RBI signals cut in bank rate
No recap funds for UBI, Uco
Govt frowns on second round VRS in banks
Infosys fears rivals with low wage bills
Roamers on a roll in AirTel loop
Daewoo on a discount trip
Merger looms on Digital horizon
Auto policy to be put on fast track
Cisco to focus on eastern region
Foreign Exchange, Bullion, Stock Indices

New Delhi, June 13: 
The Reserve Bank of India (RBI) today hinted at a possible rate cut though governor Bimal Jalan, who was here to hold discussions on the current economic and monetary situation with the finance minister, hedged his statements with conditions.

“If the liquidity conditions change in a way which require a bank rate cut, we will cut it. Right now, the position is comfortable,” Jalan told reporters after meeting Yashwant Sinha.

“Once it is required, it (bank rate cut) will be done. The idea is that it has to be done in such a way that it is sustainable,” he said. While announcing the credit policy in April, Jalan had said the bank rate should be brought down, but had never set any time frame for such action.

Despite comfortable liquidity conditions, the economy has not been picking up even though Jalan maintained that he felt the economy may show a 6.5 per cent GDP growth this year.

Moreover, it is this worrying factor which is prompting a soft bias in the central bank’s rate policy.

“Our interest rates are soft. Inflation is low at 1.56 per cent. We have said that as long as this continues, we shall maintain soft interest rate policy,” Jalan said.

Implying that only if the inflation starts creating problems for the government would there be a change in monetary policy with higher interest rates aimed at mopping up excess money in the system.

Jalan made it clear that he did not expect Indo-Pak tensions to impact the economic recovery or bank rate. “It will not impact this,” he said. He said he wants to see credit offtake picking up and leading to creation of new productive assets.

The RBI had reduced bank rate to 6.5 per cent last fiscal. And had since then been taking various steps to nudge banks to further reduce lending rates by reducing the amount funds banks have to compulsorily hold with the RBI.

However, despite reductions in the prime lending rates, rates for consumer loans and for small and medium companies have shown a tendency to remain sticky. A matter which concerned Sinha too. He has directed his officials to look into the issue and suggest ways to remedy the situation.

Till small and medium-size enterprise and consumer loans, especially housing loans, pick up in a big way, banks do not see much chances for a high growth trajectory for the economy.


New Delhi, June 13: 
Finance minister Yashwant Sinha today ruled out re-capitalisation of United Bank of India and Uco Bank, stating they had turned the corner.

Sinha also today decided to form special purpose vehicles to pump in about Rs 40,000- Rs 50,000 crore of funds into infrastructure projects over the next five years

“I am particularly happy that the weak PSU banks that I had inherited as finance minister have turned the corner. I am very happy that two of them do not need any re-capitalisation assistance,” Sinha said. Some 19 state-run banks have together reported a 132 per cent growth in profits in the financial year 2001-2002.

Sinha said an asset reconstruction company was being planned which would be used to tackle non-performing assets of banks.

Ministry officials pointed out that UBI had posted net profit growth of 579 cer cent at Rs 129 crore while Uco Bank posted 400 per cent growth at Rs 165 crore.

Releasing their growth figures, officials said Canara Bank had shown the best record with a net profit of Rs 741 crore followed by PNB at Rs 562 crore, Bank of Baroda with Rs 546 crore and Bank of India at Rs 505 crore.

Oriental Bank of Commerce with a net profit of Rs 321 crore, Union Bank of India with Rs 314 crore, Corporation Bank with Rs 308 crore, where other top performers.

Sinha who held a meeting with FIs today also said “The FIs, SBI and LIC have agreed to fund infrastructure projects spread over 4-5 years... Broadly we are looking at Rs 40,000 crore to Rs 50,000 crore financing.”

The meeting is a follow up to a budgetary decision on a co-ordinated approach to fund sectors like railways, national highways, rural roads, port, tourism and urban development.

“The idea is to involve commercial financing in commercially viable public sector projects. What I have discussed is the possibility of financing these infrastructure projects through special purpose vehicles (SPVs),” he said.

The proposed SPV would involve participation by IDBI, ICICI, State Bank of India and Life Insurance Corporation.


New Delhi, June 13: 
The finance ministry has decided against handing out a second round of voluntary retirement package for banks.

A high level internal meeting chaired by secretary economic affairs C.M.Vasudev has come to the conclusion that government should not announce a second round of VRS for state-run banks as the first round had left huge gaps in crucial areas of their manpower.

Individual banks would, however, be free to offer selective golden handshake packages to some employees if they feel the need arises. But there would be no industry-wide application of this, contrary to expectations in banking circles and recent speculation in the media.

Banks have already been told to shut down or merge certain branches determined on the basis of economic viability. This was expected to generate some amount of excess manpower, which would have to be dealt with. Besides total computerisation of back-office functions was also expected to generate surpluses. This was the reason why the government had, in the first place, thought of an industry-wide round of VRS.

However, the government feels that the banks need to conserve their resources to be able to meet more stringent capital adequacy norms. Besides, banks had reported huge haemorrhage in middle-level personnel resulting in temporary dislocations, a factor which was taken into account by the ministry.

The ministry has informally told banks to go ahead with fresh recruitment in certain key areas where banks are deficit in manpower. Otherwise, banks have also been advised to redeploy manpower from excess areas to deficit ones and re-train certain staff, and if necessary, to switch their functions.

According to officials, it was actually found that the first round of VRS had let to an outgo which substantially reduced the declared profits of major banks. The reserve requirements of some of the banks actually fell below an adequate level.

They also revealed there had been significant political opposition from within the BJP to plans for another round of VRS in banks. Apparently besides right-wing BJP MPs, and even several ministers in the NDA government, feel that a major layoff in the banking sector might not be a good signal right now and may actually shake the common man’s confidence in the ability of the economy to recover.


Mumbai, June 13: 
Infosys Technologies sees employee costs as the decisive factor that will determine who stays ahead in software services in the years ahead.

In its annual report for the financial year ended March 31, 2002, the company says it perceives competition from companies that have bases in countries with cheaper manpower.

This could be significant in the case of India, whose competitive advantage has historically been lower wages relative to service providers in the United States and Europe.

According to a McKinsey study, the average annual wage for software professionals in India is approximately 20 per cent of that in the United States.

The Bangalore-based software major points out that salaries in India are rising faster than in America, but is confident the differential will remain a competitive advantage for Indian companies in the “foreseeable future”.

Analysts are of the opinion that competition for Indian IT services could come from China and certain CIS countries.

Given the rise in wage costs, Infosys believes its ability to compete effectively will become increasingly dependent on reputation, the quality of services and expertise in specific markets.

However, the other external factors which would determine the success of domestic infotech services companies include the price offered by competitors for comparable services, the extent to competitors can respond to client needs and their ability to attract and retain highly skilled IT professionals.

The market for infotech services is cut throat, with competitors from a variety of segments including infotech service companies, large international accounting firms and consulting affiliates, systems consulting and integration firms, applications software firms and service groups of computer equipment companies.

Apart from Infosys, Tata Consultancy Services and Wipro are the other big players in Indian software services market.

In the United States, the list includes Electronic Data Systems, Accenture, KPMG Consulting, IBM Global Systems and Computer Sciences Corporation.

Infosys has launched new services initiatives, one of which is to invest $ 5 million in business process management (BPM). The focus will be on areas like transaction processing and accounting services while one of the key target verticals will be financial services.

A major part of the company’s revenue comes from offshore software development. The company has been laying stress on revenues from this segment on account of the model having positive features for its overseas clients.

These include a 24-hour work schedule that takes advantage of time zone differences, access to the company’s large pool of English-speaking infotech professionals located in India and relatively low costs of infotech professionals offshore.


New Delhi, June 13: 
Cellphone roaming has just become cheap. AirTel, the mobile service provider, is offering its customers in Delhi a cut-price roaming option with a new service that it calls ‘subscriber local dialling’. The new service will enable a mobile phone subscriber from Calcutta on a visit to Delhi (and linked to the AirTel network) to connect at a flat rate of Rs 4.90 per minute against Rs 12.10 per minute at present. The service will be available for both pre-paid and post paid customers.

The service —which is sure to be replicated by the other cellular players in other cities —will reduce roaming costs by as much as 88 per cent and crimp the STD revenues of the fixed-line operators who would otherwise have benefited from such calls.

Cellphone users have been spoiled for choice of service facilities and tariff options since the rate wars began in January.

The new system will become effective from Saturday without any hike in rentals or a fee. To avail of the service, all that the caller has to do is press #0 (hash and zero) followed by the mobile number of person who is in Delhi. The service will further hurt the revenues of the fixed-line operators who have suffered a loss of business since Bharti set up its IndiaOne Network in January and persuaded nine cellular operators to route all calls over its NLD service.

Under the earlier scheme, the roaming costs were high because of a tiered cost structure that comprised a local airtime charge; the STD/ISD tariff; and a roaming charge of Rs 3. Cellular operators had to give the STD component to fixed line firms.

Now, they will not have to pay them since the calls will be routed over the local network.

If a Command mobile subscriber from Calcutta (with a roaming facility) comes to Delhi and is called by a subscriber of AirTel Delhi, he will have to pay Rs 12.10 per minute. Under the new service, he will have to pay a flat Rs 4.90 a minute for both outgoing and incoming calls.


New Delhi, June 13: 
It’s official now: ailing automaker Daewoo Motors India Ltd (DMIL) has been offering bargain-basement discounts to whittle its inventory of 1500 cars.

Company officials today admitted for the first time that the company has been selling Matiz cars at a discount of Rs 50,000 on a marked price of Rs 3.25 lakh. They claim to have managed to reduce their inventory to just 300-350 cars.

However, market sources claim that the company had offered higher discounts of up to Rs 80,000.

Daewoo Motors India Ltd (DMIL), which is being hounded by the financial institutions to clear its outstanding dues of around Rs 900 crore, today reopened its plant for a short period of 10 days after a closure of nearly one and a half months.

Company executives said, “Production will be undertaken now only when we have orders. As demand has increased a little, we have started production. The car is still available at a slightly discounted price”.

“The 10-day operating period may be extended if the demand warrants it. The strategy now will be “to work full fledged for a few days at a stretch and then close down till stocks are exhausted. This is more economical than opening up the factory for a single shift everyday,” they said.

Demand for Matiz is currently coming in from Mumbai and South India. “Sales in Delhi have nearly stopped after all the controversy (that arose after financial institutions approached the debt recovery tribunal and were armed with an order to seize the assets of the company to recover their dues). The bulk of orders are coming from the South and from Mumbai,” they said.

However, Daewoo is yet to fix a date for a crucial board meeting, which will decide the fate of the factory.

With the three major Indian financial institutions recalling their loans, the board will have to decide on how to satisfy the bankers. They will either have to put the firm’s assets on the block or take on lenders’ nominees on their board to oversee any deal they may reach to sell or bail out the company.

Officials said, “The FIs had met to increase their representatives on the board from 5 to 7. Currently, the board consists of five FI nominees and 6 Daewoo nominees. If the change takes place, then the FIs will have a say in the affairs of the firm. But this decision is yet to be taken. Auditing for the financial year has still not been completed; so the date for the board meeting has not been fixed”.


Calcutta, June 13: 
Digital GlobalSoft—the 51 per cent Indian subsidiary of Compaq Computer Corporation—may not continue to operate as an independent subsidiary following the $ 90-billion merger of its parent with Hewlett-Packard (HP).

Digital may be merged with other entities of Compaq and HP in India, which are at present being integrated in line with the global merger of the two companies.

The merger was announced in September 2001 and has been completed over the last seven months.

Bala Mahadevan, a spokesperson of Digital GlobalSoft, said: “The operations of HP and Compaq in India have been fully integrated. What the management of our parent company—now HP—intends to do with Digital, is not known yet.

“Digital may be merged with other Indian entities owned by HP and Compaq, but it is unlikely that the decision on the future of the company will be taken soon. For the time being, it is business as usual for us.”

The company hints at the possibility of a merger in its annual report for 2001-02.

The Digital management says in the annual report, that the future “form/structure of Digital” is uncertain, since there are multiple entities of Compaq and Hewlett-Packard operating in India.

In its forthcoming annual general meeting, Digital will be seeking shareholders’ approval to include in its constitution a provision for buy back of shares from the market.

The company, however, says it has no immediate plans of buying out its shares traded on the bourses.

Digital is the only listed subsidiary of Compaq in India. Even HP does not have any listed subsidiary in the country.

The market expects Digital to buy back its shares from the market if it intends to merge the company with other entities in India owned by the IT behemoth.

Digital is largely dependent on Compaq for its revenues. Sales to Compaq accounted for about 85 per cent of the Digital’s revenues in 2001-02. Its income from sales to Compaq at Rs 281.1 crore was 73 per cent higher than the previous year.

Digital has been aggressively trying to increase its revenues from other clients. Revenues from other clients grew 138 per cent in 2001-02 to Rs 50.6 crore. On a turnover of Rs 345 crore, Digital posted a net profit of Rs 92 crore in the last financial year.

Despite the lacklustre performance of the IT industry in 2001-02, Digital’s revenues grew by 75 per cent and its net profit, by 71 per cent. Much of it, however, was on account of the robust growth in sales to Compaq.

Digital focuses on development of e-applications, which accounts for about 42 per cent of its operating revenues. Other businesses include systems engineering, enterprise solution and development of e-infrastructure.


New Delhi, June 13: 
The government plans to form a group of ministers in order to oversee speedy implementation of the auto policy and remove major constraints hindering growth in the auto sector.

“I will suggest to the Cabinet to form a special GoM so that the auto policy can be put on the fast track,” said Suresh Prabhu, minister of heavy industries and public enterprises.

“We want the world to accept the ‘Made-in-India’ tag in the automobile sector.”

The government is considering rationalising excise duties on automobiles as part of an effort to make the sector globally competitive.

“The matter is being considered by the finance ministry. At the same time, the industry needs to understand that since excise duty is an important component of government revenue, a drastic cut in duties cannot be implemented,” he said.

Prabhu was speaking after a presentation by the Society of Indian Automobile Manufacturers (SIAM), which has specifically asked the government to reduce the excise duty on multi-utility vehicles (MUVs) from 32 per cent at present to at least 24 per cent as they are widely used in rural areas. SIAM also demanded tax reliefs on auto components.

“One of the major decisions emanating from the interaction pertained to setting up an inter-ministerial committee that will include members of the auto industry for implementation of the auto policy unveiled by the government a few months ago,” Prabhu said.

The minister underlined the need to aggressively market the ‘Made-in-India’ brand and said that it was critical to increase the spending on research and development.

He emphasised on development of the auto component sector which had the potential to export around Rs 10,000 crore within a few years.

At present, the total investment in the auto industry amounts to Rs 50,000 crore and its output exceeds Rs 81,000 crore per annum.

The auto policy, which was cleared a couple of months ago, emphasised on the need to export Indian auto components and small cars.


Calcutta, June 13: 
Cisco Systems has adopted a three-pronged strategy to improve its services in the eastern region.

The first step taken by the networking solutions company has been to set up a rapid fulfilment depot (RFD) for the eastern region in Calcutta. The facility will stock spare parts and supplies for the entire range of Cisco products to enable round-the-clock service and support to customers and reduce the delivery cycle for spares.

“Networks today provide a clear competitive advantage to enterprises and service providers,” says SV Ramana, vice-president of systems engineering. “RFDs ensure quick availability of spare parts.”

The RFD will strengthen Cisco’s presence in the east, including Bangladesh and Nepal.

Cisco, which is the market leader with a 65 per cent share, has invested $ 1 million in its RFD centres. This is the sixth RFD centre in the country.

The second area of focus will be the expansion of the Cisco Networking Academy program (CNAP) in association with the West Bengal Electronics Industry Development Corp (Webel). The company already has set up centres at four technical institutes in the state and will set up six more by March next year. Cisco is also negotiating with Meghalaya, Tripura and Sikkim for the CNAP. It has announced an investment of $ 10 million for expanding the CNAP across India and the Saarc region.

“The third important step will be to grow the reseller network and increase Cisco’s reach to address the networking needs of the region,” says Ramana.

The company has 160 resellers in the region, which is expected to go up 10 per cent by December. “We will also focus on specialising partners in technologies such as wireless LAN, IP telephony, and security,” adds Ramana.



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