Editorial
Season’s Greetings!
In this edition we have Mr. Amitabh Chaudhry – MD & CEO, HDFC Life, articulating his
thoughts on Indian Private life insurance and the way forward. We thank Mr. Chaudhry
for his contribution to the newsletter.
For this month, APAS column has focused on global slowdown and its impact on foreign
operations of Indian banks.
The economic indicators showed signs of growth. Manufacturing PMI rose from 51.1
in February to 52.4 in March. India’s core sector expanded by 6.4% in March. Index of
Industrial Production (IIP) for the month of February has risen by 2%. PMI services and
composite PMI were at 54.3% each, from 51.4% and 51.2% respectively in the previous
month. Inflation fell to 4.83% in March from 5.26 % (final) in February. WPI continued
to remain in the negative zone in March at -0.85% as compared to -0.91% in the
previous month. GDP for quarter 3 of 2015 is seen at 7.3%.
The Reserve Bank of India announced a scheme for providing financial assistance to
urban cooperative banks for implementation of core banking solutions. Also NBFC –
Microfinance institutions can act as channelizing agents for providing government
loans. RBI tweaked rules on bank fraud provisioning. First small finance bank Capital
Local Area Bank started its operations on 24th April 2016.
IRDAI released a notification amending registration of Indian insurance companies.
Financial year 2015-16 has been historic for the port sector in the country. National
Sagarmala Apex Committee approved National Perspective Plan on Sagarmala. Also RBI
issued a notification in the form of extant instructions on Infrastructure debt funds.
On the capital markets front, there is an amended guidance Note on SEBI (Prohibition
of Insider Trading) Regulations, 2015.
We hope that this newsletter is insightful and welcome your inputs and thoughts and
encourage you to share them with us.
Ashvin Parekh
Table of Contents
Guest Column
Mr. Amitabh Chaudhry – MD and CEO
– HDFC Life
APAS Team
Global slowdown: Impact on foreign
operations of Indian banks
Economy
IIP update – February
Inflation update – March
PMI update – March
Core Sector update – March
GDP update – Q3 2015-16
Banking Sector
Scheme for providing financial
assistance to urban cooperative
banks for implementation of core
banking solutions
NBFC – Microfinance institutions
can act as channels for Government
Loans
RBI tweaks rules on bank fraud
provisioning to ease burden
First small finance bank started its
operations
Insurance
Registration of Indian insurance
companies
Infrastructure
Major ports add record capacity in
FY 2016
Infrastructure debt funds
Capital Markets
Amendment of Guidance note on
SEBI (Prohibition of Insider
Trading) Regulations, 2015
Capital Market Snapshot
Economic Data Snapshot
Ashvin Parekh – Managing Partner, APAS
It is nearly sixteen years since the dawn of private life
insurance in India. Much water has flown under the
bridge during this period. Private insurers collectively
command more than half the market share in the
individual segment. New innovations introduced over
the years including products in the investment linked,
pension, term & health categories can be credited to
the private sector. The industry now manages a fairly
large AUM with large private insurers each having a
corpus of more than Rs.500 Bn.
The Journey So Far
The journey thus far has been more difficult than
anticipated by most market entrants. The early stage
growth phase with a light touch regulatory model was
followed up by a phase of intensive regulatory
involvement in all aspects of business right from
product design & pricing to distribution architecture,
expense management, etc. During the 2011-2015
period, most private insurers focused on getting what
was a distribution & reach focused business model
aligned to a model that focused on profitability &
efficient cost management. Hence, in real terms, the
industry saw a decline in new business premiums
collected during this period, partly due to regulatory
changes & partly due to economic headwinds. This
much needed transition however meant that
companies needed to be nimble, innovative and
frugal to achieve success in the market place.
There has been a steady, sustainable growth in the
revenues of private life insurers in the past year or so
and their market share has started to inch up again.
What lies ahead?
I believe the runway for growth is long and will
continue for many decades to come on the back of
demographic dividend, Government of India’s efforts
to improve financial inclusion & social security,
greater awareness, trends towards nuclear families,
longer life spans, etc. Opportunities to grow exist
Mr. Amitabh Chaudhry, Managing Director & CEO – HDFC Life
across protections, investments, savings, pension &
health segments.
I also believe that most of the regulatory changes
have already been implemented or are ones where
wider consultations are currently underway. Hence,
companies can now build their business strategies in
a relatively more certain environment.
The past few years have seen the number of agents
declining. The traditional agency channel has been
disrupted by interplay of technology & expansion of
bank branches. The bancassurance model slowly but
surely will shift to open architecture as the era
exclusive bank-insurer tie-ups comes to an end. At the
same time there are several emerging players such as
payment banks, small finance banks and other
ecosystems which can help grow the revenue pie for
life insurers. The ability to work with different kinds of
distributors will be key to success.
Even as the traditional insurance model continues to
service the mass market, there is an emerging breed
of DIY (do-it-yourself) customers who will research
online, buy online. It is important that these
customers see insurers as segment specialists and as
proactive provider of protection solutions. On the
savings & investments side, insurance products will be
expected to be as low cost as other financial products.
Building an exclusive suite of offerings for this growing
base of digitally savvy customers is going to be
extremely important.
Insurers will also need to change the insurance sales
process. Technology today allows insurers to create
advisory platforms which can do need based analysis
at an individual level. Adopting this will help improve
the conversion funnels and ensure that right selling
happens to the customer. Going by any metric, India
is clearly an under protected and under pensioned
society. Development and marketing of low priced
protection and health plans will help the market grow
exponentially. At the same time, as more household
savings shift to financial assets, wealth accumulation
instruments & annuities will also grow over multifold
the next few years.
Shareholders of Indian insurers have been a fairly
patient lot. Having invested in the early stage of
market development, they would start to seek returns
on their investments during the coming business
cycle. As regulations allow for 49% FDI & insurers get
publicly listed over the next few years, the life
insurance sector will also get greater visibility in the
public mind space.
I believe that the four key factors will differentiate the
winners from the also-rans in the coming years.
Building and offering a comprehensive platform to a
diverse set of distribution partners, investing in digital
leadership ahead of the curve, innovation in product
selling & introducing new categories and ensuring
economies of scale are four themes which reinforce
each other and will help insurers grow revenues
through enhanced reach, do it more efficiently &
become more customer centric.
I do believe the private life insurance sector is on the
cusp of a multi-decade growth era having set the
business model right over the past few years. But it
will not be a journey for the faint-hearted!!
In the past decade, many Indian firms embarked on
expanding their global footprint, taking an
opportunity to expand their horizons. The Indian
multinational companies expanded across diverse
sectors from pharmaceuticals to automotive, textiles
and engineering goods. The fundamental reasons
behind Indian companies acquiring business including
resource mining are to secure natural assets such as
mines, oil fields, intellectual properties, etc. and to
put up their presence in global markets. This truly
described the global aspirations of Indian companies.
Some of the examples of acquisitions made by Indian
companies abroad includes Tata group’s acquisition
of Corus (United Kingdom) in 2006. In addition, ONGC
acquired Imperial Energy corp. of UK and Tata motors
Ltd. acquired Jaguar cars, Land rover of UK in 2008,
Bharti Airtel acquired Zain Africa of Kenya and
Reliance industries acquired Marcellus Shale and
Eagle Ford shale gas field in 2010. In 2011, Indian
companies completed major deals in Australia’s coal
industry. Year 2015 saw various buyouts by Indian
drug makers. Out of which, Lupin Ltd.’s acquisition of
US generic-drug maker Gavis Pharmaceuticals Llc was
the largest.
Besides, M&A activity increased in 2014 with deals
worth US$ 38.1 billion, compared to US$ 28.2 billion
in 2013 and US$ 35.4 billion in 2012. There have been
M&A deals worth US$ 28.8 billion in the first 10
months of 2015. This activity witnessed an increase in
the inbound and domestic segments, which together
contributed over 80 per cent of the total M&A values.
Direct investments by Indian firms were US$ 1.85
billion in February 2016.
Indian bank's overseas branches saw robust growth
overseas of 36.5 percent in 2013-14. Total fee income
generated by 188 branches of Indian banks operating
outside India moderated to Rs 8,960 crore (USD 1.5
billion) in 2013-14 from Rs 9,350 crore (USD 1.7
billion) in 2012-13. UK, Hong Kong, UAE, Singapore,
Bahrain and the US were the major source countries
of banking services provided by overseas branches of
Indian banks. They accounted for 92.2% of the total
overseas services of the Indian players. Indian banks
operating overseas witnessed higher credit growth
than their foreign counterparts in India.
Towards the end of 2015, however the scenario
started changing. Several factors including reduction
of international trade, shrinking of global markets and
an element of protectionism seems to be in the air.
Even the large developed markets are looking inwards
and working towards closing their boundaries to
protect the home industry. Complex laws and
demanding regulations as well as the new order of
taxation of global income is now creating a new and
noticeable change. There are early signs of some
leading Indian companies are now planning to sell
their overseas investments to either repay debt or
exit low yielding businesses. A case in point is Tata
steel planning to sell off their UK steel plants, Reliance
Industries Ltd. has already sold its Eagle Ford shale oil
field in the US in June 2015 and Bharti Airtel Ltd. sold
close to 8,300 telecom towers in seven African
countries in October 2015.
In the above backdrop, let us analyze what the Indian
banking is likely to do. The banking sector in India
decided to participate in the above trend and by
around 2006-07, one of their major strategies was to
follow the corporates and expand their activities in
those markets where the corporates had decided to
invest or acquire businesses.
Suddenly towards the end of 2015 and the first
quarter of 2016, the strategy is under serious
reconsideration. With the Indian economy showing
sluggish growth in the 2011-14 era, the quality of the
banks’ balance sheets particularly in loan assets has
suffered substantially.
Now, for domestic credit, banks are becoming more
vigilant. As liquidity squeezes globally and the margins
in the markets where Indian banking put up a
presence are under pressure, Indian banking has no
option but to downsize its overseas presence.
Indian banks now seem to be facing new and complex
challenges in overseas markets in terms of regulatory
regime and restrictions on expansion opportunities.
Country's largest private sector lender ICICI Bank sold
its Russian subsidiary ICICI Bank Eurasia Limited
Liability Company (IBEL). The constant on-off US
liquidity coupled with euro zone problems has also
made the international borrowing market difficult for
banks.
In conclusion, the Indian banking will try to
consolidate its presence in the domestic market,
realize for their corporate investors who have
invested cross border as much of recovery proceeds
and downsize their overseas activities. One hopes
that, the journey of NPA management and improved
recovery will once again equip them to grow in the
global markets a few years down the road.
-APAS
IIP (Index of Industrial Production) – February
The industrial output in the country rose by 2% in
February after falling continuously for three
consecutive months.
The Index of Industrial Production (IIP) was boosted
mainly by a 9.6% rise in electricity generation and a 5%
rise in mining output. The manufacturing sector
showed marginal growth of 0.7% in February.
The cumulative industrial growth for the period April-
February of the financial year (2015-16) over the
corresponding period of the previous financial year
stands at 2.6%, slightly lesser than the 2.8% growth
registered for the same period in the previous year.
Among product categories, Office, accounting &
computing machinery registered the highest growth,
followed by Furniture. Electrical machinery &
apparatus on the other hand, continued to fall. Cable,
Rubber Insulated, and Stainless steel and apparels
contributed the most to the contraction in the index.
On the other hand, electricity, minerals and gems
and jewellery were the highest positive contributors
to growth. On the use based classification, capital
goods, considered a proxy of investment demand,
continued to contract sharply. This contraction has
consistently acted as the big drag on the
performance of the IIP Index.
On the demand side, consumer non-durables also
declined by 4.2% from 3.1% in the previous month.
Growth in consumer durables however increased by
9.7% after growing by 5.8% in January.
9.8
-3.2 -1.2 -1.5
2.0
Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
IIP (%YoY)
Quarterly evaluation of IIP
3.83
1.13
0.43
3.233.53
4.73
1.77
Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16
IIP
%
Quarter
IIP Trend Mining activity recovered during 2014-15 from a
three-year slump, buoyed by a sharp increase in
the production of coal. Weakness in consumer
spending, sluggish investment activity and poor
external demand operated as drags on
manufacturing activity during 2014-15.
During April - June 2015, however, the growth in
IIP decelerated mainly on account of a sluggish
performance in capital goods, electricity and
food products.
IIP has experienced a downfall from 3.83% in Q1
to 0.43% in Q3 (14-15) respectively. Further IIP
rose to the level of 4.73% in 2015-16.
Consumer Price Index - March
The Consumer Price Index (CPI) eased to a six-month
low of 4.83% in March from 5.26% in February
according to data released by the Central Statistics
Office.
Inflation was at 5.25% in March 2015. Food inflation,
the biggest component of CPI, eased to 5.21% in
March, down from 5.3% in February. Within the food
category, the pulses category registered the sharpest
rise at 34.15%. It was the only category that saw
double digit inflation.
Inflation eased in both rural and urban areas. In urban
areas CPI declined to 3.95% in March from 4.3% in
February. The corresponding figures for rural areas
were 6.05% and 5.7% respectively.
The annualized core consumer inflation, which
excludes energy and food prices, was estimated to
have eased to around 4.6-4.8% in March from 5-5.3%
in February.
Quarterly evaluation of CPI
4.4
4.6
4.8
5
5.2
5.4
5.6
5.8
Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
CPI
The inflation rate eased for the second straight
month, reaching the lowest figure since
September 2015 and compared to market
expectations of 5% as food prices rose at a slower
pace. Inflation Rate in India averaged 7.79% from
2012 until 2016, reaching an all-time high of
11.16% in November of 2013 and a record low of
3.69% in July of 2015.
CPI rose in December 2015, reaching the highest
since September 2014, in line with market
expectations.
For quarter 1 of 2015-16, CPI inflation remained
at 5.09%. Thereafter falling to 3.95% for Quarter
2.
Post that CPI inflation rose back to 5.34% in
quarter 3. It continues to be relatively high and
“sticky”, despite the sharp fall in commodity
prices globally, especially crude oil.
Even after a sharp rise in food inflation, CPI has
fallen from 5.34% in the Quarter 3 of 2015-16 to
5.26% in Quarter 4 of 2015-16 due to ease in rural
and urban inflation respectively.
8.117.38
4.97 5.22 5.09
3.95
5.34 5.26
Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16 Q4 15-16
CP
I %
Quarter
CPI Trend
WPI (Wholesale Price Index) – March
The annual rate of inflation, based on monthly WPI,
stood at -0.85% (provisional) for the month of March,
2016 (y-o-y) continuing being within the negative
territory as compared to -0.91% for the previous
month and -2.33% during the corresponding month of
the previous year.
This was driven by a year-on-year increase (2.13%) in
primary articles, steep fall in the fuel and power group
(-8.30%) and little change in manufactured products
(-0.13%).
The WPI basket weightages for primary articles
(largely food items), fuel and power, and
manufactured products stand at about 20%, 15% and
65%, respectively. Month-on-month, primary articles
fell -0.25% while fuel and power and manufactured
products rose 1.65% and 0.39%, respectively.
Quarterly evaluation of WPI
-2.5
-2
-1.5
-1
-0.5
0
Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
WPI
Wholesale prices in India averaged 7.36%
from 1969 until 2016, reaching an all-time
high of 34.68% in September of 1974 and a
record low of -11.31% in May of 1976.
During the first quarter of 2014-15, WPI
inflation stood at 5.8% as mainly food and
fuel prices were high. In the second and third
quarters of 2014-15, WPI inflation declined to
3.8% and 0.5% respectively. The WPI inflation
even breached the psychological level of 0%
in November, 2014 and January, 2015. The
decline was majorly caused by lower food and
fuel prices.
However in 2015-16, WPI has been in
negative zone for all three quarters ending
December 2015. It continued to remain in the
negative territory for quarter 4 of 2015-16
also. However, the graph has been moving
towards the positive region. The main cause
for this was a steep fall in fuel and power.
5.62
3.77
0.53-1.59 -2.47
-4.51
-2.18-0.88
Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16 Q4 15-16
WP
I %
Quarter
WPI Trend
PMI update
Service PMI – March
Economic conditions in India’s service sector
continued to improve in March. This was due to
increase in new business boosted output growth.
However, businesses still operated below capacity, as
backlogs declined for the second straight month and
at the quickest rate in seven years. On the price front,
both input costs and output charges rose at rates that
remained below their respective long-run averages
and were only modest.
At 54.3 in March (February: 51.4), the seasonally
adjusted Nikkei India Services Business Activity Index
recorded its joint-highest level since June 2014 and
pointed to a solid expansion in output. Sub-sector
data indicated that activity rose in five of the six
monitored categories, the exception being Transport
& Storage. Growth of manufacturing production also
gained strength, therefore contributing to a marked
expansion in private sector output.
The Nikkei India Composite PMI Output Index climbed
from 51.2 in February to a 37-month high of 54.3 in
March. Incoming new work in the Indian private
sector economy rose for the ninth month running and
at the fastest pace in over three years. Despite the
solid upturns in new business and output, the trend in
employment remained subdued. Job creation across
the private sector as whole was seen for the sixth
straight month, but the rate of growth remained
fractional overall.
Quarterly evaluation of Service PMI
Services PMI in India averaged 51.56 Index
Points from 2012 until 2016, reaching an all-
time high of 57.50 Index Points in January of
2013 and a record low of 44.60 Index Points in
September of 2013.
The rate of backlog depletion was sharp and
the most pronounced for the fourth quarter
ended March 2016, since March 2009.
The trend in employment showed little-
change through much of 2015-16. Except for
last July where hiring among service providers
was mild, a broadly stagnant labour market
was seen for the past two years. Input costs
across the private sector meanwhile rose at
the quickest rate in three months and charge
inflation likewise accelerated.
The average of Service PMI was seen rising
from third quarter ended December 2015 to
fourth quarter ended March 2016 (52.13 to
53.33). The main reason being sharper
increase in new business spurring activity
growth in service sectors.
Source: www.tradingeconomics.com
Manufacturing PMI - March
India’s manufacturing upturn gathered momentum in
March. Manufacturing PMI rose from 51.1 in February
to and eight-month high of 52.4 in March. There were
stronger inflows of new work.
With the improved domestic demand, producers
recorded an increase in new export business. These
positive developments encouraged companies to buy
more inputs, but workforce numbers were left
broadly unchanged.
On the price front, cost inflation accelerated, while
charges were raised to the greatest extent since
November 2014.
Production growth accelerated to the fastest since
August 2015, amid a stronger upturn in new business
inflows. The latest expansion was widespread across
the three monitored sub-sectors, with consumer
goods posting the quickest rate of increase. March
data highlighted a third successive monthly rise in
order books. This was associated with improved
demand from both domestic and external clients.
New business inflows increased at a solid pace and
one that was the most pronounced since last July.
Growth of new export orders was sustained, but the
rate of expansion remained slight. Buying levels
increased further in March.
Although quicker than in February, the rate of growth
was slight overall.
Quarterly evaluation of Manufacturing PMI
Manufacturing PMI in India averaged 51.93
from 2012 until 2016, reaching an all-time
high of 55 in June of 2012 and a record low of
48.50 in August of 2013. As a consequence of
rising purchasing activity, preproduction
inventories expanded.
The rate of accumulation was slight overall
and in line with those seen throughout the
current four-month sequence of growth.
Manufacturing PMI kept fluctuating for the
first two quarters of 2015-16. Further it
slowed down in the third quarter ended
December 2015. The average being 50.03 for
that quarter. However, the average for the
fourth quarter ended March 2016 rose to
51.53. The reason for this rise was expansion
of output at an accelerated rate. New orders
were also welcomed. There was an improved
demand from both domestic and external
clients.
Source: www.tradingeconomics.com
Core Sector Growth – March
India's infrastructure sectors clocked their highest
growth in 16 months in March 2016, with the index
for core industries climbing 6.4% for the eight sectors
— coal, crude oil, natural gas, refinery products,
fertilizers, steel, cement and electricity. These
sectors, comprising nearly 38% of India’s total
industrial production, had shrunk by 0.7% in the year-
ago month of March 2015.
This rise was mainly due to a sharp growth in the
output of cement, electricity, fertilizers and refinery
products.
Output in refinery products, fertilizer, cement and
electricity jumped by 10.8 per cent, 22.9%, 11.9% and
11.3% respectively in March.
However, crude oil and natural gas recorded negative
growth during the month under review. Coal
production grew by 1.7%, though at a slower pace
than 4.5% recorded in March 2015. Steel output, on
the other hand, grew by 3.4% as against (-) 6.5% in
March 2015. For the full fiscal, the eight core sectors
grew by 2.7% in 2015-16, down from 4.5% in 2014-15.
Monthly evaluation of Core Sector
There has been a continuous slide in core sector
growth from 6.7% in November 2014 to 2.4% in
December, 1.8% in January, 1.4% in February
and to a negative 0.1% in March. It continued
to remain in a negative zone in April. However,
it continued to expand for six months, before it
contracted in Nov 2015 to a negative 1.3%
mainly driven by a decline in steel production.
During April-December 2015 period this fiscal,
the output of these eight sectors slowed to a
1.9% growth from 5.7% growth in the same
period last fiscal.
From December 2015 onwards, core sector
output has grown from 0.9% to 6.4% in March
2016. This growth was due to increase in output
of electricity, cement, fertilizers and refinery
products. Also coal output was seen to increase
in December 2015 and January 2016 which led
to an overall growth.
1.83 1.45
-0.09-0.42
4.4
3
1.1
2.63.2 3.2
-1.3
0.9
2.9
5.76.4
Co
re s
ect
or
dat
a %
Month
Core sector Trend - Monthwise
GDP Q3 - 2015-16
The Indian economy expanded 7.3% year-on-year in
the last three months of 2015, slowing from an
upwardly revised 7.7% growth in the previous quarter.
GDP Annual Growth Rate in India averaged 6.04%
from 1951 until 2015, reaching an all-time high of
11.40 percent in the first quarter of 2010 and a record
low of -5.20% in the fourth quarter of 1979.
GDP at constant (2011-12) prices in Q3 of 2015-16 is
estimated at Rs. 28.52 lakh crore, as against Rs. 26.59
lakh crore in Q3 of 2014-15, showing a growth rate of
7.3%.
Industry analysis of advance estimates of National
Income, 2015-16
Agriculture, forestry and fishing sector likely to grow
by 1.1% as against previous year’s growth rate of (-)
0.2%. The growth in mining and quarrying sector
estimated to be 6.9% as compared to growth of 10.8%
in 2014-15.
The growth manufacturing sector is estimated to be
9.5% as compared to growth of 5.5% in 2014-15,
whereas Electricity, Gas, water supply and other utility
services sector estimated to grow by 5.9% as
compared to growth of 8.0%.
Construction sector estimated to grow by 3.7% as
compared to growth of 4.4% in 2014-15.
Trade, hotels, Transport & communication and
services related to broadcasting estimated to grow by
9.5% as compared to growth of 9.8% percent in Q3
2014-15. Financial, insurance, real estate and
professional services estimated to grow by 10.3% as
compared to growth of 10.6%.
GVA at basic prices for 2015-16 from this sector is
estimated to grow by 6.9% as compared to growth of
10.7% in 2014-15.
7.58.3
6.6 6.77.6 7.7 7.3
Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16
GD
P %
Quarter
GDP Trend
Scheme for providing Financial Assistance to Urban Cooperative Banks for Implementation of Core
Banking Solution
RBI had announced in its First Bi-monthly Monetary
Policy Statement 2016-17 dated April 5th, 2016 to
prescribe standards and benchmarks for Core
banking solutions (CBS) in Urban Co-operative banks
(UCBs) and provide financial assistance and
technology support through Institute for
Development and Research in Banking Technology
(IDRBT) to those UCBs who have partially
implemented CBS or are yet to implement CBS. The
related cost would be reimbursed to IDRBT.
As a part of the Memorandum of Understanding with
the State Governments on UCBs, RBI agreed to
provide IT support to the UCBs. In pursuance of this,
it facilitated submission of off-site surveillance data
on line by the UCBs by providing necessary technical
support and training to the staff of the UCBs.
The Scheme for Providing Financial Assistance to
Urban Cooperative Banks for implementation of Core
Banking Solution has been introduced.
UCBs which have not yet implemented CBS or
partially implemented CBS will be eligible for financial
assistance under the scheme. Those UCBs which are
under directions imposed under Section 35A of
Banking Regulation Act, 1949 (AACS) will not be
eligible. IDRBT will be the implementing agency.
Steps involved in implementation of the scheme are
prescribed. The migration to CBS will be designed,
developed and supplied by Implementation agency
(IA). The maintenance thereafter and change
requests will be handled by IA. Cost of the package
and the quantum of financial assistance that will be
received from RBI has also been stated.
NBFC-Microfinance Institutions Can Act as Channels for Government Loans
The Non-Banking Financial Company - Micro Finance
Institutions (NBFC-MFIs) (Reserve Bank) Directions,
2011 (the Directions) issued by Reserve Bank of India
(the Bank) vide Notification DNBS.PD.No.234/ CGM
(US) - 2011 dated December 02, 2011 are modified
from time to time.
The notification amending the Non-Banking Financial
Company-Micro Finance Institutions’ (NBFC-MFIs) -
Directions, 2011, has been enclosed. RBI allowed
NBFC-microfinance institutions to act as channelizing
agents for distribution of concessional loans under
special schemes of government agencies.
RBI stated that various government agencies that
provide loans to targeted socioeconomic sections of
the population had approached it to allow them to
use non-banking financial company-microfinance
institutions (NBFC-MFIs) to channelize such loans.
These loans are provided at concessional interest
rates. One of the eligibility criteria for loans granted
by NBFC-MFIs to be treated as 'Qualifying Assets' is
that the variance between the maximum and the
minimum interest rates charged should not exceed
4%. It has been decided that loans disbursed or
managed by NBFC-MFIs in their capacity as
channelizing agents for Central/State Government
Agencies shall be considered as a separate business
segment.
The NBFC-MFIs are hereby granted general
permission to act as channelizing agents for
distribution of loans under special schemes of
Central/State Government Agencies subject to
following conditions –
Accounts and records for such loans as well as funds
received/ receivable from concerned agencies shall
be maintained in the books of NBFC-MFI distinct from
other assets and liabilities, and depicted in the
financials/ final accounts/balance sheet with
requisite details and disclosures as a separate
segment,
Such loans shall be subject to applicable asset
classification, income recognition and provisioning
norms as well as other prudential norms as applicable
to NBFC-MFIs except in cases where the NBFC-MFI
does not bear any credit risk,
All such loans shall be reported to credit information
companies (CICs) to prevent multiple borrowings and
present complete picture of indebtedness of a
borrower.
RBI tweaks rules on bank fraud provisioning to ease burden
RBI has amended rules and released a notification on
provisioning pertaining to fraud accounts, giving
lenders leeway in making provisions. This move is
aimed at easing the burden of banks to provision for
frauds. RBI specified that while computing the
provisioning requirement, banks can adjust financial
collateral eligible under Basel-III norms available for
accounts declared as fraud account.
Under normal circumstances, banks should provide
for immediately when a fraud is detected. This
provision should be for the entire amount due to it or
amount for which the bank is liable (in case of deposit
accounts). But as per the notification, banks can
spread them over a maximum of four quarters,
commencing from the quarter in which the fraud has
been detected, to smoothen the effect of such
provisioning on quarterly profit and loss.
Where the provisioning spills over more than one
financial year (subject to four quarters), banks
would be required to debit "other reserves" by the
amount remaining un-provided at the end of the
financial year as credit for provisioning. Also, banks
should proportionately reverse the debits to "other
reserves" profit and loss account, in the subsequent
quarters of the next financial year. Banks also need
to disclose information on frauds.
First small finance bank started its operations
Punjab-headquartered Capital Local Area Bank
launched the country's first small finance bank on
April 24th, 2016, seven months after the Reserve Bank
of India(RBI) gave its in-principle approval for this
new type of banks.
Capital Small Finance Bank Ltd commenced
operations with 10 branches. Capital Local Area Bank
is one of the 10 companies that received the in-
principle licenses in September 2015, to set up small
finance banks, which are allowed to provide basic
banking services. They have 18 months to comply
with the rules and start operations.
The new small finance bank will operate seven days a
week, a practice that Capital Local Area Bank has
been following for 16 years. Capital Local Area Bank
has 47 branches in Punjab.
The Bank has pioneered in bringing modern banking
facilities to the rural areas at low cost. The bank is
focused on promotion of financial inclusion in the
area of operation by making services available to the
common man. Also the bank is providing efficient and
service oriented repository of savings to the local
community while reducing their dependence on
moneylenders by making need based credit easily
available. Features and achievements of the bank are
stated.
Registration of Indian Insurance Companies
Insurance Regulatory and Development Authority of
India made certain regulations in exercise of the
powers conferred by section 3, 3A and Section 114A
of the Insurance Act, 1938 read with section 26 of the
Insurance Regulatory and Development Authority
Act, 1999.
These Regulations may be called Insurance
Regulatory and Development Authority of India
(Registration of Indian Insurance Companies)
(Seventh Amendment) Regulations, 2016.
Various definitions and clauses stand amended. The
Registration Amendment Regulations have
introduced a number of key changes to the existing
IRDAI (Registration of Indian Insurance Companies)
Regulations 2000, including the following:
An applicant whose Form IRDAI/R1 has been rejected
by the IRDAI can now appeal to the Securities
Appellate Tribunal.
Requests for registration may now be made for life
insurance businesses, general insurance businesses,
health insurance businesses (exclusively) and
reinsurance businesses.
An applicant whose request has been accepted may
apply via Form IRDAI/R2 for a certificate of
registration. In cases where foreign direct investment
in the applicant is more than 26%, Form IRDAI/R2
must be accompanied by, among other things, a
certified copy of approval from the Foreign
Investment Promotion Board (FIPB), in accordance
with the Insurance Companies (Foreign Investment)
Rules 2015.
The manner of calculation of equity capital held by
foreign investors prescribed by Regulation 11 of the
Registration Regulations has been amended to state
that the number of equity shares held by one or more
foreign investors in an applicant will be calculated as
the aggregate of:
the quantum of paid-up equity share capital held by
the foreign investors, including foreign venture
capital investors in the applicant; and
the proportion of the paid-up equity share capital
held or controlled by the foreign investor either by
itself or through its subsidiary companies in the
Indian promoter(s) or Indian investor(s) as
mentioned above
However, this does not apply to Indian promoters or
investors which are banking companies or public
financial institutions.
Indian insurers which have already been granted a
certificate of registration for carrying out insurance
business in India must comply with the norms
pertaining to 'Indian owned and controlled' (for
further details please see "IRDAI issues guidelines on
'Indian owned and controlled'") within the period set
out by the IRDAI, as specified in Section 2(7A) of the
Insurance Act 1938.
New formats for Form IRDAI/R1 and Form IRDAI/R2
have been introduced.
Although all of the changes introduced by the
Registration Amendment Regulations will affect
entities proposing to operate as insurers in India, the
amendments made to Regulation 11 will, in all
probability, have the most lasting impact.
Interestingly, even before the amendments the
regulator's approach to calculating foreign
investment in an Indian insurer was to include no
foreign investment in the Indian promoter of an
Indian insurer where the foreign investment was not
made by a shareholder of the Indian insurer.
If this approach was altered, the existing structures of
some of the major Indian insurers would come under
scrutiny. However, Regulation 11 has been amended
to provide that the total foreign investment in an
Indian insurer will be:
the sum of the paid-up equity share capital held by
the foreign investor(s) (including foreign venture
capital investors) in the applicant; and
the proportion of the paid-up equity share capital
held or controlled by the foreign investor(s) either by
itself or through its subsidiary companies in the
Indian promoter(s) or investor(s) of the applicant
entity.
From a plain reading of the amended Regulation 11,
it appears that the IRDAI has adopted the approach
that the shareholding of a foreign investor in an
Indian promoter or investor will be considered when
calculating the total foreign investment in an Indian
insurer only if:
the foreign investor is a shareholder in the Indian
insurer; and
the foreign investor is also a shareholder in the Indian
promoter(s) or investor(s).
This amendment will undoubtedly be welcomed by
the insurance industry.
The Registration Amendment Regulations also
require a copy of the FIPB's approval to be provided
if the quantum of foreign investment in the applicant
entity is more than 26%. However, since the
publication of the Registration Amendment
Regulations, the Department of Industrial Policy and
Promotion has amended the Consolidated FDI Policy
2015, pursuant to which up to 49% foreign
investment in Indian insurers and insurance
intermediaries has been brought under the
automatic route. In view of these changes, it is
anticipated that the Registration Amendment
Regulations will be amended further in order to bring
them in line with the Consolidated FDI Policy 2015.
.
.
Major ports add record capacity in FY 2016 Union Minister of Shipping, Road Transport and
Highways Shri Nitin Gadkari has said that the
Financial Year 2015-16 has been historic for the Port
sector in the country, with 94 MTPA capacity added
through 34 capital investment projects which is the
highest in major ports history. National Sagarmala
Apex Committee (NSAC) approved National
Perspective Plan on Sagarmala.
Projects worth Rs 72,818 crore have been awarded
for ports modernization as well as new port/terminal
development. The Major Ports have increased their
operating profits from Rs. 3593 Crore in 2014-15 to
Rs. 4,268 Crore in 2015-16.
The minister said efficiency improvement has
lowered logistics cost for the trade, creating a
estimated benefit of about Rs 500 crore per year. The
forthcoming Maritime India Summit would be a game
changer. The port led development has potential for
direct employment generation for 40 lakh persons
while indirectly for 60 lakh persons.
India has 12 major ports - Kandla, Mumbai, JNPT,
Marmugao, New Mangalore, Cochin, Chennai,
Ennore, V O Chidambarnar, Visakhapatnam, Paradip
and Kolkata (including Haldia), which handle
approximately 61 per cent of the country's total cargo
traffic.
Infrastructure debt funds
The Finance Minister had in his budget speech for the
year 2011-2012 had announced the setting up of
Infrastructure Debt Funds (IDFs), which facilitated the
flow of long-term debt into infrastructure
projects. The Reserve Bank had vide its Press Release
dated September 23, 2011, issued broad parameters
for banks and NBFCs to set up IDFs.
RBI considered it necessary in the public interest and
on being satisfied that for the purpose of enabling the
Bank to regulate the credit system to the advantage
of the country, gave the directions vide notification
No.DNBS.233/CGM(US)-2011 dated November 21,
2011, in exercise of the powers conferred by sections
45JA, 45K, 45L and 45M of the Reserve Bank of India
Act, 1934 (2 of 1934). These directions were
.
known as Infrastructure Debt Fund-Non-Banking
Financial Companies (Reserve Bank) Directions, 2011.
These directions prescribed detailed guidelines on
the regulatory framework for NBFCs to sponsor IDFs
which are to be set up as NBFCs.
RBI issued a notification is terms of the extant
instructions. The notification said that IDF-NBFCs are
now allowed to raise resources through issue of
bonds of minimum five year maturity. On a review,
with a view to facilitate better ALM, it has been
decided in consultation with the Government of
India, to allow IDF-NBFCs to raise funds through
shorter tenor bonds and commercial papers (CPs)
from the domestic market to the extent of up to 10%
of their total outstanding borrowings.
.
Amendment of Guidance Note on SEBI (Prohibition of Insider Trading) Regulations, 2015
Guidance Note on SEBI (Prohibition of Insider
Trading) Regulations, 2015 (“PIT Regulations”) was
issued on August 24, 2015 under regulation 11 of the
PIT Regulations providing guidance to the market to
remove certain difficulties in the interpretation or
application of the provisions of the regulations.
It stated that buy back offers, open offers, rights
issues, FPOs, bonus, etc. of a listed company are
available to designated persons also, and restriction
of ‘contra-trade’ shall not apply in respect of such
matters.
Subsequently, the Securities and Exchange Board of
India (Issue of Capital and Disclosure Requirements)
Regulations, 2009 were amended with effect from
February 17, 2016 to provide for exit opportunity to
dissenting shareholders in terms of sections 13 and
27 of the Companies Act.
Hence the Guidance Note dated August 24, 2015 on
SEBI (Prohibition of Insider Trading) Regulations,
2015 has been amended to clarify that exit offer is
also exempted from the restriction on contra trade
under the PIT Regulations.
Sources: National Stock Exchange
Sources: Bombay Stock Exchange
Poor March quarter earnings from country’s largest
private sector bank ICICI bank and weak global cues
caused Sensex to end in month of April flat. F&O
contract expiry-Thursday for April saw Sensex closing
at 25,603. 10 points or 1.77 percent down. While
Nifty50 ended at 7,847.25 points down or 1.66
percent. The major reason for the fall can be
attributed to slowest pace of US GDP growth for 1st
quarter since 2014 at around 0.5 percent. Also,
markets reacted to Bank of Japan’s decision to keep
its monetary policy steady, despite Japanese
economy dipping into deflation for the first time since
2013.
Persistent foreign capital inflows boosted the rupee
value against the dollar to some extent .
Sources: APAS Business Research Team
Sources: APAS Business Research Team
Sources: APAS Business Research Team
7759
7614
7671
79157980
1-A
pr-
16
3-A
pr-
16
5-A
pr-
16
7-A
pr-
16
9-A
pr-
16
11
-Ap
r-1
6
13
-Ap
r-1
6
15
-Ap
r-1
6
17
-Ap
r-1
6
19
-Ap
r-1
6
21
-Ap
r-1
6
23
-Ap
r-1
6
25
-Ap
r-1
6
27
-Ap
r-1
6
29
-Ap
r-1
6
CNX Nifty (April-2016)
25400
24685
25146
2588025679 25603
1-A
pr-
16
3-A
pr-
16
5-A
pr-
16
7-A
pr-
16
9-A
pr-
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11
-Ap
r-1
6
13
-Ap
r-1
6
15
-Ap
r-1
6
17
-Ap
r-1
6
19
-Ap
r-1
6
21
-Ap
r-1
6
23
-Ap
r-1
6
25
-Ap
r-1
6
27
-Ap
r-1
6
29
-Ap
r-1
6
BSE Sensex (April-2016)
17.45
16.94 16.9516.35
0.00
5.00
10.00
15.00
20.00
25.00
Indian VIX (April-2016)
66.52
66.2966.42
66.68
66.40
65.60
65.80
66.00
66.20
66.40
66.60
66.80
67.00
4-A
pr-
16
6-A
pr-
16
8-A
pr-
16
10
-Ap
r-1
6
12
-Ap
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6
14
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6
16
-Ap
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6
18
-Ap
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6
20
-Ap
r-1
6
22
-Ap
r-1
6
24
-Ap
r-1
6
26
-Ap
r-1
6
28
-Ap
r-1
6
$/₹ (April-2016)
7.467.45
7.42 7.427.44
7.47
7.36
7.38
7.40
7.42
7.44
7.46
7.48
7.50
4-A
pr-
16
6-A
pr-
16
8-A
pr-
16
10
-Ap
r-1
6
12
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16
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18
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6
20
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6
22
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6
24
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6
26
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6
28
-Ap
r-1
6
GIND10Y (April-2016)
* The Economist poll or Economist Intelligence Unit estimate/forecast; ^ 5 year yield
Quarter represents a three month period of a financial year
Countries GDP CPI Current Account
Balance Budget Balance
Interest Rates
Latest 2016* 2017* Latest 2016* % of GDP, 2015* % of GDP,
2015* (10YGov), Latest
Brazil -5.9Q4 -3.6 0.6 9.4 Mar 8.3 -1.9 -5.4 12.9
Russia -3.8 Q4 -1.5 1.1 7.3 Mar 8.4 3.9 -2.2 9.12
India 7.3 Q4 7.5 7.5 4.8 Mar 5.2 -1.0 -3.7 7.44
China 6.7 Q1 6.5 6.2 2.3 Mar 1.7 2.8 -3.0 2.68^
S Africa 0.6 Q4 0.7 1.4 6.3 Mar 6.2 -4.1 -3.3 8.93
USA 2.0 Q4 2.0 2.2 0.9 Mar 3.0 -2.6 -2.5 1.79
Canada 0.5 Q4 1.6 2.0 1.4 Feb 1.5 -2.7 -1.4 1.34
Mexico 2.5 Q4 2.4 2.7 2.6 Mar 2.7 -2.8 -3.0 5.83
Euro Area 1.6 Q4 1.4 1.6 nil Mar 0.3 2.8 -1.9 0.17
Germany 1.3 Q4 1.5 1.6 0.3 Mar 0.3 7.7 0.4 0.17
Britain 2.1 Q4 2.0 2.1 0.5 Mar 0.6 -4.2 -3.6 1.56
Australia 3.0 Q4 2.5 2.8 1.7 Q4 1.9 -4.0 -2.0 2.56
Indonesia 5.0 Q4 5.1 5.3 4.4 Mar 4.7 -2.4 -1.9 7.40
Malaysia 4.5 Q4 5.5 5.4 2.6 Mar 2.9 2.7 -3.7 3.81
Singapore 1.8 Q1 2.8 3.4 -0.8 Feb 1.3 20.4 0.9 1.91
S Korea 3.1 Q4 2.6 2.7 1.0 Mar 1.3 7.5 0.5 1.81
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