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Theme
of the week:
Towards Financial Inclusion * Though
the
term financial
inclusion
is of recent origin, the idea of extending the operations of organised
financial sector, primarily banks, to rural areas and sectors such as
agriculture, tiny industries, and weaker sections of society was always part
of the policy agenda in NSSO
data for 2003 found that out of the total number of farm households (89.35
mn.) only 43.42 mn. (48.6 per cent) had borrowed either from formal or
informal sources. Out of these, only 24.39 mn. households forming 27.3 per
cent of total farm household had borrowed from formal sources. Thus
remaining nearly 73 per cent farm household had no access to formal sources
of credit. The extent of exclusion inevitably varies across different
regions and among different classes of households but the average itself is
high. Financial exclusion is not limited to rural areas & given the
trend towards urbanization, urban incidence of financial exclusion may
become more predominant. Eleventh
Five year Plan (2007-12) aims at specifically to achieve accelerated and
inclusive economic growth. An inclusive growth process would enable
relatively poor and weaker sections to share the benefits from economic
growth but achievement of this ambitious goal would, inter alia, depend on
financial system being more responsive to the financial needs of relatively
poor. An inclusive financial system would ideally provide easy access to
services and products offered by organised financial system. Such access
would enable relatively poor to improve their incomes and also provide
better access to education, health and financial security. Though it’s
indeed a challenge to make organised financial system more accessible to
relatively poor, this issue is not generally included in the agenda for
financial sector reforms. However,
inclusiveness of financial system is presently getting more attention as
reflected in recently submitted reports of the two committees appointed by
government (GOI, 2008) and (NCEUS, 2007). The former report, of a committee
chaired by Dr. C. Rangarajan, (hereafter Rangarajan Committee) has
formulated a strategy and suggested measures to solve the problem of
financial exclusion from a general perspective. The latter report, of a
committee chaired by Dr. Arjun Sengupta (hereafter Sengupta committee), is
focused specifically on finding ways to meet the financial needs of small
manufacturing and services enterprises in the unorganised sector. Though
both these reports recognize the importance of credit absorption capacity of
the poor (the demand side factors) as a relevant factor, both the reports
are focused mainly on improving credit delivery system Reserve
Bank of As
the poor transact in small magnitudes, the cost of providing services on a
miniscule scale increases prohibitively, necessitating partial subsidies to
make these services affordable to poor. While institutions that are focused
on profits would obviously stay away from the business of offering small
loans to weaker sections, even non-profit organizations would face
limitations in reaching out unless cost of transactions and associated risks
are simultaneously reduced to an acceptable level. State owned institutions,
not exclusively aiming at short-term profitability, have certainly a
potentially important role but limited results achieved in the past from
this target setting approach are too obvious to ignore. Equally important
would be to use the potential of the new technology (like mobile phones) to
reduce costs and adopting new business models with more flexibility and
freedom accorded to public and private institutions. The international trend
indicates more reliance on innovation so that financial inclusion becomes a
co-operative, innovative and flexible activity rather remaining a subsidy
driven state directed effort.
The
need to provide financial services to all segments of population is being
recognized in several countries since 1980s. The failure of state
supported/owned financial institutions to meet the financial needs of the
poor prompted efforts to develop new channels to reach small, poor
customers. As a result,
importance of Micro Finance Institutions (MFIs) whether in non-profit or for
profit private institutions and joint lending through Self Help Groups (SHGs)
formed by poor people is being recognized on a world wide scale. The novelty
of this new approach is to organize lending activities directed at poor
people on a self-sustained basis with no or minimum use of subsidies. It
also results in use of new technological and institutional devices to
address the information related problems in small scale lending. The high
cost of small financial transactions is understandably an important barrier
faced by organised financial entities. But to gather information and monitor
performance of small lender presents no less formidable difficulty. While
new chip based technologies have opened up the opportunities to reduce costs
of transactions considerably, mechanism of joint lending has opened an
opportunity to address some of the information related problems. As the
expanse of micro finance activities have significantly increased, the focus
is now moved to make MFIs more clients centered. In the process,
diversification of their activities is also advocated so that they no longer
remain only credit supplying institutions but become micro financial
services entities that offer a range of services such as savings, fund
transfer, credit, insurance, pension etc. If the earlier attempts were
altruistic & paternalistic wherein government sponsored agencies
provided small credits at subsidised interest rates, the new approach is
technology driven, innovation based, more client-focused and cooperative or
collaborative. As described by Matin (2002) "Microfinance is not magic
sky hook that reaches down to pluck the poor out of poverty. It can however
be a strategically vital platform that poor can use their own prospects for
an escape from poverty." Moreover competition is forcing big business
entities, to tap the market at the "bottom of the pyramid" in
several manufacturing and services sectors. Such attempts like designing
products suitable for poor households and finding new channels to reach them
are guided primarily to increase markets share through innovation. (Prahalad,
2005) Micro finance represents a
similar trend where innovative private efforts are in consonance with the
interests of small customers. Nearer home, the recently released draft
reports of the Committee on Financial sector Reform (hereafter Raghuram
Rajan Committee) presents a different perspective to improve inclusiveness
of the financial system by harnessing voluntary efforts.
This
paper is an attempt at evaluating different constraints that limit
accessibility of poor people to organised financial system and different
measures identified to make financial system more inclusive through the
above mentioned reports and other related literature. It would also identify
next feasible steps that may help in achieving improved access of financial
to poor. Dimensions
of the problem
The
Rangarajan committee defines financial inclusion as " the process of
ensuring access to financial services and timely and adequate credit where
needed by vulnerable groups such as the weaker sections and low income
groups at affordable cost" Sharma (2008) defines financial exclusion
"as a process that ensures easy access, availability and usage of the
formal financial system for all members of an economy". As banks, quite
often, are primary source of financial services banking inclusion is
considered same as financial exclusion. However
arguing for a new paradigm (Arunachalam, 2008) argues for "to truly
financially include the poor would require creating a variety of
risk/vulnerability management mechanisms and ensuring that are consistently
and simultaneously available. Unless major risks are simultaneously
covered, the likelihood of one risk wiping out an entire livelihood is very
highly and people who have been temporarily included would be excluded
again"(emphasis in original). While such an all encompassing approach
makes the task of achieving financial inclusion more demanding, such risk
perspective would also help us understand the persistence of financial
exclusion. A
credit-focused approach certainly ignores other services such as insurance
services but credit is perhaps the most basic need. Admittedly all credit
needs are not production related, and poor would, at times, also need
credit for consumption purposes, social functions and even accessing health
or education. Organised financial system finds it difficult to offer credit
for such purposes. Unorganised financial system has an edge in this regard. High
risks associated with credit extended to small borrowers from agriculture
and small manufacturing or service enterprises may be easy to contemplate.
But ability and willingness of lenders to assume such risks is not very
common and forms the major hurdle in achieving financial inclusion. State
level agencies are admittedly not constrained by compulsions of earning
profits, but their ability to be flexible and innovative is limited and
cannot be wished away. Achieving higher financial inclusion would be
facilitated by co-operative efforts by a variety of institutions be it in
state sector or private sector. While
for-profit lending entities may adopt a conservative stance is assuming low
risk profile with their limited appetite for risk, even not-for-profit
entities may not be comfortable with high degrees of underlying risks. High
cost of undertaking small transactions affects the supply and measures to
reduce transaction costs would certainly help augment supply of such
services. Similarly high-risk profile would certainly be a dampener beyond a
limit and prove very difficult to handle by financial services sector alone.
In
the case of (small) loans extended to marginal dry land farmers, the
resultant high risk due to uncertain rainfall, difficulties in accessing all
necessary inputs, production uncertainties due uncertain weather conditions
points at potentially high default probability. Similar is the case with
loans extended to small enterprises that have a weak position in the input
and output markets due to their relative disadvantageous position in
acquiring necessary inputs, technology & marketing support. Unless these
risks are successfully mitigated, lenders' reluctance would remain quite
formidable. This
would also explain phenomenon of low availability & usage even when
penetration is high. Sharma (2008) has found that Rangarajan
Committee
The
Rangarajan committee has made several recommendations to improve the credit
delivery through conventional and innovative modes. The Committee has
suggested a plan to achieve complete financial inclusion by 2015, which may
sound quite ambitious in view of still prevalent financial exclusion in
developed countries. While the committee has suggested setting up of two
special funds; Financial Inclusion Promotion and Development Fund and
Financial Inclusion Technology Fund of Rs. 500 crore each, the main thrust
remains on more vigorous efforts through channels already established. The
committee suggests that a target of approaching and extending credit to 250
new households per branch per annum for rural branches of commercial and
Regional Rural Banks (RRBs) be set in so as to achieve the goal of total
financial inclusion. The
committee mentions several channels to achieve the set task. These include
RRBs, which are crucial due to their branch network being in rural areas and
commercial banks, which provide large quantum of credit to priority sectors.
In addition, it also recommends measures such as expanding coverage of
Business Correspondence / Facilitators (BC/BF) model, strengthening of Bank
SHG linkages, extending Bank SHG linkage scheme to urban areas, revitalising
of co-operative credit system, promotion and also regulation of MFIs and
linking micro credit to micro insurance to make financial inclusion more
complete and meaningful.
The
main thrust of the Rangarajan Committee is mainly to suggest incremental
improvements in the existing delivery mechanism to make it more
effective. However, it also makes certain significant recommendations, which
if implemented, would have far reaching implications It
accords an important role to RRBs in achieving financial inclusion &
therefore suggests suspension of the mergers & consolidation process
currently underway. However, if local, regional specialisation is valuable
in the context of financial inclusion, the rationale for allowing
consolidation up to sponsor level banks within a state is not clear. It's
recommendation for banks to undertake incremental rural lending through
group mode so that NPAs are kept in check (p. 66) is in line with research
findings (e.g. Cull et al, 2007) but success of joint lending or SHGs would
depend on local support and leadership and may necessitate slower pace of
target based expansion. Successful
adoption of BC/BF mode by RRBs would also be a formidable challenge. Besides
difficulties in seeking employee consent for such a proposal, successful
adoption of this mode would require internal changes in workings of
commercial and rural banks. The committee has recommended according complete
freedom to commercial banks in choosing BC/BF. However, if BC/BF mode is
suitable to expand the reach of the financial system it is not clear why
this model should be in addition to existing branch model as
suggested by the committee. If banks are to get full freedom in choice of
BF/BC they may as well be free to decide whether to open new branches or new
business correspondents to expand their reach. The
committee suggests introducing an incentivisted system of performance
appraisal for the staff of RRBs so that clear incentives are provided for
achievement of financial inclusion. Such a system may include indicators
such as new households brought under banking fold, increase in number of HSG/Joint
Liability Groups etc. These are indeed radical suggestions and if
implemented could prove to be precursor to significant changes in Human
Resource system in the public sector banks. Sengupta
Committee As
mentioned above the Sengupta Committee has focused its attention on funding
needs of commercial enterprises in the unorganised sector and made several
policy recommendations in this regard. However, these recommendations are
based largely on intensive target setting efforts to improve credit flows to
such enterprises. These include changing the priority sector norms so that
small borrowers get the requisite attention. It suggests new carrots (higher
coverage under credit guarantee scheme), and penalties to those banks which
to not meet the norms of lending to weaker sections (to be finalised by the
RBI), amplification of delivery mechanism through strengthening of RRBs,
fixing of targets to get new customers from the target segments like
unorganised enterprises, better co-ordination among different banks in a
region (say a taluqa ) and better co-ordination among banks with planning
authorities at the district level. The
Committee however does not consider wider implications of its
recommendations. For example, whether as a result of providing higher credit
guarantee coverage to commercial banks whether banks would need to pay
higher premium or if not how the deficit would be bridged is ignored.
Similarly, the committee sees the conflict its recommendation would have on
profit seeking behaviour of commercial banks but, rather than suggesting any
measures that would soften this conflict, favours a revised measure of
measuring profitability of bank branches which measures profitability for a
cluster of branches rather than measuring it for each branch. It
also feels that higher support to micro finance institutions by banks and
other institutions could be achieved through a suitable directive from the
government. In addition to these suggestions that have a direct bearing on
working of financial institutions, it suggests other measures like better
co-ordination among different agencies supporting unorganised enterprises,
strengthening of self-employment schemes, improving productivity in
unorganised enterprises etc. All
these measures are centered on role of government owned agencies and
financial institutions in enhancing credit support to the targeted sector.
The committee however, does not present any analysis about why the policies
pursued in the past were not successful nor does it explain why similar
policies would be successful now. Not
only it follows a target based approach directed at government owned banks
and financial institutions, but in contrast to suggestions it received about
institutional arrangements (viz. not to create new institutions (page 162)),
ends up in recommending setting up a new institution viz. National Fund for
Unorganised Sector (NAFUS)! [2]
NAFUS is considered necessary to meet the credit needs of enterprises in the
unorganised sector (defined as enterprises employing less than 10 employees)
as the existing institutional arrangements are unable to provide adequate
credit. It suggests setting up the NAFUS as a statutory body under an Act of
Parliament. It would have an authorised capital of Rs. 1000 crore which
would be held by Central Government, financial institutions with central
government holding would remain at least 51 per cent at all times. The
target group for NAFUS would be Unorganised manufacturing enterprises
employing Rs. 5 Lakh in plant & machinery; this investment limit would
be Rs. 2 lakh for non-manufacturing enterprises. It
is envisaged that the proposed Fund would provide credit and service support
to target enterprises. Such services would include vocational training,
marketing support, raw material procurement etc. The Fund would meet its
fund requirements by way of refinance from banks and financial institutions,
borrowing by tax-free / SLR bonds and international borrowing.
Here again the committee does not comment on implication of current
policy of not providing government guarantees to bonds floated by financial
institutions in domestic or institutional markets. This perhaps may be
explained because the committee's task of setting up NAFUS was mandated by
National Common Minimum Programme of the UPA . The
committee does not seem to consider the portfolio risk and the resulting
financial health hazard to be faced by the new financial entity. NAFUS would
provide refinance support to small loans extended to unorganised
enterprises. Given the weak position of these units rough economic weather
would hit such enterprises first leading defaults. This can only impact
portfolio quality of NAFUS. Under
Financial exclusion whether availability of credit or cost of credit is more
binding constraint? Despite both the Rangarajan Committees and the Sengupta
committee (RS) have focused on improvements in the delivery system, these
have not considered the effect of interest rate ceilings on supply of such
loans. The Sengupta committee considers the impact of interest rates only
from the demand side. Under normal circumstances, high interest rates would
certainly deter borrowers but interest rate ceilings render business of
giving small loan unattractive to lenders. But it has been agued that the
rates charged by moneylenders are quite high and access to credit would
improve as long as organised sector loans are offered at relatively
lower rate. The combined effect of current ceiling on small loans and the
high transaction costs of such loans surely have a negative effect on
voluntary efforts by lending agencies to increase such loans. International
research findings indicate that the impact of interest rates on quality of
portfolio is sensitive to the institutional arrangements. In the case of
individual loans there is positive relation between interest rates and
portfolio at risk but for group lending this effect is not significant (Cull
at al, 2007 pp. F126). Raghuram
Rajan Committee
Draft
report submitted by the Raghuram Rajan Committee has considered, inter alia,
financial inclusion as an important dimension of overall programme of
financial sector reforms. Unlike the Sengupta committee, the Raghuram Rajan
committee's approach is centered on encouraging innovative private,
decentralized efforts through making approaching financially excluded
commercially more attractive. The committee sees a great potential for
modern technology in reducing cost of small transactions. It recommends
abolition of interest rate ceilings on small sized loans to make such
business more attractive to banks. The
Committee recommends tradable Priority Sector Lending Certificates (PSLC) so
that institutions that fall short of meeting the regulatory requirements
could purchase (PSLC) certificate at a market-determined price. It is
envisaged that purchase of these certificate would not transfer the credit
risk; but the purchasing bank could claim credit for meeting the shortfall
in required priority sector lending. The market can be expanded by including
charities and NGOs to participate in the market as purchaser. However, this
measure by itself is unlikely to increase overall supply of priority sector
loans unless non-bank entities participate on a significant scale to
purchase such certificates. The
committee also recommends entry of new private well-governed small finance
banks that could focus locally. Such banks, with their local knowledge, may
have an edge in project selection and monitoring. Such banks would, however,
be subjected to higher capital requirement to reflect high risk faced by
them. It also recommends more leeway to banks in developing correspondent
relationship to expand their reach without setting up branches. The
committee also felt that financial inclusion need not be considered in the
context of credit alone but it should also include other money transfer and
insurance products. Similarly, financial exclusion is not only prevalent in
rural areas and also prevails even in urban conglomerates. The Committee
believes new technology could help cost reduction and prevent potential
frauds. The committee's approach is thus on cost reduction and making the
risk profile of small loans more acceptable to the lenders. Concluding
Observations A
quick reading of the above mentioned reports highlights certain common
elements in their approach to financial inclusion. Potential use of modern
technology and creating strong relationship between organised financial
institutions and unorganised operators to expand the reach of organised
financial system is propounded by all of them. With fast pace of
urbanization, financially excluded people too are likely to migrate in urban
areas. As recommended by the Rangarajan & Raghuram Rajan Committees, it
would be critical to address the exclusion in urban areas, as we seem to
have seen it mainly as rural phenomenon so far. But
there is a sharp contrast between more flexible, market based approach that
provides more space for private initiatives is suggested by the Raghuram
Rajan Committee while the RS committees have recommended a target based
approach. The Sengupta Committee has recommended setting up of a new
institution, which would provide funding support to rural banks to achieve
the newly suggested better-focused targets of lending to small enterprises
in unorganised sector. The new
institution would depend on central government support by way of guarantees
and tax breaks for fund mobilization on the required scale. The
Raghuram Rajan committee instead depends on allowing new small finance banks
in private sector. It would be a valid concern as to whether private
initiative would materialise on the required large scale? However, if
transaction costs come down considerably and loan interest ceiling are
removed (or markedly relaxed) the improved profitability would be conducive
for private initiative. In this scenario private efforts to expand business
would be in line with demands of financial inclusion. The
alternative approach depends almost exclusively on directing government
owned banks and institutions to expand credit to target groups on a
stipulated scale. The suggested target are quite ambitious and even if these
targets are achieved in the stipulated time frame, resulting financial
inclusion would be on a sustained basis, only if the household activities
funded under this programme remain profitable and sustainable. To make
activities of excluded households viable would need immense change;
technology, marketing and organizational. True, the RS committees envisage,
in addition to finance, service support in terms of entrepreneurship,
technology & marketing etc, Integration
of such large number of small producers with rest of the economy is indeed a
sort of Great Transformation. Would such a great transformation be led by
finance or it would follow such real changes? The RS committees seem to be
presuming a lead role for finance. If this optimism is justified by actual
events every thing would be fine but such optimism is unsupported by past
experience. There
are several instances wherein similar ventures of providing entrepreneurial,
technological, marketing support to target groups like SSIs, tiny industries
were not very successful. Technical Consultancy Organisations set up in
1970s in different states is a case in point. Several state governments have
established special development corporations aiming at up-liftment of weaker
sections in general or from particular casts or tribes. Detailed information
on their achievements is difficult to gather but it may not be far off-the
mark to say that their achievements were at best modest. Even co-operative
credit institutions were thought to have advantage in terms of local
knowledge and better credit discipline among members. The reality check is
reflected in 45.7 per cent of co-operative banks elected boards were under
suppression as on March 2006. In
such a situation, target based approach would at best help achieve volume
targets; but unless the activities financed remains profitable, the lenders
would eventually face high credit risk. Its here the differences between
different approaches are apparent. The
Raghuram Rajan committee through it recommendations try to make small
lending attractive and lenders would take credit risk according to their
respective appetite. While RS committees following target-based approach,
leave little discretion in choosing projects/borrowers. Even within the
class of financially excluded, borrowers would be different in terms of
individual capabilities, products, markets etc. It would be necessary to
have flexibility & freedom to choose different ways of approaching
clients and design structures that would minimize risks associated with
lending. This would ensure that lender would be selective and feel involved
in the lending process. Such a process may be slow but it could be built on
experiences gathered and useful lessons are learned in the process and
corrective measures are incorporated. The
success of the approach opted by the RS committees depends on the successful
transformation of small producers to gainful economic activities. If
institutional intervention does successfully facilitate this -say
transformation of small dry land farmers into practitioners of viable
farming - risks in finance would drop and render financing such activities
very attractive to lenders. At this stage target based approach would not be
necessary. But until then if institutional intervention remains limited to
only providing funds at low interest rates it may not lead to financial
inclusion, at least on a sustainable basis.
References Arunachalam,
Ramesh S (2008): Scoping Paper on
Financial Inclusion UNDP, Cohen,
M (2002): Making micro finance more client led Journal
of International Development 14(3) 335-50. Cull
Robert, et al (2007): Financial Performance and Outreach; A Global Analysis
of leading Micro banks Economic
Journal Vol. 117 No. 517 pp. F107- F133 Matin,
et al (2002): Finance for the Poor – from micro credit to Micro financial
services Journal of International
Development 14(2) pp. 273-294. GOI
(2008): Report of the Committee on
Financial Inclusion available on NABARD web site Herms
N and R. Lensink (2007): The Empirics of Micro Finance: What do we Know? Economic Journal Vol. 117
No. 517 pp. F1- F10 Kempson
E and Whylay C (1999): Kept Out or
Opted Out? Understanding and
Combating Financial Exclusion Polity Kempson
E (2006): Policy level response to Financial Exclusion in Developed
Economies; Lessons from Developing Countries Personal Finance Research
Centre, Karlan
Dean (2007): Social Connections and Group Banking, Economic
Journal Vol. 117 No. 517 pp.
F 52-F84 . Ministry
of Finance (2004): Draft Final Report
Task Force on Revival of Co-operative Credit Institutions. National
Commission for Enterprises in the Unorganised Sector (2007): Reports on Financing of
Enterprises in the Unorganised Sector and Creation of a National Fund for
Organised Sector (NAFUS). Prahalad
C.K.(2005): Fortune at the bottom of
the Planning
Commission, Government of RBI
(2007): Report of the Technical Group
to review legislations on Money Lending. Sharma
Mandira (2008): Index of Financial
Inclusion Working paper No. 215, ICRIER, *
This note is prepared by M.K.Datar,
General Manager, IDBI Bank, Mumbai (mkdatar@gmail.com).
The views are personal and not necessarily of the organisation with which
the author works. [1] The appropriateness of indicators used to measure availability & usage may be questioned but that is a different issue where indicators used are also guided by available data. [2] It also disapproves financial institutions not meeting the priority sector targets parking their funds with SIDBI or NABARD, but allows parking with NAFUS by entities that don't meet the targets set for funding small enterprises from unorganised sectors. Highlights of Current Economic Scene AGRICULTURE
Agriculture
Ministry's latest report on sowing data, displays that sowings of all crops
barring paddy and soyabean have continued to trail the coverage levels
achieved during the corresponding period last year. Acreage under paddy in
the on-going kharif season has risen to 368.78 lakh hectares as against
350.32 lakh hectares during the same period last year. It is expected that
this would exceed the production to 84 million tonnes over and above the
all-time-high kharif output of 82.81 million tonnes achieved in 2007. The
coverage under pulses has decreased drastically to 101.77 lakh hectares as
against 120.57 lakh hectares a year ago; this decline has been recorded due
to extended dry spell across the south peninsula regions. The sown area
under oilseed has increased marginally to 176.5 lakh hectares, compared to
173.05 lakh hectares a year ago. Among oilseeds, soyabean is the only crop,
which has witness an increase to 95.63 lakh hectares as against 87.28 lakh
hectares last year. Area covered under soyabean has displayed significant
increase and that has made up for the shortage in the sown acreages of other
oilseeds.
Food
Corporation of India (FCI) has managed to create history with a record
purchase of nearly 50 million tonnes of wheat and rice this year. Surge in
grain procurement by 38 per cent to 50 million tonnes over the last year has
mainly been due to a sharp rise in wheat purchase. Even rice procurement has
increased to an all-time high level of 27.3 million tonnes. Surplus grain
stock would bring stable prices in the open market and allow the government
to intervene if prices rise. Alok Sinha, chairman and managing director of
FCI, has revealed that procurement of rice would touch an all-time high of
27.7 million tonnes by the end of current marketing season i.e. September
30, 2008. These quantum jump recorded in the procurement are due to
unprecedented hike in minimum support price (MSP) of both grains. The
government of Andhra Pradesh (AP) has decided to impose restrictions on
stocks of paddy (de-husked) and levy free rice movement outside the state,
it is the first state to impose stock limit on paddy. It has insisted that
50 per cent of levy-free rice to be sold within the state and the remaining
half to be allowed to export to other states. It is in the ratio of
1:1/2:1/2 i.e., if one unit of rice is delivered as levy, then half of it is
allowed to be sold with in the state, with the remaining half being eligible
for export to other states. This measure is expected to improve supply of
rice within the state and control rising prices of the commodity. Rice mill
having a 0.5-tonne capacity per hour can stock 1,800 tonnes of rice and
mills having 5-tonnes capacity per hour can stock 25,200 tonnes in the
period of six months, this is the maximum paddy stock that can be held by
the miller in the state. To
bridge the gap between rising domestic demand and supply of pulses, Bacillus
thurengiensis (Bt) brinjal is all set to go commercial from the next sowing
season, with the completion of its trial runs. After the launch, Bt brinjal
would become the first edible product in the country to be grown using
genetically modified (GM) seeds. Maize
prices are expected to remain firm in the new season beginning from October
even after Kosi floods have devastated the largest maize growing area in
state of The
Directorate of sugar has instructed sugar mills to sell 2.75 million tonnes
of the commodity from the buffer stock by September 30, 2008. If sugar mills
fail to sale it to the open market, then unsold quantities would be
converted to levy sugar, which has lower price realisation. Sugar mills have
been asked to submit all the reports regarding the sale of sugar from the
buffer stock by the end of September and first week of October. Supreme
Court in its interim order as on September 8, 2008 has asked state-owned and
the private sugar mills in Uttar Pradesh to pay the cane farmers price of Rs
110 per quintal for the current season. Union
Agriculture and Food Minister has reiterated that the central government
would not extend export freight assistance provided to sugar mills, of Rs
1,350 per tonne for coastal mills and Rs 1,450 per tonnes for non-coastal
mills, beyond September, as it is scheduled to end on September 30, 2008 and
enough sugar have been exported out of the country. the assistance had been
provided to help the industry, which was facing a huge set-back due to
record output that induced 35-40 per cent decline in sugar prices generating
substantial losses. Sugar
mills have threatened to stop manufacturing of ethanol and have diverted
molasses to liquor manufacturers due to unwillingness of government to raise
the ethanol procurement price. Sugar mills produce around 260 litres of
ethanol from each tonne of molasses, depending on the technology utilised.
Substantial amount of molasses supplied to alcohol manufactures, procure
higher price nearly around Rs 6000 per tonne. At an estimated 10 per cent
recovery average, Cotton
output of country is set to dip for the first time in six years, even as the
textile ministry stated that crop size is expected to go up marginally.
Experts opine that actual production of cotton would be below 30 million
bales (1 bale = 170 kg) due to immature flowering. The last fall in cotton
output had occurred in 2002-03 when the country had produced 13.6 million
bales, as compared with 15.8 million bales in the previous year. According
to officials of Cotton Corporation of India (CCI), inadequacy in rains
recorded in the major cotton-growing regions of Gujarat, According
to National Horticultural Research and Development (NHRDF) output of onion
in India is expected to slid down by 30 per cent to 1.19 million tonnes in
the 2008-09 kharif season, owing to drop in acreage by 40 per cent and
scanty rains in the main areas of Maharashtra, Gujarat, Andhara Pradesh and
Karnataka during the period of June- July, when most of the crops get
cultivated. The area under crop has risen marginally in Rajasthan, Haryana
and
According
to Spices Board, exports of spices during April-July this year has increased
by 15 per cent, estimated at 185,255 tonnes valued Rs 1835.29 crore ($437.10
million), as against 161,577 tonnes worth Rs 1,525.47 crore ($372.42
million) in the corresponding period of last year. Total export income has
increased by 20 per cent in value terms (in dollar terms, the increase was
17 per cent). Spice oils and oleoresins, including mint products, have
contributed 38 per cent of the total export earnings. Chilli has accounted
for 23 per cent followed by cumin (10 per cent), pepper (9 per cent) and
turmeric (5 per cent), respectively. In the four-month period, exports of
all major spices have shown an increasing trend in terms of both quantity
and value, as compared with the same period last year. However, spices such
as pepper, ginger, nutmeg, mace and mint products have shown a decreasing
trend. In case of export of celery and other miscellaneous spices, the
increase is in value terms only. The export of value-added products such as
curry powder and spice oils & oleoresins have shown substantial increase
in both quantity and value compared to last year.
As
per the data revealed by Kottayam -based Rubber Board, export of natural
rubber (NR) has increased massively by 65 per cent during April-August,
2008-09, at a total shipment of 26,704 tonnes, compared to 16,232 tonnes
during the same period last year. The board has estimated that total stock
of rubber at 108,600 tonnes by the end of August 2008 against 82,607 tonnes
in August 2007. The growth in consumption of natural rubber is recorded to
be at 6.8 per cent to 371,460 tonnes in April-August period of 2008-09 as
against 347,915 tonnes last year. The rate of slowdown of the import of
natural rubber has strengthened further to 24.5 per cent at 26,508 tonnes
against a decrease of 16 per cent during the April–July period. The import
of natural rubber dropped by 8,646 tonnes from 35,154 tonnes in April-August
period of 2007-08. The production has recorded an increase of 28.1 per cent
at 312,565 tonnes against a total production of 244,070 tonnes in
April-August period of the previous financial year. The average price tag of
RSS-4 grade has gone up to Rs 120 per kg during the five-month period. According
to a National Agricultural Cooperative Marketing Federation of India Limited
(NAFED), exports of onion have increased by 86 per cent during April-August
2008-09 to 710,000 tonnes as against 380,000 tonnes in the corresponding
period last year, owing to fall in domestic prices and lowering of the
minimum export prices (MEP). Even some are of the view that good quality of
onions and better storage facilities have been some of the reasons for the
rise in exports Onion exports from south The
General Index stands at 273.0, which is 7.1% higher as compared to the level
in the month of July 2007. The cumulative growth for the period April-July
2008-09 stands at 5.7% over the corresponding period of the pervious year. Mining,
Manufacturing and Electricity sectors for the month of July 2008 stand at
164.9, 293.3, and 225.9 respectively, with the corresponding growth rates of
5.0%, 7.5% and 4.5% as compared to July 2007. The
cumulative growth during April-July, 2008-09 over the corresponding period
of 2007-08 in the three sectors have been 4.5%, 6.1% and 2.6% respectively,
which moved the overall growth in the General Index to 5.7%. Ten
out of the seventeen industry
groups (as per 2-digit NIC-1987) have shown positive growth during the month
of July 2008 as compared to the corresponding month of the previous year.
The industry group ‘Beverages, Tobacco and Related Products’ have shown
the highest growth of 28.6%, followed by 18.7% in ‘Transport Equipment and
Parts’ and 16.0% in ‘Machinery and Equipment other than Transport
Equipment’. On the other hand,
the industry group ‘Wool, Silk and Man-made Fibre Textiles’ have shown a
negative growth of 9.2% followed by 9.1% in ‘Wood and Wood Product:
Furniture and Fixtures’ and 4.9% in ‘Leather and Leather & Fur
Products‘. Sectoral
growth rates in July 2008 over July 2007 are 5.9% in Basic goods, 21.9% in
Capital goods and 1.6% in Intermediate goods. The Consumer durables and
Consumer non-durables have recorded growth of 11.2% and 6.1% respectively,
with the overall growth in Consumer goods being 7.3%. Infrastructure The
Index of Six core-infrastructure industries having a combined weight of 26.7
per cent in the Index of Industrial Production (IIP) with base 1993-94 stood
at 240.1 in July 2008 and registered a growth of 4.3 per cent compared to a
growth of 7.2 per cent in July 2007. During April-July 2008-09, six
core-infrastructure industries registered a growth of 3.7 per cent as
against 6.6 per cent during the corresponding period of the previous year.
Crude
Oil production (weight of 4.17 per cent in the IIP) registered a negative
growth of 3.0 per cent in July 2008 compared to a growth rate of 0.9 per
cent in July 2007. The Crude Oil production registered a growth of (-) 0.9
per cent during April-July 2008-09 compared to (–) 0.3 per cent during the
same period of 2007-08. Petroleum
refinery production (weight of 2.00 per cent in the IIP) registered a growth
of 11.8 per cent in July 2008 compared to growth of 4.7 per cent in July
2007. The Petroleum refinery production registered a growth of 5.4 per cent
during April-July 2008-09 compared to 11.0 per cent during the same period
of 2007-08. Coal
production (weight of 3.2 per cent in the IIP) registered a growth of 5.5
per cent in July 2008 compared to growth rate of 1.1 per cent in July 2007.
Coal production grew by 7.7 per cent during April-July 2008-09 compared to
an increase of 0.8 per cent during the same period of 2007-08. Electricity
generation (weight of 10.17 per cent in the IIP) registered a growth of 4.5
per cent in July 2008 compared to a growth rate of 7.5 per cent in July
2007. Electricity generation grew by 2.6 per cent during April-July 2008-09
compared to 8.1 per cent during the same period of 2007-08. Cement
production (weight of 1.99 per cent in the IIP) registered a growth of 8.8
per cent in July 2008 compared to 9.4 per cent in July 2007. Cement
Production grew by 6.5 per cent during April-July 2008-09 compared to an
increase of 7.7 per cent during the same period of 2007-08. Finished
(carbon) Steel production (weight of 5.13 per cent in the IIP) registered a
growth of 1.9 per cent in July 2008 compared to 10.8 per cent (estimated) in
July 2007. Finished (carbon) Steel production grew by 3.8 per cent during
April-July 2008-09 compared to an increase of 6.8 per cent during the same
period of 2007-08.
Inflation The
official Wholesale Price Index (WPI) for 'All Commodities' (Base: 1993-94 =
100) for the week ended 30th August 2008 rose by 0.2 per cent to
240.8 from 240.3 for the previous week. The
annual rate of inflation, calculated on point to point basis, stood at 12.10
per cent for the week ended 30/08/2008 (over 01/09/2007) as compared to
12.34 per cent for the previous week. The annual rate of inflation stood at
3.72 per cent as on 01/09/2007 i.e. a year ago. The index for Primary Articles group rose by 0.3 per cent to 249.2 from 248.5 for the previous week. The annual rate of inflation, calculated on point to point basis, for ‘Primary Articles’ stood at 10.07 per cent for the week ended 30/08/2008. It was 8.07 per cent as on 01/09/2007 i.e. a year ago. The
index for 'Food Articles' group rose by 0.2 per cent to 237.3 from 236.9 for
the previous week due to higher prices of bajra (3 per cent), urad and arhar
(2 per cent each) and jowar and fruits & vegetables (1 per cent each).
However, the prices of maize and condiments & spices (1 per cent each)
declined. The
annual rate of inflation for ‘Food Articles’ stood at 4.58 per cent for
the week ended 30/08/2008. It was 7.08 per cent as on 01/09/2007 i.e. a year
ago. The
index for 'Non-Food Articles' group rose by 0.3 per cent to 247.1 from 246.3
for the previous week due to higher prices of cotton seed and raw rubber (2
per cent each) and raw cotton (1 per cent).
The
index for 'Minerals' group rose by 1.4 per cent to 656.0 from 646.7 for the
previous week due to higher prices of iron ore (2 per cent). The
index for Fuel, Power, Light and Lubricants group remained unchanged at its
previous week's level of 376.2 . The
index for the major group, Manufactured Products, rose by 0.3 per cent to
207.7 from 207.1 for the previous week. The groups and items for which the
index showed variations during the week are as follows:- The
index for 'Food Products' group rose by 1.3 per cent to 215.7 from 213.0 for
the previous week due to higher prices of salt (5 per cent), khandsari,
sugar and oilcakes (3 per cent each) and groundnut oil (1 per cent).
However, the prices of imported edible oil (4 per cent) and gingelly oil (1
per cent) declined. The
index for 'Textiles' group rose by 0.1 per cent to 144.3 from 144.2 for the
previous week due to higher prices of tyre cord fabric (14 per cent), mixed
fabrics and cotton grey cloth & canvas (7 per cent each) and hessian
& sacking bags (2 per cent). However, the prices of synthetic yarn (1
per cent) declined. The
index for 'Chemicals & Chemical Products' group rose marginally to 223.3
from 223.2 for the previous week due to higher prices of acid (all kinds) (1
per cent). However, the prices of powder/granules other than vitamins (6 per
cent) and bopp film (3 per cent) declined. The
index for 'Non-Metallic Mineral Products' group rose by 0.4 per cent to
216.9 from 216.1 for the previous week due to higher prices of cement (1 per
cent). For
the week ended 05/07/2008, the final wholesale price index for 'All
Commodities’ (Base: 1993-94=100) stood at 239.3 as compared to 238.7 and
annual rate of inflation based on final index, calculated on point to point
basis, stood at 12.19 per cent as compared to 11.91 per cent reported
earlier vide press note dated 18/07/2008. Banking With
a view to liberalise advance remittances for import of services, RBI has
decided to raise the limit of advance remittance for all admissible current
account transactions for import of services without bank guarantee from
$100,000 to $500,000 or its equivalent. Where the amount of advance exceeds
$500,000 or its equivalent, a guarantee from a bank of international repute
situated outside “Industrial
Development Bank of For
the first time, housing finance regulator, National Housing Bank (NHB) will
raise money through fixed deposits from retail investors. The
banking division of the ministry of finance is working on relaxing group
exposure norms for big corporates. The current norms restrict the commercial
banks to expand their exposure to any corporate group, as it prescribes
limits on such funding. The current credit exposure ceiling is 15 per cent
of the bank’s net worth in the case of a single borrower and 40 per cent
of capital funds in the case of a borrower group. The issue has also been
taken up by a sub-committee of a group of ministers, which would give its
report soon. The
RBI in its approach paper on its website has suggested that no charges to be
levied for inward RTGS/NEFT/ECS transactions. The central bank has asked
public comments on the issue of charges to be levied by banks for outstation
cheque collection and electronic payment products. On outward RTGS
transactions between Rs 1 lakh and 5 lakh, the RBI is now considering
charges levied should not exceed Rs 25 per transaction. The
RBI has cancelled the licence of Maharashtra-based Dyanopasak Urban
Co-operative Bank Ltd, Parbhani and declared it insolvent. The decision was
taken last month after examining all the options for revival in close
consultation with the Government of Maharashtra. Financial
Market Capital
Markets Primary
Market According
to Nexgen Capitals, the merchant-banking arm of brokerage firm SMC Global
Securities, the recent slowdown in the primary market has influenced not
only investors but merchant bankers as well, with a significant decline of
nearly 60 per cent in their percentage fees so far this year. As per its
latest report, there is a drop in merchant-banking fees to Rs 216 crore in
comparison with Rs 771 crore in 2007, indicating a drop of 57.9 per cent
annually. The average percentage fees have declined 1.21 per cent so far
this year from 2.24 per cent in 2007. Securities
Exchange Board of India (SEBI) has proposed that in a rights share issue,
the registrar will credit the rights entitlement (RE) in the given ratio
into the demat accounts of eligible shareholders. Following this, the rights
issue would open for subscription and renunciation/trading of RE
electronically through the stock-exchange platform. This proposal is part of
a paper on the proposed procedure for rights issue for electronic trading of
rights entitlement, issued by the regulator on September 11,2008. On
September 09, 2008, SEBI said that the reduced 60-day timeline for allotment
of shares in rights issues would be introduced from the last week of
September. To make the rights issue process more efficient, SEBI is also
examining the possibilities of introducing a system where corporates will be
required to send rights issue entitlement in the demat form. SEBI also
proposed to introduce electronic trading (e-trading) in rights issues, a
move that will help people with demat accounts to buy and renounce the
rights entitlements on electronic platform. Under the proposed format,
"shareholders, who do not want to exercise their RE, can renounce their
REs by selling them on the e-trading platform of stock exchanges. The
IPO of 20 Microns, the first company whose IPO falls under SEBI’s
Applications Supported by Blocked Amount (ASBA) process, has been subscribed
4.29 times. The issue had opened for subscription on September 8 and closed
on September 11. It received 1.8 crore bids against the 43.5 lakh equity
shares on offer. The portion reserved for the qualified institutional buyers
(QIB) has been subscribed 0.9 times, while the portion reserved for the
non-institutional investors (NII) has been subscribed 1.97 times and retail
portion by 10.58 times. Adani
Power Ltd – an Adani Enterprises company - has received SEBI approval for
the proposed Rs 5,630-crore IPO. According to sources, the company is aiming
to open the issue preferably in mid-November. On
September 08, 2008, Chemcel Biotech Ltd, a company engaged in the business
of agro-chemicals, announced that it would be entering the capital market
with an IPO of 1.54 lakh equity shares of Rs 10 each at a premium of Rs 6 a
share. The issue will open for subscription from September 9 to September
12. The net public issue would comprise 49.39 per cent of the post issue
paid-up capital of the company and the net issue to the public would be 1.28
lakh equity shares. The company plans to raise Rs 24.6 crore from the issue. Secondary
Market After
starting the week on a positive note on account of the NSG waiver and
bailout of Fannie Mae and Freddie Mac, the markets lost ground throughout
the week on weak global cues. The key indices surged on the first day of the
week on positive news on the Indo-US nuclear deal. But weakness in the The
BSE metal index closed at a 52-week low mainly due to the decline in metal
prices globally during the week. The index declined by 7.7 per cent as
compared with the 3.3 per cent fall in BSE Sensex. Since September 5, 2008,
the metal index has shed 904 points to close on 10,881. In the domestic
market, steel stocks fell after the steel ministry recommended a 5 per cent
duty on iron ore exports in addition to the present 15 per cent to control
the domestic prices of steel. According
to the Life Insurance Council, an apex organization of all life insurance
companies in According
to SB Mathur, secretary general of Life Insurance Council, an association of
all life insurance companies constituted by the Insurance Regulatory &
Development Authority (Irda) in the country, the investment by the insurance
industry in the stock market, in the first four months of this financial
year, has been about Rs 25,000 crore. The
life insurance industry, including the Life Insurance Corporation (LIC), had
Rs 8,47,000 crore worth of assets under management (AUM) as of March 2008.
The council also said that the net investment by life insurance companies in
the equity markets during 2007-08 was Rs 55,000 crore, against an investment
of Rs 53,400 crore by FIIs. The investment by mutual funds in the same
period was estimated at Rs 16,300 crore. Both
inflows and redemptions in equity mutual fund schemes have fallen sharply in
the last few months. Between March and July, investors have redeemed their
units to the tune of Rs 18,401 crore, while inflows were at Rs 25,346 crore.
According to data compiled by the Association of Mutual Funds in According
to a survey conducted by Indian Institutes of Management (IIMs) data works
on mutual fund retail sales and distribution practices, the recent reforms
measures by the SEBI to make fund products more easily accessible to the
common man has had a significantly adverse impact on fund product sales by
agents. 33 per cent of independent financial advisors (IFAs) have admitted
to a significant impact of the zero load on their business volumes. An
interesting finding of the survey is that individual agents are planning to
form a ‘chain’ sales channel. A chain channel means organising
themselves into a ‘union’ of sorts to increase their bargaining power
with asset management companies (AMCs). More than 80 agents in super metros
see their future in the chain sales channel. The IFA survey also shows that
expensive brand and product advertising by companies is having some impact,
but not to the extent of growing mutual fund customer base to mass-market
size. The
31 per cent fall in global crude oil prices since July 11 has already
contributed to the recent rise in domestic equity market, and fund managers
expect the recovery to continue if oil prices slip below $100 a barrel.
According to a fund manager at a bank-sponsored fund house, if crude oil
falls further to $100 a barrel, market would move up by a minimum of
500-1000 points. Fall in crude oil is one of the factors for the market to
rally, but there are many other variables too. Gujarat
NRE Coke Ltd proposes to issue shares with differential voting rights to its
existing shareholders, for which its board will meet on September 17 to
consider the proposal. In an announcement to the stock exchanges on
Wednesday, the company said it proposed to issue one share with higher
voting rights for every 300 equity shares at Rs 1,000 a share, including a
premium of Rs 990. The proceeds of this rights issue would be used to
part-finance the green-field coke oven plant being set up in Andhra Pradesh. Banks
have got three more months till December 13 for complying with the Reserve
Bank's direction to treat advances given to equity-oriented mutual funds as
capital market exposure. By then, banks would also have to comply with the
norms that consider payment commitments made by them to stock exchanges to
facilitate transactions by mutual funds within the limit of their capital
market exposure. Derivatives Despite
a promising opening, the Nifty September future finished precariously low at
4245.8, registering a fall of 2.4 per cent over the previous week’s close.
However, Nifty September future’s premium over the spot widened further,
and closed at over 17 points as against the seven-point premium seen last
week. The September Nifty, Bank Nifty and CNXIT futures settled at premium
to underlyings. All three saw rising OI in the September index futures. In
Nifty options, the impact of the bearishness is clearly evident from the
put-call ratios (PCR). The overall PCR (in terms of OI) is at 0.94 while the
PCR for September is at 0.74. Both ratios are low and bearish – in fact,
the September ratio is extremely low. Future and options (F&O) volumes
climbed in a falling market, but oddly enough, open interest (OI) also rose,
especially in index instruments. Higher OI and higher volumes in a falling
market can be read as a situation where long traders switched to short
positions instead of exiting. The FIIs did take the exit option. FII OI
dropped to around 35 per cent, which is about 5 per cent lower than normal
exposure. The
cumulative FII positions as a percentage of total gross market position on
the derivative segment, as on September 4 was 35.36 per cent. This once
again points at the high level participation of local traders, particularly
the proprietary segment. Foreign institutional investors resorted to heavy
selling on Thursday and Friday. They now hold index futures worth Rs
13,378.69 crore (Rs 12,636.83 crore) and stock futures worth Rs 20,478.61
crore (Rs 19,077.47 crore). Their holding on index options stood higher at
Rs 22,544.75 crore (Rs 22,093.13 crore). Government
Securities Market Primary
Market The
Reserve Bank of India (RBI) has set rate of interest for floating rate bonds
maturing in 2013 at 9.77 per cent per annum on September 8, 2008. The rate
of interest is applicable from September 10, 2008 to September 9, 2009. West
Bengal State Government auctioned 10-year paper maturing in 2018 through an
yield based auction using multiple price auction method on September 9, 2008
for the notified amounts of Rs 1, 800 crore with cut-off yield of 8.80 per
cent. On
September 10, 2008, RBI auctioned 91-day and 364-day T-bills for the
notified amounts of Rs.5,000 crore and Rs.4,000 crore, respectively. The
cut-off yields for 91-day and 364-day T-bills were 8.73 per cent and 8.86
per cent, respectively.
RBI
re-issued of 8.24 per cent 2018 and 7.95 per cent 2036 for the notified
amount of Rs.5,000 crore and Rs.3,000 crore, on September 12, 2008 at the
cut-off yields of 8.30 per cent and 8.70 per cent, respectively. Secondary
Market Inter
bank call rates ruled in the range of 8.13-8.88 per cent during the week.
Call rates dropped
on September 12, which is the reporting Friday, due to lack of demand from
borrowing banks coupled with ample liquidity in the banking system. However,
government bond prices showed a mixed trading due to alternate bouts of
buying and selling. The yield on the 10-year benchmark paper declined from
8.49 per cent on September 5 to 8.36 per cent on September 12, partly
reflecting a rally last week on account of comfortable liquidity and lower
inflation figures. The 8.33 per cent government security maturing in 2036
firmed up to Rs 95.95 from Rs 94.95 previously while its yield moved down to
8.72 per cent from 8.82 per cent. RBI purchased central government bonds
from secondary market during the week and sold them to state governments to
help them replenish their stock of gilts that expired last month. A
state government official said that the amount held in the (Consolidated
Sinking) fund Sis invested in government securities as it earns a better
return. Since there has been redemption of bonds last month, the RBI
reinvested the money in other bonds on the behalf of the state. A part of
the state governments’ surpluses are kept in Consolidated Sinking Fund,
which is operated by the RBI. Bonds
continued their upward momentum, powered by large purchases by banks for
meeting their reserve requirements. The sharp fall in global oil prices
partially caused bond yields to soften. The liquidity squeeze in the markets
somewhat eased during the week stemming from large deposit mop-up from
corporates through certificates of deposits. The easing has been evident
from the low recourse to the repurchase window at the weekend liquidity
adjustment facility (LAF) auctions. The combined recourse to the repo window
from five banks was Rs 12,215 crore. At least five banks took to the reverse
repo window at the auctions. Trade
volumes remained high, averaging Rs 8,700 crore per day. Spreads remained
narrow at just five basis points. Traders’ outlook remained uncertain
which was evident from the almost flat yield curve. Between one year and 27
years, the yield spread was inverted. The 27-year was lower than the
one-year by 8 basis points. On
September 11, the Reserve Bank of India (RBI) has suggested that no charges
to be levied for inward Real Time Gross Settlement (RTGS)/National
Electronic Funds Transfer (NEFT)/ Electronic Clearing Service (ECS)
transactions. The central bank has asked for public comments on the issue of
charges to be levied by banks for outstation cheque collection and
electronic payment products. On outward RTGS transactions between Rs 1 lakh
and 5 lakh, the RBI is now considering charges levied should not exceed Rs
25 per transaction. For RTGS transactions for Rs 5 lakh and above, charges
levied will not exceed Rs 50 per transaction. On outward NEFT transaction,
up to Rs 1 lakh, charges levied will not exceed Rs 5 per transaction, while
for NEFT transactions for Rs 1 lakh and above; charges levied will not
exceed Rs 25 per transaction. Bond
Market During
the week under review, four banks/ financial institutions and one PSU have
tapped the market by issuance of bonds by mobilising Rs 3,235 crore.
The
SEBI is working on a slew of measures to revive the corporate debt market,
which include introducing the book-building process for bond issues similar
to the one prevalent in the equity market and simplifying various other
procedures. Corporate bonds have not been able to generate interest among
retail investors even after the capital market regulator announced many
measures in the recent past to activate the market.
Foreign
Exchange Market The
rupee declined sharply for the fifth week in a row and fell by 18 paise to
close at a fresh 23-month low of Rs 45.75/76 against the dollar, on
September 12 as banks continued to buy the greenback amid regular capital
outflows. The rupee has lost 111 paise, or 2.5 per cent over the week to
close near the 46-level for the first time since October 10, 2006. Large
scale selling by FIIs also pushed down the rupee-dollar exchange rate.
Forward premia for three days and one month firmed to 7.87 per cent (0.27
per cent) and 4.19 per cent (2.16 per cent). The
local currency hit a two-year low on the back of concerns over a widening
current account deficit because of a huge demand for dollars from importers
and because of capital outflow. The dollar has advanced against 16 major
global currencies in the past three months, leading to a decline in
commodity prices. Currency FuturesOn
September 9, 2008, NSE said that it would launch interest rate
futures and currency futures in four more currencies as soon as the
regulator gives it the permission. Even
as currency futures are struggling to gain volumes, there was some
improvement in hedging on September 12, with the OI crossing the number of
traded contracts September 5. The OI surpassed traded volumes for the first
time last week after the launch of currency futures on the NSE. On Friday,
40,689 contracts were traded, each valuing $1,000, while the OI was 44,550.
This is the highest-ever OI since the launch of currency futures. In the
last four trading sessions, the OI has nearly doubled to 44,550 from 23,402
on September 9. The daily average volume of currency futures is still around
Rs 200 crore, which is much lower compared with those of forward contracts
traded on the over-the-counter (OTC) market. One of the reasons for lower
volumes is high margins, according to market experts. Commodities
Futures derivatives Leading
agri-commodity bourse National Commodity and Derivatives Exchange (NCDEX)
launched futures trading in thermal coal on September 10. The exchange said
that it would initially launch October, November and December contracts and
subsequent contracts would be launched next year. Trading and delivery units
are fixed at 100 tonnes each, and the main delivery centre would be in Realising
the importance of the international commodity market, the government has
recently set up a cell under the department of consumer affairs to monitor
developments relating to prices and general inflationary trends in the
international markets. The department has hired the services of news agency
Reuters to gather data related to international freight charges, commodity
prices and the demand-supply situation on a regular basis. This will
facilitate the government in planning imports of commodities like pulses and
edible oil. Country's
third largest commodity bourse National Multi-Commodity Exchange (NMCE) has
relaunched futures trading in coffee, especially robusta variety, on
September 09,2008. Initially, the exchange launched November and December
contracts. Forward Markets Commission (FMC) on September 15 said companies like Reliance Anil Dhirubhai Ambani Group and Kotak Mahindra will have to wait before entering the commodity bourse arena as the regulator is still working on preventing conflict of interest that may arise from brokers turning exchange promoters. James
B Rogers, American investor and financial commentator is in a view that,
trying to cut out speculators from the commodity futures trade will only
decrease liquidity and will not halt a price rise as supply problems
persist. According to him governments and politicians do not understand
markets and they are making the situation worse by trying to impose controls
on the markets. Commodity prices will go up whether governments impose
controls or not as there is a serious supply-side problem.
Insurance Anil
Dhirubhai Ambani Group’s Reliance Life Insurance is infusing at least Rs
1,000 crore capital in the current financial year. The company has already a
base of Rs 2,000 crore. Life
Insurance Corporation (LIC) and Infosys Technologies Ltd have announced the
renewal of the group life insurance policy with a total sum of insurance of
over Rs 24,000 crore. The policy, which covered each of the 97,000 employees
of Infosys, was the highest cover offered by an insurance company, under a
single employer-employee group life insurance policy in the country. Corporate
Sector Major
Mergers and Acquisition (M&A) Deals of Indian Pharmaceutical companies
Reliance
Industries has announced the incorporation of wholly-owned subsidiaries in
two key global markets, namely, Information
Technology Nasscom
is starting a vocational training model at Indian Universities, beginning
with As
per a latest report by Hay Group, the outsourcing industry in Wipro
Infotech unveiled its second manufacturing unit at Kotdwar in Uttarakhand.
This state of the art facility shall manufacture servers, storage,
notebooks, desktops and allied IT electronics. Telecom Bharti
Airtel has tied-up with VISA to introduce finance scheme to help consumers
buy the high priced cellphone. As per the partnership, Airtel would offer
financing options for all VISA cardholders of ICICI, HDFC, SBI and Cititbank.
In
a move that could halve SMS charges, the TRAI has asked mobile operators to
slash tariffs voluntarily. Unlike the voice tariff, the cost component in
SMS is negligible – around 2 paise. Still, SMS tariffs are either higher
than voice rates or at best comparable. According to TRAI, while service
providers have to pay termination charges and carriage costs for voice
calls, no such cost is involved in SMS traffic, apart from negligible
capital expenditure. For a telecoms company, around 14 per cent revenues
comes from VAS, with SMS constituting, almost half of it. BPL
Mobile in a statement said that it issued around 17 per cent equity shares
to a Mauritius-based company, owned by an international institutional fund
investing in emerging markets. The company has raised about $80 million from
this issue and the proceeds have been used for BPL Mobile’s expansion in
Mumbai and its stake in Loop Telecom.
*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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