Fetters off foreign funds
FDI cap in aviation may go up
Rupee, sensex claw back after early shock
Spurt in bad loans feared as slump deepens
Preferential issue for UTI Bank ally
Gloomy forecast for steel
BAT backs Bhadra merger with ITC
Foreign Exchange, Bullion, Stock Indices

Mumbai, Sept. 20: 
The Reserve Bank of India is going all out to lend a smile to the jittery capital market. Soon after allowing banks to finance margin trading, the central bank today held the door wide open so that foreign institutional investors (FIIs) can come in droves�it raised investment limit for FIIs in domestic companies to the level of foreign direct investment set in various sectors.

RBI, in a statement, said FII investment in companies would be governed by investment ceiling for foreign direct investment (FDI) for specific sectors.

Till now, FIIs could automatically buy up to 24 per cent in companies which could be increased to 49 per cent with the approval of the shareholders. FDI limit, on the other hand, is generally higher for various sectors.The central bank, however, added that the approval of the shareholders and the boards would be required for raising the FII investment limit.

This measure comes a day after finance minister Yashwant Sinha assured FIIs in a tele-conference that the government would come out with a slew of investment friendly measures to boost their confidence.

While the industry in general welcomed the step, the Confederation of Indian Industry (CII) was quick to point out that the measure would benefit only those sectors where the capital is beyond 49 per cent. It will not benefit telecom where the sectional cap is 49 per cent or banking where the cap is below 49 per cent.

Analysts, however, do not expect India Inc to rush to raise the FII investment limit. This is because a section of the Indian promoters, with their present level of equity holding, feel themselves vulnerable to takeover threats. These companies will only raise the limit after the promoters raise their equity holdings to comfortable levels.

Some of the sectors where the FIIs can now invest up to 100 per cent include petroleum refining and exploration, airports, trading, roads, highways, ports, hotels and tourism, film industry and mass rapid transport system.

In case of the pharmaceutical sector, the investment limit for foreign funds is now 74 per cent.

While the investment limit for civil aviation is 40 per cent, for private sector banking, telecommunication and broadcasting it would be 49 per cent. In case of defence and strategic industries and insurance, it would be 26 per cent.


New Delhi, Sept. 20: 
The finance ministry is planning to revive an earlier proposal to further liberalise foreign direct investment rules that will include raising limits on the foreign stake in areas like domestic airlines.

The ministry also plans to allow one-way fungibility between FDI and FII investment, allowing foreign direct investment in Indian companies to be converted into FII stakes.

However, the government, for the moment, is against allowing two-way fungibility as chambers fear this could turn out to be back-door route for takeovers by multinational companies.

If two-way fungibility between the two kinds of investments is allowed then FII holdings in many Indian blue chips could be picked up by their foreign partners and this could give them management control over these companies.

The finance ministry�s plan seeks to allow foreign airlines to pick up 26 per cent stake in domestic airlines. Besides, the plan is to raise the overall FDI limit in the aviation sector to 49 per cent from the current level of 40 per cent. However, this would be subject to domestic partners having higher stakes.

The argument is that besides bringing in much-needed FDI at a time when India expects export earnings and remittances to fall, allowing foreign airlines to pick up stake in domestic airlines would help professionalise their management and improve the quality of service.

At present, foreign airlines are not allowed to buy into domestic airlines. The move has been initiated earlier too but then civil aviation minister Sharad Yadav had opposed it tooth and nail. With Yadav shunted out and a more pliable man installed in the ministry, the move is expected to be easier to push through.

It also stresses that implementation glitches holding up the proposal to allow up to 100 per cent foreign direct investment in airports should be sorted out.

The government also wants to allow 50 per cent foreign equity in all areas of production where FDI has either been permitted to a limited extent or is not allowed at all.

These policy prescriptions are expected to draw a lot of flak not only politically but also from within the bureaucracy itself.

Besides the civil aviation ministry, industry ministry also holds strong views against further liberalisation of certain sectors.


Mumbai, Sept. 20: 
It was a day of comeback both on the stock market and the foreign exchange market. While the rupee dropped to an intra-day low of 48.10 before closing at 48.01, the Bombay Stock Exchange sensitive index (sensex) rallied back to 2761.66 after losing nearly 130 points during the day�s trading and hitting an intra-day low of 2674.82. At the close, the bellwether index was 42 points lower than Wednesday�s level.

In the foreign exchange market, the rupee regained some lost ground following unwinding of long dollar positions by nationalised banks.

Though the rupee finished at 47.99/48.01, dealers note that the Indian currency is still in a sensitive zone.

Analysts anticipate a massive demand for dollars and a slump in value of the rupee if US retaliates against Afghanistan.

This apprehension was evident in the forward markets with premia on six-month forward dollars rising to 6.95 per cent against 5.81 per cent. However, premia on the near-term zoomed to 8.36 per cent against yesterday�s 6.38 per cent.

Dealers point out that one of the main reasons for banks to unwind dollars was the pressure on the call market that saw rates shooting up to 9 per cent. This was due to paucity of sellers and the absence of State Bank of India.

In the stock market, institutions, led by Unit Trust of India, started buying in various counters that erased much of the losses. Despite the buying, the 30-share sensex ended at 2761.66, thus showing a loss of 42.50 points.


Mumbai, Sept. 20: 
There are growing fears that the lingering slowdown will add to the mountain of bad loans that now hobble banks and financial institutions (FIs).

The main reason why the mess could get worse is because money lent to sectors which are sensitive to developments in the domestic and international economy may never come back. Companies cannot pay up if they find that there are no takers for their products.

Most of these lenders are already held back by a big chunk of loans never repaid, or serviced on time. The concern is that the predicament will worsen as more sectors realise that the slump is longer and darker than expected.

�Given the delay in revival of the economy, public sector banks could see an increase in gross NPAs as most of them lend to economy-sensitive firms,� says Manish Kharwa, senior banking analyst at Pranav Securities.

Bankers are coming to terms with the possibility that problems in global economy will spill over to India, and harbour fears it will frustrate loan-recovery drives.

Banks are believed to be saddled with non-performing assets (NPAs) of over Rs 60,000 crore. A few officials see gross NPAs galloping to 18 per cent from over 13 per cent. If this were to happen, provisions � the money set aside to hedge credit risks � will go up and strain the bottomlines of banks and FIs.

Sources say trends in provisioning for the first quarter of the current fiscal are a cause for concern because they are an indication that things will get worse.

Provisions against non-performing assets at State Bank, the country�s largest bank, shot up to Rs 450 crore. In the case of institutions like IDBI, the situation was grimmer with the money set aside to guard against bad/doubtful loans, spiralling 230 per cent at Rs 264 crore.

According to Reserve Bank figures for the year ended March 31, 2001, major industries which soaked up the bulk of credit were: engineering (Rs 23,363 crore, chemicals/dyes/paints (Rs 23,918 crore), iron and steel (Rs 19,380 crore) and cotton textiles (Rs 13,226 crore). These are industries expected to bear the brunt of the slump.

P.H. Ravikumar, senior general manager of ICICI Ltd concedes the chances of a negative impact are high. �We may see loan recoveries hit in some cases.� However, he is not alarmed, saying banks have been living with the slowdown since the last financial year. His feeling is that the effect will be only marginal, at worst.

�The slowdown has been there over the past six months. Some of it has already been reflected in the balance-sheets for 2000-01. Though there will be incremental NPAs, the situation will not be as bad as feared.�

A senior official with a nationalised bank said though NPAs are likely to rise in the quarters ahead, they are hoping the positive effects of good monsoons to overwhelm the problems thrown up by the slowdown.


Mumbai, Sept. 20: 
UTI Bank will consider a preferential issue of shares to one or more foreign investors � institutional or direct � at a board meeting on Friday.

In a notice to the Bombay Stock Exchange, the bank said issuing fresh shares will help it shore up capital adequacy ratio and reduce the stake of Unit Trust of India (UTI) � its main promoter. The mutual fund major holds 60.65 per cent of the bank�s Rs 131.9-crore paid-up capital. It has to bring it down to 40 per cent under norms laid down by the Reserve Bank of India (RBI). No time-frame has been set for the dilution.

UTI Bank�s shares ended down 0.2 per cent at Rs 23.95 on the BSE on a day the 30-share sensex lost 1.52 per cent.

Bank analysts are not surprised at the development. Rumours were rife on Wednesday that IDBI Bank, another private bank, is considering a plan to issue fresh equity to Bank Muscat in order to prune its stake.

UTI Bank, which shot to prominence this year because of its doomed plan for a merger with Global Trust Bank, wants to offer a part of its equity to a foreign strategic partner to bring down the promoter�s equity.

Sources close to the bank say it is already in talks with potential investors for the purpose. They did not explain whether the promoter�s stake would be brought down by issuing fresh shares, or through a divestment. There is speculation that the strategic ally will partner the bank in other areas, including insurance.

Asked if the merger plan was being revived, officials said the bank was not examining the issue and, instead, directing their efforts at identifying a strategic investor, and increasing the number of branches.

The bank, which has been promoted by UTI, LIC and GIC, posted a 69 per cent rise in net profit at Rs 86.12 crore for the year ended March 31, 2001.


Calcutta, Sept. 20: 
Tata Steel managing director B. Muthuraman has forecast a 5 per cent decline in production and price realisation for the steel industry this year.

Addressing a press conference here today, Muthuraman, who is also the president of the Institute for Steel Development & Growth (INSDAG), said the industry is already operating much below its optimal capacity, and is, therefore, vulnerable to the much-feared recession.

�The industry should focus on specific areas of consumption to ramp up sales.This will lead to sustainable growth,� he added.

The Tisco MD pointed out that the use of steel, instead of cement, in construction has not caught on in India; it is widespread in countries like US, UK and Japan.

�We have to embark on a sustained drive to convince people of the benefits of using steel rather than concrete,� he said.


Calcutta, Sept. 20: 
The UK-based BAT plc, which holds close to 32 per cent in ITC, has come out in strong support of ITC�s intention to merge ITC Bhadrachalam Paperboards with itself. The ITC board will meet tomorrow to consider the merger.

ITC chairman Y.C. Deveshwar had earlier said BAT was opposed to any deal that would reduce its stake in ITC, but a BAT spokesperson said today that the London-based tobacco major considered the merger �a good financial decision�.

ITC�s decision to invest in non-tobacco businesses has attracted criticism from some sections of analysts. However, the BAT spokesperson said: �Though BAT is purely a tobacco company, we support ITC�s investments in non-tobacco businesses as long as they are profitable. The present ITC management has done a fantastic job in streamlining the company�s diverse lines of businesses.�

The market, however, did not appreciate ITC�s intention of merging Bhadrachalam. The ITC stock plunged by Rs 79 the day after the announcement. The BAT spokesperson said the market�s reaction was �surprising�.

On September 5, ITC informed stock exchanges that it intended to merge Bhadrachalam with itself. The ITC stock shot up by nearly Rs 32 to Rs 753.20 on that day, but tumbled the next day. The Bhadrachalam scrip, however, gained Rs 6.55 to close nearly 14 per cent higher at Rs 54.05 on September 6. It has been declining ever since.

Today, the ITC stock closed at Rs 670.90, while the Bhadrachalam stock closed at Rs 41.10 on the Bombay Stock Exchange. The market initially expected a swap ratio of 1:15, implying that for every 15 shares of Bhadrachalam, shareholders would receive one share of ITC. However, analysts are now speculating that the ratio would be around 1:20.

Meanwhile, BAT�s position on VST Industries � the country�s second largest tobacco company � appears to have changed. The tobacco major said it had adopted a �wait and watch� policy after having announced earlier that it intended to increase its holding from the present level of 32 per cent.

�The BAT-ITC combine is in a pretty comfortable position,� the BAT spokesperson added. The combined holding of BAT and ITC�s investment subsidiary, Russell Credit, stands at 41 per cent. The Mumbai-based Damanis, who hold about 20 per cent in VST, are also not in a mood to force things immediately.



Foreign Exchange

US $1	Rs. 48.01	HK $1	Rs.  6.05*
UK �1	Rs. 70.33	SW Fr 1	Rs. 29.70*
Euro	Rs. 44.36	Sing $1	Rs. 27.10*
Yen 100	Rs. 40.91	Aus $1	Rs. 23.35*
*SBI TC buying rates; others are forex market closing rates


Calcutta			Bombay

Gold Std (10gm)	Rs. 4805	Gold Std (10 gm)Rs. 4700
Gold 22 carat	Rs. 4535	Gold 22 carat	  NA
Silver bar (Kg)	Rs. 7730	Silver (Kg)	Rs. 7675
Silver portion	Rs. 7830	Silver portion	  NA

Stock Indices

Sensex		2761.66		-42.50
BSE-100		1277.85		-21.21
S&P CNX Nifty	 898.80		-13.40
Calcutta	  95.23		- 0.92
Skindia GDR	  NA		  -

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