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New Delhi , Mumbai, Bangalore, Kolkata, Chennai, Ahmedabad, Hyderabad, Chandigarh*, Pune* Monday, April 25, 2011 Vol.5 No.97` 3.00 24 PAGES

SENSEX 19,602.23 NIFTY 5,884.7 DOLLAR ` 44.36 EURO ` 64.68 GOLD ` 22,030 OIL $123.99

P rising open new markets requiresmuch more than offeringproducts at competitiveprices. Today, it requiresthe active support of governments for privatefirms. India has been alaggard in this respect while China has usedevery tool at its disposal tohelp its companies andhas leapt ahead.

This rankles much more when companies fromother countries stitchlucrative deals in South Asia and our firms canonly wring their hands indesperation.

On Sunday, the Uniongovernment took a step inrectifying the situation when commerce minister Anand Sharma announceda deal for a substantialbuyers credit package to

Bangladesh (Page 11) .This money will be used tofund development in thatcountry by spending it onproject-related importsfrom India.

Bangladesh should beseen as an experiment inthis respect. If this works well, it should be quickly scaled up both in Dhakaand elsewhere.

QUICK EDIT

Opening amarket

i i l il l r ir

Mint is also available for R5.50 withHindustan Times under a combo offer

r r i l

REGULATORY ACTION

MFsforcedtocompensateinvestors

B Y A N I R U D H L A S K A R &K AYEZAD E . A D A J A N I AMUMBAI

I ndias stock market regula-tor is contemplating actionagainst two multinationalasset management firms for al-

leged violation of norms gov-erning mutual funds (MFs), ac-cording to two persons with di-rect knowledge of the develop-ment.

We are examining the whole issue, said a Securitiesand Exchange Board of India(Sebi) official aware of the development.

In the first such instance inthe ` 7 trillion Indian mutualfund industry, Sebi has already compelled BNP Paribas AssetManagement India Pvt. Ltdand Deutsche Asset Manage-ment (India) Pvt. Ltd to com-pensate investors after it car-ried out an inspection in Feb-ruary.

BNP Paribas has been foundguilty of transferring lossesfrom one set of fixed-maturity plans (FMPs) to another, thusunfairly forcing losses on investors in the second set of schemes. Deutsche Asset Man-agement erroneously valuedsome assets in one of its debtschemes, leading to a shortfallin returns for investors.

The Sebi inspection foundthat in fiscal 2008-09 both thefund houses violated rules andcompromised the interests of investors.

BNP Paribas paid about ` 20crore and Deutsche paid near-ly ` 3 crore to the affected investors, said the second per-son mentioned above. Neither

of them wanted to be identi-fied, given the sensitivity of thematter.

Mint has reviewed a copy of the letter addressed to affectedinvestors by one of the assetmanagement companies.

Accounting violations arerare in the mutual fund indus-try as every transaction has tobe reported to Sebi and veri-fied by the auditors. The Sebispokesperson declined tocomment for this story.

The said payments weremade pursuant to a review of

valuation guidelines and ap-plication of such revisedguidelines to the investmentsin some of Fortis Fixed-TermPlans existing in early 2009 of Fortis Mutual Fund, a BNPParibas spokesperson said.The resultant valuation sur-plus was distributed recently to the investors in consultation with Sebi.

The episode occurred whenthe fund house was owned by adifferent entity.

BNP Paribas was originally formed as ABN Amro AssetManagement (India) Ltd. In2008, it was renamed FortisMutual Fund, and in 2010 wasrechristened BNP Paribas Mu-tual Fund. It has assets worth` 4,674 crore.

A Deutsche Group spokes-person in India denied any vi-olation of norms. We wouldlike to state that there has beenno violation of any mutualfund regulations by Deutsche Asset Management that has re-sulted in any losses to the investors in our debt schemes,the spokesperson said. All ourschemes meet Sebis as well asour stringent internal guide-lines.

On being asked about com-pensating the investors, thespokesperson said: We haveemailed you our response. Be- yond that, I cannot comment.

Deutsche manages ` 8,187crore in assets.

There are 41 asset manage-ment companies in the Indianmutual fund industry.

Sebi conducted inspectionsand found one AMC guilty of transferring certain assets un-der one set of FMP schemes toanother at a price higher thanthe actual market value then,one of the two persons said.

This was done through inter-scheme transfers, but it forcedinvestors in the buyer schemesto incur losses. In April, Sebiordered them to compensateinvestors. Both the AMCs havealready done so.

Sebi has tightened mutualfund norms extensively since

TURN TO PAGE 2

BNP Paribas, DeutscheAMC pay back investorsafter market regulatorfound they violatedmutual fund norms

Regulator pullsup Delhi airportfor high costof makeoverB Y T ARUN S H U K L [email protected] DELHI

D elhi airports $3 billionmakeover has resulted ingreat acclaim for Terminal 3 asa world-class facility. But thenewfangled modernity hascome at a steep price, whichmay be paid for by travellersfor several more years.

After an audit of the project,the regulator has criticizedDelhi International AirportPvt. Ltd (DIAL) for overshoot-ing the budget to more thantwice the initial estimate, notdoing enough to keep a curbon surging costs, keeping thecivil aviation ministry out of the loop and exceeding itsmandate on the amount of work it was supposed to do.

DIAL, comprising a GMR In-frastructure Ltd-led consor-

tium, completed the develop-ment of the airport in a record37 months that ended March2010. The airport was privatizedby the government in 2006. Themodernization cost shot upfrom ` 5,900 crore to ` 12,700crore in the same period.

About one-fourth of theproject cost is to be recoupedthrough passengers by direct

TURN TO PAGE 3

EARNINGS SCORECARDRiding on a 26.6% growth in sales, the 103 listed firms that have sofar declared their results for the March quarter reported a 25.86%rise in net profit, lower than the 29% increase in the previousquarter. Analysts say that though the earnings have largely beenin line with expectations, these are early days yet.

See Page 6

Net sales

Operating profit

Net profit

% change (year-on-year)Figures in brackets denotevalue inR crore



Decquarter

Decquarter

17.56(74,126.73)

0.19(15,989.32)

-38.73(8,846.53)

12.88(11,752.32)

6.66(11,101.17)

5.67(11,914.42)

41.81(12,545.67)

19.36(14,027.20)

21.39(13,475.19)29.50

(15,428.68)

29.06(16,191.80)

25.86(17,654.55)

10.34(17,855.42)

21.53(19,881.72)17.12

(21,477.94)

41.34(22,599.92)38.66

(24,757.55)

25.50(24,952.27)

26.70(27,211.65)

26.04(28,485.47)

20.69(29,878.85)

Mar

-1.72(66,623.05)

Jun

-11.20(72,416.19)

Sep

-1.42(92,886.15)

Dec

41.84(105,139.63)

Mar

63.15(108,694.60)

Jun

52.08(110,131.89)

Sep

23.88(115,069.08)

Dec

14.69(120,587.15)

Mar

26.59(137,599.49)

Source: CapitalineNet sales for banks has been considered as the sum of net interest income(interest earned on loans minus the cost of deposits) and non-interest income

Mar Jun Sep Dec Mar Jun Sep Dec Mar

FY09 FY10 FY11

FY:fiscalyear

FY09 FY10 FY11

FY09 FY10 FY11

Mar Jun Sep Dec Mar Jun Sep Dec Mar

Decquarter

SUCCESSION QUESTION

Sathya Sai Baba passes awayIrda to changerules forpension plansB Y A N I R U D H L A S K A R &S N E H A S HA HMUMBAI

Indias Insurance Regulatory and Development Authority (Irda) is set to change rules forpension plans that account forabout 30% of the life insuranceindustrys business, a top offi-cial said.

This may help the industry recoup business volumes thathave dropped sharply after theregulator imposed stringentguidelines late last year.

There was a representationfrom life insurers pressing onthe need for expanding therange of unit-linked pensionproducts, an Irda official said

on condition of anonymity.Various models are being worked out and we need to see what suits the companies best.Its a priority item and we willcome out with the revisedguidelines as soon as possi-ble.

Irda in June altered normsthat govern unit-linked insur-ance plans (Ulips)a hybridinsurance product that invests

TURN TO PAGE 3

B Y A NI L P E N N A & PT I

HYDERABAD

Sri Sathya Sai Baba, wor-shipped by millions as godincarnate and derided by de-tractors as a charlatan, died onSunday in Puttaparthi, AndhraPradesh, leaving behind a vastspiritual empire with estimat-ed assets of at least ` 40,000crore and no chosen successorto occupy his mantle. He was85.

Sathya Sai Baba is no more with us physically. He left hisbody at 7.40am due to cardiacand respiratory failure, theSathya Sai Super Speciality Hospital in Puttaparthi, 450kmfrom Hyderabad, said in astatement.

He had been admitted in the

facilitys intensive care unit on28 March with cardiac and re-spiratory complaints.

As Prime Minister Manmo-han Singh, Congress party president Sonia Gandhi andother influential personalitiescondoled Sai Babas death,Puttaparthi saw a spontaneousshutdown in mourning. About6,000 policemen had been de-ployed in Puttaparthi as devo-tees descended on the town af-ter hearing about the deterior-ating health of Sai Baba, whocounted presidents, primeministers, movie stars, cricket-e rs and bus iness leaders

among his followers. Andhra Pradesh chief minis-ter N. Kiran Kumar Reddy, whoflew to Puttaparthi, announcedfour days of state mourninguntil Wednesday for Sai Baba, whose last rites will be per-formed with state honours, de-scribing him as a symbol of love, affection and passion.His body was moved to his res-idence, Prasanthi Nilayam, fordevotees to pay homage.

Sai Babas death sparkedconcerns of a potential voidand a battle of succession inthe Sri Sathya Sai CentralTrust. Formed in 1972, it man-

ages a university, speciality hospital, religious museum,planetarium, railway station,airport and sports stadium inPuttaparthi, administers watersupply projects in drought-prone districts of Andhra Prad-esh and Tamil Nadu, runs edu-cational institutions and con-ducts health clinics across thecountry. The trust, with a pres-ence in 165 countries, acceptsonly cheque or cash donationsthrough banks, but details of its income and expenses areshrouded in a cloak of secre-cy, the Press Trust of India re-ported.

According to estimates, the value of the trusts properties,movable and immovable,could be anywhere between` 40,000 crore and ` 1.5 trillion,

the news agency said.I have spoken to the trustmembers, the chief ministersaid in Puttaparthi. The trustmembers have assured us thatall trust activities will continueto go on in the same way asthey are going on now. All of usbelieve Sathya Sai Baba stilllives with us. Only his body hasdeparted...They (trust activi-ties) will run in the same way as they are being run now.

Even if the trustees, who in-clude former chief justice P.N.Bhagwati, ex-Central vigilance

TURN TO PAGE 2

Wide following:Sathya Sai Baba.

PTI

Sathya Sai Baba1926 2011

OBITUARY

>Irdatolookintocostofregulation >P7

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INDEX OFCOMPANIESKey companies in Mint today.

INDEX OFPEOPLEKey people cited in Mint today.

Aegon Religare Life Insurance Co. Ltd 1,3Allsec Technologies Ltd ........................10Apax Partners Holdings Ltd .................10Aricent Inc .............................................10Axis Bank Ltd ........................................15Bain Capital Llc .....................................10Bank of India .........................................15Bennett, Coleman and Co. Ltd ................6Bhushan Steel Ltd ...................................7Blackstone Group LP .............................10Bombardier Inc. .....................................10

Cairn India Ltd .......................................11Carlyle Group LP ....................................10Claris Lifesciences Ltd ..........................10Container Corp. of India Ltd .................16Crisil Ltd ................................................10Delhi International Airport Pvt. Ltd ...1,3Dr. Reddys Laboratories Ltd ................11Engineers India Ltd ..............................1,3Essar Steel Ltd ........................................7Future Capital Holdings Ltd ...................6Future Ventures India Ltd ......................6GMR Infrastructure Ltd .......................1,3Gokaldas Exports Ltd ............................10Great Offshore Ltd ................................10Gujarat State Petroleum Corp. Ltd ........9HDFC Bank Ltd ........................................6HT Media Ltd ...........................................6Hero Honda Motors Ltd ........................10

IGate Corp. .............................................10Infosys Technologies Ltd ...................6,15Infotech Enterprises Ltd .......................10JSW Steel Ltd .........................................7Jindal Steel and Power Ltd ..................16KKR and Co. LP ......................................10Kobe Steel Ltd .........................................7Kotak Mahindra Bank Ltd .......................6Life Insurance Corp. of India ...............1,3Mahindra Lifespace Developers Ltd .......7Mahindra and Mahindra Ltd .................10Marico Ltd ..............................................10Mercedes Benz India Pvt. Ltd ................7Microsoft Corp. ......................................15Nathan Associates Inc. ...........................5Nestle India Ltd .....................................16Nippon Steel Corp. ..................................7

Oil and Natural Gas Corp. Ltd ................9Oriental Bank of Commerce .................18Pantaloon Retail (India) Ltd ...................6Patni Computer Systems Ltd ...............10Pfizer Inc ................................................11Pohang Iron and Steel Co. ......................7Reliance Industries Ltd ...................6,9,15Reliance Infrastructure Ltd ..................15SBI Life Insurance Co. Ltd ...................1,3Steel Authority of India Ltd ...................7Sumitomo Metal Mining Co. Ltd ............7TNT NV ..................................................10TVS Motor Co. Ltd ...............................1,2Tata Consultancy Services Ltd ...............6Tata Motors Ltd ......................................4Tata Steel Ltd ..........................................7United Technologies Corp. ....................10Vedanta Resources Plc ..........................11

Al Ahmar, Ali Mohsen .....................20,21Ali, Zine Al Abidine Ben ..................20,21Arjundas, Anita .......................................7Banerjee, Mamata ...................................4Bernanke, Ben ..................................15,20Bhagwati, P.N. ......................................1,2Bhave, C.B. ............................................1,2Biyani, Kishore ........................................6Dasgupta, Asim .......................................4ElBaradei, Mohammed .....................20,21Gadhafi, Moammar ..........................20,21

Gandhi, Sonia .......................................1,2Geithner, Timothy .................................20Giri, S.V. ................................................1,2Hasina, Sheikh .......................................11Hazarika, A.K. ..........................................9Jena, Shrikant .........................................4Jindal, Naveen .......................................16Johari, Nittin ...........................................7Kaul, Sanat ...........................................1,3Keswani, Patu ........................................11Khemani, R. Shyam .................................5Kumar, Dhanendra ...................................5Loder, Christopher .................................11Mathur, S.B. .........................................1,3Mitra, Abhik ...........................................10Mitra, Amit ..............................................4Mubarak, Hosni ................................20,21Mukherjee, Malay ....................................7

Mukherjee, Pranab ..................................6Narang, B.D. ...........................................18Narayan, J. Hari .......................................7Raju, Satyanarayana ............................1,2Rao, B.K. ..................................................9Reddy, B.V.R. Mohan .............................10Reddy, N. Kiran Kumar .........................1,2Saleh, Al Abdullah ............................20,21Saleh, Ali Abdullah ...............................20Sharma, Anand ...................................1,11Singh, Devinjit .......................................10Singh, Manmohan ...........................1,2,11Singh, Rahul ............................................5Sinha, Sanjay .........................................10Sinha, U.K. ............................................1,2Srinivasan, Venu ..................................1,2Stagg, Richard .......................................11

Sundaresan, S. .........................................9Tamara, Ram ............................................5

INDEX OFBRANDSKey brands in Mint today.

Axis Bank ...............................................15Citibank ..................................................18Coca Cola ...............................................15Dr Reddys ............................................11Infosys ...................................................15Lee Cooper ...............................................6Mercedes Benz ........................................7Infosys ...................................................15Microsoft ...............................................15Nestle .....................................................16Reliance .................................................15

Tata Motors .............................................4Wipro .....................................................18

Sebi forces MFs tocompensate investors2009. Among many moves, themost prominent was to scrapthe entry load or upfront com-mission paid to distributors forinvesting in a scheme. Sebislatest move to inspect schemesthat have been closed andforcing the AMCs to compen-sate the affected investors in-dicates that the regulator iscontinuing with its investor-centric approach under its new chief U.K. Sinha, who took over from C.B. Bhave on 18February.

FMPs are close-ended debtschemes that usually invest infixed-return instruments suchas certificates of deposit, com-mercial paper and bonds thatmature at the end of the FMPsterm. These plans typically

have a tenure of 90 days tothree years.Sebi allows FMP securities

to be sold at fair market value,provided the sale protects theinterests of unit holders.

For BNP Paribas, therecould be two critical viola-tions. Firstly, displaying an actof discrimination among investors by forcing losses onone set of investors to benefitanother set; and secondly, us-ing inter-scheme transfer tounfairly pass on losses to a setof investors, thereby beatingthe whole objective of inter-scheme transfers, said one of the two persons cited above.

Transferring assets fromone scheme to another at aloss and then concealing it is agross violation of Sebi norms,he added.

For Deutsche AMC, the vio-lation could be in the form of

FROMPAGE 1 breaching valuation policies,said the second person.

While buying or selling il-liquid debt securities, fundhouses value the scrips as perthe valuation matrix providedby rating agencies Crisil (Ltd)and Icra (Ltd), said the headof fixed income at a large do-mestic fund house.

If a fund manager antici-pates losses on certain debtpapers during redemption, hemay transfer the securities toanother scheme by way of in-ter-scheme transfers, he said,requesting anonymity. If themarket value of the securitiestransferred is lower than theprice a t which they werebought from another scheme,the investors suffer.

Such losses should be veri-fied in the accounts of the

AMC by its internal auditors.Some fund houses have a prac-tice of verifying all scheme-re-lated investments on a daily basis before cross-verifyingthem on a quarterly basis by another auditor, he said. If such losses are not accountedfor, it amounts to a serious vio-lation of Sebi norms.

P ro fi ts a nd l os se s o nschemes are recorded in therevenue accounts of AMCs. If profit on the sale of invest-ments shown in the revenueaccount includes profit or losson inter-scheme transfer of investments within the samemutual fund, the AMC needsto disclose the aggregate sepa-rately without clubbing theprofit or loss on sale of invest-ments to third parties. If this isnot done, it amounts to a vio-lation of Sebi norms.

In September-October 2008,

mutual fund houses faced re-demption pressure on FMPs when a liquidity crisis grippedthe financial system in the wake of the collapse of US investment bank Lehman Broth-ers Holdings Inc., forcing theReserve Bank of India to opena special window for mutualfunds.

Also, t i ll that t ime, fundhouses were allowed to indi-cate returns on FMPs and buy instruments having varyingmaturities, irrespective of thetenures of the FMPs. So, a one- year FMP could buy a bondthat would have matured after,say, two years. Additionally,FMP investors were allowed toredeem investments any timeduring the tenure of the FMPsby paying an exit fee.

To ensure that panic re-

demptions do not negatively impact existing investors as well as the FMPs health, Sebichanged the rules first in De-cember 2008 and again in early 2009 through a set of direc-tives.

The new rules banned FMPsfrom giving indicative yieldsand offering premature re-demption. FMPs were also toldto invest in instruments thatmatured in l ine with thescheme.

These rules not only ensuredthat the books of AMCs werenot hurt by any redemptionpressure, but also increasedtransparency for investors.

Sebi has also come out witha string of regulations for debtfunds, as well as several otherareas governing the mutualfund industry, including betterdisclosure.

[email protected]

Sathya Sai Babapasses awaycommissioner S.V. Giri andTVS Motor Co. Ltd chairmanand managing director VenuSrinivasan, name a person tohead the trust, it remains to beseen whether devotees will ac-cept the candidate, PTI said.

The trust itself has moved toscotch any speculation about a void following Babas death.

There is or will be no vacu-um and we firmly believe thatBaba will continue to guide thetrustees. The interests of theinstitutions are paramount, itsaid in a recent statement.

Contenders to succeed SaiBabas include K. Chakravar-thy, who quit the Indian Ad-ministrative Service in 1981and moved to Puttaparthi onthe gurus advice. He has beensecretary of the trust since1994. Sai Babas nephew R.J.

Ratnakar, son of his late broth-er Jankiram and an MBA, is an-other potential successoralong with Sathyajit, the per-sonal attendant of Sai Babasince 2002.

Sathyajit, who joined SatyaSai School at the age of five,completed his education fromthe Sathya Sai Institute of Higher Learning with an MBAdegree as a university topper.

Sai Baba, known to his fol-lowers as bhagwan (god), diedbefore the date he had himself prophesied. He had predictedthat he would live up to the ageof 96, when his successor would be born in KarnatakasMandya district.

The trust will go on as perits constitution, said J. EshwarPrasad, a Sai Baba devotee andformer judge of the Karnatakahigh court. As far as a spiritu-al successor is concerned, it

FROM PAGE 1 will happen as he predicted.Born Satyanarayana Raju in

Puttaparthi on 23 November1926, as a child Sai Baba wassaid to be unusually intelli-gent, known for his talent indrama, music, dance and writ-ing, and as a composer of po-ems and plays.

On 20 October 1940, at theage of 14, Raju declared him-self a reincarnation of the SaiBaba of Shirdi, whom he re-ferred to as my previousbody.

In his early years as a spiri-tual guru, he became famousfor producing holy ash andother objects from thin air and was reviled by critics and ra-tionalists, who called him asleight-of-hand trickster andcampaigned against him withmagic shows.

He wasnt spared scandal,including allegations of sexual

abuse that were denied by hisorganization. On 6 June 1993,an attempt was allegedly madeon his life by his close aides.Six inmates of Prasanthi Ni-layam were killed in the inci-dent, which stil l remains amystery. In more recent years,the humanitarian and philan-thropic work performed by hisorganization has been ac-knowledged even by those whoare not his acolytes.

I am not his devotee, but what I feel is whatever work the Baba has done for the pub-lic is exemplary, said Ra-ghuram Chowdhary, a farmerin Anantapur town. Makingavailable potable water indrought-prone villages of Anantapur district, setting upof medical facilities and edu-cational institutions definitely deserve appreciation.

[email protected]

SLIDESHOW

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mintwww.livemint.com MONDAY, APRIL 25, 2011, DELHI03

Leading the News

Irda to change rules

for pension planspart of the premium in equi-ties.

The changes, which cameinto effect from September, in-cluded the so-called linkedpension schemes that invest inequities and bonds, but there was no stipulation on thequantum of such investments.

In contrast, traditional plansinvest at least 50% in govern-ment bonds, 15% in infrastruc-ture instruments and the restin equity, bonds and other as-sorted money market instru-ments.

Irda had made it mandatory for insurers to offer a 4.5%guaranteed return on all linkedpension and annuity schemes.

The Life Insurance Council,a representative body of Indi-an l ife insurers, proposedsome changes to the regulatorfor pension schemes, said amember of the council.

Another Irda official said theregulator is likely to acceptmost of the suggestions. Bothdeclined to be named.

Under the revised guide-lines, the 4.5% guaranteed re-turn portion in a pensionscheme may no longer bemandatory.

Policyholders are likely to begiven options to choose from arange of pension productslinked to equity without a

guaranteed return, but holdingprospects of better return inthe long run.

There would be yet anotheroption where the insurers may be allowed to offer products with a guaranteed return of 4.5%, but with many riders, in-cluding health cover.

At present, to guarantee areturn of 4.5% in the long run, we need 30-year debt papers with a coupon of at least 7%, which are unavailable. Also,4.5% is a small guarantee andit doesnt appeal to customers, who are used to buying Ulips with hopes of higher returns,said the marketing head of aDelhi-based private life insur-er.

If a major portion of thepremium is allowed to belinked to equity, it will be easi-er for the insurers to offerhigher returns to policy-holders, he added.

The revised rules may allow insurers to link a higher pro-portion of the premium to eq-uity, said another person fa-miliar with the development.But the regulator may man-date the insurers to have atleast a certain portion of theirpension scheme portfolio un-der products with 4.5% guar-anteed return.

Both persons spoke on con-dition that neither they northeir organizations be named.

Irdas stringent norms keptmany firms from launchingnew pension products underthe new guidelines.

Of the 23 life insurance com-panies, only four Life Insur-ance Corp. of India , ICICI Pru-dential Life Insurance Co. Ltd ,SBI Life Insurance Co. Ltd and Aegon Religare Life InsuranceCo. Ltd have launched new plans.

These 23 life insurers haveassets under management of about ` 14 trillion. During thefirst 11 months of fiscal year2011, the new business premi-um of private insurers grew just 4% to ` 30,756.02 croreover the April-February periodof the previous year.

According to a March report

FROM PAGE 1 by Towers Watson, a global fi-nancial services research andconsulting firm, there has beena sharp reduction in businesssince the new rules came intoforce.

The private insurers...expe-rienced negative growth of about 34% over the period Sep-tember 2010 to February 2011compared to the same periodin the previous financial year,the report said.

Last year, we added nearly ` 2.65 trilliontotal premium.Going by thehistoric trend,this year thetotal premiumshould havebeen at least` 3 t ri ll ion,said S.B. Math-ur, secretary,Life InsuranceCouncil. But with theplunge in sales following thenew pension policy guidelines,the total premium could bemaximum ` 2.8 tril l ion by March end.

Following a high-profile reg-ulatory turf war on Ulips be-tween Irda and capital marketregulator the Securities andExchange Board of India, theinsurance regulator made anumber of changes in rulesgoverning the instrument.

To help policyholders pro-tect lifetime savings from adverse market fluctuations, itmandated insurers to offer a

minimum guaranteed returnon unit-linked pension plans.

It disallowed partial with-drawals in such pensions andannuity products during thepremium-paying period. Theinsurers were asked to convertthe accumulated fund valueinto an annuity at the chosenretirement date.

Under the new guidelines,policyholders are allowed to withdraw up to a maximum of one-third of the accumulated

value as alump sum atth e t ime of v es ti ng . I ncase a policy issurrendered,the money islocked up tothe vesting pe-r iod and no withdrawalscan be made.

Insurers ex-pect Irda to re-

lax these norms.The two-third annuitization

part will be relaxed under therevised guidelines as policy-holders want a certain amountof corpus in hand under any circumstances, an official of aMumbai-based private life in-surance company said. It canbe around 40% as allowed inthe new pension scheme, runby the Pension Fund Regulato-ry and Development Authority.

He, too , dec lined to benamed due to the sensitivity of the issue.

[email protected]

Under the revisedguidelines, the 4.5%guaranteed return

portion in a pensionscheme may no

longer be mandatory

Regulator pulls up Delhiairport for steep costslevies on airfare. DIAL has ask-ed the regulator for about` 3,500 crore in airport devel-opment fees.

Passengers are already paying` 200 on domestic tickets and` 1,300 on international flights asairport development charges, which would add to ` 1,800 croreby 1 March 2012.

DIAL has also asked for an ad-ditional ` 1,793 crore, of whichthe Airports Economic Regulato-ry Authority (Aera) has proposedto clear ` 994.5 crore so far. Aeramade its observations on thetechnical and financial auditdone by Engineers India Ltd(EIL) and consulting firm KPMGon the modernization.

The 179-page final audit re-port was made available this week on the Aera website.

Important stakeholders suchas the MoCA (ministry of civilaviation) and the AAI (Airports Authority of India) were not reg-ularly updated on cost overrun,the report said.

The DIAL board, which in-cluded members of the ministry and AAI, got to know of the costoverrun only by the time themodernization was near-com-plete, by way of the project costreport in March 2010. AAI has a26% stake in DIAL.

Prior approval of the board was not taken for an increase inGFA (gross floor area) by nearly 84,000 sq. m from that finalizedat the master plan stage.

The Aera report includes theaudits by KPMG and EIL.

EIL said IGIs Terminal 3 wason par with international stand-ards. However, the cost of theproject could not be contained

FROM PAGE 1

within their cost estimation pre-pared at the time of financialclosure.

A reason for the escalated cost was that design was being car-ried out in parallel with the mod-ernization and information wasnot available for this, EIL said.

The consulting firm alsopointed out that estimation, ne-gotiations and price reductions were done on a notional basis by DIAL.

Due to the high risk involvedin the project, the percentage of risk premium considered by theprincipal contractor and sub-contractor were also high, which were totally borne by the JVC(joint venture company, DIAL)resulting into further increase inproject cost, EIL said.

KPMG said some of the risk mitigation steps are not entirely compliant with internationalbest practices and at no stage was the project cost capped andthe risk of escalation shared withthe engineering procurementand commissioning (EPC) con-tractor.

There were no incentives andpenalties to enable better con-trol on cost by sub-contractors

in the project.EIL has recommended that infuture any variation in area, vol-ume and specifications in similar

projects should be approved by the aviation ministry or AAI be-fore being implemented. Thecost estimates should be ready with the developer beforehand,it said.

DIAL in a detailed responseargued the modernization proj-ect was completed within 37months, though a project of thisscale would have typically taken40-60 months.

The board was apprised of project cost on various stages of estimation. AAI and MoCA wereconstantly monitoring the proj-ect through an independent en-gineer, whose role and responsi-bility included design and areaoversight, a DIAL spokespersonsaid. The board had appointeda sub-committee on project cost, which in turn had appointed au-ditors to verify project cost. Thesub-committee found the projectcost as being satisfactory.

The ministry had a dedicatedcommittee that conducted quar-terly reviews of the moderniza-tion programme from 2006 tillthe airport regulator was set upin late 2009. An aviation expertsaid the report suggests this wasnot enough of a check.

Based on the reading of thereport, the ministry does notseem to have intervened at theright time, said retired aviationministry bureaucrat Sanat Kaul,referring to escalated costs andnew provisions made for allow-ing an airport development feeto be levied on passengers.

These are blank spaces andneed intense investigations, hesaid. From a public point of view, there seem to gaps whichneed to be answered.

Kaul said there was also aneed to have a through report onthe lessons from the public-private partnership in airports fol-

lowing the Delhi and Mumbaiprivatization programmes.There is a need to find out whatis happening in these projects.

Passengers wouldalready have paid` 1,800 crore by1 March 2012 as

development charges

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mint

THE WIDOWINGOF INDIALast week, two widows werebeaten to death in Ranila village in Bhiwani district of Haryana. They were allegedly murdered by the nephew of one of the deceased women,apparently because hesuspected the two to be in alesbian relationship.

There is more to the incidentthan just than the obvious disquieting facts: It happened inHaryana, which holds the dubious record of the worst child sex ratio in the country; it occurred in a state ruled by the Congressparty, a key proponent for womens rights; and apparently theincident happened in the presence of some of the villagers.

The incident, once shorn of its dramatic nature, highlights asocial problem, which so far we have preferred to ignore. Now,all of this may be about to change.

The countrys demography, with respect to gender, isundergoing a transition for the last three decades. What ishappening is that women have begun to outlive men. While theglobal norm is that women outlive men, in India it was, for ahost of reasons, reversed till about the mid-1980s. Initially thechange was incremental, but the trend has gradually accelerated. The 2010 census will in all likelihoodwhen thedetailed data is put outconfirm this enduring trend.

So what will happen now, assuming the practice of womenmarrying men at least 5-10 years older stays, is that there willbe more widows. So far, public policy has struggled to deal withthe problem of widowhood, often leaving it to society and itsprejudices. Documentary film-maker Pankaj Butalia showed usin his compelling documentary, Moksha (1993), the fate of theabandoned widows of Vrindavan and the devastatingconsequences for a society living in denial. The unsavoury episode in Haryana suggests that their fate can be worse.

The problem, if viewed in the present, may not seemalarming. True, but that is because at the moment, the Indianpopulation is very young60% estimated to be less than 35 years of ageand longevity is gradually improving as mortality

in higher age groups declines. Once the demographicdividenda phenomenon where thebulk of the population is in the working age grouphas beenharvested, the problem could be

acute, especially given the absolute numbers of Indiaspopulationcurrently estimated at 1.21 billion. We may still be20-30 years from the problem peaking.

The life expectancy tables put out by the office of the censuscommissioner are revealing. While the sex ratios at birth, dueto reasons well discussed, tend to be skewed against the girlchild, the gender balance corrects in later years when thebiologically stronger women start to correct this imbalance.

Given that women tend to marry older men, any comparisonof life expectancy across gender should factor for this. Accordingly, one has taken the benchmark of life expectancy for men at 60 years and 50 for women; the more pedanticamong us can do a fine tuning with a five-year gap, but will(have checked with a demographer) throw up a similaroutcome.

The life expectancy tables show that in 1970-75, 13.4% malesaged 60-plus years would survive, while the proportion wouldbe 21.3% of women aged 50-plus; in the period 2002-06, thesurvival proportion for the respective age groups for men was16.7%, and 26.9% for women.

Two distinctive trends stand out: One, both genders haveimproved their longevity. Second, the improvement in thesurvival rate of women is better than that of men, implying thatthe gap between the two demographies has widened.

This trend is unlikely to be reversed. What it then implies isthat we are potentially looking at, for the want of a betterphrase, the widowing of India. Is public policy prepared toaddress the issue? There is no visible action.

And, ghastly anecdotal tales such as the episode in Haryanasuggest that rural society is just not prepared to address theproblem or prefers to live in denial. The outlook in urban Indiacould be no better. Growing atomistic families means that thesocial back-up that came with joint families cannot be taken forgranted.

Like in the case of missing daughters (the abysmal, skewedchild sex ratio against girls), Haryana has, thanks to thedubious acts of some of its populace, once again served up afresh policy challenge to the country. The issue is whether agovernment so besieged in the short run and busy putting outpolitical fires would have the bandwith to address the problem.

Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics.Comments are welcome at [email protected]

ANIL PADMANABHANCAPITAL CALCULUSTo read all of Anil Padmanabhans earlier columns, go towww.livemint.com/capitalcalculus

mint COLUMN

NEWTHE

CENSUS 2011

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To read our earlier stories on Census 2011, go towww.livemint.com/census2011

INDRANILBHOUMIK/ MINT

IMPORT STATUS

Fertilizer contracts notenough to meet needs

B Y A MA N M ALIK

[email protected] DELHI

Indian companies have failedto contract diammoniumphosphate (DAP) and muri-ate of potash (MoP) in quanti-ties adequate to meet domesticneeds, despite the subsidy onnon-urea fertilizers having beenraised for the second time sinceFebruary,

Each year, India requiresabout 7 million tonnes (mt) of DAP and 6 mt of MoP, most of which is imported, either as afinished product or at an inter-mediate stagephosphoric andsulphuric acid or the raw mate-rial, rock phosphate.

Since March, Indian compa-nies have sought to import 1.8mt of DAP but there are no MoPimport contracts, officials said.

While the government has not yet notified the second upwardrevision, companies have been

informally allowed to importDAP and MoP at benchmarkedprices of $612 and $420 pertonne, respectively.

DAP is used in conjunction with or as a substitute for urea,and MoP is primarily used forcrops such as sugarcane andrubber.

Although less than a fourthof the total domestic consump-tion of DAP has been contractedfor import, weare confidentthat the coun-try will not beshort on phos-pha tic con-tent, said anofficial of thedepartment of fertilizers(DoF), on con-dition of ano-nymity. As forMoP, were not particularly con-cerned, as it is used primarily forcash crops.

Sudhir Panwar, a professor atthe University of Lucknow, disa-grees.

Potash is important for rootdevelopment in plants, and is,therefore, used in the sowingseason. Its non-availability would have an adverse impact

on c rops in reg ions withsub-normal rains, he said.Also, growth and developmentof almost all crops except pulses would be negitively impacted.

On 11 April, the Fertilizer As-sociation of India (FAI) said thatif international prices of MoPdid not soften, the industry would have to take a potashholiday, referring to a situa-tion where a particular com-

modity is notimported.

In 2010-11,the bench-marked pricefor DAP wasfixed at $500per tonne, andfor MoP at $370per tonne. Theinternationalspot price forDAP hovers at

$610-630 per tonne and for MoPat $400-430 per tonne.

In a 19 November notifica-tion, DoF fixed a subsidy of ` 12,960 per tonne for DAP and` 12,831 for MoP for 2011-12.This would have allowed privatecompanies to import DAP andMoP at or below the bench-marked prices of $450 and $350per tonne, respectively.

The government hasraised the subsidy

on non ureafertilizers twice

since February

As companies had failed tocontract the fertilizers at theselevels, in March the governmenthad raised the benchmarkedprices to $580 per tonne forDAP, and $390 per tonne forMoP.

As India subsidizes fertilizers,the procurement price is a func-tion of the subsidy the govern-ment offers on various catego-ries of fertilizers. Most importersfinalize contracts for the follow-ing fiscal by January or Febru-ary.

The issue of fixing the subsidy for decontrolled fertilizers hasgenerated much debate withingovernment circles. On 23 De-cember, Mint reported that ju-nior minister for chemicals andfertilizers, Shrikant Jena, hadcirculated an internal note argu-ing that the proposed procure-ment price be significantly re-duced from the $370 per tonnethat Indian companies are pay-ing this fiscal. Jena was of the view that the procurement pricefor MoP should not be higherthan $300-320 per tonne.

In an internal note that Mint reviewed, Jena asked the minis-try to determine whether inter-national suppliers of DAP andMoP are negotiating the Indiaprice through only one of themajor suppliers like Phoschemand Canpotex... If this is true, weneed to examine as to whetherthese arrangements in interna-tional trade are legal in the con-text of free trade practices, WTO(World Trade Organization)agreements, and anti-trust lawsof USA, and take appropriate ac-tion for derecognition of suchentities, wherever desirable.

Since March, Indianfirms have sought toimport 1.8 mt of DAPbut there are no MoPimport contracts

BENGAL POLLS

Heavyweights face off in Kharda constituencyB Y R O M I TA D ATTA

[email protected]

Three years ago, when Singur was on the boil, the Trina-mool Congress, West Bengalsmain opposition party, faced flak for leading a violent agitationagainst Tata Motors Ltd s Nanocar factory near Kolkata.

Amit Mitra, former secretary-general of industry lobby groupFederation of Indian Chambersof Commerce and Industry (Fic-ci), was no exception.

He described the political pro-tests against the proposed facto-ry as unfortunate, although hesaid governments shouldnt beacquiring land forcibly.

Since then, Trinamool Con-gress chief Mamata Banerjee hasrisen in popularity, thanks large-ly to her objections over land ac-quisition in West Bengal. Withher party becoming an impor-tant ally of the Congress in New Delhi, opinions have changedMitra now considers Banerjee asa person who has the vision toturn things around for the state.

Having shed Savile Row suitsand pinstripes to don Indias po-litical uniformwhite dhoti andkurta Mitra is one of the Trina-mool Congress key candidatesin West Bengals assembly elec-tion this year, pitted against thestates finance minister AsimDasgupta at the Khardah constit-uency on the northern fringes of Kolkata.

If he wins, and the Trinamool

Congress is voted to power, he isto become either the finance orthe commerce and industriesminister, said a Union ministerfrom Banerjees party, who didnot want to be named. He washandpicked by our leader longago to be one of the key minis-ters in her cabinet.

People thought my wife and I were eccentric when we decidedto return from the US in 1990,said Mitra, adding that he wastaking it a step ahead by trac-ing his roots in West Bengal.You and I have waited for34 years; the time has come togive democracy a chance in

West Bengal.Though Banerjee is excited at

getting people such as Mitra to join her partyhe even draftedthe partys manifesto, whichlooks more like a five-year busi-ness development plan than apolitical statement of pur-posehe wasnt given an easy seat.

Dasgupta has been winningfrom Khardah with about159,000 voters from 1987,and had in 2006 won by amargin of over 40,000 votes.

Though in the 2009general election, the tideturned and the Trina-

mool Congress led fromthe Khardah assembly constituency by at least1,400 votes, the constitu-ency has been expandedthis time under so-calleddelimitation to include some tra-ditional Left strongholds.

Even as Dasguptas supporterscrunch numbers to show he isthe favourite this time, too, Mitraseems unfazedhe is countingon the sweeping anti-incumben-cy wave and the states rocketingindebtedness to swing voteseven in the Left bastions addedto the Khardah constituency thistime.

For months, the TrinamoolCongress has been running apointed campaign against the fi-nance minister for what it callsthe profligate states outstand-ing debt of ` 1.9 trillion. But how does Mitra propose to tackle it if he gets to occupy the office of hiskey opponent?

The Centre, too, has facedhuge deficits, but we managed toturn around, said Mitra. Ben-

gal, too, can emerge fromthis crisis, but to do so itneeds a leader with vi-sion and a road map, who can convince thePlanning Commissionand the Centre to offer

more financial support.The Left Front, he al-leged, doesnt have the vision. We need short-term support initially,such as interest waivers,

but going forward we need togenerate more income to resolvethis crisis.

Mitra was referring to WestBengals poor tax-state domesticproduct (SDP) ratio which, atless than 5%, is one of the worstin the country. One of West Ben-gals key problems is its inability to shore up tax revenue, accord-ing to Abhirup Sarkar, professorof economics at Kolkatas Indian

Statistical Institute.The poor tax-SDP ratio indi-

cates people dont pay taxes inthis statethey get away by pay-ing the party in power, he said.The entire system is responsiblefor this situation, not just the fi-nance minister.

But Dasgupta knows from ex-perience that not too many peo-ple in Khardahlargely an in-dustrial neighbourhood wouldbe swayed by economic theorieshe and Mitra have learnt at for-eign universities.

So he points at the hundredsof small and medium enterprisesthat have mushroomed in hisconstituency and claims success

for the Left Front government forcreating jobs. There are some500 small and medium industrialunits along the Kalyani express- way, a nearby arterial road thatconnects Kolkata with North 24Parganas district, Dasgupta said,adding: Units like these dotKhardah, providing employmentto thousands of peoplethat is what matters most.

But alongside, many large fac-tories in the neighbourhood of Khardah have closed down, andthe Trinamool Congress has po-sitioned Mitra as one who couldbring life back to them, given hiscontacts in the industry.

Wooing voters:Trinamool Congress candidate Amit Mitra (left) campaigns in Kharda constituency, wherehe stands against state finance minister Asim Dasgupta of the Left Front.

INDIAVOTES

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mint

TELECOM TANGLE

Chandra asks for interim replacement on Uninors boardPT I


Unitech Wireless Ltd s chair-man Sanjay Chandra, ar-

rested by the Central Bureau of Investigation (CBI) in the wakeof second-generation (2G) spec-trum scam, has asked the tele-com firms board to appoint analternate director to deal with its

day-to-day affairs as an interimarrangement, real estate compa-ny Unitech Ltd said on Sunday.

Unitech Wireless is a joint venture between Unitech andNorways Telenor. Telenorholds majority stake in the tele-com venture. The company hadacquired licences to offer mo-bile service in 2008, which havecome under the scanner.

Telenor had demanded that

Chandra should resign from thechairmanship of Unitech Wire-less till the investigations into2G spectrum issue are over.

We would like to clarify thatMr. Sanjay Chandra has not re-signed, however in light of therecent developments in the investigations, he had already re-quested the Uninor (Unitech Wireless) board to appoint analternate director in his place

for dealing with company affairsin the near term, Unitech saidin response to a query by PTI .

One of Unitechs nomineedirectors will take over as thechairman of the board. This re-quest was sent a few days back,the company said.

It (Unitech) will continue tomonitor the situation closely and review the decision shouldthe need arise, the company

said, adding that the request (tonominate an alternate directorin place of Chandra) was sent afew days back.

Chandra and Unitech Wire-less have been named in thechargesheet filed by CBI as ac-cused in 2G spectrum scam.Chandra was arrested last week after the Special Court deniedbail to him along with other ac-cused.

Shortage of trained staff to hamper CCIwork: expertsB Y S A NGEE TA S INGH


Indias anti-trust regulator hasa tough task in hand to moni-tor mergers and acquisitions(M&As) given a severe shortageof trained personnel, expertssaid.

There are currently a handfulof people in the M&A team. Oncecases start pouring in, it will be very difficult for CCI (Competi-tion Commission of India) tohandle them, given the paucity of staff, said Rahul Singh, assis-tant professor, National Law School of India University, Ban-galore, who is currently on leaveand advising legal firms on com-petition law. Besides, how many of them have received the requi-site training to take on such cas-es, which are so complex in na-ture?

I dont think we are grossly under-staffed. We are recruitingand will soon have enough peo-ple, a CCI official said on condi-tion of anonymity. Besides,training is a constant process atCCI.

The commissions M&A divi-sion has 14 people and CCI hasaround 150 people in total, ac-cording to the official.

CCI was established in 2009 with a chairman and five mem-bers. It has started looking atcases of cartelization. Provisionsrelating to M&As were notifiedby the corporate affairs ministry in March.

The skill deficit is seen in theorders that the authority has giv-

en so far on issues relating tocartelization and abuse of domi-nant position, Singh said.

There are 50 closure ordersand four final orders, he said.The learning curve is going tobe very steep.

Five years ago, when CCI only had an advisory role on issuessuch as monopol ies andcartelization for lack of statutory backing, it commissioned astudy by the Indian Institute of Management, Bangalore (IIM-B)to find out how much staff wouldbe needed once it started func-tioning.

IIM-B suggested that CCI willrequire 240 people with degreesor experience in accounting, law,economics and company affairs.Over the next five years, thestudy recommended, the com-mission should have at least 480employees.

Such (numbers of) people arenowhere to be seen, Singh said.

Ram Tamara, director, Nathan Associates Inc. , agreed withSingh on skill problems. Com-petition law is a fairly significanteconomic legislation and com-plex in nature, which has to bedealt with extreme caution, hesaid.

In the US, the Federal TradeCommission (FTC) hires econo-mists having PhDs in industrialanalysis. Even if CCI does nothire economists of such calibre,does it have the provisions for in-stitutional training to economists which they hire, Tamara asked.

FTC looks into anti-competi-tive business practices in the US.

CCI chairman Dhanendra Ku-mar on Thursday said at a meet-ing with industry lobby groupsthat the commission is a work inprogress.

Everything from capacity cre-ation to fine-tuning of M&A reg-ulations will be taken care of, hesaid.

R. Shyam Khemani, formercompetition policy adviser to the World Bank Group, came to Ku-mars defence.

They are working on capacity creation, Khemani said. I would not say CCI has adequatenumber of staff, but they will begetting there.

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mintwww.livemint.com06 MONDAY, APRIL 25, 2011, DELHI

Corporate News

WHY THE DELAY IN NEWBANK LICENCE NORMS?

Indias banking regulator is yet to release draft guidelines onlicensing norms for new banks. Finance minister PranabMukherjee first announced the governments intention to allow aset of private firms in the banking space in his February 2010budget speech, surprising the Reserve Bank of India (RBI), which was till such time pushing for consolidation in banking. Morethan a year later, there is no sign of the draft rules even afterMukherjee said in this years budget speech that RBI would issueguidelines on new banking licences by 31 March.

This has not happened because the finance ministry is nothappy with the draft prepared by the central bank. It wants toomany changes.

RBI first prepared a discussion paper on the subject in Augustand sent the first draft guidelines to the ministry ahead of this years budget. But the ministry has not cleared the guidelines yet.It is pushing hard for the regulator to make some changesbigand smalland RBI is willing to accommodate some but not all. We dont know when the regulator will be in a position to releasethe draft guidelines.

Lets take a look at the suggestions of RBI. I have not reviewedthe draft guidelines prepared by the central bank, but from various sources who have direct and indirect knowledge of what itcontains, I understand that RBI is ready to allow big industrialhouses to set up banks if it gets the power to supersede boards of banks that are not being run properly.

It also wants the right to oversee the operations of thepromoting company and any affiliates that will have businessrelationships with the bank. This is being done through anamendment of the Act that governs banking in India. Mukherjeein his February 2011 budget speech promised the changes in the Act, and the proposed amendment to the Act was tabled inParliament during the budget session itself.

Currently, RBI does not have the power to dismiss a bank board, but under section 45 of the Banking Regulation Act, 1949, itcan force the amalgamation or merger of a bank with another,and force a reconstruction of the board to protect the interests of depositors, shareholders and employees.

RBI is also in favour of an industrial group setting up a holdingcompany to own the bank and other financial services companiesof the group, keeping the manufacturing and trading business outof it. This will help the Indian central bank regulate the groupbetter. The so-called wholly-owned non-operative holdingcompany, according to the draft, should be registered with RBI as

a finance firm and governed by aseparate set of prudentialguidelines.

Those industrial groups that will be allowed to set up banks will have strict restrictions onexposures to other group firms. The regulator is not comfortablegiving a licence to any industrial group that gets 10% of its incomefrom real estate or the broking business.

The minimum capital a new bank would need is pegged at ` 500crore, and the RBI paper that is lying with the finance ministry also insists that the new banks need to be listed within the firstfew years. Among other things, the draft guidelines outline how much the foreign shareholding should be in a new bank, and how fast the promoter needs to pare its stake from 40% to 15%, andsays rural branches should constitute one-fourth of the branchnetwork to ensure the spread of banking services.

Although the new private banks that have been functioning arerequired to have at least 25% of their branch network in rural andsemi-urban India, most have focused only on semi-urban centresand have ignored rural India. This time around, RBI does not want to take any chance, and it wants the new banks that will begiven licences to spread banking services in even remote andthinly populated villages.

I am told that the finance ministry is not comfortable with RBIssuggestions on paring the promoters stake within the first few years as well as capping the foreign stake. It also does not wantRBI to be bluntly saying that no industrial house with exposure tothe real estate sector will be allowed to set up banks, even thoughit appreciates the spirit behind it. Similarly, it is not very excitedabout the central banks insistence on rural banking and toughtalk on superseding bank boards.

I dont know when the finance ministry will finally give its greensignal. After its nodand necessary changesRBI will release thedraft guidelines, seeking public comments. It will take a few months more to prepare the final guidelines. And all applicationsseeking banking licences will be examined by an external groupbefore RBI considers them. I will not be surprised if we hearMukherjee in his February 2012 budget speech reiterating hiscommitment to allow new private companies to establish banks.

What is not clear is: why did RBI have to send the draftguidelines to the finance ministry? After all, its a mere draft, andit will be finalized only after receiving comments and feedback from various quarters. Couldnt RBI have gone ahead with thedraft guidelines and taken into consideration the governmentsfeedback before finalizing it?

There are various theories doing the rounds. One is theregulators reluctance to be solely responsible for drafting theguidelines for the most critical segment of the financial segment when the second-generation spectrum licensing scam is emergingas the largest political corruption case in India. For the samereason, the government also is not in a hurry to push new bankinglicences, many in Delhi say. The delay, it seems, is deliberate, andneither the government nor RBI is too keen to welcome a new setof private banks in a hurry.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint s deputy managing editor in Mumbai.Please email your comments to [email protected]

TAMAL BANDYOPADHYAYBANKERS TRUSTTo read all of Tamal Bandyopadhyays earlier columns, go towww.livemint.com/bankerstrust

MARCH QUARTER

Sales momentum continues,but profit growth moderates

B Y P R AM I T B HATTACHARYA & A S H WIN R AM ARATHINAMMUMBAI

Early results declared by Indian firms show thatprofit growth has mod-erated in the March quartereven as the momentum insales growth continues.

Profits of 103 listed firmsthat have so far declared theirearnings in the March quartergrew 25.8% on the back of a26.6% rise in net sales. Whilethe earnings declared so farhave largely been in line withexpectations, analysts say these are early days yet as mostcompanies are yet to post theirresults.

Among the 30 firms on thebenchmark Sensex index of theBombay Stock Exchange, only five have declared their earn-ings so far.

At least two Sensex firms Infosys TechnologiesLtd and Indias most valuablefirm Reliance Industries Ltd(RIL)have disappointed themarkets.

In the case of Infosys, guid-ance for earnings in fiscal 2012 was below Street expectations,and the stock has been ham-

mered down 12% since it de-clared its results on 15 April.

Its listed peer, Tata Consul-tancy Services Ltd (TCS) saw a49% growth in profit, in line with expectations. Infosys andTCS are Indias two largestsoftware exporters.

The 14.1% profit growth of RIL missed Street consensusestimates, and operating mar-gins in i ts petrochemicalsbusiness fell below expecta-tions.

Banks led by HDFC BankLtd, w hi ch p os te d a 3 3%growth in prof-it, have largely been in l ine with expecta-tions.

These arestill early days,and there is nosecular trend.T he r es ul tshave beenmixed, saidHarendra Ku-mar, head of research at ElaraCapital Plc . While Infosys dis-appointed, other IT (informa-tion technology) companieslike TCS and HCL Technolo-gies (Ltd) have done well.

Typically, brokerages coverat most 200 of the biggestfirms. Of the 103 firms thathave declared earnings, lessthan 15 are covered by ana-

lysts.The earnings season is sig-nificant as it comes on theback of a pull-back in the stock

market. After underperformingits peers for over three months,Indian markets have bouncedback in the past month.

The Sensex has moved up9.8% in line with other Asianpeers on the back of risingfund flows to emerging mar-kets. India has seen net foreigninflows of $1.3 billion ( ` 5,579crore) this year so far, higherthan any other equity marketin Asia excluding Japan, ac-cording to Bloomberg data.

However, concerns ongrowth and earnings, which

have broughtdown stockssince the starto f t he y ea r,stil l remain.The ability of companies top as s o n i n-creases in raw material , in-terest and wage costs willbe keenly

watched by analysts to deter-mine the extent of downgradesin their estimates of profitgrowth in fiscal 2012.

So far, it is only banks andIT firms that have declaredearnings. We have to see how manufacturing firms fare inprotecting their margins, saidRajesh Iyer, head of researchat the wealth management arm

of Kotak Mahindra Bank Ltd .Economists have downgrad-ed Indias gross domesticproduct growth estimate for

fiscal 2012 to 7-8.5% from8.5-9.5% earlier, citing slow pick-up in capital expenditureand high inflation, whichcould lead to higher-than-an-ticipated rate tightening.

Wholesale Price Index datafor March released last week show inflation rose higherthan expected at nearly 9%.The Reserve Bank of India(RBI) has raised its policy rateseight times since March 2010to 6.75%, but real interest ratesremain negative.

Analysts say many of themacro concerns have beenpriced in, and unless there is asharp rate tightening by RBI,markets may not see a majordecline.

Elara Capitals Kumar said while there might be 2-3%downward revisions after thecurrent earnings season, mar-kets would not be affectedmuch.

We might see downgradesin profit expectations for fiscal2012 by 2-3%, but even then,earnings for large caps wouldgrow by over 17%, said Ku-mar. Things could turn out tobe different if RBI starts tight-ening aggressively.

Other than the earningsnumber that listed firms aredeclaring now, it is the level of crude oil prices and RBIsmoves that would determine

the extent of change in themarkets expectations on cor-porate earnings growth.

[email protected]

Profits of the 103 listedfirms that have so fardeclared results grew25.8% on the back of a26.6% rise in net sales

STOCK LISTING

Future Ventures IPOmay involve long waitfor returns: analystsB Y P R AM I T B HATTACHARYA

[email protected]

The initial public offer (IPO)of Future Ventures IndiaLtd , a venture capital (VC) firmfocusing on the consumptionsector, is a unique investmentopportunity but one that mightinvolve a potentially long waitfor returns, analysts say.

Future Ventures will sell 750million shares from Monday andhas priced its IPO at ` 10-11 pershare. The around ` 750 croreshare sale is the first public of-fering above ` 300 crore pricedat par in at least five years, ac-cording to data from Capitaline.

This is the first listing by a VCfund in India, and the proceedsof the issue will be used to ex-pand existing subsidiaries as well as to finance new acquisi-

tions in the fashion, food pro-cessing, retail and rural distri-bution sectors. In effect, thecompany will use the proceedsto fund its expansion plans inthe consumption space.

While the lack of any compa-rable listed peer makes it an in-teresting offer, the absence of atrack record in managing itsbusinesses profitably makes Fu-ture Ventures a risky proposi-tion. The record of the promot-er, Kishore Biyani-led FutureGroup, in Indias capital mar-kets could also make some investors cautious.

Pantaloon Retail(India) Ltd ,

the flagship company of the Fu-ture Group, had made promisesabout opening new stores andgiving dividends during its IPOin 1992, which it could not fulfilin the promised time-frame, thered herring prospectus filed with the regulator shows. Panta-loon Retails stock traded below its offer price for close to seven years after an initial listing pop.

In 2008, Future Capital Hold-ings Ltd was offered at ` 700-765 just ahead of the market slump.It has fallen 78% to ` 164 sincethen.

Biyani told reporters he wasaware of the losses investorssuffered in that offer and wasmaking amends by selling Fu-ture Ventures shares at par.

The financials show why thecompany has not priced itsshares at a premium. On a con-solidated basis, Future Ventures

is making losses, its cash flowsare negative, and a number of its business ventures are yet tobreak even. According to theprospectus, half the venturesfloated by it, including most of its subsidiaries, were makinglosses as of December.

Citing poor earnings visibility and the lack of exit routes in theshort run, Deepak Tiwari, an an-alyst at Mumbai-based broker-age Kisan Ratilal Choksey Shares and Securities Pvt. Ltd ,advised investors to avoid theissue in a 21 April note.

Since the company will keepon acquiring new entities in

their nascent stage or early-growth cycle, consolidatedearnings may be subdued due tothe accumulated losses, Tiwari wrote.

VC funds typically take sever-al years to incubate and developa venture, which is why it may not be the ideal investment plat-form for a retail investor, said Vikram Uttamsingh, executivedirector and head of private eq-uity at consulting firm KPMG.

While for institutional inves-tors, a venture capital might bea good opportunity to spread its

investments out, for a retail investor, this might be a high risk-high reward investment for which he may not have muchappetite as such investments involve a long gestation period,Uttamsingh said.

The company managementsaid it plans exits from invest-ments through IPOs of subsidi-aries or by finding institutionalbuyers. It would take several years to grow profitable busi-nesses, establish a track record,and then make public offerings,analysts say. As many as 36 of the 48 Future Group companieshave made losses in the past

three fiscals.The unique model of Future

Ventures may find institutionalbackers though, given its suc-cess in managing brands suchas L ee C oope r a nd IndusLeague. Although its mettle inthe packaged consumer goodssector, an intensely competitiveindustry, remains untested, theFuture Group has tasted successin retail. Pantaloon is the big-gest listed retailer in terms of turnover today.

Future Ventures is valued at1.1 times its book value, which

appears attractive. However,goodwill, an intangible assetused for accounting adjust-ments, accounts for 41% of itsnet worth of ` 738 crore. Adjust-ing for goodwill, the company is valued at 2.7 times its book val-ue.

Bennett, Coleman and Co.Ltd (BCCL) has a 12.1% stake inFuture Ventures. BCCL, pub-lisher of The Times of India andThe Economic Times , and HTMedia Ltd , which publishes TheHindustan Times and Mint , arecompetitors.

Sujan Bandyopadhyay con-tributed to this story.

mint COLUMN

Concerns on growth,earnings, which havebrought down stockssince the start of the

year, still remain

Track record:Future Group promoter Kishore Biyani.

HEMANTMISHRA/ MINT

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GROWTH STRATEGY

Mahindra Lifespace looks beyondMumbai, plans low cost housingB Y M A D H U R I M A N ANDY

[email protected]

Mahindra Lifespace Devel-opers Ltd , the real estateand infrastructure arm of theMahindra Group, is looking at anIndia growth strategy throughfresh land purchases and is eye-ing new segments such as rede- velopment in Mumbai and low-cost housing.

For 2011-12, MahindraLifespace seeks to deploy around` 200 crore on strategic land ac-quisitions for projects that will

largely focus on residential development.The realty firm, which has fo-

cused on housing developmentin Mumbai so far, apart from itstwo ongoing special economiczone (SEZ) projects under theMahindra World City concept, will also look at markets such asBangalore.

We would like to be presentin at least 8-10 cities, though wehave seen real estate firms havenot found it easy to do pan-Indiadevelopment, managing direc-tor and chief executive Anita Ar- jundas said. However, we be-lieve that we would be able to

manage it with the help of ourprofessional, corporate struc-ture.

In the coming quarters, Mahi-ndra Lifespace will launch maid-en residential projects in Hy-derabad and Nagpur. It will alsolaunch projects on land that itbought in recent months fromother group firms in Pimpri, nearPune, and Ghatkopar, a Mumbaisuburb.

As a mid-term strategy, Arjundas saidthe firm is look-ing at the ` 10

lakh category of budget housesand research-ing the seg-ment.

We are alsoin negotiationsfor two housing redevelopmentprojects in suburban Mumbai asa testing ground. Depending onhow it goes, we may do moresuch projects, she said.

For the quarter ended 31March, Mahindra Lifespaceposted a 30% rise in net profit to` 103.05 crore from the year ear-lier. Its debt-to-equity ratio was0.4.

The company, along with itssubsidiaries, sold residentialunits worth ` 700 crore in thesame period, 19% up from a yearago. The corresponding areasold this year is 1.41 million sq.ft, compared with 1.22 millionsq. ft the previous year.

A February report by MotilalOswal Securities Ltd said thatalong with its two SEZs in Chen-

nai and Jaipur,MahindraLifespace is alsoacquiring twomoreSEZs1,000

acres in northChennai and3,000 acres nearthe Mumbai-Pune express- way. The com-pany has paid

an advance of ` 130 crore.We expect clarity on these ac-

quisitions to emerge in six months, said analysts SiddharthBothra and Sandipan Pal in theirreport. While it has ongoing SEZprojects at Chennai and Jaipur with 4,550 acres area, its projectpipeline comprises four attrac-tive integrated development projects of 6,500 acres.

WORK IN PROGRESS

Indian steel supplierslag racing auto sales

B Y R U C H I R A S I N G H


Although demand for au-tomobiles is surging inIndia, steel makers arelagging behind in supplyingspecial auto-grade steel tomanufacturers, making neces-sary ever-increasing imports.

Indias automobile sector isseeing sales rising by 12-14% a year, and changing trends andgreater safety requirementsmean they need more of high-tensile, light-weight and corro-sion-resistant steel.

Primary steel manufacturerssupply about 6 million tonnes(mt) of flat steel products tothis sector, including somehigh-tensile steel from theirtotal output of about 70 mt, butaround 1-2mt of high-tensilesteel, mostly for critical autocomponents, has to be import-ed.

While steel companies havetied up with foreign firms toget the necessary technology to boost production of suchsteel, experts say it will take afew years for the ventures to befirmly established. Till thattime, to fill the gap, auto-gradesteel imports could increase.

Auto steel needs high tech-nology and right equipment. All that is happening, but it will take more time, said Nit-tin Johari, chief financial offi-cer of BhushanSteelLtd , which was one of the first to make au-to-grade steel in 1997 under atechnical collaboration withSumitomo Metal Mining Co.Ltd of Japan.

Till the time more capaci-ties are added, there could bemore imports. It could rise to3-4mt, Johari said.

Even though car sales have

been strong in the past several years, for steel makers, cater-ing to this industry is still a work in progress.

JSW Steel Ltd and JapansJFE Steel Corp. announced atechnical collaboration in 2009for automotive steel produc-tion.

There are different grades.Some we are starting to pro-duce right away. Gradually it will be ramped up, said Jayant Acharya, director, commercialand marketing at JSW Steel.

Tata Steel Ltd and JapansNippon Steel Corp. signed a joint venture agreement inJanuary for production of 600,000 tonnes a year of auto-motive cold-rolled steel atJamshedpur, in a project cost-ing approximately ` 2,300 croreand expec ted to come onstream in 2013.

State-run Steel Authority of India Ltd (SAIL) has an agree-ment with Japans Kobe SteelLtd and South Koreas PohangIron and Steel Co. (Posco), butspecific plans are yet to beshaped.

Why has Indias steel indus-try, the fifth largest in the world, been slow in keeping up with this trend?

Experts say steel companieshave been caught up with theusual difficulties surroundingmining and setting up of plantsinvolving difficult regulatory approvals and social issues,and foreign technology has notbeen easy to come by.

Earlier, the Japanese andthe Koreans were c lose ly

guarded. Now they have real-ised Indian companies wouldneed the technology, especial-ly as auto makers of their na-tionality are here, said Man-ish Pande, regional director atCRU Strategies, a metals, min-ing and power consultancy.

Besides, what has made In-dian steel makers cautious investors are the fast-changingnature of trends in the car in-dustry and fears of a downturnin the demand for cars.

All of us are looking at au-tomotive as a market. All of us

are looking at investments. Buthow has the auto sector per-formed? In the US, the autosector drove steel to bankrupt-cy, Malay Mukherjee, chief executive officer of Essar SteelLtd , said at the Indian SteelMarke ts conference las tmonth.

Essar Steel, too, is gettinginto automotive steel with anagreement with Japans Kobe.

Primary steel makers alsofear getting out-priced by nim-ble secondary producers orcheap foreign producers. Tocounter these, they need heavy investments in research anddevelopment.

Demand keeps comingfrom the auto side to invest re-sources in steel making, saidNarendra Chaudhary, a steelconsultant who has worked for ArcelorMittal and SAIL. Fun-damentally that means morelightweight steel but with thesame strength and prefabricat-ed parts. All this means costsfor steel makers.

But in the long run, the steelindustry is expected to cope with the increased demandfrom auto makers, expertssaid. Steel makers should beable to address their concerns with their alliances with for-eign companies, said AshishUpadhyay, associate director,Fitch Ratings, who ruled outany possibility of profitability being hurt by any increase inimports.

India is still the low-costproducer, and firms have cap-tive mines. Anti-dumping du-ties can also come into play,Upadhyay said.

But some demand for premi-um and highly specializedsteel would continue to be im-ported in the foreseeable fu-ture.

We locally assemble the C,E and S class cars at our plantat Chakan. Being an assembly

plant, we import kits fromabroad, which are then assem-bled at our plant, said ManasDewan, general manager, stra-tegic planning and corporatecommunications at Mercedes-Benz India Pvt. Ltd .

To become a full-fledgedmanufacturing organization,there needs to be significantincrease in volumes to justify the investments, he said. Inthe short and mid term, we donot foresee see an increase in volumes to justify completemanufacturing.

Tie ups with foreignfirms for tech upgrademay take time to makeheadway; to fill the gap,imports could increase

IMPACT ON INDUSTRY

Irda to look intocost of regulationB Y R EMYA N A IR


Indias Insurance Regulatory and Development Authority (Irda) is planning to commis-sion a study to calculate thecost of its decisions on insurersand the subsequent impact onthe cost of insurance policies.

In the past year, insurancecompanies have had to incurhigher costs as Irda asked forhigher disclosure require-ments, brought in large regula-tory changes in products, andtightened distribution norms.

The regulator wants to know if the cost of regulatory burdenhas become heavy or haseased, said J. Hari Narayan,chairman,Irda.

There havebeen attemptsdone in othercountriesno-tably in Aus-tralia Other jurisdictionshave also donei t, he said.We need toimprove uponth e kind of concepts andfind how bestto me asur ethat.

Last year, Irda said compa-nies have to make quarterly disclosures, including seg-ment-wise reporting of busi-ness figures.

In addition, it changed rules

governing unit-linked insur-ance policies (Ulips)a hybridproduct that invests part of thepremium in equities. Life in-surance companies had to re- work their entire unit-linkedproduct offerings and offer acompletely new set of Ulipsfrom September. At that time,Ulips constituted around80-85% of the business of lifeinsurance companies.

Insurers also incurred costsover strengthening accountingteams, reworking productstructures, training sales

teams, reprinting brochuresand working out new advertis-ing strategies.

Alpesh Shah, partner and di-rector, Boston ConsultingGroup India, said that by cal-culating the cost of the regula-tory burden, Irda can ascertainif it is doing too much or over-stepping boundaries.

Regulators have to protectconsumer interests and at thesame time ensure that the in-dustry is healthy and viable,Shah said. By looking at thecost burden of regulatory deci-sions, the regulators can take acall on whether its decisionsare an overall good measure.

The regulatory burden canbe broadly classified into threecategoriescost incurred for

complying with regula-tion, burdendue to regula-tion makings om e b us i-nesses unprof-itable and im-pact on profit-ability due tochanges , hesaid.

Althoughthe industry may considerthe last com-p on en t a s a

cost burden, it may not be re-garded as such by the regula-tor, Shah said.

The process may take a while to be completed, said thechief executive of a life insur-ance company who did not

want to be named.Irda will have to go to eachinsurance company and findout what has been the impact.It will be different for eachcompany, he said. It remainsto be seen if they will be com-mitted enough to carry out thislarge logistic exercise.

Irda is looking at better andnot just more regulation,Narayan said, respondingto industry concerns that firmshave had to cope with many changes within a short span of time.

BOOSTING PRODUCTIONJSW Steel produces some grades of steel with technology support fromJapans JFE SteelA joint venture (JV) between BhushanSteel and Japans Sumitomo Metals willset up a 2 mt auto steel plant by 2014-15A JV between Tata Steel and Japans

Nippon Steel will produce 600,000tonnes of auto cold-rolled steel by 2013Essar Steel and Kobe Steel of Japansigned a memorandum of understanding(MoU) to collaborate on auto steelSAIL and Kobe Steel have an MoU tocollaborate on auto steel

PHOTOGRAPH BYBLOOMBERG

Irda is responding toindustry concerns

that insurancecompanies have hadto cope with manychanges within a

short span of time

For 2011 12, thefirm seeks to deploy

around`

200 croreon strategic landacquisitions

Indian steel makersare cautious due tothe fast changingnature of trends in

the car industry

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A FORTNIGHTLY FEATURE FROM INDICUS ANALYTICS

AFFORDABILITY DICTATESASSET OWNERSHIP

T he second largest sub-segment of urban SEC E households is formedby households whose chief wageearner is middle-aged and married with young children. The chief wage earner isan unskilled worker with low levels of edu-cationa majority have completed justprimary school.

With little educational backing, most of the chief wage earners have managed tofind work as casual workers; while a littleless than one-third have their own busi-nesses, which would include small kiosks,hand carts, etc., essentially in the tradesector. A little over one-quarter of chief wage earners have regular salaried jobs atthe lowest level in small businesses orhouseholds.

Broadly, the source for livelihood in thiscategory comes from the unorganized sec-tor, with just about 7% working with thegovernment or private sector companies.Those who work in large firms or the pub-lic sector would have completed middleschool, but again, would be at the lowestrungs of income.

When it comes to sectors of employ-ment, construction and real estate accountfor jobs to almost half the segment, follow-ed by manufacturing, transport and com-

munication, and agriculture and relatedactivities. The presence of the last category shows low education and skill base re-stricts employment to primary activities.

Even in metros, there is a minusculepercentage of people involved in cropping,fishing, etc. This sector forms a majorsource of livelihood in urban areas of dis-tricts such as Medinipur, Bellary, Jalgaon,etc.

Households in this category typically consist of four to five members. These are,to a large extent, nuclear families and lessthan 10% have senior citizens. Around 40%have more than two children, even in thelowest income segments in urban areas. As expected, northern districts show great-er tendency for more children; more than

60% of the households have more than twochildren in six townsJodhpur, Bikaner, Aligarh, Bareilly, Bhavnagar and Gwalior.

The spouse of the chief wage earner alsohas low levels of schoolingless than one-third have made it to middle school. Inmost households, the spouse is a homemaker, taking care of the children. Inabout one-fifth of the households, the women are also employed outside thehomes. Interestingly, in Vellore, Erode,Dharwad and Virudhunagar, more than40% of the spouses are earning, while Sri-nagar has the lowest participation of spouses in this category.

In most households, the chief wageearner is the sole earning member and an-nual household incomes fall predomi-nantly in the lowest income class of lessthan ` 3 lakh a year. Yet, as these earnersare settled in their careers and families,more than half the households own hous-es. A little more than one-third of thehouseholds stay in rented houses, while amere 7% live in employer-provided ac-commodation. The smaller towns withmore affordable real estate prices seehigher ownership of houses even amongthis segment.

When it comes to asset ownership,

households in this category clearly go infor two-wheelers as the vehicle of choice,basically for reasons of affordability. Still,the penetration of two-wheelers is low with just 25 % of these households owninga two-wheeler. Even when the need for afour-wheeler is high given the size of fami-ly in a typical SEC E middle-year house-hold, ownership of car is this category israre.

Ownership of refrigerators and micro- waves is low while television penetrationlevel is high. This segment is not as net-savvy as the younger SEC E households,and it is television that scores much higherthan all other media; even radio gets one-fourth of the time spent on an average by ahousehold on watching TV.

The heterogeneity that characterizes the modern Indian consumerhas created a maze that marketeers would like to unravel in orderto target their products and services precisely. In this fortnightly

series, Indicus Analytics presents the various facets of urbanconsumers, across geographies and socio economic groups.

INCOME DISTRIBUTION

HOUSEHOLD SIZE

No. of members

EDUCATION

AGE GROUP

45-54 years

>54 years

39%

4%

1%

3%

52%

35-44 years

25-34 years

5

2%0%

36%

20%

33%

21%

24%

OCCUPATION TYPE

Regular s

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