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Current Economic Statistics and Review For the
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Theme
of the week:
Structured Finance: An Unchartered Territory
1. The Background Definition
of Structured Finance Structured finance is a form of securatisation of underlying direct assets, but it is more complex than mere securitisation. It involves tailoring a product to the risk-return profile and maturity requirements of the borrower. It is usually an improvement over traditional loan financing products, in that under such financing structures, the lender does not look at the entity as a risk but tries to align the financing to specific cash accruals of the borrowers. It encompasses all advanced private and public financial arrangements that efficiently refinance and hedge any profitable economic activity beyond the scope of conventional forms of on-balance sheet securities (debt, bonds and equity) in the effort to lower cost of capital and mitigate agency costs of market impediments on liquidity. Structured finance instruments can be defined with the help of their distinct characteristics which are three: (i) pooling of assets (either cash-based or synthetically created); (ii) delinking of the credit risk of the collateral asset pool from the credit risk of the originator, usually through the transfer of the underlying assets to a finite-lived, standalone special purpose vehicle (SPV); and (iii) tranching of liabilities that are backed by the asset pool. While the first two characteristics are also present with classical pass-through securitisations, the tranching of liabilities sets structured finance products apart.
The
Sub-Prime Crisis in the The
second half of 2007 has witnessed the first major casualty of the
developments in the structured finance in the The
sub-prime crisis in the There has emerged significant uncertainty about the valuations and disclosures of structured instruments; counterparty risk remains a concern; and the balance sheets of financial institutions have been weakened. As a result, important questions are being asked about whether structured finance products provided the intended benefits, the extent to which these products increased the risk of a crisis and exacerbated its consequences, and the need for both the official and private sectors to address systemic weaknesses (IMF April 2008). This crisis has raised serious concerns about the counterparty risks involved in situations of crisis, the role of credit rating agencies and the premium placed on AAA ratings, the instruments and techniques used for measurement of risks such as value-at-risk (VAR) and the extent of allocation of risks through such derivative instruments.
2.
Status in It
is against the above development, that we review in this note the growth of
the structured finance in Growth
of different segments
As per ICRA's estimates, the structured issuance volumes have grown from Rs. 7,700 crore in 2003 to Rs. 36,900 crore in 2006-07. The growth in 2006-07 has been primarily on account of securitization of single corporate loans, which accounted for nearly a third of the total volume. However, asset-backed securities (ABS) is the largest product class at more than 60 per cent, with securitization of retail loans remaining popular. The growth of ABS market can be attributed to a number of factors such as the growing retail loan portfolios held by banks and other financial institutions, investors' familiarity with the underlying assets class the relatively short tenor of such issues. Growth of the residential mortgage backed securities (RMBS) market has been slower despite the growth in the underlying housing finance market mainly due to the relatively long tenor, lack of secondary market liquidity and the risk arising from prepayment/repricing of the underlying loans. The most remarkable development in 2007 has been the growth of corporate loan securatisation. The securatisation of individual corporate loans (termed as loan sell-off or LSO) has grown many times in 2006-07 (Table 1 and Chart 1) to around Rs 11,700 crore as against Rs 2,100 crore in the previous year. Consequently, LSO’s share in the total securatisation activity rose to around 32 per cent, much higher than the 8 per cent it had in the previous two years. The key players in this segment are private sector banks and certain NBFCs, while the borrowers are mostly home finance companies and NBFCs as also various mid-sized corporate entities. The tenure of these loans is less than one year. One common structure, however, is a longer tenure loan, with an annual call/put option, wherein under securatisation transaction, it is mandatory for the SPV (which is the legal owner of the loan post-securatisation) to exercise the loan recall option at the end of one year, thereby effectively ensuring a one-year tenure for the investor. Lenders often originate loans with the specific intention of securitizing them, sometimes within a day of disbursement. Thus, the originator’s funds are locked for a minimal period and the gain on securitisation is akin to a non-fund –based income for the originator. Borrowers often prefer the loan route to the bond route of raising funds, since the latter requires greater disclosure and documentation, thus often being more time-consuming. However, ICRA opines that the certain single loan sell-off transactions do not get reported in the public domain; the market size could be higher than ICRA’s estimate to that extent. RBI
guidelines Restraint Growth
The volume in ABS securities has been rising continuously from 2002-03 but dipped in 2005-06 and then it has again risen in 2006-07 to Rs 234 billion. The above mentioned guidelines which prohibits originators from booking profit up-front at the time of securitisation, stipulate a higher capital charge on credit enhancements provided, and disallow release of credit enhancement during the course of the transaction. With these guidelines coming into force, the attraction of securitisation as a tool for capital relief and profit booking has declined (Icra 2007). Legal
Framework In
2002, However
the Securities Contracts (Regulation) Amendment Bill, 2007 passed by Lok
Sabha in month of May 2007 amended Securities Contract (Regulation) Act to
include “securitised instruments” in the definition of “securities”
as defined in Securities Contract (Regulation) Act. The amendment is made to
allow listing of securitised debt on stock exchanges and therefore, make the
market more liquid. SEBI has been empowered to write regulations for public
offers and listing, and it has come up with draft regulations which is
placed on its website. Instead of falling in line with similar public offer
rules for asset-backed securities in other countries, for example, SEBI has
drawn heavily on its own template in the context of mutual funds and similar
market intermediaries. Thus, for a securitised instrument to be offered to
public, there has to be a special purpose distinct entity (read SPV). While
the normal concept of SPVs is a discrete body for each transaction, SEBI's
idea seems to be some kind of a continuing umbrella entity that would serve
several transactions in a sequence. Hence, there is a need for registration
of such entity, and such registration must be maintained on a continuous
basis. A single SPV can come up with several transactions of securitisation,
called "schemes", again in line with mutual fund parlance. Hence,
the SPV becomes a kind of protected cell or multisegmented entity, though
the law in Nature
of RBI guidelines As
referred to above, RBI guidelines have introduced a degree of restraint in
the secuartisation process. These guidelines have been issued in the light
of the differing practices followed by banks in § Detailed set of guidelines to ensure 'arms' length relationship between the originator and the SPV § Credit enhancements provided by the originator for first as well as second losses to be deducted from the capital. For the first loss facility, the deduction is capped at the amount of capital that the bank would have been required to hold for the full value of assets. Thus a disincentive is created for an originator trying to provide second loss facility also. (However, the proposed Basel II uidelines envisage risk weight for securitized exposures, depending upon rating, will range from 20 per cent to 400 per cent or even deduction from capital); § Any profit/premium arising on account of sale not allowed to be booked upfront and is to be amortised over the life of the securities issued or to be issued by the SPV § Provision of liquidity facility to be treated as an off- balance sheet item and attract 100 per cent credit conversion factor as well as 100 per cent risk weight. § Disclosure by the originator, as notes to accounts, presenting a comparative position for two years: total number and book value of loan assets securitised; sale consideration received for the securitised assets and gain/loss on sale on account of securitisation; form and quantum (outstanding value) of services provided by way of credit enhancement, liquidity support, post-securitisation asset servicing, etc. In
the context of recent global events, the above guidelines will go a long way
in laying the foundation for a healthy structured credit market in However, the recent data shows that the growth of traditional ABS and RMBS has slowed while that of single corporate loan sell out has increased. It is necessary that the growth have to be supported in a well-regulated and transparent manner. It would be a welcome development if RBI itself began disseminating data regarding securitisation, it would increase the transparency. Conclusion There is a need for the growth of derivatives but not too complex and its should be transparent and well regulated. Here it is worth noting the conclusion of the IMF’s latest Global Financial Stability Report (GFSR) 2008, it is that, although structured finance can be beneficial by allowing risks to be diversified, some complex and multi-layered products added little economic value to the financial system. Further, they have very likely exacerbated the depth and duration of the crisis by adding uncertainty relating to their valuation as the underlying fundamentals deteriorated. The recovery of the structured market will likely entail more standardized products, at least for some time to come, and better disclosure both at origination and subsequently. To this end, policy measures should aim to strengthen design and market weaknesses and to close the regulatory gaps in structured finance, without impeding innovation. __________ * This note has been prepared by Piyusha Hukeri Reference: BIS (2005): Structurted finance: complexity, risk and the use of ratings, Quarterly Review, June Gopinath S (2007): Indian Derivatives Market - A Regulatory and Contextual Perspective, RBI Bulletin, November Icra (2007): Update on Structured Finance, July IMF (2008): Global Financial Stability Report, Containing Systemic Risks and Restoring Financial Soundness, April Kothari V (2007): Indian Securitisation- Regulatory and Market Scenario Vinod Kothari’s website, August
Reddy Y V (1999): Securitisation in
Highlights of Current Economic Scene AGRICULTURE As
per the records available with the ministry of agriculture, the
procurement of wheat for the ongoing rabi marketing session 2008-09 has
crossed 18 million tonnes against the target of 15 million tonnes. It has
been 62 per cent higher than the total procurement of wheat (11.13 million
tonne) during 2007-08. Out of the total procurement, Punjab and Haryana
has contributed more than 74 per cent with procurement in According
to preliminary forecasts by FAO, rice production in Asia, Africa and The
central government has suspended futures trading in channa (gram), refined
soya oil, potato and rubber for four months in an attempt to contain the
price rise in essential commodities and to curb the spiralling inflation
rate in the country. The Forward Markets Commission (FMC) has issued the
order on May 7, 2008 with an immediate effect because the government has
been receiving a number of complaints against speculative trading in agri
futures trading. Prices
of red and black gram are likely to move up due to possible delay in
shipments of 50,000 tonnes, owing to occurrence of cyclone in the major
exporting nation According
to Solvent Extractor Association (SEA), exports of oilmeal in April 2008
have risen by 46 per cent to 637,500 from the same month a year ago, due
to robust demand from overseas countries like As
per National Agricultural Cooperative Marketing Federation (NAFED),
exports of onion are likely to increase by about 12 per cent in the first
month of financial year 2008-09 helped by lower minimum export price (MEP).
According
to coffee board statistics, Indian coffee exports (permit issued), during
the period January-April 2008, have seen an upsurge of around 4 per cent
to 92,000 tonnes, as against last year's exports of 88,470 tonnes. Indian
coffee prices in the international market have come down by 30 per cent
during the same period. As per the International Coffee Organisation (ICO),
global exports in the first six months of coffee year 2007-08 have dropped
by nearly 5 per cent to 46.41 million bags as compared to 48.82 million
bags in the same period last year. Arabica exports during April-March
2007-08 have amounted to 62.78 million bags as compared to 62.84 million
bags a year ago, whereas Robusta exports have amounted to 32.41 million
bags as against 32.96 million bags last year.
Export
of coir products for the financial year 2007-08 have witnessed a rise of
11.15 per cent to 1,87,566 tonnes in volume against 1,68,755 tonnes
exported last year. However, in value terms, exports have declined by 2
per cent to Rs 592.88 crore as compared with Rs 605 crore in the
corresponding period of the previous years due to appreciation of rupee
against dollar. South
India Cotton Association (SICA) has sought an extension of the technology
mission on cotton (TMC) for another 5 years, with the aim to improve the
technology on better quality cotton seeds and seed oriented R&D. The
central government-sponsored programme is aimed at developing Gujarat
Co-operative Milk Marketing Federation (GCMMF) has urged central
government to impose a 20 per cent duty on export of oilmeal so that the
dairy farmers would get cattle feed at affordable rates. The
central government has decided to provide subsidy to all co-operative
milk-marketing institutions for switching over to natural vanilla as a
flavoured ingredient in their various milk-based products. It has also
planned to introduce different subsidies to bifurcate the prices of
natural and synthetic vanilla. Natural vanilla essence is quoted to be at
1,500 per kg while, the synthetic vanilla is ruling at around Rs 500 per
kg. Kerala State Cooperative Milk Marketing Federation (Milma) along with
Amul has currently switched over to use natural vanilla for making ice
creams and other products. PepsiCo
India would be procuring 5,500 tonnes of barley cultivated in Rajasthan by
the end of rabi season 2007-08; as this state is involved in contract
farming process the for UB group. The company has planed to increase the
coverage by 20 per cent next year and is expected to triple the production
of two-row variety, mostly utilised for making of better quality malt. Industry A
fall in the rate of growth in IIP had seen during March 2008. The growth
in the index of industrial production during March 2008 at 3.0 is only
about one-fifth of that in March
2007 (14.8 per cent). All the three major groups contributed for this
performance. As a result during the fiscal year 2007-08 IIP index rose by
8.1 per cent as compared to 11.6 per cent last year. Mining sector and
electricity sector grew by 3.8 per cent and 3.7 per cent during the month.
The growth of manufacturing sector is at 2.96 per cent during March 2008
has been way below to that of 16.0 per cent recorded last March. Out of
the 17 industries, five industries declined and four industries registered
double digit growth.. As per use-based classification, the sect oral
growth rates in March 2008 over March 2007 are 3.1 per cent in basic goods
industries, 8.6 per cent in capital goods and 3.5 per cent in intermediate
goods. Consumer goods recorded a decline of 0.1 per cent. Infrastructure Riding
on the back of good performance of coal, electricity and cement the index
of six core infrastructure industries having a combined weight of 26.7 per
cent in the index of industrial production with base 1993-94 registered an
impressive growth of 8.7 per cent during February 2008 as compared to 7.6
per cent in February 2007. This impressive performance exhibited by
the core industries in
February 2008 resulting the core index registering a growth of 5.6 per
cent during the fiscal so far as against 8.7 last year. All the six-core
industries witnessed better performance during February 2008 compared to
January 2008.. Thus refinery products, electricity, cement, steel and coal
all contributed for the higher rate of growth. Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by
7.61 per cent for the week ended April 26,2008 as compared 7.57 per cent
as on April 28,2007. Index
of Primary Articles group rose by 0.3 per cent to 238.6 from 237.9 for the
previous week. Food articles group rose by 0.5 per cent. Index of non-food
articles rose by 0.2 per cent The
index for the major group Fuel, Power, Light and Lubricants remained
stationary. Price
index of Manufactured products also remained unchanged during the week. The
final WPI for all commodities had been revised upward from 222.35 to 220.0
for the week ended March 01,28. As a result the rate of inflation
calculated on a point-to-point basis stood at 6.21 per cent as compared to
5.11 percent provisional. Banking Leading
private sector lender Axis Bank, which has recorded a 70.6 per cent rise
in net profit to Rs 361 crore in the fourth quarter 2007-08 has made
contingent provisions of Rs 72 crore as on March 31, 2008 on account of
mark-to-market losses arising from derivatives trades incurred by two
customers. These customers have repudiated certain transactions and have
sued the bank. The
country’s largest bank, SBI is making a provision of Rs 40 crore towards
potential losses owing to the meltdown in global credit markets. Earlier,
two major private sector banks – ICICI Bank and Axis Bank – announced
they had taken hits on account of similar developments. Axis Bank has
provided for Rs 72 crore, while its customers had suffered Rs 674 crore in
mark-to-market derivatives losses. Kotak
Mahindra Bank has recorded a net profit of Rs 69 crore in the fourth
quarter of 2007-08 has made a provision of Rs 86 crore towards
mark-to-market (MTM) losses on derivative-trading. Also, the bank’s
customers have negative MTM exposures of Rs 612 crore in forex derivative
transactions.
Financial
Sector Capital
Markets Primary
Market Indiabulls
Real Estate has been planning to make an initial public offering (IPO) of
a real estate investment trust in Aishwarya
Telecom Ltd, a manufacturer of test and measurement instruments, listed on
the BSE at Rs 50.10, as against its issue price of Re. 35 per share, which
is a premium of 43.14 per cent on May 07,2008. The scrip closed at Rs
90.85 on the BSE, which is 159.57 per cent over its issue price. A total
of 8.28 crore shares of Aishwarya Telecom was traded on the BSE. ATL had
entered capital market with an IPO 40 lakh equity shares. The issue has
been subscribed 20 times. Anu’s
Laboratories is to enter the capital markets with an IPO of 38.2 lakh
equity shares on May 12, and will close on May 15,2008. The company has
fixed the price band between Rs 200 and Rs 210 per share. The issue will
comprise a reservation of up to 2 lakh equity shares for employees and a
net issue to the public of 36.2 lakh equity shares. The issue will
constitute 31.6 per cent of the fully diluted post issue paid-up capital
of the company. Secondary
Market The
stock markets experienced five consecutive losing sessions during the week
as rising crude prices and inflation disturbed the sentiments. The market
also more or less tracked the global markets. The BSE Sensex was down 863
points or 4.90 per cent at 16,737 points. The NSE Nifty closed at 4,983
points, down by 246 points or 4.69 per cent. Smaller stocks registered
gains lower than those recoreded by large cap stocks. The Defty was down
6.68 per cent. The CNX Nifty Junior was down 7.5 per cent, while
the BSE 500 was down 4.9 per cent and the Nifty Midcap 50 was down 5.95
per cent. Among
the sectoral indices of BSE, all the stocks under performed during the
week with highest losses recorded by Reality at 9.5 per cent followed by
Capital goods and Bankex by 8 per cent and 7 per cent respectively. In
a move aimed at reducing risks from defaults in the derivative segment
that will help stock market investors and brokers use their margin funds
efficiently the Securities and Exchange Board of India (SEBI) approved
cross-margining across cash and derivatives segments on May 05, 2008. This
means if an investor is buying a stock in which he already has a short
position in the futures segment, he will not have to pay margin twice
over. The capital market regulator has stated in its circular that for
positions in the cash market that have corresponding offsetting positions
in the stock futures, value at risk (VaR) margin shall not be levied on
the 0cash market position. However, it will be only to the extent of the
offsetting stock futures market position. The SEBI circular also indicated
that near-month stock futures positions would not be considered for
cross-margin benefit three days before expiry (the last Thursday of every
month). Meanwhile, extreme loss margin (ELM) and marked-to-market margin (MTM)
shall continue to be levied on the entire cash-market position and there
will be no change in the margins on the F&O positions. In
a move to streamline the process of getting information, SEBI has made
some changes in the format on May 06,2008, in which periodic information
has been filed by merchant bankers, bankers to issues, debenture trustees,
registrars to issues and share transfer. Now, the aforementioned entities
need to file the information in electronic form and not in hard copy, as
was the earlier practice. SEBI has been trying to make intermediaries and
market participants more accountable by seeking information from them on a
regular basis and by bringing in reforms in various processes. Bombay
Stock Exchange’s (BSE) search for a partner to launch a bond index has
been come to an end as Asia’s oldest stock exchange is close to joining
hands with ICICI Securities Primary Dealership — a subsidiary of ICICI
Securities — to use its bond index. The move comes in the wake of
capital markets regulator SEBI, asking both the premier stock exchanges to
launch a bond index in its endeavour to change the predominantly OTC bond
market to a screen-based one. According to persons familiar with the
development, the exchange has already indicated its willingness to use the
bond dealer’s index named i-BEX that has been used by many of the fund
houses. According
to a report released by Value Research, mutual funds (MFs) made a
turnaround in April after three months of negative performance. In, all
categories of funds, on an average, gave positive returns with the
diversified equity gaining 8.36 per cent. The returns have varied between
a high of 17.3 per cent and a low of 1.69 per cent. The majorities have
returned between 7 per cent and 11 per cent. This was broadly in line with
the BSE Sensex that gained 10.5 per cent and the S&P CNX Nifty, which
gained 9.2 per cent. The only losers in the last month were gold ETFs,
which track the price of gold. These funds lost 6 per cent during the
month in line with the performance of the yellow metal in international
markets. Derivatives
During
the week, the volumes were stable and there was lower volatility. The
Nifty fell by 4.7 per cent last week, there was no big swing session and
the intra-day range stayed on the low side. The sell off triggered a rise
in the VIX from 22 till 27. Apart
from volatility and implied volatility, other indicators such as the
futures’ premium/ discount situations with respect to various
underlying, and the put-call ratios are all inside the normal range. In
the index futures market, the Nifty (and Mini-Nifty) are the only
contracts with liquidity in the mid and far series. The open interest (OI)
has grown substantially as well. But, the differential between the Nifty
spot-future is negligible, and the differentials between the respective
futures' contracts are even smaller. The CNX Nifty Junior and the
Nifty Midcap 50 futures are both trading at significant premiums to the
spot levels. The Bank Nifty is the only contract that is trading at an
appreciable discount. The CNX IT outperformed the general market and the
May future is trading at a negligible discount to the spot. The IT sector
held its ground due to the drop in the rupee. In the options
market, the overall put-call ratio (PCR) is at 0.94, which is mildly
overbought. The PCR in Nifty options in terms of OI is a better trading
indicator. It is within normal levels as well. The overall PCR (OI) is at
1.36, while the PCR (OI) for May contracts is at 1.14.
In the stock futures segment, majority of F&O stocks
declined in the last week Government
Securities Market Primary
Market Reserve
Bank of India (RBI) conducted the auction of the 7.59 per cent 2016 and
7.95 per cent 2032 for the notified amount of Rs.6,000 crore and Rs.4,000
crore respectively on May 9,2008. The cut-off yield of the securities was
7.96 per cent and 8.35 per cent, respectively. RBI
re-issued 7.59 per cent 2016 and 7.95 per cent 2032 for Rs.6,000 crore and
4,000 crore on May 09,2008, at the cut-off yields of 7.96 per cent and
8.35 per cent, respectively. On
May 07, 2008, RBI auctioned 91-day and 364-day T-bills for the notified
amounts of Rs.3,000 crore and Rs.3,500 crore(out of which Rs 2,500 crore
under (MSS) respectively. The cut-off yields for 91-day and 364-day
T-bills were 7.31 per cent and 7.55 per cent, respectively.
Secondary
Market The
call rates moved around 4.77-5.56 per cent during the week. In the LAF
reverse repo window, the RBI mopped up an average of Rs 41,135 crore. The
cumulative CBLO volumes for the week rose to Rs 2,31,356 crore from Rs
2,29,173 crore. The banking system was awash with liquidity ahead of the
second phase of the CRR rate hike and bond auctions. Bond
Market On
May 06, 2008, RBI has set the rate of interest on the Floating Rate Bonds,
2016 (FRB, 2016) applicable for the year May 7, 2008 to May 6, 2009 at
7.49 per cent per annum. During
the week under review, one development finance institution, three
non-banking financial companies, one central undertaking and one corportae
have tapped the market by issuing bonds.
Foreign
Exchange Market The
rupee closed at Rs.41.38 per dollar on May 09, 2008 as compared with Rs.
40.65 as on May 02,2008. The Rupee moved between Rs. 40.55 and Rs.41.79,
with a standard deviation of 51 paise during the week. The rupee fell 2.34
per cent to 41.59 per dollar under pressure from record crude prices that
kept demand from oil companies constant. General short covering and
technical factors put additional pressure on the rupee, especially in the
absence of support from the stock market. The rupee hit a year’s low
level of 41.80 per dollar mid-week. The sharp increase in spot rate pushed
the annualised forward premia lower. The six-month forward premia closed
at 1.21 per cent (annualized) on May 09, 2008 vis-à-vis 1.94 per cent on
May 02,2008. CEOs
and treasury heads of companies sitting on large marked-to-market (MTM)
losses on their foreign exchange derivatives deals will heave a sigh of
relief. Because the Swiss franc has depreciated 8.76 per cent since it
touched an all-time high of 0.9636 against the US dollar on March 17,
2008. The Swiss franc was the choice of currency for companies entering
into cros s-currency swaps. It was perceived to be more stable than the
yen (which is more volatile) as the Swiss franc had not breached the
1.10-level against the dollar. Commodities
Futures derivatives The
government has suspended futures trading in channa (gram) refined soyoil,
potato and rubber for four months in an attempt to contain the price rise
in essential commodities and curb the spiralling inflation rate in the
country, as the government data showed that India's inflation hit a
42-month high of 7.57 per cent in the week ending April 19, 2008. The
Forward Markets Commission (FMC) has issued the order on May 07,2008,with
immediate effect because the government has been receiving a number of
complaints against speculative trading in agri futures trading. A section
of agri industry leaders and commodity traders have also been pleading for
a ban on future strading in essential commodities, as they said futures
trading has been leading to speculation and price rise. According to FMC
Chairman B C Khatua, the ban may not curb inflation in the coming weeks,
as there is no direct link between inflation and futures trading, but
would surely affect the turnover of commodity exchanges. According
to National Commodity and Derivatives Exchange Ltd (NCDEX)'s Managing
Director and CEO, R Ramaseshan, the NCDEX, may witness a 20 per cent
decline in volume due to the ban imposed on chana, rubber, potato and
soyoil. It is a cause of concern as chana and soyoil contributes 20 per
cent of our turnover. The volume of futures trading in rubber and potato
is not very significant. The exchange daily volume was estimated at Rs
2,000 crore and chana and soyoil contributes around Rs 400-500 crore worth
turnover. The
government's decision to ban four more commodities from futures market has
spawned a demand for suspension of forward trading in gold, silver and
sugar as the industry blames speculation for volatility in prices. The All
India Sarafa Association, an umbrella body for bullion traders, has
written to the Prime Minister and Finance Minister seeking a ban in
futures trading of gold and silver.
The ban on commodity futures has fired up spot markets as traders use the lack of transparent price discovery and gaps in information to make a large profit. All vegetable oils flared up on Thursday, May 08,2008 as the ban on futures trading in soya oil came into effect. Oilseeds trading has also become highly active as a proxy for soyabean oil. The Indore-based NBoT, the hub of soya complex futures, launched two soyabean contracts on Thursday to capture this shift in trading interest. With no avenue left to hedge their risk in the domestic market, edible oil importers may shy away from contracting large soya and crude palm oil volumes overseas. That will further raise prices in the country by depleting the supply pipeline. All vegetable oils, including mustard, palmolein and soya, rose sharply on Thursday in the spot market after refineries and traders in the cash market upped the ante. According
to a senior government official, the ban on futures trading of wheat,
rice, tur and urad may remain suspended even though the Abhijit Sen
Committee has found no conclusive evidence to suggest that forward trade
leads to price rise. However, the Consumer Affairs Ministry is considering
any proposal to ban more commodities. The Ministry is currently studying
the Abhijit Sen Committee's report, based on which it would prepare a note
for further action. Multi
Commodity Exchange of India, the country’s leading commodity bourse, has
launched futures contracts in gold, with a minimum size of eight grams,
effective from Thursday May 08,2008. The ‘Gold Guinea’ would have two
contracts, July and August 2008. Trading unit of the contract would be
eight grams and maximum order size would be 10 kg with tick size (minimum
price movement) of Re 1 per eight grams. According to the exchange
circular whenever the daily price limit is hit, the limit shall be relaxed
up to 6 per cent and such relaxation from the present daily price limit is
done, the exchange shall levy margin of equivalent percentage. The quality
specifications would be 995 purity and should be serially-numbered gold
guinea supplied by the London Bullion Market Association (LBMA) approved
suppliers or other suppliers as may be approved by MCX, to be submitted
along with suppliers quality certificate. MCX has notified the delivery
centres at Ahmedabad, while the additional centres would be at State-owned
MMTC Ltd expressed its confidence to start a commodity bourse in Haryana
some time in 2009.According to MMTC Chairman and Managing Director Sanjiv
Batra, the idea to set up an exchange in June last year was delayed due to
FMC's new guidelines, which they received recently. After getting a formal
nod from the regulator by May-end and the exchange will begin in the next
year. The company would set up the exchange in joint venture with
brokerage firm Indiabulls in which it would have a 26 per cent stake. The
commodities transaction tax (CTT) is likely to come into force within the
next two months as the details which includes the collection, payment and
the procedures for filing returns, will take some more time to be firmed
up. The CTT, which will be administered by the Central Board of Direct
Taxes (CBDT), will be levied at the rate of 0.017 per cent on sellers of
commodity futures as well as options. Purchasers of options, who exercise
them, will pay 0.125 per cent on the basis of per transaction value. Insurance In
a first-of-its kind alliance, the country’s official reinsurer, GIC is
collaborating with Germany’s Hannover Re, one of the top five
reinsurance companies worldwide, to develop life reinsurance companies
worldwide, to develop life reinsurance in the country. IRDA
has rejected the demands of third party administrators (TPAs), who provide
claim servicing, to market cashless medical policies to customers. Corporate
Sector Reliance
Anil Dhirubhai Ambani Group has floated a new company, to set up an Rs
10,000 crore cement project in Madhya Pradesh, marking the group’s foray
into the sector. The first phase of the 20 million-tonne project will be
completed by 2012-13. The first phase of 5 million tonne entails an
investment of Rs 2,500 crore. External
Sector Exports
during the fiscal year 2007-08 was US $ 155512.49 million as against US $
126413.99 million registering a growth of 23.02 per cent . As against this
Imports was valued at US $ 235910.73 million as against US$ 185735.17
million recording a growth of 27.01 per cent. In
rupee terms, while export increased by 9.39 per cent , import flared up by
12.92 per cent. As
a result trade deficit was estimated at US $ 80398.24 million higher than
the deficit at US $ 59321.18 million during April-March 2007-08. Oil
imports were estimated during the year at US$ 77033.57 million during
2007-08 and non-oil imports at US $ 158877.15 million Telecom The
government is set to usher in mobile virtual network operators (MVNOs),
allowing players without telecom licenses to provide services by buying
bulk airtime from licenses and reselling it to consumers. TRAI has issued
a consultation paper soliciting the views of various stakeholders on the
subject. About
week after Airtel slashed its national long distance call rates and
roaming charges the second largest GSM operator in the country, Vodafone-Essar
announced cuts in its STD tariff to Rs 1.30 per minute, as against
Airtel’s Rs 1.50 per minute. Vodafone slashed the roaming charges to Re
1 for all incoming and local charges to Re 1 for all incoming and local
outgoing calls matching Airtel’s roaming charges. Vodafone
has inked a deal with Apple to become the first telecom operator to
officially launch iPhone in the Indian market along with nine other
countries.
*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Following
the guidelines on securitisation issued by the RBI in February 2006, various
originators slowed down their securitisation activity, preferring direct
assignment of loan pools to investors, which is not covered by the
securitisation guidelines, rather than transfer the receivables to a Special
Purpose Vehicle (SPV) and issue Pass-Through Certificates (PTCs) to multiple
investors. The tight liquidity conditions and the resulting rise in interest
rates also moderated the growth. Nevertheless, continued growth in retail
loan portfolios drove some of the key players to securities a significant
portion of their assets.