FIIs direct India entry!!

The Securities and Exchange Board of India (Sebi) is working on a policy to allow certain categories of foreign investors to invest in Indian securities markets through the automatic route, without having to register themselves with the regulator, as is the current norm.

The proposed automatic approval will be subject to KYC (know-your customer) requirements being complied by brokers and custodians, through whom foreign investors carry out their transactions.

FIIs such as pension funds, endowment funds, university funds, insurance companies, banks and mutual funds are likely to be among the foreign institutional investors that may be allowed to invest directly in the Indian market, officials familiar with the development told ET.

They said the capital market regulator was deliberating whether to do away with the registration process for any entity. However, the view taken by RBI on this will be crucial in formulating the policy. In the past, the central bank had expressed reservations relating to KYC norms given the threat of money laundering and terror financing.

Currently, even though Sebi does the FII registration, it is the custodians of these investors who ensure that KYC norms are being complied with, and also maintain their own records of transactions.

Sebi has already started discussions with market intermediaries to understand how the FII registration process works in other emerging markets such as South Korea, Taiwan and Singapore. In some of the markets such as South Korea and Taiwan, foreign investors have to just fill an application form and can start trading within two days.

Financial sector regulators are also looking at the issue of distinction between foreign direct investment (FDI) and foreign institutional investment. Their view is that portfolio investment should not be considered for FDI limit since portfolio investors just have trading interests.

Another important move considered by policy makers is to allow any overseas entities, including NRIs (non-resident Indians) and OCBs to invest in the local stock markets, provided they identify themselves under the KYC norms.

“There should be no discrimination between non-resident Indians and other investors...since NRIS are already bringing in so much of foreign exchange remittances into the country,” an official associated with the exercise said.

Currently, NRIs are allowed to invest through different category or schemes such as the Portfolio Investment Schemes — they can pick up to 5% in one company. They can also invest through a broad-based fund, which has at least 20 investors with no investor holding more than 10%.

“Once the restrictions on NRIs are removed, it will enhance the inflow of investments in India substantially,” said a senior official with a law firm involved in the FII registration process.

Following the stock market scam of 2001, investment by NRIs has become more difficult, since overseas corporate bodies or OCBs were banned. The regulator is likely to put out the consultative policy paper for public comments shortly.

Meanwhile, the Sebi board, which will be meeting this week, is likely to discuss the future of regional stock exchanges.

In the recent past, Sebi had appointed a committee to study the future of regional stock exchanges — post-demutualisation under the leadership of G Anantharaman, former Sebi whole-time member. 

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Insurance industry, major investor in equity markets

The life insurance industry was the largest investor in the Indian equity markets, ahead of foreign
institutional investors and mutual funds, according to figures released by the Life Insurance Council.
While the net inflow from life insurance companies into equity stood at Rs 55,000 crore till March 31, 2008,
foreign institutional investors and mutual funds invested Rs 53,403 crore and Rs 16,305 crore respectively.
Even for the five-month period from April to August this year, the insurance industry was the largest
investor in the equity markets, having made net investments worth Rs 20,000 crore during the period (when
foreign institutional investors have been net sellers).
Stabilising factor
Mr U. S. Roy, Managing Director and CEO, SBI Life, said Indian life insurance companies are the
stabilising factor in the capital markets, channelising retail investments into equity markets.
According to the Life Insurance Council, new business premium increased by 23 per cent to Rs 92,990
crore in FY 08, from Rs 75,400 crore in FY 07.
There is an increased demand for ULIPs, which accounted for over 80 per cent of the life insurance
business garnered in FY 08.
The total assets managed by the life insurance industry has gone up to approximately Rs 10,00,000 crore
till August this fiscal, from Rs 8,47,000 crore in FY 08, said Mr S. B. Mathur, Secretary General, Life
Insurance Council. The infrastructure investment also increased to Rs 90,200 crore.
'Health' potential
The life insurance industry sees tremendous growth opportunities in health insurance, as over 85 per cent
of the population is uninsured.
"In the post-detariffing scenario, the market has moved to sustainable pricing. The companies can now
reprice their products depending on the morbidity figures. Besides, in the present scenario of medical
inflation and the fact that 70 per cent of the total Rs 2 lakh crore spent on health comes out of the pockets
of the consumers, there is tremendous scope for long term health insurance provided by life insurance
companies", said Ms Shikha Sharma, Managing Director, ICICI Prudential Life Insurance Company.
Pension plans
The industry also sees itself as best suited to provide pension plans to all the sections of the society. "It has
become an increasingly attractive option with the current demographic scenario wherein the young
generation does not subscribe to provident funds", said Mr. Nandagopal, Chief Executive Officer, Reliance
Life Insurance.
According to the figures released by the Life Insurance Council, around 35 per cent of the new business
premium collected in 2007-08 was for pension plans.

Govt-run financial brands ’ve upper hand

FINANCIAL brands are built on the bedrock of trust and expertise. But with the US-led global financial meltdown spawning an undercurrent of fear and distrust among millions of investors, employees and consumers alike, brand experts say that government-run Indian financial brands like SBI and LIC seem to have an edge, as they are built on strong relationships and a trust that emanates from an implicit sovereign guarantee rather than a claimed ‘expertise’ that many of the (now failed or failing) marquee global names used to harp on. Says SBI Life Insurance MD Uday Shankar Roy: “Government funded financial institutions have always been criticised for being stringent with the regulations and investments. But, we must understand that ultra-modern risk-monitoring practices adopted in the West have failed miserably. Considering the present scenario, the central banking regulatory authority in India stands the strongest. The traditional monitoring and investment practices will certainly see an upswing now.”The meltdown will hit the sheen of western brands hard and a conscious move towards Indian brands will be
noticed among the Indian consumers. Says Ogilvy & Mather India country head (discovery & planning) Madhukar Sabnavis: “Trust is what business relationships in the East are built upon. Culturally, in India, as long as trust remains consumers are willing to live with business ups and downs and accept that as a part of life. Indians as a race is forgiving and hence the importance of trust.”
Public sector banks riding high on credibility have underscored robust growth in the recent times. According to the recent ET-Brand Finance India’s Top 50 Most Valuable (Company) Brands 2008 study, India’s largest bank State Bank of India emerged as the most valuable financial services brand value at Rs 16,595 crore. While Punjab National Bank’s brand valuation escalated by about Rs 570 crore in 2007-08, Bank of India has shown a growth of over 50% as against the previous year. In comparison, now bankrupt Lehman Brothers had shown a drop in its brand value in 2007 ($4 billion) from $4.4 billion in 2006, according to Brand Finance’s annual report on 500 most valuable global brands.
Given the volatility of global financial market and lessons learnt from the South-Asian crisis, subprime crisis and present meltdown, the ideology of safety and security have superseded the ‘cool image and dynamism’ plank. Brand experts across various sectors have echoed the strong sentiment of building relations as the essence of Indian business practices. Says Publicis Asia regional strategist Partha Sinha: “Indian financial brands are build on relationships whereas multi-national have always been expertise driven. But now this edifice of ‘expertise’ is coming unstuck.”
Even as the US suffers from major financial crisis, Tata AIG Life claims to be well capitalised and is confident of meeting stringent local regulatory and capital requirements. “Since the Tata Group holds major stake (74%) in the company, the credibility earned by the conglomerate shields Tata AIG Life from any immediate material impact,” says the company statement.
Future Brands CEO Santosh Desai feels: “Merrill Lynch, Lehman Brothers and too a certain extent AIG are not too big brands for an average Indian. Moreover, the credibility lend by the brand Tata maintains the faith among the stakeholders.”Financial institutions in India see a silver lining amidst the crisis. For instance, Reliance Money acknowledges this scenario as the right time for expansion in the international markets. Says Reliance Money CEO Sudeep Bandopadhyay: “With a century-old American banks collapsing, I think, it is a wonderful opportunity for Indian banks to go international with their intrinsic values. We also see it as a good time to acquire quality assets.”