will be transient. It will last for 3 to 6 months before investors get used to the new system. The turnover will stabilise by December-January 2001.�

The derivative products which will be launched initially will be targeted at big investors with the minimum investment fixed in the region of Rs 2 lakh. The introduction of derivatives last year led Sebi to believe that investors were warming up to these instruments.


New Delhi, May 10: 
Burnt by Balco, the BJP government is now treading cautiously on the divestment of the jewels in its kitty. Prime Minister Atal Bihari Vajpayee today convened an informal meeting with his Cabinet colleagues�home minister L. K. Advani, finance minister Yashwant Sinha and disinvestment minister Arun Shourie�to decide whether scam-tainted companies can be allowed to bid for public sector firms like Air-India and Videsh Sanchar Nigam Ltd.

The government wants to avoid any fresh allegations of a scam, which may arise if companies like Sterlite, Videocon and BPL, which have been charged with ramping up their share prices in 1998, are allowed to bid for public sector jewels. The decision to bar such firms, however, has to be formally accepted by the Cabinet Committee on Disinvestment. While Videocon has bid for the government�s stake in Indian Airlines and VSNL, Sterlite is in the fray for Hindustan Copper and Hindustan Zinc. BPL is one of the contenders for VSNL.

A parallel move has also been launched to eliminate foreign merchant bankers�being investigated by the Securities and Exchange Board of India (Sebi) for their alleged involvement in share price rigging�from advising the government on the disinvestment process.

Significantly, advisors to the VSNL disinvestment include Credit Suisse First Boston, which is under Sebi�s scanner.

The possibility of keeping out the Hinduja group from bidding for the PSUs was also discussed today. Several BJP leaders have sought that the Hinduja brothers, embroiled in the Bofors scam, be debarred from the disinvestment process. The meeting also took stock of the end to the two-month old labour strike at Balco called to protest the company�s sale to Sterlite Industries.

VSNL bidders shortlisted

The government has cleared all the six bidders in the initial round of bidding for VSNL. Pending a decision on whether the tainted trio of Sterlite Videocon and BPL will be allowed to participate in the divestment process or not, BPL Communications, of the BPL Group, was one of those shortlisted The government, which owns a 52.97 per cent stake in VSNL, had invited �expressions of interest� to sell 25 per cent along with management control to a strategic partner.


New Delhi, May 10: 
The government will allow companies which offer very small aperture terminal (V-sat) services to operate on the high-frequency KU-band if they pay an entry fee of Rs 30 lakh and share 10 per cent of their revenues, including the existing universal service obligation.

Those who hold licences to provide telecom services will have to clear outstanding dues and complete rollout obligations before they can offer V-Sat services. Existing V-Sat licensees can migrate to the new regime provided they pay up all arrears and withdraw cases against the government.

These services provide data or voice connectivity between sites across the country which are linked to a closed user group (CUG) through V-Sats and a central hub � a network that keeps remote and inaccessible areas connected.

V-Sat licences will be granted on a non-exclusive basis for commercial and captive use within the country for 20 years, which can be extended by 10 years. Operators were earlier allowed to carry data at the rate of 64 Kilo bits per second (Kbps), but this has now been increased to 512 Kbps to facilitate faster communication. The entry fee for all services will be Rs 30 lakh, an amount which cannot be refunded or adjusted.

Firms which offer V-Sat services must be registered under the Companies Act, 1956, and they must cap foreign equity at 49 per cent � including investments made by NRIs/OCBs/international funding agencies � as long as they hold licences.

The licence fee for commercial services has been fixed at 10 per cent of the revenues, including universal service obligation (USO). For captive services, it will be Rs 16,000 for every V-Sat connection, subject to a minimum of Rs 16 lakh annually.

At least five V-Sat terminals and a hub must be set up within a year of a licence�s issue. Those who fail to meet the deadline will pay a penalty of Rs 10 lakh for every year of delay up to two years, after which the licence will be cancelled.

Companies cannot inter-connect with public switched telephone network (PSTN) and between terrestrial data lines such as internet/INET and other media sites. However, inter-connections in a closed user group, between networks of other V-Sats, terrestrial data lines leased by customers of V-sat, overseas offices under CUG and value-added network operators will be allowed on case to case basis.


New Delhi, May 10: 
An advisory panel on infotech has suggested that government departments spend at least 3 per cent of their outlays on infotech to help an industry which expects a squeeze on its bottomline due to the slowdown in the US, but still hopes to grow at the rate of 45 per cent annually.

The committee, which came out with a package of remedies to minimise the impact of a flagging US economy on local IT firms, will meet again on July 7. Today�s meeting, which was chaired by the Union minister for information technology and parliamentary affairs, Pramod Mahajan, took stock of the impact of the economic slow down in US on local firms.

It suggested that all government departments spend 3 per cent of their budget allocated on IT products and services as a short-term plan aimed at reviving the industry. Over the long term, it recommended that a marketing strategy should be formulated by the information technology and communications ministries to rejuvenate companies and help achieve targets in the critical segments of the industry.

The meeting also took stock of the policy environment in the IT sector, especially with regard to the state of preparedness among companies which manufacture hardware. The discussions centred on the policy initiatives that could be implemented to boost hardware and software firms.

The panel emphasised the need to develop sustainable markets mechanisms to balance all-round growth in critical sectors of the IT industry. Growth strategies were drawn up for e-business, e-commerce, software development and IT-enabled services.

The meeting was attended by all members except Wipro chief Azim Premji. It included F.C. Kohli, deputy chairman of Tata Consultancy Services, N.R. Narayana Murthy, chairman of Infosys Technologies, Subhash Chandra, chairman of Essel Group, B. Ramalinga Raju, chairman of Satyam Computers Services, Rajeev Chandrashekhar, CMD of BPL Telecom, Satish Kaura, chairman of Samtel India, R.S. Pawar, chairman of NIIT, Vinay Deshpande, president of MAIT and the chiefs of CII and Ficci.


New Delhi, May 10: 
The West Bengal government will get a Rs 43.50 crore loan from the Centre, which will enable the state to implement the Accelerated Power Development Programme and achieve operational break-even by March 2003. On its part, the state government has agreed to implement power sector reforms.

The state government today signed a memorandum of understanding with the Centre under which it will get Rs 21.75 crore as grant and a similar amount as loan. But first, it will have to set its house in order, which it has agreed to do under the MoU.

The state government has committed itself to supplying uninterrupted power, at affordable rates. Besides, it is committed to achieving commercial viability in the power sector. This is important to meet the investment needs of the sector and the demand for accelerating economic growth in the state.

Already, the two thermal power plants under the West Bengal State Electricity Board (WBSEB) � Bandel and Santaldih � have been transferred to the West Bengal Power Development Corporation Ltd.

Under the reforms programme agreed to by the state government, rural electrification will be completed to provide electricity to all villages by March 2006. Power distribution by the WBSEB will be restructured into profit centres and each centre will prepare its own profit and loss account by March 31, 2002.

The SEB will also undertake energy audit at all levels to identify and reduce transmission and distribution (T&D) losses, to bring them down to 20 per cent by the year 2005.


New Delhi, May 10: 
The Union government today shot down the Reserve Bank of India�s demand to bring urban cooperative banks under its control and hinted that the Banking Regulation Act will soon be amended to delineate powers of RBI and state registrars of cooperatives.

Soon after the Madhavpura Mercantile Cooperative Bank went bust in the pay order scam case, RBI made a demand that such banks should be brought under a single regulatory authority affiliated to it.

However, banking secretary Devi Dayal today made it clear that the Centre would amend the existing Act so that there is no overlap between RBI and state registrars.

�Most of the problems are due to this overlap. We will fine tune the Act to delineate the powers of the two sides. This will give RBI more teeth,� Dayal said at a conference on urban cooperative banks held here today.

However, RBI deputy governor Jagdish Capoor, who was present at the conference, said the central bank made it clear that these banks would have to adhere to the tighter prudential norms, including higher capital adequacy ratio, from the next fiscal year. Within a period of three to four years they would have to have same norms as other scheduled banks, he added.

Capoor also indicated that the high interest rate on deposits currently being offered by many cooperative banks would not be allowed to continue as this could affect their health. �Sticking to risk and asset liability management norms is important...A working group is evolving guidelines on this,� he said.

At present, RBI has the right to dismiss bank boards and appoint administrators in case prudential norms fixed by it are not adhered to and both Capoor and Dayal made it clear that this power could be used to reign in recalcitrant banks.

Dayal said the finance minister would soon call a meeting of state chief ministers to discuss the possible amendments to bring about tighter control over these banks. The secretary also made it clear that steps would be taken against some 300 unlicensed urban cooperative banks which were functioning at present. �If they don�t fall in line with banking regulations we will have to take steps to close them down if need be,� Dayal warned.


Mumbai, May 10: 
The Union Cabinet�s decision to raise foreign direct investment limit in the banking sector to 49 per cent is likely to largely benefit the new generation private banks.

According to bankers, some of the banks which will probably gain are UTI Bank, ICICI Bank, Centurion Bank, Global Trust Bank, Vysya Bank and few others.

UTI Bank has already announced that it is searching for a foreign strategic partner who will be offered an equity stake.

�We have stated in the past that the bank is in search of a strategic partner for which negotiations have begun. It is still too early to say how much stake will be offered to the strategic investor,� a senior UTI Bank official said.

Another beneficiary can be ICICI Bank whose promoter, ICICI, in the recent past, sold around 4.99 per cent stake to Prudential Assurance Company, a sub-account of Prudential Portfolio Managers Ltd, a leading foreign institutional investor.

ICICI sold the stake as part of its plans to bring down its holding in the bank to the level of 40 per cent as stipulated by the government..

Among others, Bank Brussels Lambert of the ING Group holds 20 per cent stake in Vysya Bank, while Keppel TatLee Bank Ltd has already secured the permission from the Foreign Investment Promotion Board (FIPB) to raise its stake in Centurion Bank to 20 per cent.

Sources said Citibank and HSBC may also join the fray for picking up equity stake in new generation private banks.

�The Cabinet decision is certainly a step in the right direction. Apart from the capitalisation of banks going up, the induction of foreign partner will result in better technology, management inputs and business as well,� one banker said.

Meanwhile, the Union government today clarified that the 49 per cent FDI for banks would include investments by FIIs also.

Bank scrips in limelight

The Cabinet decision bolstered the bank scrips, which are already looking up on expectation of a bank rate cut, on the stock exchanges today.

Among others, State Bank of India, ICICI Bank and UTI Bank posted handsome gains.


New Delhi, May 10: 
Punjab National Bank will soon come out with an initial public offering to offload 26 per cent of its stake.

�We have already applied to Sebi for permission for this issue,� PNB chief S.S. Kohli said. The bank aims to raise about Rs 400 crore through this issue. The public issue which is expected to be made at a premium of Rs 50 per share will be made this winter.

Kohli said PNB ended the fiscal 2000-2001 with an operating profit of Rs 1,200 crore against an operating profit of Rs 800 crore during the previous year.

PNB�s turnover had also gone up from Rs 75,00 crore in 1999-2000 to Rs 85,000 crore in the just concluded fiscal, he said. Deposits had grown by 17.8 per cent while advances had shown an increase of 25 per cent.



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