No surprises, but Jalan�s on course
Gilts, bank stocks lose sheen
Banks told to declare premium on PLR
ONGC to attain debt-free status
Indo Rama joins IPCL race
Call market loses its shine
Risk profile of home loans upgraded
Telco may make Malaysia export hub
Mahajan�s advice to colleagues
Foreign Exchange, Bullion, Stock Indices

Mumbai, April 29: 

CRR cut by 50 basis points

Bimal Jalan was a man without surprises up his suit sleeve, leaving the bank rate unchanged but coming through on a widely expected cut of 0.5 percentage point in the cash reserve ratio (CRR).

He did have a piece of good news: the interest rate on banks� savings accounts would remain at 4 per cent. That warmed the cockles of legions of depositors who were stalked by fears that he would pinch them in his drive to keep interest rates low and boost credit to industry.

Though he did not tinker with the bank rate � a benchmark for interest rates in the economy used more as a signalling device � he hinted it could be cut if required.

The policy, which the Reserve Bank governor has chosen to use as an instrument to provide adequate liquidity and carry forward financial sector reforms, forecast a GDP growth of 6-6.5 per cent in 2002-03. This is higher from last year�s 5.4 per cent. The optimism springs from improved agricultural growth and rising exports.

The CRR cut will release around Rs 5,000 crore into the banking system, though there are lingering concerns on whether the bulk of this amount will be used to support the government�s increased market borrowings.

The CRR reduction will be effective from June 15, given that banks are awash with liquidity, but the date can be advanced if there is a change in liquidity conditions. �In case there is an unexpected change in the liquidity conditions in the market, the RBI may advance the effective date of reduction,� he said.

Jalan said he saw no problems in availability of credit as the supply of money was plentiful. On the contrary, he voiced concern over the low demand for funds.

On keeping the bank rate unchanged at 6.5 per cent, Jalan justified his decision by saying there is �substantial excess liquidity� in the banking system. An evidence of this, he said, is the repo amounts received by the RBI during the past six weeks. A possible 50 basis point reduction in bank rate will depend on overall liquidity, credit situation and the inflation rate.

Belying fears that savings deposit rate would be brought down following the reduction in interest rates on government-administered small savings, the RBI governor left interest rate on savings account at 4 per cent.

�Considering the fact that bulk of such savings deposits are held by households, including households in rural and semi-urban areas, on balance, it is not considered as opportune time to deregulate the interest rate on savings account for the present. In any case, the present effective yield of 3.4 per cent is quite reasonable in relation to other prevailing interest rates on even short-term instruments,� the RBI chief said.

Exporters had reasons to be happy from the monetary policy that saw the RBI further lowering the ceiling on foreign currency loans provided to them by banks.

The maximum rate on export credit in foreign currency will be reduced to Libor plus 0.75 percentage point from Libor plus 1 percentage point. In view of the �continued international uncertainty�, the period during which interest rate of 2.5 percentage points below PLR (at which a exporter will get finance) will be applicable has been extended up to September 30, 2002.

Banks can now invest funds mopped up under FCNR(B) deposits in long-term fixed income instruments with an �appropriate rating�. So far, they could accept these deposits for a period of one to three years, but there were restrictions on how they could be deployed.


Mumbai, April 29: 
Bond yields rose � and prices fell � over 10 basis points across the board as markets fretted about what the year�s first monetary and credit policy did not do. The expectation was for a cut in the benchmark bank rate and a roadmap for reduction of the cash reserve ratio (CRR) to 3 per cent. None of these were announced, though the CRR was lowered by 50 basis points.

Sources further said that most of the commercial banks are unlikely to bring down their lending or deposit rates. However, there are reports Bank of Baroda and Corporation Bank will review their rates in the days ahead.

State Bank of India chairman Janki Ballabh told The Telegraph that his bank would prefer to wait and watch before taking a decision on interest rates. The country�s largest bank has brought down its prime lending rate.

Ballabh said while the policy was pragmatic in nature, it did give out a definite indication that interest rates will only go south. Jalan, he said, had tried in creating sufficient liquidity in the system, apart from maintaining discipline in the financial sector. �The governor has been successful in addressing the basic requirement apart from ensuring liquidity and a low inflation rate. We could not have asked for better,� he said.

According to Arun Kaul, managing director of PNB Gilts, the decision to cut CRR will provide necessary liquidity to the money market, which was otherwise witnessing a short-term hardening of rates. The emphasis of RBI in retailing of government securities will add more depth to the market and ensure more participation.

However, the decision of the RBI governor to leave the savings deposit rate untouched was criticised by many. �As this rate has been left untouched, the cost of deposits will not come down for banks. This would put pressure on their bottomline,� an analyst pointed out.

The monetary policy and its decision to leave rates unchanged sent bank stocks on a tumble. On the Bombay Stock Exchange, the State Bank of India share shed 4.2 per cent to close at Rs 226.70, while Bank of Baroda lost 2.2 percent to end the day at Rs 51.50. The losses came on a day the sensex slid 70.49 points to settle at a three-month low of 3301.21. Nerves frayed over the arrest of Reliance executives and Tuesday�s Parliament vote on Gujarat.


Mumbai, April 29: 
The Reserve Bank of India (RBI) today asked banks to come out with information on the rates of interest actually charged and paid to ensure borrowers and depositors can secure a fair deal.

They have been told to declare the maximum spread over their prime lending rate � a benchmark rate at which banks would normally lend to their best clients � for all loans and advances, other than consumer credit.

�Banks should obtain the approval of their boards for the maximum spread over the prime lending rate,� the RBI said. A mid-term review made in October 1996 had revealed that �many banks are charging lending rates far higher than the PLR on a significant portion of bank credit to borrowers with credit limits of over Rs 2 lakh�.

Recent reports suggest that the spreads � the difference between a notional rate and the actual rate of interest paid � above PLR have widened substantially in some banks.

�In the present interest rate environment, it is not reasonable to keep very high spreads over PLR,� the Reserve Bank said in a statement.

Banks have been advised to take a fresh look at spreads and reduce them if they are high, so that credit is available to borrowers at reasonable interest rates. �Spreads have increased. We want to put it on the table so that borrowers can go to somebody who gives competitive rates,� RBI governor Bimal Jalan told reporters after the monetary policy was announced.

He parried questions on what a �normal� spread should be, but indicated that the largest bank in the country (read State Bank) has a figure less than 4 per cent.


New Delhi, April 29: 
Oil and Natural Gas Corporation Ltd (ONGC) will pre-pay two loans worth Rs 2,500 crore to the World Bank and Asian Development Bank to become a debt-free company.

The government has, in principle, cleared the company�s move to pre-pay its debts, which it is expected to do in June this year. ONGC will generate the necessary cash through internal resources.

The public sector oil major had borrowed $ 450 million from the World Bank and $ 250 million from the ADB in the 1990s to fund various projects. The loans were to be repaid till 2010-20 at an interest rate of 10-12 per cent in rupee value.

Announcing ONGC�s financial results, chairman and managing director Subir Raha said: �Our aim is to become a debt-free company and have a healthy balance sheet.�

ONGC recorded an 8.1 per cent growth in net profit during the financial year 2001-02. The net profit rose to Rs 5,655 crore during 2001-02 from Rs 5,229 crore during last year. The turnover during the financial year ending March 31 stood at Rs 23,789 crore.

Raha said the company was keen to attain vertical integration and would consider picking up a stake in BPCL or HPCL.

�We will take a decision to bid for BPCL or HPCL depending upon the offer. If we have an opportunity which is expected to benefit us, we will certainly take it,� said Raha.

�No decision has been taken as yet to bid for the two public sector oil companies. But there can be a collaboration if the opportunity comes our way,� he added.

Commenting on the company�s strategy after the dismantling of administered price mechanism (APM), Raha said ONGC currently supplies crude at $ 16 per barrel, which will continue till April 31, which means a cross subsidy of $ 7. �We will decide on increasing the price of crude,� said Raha.

Meanwhile, the consortium of Indian Oil Corporation, ONGC and Gas Authority of India Ltd are waiting for approval from the Bangladesh government to undertake gas exploration projects and to transport it to India through Tripura.

A working group consisting of the three companies will soon set up a project committee that will prepare a report, based on which the further discussions will be held.


New Delhi, April 29: 
Indo Rama emerged as the surprise entrant in the race for the Vadodara-based Indian Petrochemicals Ltd (IPCL) in which the government intends to divest a 26 per cent stake to a strategic partner.

Others who joined the fray on the last day for filing bids for the petrochemicals major were Indian Oil Corporation, Reliance Industries and detergent manufacturer Nirma.

Disinvestment ministry sources said, �The reserve price for the IPCL stake will be decided in a day or two. Once that is done, the inter-ministerial group (IMG) would evaluate the price bids received today.�

Reliance sources today said that the company has submitted its bid to pick up the 26 per cent offered by the government. Officials in IOC also confirmed the submission of the financial bid. However, officials in Nirma and Indo Rama were not available for comment.

Currently the government holds 59.95 per cent equity in IPCL. It has decided to offload 51 per cent stake in two phases. The management control over the company will be transferred to the successful bidder for the 26 per cent stake within the current financial year. The new partner will also have the right of refusal for the remaining 25 per cent equity.

The Oil and Natural Gas Corporation (ONGC) had made a last-ditch attempt to team up with IOC to mount a joint bid for IPCL, but failed to pull it off.

ONGC had failed to join hands with IOC in the pre-bid stage. However, ONGC chairman and managing director Subir Raha today said: �If IOC makes a winning bid, we will �collaborate� with it. We have held discussions with IOC on joint bidding for IPCL and different modalities and options have been talked about but no decision has been taken as yet.�

Three public sector companies�Gas Authority of India Ltd (Gail), ONGC and IOC�had held discussions to jointly bid for IPCL. However the issue of who will hold the rights to market the product led to a stalemate. Consequently, IOC decided to go it alone with its bid for IPCL.

However, disinvestment ministry sources clarified that the successful bidder will have the right to bring in a new partner without diluting the equity. IOC is keen to pick up equity in IPCL since it supplies the feedstock to its Vadodara plant.

UBS Warburg is the global advisor for the deal.


Mumbai, April 29: 
The Reserve Bank of India (RBI) today decided to clamp down on the excess dependence of some banks on the call money market by linking the amount they can lend everyday to their net-owned funds.

The central bank is also phasing out its collateralised lending facility (CLF) from October 5 this year in view of the creation of alternate facilities for providing liquidity.

In the lean season monetary and credit policy for 2002-03 announced today, the central bank said lendings of scheduled commercial banks in the call/notice money market, on a daily basis, should not exceed 25 per cent of their net-owned funds (paid-up capital plus reserves) as at the end of March of the previous financial year.

It further said borrowings by scheduled commercial banks in the call/notice money market, on a daily basis, should not exceed 100 per cent of their net-owned funds or 2 per cent of aggregate deposits as at the end of March of the previous financial year, whichever is higher.

To ensure that scheduled commercial banks do not face any disruption in their asset-liability management system (ALM) in adjusting to this stipulation, the existing borrowers and lenders should unwind their positions in excess of the prudential limits by the end of August, it said.

The borrowings of state co-operative banks (SCBs) and district central co-operative banks (DCCBs) in the call/notice money market on a daily basis, the apex bank ruled, should not exceed 2 per cent of their aggregate deposits as at the end of March of the previous financial year.

In case any bank has, for a temporary period, some mismatches in their liquidity positions, the RBI, on request, may consider allowing them further access to the call/notice market. Similarly, if any bank has put in place a fully functional ALM system to the central bank�s satisfaction, the RBI may permit increased access over the stipulated norms, for a longer period.

These guidelines, the RBI pointed out, are in tune with the Narasimham Committee�s recommendations, which said there must be clearly defined prudent limits, beyond which banks should not be allowed to rely on the call/notice money market, and that access to this market should essentially be for meeting unforeseen mismatches and not as a regular means of financing banks� lending operations.

However, some banks have been observed to depend overwhelmingly on the call money market for carrying out their banking operations. �It needs to be appreciated that call money borrowings, being non-collateralised in nature, have the potential to create serious instability in the financial market because of unethical or imprudent behaviour of some participants.�

At present, except for urban co-operative banks (UCBs), which are subject to a ceiling on borrowing of 2 per cent of their aggregate deposits of previous financial year, other entities are not under any explicit limit.

The RBI also took a step further towards a pure inter-bank call/notice money market, by gradually phasing out non-bank participants.

It decided to move towards the second stage, wherein non-bank participants would be allowed to lend, on an average, in a reporting fortnight up to 75 per cent of their average lending in call market during 2000-01 with effect from a date to be announced later.

Further, the RBI said at present, it is providing standing liquidity facilities comprising Export Credit Refinance (ECR) and Collateralised Lending Facility (CLF) to banks, and also liquidity support to primary dealers. These are in addition to facilities operated through Liquidity Adjustment Facility as also outright sales/purchases of government securities as part of open market operations (OMO).

While commercial banks are provided CLF against the collateral of excess holdings of Government of India dated securities over their SLR requirement, the extent of liquidity support available to each bank has been stipulated at equivalent to 0.125 per cent of its fortnightly average outstanding aggregate deposits in 1997-98.

While the overall limit for the system stands at Rs.656.61 crore as of now, the average utilisation of this facility in 2001-02 up to the fortnight ended March 22 this year was Rs 124 crore.

In view of these factors, the central bank said that CLF may be phased out with effect from the fortnight beginning October 5, 2002. RBI, however, will have the option to reintroduce CLF for a temporary period in future, should it be considered necessary to do so in the light of changes in monetary conditions, it added.


Mumbai, April 29: 
Recognising the role played by banks in providing credit to the housing sector, the Reserve Bank of India (RBI) today said loans against residential properties would have to be assigned a risk weight of only 50 per cent, instead of the present 100 per cent.

Banks like State Bank of India (SBI) and ICICI Bank have provided depth to the market, which till recently was dominated by a few housing finance companies (HFCs). They have been successful in snaring away the old clients of housing finance companies by offering lower rates and simpler formalities.

Banks have been advised to increase credit to the sector by allocating 3 per cent of incremental deposits, in consonance with the goals of National Housing and Habitat Policy.

The Basle Capital Accord of 1988 and the New Capital Adequacy Framework, which is being debated before it can be adopted, envisage risk weights of 50 per cent and 100 per cent for claims secured by residential property and commercial real estate respectively.

Banks are being nudged into lending more to housing amid heightened appreciation about the growth potential of construction because of its forward and backward linkages with other sectors of the economy.

They were advised to allocate a minimum of 3 per cent of incremental deposits for housing in the last financial year. To encourage them to do that, term loans extended by banks to intermediary agencies against the credit sanctioned by them are reckoned as part of housing finance.

Also, investment in bonds issued by Hudco and National Housing Bank (NHB) exclusively for housing finance is considered priority sector lending, the RBI said. At present, banks� loans and advances secured by mortgage on residential property, in addition to commercial property, are assigned a risk weight of 100 per cent for capital adequacy purposes.

However, the central bank has refrained from spelling laying down risk weights for banks� investment in securitised papers.

With a view to further improving the flow of credit to the housing sector, there is a proposal before the RBI to liberalise banks� prudential requirements for home loans and encouraging them to park their funds in securitised debt instruments of housing finance companies.

Similarly, banks extending loans against residential housing properties would be required to assign a risk weight of 50 per cent, instead of present 100 per cent. Loans against the security of commercial real estate would continue to attract 100 per cent risk weight.

Investments made by banks in mortgage-backed securities (MBS) of residential assets with HFCs recognised and supervised by NHB would also be assigned a risk weight of 50 per cent for the purpose of capital adequacy, the central bank said in a statement here today.


New Delhi, April 29: 
Tata Engineering and Locomotive Company (Telco) plans to make Malaysia an export hub for the ASEAN countries.

The company has sought permission from the Malaysian government to manufacture not only heavy vehicles like buses and trucks, but also the passenger car Indica.

�Previously, we had manufacturing facilities in Egypt, South Africa, Malaysia and Zambia, where the CKD kits exported from India were put together. This was mainly used for heavy vehicles like buses and trucks. But due some duty restructuring in these countries, it is Malaysia that is proving to be most profitable. We have closed the operations in other countries and are looking at this facility to make it a manufacturing hub for buses and trucks that will cater to all ASEAN countries,� general manager (exports) A. S. Rangan said.

Telco is expecting a 15 per cent rise in exports as the economy picks up. Rangan feels while it will be the buses and trucks that will lead export growth, but the Indica will have a substantial part in it this year. �Last year we exported around 12,000 vehicles which amounted to Rs 600 crore. Though the demand for heavy vehicles was up, the demand for medium vehicles was good. In value terms the business was fine, but in numbers it was not up to the mark. We are expecting a 15 per cent increase in exports. The exports of passenger cars only started in September. This year the Indica will be the focus,� Rangan said.

Apart from Asean countries, Telco is also exporting to Saarc countries like Bangladesh, besides Argentina, Europe, Spain, Malta and other countries in West Asia.


New Delhi, April 29: 
Communications and information technology minister Pramod Mahajan today took time off to advise foreign minister Jaswant Singh and enlighten agriculture minister Ajit Singh about their ministries, while giving the bunch of scientists of his own ministry, who waited for him to inaugurate their innovative gadgets and software, the short shrift.

Mahajan today rushed through the inauguration of 12 innovative products, adding apologetically it was like conducting a �mass marriage�. He said he was compelled to do so as he had to rush to Parliament to help Yashwant Sinha get the Finance Bill passed.

But the minister did not seem very convinced that these products were really innovative. �Although I have inaugurated these products, I am not sure they are really innovative. The IT secretary though, has said they are and the details are in the CD.�

Nevertheless, the minister found enough time to explain that �India�s foreign policy should not be Pakistan centric; in the same manner, our IT and communications policy should not be China-centric. What ranking provides is a comparison. Ranking also reflects the development within a country. Hence, there is a need to have a domestic profile of e-readiness within the country.�

Holding out some lessons for Cabinet colleague Ajit Singh, Mahajan said there were no jobs in the agriculture sector, while IT held ample employment opportunities. He suggested that the state governments should exploit this new source for employment.

Some of the key products launched include Chitrankan�the optical character recognition software for the Devanagari script and Bengali script developed by C-DAC in association with the Indian Statistical Institute, Calcutta. It helps to store or print any document that has been scanned, from the system. Another product was a cable modem developed by ERDC, aimed to help penetration of IT and the internet. This product provides access to TV and the internet via the same cable. A division of the IT department developed �Lekhika� the new platform independent Word Processor. Another division has developed a product called Neuron, which is a low-cost PC thin client/technology for PC systems. A software developed for the Samadhan Kendra pilot project offers a decision support system for crop management and pest management.

A committee under the IT department will be set up by next week to draft the guidelines and formulate the framework for preparing the country�s first e-readiness report. Based on internationally accepted indices, the report would profile the e-readiness of all states, UTs and central government departments.



Foreign Exchange

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