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Wednesday, August 31, 2011

Investments plunge by 55% in Q1



New Delhi: High interest rates, a decline in demand and policy uncertainty have taken a toll on new investments, reports Sidhartha. Investments have plunged over 50% to Rs 32.5 lakh crore during April-June 
2011 from Rs 71.4 lakh crore in the same period last year. 
    According to data accessed from the Centre for Monitoring Indian Economy, there has been a decline of over 19% even in terms of new projects announced. 
Investment drop may hurt growth, jobs Bloated Project Pipeline To Blame More Than Interest Rate Hikes, Global Worries Sidhartha TNN 
New Delhi: According to data accessed from the Centre for Monitoring Indian Economy (CMIE), there has been a big fall in new projects being announced by companies. Compared to the 1,240 projects announced during April-June last year, this year the number is 1,003. 
    This is in sharp contrast to the government's estimates. The official GDP data released on Tuesday suggested that gross fixed capital formation (GFCF), the gauge for investment in the economy, was 7.9% higher at Rs 4.1 lakh crore during the first quarter of the current financial year. So, the impact of the increase in interest rates has only been less pronounced as GFCF went up 11.1% in April-June 2010. In fact, given the estimate of 0.4% rise in investment in January-March this year, the latest numbers released by the government actually point to a revival in investment. 
    The decline captured by CMIE is not confined to the manufacturing sector alone, even services have been affected. In fact, the decrease is higher in the case of the services sector, which does not include segments such as banking and insurance. Lit
tle or no growth in investment also does not augur well for future growth and employment generation. 
    "New investment proposals have risen relentlessly between 2004-05 and 2008-09. After about five years of this growth, the pipeline for the implementation and completion is quite bloated. The pressure to complete the projects on hand is so high that 
most manufacturers have a good reason to go slow on new announcements. Interest rate hikes and the adverse global scenario play only a marginal role in this," said CMIE managing director and CEO Mahesh Vyas. 
    In a large number of cases such as automobiles, companies announced expansion plans in late 2009 and 2010 as they were run
ning out of capacity. While investment is in the pipeline, demand pressure has eased as several consumers have postponed purchase decisions due to higher interest rates and rise in costs. In addition, there are other industry segments which, at the overall level, have more capacity than demand. As a result, in case of cement, for instance, investment announcements declined 83% to Rs 30,000 crore this year from Rs 1.8 lakh crore in April-June 2010. 
    "On the ground, investment is not growing due to worsening of investment climate both as a result of slow policy action as well as high interest rates. First quarter data, however, shows that investment growth has not stalled as was indicated in the previous quarter when it was 0.4%," D K Joshi, chief economist at rating agency Crisil, said. "The inability to push ahead with these reforms has been the primary reason for the deterioration in the investment climate in recent quarters," said Samiran Chakraborty, head of regional research at Standard Chartered Bank. 
    As a result, sectors such as electricity have seen a sharp fall in investment announcements. Investment plans for the sector fell 48% to Rs 9 lakh crore during April-June this year from Rs 23 lakh crore in the corresponding period last year. For a powerstarved country, this is certainly bad news. In mining, which has been at the centre of the environment clearance controversy, the decline was 20.6% to Rs 48,550 crore, according to CMIE data. 
    The fourth quarter GDP 
data had suggested that investment in the economy was almost stagnant. In its annual report released last week, the RBI had noted that investment started slowing down in the second half of 2010-11 and "has shown no signs of improvement yet". CII director-general Chandrajit Banerjee said the RBI should refrain from raising interest rates further. 
    A decline in investment growth is showing in the emergence of supply-side bottlenecks in several sectors, said Standard Chartered Bank's Chakraborty. And, this will create further inflationary pressure, added Rajiv Kumar, secretary general of industry chamber Ficci. "Investment has taken a real knock. The interest rate hike won't help matters because capacity will not be on line and the fight against inflation will be hurt. A fall in investment is a real cause of concern because the growth seen in the last few years was due to private sector investment," he said. 
    The RBI believes that the current trend in investment is going to continue for a while as interest rates are likely to stay high. So, it would pay to ensure that projects in the pipeline do not fall off the list.


Traders Face Higher Costs on RBI Move

Proposal to raise risk weights for NBFCs will drive away retail players, say brokers

Dalal Street traders, who rely on funding from non-banking finance companies (NBFCs) to trade in stocks and invest in public offers, may need to be prepared for higher borrowing costs. 
The Reserve Bank of India (RBI) committee's proposal to increase risk weights for NBFCs with capital market exposure to 150% is expected to push up brokers' cost of funds, resulting in these firms charging more for money given to traders. 
Brokers expect the move will lead to a fall in market volumes 
and bemoan the fact that the rules are being changed 
at a time when trading opportunities have been on the wane due to an uncertain global environment. 
"The participation of retail 
traders has already shrunk in recent months. Higher costs will drive away even the rest as making money in these market conditions are difficult," said Rajesh Baheti, managing director of the Mumbai-based Crosseas Capital. 
The sharp decline in retail participation in recent months has been because of a dip in activity in mid- and small-cap shares. Retail traders usually borrow 
from brokers and trade in these stock segments, which usually rally sharply only in bull markets. 
But brokers argue the impact will not be much as NBFCs are lending less to retail stock traders nowadays; instead they are focusing more on promoters, willing to pledge their stock holdings for their business or personal needs. 
"Broadly, lending to capital market-related activity will shrink because of higher provisioning, but within this segment the focus will be on lending to promoters because of the collateral they provide," said a senior official with a Mumbaibased broking firm, which owns an NBFC. 
The loans to promoters against shares typically have tenure of one to three years and 
carry a margin requirement of two to three times. NBFCs charge premium rates for this short-term finance and have the right to sell pledged shares if promoters default. 
"The demand among retail traders for loans to trade is elastic, while that is not the case with promoters. This will allow broker NBFCs to pass on the higher funding cost to promoters," Baheti said. 
As on June 30, 768 companies have pledged shares with the total value at $ 33.4 billion compared to $37 billion on March 30, according to Morgan Stanley. The pledged value of these shares is about 2.2% of India's market capitalisation, the lowest level since March 2009.

nishanth.vasudevan @timesgroup.com 


Unitech to Sell Non-core Assets to Pay off Debt

Company plans to reduce debt by 10-15% every year through sale of assets

    Real estate firm Unitech will sell non-core assets such as land, IT parks and SEZs to pay off its debt, which currently stands at . 5,300 crore. In a rare interview Unitech managing director Ajay Chandra said the company, India's second biggest real estate company after DLF, has also managed to tie-up debt of about . 550 crore from two public sector banks in the last few months, after facing significant debt financing crisis in the last six months. 
Mr Chandra said the company would raise . 300-400 crore this year by selling land parcels, including one in Thiruvananthapuram. Unitech has also started talks with various private equity funds as well as overseas real estate investment trusts (REITs) to sell its four SEZs and one IT park. The company has close to 5.5 million sq. ft. of rent producing office space and another 2 million sq ft will be ready in the next 18 months. This is spread over four SEZs and one IT Park. Mr Chandra pointed out that the sale of SEZs would be completed in the next fiscal year as they now await the reaction of the SEZ authorities on some of the other SEZ transactions that have taken place in the market recently. "In the meanwhile, we will not lose any money as we are already earning rent from these assets," he said. In the April-June, 2011 quarter, the company reduced its debt by . 203 crore through its cash flows. Unitech's debt has come down from a peak of . 10,500 crore at the end of December 31, 2008. Yet, the interest burden has not reduced owing to regular increase of bank rates. "The two big challenges for the industry today are mounting debt and lack of financing. We all have to move towards lesser debt than we have been used to before. Our debt to equity ratio is currently at 0.4, which is a low level of debt but it needs to be lower," he said. "We intend to raise close to . 500-700 crore annually for the next few years through sale of these assets. The target is a 10-15% reduction of debt on an annualised basis," said Mr Chandra. 
For the last six months, Unitech has had to face severe debt financing issues, both because of the problems around the industry as well as the 2G scam, in which, one of the company's promoters is in jail for the last four months. In the last couple of months though, the company has seen some movement among banks. "We got a first sanction from a PSU bank in the
month of July for . 350 crore, which we will take in tranches," said Chandra. It has also tied up . 200 crore from another PSU bank, which will be disbursed in the next few months. 
On Monday, Unitech's shares recorded an intra-day gain of 13% after the CBI told the special court that it has no evidence that Unitech Wireless, which has been charged with cheating, criminal conspiracy and forgery in the 2G spectrum scam, paid bribes to A Raja, the former telecom minister.


2G Scam: ED Orders Freezing of 5 Cos’ Bank Accounts

The Enforcement Directorate (ED) on Tuesday ordered the freezing of bank accounts and attachment of immovable properties worth . 222 crore of five companies in connection with the alleged . 200-crore bribe paid to Kalaignar TV in the 2G spectrum allocation scam. 

Dynamix Realty's and Conwood Construction's properties worth . 134 crore and . 22 crore have been attached respectively. Nihar Construction's properties worth . 1.1 crore, DB Realty's assets worth . 52 crore and Eversmile Construction's properties amounting to . 13 crore are to be attached. 
When contacted, representatives of the construction companies said they were awaiting the order. ED has made the CBI chargesheet in this regard as the basis for this order. "As per the charge sheets of CBI, a bribe of . 200 crore was given by Swan Telecom (now Etisalat DB) to Kalaignar TV through a number of intermediary companies in the garb of a loan or share application money. However, the same was returned to Dynamix Realty (a company of Shahid Usman Balwa and Vinod Goenka)," ED officials alleged. 
"The details of the charge sheet show disclosures made by the intermediary companies in the movement of the bribe money under the garb of loan or share application money do not substantiate a genuine and bonafide financial transaction," they said. 
The order has been issued on a probe report by the investigating officer of the case Rajeshwar Singh. The companies can challenge the order before appellate authority for Prevention of Money Laundering (PMLA) cases that is based in Delhi.

Growth Slows, but Not Enough to Comfort RBI

   India's economy expanded at its slowest pace in 18 months, but the slide was slower than forecast and largely confined to ratesensitive sectors, reinforcing economists' views that the Reserve Bank of India (RBI) may raise interest rates again to combat inflation. Gross domestic product (GDP) rose 7.7% in the three months to June compared with 8.8% in the year-ago quarter, according to data released on Tuesday. The biggest surprise in the pack was the jump in investments — a robust 7.9% from a near-collapse of 0.4% in the previous quarter. Services output also expanded by a handsome 10%. The growth of eight infrastructure industries offered further proof of investments firming up. The index rose to a 15-month high of 7.8% in July from a year ago. 

The government, however, remained cautious in its optimism. While Finance Minister Pranab Mukherjee termed the GDP number "disappointing", his Chief Economic Advisor Kaushik Basu advised against reading too much in the positive entries of the data. "You should not set your hopes too high for the immediate next quarter," he said, adding, "But I do expect growth in third and fourth quarters to show quite a substantial pick-up." 
The spate of interest rate hikes by the RBI over the past few months ate into consumption growth, which fell to 6.3% from 8% in the previous quarter and 9.5% in the year-ago quarter. A near-normal monsoon towards the end of August, however, boosted the prospects of the agricultural sector, which grew 3.9% as against 2.4% in the year-ago quarter. 
Construction Takes Biggest Hit 
The first-quarter growth of last year was revised downwards from 9.3% to 8.8% after it was updated with the new IIP series. The data for rest of last fiscal will be revised later, which makes sequential month-on-month comparison difficult. 
Fiscal deficit has surged more than two-fold to Rs 2.2 lakh crore during the first four months of the current fiscal, on account of low revenue realisation and higher expenditure.The headline growth is broadly in line with expectations, but the services sector has done much better than the consensus estimate. An ET poll of 14 economists had put the first-quarter median growth estimate of GDP at 7.65%. 
Only the interest rate-sensi
tive industrial sector has taken a knock in the first quarter with growth falling to 5.1% from 9.1% in the year-ago period. Construction took the biggest hit as hardening interest rates dampened demand and slowed down project execution. The sector grew just 1.2% as against a 7.7% growth in the year ago. "Construction numbers are extremely low," said India's chief statistician, TCA Anant. "Because it is a leading indicator of new development, this slowdown in construction is a worrying trend." Mining growth also lost traction because of policy-related delays in project execution. The sector grew 1.8% compared with 7.4% in the previous year. 
But analysts remained confident of the growth momentum. "Clearly, the numbers display resilience in econom
ic growth," Yes Bank economists Shubhada Rao, Vivek Kumar and Yuvika Oberoi said in a note. "The fact that GDP has come only a tad lower than the previous quarter validates the RBI's comfort of growth remaining broadly resilient." 
"The 8.2% growth rate could be achieved," said C Rangarajan, chairman of the Prime Minister's Economic Advisory Council. The latest GDP data has reinforced the view that the central bank will raise interest rates in its September 16 review to dampen inflation. 
"We expect another 25 basis point hike in the September monetary policy review," said Sajjid Chinoy, India economist with JPMorgan. Only Goldman Sachs felt the Reserve Bank was done with rate hikes for this year.


Monday, August 29, 2011

14% MARKET SHARE IN DEPOSITS & LOANS New Gen Banks Streets Ahead

Since RBI last licensed private banks over 10 years ago, new generation private lenders have built a market share of 14% in deposits and also loans, which is much higher than the combined share of close to 12% of foreign banks, old generation private banks and regional rural banks. That is a reflection of the impact created by these banks, which forced staterun banks to shake off their slothful way of functioning and focus on customers and better service standards and product offerings. In 1993-94, RBI granted in-principle approvals for 10 entities to promote private banks. They included two finance companies — 20th Century Finance and CRB Finance — the Times Group and Hindujas, financial sector professionals Ramesh Gelli; Darshanjit Singh and Harpreet Singh, besides the ones promoted by HDFC, erstwhile UTI and IDBI and later the development financial institution ICICI, which reverse merged with ICICI Bank. Just before the licences were issued, CRB was caught in the centre of a scam and the in-principle approval was cancelled. Only five entities have survived since then — HDFC Bank, the UTI-promoted Axis Bank, IDBI Bank and the Hinduja-promoted IndusInd Bank. During this period, Times Bank and Bank of Punjab were acquired by HDFC Bank while GTB, promoted by Ramesh Gelli, was acquired by Oriental Bank of Commerce. Later in 2002, RBI licensed two more banks, Kotak Mahindra Bank and YES Bank, promoted by Rana Kapoor and others. 

Over the past 15 years, new generation private banks have given government-run banks, which even now control 70% of the market in terms of deposits and advances, a run for their money by leveraging on technology. 
Earlier in terms of product offerings and premium service, foreign banks were at the forefront. New generation private banks bridged that gap by providing efficient services at competitive rates, forcing foreign banks to change tack and PSU banks to embrace technology. However, unlike last time, the challenge for new banks will be greater, given intense competition and focus on rural inclusion.


Buy gold for portfolio diversification and as a hedge against inflation, if not for investment

For Hedge Sake, Shift a Part of Savings to Gold


  Should I? Should I not? A lot of retail investors are in a quandary, wondering whether they should invest in gold when it is trading near its all-time high. Gold price skyrocketed to an alltime high of almost . 28,500 per 10 gm in the domestic market last week as it crossed $1,910 per troy ounce in the global market. The precious metal rose almost 20% in a matter of a few weeks in August. Economic uncertainties, including the debt crisis in euro zone, discomfort after the US long-term debt rating cut by S&P, high inflation in the emerging economies and rising demand from central banks across the globe this year, particularly from Mexico, Russia, Thailand and South Korea, added to the demand for the yellow metal, largely perceived as a hedge instrument in adverse times. 
SHOULD I INVEST AT THIS LEVEL? 
This is the biggest worry among retail investors. A correction from these levels cannot be ruled out. "Since the metal is trading at such high levels, we may witness a correction and this has happened in the past too," says Naveen Mathur, Angel Stock Broking's associate director of commodities and currency. There could also be profit-booking in the near term. "Gold will correct in the near future. Investors should buy it below the 26k levels," says investment analyst Sheshadri Bharatan. On August 25, gold prices fell 6% — one of the biggest single-day cuts in years for the precious metal. 
"Our sales are down. People are deferring buying fresh gold as their purchasing power has been eroded," says Surender Chandak, owner of Raghav Jewellers, a Delhi-based hallmark jeweller. 
HOW MUCH SHOULD I INVEST? 
Gold is considered as the best as
set class to tide over inflation. Ideally, 10-15% of one's investments should be in gold. If this percentage has not been achieved, one can raise the allocation to gold in a phased manner. This investment can be in multiple forms, depending on the convenience and options available to the investor. 
HOW SHOULD I INVEST? 
If one decides to invest in gold, the next question is whether to invest a lump sum or in a phased manner. "Investing a lump sum in gold is not advisable at these lev
els," says Mathur. Investors would lose the benefit of averaging in these uncertain times if they invest the entire corpus in one go. They may follow a staggered approach so that they are able to average their investment. This way, not only is one lowering one's risk but is also using rupee- and dollarcost averaging factor for one's benefit. This would be equivalent of a SIP in a mutual fund. 
"Rising gold prices are not a reflection of domestic demand but more of the global uncertainties. Investors are moving from dollar
hedging to gold-hedging, especially after the US long-term debt rating cut by S&P," says Bharatan. Following a staggered approach would be the best approach in these uncertain times to avoid facing loss in case of a correction. 
IN WHAT FORM SHOULD YOU INVEST? 
Investors have the option of investing in either the physical form, including jewellery, bars and coins, or in the paper/demat form, which includes paper contracts, gold exchange traded funds (ETFs), gold mutual funds, 
e-gold, or even buying gold mining companies' shares. A lot of people who have invested in gold at much lower levels may not like the idea of investing in physical gold at these high levels. So they may go for the paper form, starting with a small ticket size. The quality of gold may differ across retailers, wholesalers as well as bankers. Gold in the physical form should be bought preferably from a certified hallmarked jeweller/retailer, to be sure of its purity, and also to ensure that you are paying the right price for the quality you are buying. According to World Gold Council, gold jewellery represented about 75% of the total Indian gold demand in 2010. 
A few advantages of investing in the physical form are high liquidity, minimal making charges in the case of bars and coins, numismatic value in the case of coins, and the satisfaction of possessing actual precious metal. The negatives include security issues and loss of value due to making charges/impurities in the case of nonhallmarked jewellery. 
Investment in the paper/demat forms are becoming popular, as apart from saving investors the hassles of storing physical gold, it also does not attract wealth tax. Investment in gold ETF in India has already crossed 15 tonnes and is expected to double in a year. Currently, 12 AMCs in the market are offering gold ETFs. 
"If one decides to go for an ETF, he may invest partially every week or every month," says Mathur. Gold MFs have the added benefit that they do not require a demat account. However, they have slightly higher recurring and transaction costs compared with an ETF. 
e-Gold is another investment avenue offered by National Spot Exchange that allows investors to invest in gold and hold it in the demat form. The e-gold units can also be converted into physical gold coin or bar of any denomination. 
RECOMMENDATIONS 
Central banks are increasing their gold reserves in the wake of the rising financial and economic uncertainties worldwide. Households and retail investors can take a cue from them. They can allocate a small part of their savings to gold, purely for portfolio diversification and hedging against inflation and not simply for benefiting from the rise in its prices. Investors should invest in the yellow metal in a phased manner if they are short of the suggested allocation levels to add glitter to their portfolios. 
prerna.katiyar@timesgroup.com 
TOMORROW 
Are Covers that Come with Products Good?


SENSEX ROCKETS 567 PTS ON FED QE REJECTION, ANNA TRUCE D-St Gets a Stimulus on Bernanke’s No

Stock markets got a shot in the arm on Monday as traders cut bearish bets after the US Fed refrained from announcing another stimulus and political uncertainty abated with activist Anna Hazare ending his fast. Investors were relieved that America's central bank had stopped short of launching a third bond-buying programme, known as quantitative easing (QE), as it could have increased the flow of money into commodities and emerging markets, including India, stoking inflation. 

Key indices rose 3.6% on Monday, the highest intra-day per cent rise since May 2009, mirroring gains in Asia and Europe. The Sensex gained 567.50 points, or 3.58%, to 16416.33. The Nifty rose 171.80 points, or 3.62%, to 4919.60. "Investors cut part of their short positions because the Fed refrained from doing QE3," said Sandip Sabharwal, CEO (portfolio management services), Prabhudas Lilladher. "A big uncertainty for the market has ended with the end of Hazare's fast." 
The RBI on Monday unveiled the muchawaited draft norms on new banking licences that will allow corporates to set up banks. Shares of non-banking finance companies jumped after the announcement. 
Short-term Outlook Bearish 
The broader market reflected the strength in the indices, with gainers outnumbering losers 2121:716 on the BSE. Foreign investors net bought .366.19 crore of shares on Monday after selling stocks worth .11,500 crore in August till Friday. But a resurgent Dalal Street could soon face challenges. Some are worried about the government's prolonged stand-off with Hazare and the possibility of more tussles ahead as a parliamentary committee considers various versions of the Lokpal Bill. Investors are also closely 
watching the gross domestic product (GDP) estimates for the second quarter, to be released on Tuesday, which will reflect the impact of higher interest rates on India's economic growth. GDP growth is expected to moderate to 7.6% in the June quarter, the slowest in six quarters. 
"Non-agricultural growth is likely to soften, reflecting macro headwinds — high inflation and interest rates, in particular," said Barclays Capital in a note. A lowerthan-expected GDP reading is likely to spark hopes that the RBI could halt its moneta
ry tightening spree. But that may not stop investors and traders from selling on Tuesday, ahead of the market holidays on Wednesday and Thursday, on worries that adverse events in the US and Europe on these two days could catch them on the wrong foot. The short-term outlook for equities is neutral to bearish due to global concerns such as European sovereign crises, higher crude oil prices and slow US economic recovery, according to a survey of 23 fund managers conducted by ICICI Securities. So far in 2011, the main indices have fallen 20%, while the BSE's smallcap index has tanked 27% on worries higher borrowing costs could squeeze corporate profits and drag down valuations. A 20% fall in key indices is broadly accepted as a bear market. 
"Earnings expectation has been revised downwards in the past three months from 15-20% to 10-15% for FY12 as well as FY13. Of the fund managers, 30% believe earnings will be less than 10% for FY12, which reflects a cautious mood," the ICICI Securities report said.


RBI WILL HAVE THE LAST WORD Bank Window Opens for Cos with Stoppers

India Inc excited as draft norms will not be too difficult to meet for cos with strong credentials


    After years of intense lobbying, business houses wanting to set up banks are spotting a ray of hope. The Reserve Bank of India is slowly opening the doors for corporates to enter the highly-regulated industry, but with caution, conditions and caveats. 
In draft guidelines issued on Monday, the banking regulator laid down the broad rules of the game: finance companies can be converted into banks, and promoter groups with "sound credentials and integrity" and a 10-year record of successfully running their businesses can set up banks. 
Such banks should have a minimum paid-up capital of . 500 crore, run 25% of their branches in rural unbanked regions, list within two years, and be owned by a separate holding company that cannot borrow money to float the bank. Total foreign holding in the bank cannot cross 49% while the operating company must lower its stake to 20% by 10 years. 
Corporates may find it easy to meet most conditions, but the RBI has spelt out it will be "very selective" and have the last word. "…it may not be possible to issue licences to all the applicants meeting the eligibility criteria…," said the draft note. A key pre-condition is changes in the Banking Regulation Act to empower the RBI to supersede bank boards and block purchase of 5% or 
more shares if the investor is not "fit and proper". 
India Inc, nonetheless, is excited. Reiterating the Aditya Birla Group's "strong intent to enter banking", Chairman Kumar Mangalam Birla said it was a "forward step" while Bajaj Finserve MD Sanjiv Bajaj said the guidelines were "practical" and "Bajaj Auto and Bajaj Finserve are eligible". A senior Tata Group official said it was a "positive" move. 

Banking on New Rules 
The Hurdles 
No new licence till laws change to give RBI more power Negative feedback from other regulators can dash chances Comments from CBI, ED & other govt agencies can backfire 
The Race 
Tatas, Aditya Birla group, Bajaj, L&T, LIC Housing, M&M, Shriram group, Reliance, ADAG, PFC, IFCI, Religare, Srei may be interested Edelweiss with active broking biz may lose out; IDFC & IndiaBulls said they are not interested in banking 

THE RULES 
Paid-up cap of Rs 500 crore, listing within 2 years No foreign entity/NRI can 
hold over 5% shares Biz groups will have to float a holding co to own bank & other financial services like insurance, broking etc Some Time before RBI Issues Licence 
Even though the financial services business has been a pitfall for several corporate houses in the last two decades, most have harboured hopes of promoting banks. "It's a high-risk business and you have to be paranoid to run it," said Uday Kotak, whose group had received a banking licence in the last round (2003-04). But like others, he too was enthused on Monday: "I hope this bodes well for the government as it plans to move on the reform path." 

The RBI, which has had to deal with shady promoters holding benami shares, brokers taking over treasury of small private and co-operative banks, and flamboyant promoters cutting funny deals with diamond merchants to borrow money for the bank, is understandably paranoid. Under the current norms, promoters will have to declare their source of funds and no single entity or group, other than the operating company, shall have direct or indirect shareholding in excess of 10%. "The draft guidelines reflect the RBI's learnings from bank failures. For instance, restricting exposures to suppliers and customers of industrial houses where it is a promoter 
is really seen as a form of connected lending and self-dealing," said H Jayesh, founder partner at law firm JurisCorp. 
While corporates will now pressurise the government to amend the BR Act, it will be some time before the RBI issues the first licence. According to Ashvin Parekh, partner, Ernst & Young, "It may be 2-3 years before we see a new bank becoming operational. Diversified ownership and exercise of regulatory control are essential conditions...There have been instances in the past where promoter shareholding was not pared according to plans." 
Some aspirants like Religare were confident they would be able to fulfil the RBI's criteria. "Religare Enterprises Limited (REL) is already regulated by the RBI. Besides, they have also separated ownership and management, and today majority of Religare Enterprises' board members are independent of the promoter group and the promoters themselves do not participate at the REL board level," said a Religare spokesperson. 
Anil Ambani's Reliance Capital said it was looking forward to the release of the final guidelines while N Sivaraman, president, L&T Finance Holdings, said "two years is too short a period for a new bank to get listed". Considering the time a new bank would require to create a base and brand to raise money, a fiveyear period would have been better, he said. Among the eligibility conditions outlined by it, the RBI will collect feedback from other regulators as well as agencies like CBI and Enforcement Directorate while deciding on an application. Conditions like these have created a widely shared perception that the central bank may not be in a hurry to grant licences till some of the ongoing investigations are over. "While the RBI will have a lot of discretion, it has framed the guidelines with an open mind…there may not be any hidden lever," said Saurabh Tripathi, partner & director at The Boston Consulting Group.


EXTRA FSI ISSUE 8K flats to hit market after BMC changes OC rules

Mumbai:Municipal commissioner Subodh Kumar has directed the building proposals department to issue Occupation Certificates (OCs) to buildings which have been constructed by purchasing additional 0.33 floor space index (FSI) in the suburbs.     There is a rider though; OCs will only be issued to those buildings which are ready and have fulfilled the mandatory building conditions stipulated by the civic body. 
    The directive will be a major relief for prospective flat buyers and developers. Almost 6,000 to 8,000 apartments will hit the market, with 166 projects getting an OC af
ter languishing for the past two years. Paras Gundecha, president of the Maharashtra Chamber of Housing Industry (MCHI), said, "We hope that the chief minister issues a notification amending Regulation 32 of the development 
control rules to grant additional FSI on payment of a premium for all buildings. It will make us less dependent on the transfer of development rights (TDR)," said Gundecha. Nayan Shah of Mayfair Housing said that they will now be able to give possession to their buyers. "No OC means that the civic body will not supply water. How could anyone have stayed," said 
Shah. His two projects at Andheri and Borivli will now get OCs. 
    With a view to curb high TDR prices, the state government in 2008 decided to charge a premium for utilizing 33% additional FSI above the base FSI in the suburbs. A writ petition was filed in the Bombay HC, raising the issue of infrastructural inadequacy and change of character of the development plan if the state granted additional FSI to developers. The HC declared the notification null and void and restricted granting of commencement certificate to applications received after May 23, 2008. The government then issued an ordinance in September 2010, allowing the BMC to charge premium under the new rule

Saturday, August 27, 2011

Rent rates soar by 10-15% in suburbs

MORE DEMAND, FEWER FLATS


Mumbai: With no meaningful correction in property prices expected before Diwali, the residential rental business has been receiving a fillip in the suburbs that have witnessed an almost 10-15% increase in rates in the past 10 to 14 months. 
    However, rents in south Mumbai have either dipped by 10% or they have been stable due to oversupply of flats, say real estate brokers. 
    Experts have attributed the rise of rents in the suburbs to the fact that more 

number of people are willing to stay on rent rather than shell out a huge amount to buy a flat. 
    Industry experts said a two-bedroom-hall-kitchen flat in a building located almost 7 km from Goregaon at Dindoshi is earning a monthly rent of Rs 37,000 to Rs 38,000, while the same apartment earned Rs 17,000 to Rs 20,000 in 2010. Due to its location and proximity to an international school, a 2.5-BHK apartment in Goregaon is demanding a rent of 
Rs 65,000 to almost Rs 80,000 a month. In Juhu, the amount for a 2-BHK is now Rs 90,000 a month, but in 2009-10, the same flat was rented out for Rs 60,000 only. 
    A study carried out by real estate portal 99acres.com showed that rentals are appreciating in localities like Kamothe, Seawoods and Sanpada. "The rates in those places have increased by 22%, 16% and 14% in a year. Nerul, Vashi and Kharghar have witnessed a rise by 6%," the study said. 
    "In many cases, corporates' house allowances have been slashed following the poor economic condition. So, many extend their leases as they have a clause of raising rent by 10%," said Ram Prasad Padhi of Mumbai Properties. 
    Two developers in eastern suburbs have asked brokers and owners to pay them a month's rent once they leased out their flats. "One developer could make such a demand as he has not yet conveyed the land to the society," said a broker. "The other builder plans to rent out the entire building of about 30 flats on rent. He apparently wants to sell the flats but not offering a discount of more than 10%."

History Almost Unmade By Last-Minute Hitch

ANNA WINS IT FOR THE PEOPLE

To Break Fast At 10am Today As Parliament Bows To Hazare's Khwahish And PM Sends Letter 

New Delhi: History was made in Parliament on Saturday when the two Houses bowed to Anna Hazare's campaign, powered by a groundswell of popular support, for a strong and independent Lokpal. 
    The Lok Sabha and Rajya Sabha unanimously resolved that the Standing Committee 

would consider Anna's three demands—including the lower bureaucracy in the Lokpal's purview, a central law for creating Lokayuktas in states and a citizen's charter for government departments providing public service. This finally paved the way for Anna's 12-day fast to end. 

    This is the first instance of Parliament explicitly agreeing to accommodate demands raised by an 'outsider', that too when the official bill had already been moved. A jubilant Anna Hazare responded to Parliament's endorsement of his demands by announcing that he would call off his fast at 10am on Sunday. 
    But the historic moment almost didn't come about. Anxiety hit the process once again when in the afternoon Team Anna members announced that the government was going back on its word. It was later learnt that the agreed upon draft resolution was changed, and this almost scuppered the deal. Eventually Prime Minister Manmohan Singh stepped in, and with the help of top BJP leaders and his own colleagues, pushed through an acceptable resolution. 
    Later, the PM publicly threw his weight behind the reconciliation. "Parliament has spoken. Parliament's will is the will of the people," he said, bringing a closure to the standoff. 
    There was momentary confusion when Parliament opted to unanimously adopt the resolution through the 'sense of the House' instead of passing it by voice vote. However, civil society activists accepted it. As Medha Patkar said, "The important thing is that our three demands have been accepted." 
    Parliament's extraordinary gesture on Saturday brought out its capacity to adapt and innovate in response to an extraordinary expression of popular aspirations, reflected in the countrywide outpouring of support for Anna's anti-corruption charter. 
    A huge throng camped at Ramlila Maidan as Parliament debated Anna's demands.

 

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