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Editorial

Season’s Greetings!

In this edition we have Mr. Amitabh Chaudhry – MD & CEO, HDFC Life, articulating his

thoughts on Indian Private life insurance and the way forward. We thank Mr. Chaudhry

for his contribution to the newsletter.

For this month, APAS column has focused on global slowdown and its impact on foreign

operations of Indian banks.

The economic indicators showed signs of growth. Manufacturing PMI rose from 51.1

in February to 52.4 in March. India’s core sector expanded by 6.4% in March. Index of

Industrial Production (IIP) for the month of February has risen by 2%. PMI services and

composite PMI were at 54.3% each, from 51.4% and 51.2% respectively in the previous

month. Inflation fell to 4.83% in March from 5.26 % (final) in February. WPI continued

to remain in the negative zone in March at -0.85% as compared to -0.91% in the

previous month. GDP for quarter 3 of 2015 is seen at 7.3%.

The Reserve Bank of India announced a scheme for providing financial assistance to

urban cooperative banks for implementation of core banking solutions. Also NBFC –

Microfinance institutions can act as channelizing agents for providing government

loans. RBI tweaked rules on bank fraud provisioning. First small finance bank Capital

Local Area Bank started its operations on 24th April 2016.

IRDAI released a notification amending registration of Indian insurance companies.

Financial year 2015-16 has been historic for the port sector in the country. National

Sagarmala Apex Committee approved National Perspective Plan on Sagarmala. Also RBI

issued a notification in the form of extant instructions on Infrastructure debt funds.

On the capital markets front, there is an amended guidance Note on SEBI (Prohibition

of Insider Trading) Regulations, 2015.

We hope that this newsletter is insightful and welcome your inputs and thoughts and

encourage you to share them with us.

Ashvin Parekh

Table of Contents

Guest Column

Mr. Amitabh Chaudhry – MD and CEO

– HDFC Life

APAS Team

Global slowdown: Impact on foreign

operations of Indian banks

Economy

IIP update – February

Inflation update – March

PMI update – March

Core Sector update – March

GDP update – Q3 2015-16

Banking Sector

Scheme for providing financial

assistance to urban cooperative

banks for implementation of core

banking solutions

NBFC – Microfinance institutions

can act as channels for Government

Loans

RBI tweaks rules on bank fraud

provisioning to ease burden

First small finance bank started its

operations

Insurance

Registration of Indian insurance

companies

Infrastructure

Major ports add record capacity in

FY 2016

Infrastructure debt funds

Capital Markets

Amendment of Guidance note on

SEBI (Prohibition of Insider

Trading) Regulations, 2015

Capital Market Snapshot

Economic Data Snapshot

Ashvin Parekh – Managing Partner, APAS

It is nearly sixteen years since the dawn of private life

insurance in India. Much water has flown under the

bridge during this period. Private insurers collectively

command more than half the market share in the

individual segment. New innovations introduced over

the years including products in the investment linked,

pension, term & health categories can be credited to

the private sector. The industry now manages a fairly

large AUM with large private insurers each having a

corpus of more than Rs.500 Bn.

The Journey So Far

The journey thus far has been more difficult than

anticipated by most market entrants. The early stage

growth phase with a light touch regulatory model was

followed up by a phase of intensive regulatory

involvement in all aspects of business right from

product design & pricing to distribution architecture,

expense management, etc. During the 2011-2015

period, most private insurers focused on getting what

was a distribution & reach focused business model

aligned to a model that focused on profitability &

efficient cost management. Hence, in real terms, the

industry saw a decline in new business premiums

collected during this period, partly due to regulatory

changes & partly due to economic headwinds. This

much needed transition however meant that

companies needed to be nimble, innovative and

frugal to achieve success in the market place.

There has been a steady, sustainable growth in the

revenues of private life insurers in the past year or so

and their market share has started to inch up again.

What lies ahead?

I believe the runway for growth is long and will

continue for many decades to come on the back of

demographic dividend, Government of India’s efforts

to improve financial inclusion & social security,

greater awareness, trends towards nuclear families,

longer life spans, etc. Opportunities to grow exist

Mr. Amitabh Chaudhry, Managing Director & CEO – HDFC Life

across protections, investments, savings, pension &

health segments.

I also believe that most of the regulatory changes

have already been implemented or are ones where

wider consultations are currently underway. Hence,

companies can now build their business strategies in

a relatively more certain environment.

The past few years have seen the number of agents

declining. The traditional agency channel has been

disrupted by interplay of technology & expansion of

bank branches. The bancassurance model slowly but

surely will shift to open architecture as the era

exclusive bank-insurer tie-ups comes to an end. At the

same time there are several emerging players such as

payment banks, small finance banks and other

ecosystems which can help grow the revenue pie for

life insurers. The ability to work with different kinds of

distributors will be key to success.

Even as the traditional insurance model continues to

service the mass market, there is an emerging breed

of DIY (do-it-yourself) customers who will research

online, buy online. It is important that these

customers see insurers as segment specialists and as

proactive provider of protection solutions. On the

savings & investments side, insurance products will be

expected to be as low cost as other financial products.

Building an exclusive suite of offerings for this growing

base of digitally savvy customers is going to be

extremely important.

Insurers will also need to change the insurance sales

process. Technology today allows insurers to create

advisory platforms which can do need based analysis

at an individual level. Adopting this will help improve

the conversion funnels and ensure that right selling

happens to the customer. Going by any metric, India

is clearly an under protected and under pensioned

society. Development and marketing of low priced

protection and health plans will help the market grow

exponentially. At the same time, as more household

savings shift to financial assets, wealth accumulation

instruments & annuities will also grow over multifold

the next few years.

Shareholders of Indian insurers have been a fairly

patient lot. Having invested in the early stage of

market development, they would start to seek returns

on their investments during the coming business

cycle. As regulations allow for 49% FDI & insurers get

publicly listed over the next few years, the life

insurance sector will also get greater visibility in the

public mind space.

I believe that the four key factors will differentiate the

winners from the also-rans in the coming years.

Building and offering a comprehensive platform to a

diverse set of distribution partners, investing in digital

leadership ahead of the curve, innovation in product

selling & introducing new categories and ensuring

economies of scale are four themes which reinforce

each other and will help insurers grow revenues

through enhanced reach, do it more efficiently &

become more customer centric.

I do believe the private life insurance sector is on the

cusp of a multi-decade growth era having set the

business model right over the past few years. But it

will not be a journey for the faint-hearted!!

In the past decade, many Indian firms embarked on

expanding their global footprint, taking an

opportunity to expand their horizons. The Indian

multinational companies expanded across diverse

sectors from pharmaceuticals to automotive, textiles

and engineering goods. The fundamental reasons

behind Indian companies acquiring business including

resource mining are to secure natural assets such as

mines, oil fields, intellectual properties, etc. and to

put up their presence in global markets. This truly

described the global aspirations of Indian companies.

Some of the examples of acquisitions made by Indian

companies abroad includes Tata group’s acquisition

of Corus (United Kingdom) in 2006. In addition, ONGC

acquired Imperial Energy corp. of UK and Tata motors

Ltd. acquired Jaguar cars, Land rover of UK in 2008,

Bharti Airtel acquired Zain Africa of Kenya and

Reliance industries acquired Marcellus Shale and

Eagle Ford shale gas field in 2010. In 2011, Indian

companies completed major deals in Australia’s coal

industry. Year 2015 saw various buyouts by Indian

drug makers. Out of which, Lupin Ltd.’s acquisition of

US generic-drug maker Gavis Pharmaceuticals Llc was

the largest.

Besides, M&A activity increased in 2014 with deals

worth US$ 38.1 billion, compared to US$ 28.2 billion

in 2013 and US$ 35.4 billion in 2012. There have been

M&A deals worth US$ 28.8 billion in the first 10

months of 2015. This activity witnessed an increase in

the inbound and domestic segments, which together

contributed over 80 per cent of the total M&A values.

Direct investments by Indian firms were US$ 1.85

billion in February 2016.

Indian bank's overseas branches saw robust growth

overseas of 36.5 percent in 2013-14. Total fee income

generated by 188 branches of Indian banks operating

outside India moderated to Rs 8,960 crore (USD 1.5

billion) in 2013-14 from Rs 9,350 crore (USD 1.7

billion) in 2012-13. UK, Hong Kong, UAE, Singapore,

Bahrain and the US were the major source countries

of banking services provided by overseas branches of

Indian banks. They accounted for 92.2% of the total

overseas services of the Indian players. Indian banks

operating overseas witnessed higher credit growth

than their foreign counterparts in India.

Towards the end of 2015, however the scenario

started changing. Several factors including reduction

of international trade, shrinking of global markets and

an element of protectionism seems to be in the air.

Even the large developed markets are looking inwards

and working towards closing their boundaries to

protect the home industry. Complex laws and

demanding regulations as well as the new order of

taxation of global income is now creating a new and

noticeable change. There are early signs of some

leading Indian companies are now planning to sell

their overseas investments to either repay debt or

exit low yielding businesses. A case in point is Tata

steel planning to sell off their UK steel plants, Reliance

Industries Ltd. has already sold its Eagle Ford shale oil

field in the US in June 2015 and Bharti Airtel Ltd. sold

close to 8,300 telecom towers in seven African

countries in October 2015.

In the above backdrop, let us analyze what the Indian

banking is likely to do. The banking sector in India

decided to participate in the above trend and by

around 2006-07, one of their major strategies was to

follow the corporates and expand their activities in

those markets where the corporates had decided to

invest or acquire businesses.

Suddenly towards the end of 2015 and the first

quarter of 2016, the strategy is under serious

reconsideration. With the Indian economy showing

sluggish growth in the 2011-14 era, the quality of the

banks’ balance sheets particularly in loan assets has

suffered substantially.

Now, for domestic credit, banks are becoming more

vigilant. As liquidity squeezes globally and the margins

in the markets where Indian banking put up a

presence are under pressure, Indian banking has no

option but to downsize its overseas presence.

Indian banks now seem to be facing new and complex

challenges in overseas markets in terms of regulatory

regime and restrictions on expansion opportunities.

Country's largest private sector lender ICICI Bank sold

its Russian subsidiary ICICI Bank Eurasia Limited

Liability Company (IBEL). The constant on-off US

liquidity coupled with euro zone problems has also

made the international borrowing market difficult for

banks.

In conclusion, the Indian banking will try to

consolidate its presence in the domestic market,

realize for their corporate investors who have

invested cross border as much of recovery proceeds

and downsize their overseas activities. One hopes

that, the journey of NPA management and improved

recovery will once again equip them to grow in the

global markets a few years down the road.

-APAS

IIP (Index of Industrial Production) – February

The industrial output in the country rose by 2% in

February after falling continuously for three

consecutive months.

The Index of Industrial Production (IIP) was boosted

mainly by a 9.6% rise in electricity generation and a 5%

rise in mining output. The manufacturing sector

showed marginal growth of 0.7% in February.

The cumulative industrial growth for the period April-

February of the financial year (2015-16) over the

corresponding period of the previous financial year

stands at 2.6%, slightly lesser than the 2.8% growth

registered for the same period in the previous year.

Among product categories, Office, accounting &

computing machinery registered the highest growth,

followed by Furniture. Electrical machinery &

apparatus on the other hand, continued to fall. Cable,

Rubber Insulated, and Stainless steel and apparels

contributed the most to the contraction in the index.

On the other hand, electricity, minerals and gems

and jewellery were the highest positive contributors

to growth. On the use based classification, capital

goods, considered a proxy of investment demand,

continued to contract sharply. This contraction has

consistently acted as the big drag on the

performance of the IIP Index.

On the demand side, consumer non-durables also

declined by 4.2% from 3.1% in the previous month.

Growth in consumer durables however increased by

9.7% after growing by 5.8% in January.

9.8

-3.2 -1.2 -1.5

2.0

Oct-15 Nov-15 Dec-15 Jan-16 Feb-16

IIP (%YoY)

Quarterly evaluation of IIP

3.83

1.13

0.43

3.233.53

4.73

1.77

Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16

IIP

%

Quarter

IIP Trend Mining activity recovered during 2014-15 from a

three-year slump, buoyed by a sharp increase in

the production of coal. Weakness in consumer

spending, sluggish investment activity and poor

external demand operated as drags on

manufacturing activity during 2014-15.

During April - June 2015, however, the growth in

IIP decelerated mainly on account of a sluggish

performance in capital goods, electricity and

food products.

IIP has experienced a downfall from 3.83% in Q1

to 0.43% in Q3 (14-15) respectively. Further IIP

rose to the level of 4.73% in 2015-16.

Consumer Price Index - March

The Consumer Price Index (CPI) eased to a six-month

low of 4.83% in March from 5.26% in February

according to data released by the Central Statistics

Office.

Inflation was at 5.25% in March 2015. Food inflation,

the biggest component of CPI, eased to 5.21% in

March, down from 5.3% in February. Within the food

category, the pulses category registered the sharpest

rise at 34.15%. It was the only category that saw

double digit inflation.

Inflation eased in both rural and urban areas. In urban

areas CPI declined to 3.95% in March from 4.3% in

February. The corresponding figures for rural areas

were 6.05% and 5.7% respectively.

The annualized core consumer inflation, which

excludes energy and food prices, was estimated to

have eased to around 4.6-4.8% in March from 5-5.3%

in February.

Quarterly evaluation of CPI

4.4

4.6

4.8

5

5.2

5.4

5.6

5.8

Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

CPI

The inflation rate eased for the second straight

month, reaching the lowest figure since

September 2015 and compared to market

expectations of 5% as food prices rose at a slower

pace. Inflation Rate in India averaged 7.79% from

2012 until 2016, reaching an all-time high of

11.16% in November of 2013 and a record low of

3.69% in July of 2015.

CPI rose in December 2015, reaching the highest

since September 2014, in line with market

expectations.

For quarter 1 of 2015-16, CPI inflation remained

at 5.09%. Thereafter falling to 3.95% for Quarter

2.

Post that CPI inflation rose back to 5.34% in

quarter 3. It continues to be relatively high and

“sticky”, despite the sharp fall in commodity

prices globally, especially crude oil.

Even after a sharp rise in food inflation, CPI has

fallen from 5.34% in the Quarter 3 of 2015-16 to

5.26% in Quarter 4 of 2015-16 due to ease in rural

and urban inflation respectively.

8.117.38

4.97 5.22 5.09

3.95

5.34 5.26

Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16 Q4 15-16

CP

I %

Quarter

CPI Trend

WPI (Wholesale Price Index) – March

The annual rate of inflation, based on monthly WPI,

stood at -0.85% (provisional) for the month of March,

2016 (y-o-y) continuing being within the negative

territory as compared to -0.91% for the previous

month and -2.33% during the corresponding month of

the previous year.

This was driven by a year-on-year increase (2.13%) in

primary articles, steep fall in the fuel and power group

(-8.30%) and little change in manufactured products

(-0.13%).

The WPI basket weightages for primary articles

(largely food items), fuel and power, and

manufactured products stand at about 20%, 15% and

65%, respectively. Month-on-month, primary articles

fell -0.25% while fuel and power and manufactured

products rose 1.65% and 0.39%, respectively.

Quarterly evaluation of WPI

-2.5

-2

-1.5

-1

-0.5

0

Nov-15 Dec-15 Jan-16 Feb-16 Mar-16

WPI

Wholesale prices in India averaged 7.36%

from 1969 until 2016, reaching an all-time

high of 34.68% in September of 1974 and a

record low of -11.31% in May of 1976.

During the first quarter of 2014-15, WPI

inflation stood at 5.8% as mainly food and

fuel prices were high. In the second and third

quarters of 2014-15, WPI inflation declined to

3.8% and 0.5% respectively. The WPI inflation

even breached the psychological level of 0%

in November, 2014 and January, 2015. The

decline was majorly caused by lower food and

fuel prices.

However in 2015-16, WPI has been in

negative zone for all three quarters ending

December 2015. It continued to remain in the

negative territory for quarter 4 of 2015-16

also. However, the graph has been moving

towards the positive region. The main cause

for this was a steep fall in fuel and power.

5.62

3.77

0.53-1.59 -2.47

-4.51

-2.18-0.88

Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16 Q4 15-16

WP

I %

Quarter

WPI Trend

PMI update

Service PMI – March

Economic conditions in India’s service sector

continued to improve in March. This was due to

increase in new business boosted output growth.

However, businesses still operated below capacity, as

backlogs declined for the second straight month and

at the quickest rate in seven years. On the price front,

both input costs and output charges rose at rates that

remained below their respective long-run averages

and were only modest.

At 54.3 in March (February: 51.4), the seasonally

adjusted Nikkei India Services Business Activity Index

recorded its joint-highest level since June 2014 and

pointed to a solid expansion in output. Sub-sector

data indicated that activity rose in five of the six

monitored categories, the exception being Transport

& Storage. Growth of manufacturing production also

gained strength, therefore contributing to a marked

expansion in private sector output.

The Nikkei India Composite PMI Output Index climbed

from 51.2 in February to a 37-month high of 54.3 in

March. Incoming new work in the Indian private

sector economy rose for the ninth month running and

at the fastest pace in over three years. Despite the

solid upturns in new business and output, the trend in

employment remained subdued. Job creation across

the private sector as whole was seen for the sixth

straight month, but the rate of growth remained

fractional overall.

Quarterly evaluation of Service PMI

Services PMI in India averaged 51.56 Index

Points from 2012 until 2016, reaching an all-

time high of 57.50 Index Points in January of

2013 and a record low of 44.60 Index Points in

September of 2013.

The rate of backlog depletion was sharp and

the most pronounced for the fourth quarter

ended March 2016, since March 2009.

The trend in employment showed little-

change through much of 2015-16. Except for

last July where hiring among service providers

was mild, a broadly stagnant labour market

was seen for the past two years. Input costs

across the private sector meanwhile rose at

the quickest rate in three months and charge

inflation likewise accelerated.

The average of Service PMI was seen rising

from third quarter ended December 2015 to

fourth quarter ended March 2016 (52.13 to

53.33). The main reason being sharper

increase in new business spurring activity

growth in service sectors.

Source: www.tradingeconomics.com

Manufacturing PMI - March

India’s manufacturing upturn gathered momentum in

March. Manufacturing PMI rose from 51.1 in February

to and eight-month high of 52.4 in March. There were

stronger inflows of new work.

With the improved domestic demand, producers

recorded an increase in new export business. These

positive developments encouraged companies to buy

more inputs, but workforce numbers were left

broadly unchanged.

On the price front, cost inflation accelerated, while

charges were raised to the greatest extent since

November 2014.

Production growth accelerated to the fastest since

August 2015, amid a stronger upturn in new business

inflows. The latest expansion was widespread across

the three monitored sub-sectors, with consumer

goods posting the quickest rate of increase. March

data highlighted a third successive monthly rise in

order books. This was associated with improved

demand from both domestic and external clients.

New business inflows increased at a solid pace and

one that was the most pronounced since last July.

Growth of new export orders was sustained, but the

rate of expansion remained slight. Buying levels

increased further in March.

Although quicker than in February, the rate of growth

was slight overall.

Quarterly evaluation of Manufacturing PMI

Manufacturing PMI in India averaged 51.93

from 2012 until 2016, reaching an all-time

high of 55 in June of 2012 and a record low of

48.50 in August of 2013. As a consequence of

rising purchasing activity, preproduction

inventories expanded.

The rate of accumulation was slight overall

and in line with those seen throughout the

current four-month sequence of growth.

Manufacturing PMI kept fluctuating for the

first two quarters of 2015-16. Further it

slowed down in the third quarter ended

December 2015. The average being 50.03 for

that quarter. However, the average for the

fourth quarter ended March 2016 rose to

51.53. The reason for this rise was expansion

of output at an accelerated rate. New orders

were also welcomed. There was an improved

demand from both domestic and external

clients.

Source: www.tradingeconomics.com

Core Sector Growth – March

India's infrastructure sectors clocked their highest

growth in 16 months in March 2016, with the index

for core industries climbing 6.4% for the eight sectors

— coal, crude oil, natural gas, refinery products,

fertilizers, steel, cement and electricity. These

sectors, comprising nearly 38% of India’s total

industrial production, had shrunk by 0.7% in the year-

ago month of March 2015.

This rise was mainly due to a sharp growth in the

output of cement, electricity, fertilizers and refinery

products.

Output in refinery products, fertilizer, cement and

electricity jumped by 10.8 per cent, 22.9%, 11.9% and

11.3% respectively in March.

However, crude oil and natural gas recorded negative

growth during the month under review. Coal

production grew by 1.7%, though at a slower pace

than 4.5% recorded in March 2015. Steel output, on

the other hand, grew by 3.4% as against (-) 6.5% in

March 2015. For the full fiscal, the eight core sectors

grew by 2.7% in 2015-16, down from 4.5% in 2014-15.

Monthly evaluation of Core Sector

There has been a continuous slide in core sector

growth from 6.7% in November 2014 to 2.4% in

December, 1.8% in January, 1.4% in February

and to a negative 0.1% in March. It continued

to remain in a negative zone in April. However,

it continued to expand for six months, before it

contracted in Nov 2015 to a negative 1.3%

mainly driven by a decline in steel production.

During April-December 2015 period this fiscal,

the output of these eight sectors slowed to a

1.9% growth from 5.7% growth in the same

period last fiscal.

From December 2015 onwards, core sector

output has grown from 0.9% to 6.4% in March

2016. This growth was due to increase in output

of electricity, cement, fertilizers and refinery

products. Also coal output was seen to increase

in December 2015 and January 2016 which led

to an overall growth.

1.83 1.45

-0.09-0.42

4.4

3

1.1

2.63.2 3.2

-1.3

0.9

2.9

5.76.4

Co

re s

ect

or

dat

a %

Month

Core sector Trend - Monthwise

GDP Q3 - 2015-16

The Indian economy expanded 7.3% year-on-year in

the last three months of 2015, slowing from an

upwardly revised 7.7% growth in the previous quarter.

GDP Annual Growth Rate in India averaged 6.04%

from 1951 until 2015, reaching an all-time high of

11.40 percent in the first quarter of 2010 and a record

low of -5.20% in the fourth quarter of 1979.

GDP at constant (2011-12) prices in Q3 of 2015-16 is

estimated at Rs. 28.52 lakh crore, as against Rs. 26.59

lakh crore in Q3 of 2014-15, showing a growth rate of

7.3%.

Industry analysis of advance estimates of National

Income, 2015-16

Agriculture, forestry and fishing sector likely to grow

by 1.1% as against previous year’s growth rate of (-)

0.2%. The growth in mining and quarrying sector

estimated to be 6.9% as compared to growth of 10.8%

in 2014-15.

The growth manufacturing sector is estimated to be

9.5% as compared to growth of 5.5% in 2014-15,

whereas Electricity, Gas, water supply and other utility

services sector estimated to grow by 5.9% as

compared to growth of 8.0%.

Construction sector estimated to grow by 3.7% as

compared to growth of 4.4% in 2014-15.

Trade, hotels, Transport & communication and

services related to broadcasting estimated to grow by

9.5% as compared to growth of 9.8% percent in Q3

2014-15. Financial, insurance, real estate and

professional services estimated to grow by 10.3% as

compared to growth of 10.6%.

GVA at basic prices for 2015-16 from this sector is

estimated to grow by 6.9% as compared to growth of

10.7% in 2014-15.

7.58.3

6.6 6.77.6 7.7 7.3

Q1 14-15 Q2 14-15 Q3 14-15 Q4 14-15 Q1 15-16 Q2 15-16 Q3 15-16

GD

P %

Quarter

GDP Trend

Scheme for providing Financial Assistance to Urban Cooperative Banks for Implementation of Core

Banking Solution

RBI had announced in its First Bi-monthly Monetary

Policy Statement 2016-17 dated April 5th, 2016 to

prescribe standards and benchmarks for Core

banking solutions (CBS) in Urban Co-operative banks

(UCBs) and provide financial assistance and

technology support through Institute for

Development and Research in Banking Technology

(IDRBT) to those UCBs who have partially

implemented CBS or are yet to implement CBS. The

related cost would be reimbursed to IDRBT.

As a part of the Memorandum of Understanding with

the State Governments on UCBs, RBI agreed to

provide IT support to the UCBs. In pursuance of this,

it facilitated submission of off-site surveillance data

on line by the UCBs by providing necessary technical

support and training to the staff of the UCBs.

The Scheme for Providing Financial Assistance to

Urban Cooperative Banks for implementation of Core

Banking Solution has been introduced.

UCBs which have not yet implemented CBS or

partially implemented CBS will be eligible for financial

assistance under the scheme. Those UCBs which are

under directions imposed under Section 35A of

Banking Regulation Act, 1949 (AACS) will not be

eligible. IDRBT will be the implementing agency.

Steps involved in implementation of the scheme are

prescribed. The migration to CBS will be designed,

developed and supplied by Implementation agency

(IA). The maintenance thereafter and change

requests will be handled by IA. Cost of the package

and the quantum of financial assistance that will be

received from RBI has also been stated.

NBFC-Microfinance Institutions Can Act as Channels for Government Loans

The Non-Banking Financial Company - Micro Finance

Institutions (NBFC-MFIs) (Reserve Bank) Directions,

2011 (the Directions) issued by Reserve Bank of India

(the Bank) vide Notification DNBS.PD.No.234/ CGM

(US) - 2011 dated December 02, 2011 are modified

from time to time.

The notification amending the Non-Banking Financial

Company-Micro Finance Institutions’ (NBFC-MFIs) -

Directions, 2011, has been enclosed. RBI allowed

NBFC-microfinance institutions to act as channelizing

agents for distribution of concessional loans under

special schemes of government agencies.

RBI stated that various government agencies that

provide loans to targeted socioeconomic sections of

the population had approached it to allow them to

use non-banking financial company-microfinance

institutions (NBFC-MFIs) to channelize such loans.

These loans are provided at concessional interest

rates. One of the eligibility criteria for loans granted

by NBFC-MFIs to be treated as 'Qualifying Assets' is

that the variance between the maximum and the

minimum interest rates charged should not exceed

4%. It has been decided that loans disbursed or

managed by NBFC-MFIs in their capacity as

channelizing agents for Central/State Government

Agencies shall be considered as a separate business

segment.

The NBFC-MFIs are hereby granted general

permission to act as channelizing agents for

distribution of loans under special schemes of

Central/State Government Agencies subject to

following conditions –

Accounts and records for such loans as well as funds

received/ receivable from concerned agencies shall

be maintained in the books of NBFC-MFI distinct from

other assets and liabilities, and depicted in the

financials/ final accounts/balance sheet with

requisite details and disclosures as a separate

segment,

Such loans shall be subject to applicable asset

classification, income recognition and provisioning

norms as well as other prudential norms as applicable

to NBFC-MFIs except in cases where the NBFC-MFI

does not bear any credit risk,

All such loans shall be reported to credit information

companies (CICs) to prevent multiple borrowings and

present complete picture of indebtedness of a

borrower.

RBI tweaks rules on bank fraud provisioning to ease burden

RBI has amended rules and released a notification on

provisioning pertaining to fraud accounts, giving

lenders leeway in making provisions. This move is

aimed at easing the burden of banks to provision for

frauds. RBI specified that while computing the

provisioning requirement, banks can adjust financial

collateral eligible under Basel-III norms available for

accounts declared as fraud account.

Under normal circumstances, banks should provide

for immediately when a fraud is detected. This

provision should be for the entire amount due to it or

amount for which the bank is liable (in case of deposit

accounts). But as per the notification, banks can

spread them over a maximum of four quarters,

commencing from the quarter in which the fraud has

been detected, to smoothen the effect of such

provisioning on quarterly profit and loss.

Where the provisioning spills over more than one

financial year (subject to four quarters), banks

would be required to debit "other reserves" by the

amount remaining un-provided at the end of the

financial year as credit for provisioning. Also, banks

should proportionately reverse the debits to "other

reserves" profit and loss account, in the subsequent

quarters of the next financial year. Banks also need

to disclose information on frauds.

First small finance bank started its operations

Punjab-headquartered Capital Local Area Bank

launched the country's first small finance bank on

April 24th, 2016, seven months after the Reserve Bank

of India(RBI) gave its in-principle approval for this

new type of banks.

Capital Small Finance Bank Ltd commenced

operations with 10 branches. Capital Local Area Bank

is one of the 10 companies that received the in-

principle licenses in September 2015, to set up small

finance banks, which are allowed to provide basic

banking services. They have 18 months to comply

with the rules and start operations.

The new small finance bank will operate seven days a

week, a practice that Capital Local Area Bank has

been following for 16 years. Capital Local Area Bank

has 47 branches in Punjab.

The Bank has pioneered in bringing modern banking

facilities to the rural areas at low cost. The bank is

focused on promotion of financial inclusion in the

area of operation by making services available to the

common man. Also the bank is providing efficient and

service oriented repository of savings to the local

community while reducing their dependence on

moneylenders by making need based credit easily

available. Features and achievements of the bank are

stated.

Registration of Indian Insurance Companies

Insurance Regulatory and Development Authority of

India made certain regulations in exercise of the

powers conferred by section 3, 3A and Section 114A

of the Insurance Act, 1938 read with section 26 of the

Insurance Regulatory and Development Authority

Act, 1999.

These Regulations may be called Insurance

Regulatory and Development Authority of India

(Registration of Indian Insurance Companies)

(Seventh Amendment) Regulations, 2016.

Various definitions and clauses stand amended. The

Registration Amendment Regulations have

introduced a number of key changes to the existing

IRDAI (Registration of Indian Insurance Companies)

Regulations 2000, including the following:

An applicant whose Form IRDAI/R1 has been rejected

by the IRDAI can now appeal to the Securities

Appellate Tribunal.

Requests for registration may now be made for life

insurance businesses, general insurance businesses,

health insurance businesses (exclusively) and

reinsurance businesses.

An applicant whose request has been accepted may

apply via Form IRDAI/R2 for a certificate of

registration. In cases where foreign direct investment

in the applicant is more than 26%, Form IRDAI/R2

must be accompanied by, among other things, a

certified copy of approval from the Foreign

Investment Promotion Board (FIPB), in accordance

with the Insurance Companies (Foreign Investment)

Rules 2015.

The manner of calculation of equity capital held by

foreign investors prescribed by Regulation 11 of the

Registration Regulations has been amended to state

that the number of equity shares held by one or more

foreign investors in an applicant will be calculated as

the aggregate of:

the quantum of paid-up equity share capital held by

the foreign investors, including foreign venture

capital investors in the applicant; and

the proportion of the paid-up equity share capital

held or controlled by the foreign investor either by

itself or through its subsidiary companies in the

Indian promoter(s) or Indian investor(s) as

mentioned above

However, this does not apply to Indian promoters or

investors which are banking companies or public

financial institutions.

Indian insurers which have already been granted a

certificate of registration for carrying out insurance

business in India must comply with the norms

pertaining to 'Indian owned and controlled' (for

further details please see "IRDAI issues guidelines on

'Indian owned and controlled'") within the period set

out by the IRDAI, as specified in Section 2(7A) of the

Insurance Act 1938.

New formats for Form IRDAI/R1 and Form IRDAI/R2

have been introduced.

Although all of the changes introduced by the

Registration Amendment Regulations will affect

entities proposing to operate as insurers in India, the

amendments made to Regulation 11 will, in all

probability, have the most lasting impact.

Interestingly, even before the amendments the

regulator's approach to calculating foreign

investment in an Indian insurer was to include no

foreign investment in the Indian promoter of an

Indian insurer where the foreign investment was not

made by a shareholder of the Indian insurer.

If this approach was altered, the existing structures of

some of the major Indian insurers would come under

scrutiny. However, Regulation 11 has been amended

to provide that the total foreign investment in an

Indian insurer will be:

the sum of the paid-up equity share capital held by

the foreign investor(s) (including foreign venture

capital investors) in the applicant; and

the proportion of the paid-up equity share capital

held or controlled by the foreign investor(s) either by

itself or through its subsidiary companies in the

Indian promoter(s) or investor(s) of the applicant

entity.

From a plain reading of the amended Regulation 11,

it appears that the IRDAI has adopted the approach

that the shareholding of a foreign investor in an

Indian promoter or investor will be considered when

calculating the total foreign investment in an Indian

insurer only if:

the foreign investor is a shareholder in the Indian

insurer; and

the foreign investor is also a shareholder in the Indian

promoter(s) or investor(s).

This amendment will undoubtedly be welcomed by

the insurance industry.

The Registration Amendment Regulations also

require a copy of the FIPB's approval to be provided

if the quantum of foreign investment in the applicant

entity is more than 26%. However, since the

publication of the Registration Amendment

Regulations, the Department of Industrial Policy and

Promotion has amended the Consolidated FDI Policy

2015, pursuant to which up to 49% foreign

investment in Indian insurers and insurance

intermediaries has been brought under the

automatic route. In view of these changes, it is

anticipated that the Registration Amendment

Regulations will be amended further in order to bring

them in line with the Consolidated FDI Policy 2015.

.

.

Major ports add record capacity in FY 2016 Union Minister of Shipping, Road Transport and

Highways Shri Nitin Gadkari has said that the

Financial Year 2015-16 has been historic for the Port

sector in the country, with 94 MTPA capacity added

through 34 capital investment projects which is the

highest in major ports history. National Sagarmala

Apex Committee (NSAC) approved National

Perspective Plan on Sagarmala.

Projects worth Rs 72,818 crore have been awarded

for ports modernization as well as new port/terminal

development. The Major Ports have increased their

operating profits from Rs. 3593 Crore in 2014-15 to

Rs. 4,268 Crore in 2015-16.

The minister said efficiency improvement has

lowered logistics cost for the trade, creating a

estimated benefit of about Rs 500 crore per year. The

forthcoming Maritime India Summit would be a game

changer. The port led development has potential for

direct employment generation for 40 lakh persons

while indirectly for 60 lakh persons.

India has 12 major ports - Kandla, Mumbai, JNPT,

Marmugao, New Mangalore, Cochin, Chennai,

Ennore, V O Chidambarnar, Visakhapatnam, Paradip

and Kolkata (including Haldia), which handle

approximately 61 per cent of the country's total cargo

traffic.

Infrastructure debt funds

The Finance Minister had in his budget speech for the

year 2011-2012 had announced the setting up of

Infrastructure Debt Funds (IDFs), which facilitated the

flow of long-term debt into infrastructure

projects. The Reserve Bank had vide its Press Release

dated September 23, 2011, issued broad parameters

for banks and NBFCs to set up IDFs.

RBI considered it necessary in the public interest and

on being satisfied that for the purpose of enabling the

Bank to regulate the credit system to the advantage

of the country, gave the directions vide notification

No.DNBS.233/CGM(US)-2011 dated November 21,

2011, in exercise of the powers conferred by sections

45JA, 45K, 45L and 45M of the Reserve Bank of India

Act, 1934 (2 of 1934). These directions were

.

known as Infrastructure Debt Fund-Non-Banking

Financial Companies (Reserve Bank) Directions, 2011.

These directions prescribed detailed guidelines on

the regulatory framework for NBFCs to sponsor IDFs

which are to be set up as NBFCs.

RBI issued a notification is terms of the extant

instructions. The notification said that IDF-NBFCs are

now allowed to raise resources through issue of

bonds of minimum five year maturity. On a review,

with a view to facilitate better ALM, it has been

decided in consultation with the Government of

India, to allow IDF-NBFCs to raise funds through

shorter tenor bonds and commercial papers (CPs)

from the domestic market to the extent of up to 10%

of their total outstanding borrowings.

.

Amendment of Guidance Note on SEBI (Prohibition of Insider Trading) Regulations, 2015

Guidance Note on SEBI (Prohibition of Insider

Trading) Regulations, 2015 (“PIT Regulations”) was

issued on August 24, 2015 under regulation 11 of the

PIT Regulations providing guidance to the market to

remove certain difficulties in the interpretation or

application of the provisions of the regulations.

It stated that buy back offers, open offers, rights

issues, FPOs, bonus, etc. of a listed company are

available to designated persons also, and restriction

of ‘contra-trade’ shall not apply in respect of such

matters.

Subsequently, the Securities and Exchange Board of

India (Issue of Capital and Disclosure Requirements)

Regulations, 2009 were amended with effect from

February 17, 2016 to provide for exit opportunity to

dissenting shareholders in terms of sections 13 and

27 of the Companies Act.

Hence the Guidance Note dated August 24, 2015 on

SEBI (Prohibition of Insider Trading) Regulations,

2015 has been amended to clarify that exit offer is

also exempted from the restriction on contra trade

under the PIT Regulations.

Sources: National Stock Exchange

Sources: Bombay Stock Exchange

Poor March quarter earnings from country’s largest

private sector bank ICICI bank and weak global cues

caused Sensex to end in month of April flat. F&O

contract expiry-Thursday for April saw Sensex closing

at 25,603. 10 points or 1.77 percent down. While

Nifty50 ended at 7,847.25 points down or 1.66

percent. The major reason for the fall can be

attributed to slowest pace of US GDP growth for 1st

quarter since 2014 at around 0.5 percent. Also,

markets reacted to Bank of Japan’s decision to keep

its monetary policy steady, despite Japanese

economy dipping into deflation for the first time since

2013.

Persistent foreign capital inflows boosted the rupee

value against the dollar to some extent .

Sources: APAS Business Research Team

Sources: APAS Business Research Team

Sources: APAS Business Research Team

7759

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CNX Nifty (April-2016)

25400

24685

25146

2588025679 25603

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BSE Sensex (April-2016)

17.45

16.94 16.9516.35

0.00

5.00

10.00

15.00

20.00

25.00

Indian VIX (April-2016)

66.52

66.2966.42

66.68

66.40

65.60

65.80

66.00

66.20

66.40

66.60

66.80

67.00

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$/₹ (April-2016)

7.467.45

7.42 7.427.44

7.47

7.36

7.38

7.40

7.42

7.44

7.46

7.48

7.50

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GIND10Y (April-2016)

* The Economist poll or Economist Intelligence Unit estimate/forecast; ^ 5 year yield

Quarter represents a three month period of a financial year

Countries GDP CPI Current Account

Balance Budget Balance

Interest Rates

Latest 2016* 2017* Latest 2016* % of GDP, 2015* % of GDP,

2015* (10YGov), Latest

Brazil -5.9Q4 -3.6 0.6 9.4 Mar 8.3 -1.9 -5.4 12.9

Russia -3.8 Q4 -1.5 1.1 7.3 Mar 8.4 3.9 -2.2 9.12

India 7.3 Q4 7.5 7.5 4.8 Mar 5.2 -1.0 -3.7 7.44

China 6.7 Q1 6.5 6.2 2.3 Mar 1.7 2.8 -3.0 2.68^

S Africa 0.6 Q4 0.7 1.4 6.3 Mar 6.2 -4.1 -3.3 8.93

USA 2.0 Q4 2.0 2.2 0.9 Mar 3.0 -2.6 -2.5 1.79

Canada 0.5 Q4 1.6 2.0 1.4 Feb 1.5 -2.7 -1.4 1.34

Mexico 2.5 Q4 2.4 2.7 2.6 Mar 2.7 -2.8 -3.0 5.83

Euro Area 1.6 Q4 1.4 1.6 nil Mar 0.3 2.8 -1.9 0.17

Germany 1.3 Q4 1.5 1.6 0.3 Mar 0.3 7.7 0.4 0.17

Britain 2.1 Q4 2.0 2.1 0.5 Mar 0.6 -4.2 -3.6 1.56

Australia 3.0 Q4 2.5 2.8 1.7 Q4 1.9 -4.0 -2.0 2.56

Indonesia 5.0 Q4 5.1 5.3 4.4 Mar 4.7 -2.4 -1.9 7.40

Malaysia 4.5 Q4 5.5 5.4 2.6 Mar 2.9 2.7 -3.7 3.81

Singapore 1.8 Q1 2.8 3.4 -0.8 Feb 1.3 20.4 0.9 1.91

S Korea 3.1 Q4 2.6 2.7 1.0 Mar 1.3 7.5 0.5 1.81

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