THE WEEKLY FINANCIAL NEWS
The government has proposed to limit the number of investors in private placement schemes to 200 persons with a minimum investment size of Rs 50,000 each in a financial year, the rules suggest that it should be made mandatory for listed companies to give their rationale behind salaries and hikes given to top management personnel vis-a-vis the performance of the company.
Banks could raise their lending rates following RBI's monetary policy announcement on Friday as tight liquidity could increase cost of funds.
Bankers welcomed the Reserve Bank of India (RBI) Governor Raghuram Rajan's mid-quarter monetary policy announcements and termed them as "a balanced and a pragmatic move" which will reduce banks' borrowing costs.
After hitting a lifetime low of 68.85 against the dollar on August 28, the rupee has recovered aggressively to become the best performing Asian unit in the last fortnight.
The problem was that of interpretation of 80:20. This means that at least 20 per cent you have to give for exports. So, somewhere it was misinterpreted that you cannot export more than 20 per cent. One can export more than 20% of imports.
"The industry had been hoping for a recovery through the ensuing festive season, anticipating an improvement in markets. But this move comes as a surprise dampener to all these expectations," Society of India Automobile Manufacturers (SIAM) said in a statement. Market analysts, however, said the repo rate hike should not have much impact on the auto sector.
"What we need to do is put our house in order before it (tapering) comes back. The postponement of tapering is only that, a postponement. We must use this time to create a bullet-proof national balance sheet and growth agenda, which creates confidence in citizens and investors alike," RBI Governor, Raghuram Rajan said.
Expressing disappointment over RBI Governor Raghuram Rajan's decision to hike the key policy rate, real estate developers said this would lead to increase in finance cost and also affect housing demand during the festive season.
Recently, the West Bengal based Saradha Group has been accused of duping investors of their savings running into thousands of crores of rupees.
The more immediate impact of the Fed’s decision not to taper, however, is to give RBI more room to ease policy rates.
The country's largest lender, State Bank of India, said it increased its base rate, or the minimum rate of lending, to 9.80 per cent, a day ahead of the RBI's policy review. SBI increased spreads on auto and home loans by as much as 0.20 pct. All top private sector lenders, including ICICI Bank, HDFC Bank and Axis Bank, had hiked rates to protect net interest margins.
The US Federal Reserve's decision to press ahead with its asset-buying gives India's battered rupee a reprieve and creates space at a policy review on Friday for its Reserve bank of India (RBI) to scale back some of the measures put in place to support the currency.
The basis of Ind-Ra's (India Ratings & Research, a Fitch group company) expectation of INR appreciation is based on economic developments in the last one to two months of this fiscal and the likely developments in the remaining months.
The FIPB (Foreign Investment Promotion Board) approved raising the foreign equity holding in Axis Bank to 62 per cent from 49 per cent, subject to the condition that the holding of foreign institutional investors does not exceed 49 per cent.
In a circular issued late on Tuesday, the Reserve Bank of India (RBI) asked banks to advise customers not to undertake forex trading on foreign websites that offer currency contracts by accepting margins through credit card and online money transfer mechanisms. The RBI also asked banks to close the credit card or online bank account of a customer that is found to be in violation of the rule.
Because State and central governments have expressed difficulties in crediting cheques/Direct Benefit Transfer/Electronic Benefit Transfer/scholarships for students, Zero Balance Accounts, into accounts opened for the beneficiaries under various central/state government schemes but had been classified as dormant/inoperative due to non-operation of the account for over two years.
In order to standardise the valuation and make it more transparent to the borrower, it has been decided that gold jewellery accepted as collateral will have to be valued at the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the Bombay Bullion Association (BBA).
Foreign banks will provide upfront financing for wealthy non-resident Indian clients to entice them to place bulky dollar deposits back home in response to India's drive for dollar funding to defend its weak currency.
Achal Kumar Gupta, Managing Director, State Bank of Patiala said that this is the third all women branch of State Bank of Patiala after Bathinda and Patiala.
RBI today permitted foreigners to carry up to Rs 10,000 beyond immigration desk to the duty free area in airports for miscellaneous expenditures, but they will have to dispose the Indian currency before boarding plane.
Rupee may see a sharp appreciation on the back of measures taken by RBI and government as the decline was largely driven by “fear trade”, analysts at Credit Suisse said.
TAPER, KIMONO, CATS……THE WORDS THAT MEAN BUSINESSClick on the picture below and find what you need to know
EXPERT VIEWBalanced and pragmatic
Given all the domestic and global cross-currents at play, RBI has done the best it could.
By Sajjid Chinoy, chief India economist, JP Morgan.
A SNEAK PEAK INTO THE WORLD OF FINANCETo know why government takes to ‘cattle class’ again, click on the slideshow below
TERM OF THE WEEKShadow Banking
· The term ’shadow banking system‘ was first used in 2007, and gained popularity during and after the 2008 financial crisis, as it highlighted the bank-like functions performed by entities outside the regular banking system.
· The more comprehensive definition, as adopted by the Financial Stability Board (FSB), i.e., ‘credit intermediation involving entities and activities (fully or partially) outside the regular banking system’ has been globally accepted.
· This definition has two important components:
o First, non-bank financial entities or entities outside the banking system that engage in the ‘bank like’ activities of maturity transformation, undertaking credit risk transfer and using direct or indirect financial leverage.
o Second, activities such as securitization, securities lending and repo transactions that act as important sources of funding for non-bank entities.· Thus, shadow banks comprise entities which conduct financial intermediation directly, such as finance companies or NBFCs, and entities which provide finance to such entities, such as mutual funds.
· Globally, shadow banking entities could be covered under the broad heads of (i) Money Market Funds, (ii) Credit investment Funds, Hedge Funds, etc. (iii) Finance Companies accepting deposits or deposit like funding, (iv) Securities brokers dependent on wholesale funding, (v) Credit insurers, financial guarantee providers and (vi) Securitisation vehicles.