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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Global bailout package nears USD 2 trillion

With financial institutions falling prey one after another to the global credit crisis, the bailout packages announced by various governments across the globe are inching towards two trillion-dollar mark -- an amount nearly double the size of Indian economy.
With the US Congress giving nod to USD 700-billion aid for troubled financial institutions in the country, the US government alone has announced a total package worth about 990 billion dollars.
Besides, a handful of European countries have already announced packages worth a similar amount in efforts to save their troubled financial entities.
There are expectations for more such instances of helping hands coming from the governments in Europe as the crisis is said to be fast spreading in the region after a full-blown blast in the US.
However, nothing of this sort is expected in India as the country and its financial institutions have remained mostly insulated from any direct impact of the crisis.
Still, the collective bailout packages in the US and Europe, currently at about 1.8 trillion dollars, could soon be double the size of one trillion-dollar Indian economy.
India's GDP is estimated at Rs 46,93,602 crore for the latest fiscal 2007-08, which stands at just over USD one trillion based on the current exchange rate of about Rs 46.8 to a dollar.
From America to Europe, the deepening financial turmoil has seen the fall of big names, especially in the banking industry, such as the bankruptcy of Lehman Brothers, firesale of Merrill Lynch to Bank of America and the extension of 85 billion-dollar lifeline to AIG

SBI mulling overseas acquisition, hints Bhatt

Amidst global financial distress, State Bank of India (SBI) has hinted that it is mulling overseas bank acquisition. SBI Chairman O P Bhatt today indicated that though there were no immediate plans, but the bank was definitely having a look at it.
"It (overseas acquisition) will be. There is no immediate target, there is no immediate plan, but we are thinking about it. We are looking more in terms of consolidation (overseas) where we have business. Increasingly, we are aligning our overseas operation with the Indian diaspora," Bhatt said.
However, Bhatt also stressed that the bank would continue to focus on expansion in the domestic market. "With the way India is growing, there are huge pockets of profitability across the country. There is a need to expand in the domestic market vigorously," he said, while addressing the first press meet after the merger of State Bank of Saurashtra with SBI. Commenting on the bank's exposure to Lehman Brothers, he said that it has fully provided for its $5 million exposure."We expect to recover 60-70 per cent of it (Lehman Brothers' exposure)," Bhatt said.
SBI, the largest lender in the country, has raised concerns about rising interest rates as it may lead to an increase in the non-performing assets (NPAs) of the banking sector.
"At the moment, we are not seeing large increases in NPAs, but we should be watchful of them," Bhatt added.
The bank is eying a credit growth of 24-25 per cent during 2008-09. "Credit growth continues to be relatively high compared with deposit growth in absolute terms," he said, pointing to tight liquidity conditions in the banking system.
Bhatt also said that he did not expect interest rates to fall in the immediate future.

Raghuram rajan panel want Smaller banks For India

THIS should sound sage advice in the aftermath of the Lehman collapse. The Raghuram Rajan panel has suggested that the Reserve Bank should consider entry of smaller players into the banking sector as failure of small banks will not have systemic consequence created by failure of a giant banking entity. There is no need to believe that smaller banks would fail and historical evidence is not relevant since the situation has changed.
The panel has suggested that the regulator should prescribe tighter capital adequacy and regulatory norms for smaller banks. The Rajan committee submitted its final report on financial sector reforms to the government this week. The panel urged the regulator to “allow more entry to private wellgoverned deposittaking small finance banks offsetting their higher risk from being geographically focused by requiring higher capital adequacy norms, a strict prohibition on related party transactions, and lower allowable concentration norms”.
This means that these banks, if allowed, would be entitled to advance a lower percentage of their deposits as advances in comparison to larger banks. Such norms would minimise the risk of any of the entities going bust, the panel feels.
The committee has also questioned the honesty of the large banks, saying there is “no necessary link between size and honesty, as the recent experience with large banks suggests”. It has, however, suggested that the regulator should be more selective and find “fit and proper” criteria for giving licenses to the smaller banks.
The intent behind the need of such banks is to bring local knowledge to the bankers so that they are able to take decisions quickly in conformity with their customers whom they would personally know. The entry of such financial entities would also help in achieving the government’s goal of financial inclusion.
The committee has clarified it does not recommend smaller banks based on earlier models where governance structure was poor, political and government interference was excessive, besides unwillingness to take corrective regulatory measures.

Ad Spending cut by 50 %

One of the worst global meltdowns in recent history is expected to immediately shortcircuit the advertising sector, as corporates continue to tighten their belt. The reverberating shockwaves have started making their presence felt, and corporates have cut back on their advertising and marketing spends, in some cases by almost 50%.
    While some advertising stalwarts insist it is too early to be overly concerned, others maintain that a recovery of the US economy should be under way mid next year or the advertising market could run out of gas.
“We believe structural headwinds (like fragmentation) remain as real in India as they are globally. The disconnect between the underlying economy and the ad market cannot continue indefinitely,’’ says Nakul Chopra, CEO, Publicis South Asia.
    “In the end,’’ he adds, “the whole marketing business is about funds and optimism. Corporates will hunker down for a brief period. Already, big clients have cut back their marketing spends by fairly large amounts in the US and Europe this year. This is bound to have a cascading effect in India.’’
    Adds ad guru Prahlad Kakkar, “Big financial brands going bellyup is bound to have a knock-on effect on consumer confidence and spending. Corporates have already cut down 50% of their ad spend, due to the oil crisis. The total advertising spend by major corporates is 6% of turnover. If inflation is 13%, where does that leave advertising?’’
    Maintaining that the economy has witnessed rising public spending and house prices, financial and business services, Kakkar adds, “Just as the boom has had a disproportionate effect on the economy, its suffering will have a similarly large impact.’’
    Executive chairman of O&M, Piyush Pandey, however, says, “We will have to wait for more from the markets before we start hitting the panic button. Corporates in India will definitely feel that US ripples, but it will reach them slowly. I don’t see any immediate impact. It all depends on how you play the game. One does need to be cautious though.’’

'India most attractive market for investment'

Black Monday's chilling global financial meltdown, despite the overall gloom and initial impact
on the stock markets, has a golden upside for India by helping renew its tarnished India shining story.
"There is no cause for panic as a result of this temporary movement in the capital market as FII's pull out
money to replenish their funds overseas. India will be the most attractive market for investment in the next
five years", says Dr Amit Mitra, secretary general, Ficci.
"FDI inflows will be unaffected as India is the market of the future. Since we do not allow full capital
account convertability, insecure investors cannot flee to other markets, which means we are well insulated
from this global financial shock", he says.
Agrees, C Banerjee, director general, CII. "India is a stable economy. FII outflow is just a temporary
phenomenon. It will come back in 3-4 months and India's growth story will be renewed," he says.
"Short term impact is expected, but I do not see long term impact allthough we are not decoupled from the
global economies", says Jairaj Purandare, leader-markets & industries, PricewaterhouseCoopers.
However, he does warn of weak sentiment affecting corporate results. "But India stands out as a more
attractive market in this crisis," he adds.