Indian Banking Industry Update

17 April 2017

RBI / MoF / Govt. PoliciesValue of RBI exposure in US bonds at year's low

N.K. Singh panel backs proposal to scrap SLR requirements for banks

Public Sector Banks / Private Finance Ministry expects 6 banks to raise funds via FPO as market improves

FRBM panel suggests higher capital infusion for PSBs

Bank credit in FY17 grew 5.1% to Rs 3.81 lakh cr

NPA window closing, banks face a big hit

Banks seek changes in debt rejig norms

Banks surpass PM's a million more PoS target

Banks want RBI, finance ministry to tweak CDR norms

Withdrawal trend reverses in Jan Dhan accounts; deposits up Rs 1,000 crore

Bank Board’s proposal on salary gets RBI shock

SBI slips on tractor loan settlement plan

Mahabaleshwara assumes charge as Karnataka Bank MD

Axis Bank touches 1 million micro-borrowers mark

Growth overrides slip in DCB Bank’s asset quality

How Union Bank was hacked and got its money back

Co-operative Banks/RRBsForeign Banks / FIIs / I-Banks

’Merge govt, central bank budgets for better fiscal outcomes’

Rating & ResearchDecline in bank lending rates unlikely

ATMs, Credit & Pre-paid CardsManappuram Finance launches co-branded prepaid Money Card

Visa and Mastercard don't want to lose out to UPI, BHIM, lobby government

Govt may soon allow 100% FDI in cash, ATM management cos

Razorpay plans overseas foray

Wishfin sets e-loan disbursal target at $1 billion this fiscal

Proposed RBI norms worry mobile wallets

Housing FinanceDevelopment BanksNBFCs / FIs / MFI

Wholesale banks a must for financing infra needs

Home, Vehicle loans save the day for NBFCs

Farm loan waivers may hurt NBFCs

Hudco loans Rs 800 crore to MSRDC project

This year, the market will see a lot of surprises: Dharmesh Mehta, Axis Capital

Mutual Funds & AMCs Sebi asks MFs to explain promoter group exposure to AUMs

Cash levels in equity MFs double in 4 months

Fast-track divestment: SUUTI stake-sale among top options

Mutual funds stock up on SBI, ICICI Bank

UTI launches new mutual fund plan for senior citizens

Investors should not worry about short-term market volatility: CEO Axis MF

Volatility suite of products - a necessity in new global financial order

Equities, Pvt. Equity & Hedge FundsBlackstone JVs gear up for Reits; to file prospectus by December

How a bunch of new funds is hoping to cash in on risky early stage investments

FPIs' net inflow at Rs 16,500 cr in April so far

Sebi set to block P-Note route for NRIs to prevent laundering of black money

IDFC bucks the trend, on course to meet exit targets

Govt. Securities & Bonds Trading in corporate debt securities hits record 14.7 lakh cr in 2016-17

Masala bonds keep taste

EPFO weighs exit policy to maximise returns on investments

Brokers / DistributorsBourses

Now, investors get updates on BSE-listed cos round-the-clock

International China’s shadow banking rebounds in March, household loans surge despite curbs

EconomyMarket falls by 245 points to 29,461.45 for the week

Indian corporates' results to remain poor in Q4 FY17; autos revenue to degrow by 46.32%

Closing

RBI / MoF / Govt. Policies

Value of RBI exposure in US bonds at year's low Saikat DasThe Economic Times(Apr 17)

Mumbai: A spike in US bond yields may be pulling down the value of India's investments in an asset that is seen as the safest in theworld.

The Reserve Bank of India's investments in US Treasuries have shrunk to their lowest in a year and half, which market expertsprimarily blame on mark-to-market losses. Bond prices move in the opposite direction of yields. So, a spike in yields means a dropin prices and an erosion in the market value of the securities held.

In January , RBI's investments in US Treasuries totalled $113.7 billion, the lowest since September 2015, show Bloomberg data.The holding was 8.08% less than its peak in July last year.

This may have prompted the central bank to bet on relatively highyielding foreign bank deposits, while partially shifting from USsovereign papers, experts said.

The RBI didn't respond until press time Sunday to an email seeking comment. ET spoke to five market participants, who attributed acocktail of reasons for the drop in RBI's US Treasury holding.

“The US yields rose significantly over a period of time,“ said Anindya Banerjee of Kotak Securities.“Probably,the central bank has incurred mark-to-market losses.“ The 10-year US Treasury yield surged more than a percentage pointbetween July last year and this January . One and a half year earlier, the Treasuries were almost at the level compared to January .Now the benchmark is yielding 2.24%, coming off the January level.

The RBI could earn a little more from bank short-term deposits in the US than investing in Treasuries.It is now prudent to look atthose short-ter m rates as the US Treasuries are expected to peak in the next two-three quarters, with the Federal Reserve raisingfund rates further, said an economist from a large foreign bank.

Bond yields in the market adjust themselves with policy rates.

India is the 11th largest holder of US sovereign debt securities, but its market share of 2% is seen as meagre. The country startedinvesting in US Treasuries in January 2002.Japan and China continue to be the top two investors of those papers with their

investments running more than a $1 trillion each. Ireland and Brazil have ranked third and fourth with investments in the range of$250-300 billion. Taiwan beat India by one notch as its investment was at $183.6 billion in January .

The latest fall in RBI's holdings in US bonds may be attributed to maturing of banks' special dollar deposits known as FCNR, raisedthree years earlier to check a free-falling rupee then.

“RBI might have withdrawn the dollars to address the contingency of FCNR repayments,“ said Madan Sabnavis, chiefeconomist at C A R E Ratings.

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N.K. Singh panel backs proposal to scrap SLR requirements for banks Asit Ranjan Mishramint(Apr 17)

New Delhi: A key government department has advocated scrapping the rule mandating banks to invest a fixed portion of theirdeposits in government bonds, a view that has found support in the N.K. Singh committee reviewing rules on fiscal discipline.

In its discussions with the committee, the department of financial services in the finance ministry suggested an end to statutoryliquidity ratio (SLR) requirements that force banks to buy bonds, reducing their lending capability. The committee led by Singh, aformer revenue secretary, is reviewing India's rules governing fiscal responsibility and budget management (FRBM).

Last April, the Reserve Bank of India (RBI) started reducing SLR by 0.25 percentage point every quarter, and allowed over half ofthese holdings to meet the Basel-mandated liquidity coverage ratio.

Currently, the SLR stands at 20.5% of total bank deposits.

“Economists generally advocate quick SLR phase out as one of the policy instruments to end the lazy/cautious bankingsyndrome and also make the governments more receptive to discipline of open markets rather than relying on financial repression.Presently—when most banks are holding government securities in excess of minimum SLR—it is the opportune timeto wind up SLR,” the committee report said, quoting the department’s view.

Apart from Singh, other members of the committee including chief economic adviser in the finance ministry Arvind Subramanian,National Institute of Public Finance and Policy director Rathin Roy, Reserve Bank of India governor Urjit Patel and former financesecretary Sumit Bose met officials of key central government departments to seek their views on various fiscal policy issues.

The members also sought the opinion of economic affairs secretary Shaktikanta Das on whether SLR should be dispensed with.

“Urjit Patel pointed out that SLR was partly used to hold government bonds. Secretary (economic affairs) mentioned that ason date, most banks have more than the 21% stipulated SLR. However, before taking any call on the issue, the role of SLR asassets in the context of huge NPAs (non-performing assets) of banks will need to be kept in view,” the report said, citing theinteraction between Das and members of the committee.http://www.livemint.com/Industry/X3yE7zgGy4POfqLn3bOTxI/NK-Singh-panel-backs-proposal-to-scrap-SLR-requirements-fo.html

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Public Sector Banks / Private

Finance Ministry expects 6 banks to raise funds via FPO as market improves PTISee this story in: The Economic Times(Apr 17)

New Delhi: Stock prices on the mend, the Finance Ministry will nudge at least six public sector banks to hit markets to raise fundsand ease the pressure on the exchequer of pumping in capital as per the Indradhanush plan.

"Time has come for banks to tap the capital market and we think that at least half a dozen banks would take advantage of theopportunity and raise capital from the market during the current fiscal," a senior finance ministry official told PTI.

"It is up to individual banks to decide when they want to raise capital and how much, but in our assessment, there are a few fitcandidates for this, including State Bank of India, Bank of Baroda and Punjab National Bank," the official said.

As per the scheme, public sector banks need to raise Rs 1.10 lakh crore from markets, including follow-on public offer, to meetBasel III requirements, which kick in from March 2019.

This will be over and above Rs 70,000 crore banks will get as capital support from the government. Of this, the government hasalready infused Rs 50,000 crore in the past two fiscals and the remaining will be pumped in by the end of 2018-19.

SBI has already taken board approval for raising up to Rs 15,000 crore through various means, including public offer and overseas

issuance of shares, during the current fiscal.

The funds will be raised either through follow-on public issue, qualified institutional placement, rights issue, private placement,Global Depository Receipt, American Depository Receipt or a combination of these, SBI had said last month.

The fund-raising will be done at an opportune time or as may be approved by the government and the RBI, it added. The BSEbanking index has jumped to 24,700 from 21,600 in the past three months.

Meanwhile, the government will continue to support public lenders based on requirements as was announced by the financeminister in his Budget speech, the official said.http://economictimes.indiatimes.com/markets/stocks/news/finance-ministry-expects-6-banks-to-raise-funds-via-fpo-as-market-improves/articleshow/58207814.cms

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FRBM panel suggests higher capital infusion for PSBs Sunny Verma The Indian Express(Apr 16)

New Delhi: A government-appointed committee to rewrite the fiscal responsibility laws has suggested the Centre to infuse muchhigher capital than Rs 70,000 crore committed under the Indradhanush plan over a four-year period ending March-2019. Highercapital infusion at a faster pace is required for the state-owned banks dealing with rising stressed assets, which erode the capitalbase, the committee tasked to review the Fiscal Responsibility and Budget Management (FRBM) Act has said in its report.

Citing rising losses of state power distribution companies or discoms as a main contributing factor to stress in bank balance sheets,the Committee has also suggested key changes in the Ujwal Discom Assurance Yojana (UDAY) to deal with the issue effectively. Itsaid the states should take over 100 per cent of the debt of their respective discoms, instead of the earlier provision 75 per cent.

This will further reduce the interest costs for the discoms and raise their average revenue realised (ARR).

“There should not be further bank financing of operating losses of discoms and instead, state governments should make afirm commitment to underwrite the shortfall in the revenue of discoms as equity or interest free loan on an annual basis,” thecommittee said in its report. It also recommended that the food credit to centralised procurement states to be routed only throughthe Food Corporation of India (FCI), guaranteed by the central government.

This would streamline the process, improve the efficiency, and minimise disputes between the procuring states and the FCI thatlead to persisting irregularity in the food credit account of the concerned states, it said.

Noting that the banks’ stressed assets have risen to 9.1 per cent by September 2016 from 5.1 per cent in September 2015,the Committee said: “the newly designed UDAY scheme aims to improve the financial health of power utilities, but it solvesonly the debt “stock” problem whereas the “flow” problem continues to exist.” Under the UDAYscheme, 75 per cent of the “stock” of debt outstanding as on September 30, 2015 is envisaged to be taken over bythe state governments over a two- year period, but 25 per cent of the debt outstanding as on September 30, 2015 will, however,remain in the books of the discoms.

“The debt that will continue to be in the banks’ books will be charged an interest of 0.1 per cent over the base rate.Despite the renegotiation of the interest rate, the discoms will have a “flow” of operating losses because their averagecost of supply will continue to be higher than the average revenue realised,” the committee headed by former revenuesecretary NK Singh said in its four-volume report released on Thursday.

Infrequent revisions in electricity tariffs and their implementation by the State Electricity Regulatory Commissions, as well as thehigh aggregate technical and commercial (AT&C) losses mean that discoms will continue to incur losses. The committee, therefore,suggested the state government taking over entire debt of discoms and underwriting any shortfall in revenue of discoms as equity orinterest free loan on an annual basis.

On capital infusion in public sector banks, the panel said the commitment by the Centre for infusing Rs 70,000 crore in four years isinadequate. The finance ministry has estimated banks capital needs at Rs 1.80 lakh crore by March 2019, of which it expects banksto raise Rs 1.10 lakh crore from market and internal accruals.

It noted that banks’ capital needs are much higher as the “NPAs of banks have increased, partly due to recognition ofbad assets, affecting banks’ profitability and their ability to augment their capital base through internal accruals.” Thequantum of capital infusion by the government perhaps may need to be much higher and at a pace quicker than the earlierestimations and commitments, it said.http://indianexpress.com/article/business/economy/stress-in-bank-balance-sheets-frbm-panel-suggests-higher-capital-infusion-for-psbs-4614829/

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Bank credit in FY17 grew 5.1% to Rs 3.81 lakh cr Deccan Herald(Apr 16)

Mumbai: Bank credit during 2017 grew 5.1% to Rs 3,81,390 crore, according to data released by the Reserve Bank of India.

Outstanding bank credit as on March 31, 2017, stood at Rs 78,81,890 crore, the RBI said. According to reports, the bank creditgrowth for the fiscal ended March 31, 2017, is the lowest in over 60 years.

Aggregate deposits for scheduled commercial banks rose Rs 2,63,110 crore to Rs 1,08,05,150 crore in the fortnight till March 31,2017, the RBI said.

Rating agency Icra believes that banks, especially public sector banks (PSBs), have been reporting dip in net interest income due toslower credit growth and various other reasons.

“With asset quality pressures, banks, especially the weaker PSBs have been reporting a continuous degrowth in their netinterest income (NII) over the five consecutive quarters of Q3FY2016 to Q3FY2017 mainly on account of slower credit growth,reversal of interest income recognised on accrual basis on NPA accounts and increase in NPA levels resulting in decline in earningassets,” ICRA had stated recently.

Icra also believes that banks are likely to report weak profits in the current fiscal (FY18).“Weakening cost to income ratios for PSBs and elevated credit costs is expected to result in weak net profitability of bankswith estimated profit after tax of 5-10 basis points for FY2018,” Icra had stated recently. This will translate into low single digitreturn on equity (RoE) for PSBs; while RoE for the private banks is projected to be over 10% for private banks during FY2018,states Icra.http://www.deccanherald.com/content/606575/bank-credit-fy17-grew-51.html

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NPA window closing, banks face a big hit Saloni ShuklaThe Economic Times(Apr 17)

Mumbai: Indian banks are expected to report record provisions for the quarter ended March due to lack of bad loan restructuringdeals and the Reserve Bank of India ruling out any regulatory leniency on norms, industry watchers say . Bulk of the asset qualityconcern is arising out of old non-performing assets (NPAs) that remain unprovided for.

“RBI asset quality review in FY16 led to high NPAs, and due to weak recoveries till date, provision levels are likely to remainelevated,“ said Alpesh Mehta, head of BFSI (banking, financial services, insurance) at Motilal Oswal Financial Services.

“We expect pressure on asset quality to continue as resolution in the steel sector is delayed; some large accounts may berecognised as NPAs, and the lag impact of demonetisation may result in slippages from small value accounts,“ he said.

Rating agency ICRA has projected that gross non-performing assets will increase to 9.7%-10% at `7.5-7.7 lakh crore by the end ofFY17 and to `8.2-8.5 lakh crore, or 9.9%-10.3%, by the end of FY18 with upside risks in case of slower resolution of strategic debtrestructuring (SDR) accounts leading to higher slippages. As many as 61 large borrowers having a total debt of `2.45 lakh crore, arecurrently undergoing a resolution through the SDR scheme and their debt continues to be classified as “standard“ dueto applicability of the sunset clause.

Kartik Srinivasan, group head financial sector ratings at ICRA, said that in most cases SDR was invoked after the second and thirdquarters of 2015-16 onwards. “Due to limited success seen in resolution of the SDR accounts and the impending expiry ofthe 18-month period on the applicability of the standstill clause for asset classification, the reported NPA numbers are likely toincrease by the end of FY17 and FY18,“ he said.

The jump in yields during the quarter is also expected to deal a blow to banks' earnings as trading gains are expected to come insignificantly lower in the fourth quarter.Earnings would also remain under pressure due to weak core revenue and elevated creditcosts.

“Banking sector trends continue to remain anaemic with muted credit growth, margin tailwinds and limited treasury gainsfollowing adverse movement in the yields. This in addition to asset quality headwinds will see provisioning remain higher,“Centrum Broking said in a report. The brokerage expects banks to report a modest 0.6% yearon-year growth in net-interest incomeand pre-provisioning profits declining 15% YoY.

Private banks are expected to report divergent perfor mances.Those with high corporate exposure are expected to report subduedperformance across parameters like slower loan growth, muted fee income and asset quality issues.

“The retail-tilted and tier II private banks are expected to continue to sail smoothly in Q4 as well with healthy loan growth,stable net interest margins, and improving asset quality trends,“ saidsaid Darpin Shah of HDFC Securities.

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Banks seek changes in debt rejig norms Vishwanath NairHindustan Times(Apr 17)

Mumbai: Bankers have asked the Reserve Bank of India and the finance ministry to tweak the corporate debt restructuring (CDR)

norms such as allowing turfing out the management and changing the covenants of loan agreements, said executives privy to thediscussions.

After the failure of such schemes as the strategic debt restructuring (SDR) scheme and the scheme for sustainable structuring ofstressed assets (S4A), bankers want to return to the at least 15-year old CDR mechanism to solve the Rs.7 lakh-crore toxic debtproblem. At the monetary policy announcement earlier this month, RBI governor Urjit Patel had said that the regulator will come outwith new guidelines to deal with stressed assets.

DNA had first reported the reviving interest in CDR in March quoting SBI chairman Arundhati Bhattacharya.

“The CDR cell gives us a lot more flexibility in trying to solve a stressed case. There is no onesize-fits-all solutionhere,” said the deputy managing director of a large public sector bank speaking on condition of anonymity. “In arecent meeting we have discussed these proposals to amend the CDR with RBI and the finance ministry.”

The key part of the proposal is this: bankers need powers to push errant borrowers to give up ownership and voting rights, effect amanagement change and even split the debt into sustainable and unsustainable parts to better restructure loans. “Allrestructuring proposals will be undertaken with the approval of the overseeing panel, so that there are no concerns ofmalpractice,” the banker cited earlier said.

To be sure, some of these facilities like converting debt into equity or into sustainable and unsustainable parts are available underdifferent rules such as S4A and SDR, but the rules for invoking them are quite rigid. Under current CDR rules, banks can convertonly 10% of debt into equity. They also don’t allow bankers to change covenants of the loan agreement, which greatly limitsthe ability of lenders to restructure the asset.

“When you cannot change the structure of the loan, then you have not achieved any restructuring,” a second bankersaid.

“Now that we have provided for most stressed cases under the asset quality review, there is no question of saving onprovisions. We feel that the CDR cell is best placed to restructure the loans,” the first banker cited earlier said.

According to data available with the CDR cell, loans worth over Rs.2 lakh crore were live and were being restructured under the cellas on December 31.

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Banks surpass PM's a million more PoS target Saloni ShuklaThe Economic Times(Apr 16)

Mumbai: Banks are on an overdrive when it comes to installing point-of-sale (PoS) machines, having surpassed the target ofinstalling 10 lakh additional machines in the wake of demonetisation before the March-end deadline.

Prime Minister Narendra Modi had in December asked the banks to install a million additional PoS terminals within four months.Thebanks achieved the target as they stepped on the gas to protect their turf against payment apps too, people privy to the figures said,although the Reserve Bank of India releases official data with a one-month lag.

State Bank of India, Axis Bank and HDFC Bank took the lead by installing more than 7 lakh PoS terminals. SBI installed nearly 3lakh PoS terminals, while HDFC Bank installed 2.3 lakh and Axis Bank 1.9 lakh terminals. At the end of February , SBI's PoSnetwork climbed to more than 5 lakh terminals and it plans to double its network in the next six-eight months.

“The government wants a quantum jump in PoS terminals, but the future course will depend on the traction we receive on theground,“ said Mrityunjay Mahapatra, deputy managing director, SBI. “The first step obviously is the creation ofinfrastructure, but with the PoS technology changing every three-four years, we need to focus on monetisation as well.“

According to the RBI data, the number of PoS terminals in the country grew to more than 22.2 lakh at the end of February 2017from 17.6 lakh at the end of December 2016. At the end of March 2016, India had 13.8 lakh PoS terminals.

Axis Bank, which installed nearly 1.9 lakh terminals, set up a total of 2.5 lakh terminals in 2016-17. Till February , its PoS networkstood at more than 3.9 lakh terminals.

“The scale of PoS installation in the last few months has been significantly higher than what was planned previously ,“Sangram Singh, senior vice president-cards and merchant acquiring at Axis Bank, told ET. “In fact, in March alone, thenumber of PoS installations was more than the installations done in the previous year.“

Singh said future PoS installations will depend on how fresh demand evolves across different merchant segments and differentproduct options with the launch of Bharat QR, UPI and Aadhaar Pay .

“The focus will also be to get transactions happening on these terminals. Right now, we have done a lot of installations, butthe growth of spends needs to continue for it to give some results,“ he said. “At Axis Bank, we have also been runningprogrammes and promotions to activate and drive usage at small merchant partners, especially focusing on the ones who havestarted accepting digital payments for the first time."http://economictimes.indiatimes.com/markets/stocks/news/banks-surpass-pms-a-million-more-pos-target/articleshow/58193123.cms

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Banks want RBI, finance ministry to tweak CDR norms Vishwanath Nairmint(Apr 17)

Mumbai: Bankers have asked the Reserve Bank of India (RBI) and the finance ministry to tweak the corporate debt restructuring(CDR) norms, such as allowing turfing out the management and changing the covenants of loan agreements, said executives privyto the discussions.

After the failure of schemes such as the strategic debt restructuring (SDR) scheme and the scheme for sustainable structuring ofstressed assets (S4A), Indian bankers want to return to the at least 15-year-old CDR mechanism to solve the Rs7-trillion toxic debtproblem. At the monetary policy announcement earlier this month, RBI governor Urjit Patel had said that the regulator will come outwith new guidelines to deal with stressed assets.

DNA had first reported the reviving interest in CDR in March citing State Bank of India (SBI) chairman Arundhati Bhattacharya.

“The CDR cell gives us a lot more flexibility in trying to solve a stressed case. There is no one-size-fits=all solutionhere,” said the deputy managing director of a large public sector bank, speaking on condition of anonymity. “In arecent meeting, we have discussed these proposals to amend the CDR with RBI and finance ministry.”

The key part of the proposal is this: bankers need powers under this rule to push errant borrowers to give up ownership and votingrights, effect a management change and even split the debt into sustainable and unsustainable parts to better restructure loans.

“All restructuring proposals will be undertaken with the approval of the overseeing committee, so that there are no concernsof malpractice," the banker cited earlier said.

To be sure, some of these facilities like converting debt into equity or into sustainable and unsustainable parts are available underdifferent rules such as S4A and SDR, but the rules for invoking them are quite rigid. Under the current CDR rules, banks canconvert only 10% of debt into equity.

They also don’t allow bankers to change covenants of the loan agreement and change the tenor of the loan, which greatlylimits the ability of lenders to restructure the asset.

“When you cannot change the structure of the loan, then you have not achieved any restructuring. The whole exercisebecomes moot,” said the second banker cited earlier.

“This sounds like a potential way for banks to address a stressed account. If they can detect the stress early on, it’spossible to recognise and address it quickly with minimal impairment,” said Nikhil Shah, managing director, Alvarez andMarsal India, a stressed assets consultancy. “A structure which allows lenders to restructure debt to a sustainable levelwould be very helpful. Along with the insolvency process, stressed accounts could be resolved, which would preserve value forlenders.”

The CDR cell was popular in 2011-2014 when problem of non-performing assets (NPAs) started to take root. Then bank couldrestructure assets without any additional provisions and still call these bad loans as standard assets. From April 2015, thisforbearance was withdrawn. Following this, lenders had stopped sending cases to the CDR cell for restructuring.

"Now that we have provided for most stressed cases under the asset quality review (AQR), there is no question of saving onprovisions. We feel that the CDR cell is best placed to restructure these loans,” the first banker cited earlier said.

According to data available with the CDR cell, loans worth over Rs2 trillion were live and were being restructured under the cell ason 31 December. The cell has seen loans worth Rs1.25 trillion exit owing to failure, while loans worth Rs70,851 crore had exitedsuccessfully during the same period.http://www.livemint.com/Industry/mhWTPwDT6PMLh8OxlIl5MM/Banks-want-RBI-finance-ministry-to-tweak-CDR-norms.html

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Withdrawal trend reverses in Jan Dhan accounts; deposits up Rs 1,000 crore PTISee this story in: The Times of India(Apr 17)

New Delhi: Arresting the trend of withdrawals that began in December, the net balance in Jan Dhan accounts swelled by Rs 1,000crore to Rs 63,971.38 crore during the week ended April 5.

The net balance in the accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY) was Rs 62,972.42 crore on March29, as per the Finance Ministry's data.

Total deposits in these accounts had increased to a record high of Rs 74,610 crore on December 7 and thereafter, started declininggradually.

As per the PMJDY data for April 5, it is for the first time the net balance in the accounts has shown an increase on a weekly basis.

PMJDY was launched in August 2014 to increase banking penetration and promote financial inclusion in the country.

Meanwhile, the number of Jan Dhan accounts have increased to 28.23 crore of which 18.50 crore have been seeded with Aadhaar.

The deposits in the accounts had surged following demonetisation of old Rs 500/1000 notes in November last year.

After setting a cash deposit limit of Rs 50,000 in Jan Dhan accounts, the government had on November 18 cautioned accountholders that they will be prosecuted under the I-T Act for allowing misuse of their bank accounts through deposit of black money inRs 500/1,000 notes during the 50-day window till December 30.

The directive came against the backdrop of reports that some persons were misusing other people' bank accounts to depositdemonetised notes.http://timesofindia.indiatimes.com/business/india-business/withdrawal-trend-reverses-in-jan-dhan-accounts-deposits-up-rs-1000-crore/articleshow/58206281.cms

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Bank Board’s proposal on salary gets RBI shock Mayur ShettyThe Times of India(Apr 17)

Mumbai: RBI's proposal to put curbs on salaries of CEOs of banks with weak financials might take the wind out of the Banks BoardBureau's recommendation that chiefs of public sector banks (PSBs) be paid market-driven salaries.

Last Monday, the Banks Board Bureau an advisory body created by the government in April 2016 issued a statement on theproposals that it had made to the government. Top of the list was its recommendations on the roles, responsibilities, remunerationand service conditions of non-executive chairmen as well as the remuneration of non-executive directors in PSBs 'to ensure thatlevel-playing field with private sector banks is established to attract high quality personages'.

Last week, RBI proposed its prompt corrective action (PCA) norms that banks, which do not meet financial parameters set by thecentral bank, would face restrictions on compensations for directors and CEOs. The restriction on compensation has beenrecommended for banks that breach the third-level threshold when it comes to either equity, bad loans or profitability. IndianOverseas Bank, with NPAs of 14% has already breached the third-level threshold.

CEO compensation has been a key issue with PSBs as there is huge discrepancy with private sector. For instance, SBI chairmanArundhati Bhattacharya's annual compensation for 2015-16, according to the bank's annual report, was Rs 31.1 lakh (includingincentives of Rs 7 lakh and arrears of Rs 3 lakh) compared to Rs 9.73 crore package of Aditya Puri, CEO of HDFC Bank.Incidentally, HDFC Bank's market capitalisation is more than all the nationalized banks put together. Despite wage differences,PSBs have a higher wage cost than those in the private sector. This is largely because salary of entry level executives is higher inpublic sector. Secondly, productivity of private banks, which do not have the same rural and social obligations as PSBs, is muchhigher than their public sector peers.

Bringing down overall wage cost is not an option for PSBs, considering they have signed an MoU with employee unions where theyagreed not to cut staff benefits without consultation.

"The guidelines on sound compensation policy were specifically drawn for private and foreign banks. RBI is aware that salaries ofPSU bank CEOs are insignificant given the balance sheet size," said a senior executive with a public sector bank. However, thePCA guidelines announced by RBI do not differentiate between private and public sector.http://timesofindia.indiatimes.com/business/india-business/bank-boards-proposal-on-salary-gets-rbi-shock/articleshow/58212927.cms

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SBI slips on tractor loan settlement plan Abhijit LeleBusiness Standard(Apr 17)

Mumbai: State Bank of India’s one-time settlement (OTS) scheme for tractor loans has failed to get adequate response.

Only Rs 24 crore worth cases have come under it. In a portfolio of around Rs 4,000 crore of tractor loans, about Rs 800 crore worthloans were eligible for the scheme. The bank is assessing reasons for the lukewarm response, and might look at extending theMarch 31 deadline.

Crop failure and inability to deploy tractors were some of the reasons for the loans turning bad, SBI executives said.

The lender saw better traction with its OTS scheme for small and medium enterprises (SMEs). The scheme received 2,772applications (Rs 671 crore), out of which 2,703 applications (Rs 647 crore) were approved.

The schemes were floated as a part of a process to clean up the books, after making prudential provisions for non-performing loans.The tractor loan book was part of the bank’s farm loan portfolio and the lender announced a settlement scheme to sheddebts with prospects of low recovery, after adequate provisioning. SBI was to take a haircut of 40% on these loans.

Many SMEs have been hit as customers payments dipped. Their incremental capacity to service loans was under severe pressure.http://www.business-standard.com/article/finance/sbi-slips-on-tractor-loan-settlement-plan-117041600562_1.html

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Mahabaleshwara assumes charge as Karnataka Bank MD The Hindu Business Line(Apr 16)

Mangaluru: Mahabaleshwara MS assumed charge as Managing Director and Chief Executive Officer (MD and CEO) of KarnatakaBank Ltd on Saturday.

He has taken the reigns of the bank from P Jayarama Bhat, who has already taken charge as part-time non-executive Chairman ofthe bank on April 12.

The appointment of Mahabaleshwara is for a period of three years from the date of assuming the charge as per the approvalreceived from the Reserve Bank of India, in line with the earlier recommendations of the bank’s board.

Quoting Mahabaleshwara, a press release said: “With the economy showing signs of improvement, I eagerly look forward toan exciting and eventful journey with the great company of all the stakeholders to keep the KBL flag flying high always”.http://www.thehindubusinessline.com/money-and-banking/mahabaleshwara-assumes-charge-as-karnataka-bank-md/article9641914.ece

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Axis Bank touches 1 million micro-borrowers mark PTISee this story in: The Hindu Business Line(Apr 17)

Mumbai: Axis Bank has touched 1 million micro-borrowers mark and is not keen on acquiring stake in any microlender.

Three years after getting into the segment, the bank hs touched 1 million borrowers mark recently and all of them are women whohave availed themselves of credit through the joint lending group model, Axis Bank’s retail banking head Rajiv Anand toldPTI.

Stating that the lending book stands at Rs. 1,100 crore now, he hinted that the bank will focus on expanding the businessorganically rather than buying into a microfinance company.

“As of now, we don’t believe there is any need for us to take on any equity stake in an MFI,” Anand said.

It can be noted that other lenders like Kotak Mahindra Bank and IDFC Bank have acquired stakes in MFIs, while IndusInd Bank is intalks with Bharat Financial (formerly SKS) for what can be one of the biggest acquisitions in the space.

As many as 90 per cent of Axis Bank’s borrowers have been tapped by the bank’s dedicated team of 1,600 people,while the rest have come from intermediaries, Anand said.

The average ticket size of its micro loans is Rs. 18,000 and there is a three-tier rate structure with interest ranging from 12 to 22 percent, he said, asserting that this is a “profitable” business for the bank.

Axis Bank is present in 18 states with its microlending offerings and aims to reach 22 states by 2020.

Even as the bank faces regulatory action for alleged irregularities during the note-ban period, Anand said he is“proud” of the work done by his retail banking staff.

Anand said the average transactions jumped four times that of the usual during the period, and the bank also had to work with therules getting changed almost every day .

Asserting that Axis Bank is not the only one to have been found of indulging in irregularities, Anand admitted that “there havebeen a few stray incidents and we have a zero tolerance on such issues. Strictest action has been taken against all those indulgedin irregularities.”

He also said that speculation of the bank merging with another one does not have any bearing on its expansion strategies,underlining that such talk has been denied.

Even as the advent of digital banking raises concerns on the relevance of the network-led model, Anand said 90 per cent ofcustomers for the banking system do not use digital alternatives.

He said physical networks are important from a brand trust perspective and that the nature of the work undertaken at the branchescan undergo a change eventually.http://www.thehindubusinessline.com/money-and-banking/axis-bank-touches-1-million-microborrowers-mark/article9642206.ece

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Growth overrides slip in DCB Bank’s asset quality Aparna Iyermint(Apr 17)

At first glance, the scorching 50% rise in DCB Bank Ltd’s stock may resemble the classic case of irrational exuberance butthe bank’s numbers seem to justify most of the gains.

DCB Bank reported a net profit of Rs52.86 crore for the quarter to March, a 24% decline from a year ago.

The fall in profit doesn’t sit well with the stock price gains. But the story of the lender is not in its profits but in its ability togenerate income from its core operations even in adverse conditions.

At a time when demonetisation has blunted loan growth across the banking system, DCB Bank reported a 22% growth in loandisbursals.

The number can be dismissed given a low base, but for an expanding lender such as DCB Bank, retaining core growth is crucial.

It shouldn’t surprise that net interest income grew 31% for the quarter from a year ago.

The bank also reported an enviable net interest margin of 3.9% for the final quarter of 2016-17.

Recall that the bank’s December quarter results were impressive in the wake of demonetisation.

But it would be wise to look at the pain points as well. While the cash purge didn’t hit asset quality immediately, it has hurtwith a lag.

The bank’s bad loans rose 11% sequentially and were 1.59% of the total loan book as of March end.

Even on a net basis, bad loans as a percentage of total loans rose to 0.79%.

The bank has prudently provided for the slippages with provisions rising 11% to Rs3,393 crore.

But the lender hasn’t gone the whole mile as provision coverage ratio has slipped.

The slip on asset quality can be forgiven considering its strong core performance.

Further, the slowdown in fresh slippages is reassuring and the rise in upgrades is a positive surprise.

For now, DCB Bank’s stock seems to justify its valuation, even at a price to book value of around 3 times its estimatedearnings for 2017-18.http://www.livemint.com/Money/tw3R8Mg6Pw6iZyS1QPwe4I/Growth-overrides-slip-in-DCB-Banks-asset-quality.html

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How Union Bank was hacked and got its money back Gopika Gopakumar & Leslie D'Montemint(Apr 17)

Mumbai: It was just another Friday for the hundreds of office goers who were jostling with each other to get to their own work placesin and around the corporate office of the Union Bank of India at Nariman Point in Mumbai. Even those queuing up in the early hoursat the cash counters across the 4,233 branches and 7,946 ATMs of the bank spread across India, were calmly going about theirtasks— depositing money or withdrawing cash.

However, those early hours of 21 July 2016, were going to be anything but ordinary for the chairman and managing director ofUnion Bank, Arun Tiwari, who also sits in the corporate office—the Union Bank Bhavan. Happily going about his routine tasksof reading newspapers, sipping a cup of tea and updating himself of the goings-on in the bank, Tiwari was just settling in when hisphone rang.

He still remembers the time. “It was around 10.30am when I was informed that an unidentified hacker was attempting toswindle us of $171 million (about Rs1,100 crore at today’s rates) from our Nostro account.” A Nostro account is anaccount that a bank holds in a foreign currency in another bank.

All hell should have broken loose. But Tiwari, who insists that he is a “non-technical” person kept his cool. “Thething uppermost in my mind was that I had to quickly get onto the money trail and recover the money.”

That was easier said than done. By the time the Union Bank official in the treasury department, who was reconciling the Society forWorldwide Interbank Financial Telecommunication (SWIFT) payments for the day realized that an amount of $171 million hadalready been debited from the dollar account of the bank without his authorization, the money had travelled far and wide.

The money had found its way to accounts in two banks in Cambodia—the Canadia Bank Plc and RHB IndoChina Bank Ltd,

besides the Siam Commercial Bank in Thailand, Bank Sinopac in Taiwan, and a bank in Australia. These funds were routed byCitibank New York and JP Morgan Chase New York, which hold UBI’s foreign exchange accounts.

Even as Tiwari informed the Reserve Bank of India (RBI), the ministry of external affairs and Gulshan Rai, director general of theIndian Computer Emergency Response Team (CERT-In), to apprise them of the matter and take advice, he simultaneously sent aterse message instructing all the staff at Union Bank Bhavan that “a whole floor on that building was to be cordoned off, andthat all staff members working to solve this problem would only leave after the matter was resolved”.

“Inspection investigation was done by CERT-In, RBI, our own team,” Tiwari recalls, adding that he also appointedconsulting firm EY “the same night”. EY said “as far operations are concerned, you are ahead of time.Whatever was required to be done, as a non-technical person, has already been done.”

How did it exactly happen?

First, the bank had to know what exactly had gone wrong and how the hackers got access to Union Bank’s servers. Did aninsider assist in the task or was it a breach by an external device?

It appears, it was neither. Rather, it was an email from a very authentic source— (RBI)—with an attachment.“This email was sent to a few email IDs, and some of them were from customer care, e-banking and some were addressedto individuals too. It might have happened even before 20 July,” Tiwari recalls.

Kartik Shinde, partner, advisory services, EY, recalls receiving a call at 10pm that night. “Which PSU (public sectorundertaking) bank in India has that ability to take that call? I know of two-three others, who started evaluating vendors, took pricesfrom them. UBI said start the work and we will give whatever the fees. You need to have someone authoritative in the bank like thechairman who will take the call saying that I will take the necessary approvals from CVC (Central Vigilance Commission) and allothers but get this analysis done sooner because the more time you spent analysing it, you are giving more lead time for attackersto cover up their tracks, to get out of the system,” he said.

It wasn’t that Union Bank was the specific target. Shinde insists that “I wouldn’t say it was a random pick. If Ihave to break into this network, I will send the payload or malware to all employees. It doesn’t matter who clicks on the link.The hacker simply wants to access the system from where he will do the transaction.”

This is also what happened in Union Bank’s case. The “phishing”—an attempt to obtain sensitiveinformation such as usernames, passwords and other financial details by pretending to be a trustworthy entity—mails weresent to 15 email IDs. “Three people reported that the email was suspicious to the IT security. The other Union Bankemployees were “technically-savvy” persons. They noticed that although the email address said @rbi.org.in, it had anattachment that a zip file. Within the zip file, there was a dot (xer) file and not a dot pdf file, which is why they reported it assuspicious,” Shinde said.

Unfortunately, one of the “not-so-tech-savvy” Union Bank officials fell prey to the phishing email and clicked on thelink which released the malware that went viral on the bank’s servers. The hackers would have got their way and swindledthe cash but for a silly mistake they made, according to Shinde.

When a bank does a SWIFT transaction during the day, they typically get a reconciliation report the next day and all thecorresponding banks send them the “end-of-the-day balance” report the following morning.

When Union Bank got it from the originating bank, they saw a difference of $170 million and that alerted them because of onemistake—the hackers deleted the six entries they had made.

“That’s why we say it’s quite similar to the Bangladesh online heist (theft of $81 million from the central bank ofBangladesh in February 2016). If they had not deleted the entries, it would have taken some more time for the bank to realise thatthere are fraudulent transactions,” Shinde explained.

Every bank runs a reconciliation process at the end of the day. The malware that infected the central bank of Bangladesh, too, hada component which manipulated the SWIFT’s prt file. The prt file is a print file which usually prints the report of transactionsfor that day.

For instance, if the report shows 106 transactions when they have actually done only 100 transactions, the discrepancy will come tolight. This is one reason why the hackers deleted the six transactions in the Union Bank episode.

However, this is also the reason that the hack was discovered.

So what did Union Bank do?

Shinde recalls some RBI officials being there when the forensics began.

“The CBI (Central Bureau of Investigation) had not come yet. The cybercrime cell officials were there. Traditional policementality was it must be some insider,” Shinde said.

Even a First Information Report (FIR) was filed almost a month after the incident, according to Tiwari.

“It took us sometime to zero down on the fact that the attack was similar to what happened in the Bangladesh case,”Shinde explained.

EY officials went about doing an analysis of the server and “some network forensics”. They, thus, narrowed down onthe systems involved. “Imaging takes 48 hours, indexing takes 24 hours. For instance, when you put a system to do imaging

of the disk, it takes two days for a 2 terrabyte (TB) hard disk. There is a lot of time lag that happens. We had a tough time facing theregulators and security officers. It was a high-pressure environment. RBI used to call us every day, asking us what happened. Wehad to tell them that analysis takes time,” Shinde said.

The problem, according to Shinde, is that EY had access only to a “limited set of logs”.

Organizations, according to Shinde, typically keep logs in the system for a period of 2-4 months and not for 1-2 years. The reason isalso that the data is humongous.

“If someone had the ability to analyse a two-year log, you’d have different answers coming out. It’s verydifficult. So attribution of zeroing down on a particular geography is very difficult.”

In UBI’s case, the UBI employee was sitting in the Mumbai office. But he could have been anywhere. Given that networks ofmost organizations are flat, SWIFT networks are not segregated—one computer can reach the other computer very easily,according to Shinde. The objective of the attacker is to infect anyone and then start searching for critical systems within the network.In technical terms, it’s called lateral movement, Shinde explained.

After analyzing the problem with the “limited resources” on hand, Union Bank delinked its “380-odd SWIFTpan-India connections” in a bid to centralize operations. “Then we created space in this building (Union BankBhavan), and had around 40 hotline operators manning the phones. I had told them that nobody will leave till such time that this isput in place and tested,” Tiwari explained.

The ploy worked. As regulation necessitates, Union Bank informed the exchanges on 22 July that “…there was anattempted cyber incidence in USD Nostro Account of the bank. The money trail was promptly traced and movement of funds wasblocked. Resultantly, there is no loss caused to the bank”.

“What pains me —in cricket, we call this a late run. The headlines (referring to reports that appeared a year after theheist) are screaming as if this happened yesterday,” Tiwari rued.

He added, “We had, and have, concurrent manual checks too. In all these kinds of heists, money is lost or partly retrieved.Credence must be given that we did not lose a single cent. We recovered about 70% of the money within 24 hours. The last trancheof $30 million took me 50-60 hours because of a legal process.”

But isn’t prevention better than cure?

Union Bank, according to the 22 July press statement to the exchanges, added that a cybersecurity forensic audit was being doneto “identify, plug any gaps and strengthen the system. “There is no impact on the Bank’s operations,”the note concluded.

The question that begs an answer—one which even Tiwari could not answer satisfactorily—is who was to blame forthe lapse: Union Bank or SWIFT?

Kiran Shetty, CEO of SWIFT India, insisted that “SWIFT’s system has not been compromised. We have not got acyber report from Union Bank or any forensic report from them. The investigation is closely held by them. In most cases, whencyber attacks happen, people are not forthcoming with information. We have not been exposed to full details.”

“Globally, there are controls and principles we are defining. We are revisiting the vendors that we have in terms of ourconnection. We have never been compromised. We are only doing pieces to further strengthen the evolution of our system. We aredoing roadshows across five cities in India along with the Indian Banks Association talking about cyber security controls, cyberhygiene, etc,” Shetty said.

Shetty, though, acknowledged that “cyber threat is real and is growing”. According to him, the pace of digitization thatwe have seen in the last decade and at a more accelerated pace, requires the same level of investment on the cyber side as well.The regulator (RBI), he added, has introduced regulations around a CISO (chief information and security officer) directly reporting tothe board. There is also a customer security programme where “we are now mandating 27 controls, of which 16 aremandates and 11 are advisory. If you don’t have 16, we will start reporting to the regulator.”

Implementation of all these regulations will have to be done by the end of the year.

Even Tiwari expressed his inability to share a copy of the forensics report. “I cannot share further details because even Idon’t have a copy,” he said.

Tiwari, however, pointed out that the measures his bank has undertaken after the incident last July included the “moststringent filtering, awareness of employees, whitelisting (proactive security technique that only allows a limited set of approvedprograms to run while blocking the others), BIOS passwords (to prevent external devices from accessing computers and servers)and engagement with regional office levels constantly”.

He added, though, that even as the bank was fortifying its IT platform “trying to see how to make your processesefficient”, he would not rule out future cyber attacks.

“We have put the best IT guys on the jobs and even a CISO but the fact is that however many locks you put on the door, aburglary can still take place. The point is to remain alert and put measures in place, which we have done already,” Tiwariinsisted.

Shinde concurred that cyber crimes are well thought and well researched most of the times. Even when EY does cyber attacksimulations, the first part is the reconnaissance phase.

“It’s like in any war on an attack, you first do a thorough reconnaissance on the target to see how weak they are, whatcontrols are there, who to target first, what are the avenues for entry, how many avenues are there,” Shinde explained.

Shinde added that one can easily pick up and sniff out email addresses from employees putting news on groups, public forums.

“It’s possible that Union Bank, too, could have been targeted via a reconnaissance exercise. This is just one bankwhich has come out in the open. We don’t know how many banks are there who have gone through the same incident andnot reported it to the regulator,” Shinde said, concluding, “Even if you fix everything, you cannot rule out the chancethat it will not happen again. In UBI’s case, they responded faster. Today, the response time is critical.”

Incidents of hacking in recent times

—Federal prosecutors are investigating North Korea’s possible role in a SWIFT hack that resulted in the theft of $81million from the central bank of Bangladesh in February 2016, according to a 15 April report in the New York Times. Securityresearchers found that traces of code used in the Bangladesh theft had been used in a cyber attack against Sony in 2014, which theObama administration and security experts blamed North Korean hackers for carrying out, the report added. Soon after RBI askedIndian banks to immediately put in place a cyber security policy.

—Card data of 3.2 million customers was stolen between 25 May and 10 July in 2016 from a network of Yes Bank Ltd ATMsmanaged by Hitachi Payment Services Pvt. Ltd.

—Axis Bank reported cyber security breach in October 2016; malware found in its server; no monetary loss reported.

—Bank of Maharashtra lost Rs25 crore when a bug in the Unified Payments Interface (UPI) system allowed people to sendmoney without having the necessary funds in their accounts earlier this year.

—On 8 April SBI ATM in Odisha spews out cash without any card being swiped. Physical malware attack suspected in theseATMs.http://www.livemint.com/Industry/xuBJNapRGBrtl05iEAvsYO/How-Union-Bank-was-hacked-and-got-its-money-back.html

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Co-operative Banks/RRBs

Foreign Banks / FIIs / I-Banks

’Merge govt, central bank budgets for better fiscal outcomes’ PTISee this story in: The Hindu Business Line(Apr 17)

Mumbai: An American economist has called for consolidating the central bank and government’s budgets and balancesheets saying such a move can prevent sovereign default risks and ensure better fiscal and monetary outcomes.

According to Citigroup global chief economist Willem H Buiter, the size and the composition of a central bank’s balancesheet have serious fiscal implications.

“Because national treasury is the beneficial owner of the central bank, it makes sense to consolidate the single period(instantaneous) budget identities, balance sheets and intertemporal budget constraint (IBC) of the state and of the central bank andwork with a consolidated single period budget identity, balance sheet and IBC of the state,” he said.

Buiter, the Dutch born American-British economist, was speaking at the 16th C D Deshmukh (RBI’s first Indian Governor)memorial lecture on April 11 where media was not allowed.

Fiscal theory of seigniorageAs per RBI’s website, Buiter said at the lecture that the monetary policy of any central bank has an unavoidable fiscaldimension because the fiscal theory of seigniorage is the right way of thinking about the inherent fiscal dimension of monetarypolicy.

Seigniorage is the profit that a government makes by issuing currency, especially the difference between the face value of coinsand their production costs.

Buiter said the national treasury benefits from a central bank’s profit or surplus, regardless of its ownership arrangementsand irrespective of the degree of operational independence that it may have when it comes to the design and implementation of themonetary policy.

Speaking on the theme of ‘The good and the bad fiscal theory of the price level’, he said there is no evidence of acentral bank of any large economy making losses even though it does not own its balance sheet responsibility.

He said central banking is profitable due to its unique liquidity properties and monetary liabilities coupled with the large deposits it

holds for commercial banks.

It can be noted that the Reserve Bank of India had last July transferred Rs. 65,876 crore of its surplus as dividend to thegovernment, which was Rs. 20 crore less than it had transferred in fiscal 2015 at Rs. 65,896 crore.

Unlike the private sector, the state (consolidated central bank and national treasury) is not subject to intertemporal budgetconstraints while choosing to increase or lower public spending, taxation, monetary issuance and policy rates, Buiter said.

This in normal circumstances leads to the belief that fiscal, financial and monetary policy of the government and central bank will notcreate any problems of sovereign default and insolvency.

Buiter said though it is true that the state has two unique funding sources taxes and seigniorage not available to the private sector, itdoes not mean that the state is not subject to its own IBC.

Also, because the simple logic is that debt cannot grow forever at a higher proportional rate than the interest rate on the debt, headded.http://www.thehindubusinessline.com/money-and-banking/merge-govt-central-bank-budgets-for-better-fiscal-outcomes/article9642108.ece

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Rating & Research

Decline in bank lending rates unlikely Aditi NayarThe Hindu Business Line

The new fiscal commenced with the first bi-monthly monetary policy statement for FY2018 from the Reserve Bank of India (RBI),which outlined some risks and the assessment for the new year.

While the six-member Monetary Policy Committee (MPC) of the RBI remains upbeat about the economic growth prospects forFY2018, it warned that inflation developments warrant continuous monitoring.

Accordingly, the main policy rate, namely the repo rate, was kept unchanged at 6.25 per cent. Moreover, the RBI highlighted that itwould use a mix of tools to bring systemic liquidity closer to neutrality from the prevailing surplus conditions.

Risks to inflationThe MPC highlighted several risks to inflation, such as the impact of the upcoming monsoon on food prices. The declining reservoirlevel, particularly in several southern States, is a matter of concern, with early reports suggesting that the emergence of an El Ninocould curtail rainfall.

Additionally, the introduction of the Goods and Services Tax (GST) could result in many prices being reset. Although the GST isintended to be revenue-neutral for the government, it may not necessarily be inflation-neutral, given the specific composition of theCPI basket.

The MPC has estimated that the increase in house rent allowance based on the recommendations of the Seventh Pay Commissionwould increase inflation by a substantial 1.0-1.5 per cent over a period of 12-18 months. The Committee expects CPI inflation to risefrom 4.5 per cent in H1 FY2018 to 5 per cent in H2 FY2018, whereas it would like to see it brought down to 4 per cent in a durablemanner, which suggests that a prolonged pause for the repo rate is forthcoming.

The MPC continues to expect growth of gross value added (GVA) to rise to 7.4 per cent in FY2018, from a downward revised 6.7per cent in FY2017. This sharp uptick is expected to benefit from the pick-up in discretionary spending after remonetisation, therecent decline in lending rates, improved investor confidence after the passage of Bills such as the GST, higher government capitalspending and export growth in an improving global environment.

Surplus liquidityThe surfeit of deposits after the note ban coincided with a fall in demand for bank credit, leaving the banking system with surplusliquidity. At present, around Rs. 4 lakh crore of excess liquidity is being absorbed by the RBI through overnight and term reverserepos.

While the repo rate was kept unchanged, the other overnight rates under the RBI’s liquidity adjustment facility were modified.The reverse repo rate was increased to 6 per cent from 5.75 per cent, and the marginal standing facility (MSF) rate was cut to 6.5per cent from 6.75 per cent. This benefits banks, which would earn higher interest on excess liquidity offered at the reverse reporate in times of surplus, and pay a lower rate to obtain funds from the RBI at the MSF rate in phases of deficit.

In FY2018, ICRA expects bank deposits and credit to grow around 6 per cent and 8 per cent, respectively. We estimate thatincremental deposits would modestly exceed fresh credit offtake, which means that the liquidity surplus would need to be reducedthrough other means.

To do so, the RBI indicated that it would use a mix of instruments, including reverse repo auctions, operations under the marketstabilisation scheme, issuance of short-term cash management bills and open market operations.

In the prevailing situation, the latter would entail the sale of the central bank’s holdings of government securities (G-Secs),

absorbing liquidity in a permanent manner. However, the usage of this tool as well as other collateralised instruments such asovernight and longer tenure reverse repos is constrained by the stock of G-Secs held by the RBI. The central bank indicated thatthe introduction of a non-collateralised Standing Deposit Facility (SDF) is under consideration with the government, which wouldaugment the liquidity management tool-kit.

The surge in liquidity during FY2017 brought down deposit rates by 80-200 basis points (bps) across tenures, and the one-yearmarginal cost of funds-based lending rate (MCLR) by 95 bps. Nevertheless, transmission to lending rates may not be complete.However, with the RBI expected to work toward reducing the liquidity surplus and a low likelihood of a repo rate cut, the scope for afurther decline in bank lending rates in 2017 appears limited.

(The writer is Principal Economist, ICRA Limited)http://www.thehindubusinessline.com/todays-paper/tp-others/decline-in-bank-lending-rates-unlikely/article9642416.ece

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ATMs, Credit & Pre-paid Cards

Manappuram Finance launches co-branded prepaid Money Card Aparna DesikanThe Times of India(Apr 16)

Chennai: Manappuram Finance launched its co-branded prepaid money card in a tie up with YES BANK. The card can bepre-loaded up to a maximum amount of Rs.50000 and then used to withdraw money from all ATM's.

Speaking of the partnership, the MD & CEO of Manappuram Finance, VP Nandakumar said, "We recognise that the future iscashless and therefore we are committed to ease the transition for our customers by offering them a choice of convenientalternatives to cash. We are pleased to launch our prepaid money card in partnership with a bank of the stature of YES BANK."

Ritesh Pai, senior president & country head, digital banking, YES BANK, said "YES BANK believes in the power ofBanking-as-a-Service to revolutionise the Digital Banking and Payments ecosystem in India, and have adopted the Alliances,Relationships and Technology (ART) approach to Banking. In line this with ethos, we are glad to partner with Mannapuram Financeto further the mission of a less-cash economy and promote digital payments in the country."

The company will issue the prepaid card to its customer base of 20 lakh and link their existing gold loan accounts to the card. Thiswill enable its customers to withdraw money from ATMs across India. Moreover, customers can also withdraw money from any ofthe 3,300 branches of Manappuram Finance Ltd., a feature unique to this card. The card can be reloaded directly at allManappuram Branches. The card can also be purchased by non-customers by furnishing their mobile number and a KYC documentas prescribed by the Reserve Bank of India (RBI).

Manappuram Finance also launched its branded eWallet under the name, "MaKash". The company had recently received a PrePaid Payment Instrument License from RBI which authorised the company to operate a semi-closed payment instrument andeWallets.http://timesofindia.indiatimes.com/business/india-business/manappuram-finance-launches-co-branded-prepaid-money-card/articleshow/58199212.cms 

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Visa and Mastercard don't want to lose out to UPI, BHIM, lobby government Daily News & Analysis(Apr 16)

Mumbai: Credit card companies like Visa and Mastercard are lobbying the government to make sure they get a chunk of the piewith the country going cashless, according to a report.

Apart from private players, the government - in the last few months - last launched several options, including the Unified PaymentsInterface, BHIM app, and Aadhaar Pay, to help the country wean off its dependency on cash to make payments, a report by TheEconomic Times said.

To be a part of the movement to cashless payments, the credit card companies are looking at features like QR code andcontactless payments apart from credit card and debit card payments.

If they don't get onto the bandwagon, the credit card companies are in the fray to lose out on a Rs 6,000 crore market.

This comes at a time when Niti Aayog CEO Amitabh Kant has said that card payments and ATMs could become obsolete.However, according to the report, both Mastercard and Visa have confirmed that they are looking to expand into the market.http://www.dnaindia.com/money/report-visa-and-mastercard-don-t-want-to-lose-out-to-upi-bhim-lobby-government-2402743

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Govt may soon allow 100% FDI in cash, ATM management cos PTISee this story in: The Hindu Business Line(Apr 17)

New Delhi: Cash and ATM management companies will soon be allowed to attract 100 per cent foreign direct investment as theyare not required to comply with the Private Security Agencies (Regulation) Act (PSARA).

A clarification to this effect is likely to be issued by the Home Ministry shortly.

The clarification will be against the backdrop of the confusion among cash and ATM management firms relating to compliance withthe Act, under which they can receive FDI only up to 49 per cent.

The issue was discussed at a meeting convened by the Prime Minister’s Office (PMO) last month.

“In that meeting, it was decided that the Home Ministry would be asked to issue a clarification that these companies will nothave to comply with PSARA and would be eligible to attract 100 per cent FDI,” an official said.

There are about a dozen cash management players in the country, including Writer Safeguard, SIS Securitas, CMS, Secure Value,Logicash, Brinks Arya, Securitrans and Scientific Security Management Services.

According to experts, companies managing cash for banks have so far been caught in a policy tangle, with the Home Ministryinsisting that 100 per cent FDI could not be allowed for them if they provide private security guards or armoured vehicles.

Companies that make devices such as currency authenticators and sorting and currency counting machines will also benefit fromthis clarification, they added. Several players, including TVS Electronics and ITI, are in such businesses.

Cash management companies handle over Rs. 40,000 crore of cash per day.

The government had in 2015 permitted 100 per cent FDI under the automatic route for white label ATM operations with an aim topromote financial inclusion.

FDI into the country grew 22 per cent to $35.85 billion during April-December of 2016-17.

Foreign investment is considered crucial for India, which needs around $1 trillion for overhauling its infrastructure such as ports,airports and highways to boost growth.

A strong inflow of foreign investments also helps improve balance of payments and strengthen the rupee against other globalcurrencies, especially the dollar.http://www.thehindubusinessline.com/economy/govt-may-soon-allow-100-fdi-in-cash-atm-management-cos/article9642160.ece

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Razorpay plans overseas foray K R SrivatsThe Hindu Business Line(Apr 17)

New Delhi: Razorpay, a payment gateway solution provider focused on online merchants, plans to go international. It is looking toenter South East Asia and West Asia markets in 2018-19, Harshil Mathur, co-founder, has said.

“South East Asia and West Asia will be our next markets because the technology is scalable. Indonesia will be the firstmarket we will look at. Sri Lanka and Middle East will be next,” Mathur told BusinessLine here.

The fintech startup, which started its journey in mid-2014, is in talks with local and global (banking) players in these markets, Mathursaid.

“Before we tap into these markets in 2018-19, we want to identify the partners,” he said.

Mathur made it clear that Razorpay was not shifting focus away from India, which, he said, will be a “key and primarymarket” for the company.

New opportunitiesThanks to demonetisation, the opportunities have gone up for Razorpay in the Indian market. “This year (2017-18), the focuswill be on scaling up in India.

Lots of sectors have opened up due to demonetisation. Education, government and utility are our other focus areas where we willlook to have deeper penetration,” Mathur added.

New goalsMathur, an IIT Roorkee alumnus, said Razorpay aims to by this fiscal end double the number of online merchants using its paymentgateway to 60,000 from 30,000 now. “We are purely merchant targeting. We don't directly target the customers,” hesaid.

Till recently, Razorpay was helping merchants accept consumer payments. Now, this fintech has started focusing on B2B

payments, which is a large but underserved market.As regards its ePOS, a mobile-app based point -of-sale (POS) targeted atoffline payments, Mathur said that the number of downloads have touched 50,000 and the target is to take it to 1,50,000 by thisfiscal end.

“We see more scope for ePOS and expanding it rapidly. We are adding support for Bharat QR. Merchants having this appcan also accept payments through Bharat QR,” Mathur said.

Break evenRazorpay, which had raised Series A funding of $11.5 million, is not worried about funding for the next two years, according toMathur.

Growth targets“We expect to grow 10 fold in revenues and payment volumes this fiscal. Our immediate aim is to attain profitability so thatwe remain sustainable.

We are hopeful of break even in two years. In the last one year, we have seen 20-fold growth in payment volumes and revenues.Last three months, there has been a 30 percent growth month-over-month,” he said.http://www.thehindubusinessline.com/money-and-banking/fintech-startup-razorpay-plans-overseas-foray/article9642194.ece

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Wishfin sets e-loan disbursal target at $1 billion this fiscal K. R. SrivatsThe Hindu Business Line(Apr 17)

New Delhi: Wishfin, an online financial marketplace, is targeting incremental loan disbursal of $ 1 billion through its platform thisfiscal, a top official has said.

Over the last 4-5 years, Wishfin, which was earlier known as Deal4loans, had disbursed aggregate loans to the tune of $3 billion,said Puru Vashishtha, Board Member, Wishfin.

After getting rebranded into a broader platform, Wishfin has got into other financial products including mutual funds and credit cards.Plans are afoot to offer general insurance products like motor insurance, health, travel insurance through an insurance brokermodel.

"We have just applied to IRDA for broking licence. It will be a separate entity and will have a tie-up with Wishfin. We are ramping upour insurance business", Vashishtha told BusinessLine here.

On the credit card side, where there is strong demand post demonetisation, Wishfin is targeting at least 15,000 originations everymonth, from current level of 6,000-7,000 now.On the loan side, Wishfin may at some stage explore co-lending model with banks, headded.

"Our key priority on the loan side now is to solve for customised credit risk pricing. Everybody in the financial system is now doinguniform credit risk pricing", he said.

Vashishtha also said that demonetisation has been "very positive" for Wishfin. "Anything that improves transparency is good for us",he said.

Elaborating on the genesis of Wishfin idea, Vashishtha said this fintech wanted to be an enabler of wishes using finance andtechnology.

While the company started in 2009 only on the loan side as deal4loans, it has now decided to expand into other areas such asinsurance, mutual funds and therefore decided to rebrand itself as Wishfin, he said.

Last year, Franklin Templeton International Services India had invested $ 15 million (about Rs. 100 crore) in MyWish Marketplaces,whose flagship product is Wishfin.http://www.thehindubusinessline.com/money-and-banking/wishfin-sets-eloan-disbursal-target-at-1-billion-this-fiscal/article9642318.ece

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Proposed RBI norms worry mobile wallets Mugdha VariyarThe Economic Times(Apr 17)

Bengaluru: Mobile wallet company executives last week expressed their concerns to Reserve Bank of India officials over theproposed guidelines for the sector, in their formal feedback to the regulator on them. RBI had issued draft guidelines for prepaidpayment instrument (PPI) licence holders in March and several had flagged issues such as know your customer (KYC) norms.

“Some clarifications were sought on certain clauses, while PPIs discussed issues around KYC, especially since it could bean overkill for small transactions,” said one of those at the meeting.

The central bank stayed firm on the matter, said people with knowledge of the matter.

There was no response to email sent to RBI, while spokespersons for the Payment Council of India and the Internet and MobileAssociation of India (IAMAI), which organised the meeting, did not wish to comment.

Currently, e-wallets and other such prepaid payment instruments can only hold up to Rs 20,000 per user with minimum KYC. As perthe draft guidelines, these PPIs will have to move to full KYC details within 60 days of the PPI licence being issued.

Existing semi-closed PPIs that currently require minimum details from customers have to convert into full-KYC PPIs by June 30,failing which the RBI warned that no further credit will be allowed in such PPIs.

“In the feedback given to RBI, the main request is that minimum KYC be retained or that the deadline for implementing fullKYC be extended to 18-24 months, since by then telecom companies would have done Aadhaar linking of mobile numbers. Thatwill help mobile wallets do full KYC for all customers,” one industry member said. “The other ask is that RBI shouldpublish the interoperability guidelines for wallets.”

KYC norms will increase customer acquisition costs and make a simple process complicated, the companies have said.

They have also objected to additional authentication factors, higher net-worth requirements and the need for wallets partnering withecommerce platforms and payment gateways to get a list of merchants from them.

Some of these concerns, especially full KYC compliance, were raised at the meeting, according to those present.

The meeting was organised by the Payment Council of India, a lobby group of about 60 companies in the digital payment spaceestablished under the IAMAI.

The Payment Council of India was to give its formal feedback to the regulator by April 15, said one of the people cited above.

ET was the first to report on RBI’s plans for guidelines aimed at moving wallets toward interoperability and providing themaccess to platforms such as the unified payment interface (UPI). ET had also reported on the worries raised by wallet companiesover the proposed rules.

PPIs are currently seeing monthly transactions of Rs 6,000 crore, of which about Rs 4,000 crore is from money transfers whilecorporate solutions such as smart cards for expense management constitute about Rs 500 crore, according to people withknowledge of the matter. Ecommerce giant Amazon recently received a wallet licence from RBI.http://economictimes.indiatimes.com/industry/banking/finance/banking/proposed-rbi-norms-worry-mobile-wallets/articleshow/58212639.cms

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Housing Finance

Development Banks

NBFCs / FIs / MFI

Wholesale banks a must for financing infra needs Madan SabnavisThe Financial Express(Apr 17)

The concept of a Wholesale and Long Term Finance (WLTF) bank is part of the scheme of differentiated banks that has been in thenews of late. The creation of payments and small banks was also part of this agenda. One is not sure if these banks will make amajor difference, but those promoting the same evidently have their plans in place. A corollary in the success of these banks wouldbe that commercial banks have not been successful in spreading financial inclusion and have not harnessed use of technology. Infact, the regional rural banks and structure of cooperative banks have to be critically analysed in this context as they have notdelivered.

Now, the WLTF bank concept is not really a new one as there was the rather strong and convincing structure of the DevelopmentFinancial Institutions (DFIs) that existed from the 1950s to the beginning of the 21st century. The 3 institutions, IFCI, ICICI and IDBI,can be credited with building India by providing long-term finance to industry. The system was straight-forward, one where theywere able to get funds at concessional rates and on-lend to industry. With the onset of financial liberalisation, this relation wassevered and they had to borrow at market rates. This also meant that their lending rates had to be increased and the model ceasedto be viable.

The result was that these DFIs got themselves converted to universal banks under much fanfare and both ICICI and IDBI becamebanks through reverse mergers with their commercial banks outfits. The main advantage was that they got access to current andsavings deposits which account for around 35% of total deposits; that helped lower the cost of funds. But, given the structures ofassets and liabilities, there were bound to be tenure mismatches when lending to infra projects or long-term projects.

More recently, IDFC has gotten converted to a commercial bank, and IFCI, too, is keen on doing the same. Quite clearly, it does

appear that the era of DFIs is on the way out and those that remain are EXIM, NHB, NABARD and SIDBI, which are actuallyrefinancing organisations. How do WLTF banks fit in now?

The purpose is to provide long-term finance exclusively to corporates, including infra companies and SMEs. These banks will doonly wholesale lending, keeping retail loans to the minimum. Funding cannot be through regular deposits, but it is mentioned thatthere can be current deposits besides term-deposits of high value. They can issue bonds and can also subscribe to the same whichare issued by corporates and hence play the role of market makers. They can also go in for borrowings from banks, CDs orsecuritisation etc.

Do we require such banks? The answer is “yes” as the present system cannot quite handle the demand for suchfunds. Commercial banks, including PSBs, have preferred to lend to the retail segment where the delinquency rates are low.Therefore, having banks which focus on only long-term lending will be very useful and add a new dimension to lending as bankscontinue to focus on short-term lending.

Will a public purpose be fulfilled in case WLTF banks come in? The answer again is “yes” as these banks will fill thegaps that exist in the system today. The demand for funds is high, given investment rate is quite low at 27% . If it has to be pushedup to 35%, alternative avenues need to be sourced as banks, ECBs and the debt market have their limitations. This new genre ofbanks will definitely add value.

How viable will they be? Once the WLTF matches the tenures of its assets with liabilities, there will be a good fit between the two. Atpresent, AAA-rated bonds come with a rate of between 8-9% with the lower-end being reserved for public-sector companies.AA-rated bonds can range between 9-12%, while a higher rate has to be paid in case the rating is in the A category. Therefore,WLTF banks will need to get a very good rating to get a borrowing rate of 8-9%.

The banking system operates with high spreads between deposit and lending rates. Today, the spread between the base rate andone-year deposit rate is 275 bps. In FY16, the difference between cost of deposits and return on advances was 330 bps. Cost offunds was around 6%. With WLTF banks procuring funds at 300 bps higher than the banks, adding 330 bps spread will push upcosts for the borrower. Will companies be willing to pay this much, especially when they can borrow directly from the market?

For WLTF banks to succeed, several options need to be explored. The first issue is how to lower the spreads for the WLTF bonds.Having bricks-and-mortar structures would add to costs and hence the option of being primarily an internet based bank can beconsidered. Second, the WLTF banks can be made to apportion lending activity across both credit and debt markets. A 50-50division will be useful as they can lend directly in the bond market for bonds which will be higher-rated. This will also be thepreferred route for higher-rated companies. The balance lending should be based on collateral with insolvency laws in place. Also,RBI should focus simultaneously on credit enhancements to be provided by banks on such bonds which may be subscribed by theWLTFs.

Third, the WLTF banks should be freed completely from CRR and SLR obligations. The CRR is a disincentive while SLR will makethem gravitate towards G-Secs. Fourth, RBI can set tenures for their lending, i.e., not less than five years or such a norm, butshould give the freedom to lend to any sector. Bringing in priority-sector-like norms will impede their activity.

It should be remembered that WLTF will be starting with the handicap of lending to the non-retail segment and taking on higher riskas these loans would be of a long tenure. Focusing on infra projects and term-lending makes FIs more vulnerable to NPAs andhence, prima facie, the last decadal developments are a dampener. In short, there should few inhibiting clauses in the terms ofengagement for these banks, or else potential promoters would be at a disadvantage. An issue which should be kept in mind whilegiving permission is that all banks including private sector ones have faltered on asset quality when such long-term lending isconcerned. How can one be sure the story is not repeated here?

WLTF banks could be a useful way of channelling funds to the sectors that can’t be handled by commercial banks. But giventhe past history of FIs, it will be interesting to observe the interest that may be shown by the players. Integrating this concept withthe objective of developing the bond market will be possible, and should be pursued. Ultimately, any player who chooses to enterthe fray would work around the financial viability of such projects before making an application. The pitfalls in the earlierdispensation of DFIs need to be addressed in detail by the applicants to reassure the central bank that these models can work.http://www.financialexpress.com/opinion/wholesale-banks-a-must-for-financing-infra-needs/630313/

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Home, Vehicle loans save the day for NBFCs Shilpy SinhaThe Economic Times(Apr 17)

Mumbai: Non-banking financial companies are expected to report strong growth in home and vehicle loans in the fourth quarter offiscal 2017, but subdued performance in gold and microfinance segments that still struggle due to the impact of demonetisation.“NBFCs are likely to see moderation, posting an 11% year-on-year increase in profit after tax after three consecutive quartersof 16-20% growth,“ brokerage firm Motilal Oswal said in a report.

The brokerage predicts 44% profit growth at Bajaj Finance.Among the rest, it expects profit to expand 30% at Dewan Housing, 26%at Indiabulls Housing Finance, 19% at LIC Housing Finance, 23% at Muthoot Finance and 18% at Gruh Finance.

Housing finance companies are expected to report a better Q4, as disbursements picked up after a lull third quarter. Interestsubvention schemes to support housing for the middle income groups also gave a boost to the sector.

On microfinance, Motilal Oswal said there could be pressure “as the worst is yet to come“. Some reports suggest the

effect of lower collections by the microfinance industry in Uttar Padesh and Maharashtra spreading to Karnataka as well. Recently ,ratings firm ICRA downgraded the outlook for Janalakshmi and Satin Creditcare, which the brokerage said spelt concerns for theentire MFI sector.

Centrum, in a report, said it expected asset finance companies to report a sequentially strong quarter on both growth andprofitability. But the MFI space continues to be under pressure following lower collection efficiency and the risk of eventual writeoffs,it added. HDFC Securities expects vehicle finance companies to report better earnings.

Implementation of the Bharat Stage IV emission regulation from April 1 benefitted lenders, as people queued up to purchasevehicles meeting the previous BS III rules that manufactures sold at huge discounts towards the year end.

As NBFCs benefitted from a decline in borrowing costs, broking firms expect vehicle finance companies to report healthy netinterest margin. Gold loan companies are expected to report muted growth, mainly due to the effects of demonetisation and ban ontransactions above . 20,000 in cash.`

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Farm loan waivers may hurt NBFCs Rajesh MascarenhasThe Economic Times(Apr 16)

Mumbai: Rich valuations of some of the non-banking finance companies (NBFCs) lending to farmers could come under strain, asexpectations of farm loan waivers delay the recovery of advances in some of the important states that are at the forefront ofmechanised ploughing in India.

Uttar Pradesh, India's most populous state, recently announced a conditional loan waiver, setting off a raft of similar demands fromlarge states such as Karnataka, Maharashtra and Tamil Nadu. Together, these states account for a third of tractor loans advancedby companies such as M&M Finance, Magma Fincorp, Sundaram Finance, Cholamandalam and Shriram Transport. Stocks of thesecompanies are currently trading at 50-70% premium to their historical averages.

“Collections in tractor loans for NBFCs in the states where the waivers are announced or anticipated are getting delayed asborrowers hope the waiver to be applicable even to non-PSU bank lenders," said Aadesh Menta, analyst at Ambit Capital.“Given that such states account for one-third of the tractor loan market in the country, delayed collections in these states canhave a meaningful impact on the credit cost of tractor loans.“

In the auto NBFC space, tractor loans account for 18% of the loan book of M&M Finance and 20% for Magma Corp.

Moreover, with these two firms already seeing high delinquencies in tractor loans, their non-performing assets could rise further withsimultaneous increase in losses, stemming from slower recoveries. Shriram Transport and Cholamandalam Investment have 5-7%of their loan books exposed to the farm sector.

So far, the stocks have defied the rules of gravity. M&M Finance has risen 25% this year, compared with a 12% rise in the Sensex.It is currently trading at a forward PE of 30, compared with its five-year average PE of 14. Magma Fincorp, with a year-to-date gainof 20%, is trading at 22 times its FY18 estimated earnings as against five-year average of 12. Sundaram Finance has surged 45%this year, while Shriram Transport gained 25%.

“The recent NBFC rally likely ignores various risks and, hence, we would maintain our cautious stance, and we continue tobelieve that risk-return trade-off is not in favour of investors," said MB Mahesh, analyst, Kotak Securities. “We expectdemonetisation to temper growth in FY18, largely for NBFCs operating deep in the cash ecosystem. For others, increasingcompetition from banks will spoil profitability over the next four-six quarters."http://economictimes.indiatimes.com/markets/stocks/news/farm-loan-waivers-may-hurt-nbfcs/articleshow/58193223.cms 

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Hudco loans Rs 800 crore to MSRDC project Rouhan SharmaThe Financial Express(Apr 17)

Mumbai: The Housing and Urban Development Corporation (HUDCO), under the ministry of housing and urban poverty alleviation(MoHUPA), has approved a loan facility of `800 crore for Maharashtra’s showpiece highways project the Nagpur-Mumbaisuper communication expressway. The loan has been approved for Maharashtra State Road Development Corporation (MSRDC),the nodal agency for executing the ambitious project, and is meant for land acquisition purposes.

Also called the Maharashtra Samruddhi Corridor, this is the first road project in the state that had proposed to “pool”land and get into a partnership with farmers, rather than acquire their land. However, due to a resistance to land pooling in certainpockets from farmers who said they preferred to sell their land instead, MSRDC is now looking at purchasing their land.

The 706-km long expressway requires 10,000 hectares for which MSRDC had received farmers’ consent for only about 30%of the land for pooling, and not in continuous stretches. Since this is not useful for the expressway, Kiran Kurundkar, Joint MD,MSRDC, told Fe that the corporation expects to have to pay out about Rs 5,000 crore to purchase the entire stretch. “We are

targeting to raise and set aside this amount only for land acquisition since even the farmers who have given their consent for landpooling, could still change their minds,” Kurundkar said. “In most of the pockets, the feedback we have received is thefarmers are interested in a one-time settlement and not in land pooling,” Kurundkar added.

According to the state government’s policy, negotiations are going on with farmers and the respective committees for landacquisition, at every district. “As per the state’s procedures, once they arrive at a price per hectare, they willcommunicate this to MSRDC and we will then start entering into a sale purchase agreement with individual land owners,”Kurundkar said.

Meanwhile, MSRDC has issued a request for qualification (RFQ) for the second time after modifying certain conditions in thedocument. The corporation received 32 applications after it first issued the RFQ for the project in January. However, it made asecond call at the end of March. The new conditions stipulate that only profit-making companies can apply while companies that areunder corporate debt restructuring (CDR) and /or strategic debt restructuring (SDR) are also disqualified. Moreover, the scope hasalso been widened to allow companies with experience in building not just roads, but also other infrastructure assets, to apply.Meanwhile, MSRDC has already completed the joint measurement survey to finalise the alignment of the expressway for about 650km.

The construction of the 706-km Mumbai-Nagpur Expressway is expected to be undertaken in 16 packages at a total cost Rs 46,000crore. SBI Capital Markets is arranging the funds and is believed to have approached a number of national as well as private sectorbanks.http://www.financialexpress.com/economy/hudco-loans-rs-800-crore-to-msrdc-project/630319/

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This year, the market will see a lot of surprises: Dharmesh Mehta, Axis Capital

The Economic Times(Apr 16)

In a chat with ET Now's Nikunj Dalmia, Dharmesh Mehta , MD & CEO, Axis Capital , says . You are not buying this market forcurrent year earnings, you are actually discounting one or two years ahead.

Edited excerpts:

Nikunj Dalmia: You are the merchant bankers instrumental behind taking D-Mart public. I am sure the current price is even tradingbeyond your wildest imagination. When you took it public, it was at sub-Rs 300. Now it almost touched Rs 800 last Thursday. Whatexplains this euphoria - demand-supply equation or the fact that this company is owned by a great investor Radhakishan Damani?

Dharmesh Mehta: It is a mix of everything. But if I look at it when you are comparing this company, I do not like to be stock specificjust to clear this whole froth which people have built about D-Mart, the fact is that it is one of the best managed retail companies.People are dying to buy retail companies in India with high quality management and good business model which they have andwhen you are comparing valuations, today markets are giving multinationals that valuation, lot of companies.

The e-commerce companies which are in similar business are getting crazy valuations as you see in the last round was valued at$10 billion where it is not making profit while D-Mart makes those kind of profits today and there is real so it is expensive butanytime it falls, people will be willing to buy it rather than sell it. And yes most important, it has been run very well. The businessmodel is great and it is a play on Indian consumption. You cannot get a better play than this and that is what the market was waitingfor. There will be some froth for some time but then every fall will be an opportunity to buy there, is what I understand.

Nikunj Dalmia: But the other companies which you have taken public -- whether it is Quess Corp or the smaller issues -- the returnpost listing has been good. Now when companies have gone public and when financial commentators like me look at the traditionalway of looking at companies - PE multiples, book to value, it has not been a very convincing scenario. Yet stocks have gone publicand they have given handsome returns.

Dharmesh Mehta: Just to correct, it is not handsome return, at least the deals which we have done the IPOs in the last one year.They have given almost 80% return on an average. Now that is not handsome, that is a fabulous return. And people should notexpect that the new company which will come will give them that kind of return. If they get it, they are very lucky. But those are highquality companies. They were valued correctly. You are not buying this market for current year earnings, you are actuallydiscounting one or two years ahead. And if you are getting good solid management, solid businesses, you do not mind sitting overthem for one or two years which may underperform if at all and make the most of it when it actually starts delivering the earnings.

Nikunj Dalmia: One realisation which has sort of dawned on me in the last bull market was that IPOs are the first indicator of frothand bubble in the market. The IPO activity is getting bigger and grander. Participation levels are very high. You do not think theexcitement or the action in the IPO market is a tell-tell sign that we are nearing a peak if not at the peak?

Dharmesh Mehta: People always say that this time it is different. But it is really different because in our life we had never seen thiskind of demonetisation impact coming in and the money which was parked for last 30, 40, 50 years was parked in closets havecome to the banks and there is enough liquidity in the system.

Now that it is in official domain, people want to make some return out of it. If you look at the other asset classes like real estate, goldor any other debt or fixed deposits, they are not giving you these kinds of returns. That kind of money is now getting into the IPOsand equity markets. I would not say that there is froth out there. Because if you look at it, the companies have delivered the returnsand we are valuing it correctly. The day when you see the valuations go crazy, look at D-Mart. The D-Mart IPO happened at Rs 300which was a very good valuation and that is why you are seeing this kind of handsome returns. As far as we are managing to price

them correctly, there is enough appetite in the market and this year there will be a lot of surprise coming in. But then, the marketsare waiting for the surprise.http://economictimes.indiatimes.com/markets/expert-view/this-year-the-market-will-see-a-lot-of-surprises-dharmesh-mehta-axis-capital/articleshow/58193336.cms

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Mutual Funds & AMCs

Sebi asks MFs to explain promoter group exposure to AUMs PTISee this story in: The Economic Times(Apr 17)

New Delhi: Markets regulator Sebi has asked several mutual fund houses to explain the rise in fund inflow from promoter groupentities and associates to their overall assets under management.

While the regulator has been asking the fund houses to take steps to expand their asset base to smaller cities and retail investors,there has been a surge in the percentage of the contribution from promoter and sponsor group entities for several fund houses inthe top-ten list.

Taking note of reports in this regard, the Securities and Exchange Board of India (Sebi) has written to the fund houses to seek theircomments on this trend, sources said.

The fund houses have been asked to reply by April 18.

The asset under management (AUM) of top 10 fund houses rose by 40 per cent in 11 months period till February 2017 of the lastfiscal, during which their dependence on promoter groups went up by 4 per cent, according to an analysis of the Association ofMutual Funds of India (Amfi) data.

This rise meant that sponsors of fund houses continue to drive inflows with top 10 AMCs netting Rs 57,616 crore till February, whichis nearly 4 per cent of their total AUM of Rs 14,88,750 crore.

These 10 players had an assets base of Rs 10.84 lakh crore in March 2016, which rose to Rs 14.89 lakh crore in February 2017.Against this, for the entire fiscal 2015-16, sponsors' contribution was Rs 40,593 crore, or 3.75 per cent of the total AUM.

In absolute terms, Birla Sunlife MF had the highest contribution of Rs 16,176 crore from group companies followed by ICICIPrudential MF that had around Rs 9,171 crore investments from sponsors.

The top 10 players are ICICI Prudential Mutual Fund (MF), HDFC MF, Reliance MF, Birla Sunlife MF, SBI MF, UTI MF, KotakMahindra Mutual Fund, Franklin Templeton MF, DSP BlackRock MF and IDFC Mutual Fund.

According to the data, Birla Sunlife MF, which is the fourth largest fund house, saw 8.23 per cent of its AUM coming frominvestment by group companies.

UTI MF's AUM contribution from group companies rose to 4.46 per cent at Rs 6,114 crore at the end of February from 2.48 per centat Rs 2,610 crore in March 2016.

UTI MF is sponsored by insurance giant LIC, public sector lenders SBI, BoB and PNB. Out of this, LIC is the largest institutionalinvestor.

It was followed by ICICI, which saw a rise in investment coming from group companies to 3.74 per cent at Rs 9,171 crore, from 3.02per cent at Rs 5,404 crore, during the 11-month period under review.

At Reliance MF, this rose to Rs 6,170 crore in February from Rs 5,524 crore, but in percentage terms the investment came down to2.88 per cent from 3.45 per cent.

Similarly, SBI MF also saw the contribution from group companies coming down during the period to Rs 7,069 crore or 4.52 per centof its total assets under management from Rs 7,210 crore or 6.55 per cent.http://economictimes.indiatimes.com/markets/stocks/news/sebi-asks-mfs-to-explain-promoter-group-exposure-to-aums/articleshow/58207572.cms

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Cash levels in equity MFs double in 4 months Chandan Kishore KantBusiness Standard(Apr 17)

Mumbai: Cash levels in equity mutual funds (MFs) have reached almost six per cent in March amid a sharp rise in stock prices. Thecash levels are the highest in at least two years. At Rs 39,600 crore at the end of March, these are more than double the levels

seen at the end of November 2016, according to a report by Edelweiss. On a year-to-date basis, cash as a percentage of equityassets under management (AUM) has increased 116 basis points, or by Rs 18,800 crore. The benchmark indices have gained morethan 10 per cent during this period, while the rally in the broader market has been even sharper.

Continuous and robust inflows into equity schemes coupled with profit-booking by fund managers in the mid and small cap spaceare seen as the reason for the increase in the cash pile.

The sudden surge in cash component has been seen at fund houses, including IDFC Mutual Fund, Kotak Mutual Fund and AxisMutual Fund, and are largely responsible for the rise in cash with the equity funds segment. Schemes of Birla Sun Life AMC, puttogether, have also seen cash levels rise.

Expensive valuations or weak outlook for certain sectors triggered some profit-taking, said fund managers.

Neelesh Surana, head of equity at Mirae Asset, says, “There were selective pockets that the money had been chasing. Thisled to an erosion of margin of safety which may have triggered selling resulting into high cash.”

Money managers said they pulled out money from stocks in the technology, pharma, oil, cement and some non-banking financecompanies.

Kaustubh Belapurkar, director (fund research) at Morningstar India, says events like demonetisation, the US presidential electionand the US Federal Reserve move on interest rates have kept fund managers guessing and resulted in a cautious stance. But, heisn’t worried due to the increase in cash levels.

“Cash level of six per cent, although high, is not alarming and nowhere close to 2009-10 levels, when the industry took aconscious cash call to as high as 15-20 per cent. I see the current aggregate cash levels as a temporary blip and as opportunitiescome in, fund managers would start re-deploying cash in stocks,” said Belapurkar.

An official at Kotak Mutual Fund said, “It is partly due to shift of positions from cash to futures for the arbitrageopportunity.”

Fund inflows have also been robust.

Surana say, “Markets have moved quite fast in recent times while inflows remained strong. Last minute cash inflows in taxsaving schemes, too, have added cash. Amid this, I think return of money from IPOs allotment too would have added up thecash.”

A chief investment officer (CIO) of a bank-sponsored fund house echoes similar views. He says that industry got a massive netinflow of Rs 50,000 crore in the past six months. “All of the inflows don’t get deployed immediately. The sharp run upin stocks has delayed the cash deployment,” he adds.

Fund managers, however, ruled out sustained selling and said they would deploy the cash depending on how earnings pan out.They don’t rule out a correction of up to five per cent, given the steep rise in markets over the last few months. “Thosetimes will throw opportunities and excess cash could be easily absorbed,” says the above cited CIO.

As on 31 March, the total equity assets (including equity-linked savings schemes) stood at about Rs 5.4 lakh crore managed bynearly 480 schemes.http://www.business-standard.com/article/markets/cash-levels-in-equity-mfs-double-in-4-months-117041600753_1.html

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Fast-track divestment: SUUTI stake-sale among top options SurabhiThe Hindu Business Line(Apr 17)

New Delhi: With a target of mopping up Rs. 72,500 crore from disinvestment this fiscal, the Government will use all options,including unloading stakes held by SUUTI, and not just sale of shares in public sector units.

“SUUTI is always an option and will be used this fiscal as well. The disinvestment target will be met using all availablemethods, including public offers, strategic sales and share buybacks by public sector units,” said an official, adding thatefforts are afoot to ensure that disinvestment happes through all channels and at the earliest.

SUUTI, or the Specified Undertaking of the Unit Trust of India, was set up in 2003 after the restructuring of the erstwhile UTI.

It holds stake in 51 companies, including listed blue-chip firms such as Reliance Industries, Axis Bank, and ITC as well as eightunlisted entities, including NSDL, STCI Finance, Over The Counter Exchange, and Stock Holding Corporation of India.

Rs. 50,000-crore kittyThe combined value of the shares SUUTI holds is well over Rs. 50,000 crore and the Centre has already appointed a panel of sixmerchant bankers for a three-year period starting 2016 to manage sale of SUUTI holdings.

The Department of Investment and Public Asset Management (DIPAM) had raised Rs. 10,778.71 crore selling small SUUTIholdings, including in ITC and L&T.

The official said that “in 2016-17, we managed to raise over Rs. 46,000 crore. This year, the target is higher and we are

working out on all options to ensure that there is no lean period in disinvestment.”

While the Cabinet Committee on Economic Affairs has approved listing of 11 State-run firms, DIPAM is also preparing for follow-onoffers in seven PSUs.

It has invited bids from legal advisers for selling stake in NHPC, NTPC, Power Finance Corporation, Rural ElectrificationCorporation, Steel Authority of India, NLC and Indian Oil Corporation, that could fetch over Rs. 34,000 crore.

Listing of insurersDIPAM is also fast-tracking plans for the possible listing of General Insurance Corporation (GIC) of India and New India AssuranceCompany (NIA) in the first half of the fiscal. The three other general insurers United India Insurance, Oriental Insurance andNational Insurance are likely to be listed in the second half.

The Centre expects Rs. 11,000 crore from the initial public offers of the insurers.

Efforts are also on to exit most hotels and subsidiaries of ITDC Ltd, except Samrat and Ashok Hotels in Delhi.

ITDC has now sought approval from shareholders for setting up joint ventures for four units and selling five subsidiaries.

Share buy-backSimultaneously, DIPAM and the Department of Public Enterprises are looking at PSUs that are eligible for share buyback.“Capital restructuring norms for PSUs were issued last year and all firms with idle funds will be expected to do so,”said another official.

State-run Engineers India Ltd and Oil India have already announced buy-back of shares for this fiscal.

Also in the worksDIPAM wrapping up preparations for follow-on offers in seven PSUs

It is fast-tracking plans for the proposed listing of general insurers

It is reviewing PSUs that are eligible for share buyback

Govt also plans to exit most ITDC hotels and subsidiarieshttp://www.thehindubusinessline.com/todays-paper/fasttrack-divestment-suuti-stakesale-among-top-options/article9642411.ece

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Mutual funds stock up on SBI, ICICI Bank K Ram KumarThe Hindu Business Line(Apr 17)

Mumbai: Mutual funds seem to have taken a shine to the stocks of State Bank of India and ICICI Bank in the fourth quarter endedMarch 31, 2017.

Mutual funds upped their stake in SBI from 7.88 per cent in the third quarter ended December 31, 2016 to 8.42 per cent in the fourthquarter ended March 31, 2017.

In the case of ICICI Bank, MFs increased their shareholding from 16.83 per cent in the third quarter to 20.04 per cent in the fourthquarter.

According to a mutual fund advisor, SBI is on the MFs radar as the acquisition of five associate banks and the Bharatiya MahilaBank has given it more heft, leading to expectations of improvement in efficiency of operations and productivity, and a furtherincrease in retail business due to the expanded branch network.

The fund advisor observed that MFs may be betting on ICICI Bank due to its sustained thrust on retail advances, focus on lending tobetter rated corporates, and the buzz in the market that it may be looking at acquiring a smaller private sector bank.

Further, both banks are seen actively resorting to the Insolvency and Bankruptcy Code for resolution of stressed assets. This Codeprovides for early identification of financial distress and resolution if the underlying business of the borrower is found to be viable.

Even as MFs upped their stake in SBI and ICICI Bank, Life Insurance Corporation of India, cashed in on the buoyancy in bankingstocks and pared its stake in these two banks. Typically, LIC looks for opportunities to generate surplus by churning its investmentsin the last quarter in order to declare bonus for its policyholders.

LIC’s shareholding in SBI came down from 9.62 per cent in the third quarter to 8.96 per cent in the fourth quarter. Similarly,the life insurer cut its stake in ICICI Bank from 14.65 per cent to 13.99 per cent. The buoyancy in banking stocks is underscored bythe fact that the benchmark NIFTY Bank Index, comprising 12 bank stocks, jumped from 17,969.60 to 21,444.15 in the fourthquarter.http://www.thehindubusinessline.com/todays-paper/mutual-funds-stock-up-on-sbi-icici-bank/article9642409.ece

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UTI launches new mutual fund plan for senior citizens PTISee this story in: Hindustan Times(Apr 16)

Mumbai: Country’s sixth largest fund house UTI Mutual Fund is aiming to double its assets under management (AUM) foreach of its two existing schemes through a new facility called UTI Family.

The fund house has introduced the facility UTI Family (Father and Mother I Love You) under the growth option of its existingschemes, MIS Advantage Plan and Wealth Builder Fund, to provide regular pay-out to the parents.

The new scheme offers investment route to the children to take care of parents. Mode of payment through both the schemes underthe facility will be systematic withdrawal plan.

MIS Advantage Plan is a debt-oriented scheme where up to 75 per cent of funds will be invested in debt and the balance in equities.Wealth Builder Fund is an equity fund.

“We are looking at doubling the AUM of both these schemes through the launch of UTI Family facility over the next oneyear,” R Raja, products head of UTI MF, told PTI.

“While we are looking at increasing AUM of MIS Advantage Plan to Rs 1,000 crore from Rs 600 crore now, we are alsoaiming at increasing the AUM of the Wealth Builder Fund to Rs 2,000 crore from Rs 900 crore this year,” he added.http://www.hindustantimes.com/business-news/uti-launches-new-mutual-fund-plan-for-senior-citizens/story-hcvH0tkyJt0jIoNv9m4sbP.html

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Investors should not worry about short-term market volatility: CEO Axis MF Puneet WadhwaBusiness Standard(Apr 17)

New Delhi: With the fourth quarter earnings season for 2016-17 underway, CHANDRESH NIGAM, managing director and chiefexecutive officer at Axis Mutual Fund, tells Puneet Wadhwa that with the markets being fairly valued, the returns from here will be afunction of which companies and sectors are able to deliver consistent growth.

Edited excerpts

Will markets move higher over the next 12 months, despite corporate earnings and capital expenditure cycle showing no signs of apick-up?

The market never moves in a straight line. Corrections (stock price falls) are a healthy part of any bull market. While nobody canpredict the market over a shorter time period, we feel that the medium to long-term prospects are sound, as the economy is set toturn around and the same thing should get reflected in corporate earnings.

How do you see foreign portfolio and mutual fund flows playing out over the next few quarters? Do you see active retailparticipation?

We expect flows to remain supportive. Domestic investors are in the midst of a structural rebalancing, away from physical and intofinancial assets; that process has a long way to run. Foreign portfolio investors have always been supportive of Indian markets,except during periods of crisis.

What are the key domestic and global risks to the rally? What is the probability you assign to these risks/events materialising?

What shocks the market typically is not known risks but always what comes as a surprise — the unknowns. Having said that,in the near term, the biggest issue will be how GST (goods and services tax) implementation pans out and the potential forshort-term disruption from that. Globally, we have seen that these sort of big changes do cause shorter term pain to the economy.

What is your advice to both existing and new investors in equity markets? What about investors in the debt segment?

As I mentioned earlier, this is a time when India’s structural long-term investment thesis is getting a boost from all thestructural reforms inflation targeting by the Reserve Bank, GST rollout, bankruptcy reform, financial inclusion, fiscal prudence, toname a few. According to us, long-term investors (both debt and equity) should not worry about potential short-term market volatilityand should invest to participate in this story.

Are the markets ignoring the likely impact of a deficient monsoon and GST implementation on India Inc and the economy?

Markets, in the short term, are all about sentiment and flows. These have been supportive of the recent rally. Having said that, weare also seeing a reduction in the India risk premium, due to the steady and continuous improvement in our macro and the structuralreforms being carried out by the government. This is helping the medium-term bull case for both equities and bonds.

Which sectors offer valuation comfort at current levels? Which ones will lead the next phase of rally?

With the markets being fairly valued, the returns from here will be a function of which companies and sectors are able to deliver

consistent growth. In our portfolios, we have been overweight on private sector banks, quality non-banking finance companies,automobile and ancillary companies, and select media and consumer durable companies.

What is your view on banks investing in real estate investment trusts and infrastructure investment trusts?

This is an overall part of improving the capital flows into real estate and infrastructure sectors. While it might take some time for thestructures to get launched and popularised, we are quite positive about the move.

What are your expectations from the March quarter results season and projections for FY18 and FY19?

Earnings are still weak for the broad market, although select quality companies will deliver. Broader market earnings should improveslowly over the next few quarters although the rollout of GST and risk of shorter-term disruption make it very difficult to give aspecific road map on earnings.http://www.business-standard.com/article/markets/investors-should-not-worry-about-short-term-market-volatility-ceo-axis-mf-117041700013_1.html

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Volatility suite of products - a necessity in new global financial order Madhusudan SahooThe Pioneer(Apr 17)

Tame financial markets through two-in-one approach of investing in equity and debt market proportionately, as this allows suchfunds to perform well in all market conditions, says ICICI Pru AMC MD & CEO Nimesh Shah

Should market volatility be a cause for concern to retail investors? All major financial assets invariably exhibit a certain degree ofvolatility in due course of time. One should always reminisce that no asset class is designed or programmed to move in one specificdirection, say, in a straight ascending line. And, when it comes to financial assets, the exposition of volatility is more pronounced,particularly, when there is a slew of events including political, economic or financial lined-up, or when things related to businessworld go completely disarray. For example, election results can be a major twister which can take financial markets by a bigsurprise, and send asset prices hurtling north or southward.

Warren Buffett, one of the world’s richest men and greatest investor said, “Volatility is not the same thing as risk, andanyone who thinks it is, will cost themselves money.”

It’s also proven time and again that with major shifts in macro-economic parameters, financial assets become relativelyattractive compared to other physical assets, while the setting appears primed for growth in financial assets. Hence, it’salways recommended that retail investors should incrementally participate in financial assets to maximize their return oninvestments.

Nevertheless, the challenge remains for neophyte investors, who are mostly averse to typical market choppiness that’sencountered almost on a daily basis. So, how can such investors navigate market volatility comfortably, who have conventionallyenjoyed the protection and safety of traditional investment avenues?

More often than not, market volatility tends to unnerve or frighten financial asset investors, that’s because asset prices swingwildly, while occasionally there’s blotch of red on portfolios. Investors often become fastidious when they look at temporarylosses, while they can become vulnerable to making serious mistakes, which can cost their portfolios dearly. For example, investorsmostly tend to sell when equity asset prices start falling, whereas, actually they should be making purchases in a declining market.On the other hand, when equity prices are stretching to their all-time highs, investors generally tend to become greedy expectingfurther gains, while necessarily that may not be the right move.

Hence, in these interesting and dynamic environment, volatility suite of products finds the attention and consideration. Theemergence of dynamic asset allocation/ balanced funds has helped to dispel fears among the conservative class of investors, whilenavigating them through capital markets.

Investors often hear and know that asset allocation is the cornerstone for long term wealth creation; however, the average investorfinds it difficult to implement this strategy in their personal investments. Dynamic asset allocation fund comes in as benediction forsuch investors as such funds are structurally designed to take care of appropriate asset allocation strategies depending on marketconditions.

More importantly, these funds help investors to negate the burden of emotions associated in the investing process. For example -investors tend to pass opportunities to invest in a falling market, owing to fear that they may accumulate losses, in case marketheads further south. But, such funds on the other hand, will only increase allocations to equity, due to its in-built market strategy,which is ideally the right thing to do.

The retail investors have evolved with time, they have highly acknowledged the fact that over the long term, dynamic assetallocation funds aims to benefit out of volatility, and it doesn’t matter whether markets are choppy or outlook remainsanguine.

The upsurge in enthusiasm among the retail investors for this product can be derived from the fact that there have been increasedinflows into dynamic asset allocation funds, over last two years.

The dynamic asset allocation funds have unique features, as they balance between two important financial assets i.e. equity anddebt. At times when one asset class tends to exhibit a higher degree of volatility, the other helps to diminish the same. Also, the

auto-rebalancing in dynamic asset allocation funds depends on attractiveness and desirability of the certain asset class. The basicpremise of volatility suite of products is to create long term wealth, a feature with which conservative investors find comfort.

The experience of long term investors has been very positive and encouraging with volatility suite of products. Hence, dynamicasset allocation funds - holds the potential to become as large as the cumulative equity asset under management of mutual fundindustry. As the world has become more indeterminate than before, your investment strategy needs to adjust, and, what can bebetter than incremental investment in dynamic asset allocation funds.http://www.dailypioneer.com/business/volatility-suite-of-products---a-necessity-in-new-global-financial-order.html

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Equities, Pvt. Equity & Hedge Funds

Blackstone JVs gear up for Reits; to file prospectus by December Raghavendra Kamath  Business Standard(Apr 16)

Mumbai: Two joint ventures (JV) of Blackstone in the real estate sector are looking to file prospectus for Real Estate InvestmentTrusts (Reits) by the end of this year, said sources.

The Blackstone-Embassy group JV is looking to file prospectus by September this year, while Blackstone-Panchshil is looking to filethe same by December, sources said.

The Blackstone Embassy combine has filed for the registration of the trust with Sebi which is the second step after filing for intentpapers, sources in the JV said.

“Since the Sebi and the government have resolved most of the contentious issues, we can go for it now,” the sourcesaid.

Recently, the Reserve Bank of India allowed commercial banks to invest in Reits following capital markets regulator Sebi andinsurance regulator Irdai clearing decks for mutual funds and insurance companies to invest in Reits.

Panchshil has also started preliminary work on the matter and will file intent papers soon. said Atul Chordia, chairman of PanchshilRealty.

"We are doing some work on it. We will file intent papers by next month," he said.

Though Embassy group chairman Jitu Virvani earlier said it would raise $600 million (about Rs 3,868 crore), sources said decisionhas not been taken on the final corpus.

The Embassy Office Parks, the joint venture (JV) between Blackstone and Embassy, has an office portfolio of 35 million squarefeet, valued at $3 billion (about Rs 19,344 crore), Virvani had said. The JV has office properties such as Embassy Manyata,Embassy Tech Village and others. Morgan Stanley is the banker for both JVs on Reit issues.

The Blackstone-Panchshil JV has properties such as the iconic Express Towers in Mumbai, Eon Free Zone in Pune and others.

Panchshil has a portfolio of 11 million square feet, which is valued at over $1 billion (Rs 6,448 crore), sources said.

Blackstone’s southern assets are parked under the Embassy JV, and assets in west are grouped under Panchshil.http://www.business-standard.com/article/companies/blackstone-jvs-gear-up-for-reits-117041500575_1.html  

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How a bunch of new funds is hoping to cash in on risky early stage investments Rahul SachitanandThe Economic Times(Apr 16)

Over the past six years, Anirudh Damani has invested in some 51 startups as part of his family office’s push to tap thishighrisk high-growth opportunity. Until the middle of last year, these deals were routed through this office and as a member offorums such as Mumbai Angels, a group of early-stage startup backers. Earlier this year Damani who is the fourth generation of afamily with origins in bullion trading unveiled a formal fund called Artha Ventures, which hopes to help fledgling entrepreneurs withoften the first institutional round of funding.

At his bustling office in Kala Ghoda in south Mumbai, Damani is inundated with 200 to 250 proposals a month. As the hoopla overstarting up cools and the pretenders disappear, new early-stage backers like Artha find themselves poised to make more realisticdeals and give serious entrepreneurs a much-needed funding boost.

Like Artha, there are several other funds that have taken root to provide funding to such startups mostly as first investors in what is

called the seed stage and in follow on rounds called bridge, pre-series A and series A, where big VCs usually enter the scene.

While Damani may have had the backing of his family office, other fund founders come with other varying expertise. For example,Mukul Singhal and Rohit Jain, the cofounders of Pravega Ventures in Delhi, previously ran the tech investment unit for SAIF Capital,a VC that has backed the likes of Paytm, MakeMyTrip and Urban Ladder. In 2016, the duo branched out on their own to set up afund to bet on ventures even earlier in their development.

If they tout their expertise of a decade in spotting the next big technology upstart, Sateesh Andra of Endiya Partners in Hyderabadoffers 15 years as a Silicon Valley entrepreneur and early executive with DFJ’s India unit, a VC fund, as reasons for taking apunt with his own early stage fund.

Others such as Stellaris (formed by former Helion VC honchos Ritesh Banglani, Rahul Chowdhuri and Alok Goyal), ParamparaCapital, pi Ventures and family offices of businesses as diverse as Reliance Industries and JSW, have varying early stage investingofferings in play.

These founders may have ridden the wild wave of startup funding between 2012 and 2015, as angel investors and top managerswith VC funds, but a rapidly changing funding climate has changed things for entrepreneurs and investors alike.

For starters, entrepreneurs have struggled to raise funds in the past year as returns-hunting investors have slowed investments incash-guzzling ventures and slammed the door on new investments. While there have been hundreds of very early deals, multipleindustry estimates state that a third to a fourth of them have managed to cobble together a first formal or A series round of VCfunding. The likes of Tiger Global disappearing from the scene it made 38 investments in 2015 and just five in 2016 has onlydarkened the mood further. Entrepreneurs who got used to critics say spoiled by easy money from these funds now find themselveshard up or worse, out of business.

Building Networks“The froth has now cleared among India’s startups and there is now an opportunity for funds to agree on more viablevaluations for startups and help them survive in a tough market,” says Siddarth Ladsariya, an angel investor in over 100startups in the past decade. As the market has cooled, early-stage backers like him now give less weightage to valuation alonewhile taking decisions. This means that other metrics such as viability and domain capabilities have become more important whileconsidering an investment.

Ladsariya, the angel investor in ventures as diverse as Oyo Rooms, Myntra and Tonbo Imaging, says VCs were equally culpable infuelling the funding madness that gripped the space between 2014 and 2015; but their exuberance has since muted, making it morechallenging for startups he backs to raise follow-on funding. It is not like all VCs have given up. The likes of Sequoia and Accel haveraised fresh funds for India and lower valuations may be just the carrot for them to get going again.

Industry watchers such as Krishnan Neelakantan, senior director, Ankur Capital, a social impact investor, says that the Indianstartup ecosystem has matured; it has become evident that there needs to be durability across different segments.

While there has been an explosion of ideas and entrepreneurship (and corresponding growth of supporting infrastructure such asangels and incubators), a viable model of funding is yet a work-in-progress. “To back such young companies you have to behere, to work closely with them its tough to try to do it living in another continent,” he says.

“We need to build a stronger network of funds to back young entrepreneurs.” Ankur Capital, which got off the groundin 2013, for example, backs ventures in segments such as agriculture, healthcare and education, with a new $50 million fund, due tobe launched next year, also in the works. Its investments include Skillveri, a training simulator, Suma Agro, an agri inputs firm,CropIn Technology, an SAAS solution for farmers, and Karma Healthcare, a telemedicine venture.

On the first floor of an old building in Kala Ghoda, above a bookstore and used paper vendor, Damani’s office mirrors theenergy downstairs. It takes some dexterity to find your way around the packed office for an interview with Damani, who is busytaking stock of his startup investments. “The neardeparture of big ticket investors such as Tiger Global from this early stageof investment has also helped clear out the pretenders and cooled white hot valuations,” he reckons.

Direct InvestmentsDamani and his fellow fund heads reach into a deep network of business (and in his case family contacts to open doors for theirportfolio companies and to secure follow on funding for them.

“We can’t be helicopter investors,” declares Rohit Chokhani, cofounder of White Unicorn Ventures. “Webelieve we are providing some method to the madness that is startup investing.” While he and his family have been along-term investor in the stock markets and have also put their money into other funds (as limited partners), the opportunity to investdirectly in startups, especially with saner valuations, was too much to pass up.

And, rather than try to play hero and do everything on his own, Chokhani splits his time between his old-world interests in realestate (the conference room in his office in Santa Cruz, a northern Mumbai suburb, has physical calculators and notepads andpencils to make on-the-spot calculations) and new age investments in startups. He set up a fund, complete with a team, to cut thesedeals. “While we may make deals in this space, numbers are hardly the measure of success,” he adds.“Ventures between seed funding and Series A are in the Death Valley of startups.”

Andra of Endiya Partners has survived these conditions for years. For the first 15, he was an entrepreneur in Silicon Valley (hefounded Euclid, an IT infrastructure management firm, there) and then moved to India to set up the offices (and ran multiple rounds)for marquee investor Draper Fisher Jurvetson. Now, he wants to bet even earlier in the game.

Endiya, his new fund, has cut a few deals, one as an early backer of artificial intelligence venture Sigtuple, which crossed thestartup Rubicon to raise $5.8 million in funding from Accel in February this year. Rather than bowing to short-term fluctuations infunding trends and valuations, Andra thinks there is plenty of life left in the Indian market. “While the noise from

entrepreneurs has reduced significantly in the past 12 months, we saw some 1,300 deals during that time,” he says.“And, there is still an opportunity for startups with a strong business idea to raise funding.”

For over seven years, Singhal and Jain led SAIF Capital’s investments in the technology startup space (includinginvestments in FirstCry, a baby and child products startup and Appiterate, a mobile engagement firm that Flipkart acquired in 2015).Now their new fund, Pravega, is looking to ride out short-term market fluctuations, as it seeks to spot the next big thing. “Withseed and early-stage investing, we’re taking a longer, 15 to 20 year outlook on entrepreneurship and are not swayed byimmediate crests and troughs in the startup space,” he says. The team at Pravega may be wading through a swamp of pitchdecks from founders, but expects to make no more than 10 to 15 deals in a year. It’s already made six (including the one inFyle, an expense management company, where it invested $4,00,000), with three or four more in the pipeline. In many ways, thetwo cofounders are continuing the seed-stage investing focus prevalent at their old employer SAIF, which like its other large peersstepped back from this space when a slowdown hit in late 2015 and early 2016.

This funding squeeze was bad news for startups with weaker business models, but there were companies that showed promise,had a strong team but failed to make the funding cut. In 2016, Manishh Anand, a veteran business executive with experiencebuilding healthcare and technology ventures, started his fund, Utilis Capital, to provide late seed stage funding to startups.“We want to use our expertise to improve the slim chances fledgling startups have of going from a seed-funded to a venturecapital-funded venture,” he says. “We want them to close Series A funding in eight or nine months.” To try todo this, Utilis has lined up a team of experts [including one of 20 associates from Marshal Goldsmith, an executive coach] to helptheir portfolio companies make the grade. “There are many great opportunities out there… all they need is a firmpush.”

Transferring SkillsInvestors, then, seem to be attacking this opportunity from multiple perspectives. Between 2010 and 2013, Anil Joshi worked withMumbai Angels, the forum for angel investors in India’s commercial capital. This gave him access to both entrepreneurs andearly stage investors keen to back the brightest ideas in Mumbai and beyond. To try to carry forward some learnings from there,Joshi set up Unicorn Ventures to back these bright ideas.

Funds like his, he contends, have benefited from a broadening and deepening of India’s startup ecosystem, with the openingof a raft of incubators and accelerators, significant increase in early stage investors and more recently some exits from theirinvestments to boast about. Setting up Unicorn Ventures has been timely.

“The early stage ecosystem has matured from a scattering of angel investors to a more settled network of funds,” headds. “It is backed by experienced professionals and teams, giving entrepreneurs a better chance of raising follow-onbacking.” As the industry has matured, investors best known for operating in the public markets have made some inroads.Market maven Mark Mobius, for one, has chosen to put his money into Equanimity Ventures, founded by the former India chief ofFranklin Templeton, Rajesh Sehgal.

“We want to use our experience with financial services to build a fund with superior portfolio management capabilities, to helpstartups with strategy and future fund raising requirements,” says Sehgal. Besides Mobius, he has enlisted several HNIs,classmates from XLRI and senior professionals as LPs for his fund, which is, he claims, in the final stages of obtaining SEBIapproval.

Sehgal had made 24 investments in startups as an angel investor while he held his day job with Templeton and is now focusing hisenergies on the space with his fund, which will invest `1-3 crore in these ventures. Having exited eight of his individual startupinvestments successfully so far, Sehgal hopes he can transfer at least some of those skills to Equanimity.http://economictimes.indiatimes.com/small-biz/startups/seed-stage-saviours-a-bunch-of-new-funds-hopes-to-cash-in-on-risk-early-stage-investments/articleshow/58200514.cms

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FPIs' net inflow at Rs 16,500 cr in April so far PTISee this story in: The Times of India(Apr 17)

New Delhi: Foreign investors have pumped in a whopping Rs 16,500 crore in the Indian capital markets this month so far on theback of improved investor sentiment and growth in manufacturing sector.

This comes following a record net inflow of Rs 56,944 crore ($8.7 billion) last month, mainly on expectations that BJP's victory in therecently held assembly polls would lead to faster reforms.

In February, Foreign Portfolio Investors (FPIs) had made a net investment of Rs 15,862 crore in equity and debt markets. Prior tothat, FPIs had pulled out more than Rs 80,000 crore between October 2016 to January 2017.

A major boost to the investor sentiment came last week from the latest Nikkei India Manufacturing PMI data, which showed thefactory output growth rising to a five-month high in March, indicating a further improvement in the health of India's manufacturingsector, experts said.

According to depository data, FPIs infused a net sum of Rs 2,997 crore in equities during April 3-13 and another Rs 13,531 crore inthe debt segment, translating into a combined inflow of Rs 16,529 crore (USD 2.54 billion).

With this, total inflow has reached to Rs 85,156 crore (USD 13 billion) so far this year in the capital markets (equity and debt).

Geojit Financial Services Chief Market Strategist Anand James said: "The prospects of a gradual US rate hike looks to have

improved the risk appetite. This should also mean, save a negative surprise from monsoon forecast, fourth quarter numbers shouldprompt investors to be forward looking."http://timesofindia.indiatimes.com/business/india-business/fpis-net-inflow-at-rs-16500-cr-in-april-so-far/articleshow/58204509.cms

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Sebi set to block P-Note route for NRIs to prevent laundering of black money Reena Zachariah & Sugata GhoshThe Economic Times(Apr 17)

Mumbai: The regulator plans to put in place a clear bar on non-resident Indians (NRIs) and entities owned by them and residentIndians subscribing to participatory notes, a move aimed at preventing possible round-tripping or laundering of black money.

The Securities and Exchange Board of India (Sebi) is set to tweak its regulations to this effect at its upcoming board meeting onApril 26 after the finance ministry recently wrote to the regulator. Such a restriction is already implied through the answer to afrequently asked question (FAQ) but the regulator feels this lacks legal sanctity.

“Most of Sebi’s FAQs themselves clearly state that they should not be regarded as interpretation of law, and that theyshould not be treated as a binding opinion or guidance from Sebi,” said Moin Ladha, associate partner, Khaitan & Co.“Therefore, in case of any contradictions between the regulations and FAQs, the regulations would prevail. While FAQs doindicate the position Sebi is taking, they cannot be said to override or expand the scope of the regulations.”

Definition of NRI CrucialP-notes are a derivative instruments issued offshore to those who want to bet on the country’s stocks and bonds withoutregistering themselves with Sebi. The regulator wants to tighten the rules amid concerns that various variants of P-notes have beenfloated since the implementation of General Anti Avoidance Rules (GAAR) on April 1.

Investments via P-notes had declined to a 43-month low of Rs 1.57 lakh crore in December but rebounded in January to Rs 1.75lakh crore before dropping again to Rs 1.70 lakh crore in February. There could be a resurgence in P-note issuance as these areexempted from capital gains tax under the amended tax treaties with Singapore and Mauritius that took effect on April 1.

Legal experts said the concept of NRI itself is a grey area and defining it would be crucial for regulators. They said the prohibitionshould be strictly enforced to prevent round-tripping of Indian money. “The concern of round-tripping of Indian money,particularly when leading industrialists may have a foreign passport, was always a concern,” said Sandeep Parekh, founder,Finsec Law Advisors. Sebi relies on the income tax definition on what constitutes an NRI.

“The concept of who is an NRI itself is a grey zone ranging from income tax definition which is based on residency tocitizenship laws which are typically drafted very broadly to include any person of Indian origin and their kith and kin who are bornabroad,” Parekh said. “Defining an NRI within this spectrum would be crucial to allow legitimate money in fromimmigrants who have left India several generations ago and are doing exceedingly well.”

In recent discussions with a leading custodian, the latter gathered the impression that the regulator was not comfortable with NRIsas a group holding a majority interest in a Category II foreign portfolio investors (FPIs) even though regulations do not restrict this.Rules require Category II FPIs to be broad-based--the minimum number of investors should be 20 and no single investor can holdmore than 49%. However, NRIs as a group cannot hold more than 49% in Category III FPIs.http://economictimes.indiatimes.com/markets/stocks/policy/sebi-set-to-block-p-note-route-for-nris-to-prevent-laundering-of-black-money/articleshow/58212711.cms

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IDFC bucks the trend, on course to meet exit targets Shubhra TandonThe Financial Express(Apr 17)

Mumbai: Private equity funds may be finding exits challenging for the past year or so but IDFC Alternatives, the alternate assetmanagement arm of IDFC, has bucked this trend. Of the around `4,000 crore of exits that the fund planned since mid-2016 acrossall the asset classes infrastructure, private equity and real estate, it has exited 65% of it resulting in exits worth `2,600 crore. In fact,more exits worth `2,700 crore are lined up from the infrastructure and private equity space, which will take the exits to more thanwhat the fund envisaged.

MK Sinha, managing partner and chief executive officer, IDFC Alternatives, told FE that the reason why the fund has been able tomanage an exit track record is because multiple exit options were conceptualised at the time of investing itself. “We maintaindiscipline and focus on exit timings when the assets mature and optimal value has been reached,” Sinha said.

In terms of returns also, the fund has been able to give returns in the range of 1.7X-2.3X from infrastructure investments. In privateequity it has been between 2.2X and 2.7X, while for real estate the fund realised an internal rate of return of 22%. The exits frominfrastructure have taken place through sale back to the companies and other PE players. In PE, its been a mix of strategic exitsand public IPOs. In real estate, exits have been through project cash flows or secondary exits.

Indeed, the level of these exits assume significance as the overall traction for PE exits in India has remained tepid in 2016. AsPrashant Mehra, partner, Grant Thornton India, puts it, the lack of exit options was the primary reason for lacklustre exits. According

to data sourced from NewsCorp VCCedge, there has been a decline of 5.6% in the total deal value of exits to $6289.86 million inthe financial year ended March 31, 2017 . The number of deals were also less at 229 against 260 in the financial year ended March31, 2016.

Most of the investments made by IDFC were between 2009 and 2012 for infrastructure and private equity, while for real estate itwas between 2014 and 2015. Sinha said that issues around land acquisitions, delayed approvals and coal block cancellations werechallenges faced by IDFC’s first Infrastructure Fund (IIF1), raised in 2009. However, total distribution so far from IIF1 hasbeen to the extent of Rs 1,600 crore and another Rs 1,200 crore of exits are lined up in the next three months. “This wouldresult in almost 80% of the capital getting returned to the fund investors,” he said. The fund proposes to exit the fundcompletely over the next 2-3 years, based on the residual assets in the portfolio maturing and stabilising, he added.

So far, the value of exits made under infrastructure are to the tune of Rs 1,200 crore bulk of which has come through exit fromEssar Power and ATC Telecom (erstwhile Viom Networks) in the last quarter. Exits of Rs 1,170 crore have come from assets likeParag Milk Foods, Manipal Integrated, Darcl Logistics Limited, while real estate exits are at Rs 230 crore via Vascon Engineers inPune and Cybercity in Hyderabad.

IDFC Alternatives, which invests via three asset classes – private equity, infrastructure and real estate, boasts $3.6 billionworth of assets under management; it now runs four private equity funds, two infrastructure equity funds and three real estate funds.http://www.financialexpress.com/industry/banking-finance/idfc-bucks-the-trend-on-course-to-meet-exit-targets/630316/

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Govt. Securities & Bonds

Trading in corporate debt securities hits record 14.7 lakh cr in 2016-17 PTISee this story in: The Hindu Business Line(Apr 17)

New Delhi: Trading in corporate debt securities at leading stock exchanges BSE and NSE zoomed nearly 44 per cent to a recordRs. 14.7 lakh crore in 2016-17.

Trading worth Rs. 10.22 lakh crore in corporate bonds were reported on the two bourses during 2015-16, according to datacompiled by capital market regulator SEBI.

During 2016-17, the National Stock Exchange (NSE) represented the largest share of trading in corporate bonds at 80 per cent.Bonds worth Rs. 11.78 lakh crore were traded on the exchange during this period.

The stock exchange had witnessed trades amounting to Rs. 8.14 lakh crore in 2015-16.

The remainder of the bonds worth Rs. 2.92 lakh crore were traded on the BSE during 2016-17 a pick-up of about 41 per centcompared to the same period a year-ago.

Corporate bond trades in the country have seen an upward trend in most of the financial years since 2007-08, barring 2011-12when the trade dipped by 2 per cent, and in 2015-16, when it fell 6 per cent compared to the preceding year.

In the fiscal gone-by, March 2017 recorded the highest value in terms of trading in corporate debt at Rs. 1.92 lakh crore. This wasfollowed by trading worth Rs. 1.43 lakh crore in September 2016 and Rs. 1.40 lakh crore in December 2016.

Lowest trading was reported in April (Rs 81,520.85 crore) and February (Rs 82,142.24 crore).

Corporate bonds or debt securities issues are increasingly becoming a preferred route for companies to raise funds for variousbusiness purposes like building a new plant or purchasing equipment.

When an entity buys a bond, one lends money to the firm that issued the security and in exchange the company promises to returnthe money with interest on a specified maturity date.http://www.thehindubusinessline.com/markets/trading-in-corporate-debt-securities-hits-record-147-lakh-cr-in-201617/article9642202.ece

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Masala bonds keep taste Jayanta Roy ChowdhuryThe Telegraph(Apr 17)

New Delhi: Indian companies will continue to tap the London market with masala bonds, despite Brexit fears, and the figure is likelyto cross $1.5 billion this year.

The National Highway Authority of India (NHAI), Indian Railway Finance Corporation, NTPC, Power Grid Corporation of India,Indian Renewable Energy Development Agency and Energy Efficiency Services Ltd are among those eyeing the London bond

market.

Masala bonds are issued in foreign currencies, but the exchange risk is borne by the borrower that makes it different from externalcommercial borrowings.

Top officials said moves were afoot for NTPC to issue a bond worth Rs 3,000 crore; NHAI may also opt for a similar investment.PFC is believed to be mulling a Rs 2,000-3,000 crore issue.

A nominal 5 per cent income tax or withholding tax will be levied on the interest earned on these bonds, similar to dollar oreuro-denominated bonds.

This concessional rate was initially available till June 30, 2017, but was later extended to June 2020 in the Union budget, makingthe bond issue profitable.

Capital gains from an appreciation in the rupee's value between the date of issue and redemption against the foreign currency inwhich the investment is made will be exempt from capital gains tax.

"We will continue to rely on the London money market to raise funds. We have had a good experience with it in earlier issuances,which include HDFC and NTPC, and do not consider Brexit to have any great effect on it. There are a number of factors whichmake London a more flexible market compared with European and US rivals," said finance ministry officials.

As on February 2017, around 30 masala bonds are listed on the London Stock Exchange, with a combined value of $3.5 billion.However, not all bonds were issued by Indian companies. The International Finance Corporation, the European Bank forReconstruction & Development (EBRD), the Inter-American Development Bank and the province of British Columbia, Canada wereamong those opting for the masala bonds.

"Investors in London understand the Indian market long enough. Its true that the Singapore and Dubai markets also understandIndia, but the London market is way bigger and we acknowledge that. While investing in masala bonds, investors are betting on thelong-term stability of the Rupee and London has an appetite for that," said officials.

Investors bet on the long-term growth prospects of Indian bond issuers, besides the stability of the rupee. They are attracted by thehigh coupon rate, which helps them to make money despite the currency risk.

Coupon rates ranged between 5.1 for the EBRD bond and 8.25 per cent for Inter-American, which raises money for Latin America.HDFC raised money at a 7 per cent rate, while NTPC had a coupon rate of 7.3 per cent.

Officials admitted that though making the Indian currency international is "way off", the masala bonds are baby steps in thatdirection. "It does have the potential to strengthen the Indian rupee and turn it into more of an international currency," said officials.https://www.telegraphindia.com/1170417/jsp/business/story_146709.jsp#.WPQYU2OqBkg

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EPFO weighs exit policy to maximise returns on investments PTI See this story in: The Statesman(Apr 17)

New Delhi:  Retirement fund body EPFO has decided to bring out an exit policy to liquidate its investments in government securities,ETFs and state loans to maximise returns for its members.

The Employees Provident Fund Organisation (EPFO) has no exit policy at present as it largely invests in government securities thathave a definite maturity window.

The issue was discussed at the recent meeting of EPFO's apex decision-making body, the Central Board of Trustees (CBT), onApril 12 where its Chairman and Labour Minister Bandaru Dattatreya had assured the trustees of bringing out an exit policy.

The EPFO is under pressure to offer higher interest rate on EPF to its around 4 crore subscribers.

The CBT had decided to provide 8.65 per cent interest on EPF deposits for 2016-17 in December last year. But the finance ministryhad not approved the same and asked the EPFO to reduce it by up to 50 basis points to avoid any deficit.

The EPFO had entrusted a Bengaluru-based management institute with the task of framing the exit policy, which is expected toprovide a basic blueprint.

"The policy will be vetted by the EPFO's advisory body Finance Audit and Investment Committee (FAIC) at its next meetingexpected soon. Thereafter it will be tabled in the CBT for consideration and approval," an EPFO trustee and Bharatiya MazdoorSangh leader P J Banasure told PTI.

He said, "In the absence of exit policy, the EPFO has not been able to maximise its returns on its investments. Even in the case ofgovernment securities, the EPFO can sell the bonds in open market and earn huge margin before maturity."

He is of the view that there is no point increasing the investments in exchange-traded funds (ETF) unless the EPFO has an exitpolicy.

Citing an example, he said the ETF investment yield was about 14 per cent before demonetisation, which fell to around 8 per cent

after the note ban and but recovered to 13 per cent.

Thus, the EPFO has missed the bus to earn 14 per cent on its ETF investments before demonetisation in the absence of an exitpolicy.

Banasure said there was a broad consensus in the CBT that there should be an exit policy for the EPFO before raising investmentsin the ETF to 15 per cent of the investible deposits, from the current 10 per cent.

He is also of the view that the central body can maximise returns by timely liquidating investments in bonds and state loansdepending on market conditions.

The EPFO had entered the stock market by investing 5 per cent in August 2015, which was raised to 10 per cent last year.

In view of the volatile nature of stock markets, the EPFO had then decided to start with investing just 5 per cent of its over Rs 1 lakhcrore investible amount in ETFs.

The EPFO has invested Rs 18,069 crore in ETFs till February 18.http://economictimes.indiatimes.com/wealth/personal-finance-news/epfo-weighs-exit-policy-to-maximise-returns-on-investments/articleshow/58204707.cms

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Brokers / Distributors

Bourses

Now, investors get updates on BSE-listed cos round-the-clock PTISee this story in: Business Standard(Apr 17)

New Delhi: Right from board meeting outcomes to regulatory actions, investors are now getting updates about BSE-listedcompanies even at midnight with a new corporate announcement filing system where the delay in dissemination is less than 10seconds.

Moving away from the earlier practice of "pre- verification", the exchange is seeking to provide price sensitive information aboutcompanies at the earliest with the new system.

Now, most filings by listed firms on the BSE come with two sets of timings and their difference shows the gap in dissemination of theinformation by the exchange after receiving the information from the entity concerned.

A cursory glance at the timings of filings on the bourse shows that some of them have come even close to midnight, making thedissemination almost a round-the-clock affair.

Under the new system, introduced last month, corporate announcements would be disseminated "without pre- verification",according to the BSE.

"Corporate Announcement Filing System will be operated 365 days and 24 by 7 to provide up to date, timely, accurate informationto the investors and also to news agencies at the fastest possible speed," the exchange said last month.

Presently, the delay between reports by the company and availability of the information on website varies from 2 to 10 seconds inmost cases, as per the BSE.

A slew of corporate announcements, including those related to outcome of board meetings, postal ballot, change in directorate,regulatory action and business updates, have been brought under the dissemination system.

More than 5,000 companies are listed on the BSE.

"Post dissemination on the website, the exchange would carry out the verification checks for adequacy and accuracy as mandatedby Sebi from time to time, as is being done at present," BSE had said.

Filings made by companies, under the relevant Sebi norms, are key takeaways for investors as they track developments at aparticular entity.http://www.business-standard.com/article/pti-stories/now-investors-get-updates-on-bse-listed-cos-round-the-clock-117041600459_1.html

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International

China’s shadow banking rebounds in March, household loans surge despite curbs ReutersThe Financial Express

Beijing: China’s banks unexpectedly extended less credit in March than in the previous month as the government tries tocontain the risks from an explosive build-up in debt and an overheating housing market. But aggregate financing, which includesbank loans as well as off-balance sheet lending, surged in March and was a record in the first quarter, raising doubts about theeffectiveness of official efforts so far to clamp down on risks in the financial system.

A surge in household lending in March also added to worries about whether authorities will be able to get the frenzied propertymarket under control, even as cities roll out increasingly stringent curbs on home buying.

The central bank has raised interest rates on money market instruments and special short- and mid-term loans several times inrecent months, most recently in mid-March, to contain debt risks and discourage speculation, though it is treading cautiously toavoid hurting economic growth.

Outstanding bank loans grew at the slowest pace since July 2002 in March at 12.4 percent, while M2 money supply growth hit amore than 6-month low, reflecting the moderately tighter policy stance by the People’s Bank of China (PBOC).

On the surface, the level of March new loans fell, also suggesting authorities are making some headway in weaning borrowers offendless cheap credit and coaxing debt-laden companies to deleverage. China’s banks made 1.02 trillion yuan ($148.15billion) in new loans in March, data showed on Friday, down from 1.17 trillion yuan in February and well below the 1.25 trillion yuanthat analysts had predicted in a Reuters poll. However, banks still extended the third highest loans on record for a single quarter,totalling 4.22 trillion yuan in January-March.http://www.financialexpress.com/industry/banking-finance/chinas-shadow-banking-rebounds-in-march-household-loans-surge-despite-curbs/630341/

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Economy

Market falls by 245 points to 29,461.45 for the week PTISee this story in: Asian Age(Apr 16)

Mumbai: Snapping the previous two weekly gains, the benchmark Sensex fell 245.16 points to 29,461.45, while the broader Niftycracked the key 9,200-level to finish at 9,150.80.

The truncated trading week saw the market nipped by fuelling geo-political crises following last week US cruise missile attack onSyria, while volatility prepossessed the investor sentiment owing to the start of fourth quarterly earning results and slew of keymacro-data's releases.

The initial consolidative momentum made way for correction with market seeing three losses out of four trading sessions, as thedisappointment perturbed the sentiment following the release of lower Industrial output, surge in CPI inflation as well as weak startin key earning results.

Rising tension in the Middle East and the Korean peninsula following last week's US strike against Syria and sabre-rattling by theUS and North Korea took toll to the global stocks, pushing investors to safer assets like gold, treasuries and the yen.

On the domestic front, the industrial output slipped to a 4-month low by contracting 1.2 per cent in February and fuel prices droveretail inflation to a five-month high of 3.81 per cent in March.

Finally, a dismal start in earning results, with IT index getting hammered after Infosys weak revenue outlook and plan to return cashto shareholders fell short of market expections.

During the week, the key indices opened higher at 29,752.62, hovered between 29,838.82 and 29,442.26, before settling at29,461.45, Showing loss of 245.16 points, or 0.83 per cent.

The sensex had gained 285.21 points or 0.97 per cent on previous two weeks. While Nifty lost 47.50 points, or 0.52 per cent toquote below the key 9,200-level at 9,150.60.

Selling was led by IT, Metal, Teck, Auto, Consumer Durables and Power sectors. While buying witnessed in IPOs, Realty, PSUs,HealthCare, Oil&Gas, FMCG, Banks and Capital Goods.

The broader midcap and smallcap companies shares also found good buying interest. Meanwhile, foreign portfolio investors (FPIs)and foreign institutional investors (FIIs) sold shares worth Rs 2,264.05 crore during the week, as per Sebi's record including theprovisional figure of April 13.

In the broader market, The BSE Mid-Cap index rose 117.80 points or 0.83 per cent to settle at 14,350.96. The BSE Small-Capindex gained 199.74 points or 1.36 per cent to settle at 14,881.16. Both these indices underperformed the Sensex.

Among sectoral and industry indices, IT fell by 4.11 per cent followed by metal 4.10 per cent, teck 3.49 per cent, auto 0.82 per cent,consumer durables 0.78 per cent and power

0.64 per cent, while realty rose by 2.33 percent, followed by healthcare 1.89 per cent, oil&gas 1.85 per cent, FMCG 1.33 per cent,bankex 1.26 per cent and capital goods 0.34 per cent, Among the 30-share Sensex pack, 18 stocks fell and remaining 12 stocksgained during the week.

Shares of Adani Ports fell 7.81 per cent. The stock was the top loser from the Sensex pack. IT was followed by Tata Steel 5.86 percent, Infosys 5.08 per cent, TCS 4.09 per cent, Wipro 3.51 per cent, Tata Motors 3.22 per cent, Reliance 2.93 per cent, Maruti 2.79per cent, Gail 2.21 per cent and Cipla 2.12 per cent, while Sun Pharma rose by 4.00 per cent, ITC 2.57 per cent, Coal India 2.47 percent, power grid 2.13 per cent, ICICI Bank 1.75 per cent, Lupin 1.63 per cent and HUL 0.60 per cent.

The total turnover during the week on BSE and NSE fell to Rs 15,016.25 crore and Rs 98,393.40 crore, respectively, as against lastweekend's level of Rs 16,104.66 crores and Rs 1,05,939.97 crores. Both the markets remained closed yesterday on account of "Dr.Baba Saheb Ambedkar Jayanti" and "Good Friday".http://www.asianage.com/business/market/150417/market-falls-by-245-points-to-2946145-for-the-week.html

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Indian corporates' results to remain poor in Q4 FY17; autos revenue to degrow by 46.32% Narendra NathanThe Economic Times(Apr 16)

Though not as bad as expected, India Inc. reported a weak set of numbers for the third quarter of 2016-17.

Fourth quarter results are also going be lacklustre: The aggregate revenue of the BSE 500 companies is expected to fall 5.41%compared to the fourth quarter of 2015-16 or on a year-on-year (y-o-y) basis.

The quarter on-quarter (q-o-q) fall in aggregate revenue— fourth quarter revenue compared to third quarter—isexpected to be 2.49%.

Most sectors will report a fall in their top linesMetals, oil and gas, FMCG, and infotech will buck the trend of fall in revenue.

While the aggregate net profit is expected to fall 10.81% y-o-y, it may grow 12.05% q-o-q. This q-o-q jump, however, can’t betreated as a turnaround because performance of the preceding quarter was severely affected by demonetisation.

“Since full remonetisation has happened only in the second half of the fourth quarter, Q4 numbers are also expected to betepid like the Q3 ones,” says Mayuresh Joshi, Fund Manager, Angel Broking.

The underperformersOne can expect weakness across sectors, with some facing severe pressure. For instance, due to the onslaught from Reliance Jio,telecom companies are facing serious pricing pressure. With customers demanding free calls, free roaming, reduced costs for data,etc., the average revenue per user (ARPU) took a major hit in the last quarter.

Due to massive losses from Idea and Reliance Communication, the telecom industry is expected to report a net loss at theaggregate level. Will the market leader Airtel be able to maintain its profits? “There will be severe pressure on its profitability.Airtel will fall into loss,” says Joshi. Tata Motors is likely to be a drag on the auto sector’s aggregate numbers.

However, even after excluding Tata Motors, the situation is not particularly great for the sector. While the two-wheeler segment tooka major hit due to demonetisation—Hero Motocorp’s sales volume fell 6% in the fourth quarter—the passengercar segment remained relatively stable—Maruti Suzuki’s volume grew 15% in the fourth quarter. Additional costs dueto the phasing out of BS-3 vehicles and their emergency fire sale due to the Supreme Court directive will drag autocompanies’ margins in the fourth quarter.

Though the cement sector is slowly recovering from demonetisation and cement volumes picked up due to improved constructionactivity, prices have fallen because of increased competition. Prices in the southern and eastern markets are now down by 3-4%y-o-y. The sector’s performance will also be affected by the significant surge in pet-coke—an alternative tocoal—prices. Exports-oriented sectors such as IT, Pharma, etc. are also expected to be under pressure.

While IT was struggling with H-1B visa issues, pharma has been troubled due to increased notices from the US FDA. The suddenappreciation in the rupee—around 5% in Q4 alone—will squeeze these companies’ margins further.“Fourth quarter of 2016-17 would be the first-ever quarter of PAT (profit after tax) decline for our technology universe,”says Guttam Duggad, Head of Research, MotilalOswal Securities. Infosys, which declared weak results on 13 April, saw its stockprice crash by 3.86%.

Metals will shineFourth quarter numbers would have been worse if there was no cyclical upturn in the metals sectors. The steel sector, for instance,is expected to report a net profit of Rs 1,315 crore, compared to Rs 578 crore in the third quarter. It had reported a net loss of Rs507 crore in the fourth quarter of 2015-16. The non-ferrous metals (other than iron and steel) are also expected to report a y-oy netprofit growth of 32%.

Outlook for 2017-18Despite the weak performance in 2016-17, analysts are yet to cut the earnings estimate for 2017-18 in a big way. Industry experts

warn that companies will not be able to meet the high expectations. High projections in the beginning of the financial year andreducing them later has been the norm for several years, and it is likely to continue in 2017-18 as well. “The economy wasexpected to take a deep cut and then recover fast.

Though the expected deep cut did not happen, the bounce back is also not happening as fast as expected. Some structuralweakness still remains, so recovery will be more long drawn,” says Arun Gopalan, VP, Research, Systematix Shares andStocks. Monsoon and implementation of the Goods and Services Tax (GST) are shortterm worries for 2017-18.

Though the Indian Meteorological Department (IMD) is yet to come out with its rainfall estimates, private sector forecaster SkymetWeather has predicted below normal monsoon in 2017. Monsoon continues to have a significant bearing on rural consumption.Implementation of the GST can also create shortterm hiccups, though it will benefit in the long term. “Expect some positiveimpact of GST in the second half of 2017-18. The full impact will be visible only in 2018-19,” says Gopalan.

While most sectors driven by domestic demand are expected to do reasonably well in 2017-18, telecom will remain under seriouspressure—even in 2018-19. With call rates and data rates coming down drastically, ARPUs are going to fall further in2017-18. Since telcos are laden with debt, their interest costs are also going to be drag. Global sectors like IT and pharma willremain under pressure if the rupee continues to appreciate.http://auto.economictimes.indiatimes.com/news/industry/indian-corporates-results-to-remain-poor-in-q4-fy17-autos-revenue-to-degrow-by-46-32/58196730

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