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Theme
of the week:
Invisible In India’s Balance of Payments – V
1.Introduction The
ushering in of economic reforms and ensuing a liberalized policy environment
have also resulted in improvements in the operations of banks with respect
to even the transfers of remittances; this has resulted in a large shift in
the routing of remittances from informal channels to the banking system. The
informal hawala market for unofficial transactions in foreign
exchange has virtually ceased to exist. At any rate, the logic for the hawala
transactions in the differential value of the rupee as between the
official and unofficial markets has ceased to exist; there may be hawala
transactions arising out of the need to thatch away unaccounted incomes in
tax havens abroad. Private
remittances represent unrequited transactions, i.e., transactions which do
not involve quid pro quo. Inward remittances have shown significant
increases and become an important source of financing the current account
deficit in several developing economies;
Overall gross
remittance inflows from overseas Indians have reached US $ 29 billion in
2006-07 from US $ 2.1 billion in 1990-91. There has been a further 42.5 per
cent increase from US $ 20.23 billion during April-December 2006 to US $
28.83 billion during April-December 2007. Workers’ remittances have been
around 3 per cent of A number of initiatives have been undertaken to facilitate remittances viz., market-based exchange rate, current account convertibility, regulatory measures to facilitate institutional development for wider access to remittance services, policy initiative to facilitate remittance flows through speedier and cost-effective money transfer arrangements. Recent
measures have been in the forms of facilitating infrastructure for receiving
remittances. The bulk of inward
remittances to 2.
Money Transfer Service Scheme (MTSS) Money
Transfer Service Scheme (MTSS) is a quick and easy way of transferring
personal remittances from abroad to beneficiaries in 3.
Rupee Drawing Arrangements (RDA)
Rupee Drawing
Arrangements (RDA) are entered into by banks in Under DDA procedure, an Exchange House issues rupee drafts to the beneficiaries and at the end of each day arrives at the total drawings and deposits their daily collections on the next working day in the DDA account. This account is a designated account opened in the name of the drawee bank account by the Exchange House with a bank acceptable to the drawee bank at a centre mutually agreed upon. No collateral security is to be placed by the Exchange House under this kind of arrangement in the normal course. Under Non-DDA procedure, the Exchange House directly credits the nostro account of the bank with the total of daily drawings. Collateral deposits equivalent to one month projected drawings are insisted upon (usually 15 days cash and 15 days bank guarantee). Under Speed Remittance, the Exchange House sends instructions electronically to the bank with complete details of the beneficiary and funds their rupee account through the bank’s nostro account well in advance before issuing payment instructions. Remittances from overseas Indians through RDA rose from US $ 6.1 billion to US $ 7.3 billion in 2005 and then to US $ 7.9 billion in 2006. During the first nine months of 2007, it amounted to US $ 7.6 billion. 4.
Remittances, from Overseas Indians: A Study of Methods of Transmission, Cost
and Time Workers’
remittances as a stable source of external finance and its burgeoning growth
drew the attention and interest of authorities about the micro aspect of
remittances such as modes of transfer, transaction cost, speed of delivery,
regularity in sending remittances to developing countries and the end use of
remittances. This aspect till now had got scant attention from global
authorities. In (i)
Relative
use of instruments available for money transfers; (ii)
Cost
and efficiency of the present system; (iii)
Source
regions of remittance inflows; and (iv)
End-use
of personal remittances. The
study was based on the data collected
through a random sampling of bank
branches across major centres in (i) Instruments for RemittancesThe
main instruments used by migrant workers to send remittances to Swift/electronic
wires has been used as a dominant mode of transferring remittances from
abroad by the overseas Indians in spite of the fact that this mode of
transfer is the costliest and not cost-effective for small value
transactions (Table 1). This can be attributed to a relatively wider network
of Indian bank branches abroad to provide electronic fund transfer but at
the same time less penetration of money transfer operators (MTOs). This mode
of transfer is less time consuming.. Remittances to Mumbai, Kolkatta and
A
second major mode of remittance is through traditional banking modes, i.e.,
drafts and cheques even though it is very time consuming means of transfer.
An
emerging trend is the recourse to instant transfer of money through
‘direct transfer to bank accounts’, which is operated through the
special arrangements with overseas correspondent banks or using automated
clearing house (ACH) facility in countries such as the
In
the gulf region, as the Indian banks are very few, hence private exchange
houses (PEHs) have come up to facilitate remittances of emigrants. To
facilitate remittances, banks in (ii) Size of RemittancesThe
average size of remittances reflects on a number of factors such as the
average earning level of the migrants and their skill category, duration of
stay and economic activity in the host country.
A high size remittance may be for investment purpose rather than for
the family maintenance needs. The
average size of remittances transfers to
Relatively
lower value transactions, i.e., less than US $ 1,100, were concentrated in
centres such as Chennai, Kolkata, (iii)
Frequency of Remittances Frequency
of remittance gives an insight into the nature of remittances, i.e., whether
the remittances are sent for family maintenance or for some other purposes.
It is generally observed that the remittances for family maintenance are
smaller in size and more regular and frequent in nature to meet the regular
consumption needs of the dependents in the home country.
Survey results indicate that more than two-thirds of the total
remittance inflows are received with frequencies of once in a quarter or
less (Table 3). Furthermore, 31 per cent of the total remittances are
received at a monthly frequency.
A
cross section analysis of the relationship between the size and frequency of
remittances reveals an inverse relationship between them, which is in line
with empirical findings, as indicated above. This broadly reveals that the
centres, which get smaller remittances, receive them more frequently,
implying that lower magnitude remittances meant for family maintenance are
more frequently sent. (iv)
Speed or Time Taken to Deliver Remittances The
time taken to deliver the remittances may vary depending on the geographical
location of the sender and the recipient and the modes of transfer used.
While time taken in delivering remittances is an important concern for the
remitter, the higher costs associated with quick delivery also influence the
mode of transfers.
Swift
transfers are the most time efficient means of remitting money as they
depend on electronic/telegraphic transfer of funds (Table 4). The average
time taken in delivering such funds to Most
time-consuming modes of transfer, which can be at times as long as 30 days,
are cheques, drafts and money orders. As
compared to the above, transfers through debit/credit cards are less time
consuming as these are some form of electronic transfers. (V)
Cost of Sending Remittances
The cost of remittances can be of two types: a) explicit cost – amount charged on remitting money; and b) hidden cost – the implicit charge in the form of exchange rate charged on conversion of foreign currency into domestic funds. It is often argued that small remittance transactions for family maintenance are offered less favorable exchange rates and the cost of such accounts can be exorbitant for some countries with less developed exchange markets. However, in the Indian context, the exchange rates applied for conversion are reasonably transparent and do not contribute to the cost in any significant measure. In the case of remittances from the gulf countries to India through the exchange house arrangements, the funds are converted into rupees at the end of the remitter and the recipient in India does not bear any exchange risk and the remittance transfer cost from gulf countries to India is relatively lower ( Jadhav and Singh 2005). Cost
of transfer also has two elements: (i) the cost paid by the sender while
remitting money; and (ii) the cost paid by the receiver domestically in the
form of handling charges. The latter includes the charges levied by the
receiving bank when the beneficiary is a customer of another bank. Charges
are also levied when the receiver is in remote locations where the funds are
delivered by the receiving bank by making a rupee demand draft. Some recent
studies have estimated the cost of remitting funds from the SWIFT
is the costlier means of transferring funds vis-à-vis drafts and cheques.
While the cost of sending up to US $ 500 from US to There
is a strong tapering effect with size of remittance in the cost structure of
remitting funds to Cost of remitting US $ 500 to US $ 1000 works out much lower in the range of 0.7-2.0 per cent for SWIFT, 0.4-1.5 per cent for drafts and cheques. The cost element, however, is associated with the modes of transfer with inverse relationship between the speed and cost of transfer Handling charges imposed domestically on routing funds to deliver to non-customers or remote locations are in the range of 0.1-0.6 per cent of the total value of funds. (vi)Source
Regions of Remittance Inflows
Remittances received from different destinations broadly reveal the migration pattern, skill content of the migrant and the earning level. North
America with 44 per cent of the total remittances to Gulf
region still accounts for an average 24per cent of the total remittances to
The
remittance inflow patterns reveals that (vii)
Utilisation Pattern of Remittance
The
issue of consumption- versus investment- enhancing effect of
workers’ remittances is widely debated. Cross-country studies provide
conflicting evidence on this issue and no consensus has been reached so far.
( Jadhav 2003). A predominant portion of the remittances received has been utilized for family maintenance, i.e., for food, education, health, etc (54 per cent). About 15-35 per cent of the funds are deposited in the banks (Table 6).
In
5
Working Group on Cost of NRI Remittances
A
recent report of the ‘Working Group on Cost of NRI Remittances’ May 2006
(Chairman: Chief executive, FEDAI) to look into the components of costs of
NRI remittances that go into the pricing of remittances to (i)
Bank
charges in (ii)
To keep cost of
remittance low, NRI should try to route their money through a branch of an
Indian bank or a foreign bank with presence in (iii)
Banks which are
active in NRI remittances business should conduct an awareness programme for
the diaspora; (iv)
Active bank should
view this business as a volume play and consciously reduce fee based costs
so the volume can grow; (v)
The role of foreign
representatives of the Indian banks and the services of Indian embassies,
etc, may play an important role for spreading awareness; (vi)
The restriction on
the number of exchange house relationship that an Indian bank can enter into
may be relaxed or done away with; (vii)
Recommended to
examine the feasibility of real time gross settlement (RTGS) for inter-city
settlements between banks in (viii)
Permit Indian banks
to enter MTO business abroad, subject to local regulations. 6
Comparison Between the Two Studies
A
comparative analysis of the main findings of the above mentioned studies;
set out below’ throws up interesting results. It may be observed that
while the ‘Working Group on Cost of NRI Remittances’ provides the cost
of remittance transfers in general, the RBI study on ‘ Remittances from
Overseas Indians: A Study Methods of Transmission, Cost and Time’, reveals
the more intricate dimensions of cost associated with particular modes of
transfers and the strong tapering effect of the size of transaction on cost
elements. The later study also measures the time taken in delivering
remittances to
*
This note has been prepared by R.Krishnaswamy References 1.
IMF(2005), World
Economic Outlook, April 2.
Jadhav, Narendra
(2003), ‘Maximising Development Benefits of Migrant Remittances: The
Indian Experience’, paper presented at the International Conference on
Migrant Remittances, Department for International Development and World
Bank, London, October 9-10. 3.
Jadhav, Narendra
and Bhupal Singh (2005), ‘’Workers Remitances as Stable Financial
Flows : Some Evidence from 4.
World Bank (2004),
Global Development Finance 5.
World Bank (2005),
Global Economic Prospects 2006. 6.
RBI(2006),
Invisibles in
Highlights of Current Economic Scene AGRICULTURE In order to curb inflationary pressure the central government is considering re-allocating wheat in place of rice under the Targeted Public Distribution System (TPDS) and other welfare schemes due to increase in availability of wheat stocks in the central pool as compared to rice. This move would allow people to switch to wheat from rice Further; it also has plans to distribute pulses and edible oil at a subsidised rate. In case of pulses and edible oil, public sector agencies so far have already contracted 1.37 million tonnes of pulses and 104,000 tonnes of RBD palmolein and crude soyabean oil, of which 1.19 million tonnes of pulses have been arrived and deliveries of edible oil are expected to begin by the end of May 2008 and distribution would be from the first fortnight of June 2008.
State
Bank of India (SBI) has temporarily suspended new loan applications for
financing farm equipments like tractors and other mechanisation equipment,
as there is large scale of repayment defaults in the farm mechanisation
segment. It has also issued a circular to all branches with immediate
effect, stating that financing of new tractor and farm mechanisation
equipment, including power tillers and combine harvesters had been put on
hold due to very high overdue from borrowers. The
Cabinet Committee Economic Affairs (CCEA) has approved the implementation
of revised Macro Management of Agriculture (MMA) scheme during the XIth
five-year plan (2007-12), as this would bring uniformity and avoid
confusion at the field level. The revised MMA has been earmarked a
tentative outlay of Rs 5,500 crore, which is expected to help farmers to
increase farm productivity by reducing yield gaps. The scheme is based on
district agriculture plans prepared by states and this comprises of 11
sub-schemes related to crop production and natural resource management.
The scheme would merge with other major farm initiatives like National
Food Security Mission (NFSM) and Rashtriya Krishi Vikas Yojana (RKVY).
Domestic
textile firms have asked the central government to impose restrictions on
exports of cotton, in order to keep a check on prices. Rising cotton
exports has resulted in higher prices of cotton in the country. It is
expected that if exports are not regulated, then profitability of the
firms would see a drop of 5-10 per cent.
According to Cotton Advisory Board, (CAB) in the cotton year 2007-08
(August-July) the country is expected to export 8.5 million bales (1
bale=170 kg) of cotton which is over 30 per cent more than the originally
estimated 6.5 million bales and displaying a rise of 46.5 per cent as
compared with last year’s production of 5.8 million bales. Of the total
exports, around 60 per cent of cotton is exported to According
to Spices Board, exports of spices form the country have crossed US
$1-billion mark in 2007-08 by registering an increase of 19 per cent in
terms of volume, 24 per cent in terms of rupee and 39 per cent in terms of
dollar. In 2007-08, 4,44,250 tonnes of spices and spice products have been
exported which valued at Rs 4,435.50 crore (US $101.80 million) as
compared to 3,73,750 tonnes valued at Rs 3,575.75 crore (US $792.95
million) in the previous year. The spices exports, in 2007-08, have
exceeded the target of 3.8 lakh tonnes valued at Rs 3,600 crore (US $ 875
million) as fixed for the year; the achievement has been 117 per cent in
volume, 123 per cent in rupee and 126 per cent in dollar. The Board has
fixed an export target of US $1.2 billion for the year 2008-09. In
2007-08, the export of pepper, chilli, seed spices such as coriander,
cumin, fennel, fenugreek and other seeds have shown a substantial growth
both in volume and value terms as compared to last year. The export of
value added products such as curry powder; mint products and spice oils
and oleoresins have also shown impressive growth during the same period.
However, export of some of the items such as cardamom (large), ginger,
turmeric, celery, garlic and nutmeg and mace have fallen short of last
year’s performance. The
union government has sanctioned Rs 122 crore for cardamom replanting and
rejuvenation schemes within next four years. Of the total amount, Rs 50
crore would be spent in Kerala this year, as it is the largest producer of
the spice. The main purpose of the programme is to increase the annual
production of cardamom in the state from 9,500 tonnes to 24,000 tonnes by
2012. Exports during 2007-08 have been 500 tonnes valued at Rs 24.75 crore
against 650 tonnes valued at Rs 22.36 crore last year, registering an
increase of 11 per cent in value terms. However, the export volume has
declined by 23 per cent. The major importers of cardamom from overseas
market are Unseasonal
rains in Kerala and Tamil Nadu have disrupted supply of copra in the
domestic market even as the season has just begun; owing to which
wholesale prices of copra and coconut oil have shot up the by 50 per cent
from around Rs 4,000 to Rs 6,000 per quintal. It is also cited that strike
by gunny bag workers in Kozhikode, one of the largest copra-producing
centres in south Exports
of grape wine from According
to horticulture department, the coverage under mentha farming in Uttar
Pradesh in 2007 was almost 1-lakh hectares and this year it is pegged at
1.2 lakh hectares, as it provides more profit compared to other cash crops
and takes lesser time for cultivation. It is normally sown during
March-April and is gets ready for harvesting in 70-90 days around
June-July and is extensively cultivated in trai regions of the state. The
government provides credit linked back-ended subsidy of 25 per cent of the
total investment or Rs 1.25 lakh and Rs 5 lakh to small and big mentha
units, respectively. The subsidy has a central and state component of 85
and 15 per cent, respectively. Another scheme gives a subsidy of Rs 11,250
per hectare to mentha farmers for cultivation, subject to the cultivation
of maximum of 4 hectares. Meanwhile, the state government has joined hands
with Lucknow-based Central Institute of Medicinal and Aromatic Plants (CIMAP)
to impart training to mentha farmers and entrepreneurs. CIMAP is
accredited with developing four improved varieties of mentha used in the
country, namely Union
ministry of chemicals and fertilisers in its recent notification has
extended subsidy and exclusive marketing rights to only ten-odd fertiliser
units, producing more than 1 lakh metric tonnes of Single Super Phosphate
(SSP) per year. Of which ten units would not only be eligible to avail
subsidies of Rs 3,658 and Rs 5,630, depending on their usage of domestic
or imported rock phosphate, but also have the rights to market the
fertilisers produced by smaller units under their brand name. This has
drawn hassle among small fertiliser units, which produce capacity of less
than 1 lakh metric tonnes. 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, steel 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 a
growth of 9.6 per cent during March 2008 as compared to 10.5 per cent in
March 2007. This impressive performance exhibited by
the core industries in
MArch 2008 resulting the core index registering a growth of 5.6 per cent
during the fiscal so far as against 9.2 last year. Steel and cement
witnessed better performance during March 2008 compared to January
2008 and also March 2007. Inflation The
annual rate of inflation calculated on a point-to-point basis, rose by
7.82 per cent for the week ended May 10,2008 as compared 7.83 per cent as
on May 5,2007. Marginal
rise in the index of Primary Articles group from 239.8 from 239.3 for the
previous week combined effect of a fall in the prices of food articles and
rise of 0.9 per cent in non-food articles. The
index for the major group Fuel, Power, Light and Lubricants rose by 0.1
per cent due to an increase in the price index of aviation turbine fuel. Price
index of Manufactured products rose by 0.2 per cent mainly due to higher
price of textiles mad cycle tyres. The
final WPI for all commodities had been revised upward from 223.6 to 226.4
for the week ended March 15,2008. As a result the rate of inflation
calculated on a point-to-point basis stood at 8.02 per cent as compared to
6.68 percent provisional. Banking The
farm debt waiver and relief package has been enhanced to Rs 71,680 crore
from the earlier Rs 60,314 crore, while also widening the coverage to
include seven million more marginal and small farmers. The total number of
beneficiaries has now increased to 43 million from originally proposed 40
million. The revised outlay may be scaled down to Rs 66,000 crore after an
audit. The increase in the outlay is on account of the inclusion of Kisan
Credit card loans and loans taken by farmer collectives as self help
groups and joint liability groups within the ambit of the scheme. The
RBI has asked all scheduled commercial banks (SCBs) to periodically review
the risk categorisation done when preparing profile of each customer. This
would improve monitoring to detect transactions that are inconsistent with
updated profile. It has also asked the banks to put in place software that
will allow identifying and reporting suspicious transactions. Having
created a controversy after its decision to freeze lending for farm
equipments with rising defaults on loans for new tractors and combine
harvesters posed as the reasons, the SBI has finally lifted the ban due to
pressure from different quarters. The
Supreme Court has clarified in its recent decision that the top executives
of a company, including the director or managing director in charge of the
organisation, are liable for prosecution if a cheque issued by them
bounces due to insufficient funds. The
SBI plans to develop business models to take decisions on deploying funds
and assessing the returns in various business segments in an attempt to
improve the quality of planning and make optimal use of resources. The
bank will carry out this exercise internally without assistance from any
management consultancy firm. It has segmented its business into retail,
small and medium enterprises, agriculture, mid-size and large companies.
The bank’s gross non performing assets (NPAs) or bad loans rose to Rs
12,837 crore as on March 2008 from Rs 9,998 crore in March 2007. Financial
Sector Capital
Markets Primary
Market To
speed-up the process of initial public offer (IPO) forward, the Securities
Exchange Board of India (SEBI) board has approved the concept of providing
an alternative mode of payment whereby the application money remains in
the investors' account till finalisation of basis of allotment in the
issue. The SEBI intends to introduce the Application Supported by Blocked
Amount (ASBA), which will require retail investors bidding at a cut-off
price, to apply through self-certified syndicate banks (SCSBs) in which
they have accounts. The ASBA process will require SCSBs to accept
applications from investors, block the funds to the extent of the bid
payment amount and then upload the details in the electronic bidding
system. Once the basis of allotment is finalised, the amount required by
the issuer will be released and the rest will be unblocked by the SCSB. On
May 22, 2008, the IPO of Multi Commodity Exchange (MCX) has been rated at
the highest grade of 5/5 by rating agency Crisil. The grade indicates that
the fundamentals of the issue are strong, relative to other listed equity
securities in The
Mumbai-based engineering and construction company Niraj Cement Structurals
Ltd is planing its IPO, which comprises 32.50-lakh shares in the price
band of Rs 175 to Rs 190. The company aims to raise Rs 61.75 crore at the
upper price band and Rs 56.87 crore at the lower band. The issue opens for
subscription on May 26 and closes on May 30,2008 and constitutes 31.42 per
cent of the total issue post issue paid-up equity of the company. Triveni
Infrastructure Development Company Ltd, a real estate developer with
primary focus on the NCR region, is going to tap the capital market to
raise about Rs 400 crore with an IPO of 80 lakh equity shares of Rs 10
each for cash at a premium to be decided through a 100 per cent
book-building process. Chennai-based
formulations company, Bafna Pharmaceuticals Ltd, is to raise Rs 25.60
crore through an IPO to fund its market expansion and R&D programme.
According to the company, it will issue 64 lakh equity shares of Rs 10
each at a premium of Rs 30 a share amounting to 40 per cent of the
company’s post-issue paid up capital. The issue will open for
subscription from May 27 to May 30 2008. Secondary
Market The
key benchmark indices of BSE and NSE have suffered losses and have ended
in a negative territory during the holiday shortened week of four trading
sessions, following concerns that soaring global crude oil prices which
touched a record high of over $135 barrel in international markets and
spiraling domestic inflation rate would impact growth. The BSE Sensex has
slumped 785.30 points or 4.50 per cent to 16,650 points while the S&P
CNX Nifty declined 211 points or 4.09 per cent to 4,9478 points over the
week. The BSE Mid-Cap index has fallen 192.59 points or 2.77 per cent at
6,937.11 and the BSE Small-Cap index has shed 102.83 points or 1.19 per
cent at 8,517.43 in the fortnight. Both these indices have outperformed
the Sensex. The domestic stock market has remained closed on Monday, 19
May 2008, on account of Buddha Pournima. Among
the sectoral indices of BSE, all the indices have underperformed during
the week except consumer durable which witnessed a marginal gain of 0.04
per cent. Bankex has been recorded the highest loss of 7.93 per cent
followed by Reality with 6.64 per cent. Increase in the net amount of farm
loan waiver and rising inflation led investors to abandon these two
indices. According
to Crisil report, debt funds outperformed equity schemes in the first
three months of the year 2008, as global factors and domestic inflationary
concerns influenced the sentiments in the stock market. Gilt funds assets
recorded the highest growth by about 43 per cent over the three months
ended March 2008. A subdued equity market and corporate advance tax
outflows in March saw average mutual fund industry assets under management
(AUMs) at the end of the quarter at Rs 5.38 trillion, a decline of 2.54
per cent over the three-month period. The average AUM of the industry had
reached an all-time high of Rs 5.75 trillion in January 2008 due to robust
performance of equity markets in the beginning of the quarter. On
May 22, 2008, SEBI has stayed its move asking institutional investors to
pay upfront margin for purchase of stocks in the cash segment of the
market. Accordingly, institutional trades in the cash market would
continue to attract margins on a T+1 basis till further directions. In a
circular issued by SEBI on April 19, all institutions were asked to
deposit margin before purchase of stocks. The move was aimed at bringing
institutional investors on a par with retail investors. In the past, there
was no margin system for institutional trades in the cash market, while
brokers charge margins from retail customers for their trades. . In the
futures and options segment, there is a margin system for both retail and
institutional trades. Primary problems in implementing this move are the
inefficiency of the banking system. The upfront margin would require the
real time gross settlement (RTGS) system. However, RTGS is available
between 10 am and 2:30 pm, which is too short a time. Besides, foreign
institutional investors (FII) are not allowed to deposit securities as
margins, which also cause inefficiency, say market players.
In
a move to make Offer Documents (OD) and Key Information Memorandum (KIM)
of mutual fund schemes more reader-friendly, the SEBI, gave its nod to
fund houses to simplify it on May 24,2008. A committee set up by the
Association of Mutual Funds in India (AMFI) had recommended that the
existing OD may be split into two parts — Statement of Additional
Information (SAI), which will incorporate all statutory information on
mutual funds, and Scheme Information Document (SID). All mutual fund
scheme ODs filed with SEBI on or after June 1, 2008, will have to be
prepared in the new format. Fund houses, which have already filed their
ODs for which SEBI has not yet suggested modifications, may be required to
recast the same in the format of SID and SAI after receiving the final
observations. However, the schemes, which have already received final
observations from SEBI, can use the old OD format provided they are
launched on or before July 31, 2008. But, in this case SID has to be
adopted. The capital market regulator has also asked fund houses to file a
single SAI (common for all the schemes) as a one-time filing. Derivatives In
the index futures market, the carryover has been skewed completely in
favour of Nifty. Apart from Nifty futures, where 32 per cent of
outstanding contracts are in June-July, only the BankNifty has significant
June open interest (OI). There
is no differential between May Nifty and June Nifty (both 4941) and the
discount to spot suggests bearish expectations. In the BankNifty, spot
closed at 7009.05 while May has been settled at 6972 and June at 6958. In
the Midcaps-50, spot is 2665 while May M-50 was settled at 2631 and the
June M-50 (negligible OI) at 2687. In
the options market, a lot of traders are moving into June instruments. Government
Securities Market Primary
Market On
May 21, 2008, the Reserve Bank of India (RBI) auctioned 91-day and 364-day
T-bills for the notified amounts of Rs.3,000 crore and Rs.1,000 crore,
respectively. The cut-off yields for 91-day and 364-day T-bills were 7.48
per cent and 7.66 per cent, respectively. Five
State Governments announced the auction of 10-year paper maturing in 2018
through a yield-based auction using multiple price auction method on May
21, 2008. The auction will be conducted on May 27, 2008 for an aggregate
amount of Rs. 3,264 crore. RBI
re-issued 8.24 per cent 2018 and 8.28 per cent 2032 for Rs.6,000 crore and
4,000 crore on May 23, 2008 at cut-off yields of 8.07 per cent and 8.52
per cent, respectively. Secondary
Market Call
rates have moved in a range of 4.23- 5.83 per cent during the week.
Average CBLO volumes during the week decreased by around 15 per cent as
compared to the previous week. The weighted average rates moved lower
during the week, at 5.63 per cent as against 6.49 per cent over the
previous week. The
secondary market daily average trade volume halved to Rs 3,000 crore over
the previous week, implying a weak undertone and low trade interest. At
the LAF auction, the recourse was to the reverse repurchase window. There
were 28 bids for the reverse repo, for a total of Rs 29,610 crore.
The RBI has notified that for the limited purpose of valuation, all
special securities issued by the government directly to beneficiary
entities, which do not carry SLR status will be valued at a spread of 25
basis points above the corresponding yield on government securities. Bond
Market In
a move by the RBI to make oil and fertilizers bonds more attractive, the
banks have been allowed to assign a higher valuation for their investment
in these bonds. Banks are the main buyers of these bonds and thereby
provide some support to the oil and fertiliser companies, which are the
primary recipients of these bonds from the government. Foreign
Exchange Market According
to a circular from Central Board for Direct Trades (CBDT), all banks have
to either pay 0.25 per cent tax on the total forex transaction or they
have to pay 12.36 per cent on the cost of transaction per deal, from May
16,2008. Consequently, all banks have uniformly decided to declare Rs 100
as transaction cost. This means that for all interbank transactions, banks
are charging their counterpart (another bank) Rs 100 as transaction cost
and another Rs 12.50 as service tax. Similarly, most banks are charging
their customers - retail and corporate - Rs 100 as transaction cost plus
Rs 12.5 as service tax. The
British Banker’s Association (BBA) has been decided to rework the way
the London Inter Bank Offered Rate (Libor) is calculated after the rate
came under international scrutiny for understating true borrowing costs.
Libor is one of the most used benchmark rates since 1960s, has been put
under review for the first time since 1998. As per Angela Knight, CEO of
BBA, said on May 12,2008, BBA would review whether the methodology of
calculating Libor is correct, is the cost of borrowing being understated
or the rate reflects the difficult market situation. The association would
submit a detailed report about the future of Libor to its advisory
committee by May-end. According
to analysts, the rupee is feeling the pressure as world oil prices soar
and foreign investors lose their "risk appetite" for emerging
market assets amid global financial turmoil. The rupee - which a few
months ago was trading at 10-year highs – possibly would post its worst
monthly decline in a decade. After touching a peak in early February of Rs
39.4 to the dollar, the rupee has fallen by 9.5 per cent, nearly wiping
out last year's 12 per cent gain. It has touched a low of Rs
43.15 on Thursday, May 22, 2008 as oil prices soared to a new
record high. However, the RBI intervened by selling dollars, thereby
strengthening the rupee. Its slide has been due to fears a 40 per cent
jump in oil prices this year and also rises in other global commodity
prices along with a tight monetary policy to curb surging inflation rate
which would adversely affect the growth prospects and also widen the
soaring current account deficit, a measure of trade and investment flows. The
rupee-dollar exchange rate remained weak at Rs 42.84, against the previous
week’s Rs 42.64 per dollar. The RBI intervened sporadically in the
foreign exchange markets as the exchange rate had moved down. The
rupee’s depreciation was also fuelled by the oil sector, grappling with
large working capital requirements. Oil companies’ sale of bonds for
foreign exchange and planned sales were becoming evident from the forward
rates. One and three month forward premia firmed to 3.5 per cent and 2.8
per cent, respectively, as oil companies resorted to forward purchase for
up to a month, up sharply from last week’s 1.83 per cent and 1.97 per
cent. However, longer forwards remained soft, as export driven inflows
were anticipated. Six and 12 months remained soft at 1.82 (1.45) and 1.33
(1.15 per cent) respectively. Commodities
Futures derivatives MCX
has withdrawn vaulting charges for its gold guinea, inspired by the
response from retailers and traders. Further, the vaulting and storage
charges would not be levied till December 31, 2008. MCX gold guinea
contracts for July and August, launched on May 8, have an open interest
position of 25 kg, which has nearly doubled in the last 10 days, sources
said. The average daily volume is 100-120 kg. Commodity
market regulator Forward Market Commission (FMC) is unlikely to grant
permission to the National Multi Commodity Exchange (NMCE) to settle open
position in rubber contracts as requested by the exchange. However, FMC
would have no problem if the exchange facilitates delivery between buyers
and sellers without complaints. Confirming the receipt of such a request
made by NMCE, Kewal Ram, member, FMC, said, "It's extremely difficult
to consider this request as the case is like favouring one particular
exchange, especially on an issue which is generic in nature." Though
the regulator is yet to announce its official stand on the issue, it has
been verbally communicated to the exchange that settling open position
through delivery was impossible. Standard
& Poor's, the world's leading index provider, announced the launch of
the first index to offer exposure to both equities and commodities across
the entire agribusiness industry. The newly-launched S&P Global
Agribusiness Composite Index incorporates the new S&P Global
Agribusiness Index and the existing S&P GSCI Agriculture and Livestock
Index, which is a subset of the S&P GSCI designed to provide liquid
exposure to the agriculture and livestock commodities markets through
futures contracts. The introduction of the S&P Global Agribusiness
Index offers flexibility to investors who want a pure equity exposure to
this segment. It consists of 24 of the largest publicly traded
agribusiness companies from around the world with developed market
listings that meet minimum market capitalisation and liquidity
requirements. The index is comprised of a diversified mix of producers,
distributors and processors, and equipment & materials suppliers
companies. Insurance A
section of the insurance industry is disappointed over the Govardhan
Committee’s decision not allowing banks to partner with more than one
life insurance company to sell the latter’s products, an arrangement
commonly referred to as banks-as-brokers. Corporate
Sector Dr
Reddy’s Laboratories has posted a net profit of Rs 475 crore for the
year ended March 31, 2008, as compared to Rs 1,177 crore for the year
ended March 31, 2007, reporting a decline of 59.6 per cent. The total
income had decreased from Rs 4,084 crore to Rs 3,585 crore. This was
primarily due to the pricing pressure, temporary raw material supply
constraints and higher inventories with certain customers. L&T
has bagged four EPC electrical project orders worth Rs 635 crore from UAE
and High
interest rates, coupled with banks becoming more selective when disbursing
loans continue to take their toll on the two-wheeler industry. Aditya
Birla Telecom Limited (ABTL), a wholly owned subsidiary of Idea Cellular,
will offload 20 per cent to Providence Equity Partners, a Nokia
is planning to launch around 40 new green phones models, each comprising
biodegradable components that can be easily recycled. 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 Information
Technology Prominent
BPO firms like Essar Group’s Aegis BPO, WNS and Capegemini are designing
in-house curricula to suit the sector’s requirements while others like
Wipro and HCL Technologies are partnering universities for certain
certified courses. The broad idea is to help freshers and high potential
employees develop soft skills not generally taught at universities and
simultaneously increase retention rates in the BPO industry that has the
highest attrition rates across different industries. In
a first such comprehensive exercise in the IT industry, all of 91,000 odd
employees of Telecom Bharti
Airtel has ended takeover talks with In
contrast to the Telecom Regulatory Authority of India (TRAI)
recommendations that only Unified Access Service Licence (UASL) licence
holder should participate in 3G auctions, the Department of Telecom (DoT)
has suggested that foreign telecom companies would also be permitted to
bid for 3G spectrums.
*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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