Product Updates

Fiscal deficit already at 61.2% of full-year target ⁠ The Centre's fiscal deficit touched 61.2 per cent of the full-year Budget Estimate (BE) in April-July, only a notch lower than the 62.8 per cent in the same period last year. The deficit constituted 10.5 per cent of gross domestic product (GDP) in the first quarter (April-June) of the current financial year, slightly higher than 10.3 per cent in the corresponding period last year. The government has pegged its fiscal deficit, the gap between its expenditure and receipts, at Rs 5.31 lakh crore or 4.1 per cent of GDP this year. According to the data issued on Friday by the Controller General of Accounts (CGA), it touched Rs 3.24 lakh crore in April-July, the first four months of 2014-15. If the government spends more than Rs 2.06 lakh crore in the remaining eight months of the financial year, the deficit will swell, forcing it to borrow more from the market to finance this. This might crowd out private investment and

NEW DELHI: Indian mutual funds have roped in global consultant KPMG to help them prepare for the Foreign Account Tax Compliance Act (FATCA) - a new law enacted by the US to help combat tax evasion by Americans through overseas entities including in India. FATCA, which took effect from July 1, may have significant implications for Indians residing in the US and investing in products offered by the Rs 10 trillion Indian mutual fund industry. The implementation of the new tax evasion law is also expected to result in increased legal and compliance costs for the mutual fund houses here. According to official sources, mutual fund houses have together roped in KPMG to help them meet the guidelines under FATCA, rather than individual funds hiring different consultants to meet the tedious FATCA reporting requirements. Currently, there are 44 players operating in the mutual fund industry. Market regulator Sebi, last month, asked fund houses and other market intermediaries to

Banks seek stricter norms for reporting on wilful defaulters  ⁠ Banks have urged the Reserve Bank of India (RBI) to amend the norms for reporting on wilful defaulters and non-performing assets (NPAs). They said to prevent defaulters from taking fresh loans from other lenders, reporting to RBI and credit information companies should continue even after NPAs were sold to asset reconstruction companies. Banks and financial institutions can't grant additional facilities to those listed as wilful defaulters. Also, those identified as having siphoned or diverted funds or involved in fraudulent transactions are barred from securing institutional finance. Senior public sector bank executives said there was apprehension the banking system would be misused by wilful defaulters after banks stopped reporting about them. Continuing such reporting would help asset reconstruction companies recover dues from the assets acquired by them and, consequently, redeem security receipts, t

Mutual funds get costlier Charges of many schemes have gone up by a good 50-75 bps. This will hurt returns of investors significantly over the long run An expense ratio of 3.25 per cent sounds small, especially when the stock market is hitting a new high almost every day. But it impacts returns substantially over the long term. Consequently, financial planner Gaurav Mashruwala says one should look carefully at expense before investing in a scheme. "Expense ratio is like the inflation rate. Like inflation impacts the real return of investors, if the expense ratio is high, the returns will fall significantly and pinch over the long term." What it means It means a serious loss in money. For example, you invest Rs 1 lakh in an exchange-traded fund charging 20 basis points (bps) more vis-a-vis a diversified equity fund charging three per cent in annual fees. Assuming a return of 15 per cent compounded over a 15-year period, the return from the ETF would be Rs 7.5 la

Footprints in the Sand One night I dreamed I was walking along the beach with the Lord. Many scenes from my life flashed across the sky. In each scene I noticed footprints in the sand. Sometimes there were two sets of footprints, other times there was one only. This bothered me because I noticed that during the low periods of my life, when I was suffering from anguish, sorrow or defeat, I could see only one set of footprints, so I said to the Lord, "You promised me Lord, that if I followed you, you would walk with me always. But I have noticed that during the most trying periods of my life there has only been one set of footprints in the sand. Why, when I needed you most, have you not been there for me?" The Lord replied, "The years when you have seen only one set of footprints, my child, is when I carried you." Thanking you Regards, Rajesh Kumar Kathpalia ¤ SMC Global 17,Netaji Subhash Marg,Daryaganj, New Delhi-110002 Mobile No 989164

Mumbai: Foreign institutional investors (FIIs) bought a record $2.64 billion of Indian government bonds on Wednesday, according to data released by the Securities and Exchange Board of India (Sebi) on Thursday. The demand for the government securities ensured that the limit of such bonds available for sale to foreign investors has almost been exhausted, which means FIIs will now have to bid for the bonds through a Reserve Bank of India (RBI) auction. Bank treasurers said the huge demand for government bonds is good news because it's a vote of confidence on the country's improving macroeconomic fundamentals. "The demand has to be from an FII who is comfortable to invest such a huge amount because he is confident about the stability of the currency and bond yields which are offering 8.5% plus returns. Clearly, he plans to hold on to his investment for the long term," said Ananth Narayan, co-head of wholesale banking, South Asia, Standard Chartered Plc. India

Foreign investors barred from interest rate futures exposure With foreign investors' exposure to the government debt reaching over 97 per cent of the permitted limit of $25 billion, they have been asked not to take any fresh investment position in the interest rate futures market. In separate circulars issued on Thursday morning, the National Stock Exchange and BSE said the total foreign investments in government debt securities (through the auction route) had reached Rs 1,21,224 crore. This is 97 per cent of the permitted limit of $25 billion (Rs 124,432 crore, the exchanges said, citing data from National Securities Depository Limited. The foreign investments include those of FIIs (foreign institutional investors), FPIs (foreign portfolio investors) and QFIs (qualified foreign investors). The position limits of these in exchange-traded interest rate futures (IRFs) are monitored by the exchanges on the direction of the Securities and Exchange Board of India. Sebi

RBI prescribes tighter norms for NBFC to lend against shares The Reserve Bank of India has prescribed rules including loan to value ratio for non banking finance companies (NBFCs) to lend against shares. The banking regulator took this step to avoid volatility in capital market triggered by offloading of shares by NBFCs. Under new rules, finance companies will have to keep Loan to Value (LTV) ratio of 50% all along to loans given against shares. The total capital market-related loan book of NBFCs has been estimated to be at Rs 35,000 crore, according to market sources. Margin funding is said to account for Rs 5,000-8000 crore, with the rest of it related to promoter financing. "The principle seems to be to bring in place some alignment...There may be a limited short-term impact but overall, it should not have too much of a negative impact," said R Venkataraman, Co-Promoter and Managing Director of India Infoline. There have previously been attempts to address a

Paperless insurance is soon to gain traction in India with the largest insurance insurance company in India, the Life Insurance Corporation of India (LIC) tying up with all five insurance repositories for offering policies in a digitised format. After a lukewarm response from the industry, the process is expected to pick up speed with insurers now beginning to tie-up. After a meeting with officials from all the insurance repositories here today, sources said that LIC has formally told them that the process has gone live. While pilots were on at LIC for the past few weeks, it has now been decided that they will begin offering it to existing customers. For new customers, this service will first be offered to the Mumbai division and would later be extended to other regions. LIC is expected to digitise atleast 5,000 policies in the next 10 days. August 31 is the deadline for the pilot launch. S V Ramanan, chief executive officer of CAMS Repository Service (CAMSRep) explained th

NEW DELHI: People can now deposit up to Rs 1.5 lakh annually in their Public Provident Fund (PPF) with the government notifying changes in the popular savings scheme. The government has issued a notification raising the limit from annual PPF deposit limit from Rs 1 lakh to Rs 1.5 lakh in pursuance of the announcement made by Finance Minister Arun Jaitley. PPF is a 15-year investment scheme under which an investor enjoys tax exemption at the time of deposit, accrual of interest and withdrawal. The interest rate on deposit in PPF for 2014-15 fiscal is 8.7 per cent. Jaitley had increased the PPF investment limit in line with the hike in cumulative tax exemption limit under 80C Income Tax Act from Rs 1 lakh to Rs 1.5 lakh. He raised the investment limits in tax saving schemes with an aim of encouraging household savings. Among other things, the government had also proposed to introduced re-introduced Kisan Vikas Patra. He has also proposed higher exemption limit for re-pa

Fortnightly bank credit growth at 4-year low For the fortnight ended August 8, year-on year credit growth in the banking sector fell to its lowest in above four years. Reserve Bank of India (RBI) data showed on a year-on-year basis for that fortnight, credit grew 11.64 per cent. In the previous fortnight (ended July 25), growth was 13.29 per cent, RBI data showed. Bank credit had earlier grown 11.3 per cent in the fortnight ended December 18, 2009, in the wake of the global financial crisis. A mid-level official with a public sector bank said besides tepid demand from the corporate sector, the arrest of Syndicate Bank's chief executive on a charge of taking bribes for credit had hit decisions. "Though an isolated event, its impact is wide across the system. Its psychological impact is substantial," he said. During the fortnight in question, the growth in credit was a meagre 0.27 per cent, or around Rs 16,000 crore, over the previous one, show the data. Deposit

Government plans to merge all state-run hydropower firms; thermal projects may be transferred to NTPC NEW DELHI: The government plans to create public sector energy giants with a massive restructuring exercise that will amalgamate all state-run hydropower firms and transfer their thermal projects to NTPC to create strong companies that can take on the rapidly growing private conglomerates. The exercise aims to merge all four central hydropower companies. According to the proposal, NHPC, SJVN, THDC and NEEPCO may be merged into one organisation that will control 10,000 mw of existing and 32,500 mw of proposed capacity. It would also transfer 4,600 mw of thermal plants controlled by hydro firms to NTPC, which in turn would shed 1,400 mw of its hydropower plants if the proposal goes through. The proposal has cheered executives of big firms like NHPC but it has created a flutter among executives of smaller companies as they feel smaller firms were created for specific regional r

158 stocks gained over 50% post general election results A sharp rally in equities post general elections have seen about 158 stocks from the BSE 500, mid-cap and small-cap indices gain over 50%. Of these, 21 stocks have more than doubled, while 137 gained between 50-100%. Another 222 scrips rose in the range of 25-50%. Since May 15, the S&P BSE Mid-cap and S&P Small-cap indices have outperformed their large-cap peers by appreciating 31% and 21% respectively. The CNX Nifty and the BSE S&P BSE Sensex have rallied 11% each after Narendra Modi-led Bharatiya Janata Party (BJP) won by clear majority in Lok Sabha polls. The rally comes on the back of sustained foreign institutional investor flows coupled with participation from the domestic mutual funds that have bought aggressively since the past two months. Better-than-expected financial results for the quarter ended June 2014, also boosted sentiment. "FII stake in BSE 500 companies continues to remain high, de

Short-tenure corporate bonds back in demand With interest rates continuing to remain high, the demand for short-term corporate bonds has seen a rise. Traders prefer such bonds, as the difference between the cost of borrowing for a three-year paper and a 10-year paper is only a few basis points. "The yield curve is flattish, due to which the difference between the cost of borrowing for a shorter tenure and a longer tenure isn't much. Traders and mutual fund houses are buying shorter-tenure papers, which are subscribed faster," said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities. He added typically, long-term papers were bought by insurance companies. However, even insurers don't have much exposure to corporate bonds, preferring government securities instead. Last week, Power Finance Corporation (PFC) had issued bonds through a private placement. While the coupon rate for the three-year paper was 9.32 per cent, that for the 10-yea

FinMin to give in-principle approval for UTI Mutual Fund IPO soon Country's oldest fund house UTI Mutual Fund may revive its initial public offer (IPO) plan after Finance Ministry's nod which is expected soon. "There is proposal for IPO of UTI Mutual Fund and the Finance Ministry is looking at it. The Ministry after consideration can give in-principle approval for public offer," sources said. Government has stake in the UTI Mutual Fund through public sector banks and insurance companies. State Bank of India, Punjab National Bank, Bank of Baroda and LIC holding stake in UTI Mutual Fund on behalf of government of India. State Bank of India, Punjab National Bank, Bank of Baroda and LIC jointly owns 74 per cent stake in the fund house while remaining 26 per cent stake is with the US-based investment firm T Rowe Price. In 2008, UTI Asset Management Company deferred its IPO ownin g to uncertain market conditions. The fund house had proposed to sell 4.8 cror

Lenders want forensic audit of Bhushan Steel A consortium of lenders headed by Punjab National Bank (PNB) has decided to conduct a forensic audit of debt-laden steel maker, Bhushan Steel, and appoint three nominee directors on the company's board. The forensic audit, to be carried out by an external audit firm, is aimed at checking if there was a diversion of funds and if the loans were used for the purpose those were extended. Life Insurance Corporation, ICICI Bank and PNB will each nominate a member on Bhushan Steel's board. The decision comes within days of Neeraj Singal, the steel company's vice-chairman & managing director, being arrested by the Central Bureau of Investigation (CBI) in connection with a case of allegedly bribing S K Jain, Syndicate Bank's now-suspended chairman & managing director. CBI had arrested Jain for the alleged graft. In total, 35 banks have a combined exposure of around Rs 40,000 crore to the troubled steel maker -- both i

SBI Mutual files papers for retirement benefit fund This would be the third scheme after UTI Retirement Benefit Pension Fund and Franklin Templeton Pension Fund launching pension schemes. In fact, the two schemes were launched in 1994 and 1997, respectively. According to Value Research, the former gave out a return of 23.52 per cent for one-year period and the latter 21.97 per cent. The SBI scheme plans to apply to the Central Board of Direct Taxes for approval as a notified pension fund to obtain tax benefits under Section 80 (C) of the Income Tax Act. All investors under this scheme will be covered by a group life insurance policy. Allocation of funds This scheme will invest in multiple asset classes — equities, gold, foreign securities, real estate investment trusts (REITs), debt and money market securities and has been colour coded yellow — meaning medium risk to the principal amount invested. This follows SEBI's long-term policy for mutual funds in India

Now, pay to use even home-bank ATMs If you use automated teller machines (ATMs) for small and frequent transactions, get ready to pay charges -- even at the machines of your home bank. The Reserve Bank of India (RBI) on Thursday said banks were free to charge their customers for ATM transactions beyond five a month, though a board-approved policy on this issue would have to be put in place. So far, a customer had to pay up to Rs 20 for every transaction beyond five at non-home-bank ATMs per month. These transactions mean both financial and non-financial -- balance enquiry, change of PIN, mini statement, etc. The cap on per-use fee has been maintained at Rs 20 but the number of free transactions at machines of other banks has been lowered to three. "Taking into account the high density of ATMs, bank branches and alternative modes of payment available to customers, the number of mandatory free ATM transactions for savings bank account customers at other banks' ATMs is r

5 ETFs to hit market this year This year, Dalal Street will see the launch of five new exchange-traded funds (ETFs), four of which will not be marked to the benchmark indices. The broader market's outperformance, coupled with an improvement in investor appetite towards equities, has prompted asset management companies (AMCs) go for non-benchmark indices-based passive investment products. Currently, fund houses are seeking regulatory approvals for the ETFs, based on indices that include the Bank Nifty, the Nifty Junior and the BSE 100. Experts believe with the market sentiment turning bullish, the broader market could continue to outperform benchmark indices. Since January, the BSE Sensex and the National Stock Exchange Nifty have returned about 23 per cent, while the BSE 100 and the Nifty Junior have recorded returns of 24 and 26 per cent, respectively. During the same period, the Bank Nifty has risen 32 per cent. Though the size of the domestic ETF market is only abo

Amanath Co-operative Bank Ltd, Karnataka's first scheduled urban co-operative bank, is being taken over by public sector Canara Bank. Amanath Co-operative Bank's operations were suspended on 6 April 2013 when the Reserve Bank of India (RBI) decided that the bank's 272,000 depositors would be at risk if it continued operations. After a lot of wrangling, Canara Bank agreed to take over Amanath Co-operative Bank. Typically, in such a rescue act, the stronger bank suffers some losses and the banking regulator looks the other way. This time, while clearing the merger scheme, RBI stipulated that the loss incurred by Amanath should not be transferred to Canara Bank. The only way this loss could be made up is by making Amanath Co-operative Bank's depositors sacrifice 18% of their deposits. Indeed, up to Rs.1 lakh deposit enjoys insurance cover and the 18% haircut would be applicable to the amount over and above Rs.1 lakh. This is a classic example of bail-in before a

Bhushan Steel hits lower circuit for seventh consecutive day Bhushan Steel has hit the lower circuit of seventh straight day, down 5% at Rs 161 on National Stock Exchange (NSE), as the lenders begin invoking pledge shares. A combined 147,393 shares changed hands and there are pending sell orders for 3.04 million shares on NSE and BSE. Since August 5, the stock has plunged 58% from Rs 381, after the Central Bureau of Investigation (CBI) arrested the company's vice-chairman and managing director, Neeraj Singal, in connection with Rs 50-lakh bribery scandal. The stock is currently trading at its lowest level since August 2009. Kotak Mahindra Investments and Aditya Birla Finance collectively have invoked 2.53 million shares representing 1.2% of total equity of Bhushan Steel in past week. On August 4, Kotak Mahindra Investments invoked 1.16 million shares, and Kotak Mahindra Bank invoked 500,000 shares of Bhushan Steel, according to disclosure made by the company on BSE.

India's 10-year bond posts biggest daily gain in four months MUMBAI, Aug 13 (Reuters) - India's benchmark 10-year bond saw its biggest single-day gain in four months on Wednesday on hopes the government would sell less debt after receiving surplus profit from the central bank earlier this week, while a drop in crude prices also aided. The Reserve Bank of India had announced last week it would slash the size of this week's auction to 80 billion rupees ($1.31 billion) from 140 billion rupees, leading to hopes that future auctions would also be cut or possibly cancelled. India's central bank said on Sunday its board had approved the transfer of a surplus profit of 526.79 billion rupees to the government for the year ended June 2014, which traders said may reduce the need for proceeds from debt auctions in the near future. Expectations of lower borrowing helped offset initial falls in bonds at the start of the session after data on Tuesday showed consumer price inflat

Irda launches long-term insurance for 2-wheelers In a major relief to two-wheeler owners, the Insurance Regulatory and Development Authority (Irda) has introduced long-term motor third-party insurance policy with a three-year term. This means, two-wheeler owners don't need to renew their motor insurance every year. Third-party insurance covers the liability a third party by a vehicle owner during an accident. Third-party motor insurance is mandatory in India. Irda said the total premium charged for the third-party coverage would be thrice the annual premium for two-wheelers as decided by the regulator. Motor third-party premium is regulated by Irda and the regulator brings out revised rates for these policies every year, based on the claims experience. The regulator also said the premium would not be revised upwards or downwards during the period of the policy. Insurance industry executives said two-wheeler owners would opt for these covers as there would not be any p

Corporates turn to arbitrage funds post debt tax increase Following increase in tax rate for debt mutual funds, corporate and wealthy investors have turned to arbitrage funds with 'bonus component'. According to industry players, nearly Rs 10,000 crore has flown into such schemes since Budget announcement that debt mutual funds will be taxed at a higher rate. A single mid-sized fund house alone is said to have mopped up over Rs 5,000 crore. 'Bonus-stripping' feature in these schemes is proving to be a big draw for investors as it helps them taxes. The strategy to buy a security ahead of a bonus and then selling the original units to book short-term capital loss is known as 'bonus stripping.' The loss booked is offset against other short-term capital gain. Earlier, debt plans came with 'bonus' option, however, with the change in the tax structure, arbitrage schemes, which come in equity category, are being popular. Industry players said around

Bond yield spike may hit banks' treasury profit The sharp rise in yields on the new 10-year benchmark government bond has raised the risk of banks taking a hit on their bond portfolio and consequent pressure on treasury profits in the year's second quarter. The possible mark-to-market losses (writing down assets in line with changed values) would add to the pressure on the bottom line at a time when the growth in income from credit has been subdued, treasury executives and bankers said. The rise in the yield is due to a combination of factors, including a cut allowed by the Reserve Bank of India (RBI) in the statutory liquidity ratio (SLR) for banks and the sticky inflation outlook. The yield on the new benchmark 10-year paper (8.40 per cent 2014) has moved up by 23 basis points in two weeks. The yield closed at 8.63 per cent, according to Clearing Corporation of India data. Vibha Batra, senior vice-president of financial sector ratings at Icra, said the hardening

Small investors' portfolios may get extra 'protection' The capital markets regulator, Securities and Exchange Board of India (Sebi), is planning a fourfold increase in the minimum investment amount allowed under portfolio management services (PMS). This is to make this investment facility more inaccessible to small investors, given the high risks involved. The regulator wants to realign the PMS facilities, typically offered by brokerages and wealth managers, with alternative investment funds (AIF). Currently, the minimum size for a PMS is Rs 25 lakh. That for an AIF is Rs 1 crore. "The regulator will soon enhance the investment limit under PMS to Rs 1 crore, to bring it in line with AIFs," said a source with direct knowledge of the development. Sebi had previously raised the entry limit for PMS in 2012, from Rs 5 lakh to Rs 25 lakh. Under PMS, portfolio managers offer customised investment advice to clients, typically high net worth investors (HNIs). C

Rupee falls to 5-month low, bond yields continue to rise On Wednesday, the rupee ended at 61.5/dollar, a five-month low, compared with its previous close of 60.85/dollar, owing to increased demand for dollars after data showed the US was on a recovery path. There is concern the US might resort to raising interest rates sooner than expected, due to which emerging markets such as India will see outflows. The rupee opened at 61.04/dollar and, during intra-day trade, touched a low of 61.53/dollar. On March 5, it had closed at 61.76 a dollar. Since the beginning of this financial year, the currency has depreciated three per cent. "On Wednesday, the Reserve Bank of India (RBI) intervened through state-run banks, but in small volumes. There was not much dollar supply," said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai. RBI's foreign exchange reserves are only $23 million short of its all-time high of $320.79 billion, recorded on September

Finance minister Arun Jaitley's big message to mutual fund investors in his maiden budget was "don't invest in mutual funds just for tax arbitrage". That the finance ministry over-reached its objective of plugging the tax loophole of institutional investor's taking the benefit of this tax arbitrage in debt funds, by far, is fairly obvious. In his reply to the debate on the Finance Bill in Parliament, the finance minister seemed to indicate that the retail mutual fund investor is just collateral damage in this exercise of stopping institutional investor's taking advantage of tax arbitrage. Though all categories of non-equity-oriented mutual funds, i.e. liquid funds, debt funds, gilt funds, gold funds, international funds and fund of funds, have been affected due to the change in tax structure, the category that needs immediate attention is fixed maturity plans (FMPs) with holding period between one year and three years for two reasons. First, it has a define