Watertight norms for margin trade
Oil bill faces Rs 1600-cr hit
Sebi may widen trading ambit
HPL readies to pay its lenders

Mumbai, Sept. 22: 
In order to provide a fool-proof mechanism for the smooth conduct of margin trading, the Reserve Bank of India (RBI) today ruled that banks should maintain a minimum margin of 40 per cent on funds lent while extending finance to brokers.

�Appropriate system for monitoring the margin (40 per cent), should be put in place before the banks enter an area which is highly risky. If the stockbroker fails to meet the margin calls, the lending bank should liquidate the collateral/shares purchased immediately and adjust the loans,� RBI said in its circular to all commercial banks.

Earlier this week (September 18), the RBI-Sebi technical committee decided to permit banks to lend funds to stockbrokers for margin trading within the overall ceiling of five per cent prescribed for exposure of banks to capital market.

The committee had said banks may provide finance to brokers for margin trading in actively traded scrips forming part of the NSE Nifty and the BSE sensex. Under the new norms, there are 53 scrips that are eligible for margin trading.

RBI, in its revised guidelines on bank financing of equities and investment in shares, has asked the boards of banks to come out with necessary safeguards to ensure that no �nexus� evolves between �the inter-connected stock broking entities/stockbrokers and the bank in respect of margin trading�.

RBI stipulated that margin trading should be spread out by a bank among a reasonable number of stockbrokers and stock broking entities. Shares to be purchased should be in dematerialised mode, under pledge to the lending bank.

Stockbrokers, availing of margin trading facilities from a bank should be prohibited from lending, directly or indirectly, to their own connected entities, relatives or business associates or those of the promoters/directors of the bank through this facility, the central bank said.

Banks will also have to put in place appropriate systems to ensure end-use of funds lent under margin trading, it added.


New Delhi, Sept. 22: 
The country�s crude oil bill is likely to go up by Rs 1,600 crore and its oil pool deficit by another Rs 100 crore.

Petroleum minister Ram Naik, who met finance minister Yashwant Sinha today to discuss the trend in global oil prices after the September 11 terrorist attacks on US targets and its likely ramifications on the Indian economy, told reporters here �the oil pool deficit is likely to go up by Rs 100 crore if the rupee value vis-�-vis the dollar falls by Rs 1.�

The oil pool is a notional clearing house where certain petro products like cooking gas are cross-subsidised by artificially raising the prices of certain others like petrol. The deficit in this pool is likely to cross Rs 14,500 crore by March next year.

The Indian currency has depreciated by nearly a rupee in the last two months, closing at Rs 48.03 to the dollar yesterday and this is expected to widen the deficit in this account unless prices of petro-products are increased here.

Other petroleum ministry officials added that the fall in the rupee value also implied that the total oil import bill for a calendar year could go up by as much as Rs 1,600 crore. The country�s oil imports currently stand at Rs 71,000 crore a year.

Explaining the reason for his hastily scheduled meeting with the finance minister, Naik said, �We discussed the likely situation developing at home and in international oil market.� Officials added that the petroleum minister had asked the finance ministry to allow the Oil Co-ordination Committee to withdraw its deposits of Rs 4,429 crore from the public account fund to meet the likely higher oil bill. But no commitments were given even on this account.

At the meeting, petroleum ministry officials also warned the finance minister that even a one dollar increase in crude prices over a sustained basis meant an increase of Rs 3,200 crore in the oil import bill and Rs 2,200 crore in the oil deficit account.

However, the impact is expected to be far lower because India has gone in for extensive forward purchases of crude and also has been mining its own crude.

Sources added the two ministers weighed the pros and cons of increasing the prices of some petro-products such as cooking gas. But no firm decisions were taken.

Officials added that cooking gas prices would have to raised by as much as Rs 95 a gas cylinder by the end of this fiscal while that of kerosene by Rs 1.50 per a litre. Even then a 15 per cent and 33.3 per cent subsidy element, doled out from the general budget and not from the oil pool, would remain in the prices of these two fuels.

The only way to lessen the consumer�s burden would be to reduce tariff levels on these fuels. But apparently revenue department officials refused to commit themselves to such a course at today�s meeting.

Relook at duty structure

Finance minister Yashwant Sinha today assured that administered pricing mechanism (APM) in the petroleum sector will be dismantled as scheduled by April 1 next year, but said a �relook� into the recommendations relating to duty changes was needed.

�We will stick to the deadline,� Sinha told PTI, adding that he had preliminary discussions with petroleum minister Ram Naik on the issue this morning.

While the empowered technical group (ETG) recommended in 1997 a cut in customs duty, it also suggested increased excise duty in some cases, Sinha pointed out and said that �we may have to relook the recommendations.�

Naik had earlier written to Sinha to consider rolling back the duties to the pre-budget level as part of efforts to bring down the oil pool deficit, estimated to touch Rs 14,500 crore during the current financial year.

Asked about the liquidation of the oil pool deficit, Sinha said, �we are discussing dismantling of APM. We will take care of the pool deficit.� He, however, did not elaborate.

Sinha said that the issue needed a delicate handling due to the sensitivity of the oil prices while keeping in mind the investment sentiments in mind in dismantling of APM.

When contacted, Naik said �the countdown to dismantling of APM has begun... We have had preliminary discussions... Specific issues and details will be worked out in the next six to seven months.�


Calcutta, Sept. 22: 
The Securities and Exchange Board of India (Sebi) is likely to allow non-banking entities to participate in margin trading. The Sebi-RBI technical committee approved the introduction of margin trading on Tuesday, but allowed only commercial banks to participate.

Margin trading is a mechanism of financing third-party trades, which is expected to infuse liquidity in the stock market. Following the ban on badla, a number of brokers have begun financing their clients� trades, but such financing arrangements are illegitimate.

�We will consider allowing individual and corporate investors to participate in margin trading, but at a later stage,� Sebi chairman D.R. Mehta said. Allowing non-banking entities to invest in margin trading will, for all practical purposes, mean the return of badla, though in a more sophisticated form.

The market regulator wants to sever the nexus between brokers and companies that have led to two scams in the last nine years. There is a concern that allowing non-banking entities to participate in margin trading will enable firms to lend to brokers to manipulate the market. Non-banking entities are likely to be permitted only after a mechanism is devised for determining the source of funds, sources in Sebi said.

Brokers feel restricting margin trading to banks alone will be inconsequential. Public sector banks do not have much of an appetite for investments in the stock market and are likely to shy away from lending to brokers. The response from private sector banks too is expected to be tepid, given that a number of them have burnt their fingers recently in lending aggressively to brokers. Many bankers agreed with brokers� impression.

�It is essential to allow the investors of all classes to finance third-party trades. Banks alone will not be able to increase liquidity in the markets significantly,� said a senior broker. The government should address the problem of inadequate liquidity to prevent the market from tanking further, he added.

The objective of introducing margin trading is to encourage investors to take bigger exposures by leveraging their own funds. The Sebi�Reserve Bank technical committee has stipulated that banks can lend up to 60 per cent of the total exposure, while the remaining 40 per cent should be paid by the investor.

The margin requirements specified by the Sebi-RBI panel for margin trading is proportionate with the existing standards. At present, the private sector banks charge a 40 per cent margin on funds lend to individuals against pledged securities.

On a stock worth Rs 100, for instance, banks can lend up to Rs 60. For guarantees issued to brokers, the banks charge margins in the range of 25 and 40 per cent, depending on the net worth of the broker.


Calcutta, Sept. 22: 
With the much-talked-about debt restructuring package still hanging fire, Haldia Petrochemicals Limited (HPL) is now busy making arrangements to meet interest obligations from October 1.

The banks and financial institutions, which have provided over Rs 4,000 crore in loans to the Rs 5,170-crore showcase project of West Bengal, had already granted a six-month moratorium on interest payments. The moratorium will expire on September 30.

Industrial Development Bank of India (IDBI), the leader of the lenders� consortium, has made it clear that the company will have to start paying interests if debt restructuring is not completed by September 30. Top-level officials of IDBI told The Telegraph from Mumbai that, �the debt restructuring programme should not be linked to interest payment. We are trying to reach a solution. We are having meetings everyday but if we fail to come to a conclusion then the company will have to pay the interest. We do not want the account to become non-performing.�

When contacted Richard B. Saldhana , managing director of HPL said, �We are having constant dialogue with the banks and FIs. Good progress has been made in negotiations with them. Something will happen soon.� Ruling out any short-term measure, Saldhana said that as far as debt restructuring is concerned �it will be a one-time solution�.

HPL had taken a loan of Rs 1,017 crore from the FIs and Rs 1,154 crore from the banks for financial closure.

Lenders to the project include IDBI, Exim Bank, GIC, ICICI, IFCI, IIBI, LIC, NIC, OIC, UTI, Allahabad Bank, SBI, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Dena Bank and Federal Bank.

The loans carry an interest rate between 17 to 19 per cent. The total outgo on account of interest is in the region of Rs 325-350 crore.

Haldia Petro had taken suppliers� credit of Rs 457 crore from Japan Exim Bank and had gone for an external commercial borrowing of Rs 563 crore. It had also taken a bridge loan of Rs 500 crore from IDBI to partly meet the shortfall in equity of Rs 1,979 crore.

Senior officials of HPL said the margins of the company is under pressure due to rising naphtha prices after the US disaster.

�We have taken a four-pronged strategy to overcome the situation. These are, full utilisation of capacity, undertaking a profit improvement programme, negotiating naphtha prices with suppliers to get the best possible deal and boost sales in the eastern region.�

The officials added that the plant has already achieved a 100 per cent capacity utilisation.

The company is, however, tight-lipped about IOC�s participation in the project.


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