The Sensex, Nifty and the rupee fell to multi-week lows on Tuesday while the benchmark bond yield hit a six-week high after the DMK pulled out of the ruling UPA coalition, putting in doubt the fate of the government's reform agenda.Markets appeared to shrug off a decision by the Reserve Bank of India to cut the benchmark policy rate by 25 basis points and instead focused on its warning that the scope for further monetary easing was limited.How foreign investors react to the political and economic uncertainties will be key, especially at a time when global markets are under pressure from concerns sparked by a radical bailout plan for Cyprus.The BSE Sensex was down 1.1 per cent after earlier falling as much as 1.8 percent, the lowest since March 4.The rupee weakened to as much as 54.38 per dollar from its 54.1650/1750 close on Monday, and was trading at 54.33/34 as of 1:58 p.m.The 10-year bond yield was trading at 7.90 per cent, after swinging between a 6-week high of 7.93 basis points to an earlier session low of 7.84 percent. The yield had closed at 7.88 percent on Monday."The political development in India has taken centre stage and will have a negative impact," said Sameer Rehman, vice president of fixed income origination and syndication at TD Securities in London.The regional Dravida Munnetra Kazhagam (DMK) party withdrew from the ruling coalition in protest against the government's position on a United Nations resolution on war crimes carried out during Sri Lanka's civil war. That decision came at a time when markets were already flat to weaker after the RBI said "the headroom for further monetary easing remains quite limited" in its statement on Tuesday.The words reinforced market expectations the RBI will only cut interest rates by a further 25 or 50 bps in the new fiscal year starting in April.Whether foreign investors lose faith in Indian markets poses a key risk, given their strong purchases of stocks and debt last year helped contain the country's record current account deficit.Investors had hoped a combination of fiscal and economic reforms from the government, along with aggressive central bank rate cuts, would boost an economy set to grow at a decade low of around 5 percent in the fiscal year ending on March.India faces the prospect of a downgrade into the so-called "junk" debt from Standard & Poor's Ratings Services and Fitch RatingsThese domestic concerns are coming at a time when investors are also growing concerned about foreign flows after Cyprus is keeping risk assets under pressure.Foreign investors bought a net of around $31 billion in debt and FX markets last year, and around $12 billion so far this year, which were critical to help narrow down a deficit that is expected to widen to a record high in 2012/13."Because of the current account gap, we are reliant on flows. If the flows get truncated, it would be difficult. But I think it would be a knee-jerk reaction," said Sanjay Mathur, head of economics research, Asia-Pacific ex-Japan for RBS in Singapore.(Reuters)
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As a term ‘financial inclusion’ may have surfaced in business parlance only in the mid 2000s but the brickwork to what it represents was laid much earlier. Even as the government has adopted a benevolent attitude towards the MSME sector, the road to financial inclusion is fraught with challenges. Bearing this in mind, Dun & Bradstreet, a leading international provider of business information, in association with the State Bank Of India and Western Union Money Transfer organised a ‘Financial Inclusion Conclave’ on 12 March.. “ Financial inclusion has been accorded high importance to aid the inclusive growth process for any economy. In this regard, D&B India has undertaken various capacity building initiatives for Micro, Small & Medium enterprises and has conducted over 250 programs across different clusters. Through seminars such as the Financial Inclusion Conclave, D&B will continue to be committed to this sector and the development of MSMEs,” stated Byron C. Vielehr - President of D&B International and Global Operations, Dun & Bradstreet on this occasion. The conference witnessed participation from the Reserve Bank of India, policy makers, officials from private and public sector banks, policy regulators as well as microfinance institutions (MFIs). The conclave aimed to address the ways in which stakeholders co-exist to make the economy financially inclusive and effectively reach the bottom of the pyramid It was held in common consensus that financial literacy — in rural and urban India alike —is crucial for financial inclusion with many officials from across the banking sector proposing the introduction of financial concepts in school curricula. Towards the end of last year Canara Bank tied up with the Kendriya Vidyalaya Sangathan to provide financial literacy classes in higher classes. Many of the bank officers have been teaching such courses in vernacular languages to students of class 8, 9 and 10 in smaller cities across India. Since the idea of financial inclusion needs to go beyond an individual or family having a savings account in a bank, there is a greater need for developing financial products such as micro pension, micro insurance and low cost mutual funds, says R.K. Bansal, Executive Director of IDBI Bank. IBDI has 30,000 branches in rural areas. The role of Business correspondents (BCS) with respect to rural banking is key. Yet, even as they (or their field agents) form a key link between banks and the rural population, not many of them are equipped to handle the machine or technology — mobile payments, cash transfer and mobile wallet schemes —they use to carry out financial transactions. Therefore, investing in training BCs constitutes an important aspect of encouraging more people to utilise banking services, in particular. Moreover, the remunerations model for BSc operating in rural areas should not be target based to encourage more participation in remote areas. With respect to rural penetration, from the point of view of the banker, the commercial viability of setting up 25 per cent of their branches in areas with a population of less than 10,000 people — as per RBI guidelines —is doubtful. The development of low cost banking models to penetrate into tier 2, 4 and 5 cities in India comes with its fair share of infrastructural problems believes Kaushal Sampat, President & CEO – India, Dun & Bradstreet. Deepak Singhal, Regional Director, Reserve Bank of India upholds that financial inclusion needs to be based on the core principles of affordability, availability, reliability and awareness. “Financial Inclusion is based upon both supply and demand. By opening an account you can create supply but there has to be demand as well and that can only happen by increasing awareness,” he says. Even as a brick and mortar presence is important for banks in rural areas, Singhal is of the opinion that the focus should be on creating demand for banking services in the existing rural bank branches present in 36,000 Indian villages. One of the major guidelines for new (private) players vying for a banking licence is their plan for financial inclusion, Singhal reinforces. According to a study cited by T. K. A. Nair, Advisor to the Prime Minister of India, Government of India (during the conclave) there has been a steep 25 per cent decline in the number of self help groups (SHGs) working in India. Along with deceleration in private sector lending there has been a fall from 13.5 to 12.9 per cent in micro credit and a sharp decline in education loans from 18.7 to 12.2 percent in this 2 year period. “Financial Inclusion should not remain a buzz word it should form one of the core activities of the banks and other financial institution,” he says while emphasising on the need to re-examine the framework of financial inclusion. Micro RealitiesAs the managing director of a more than 20 year old NBFC working in the microfinance sector, Suresh Krishna, has worked his way into the interiors of Karnataka, Tamil Nadu and Maharashtra. Bengaluru based Grameen Financial Services (Grameen Koota) currently has a loan portfolio of Rs 500 crore and offers a n array of micro credit and micro insurance products. However, Krishna is of the opinion that regulations need to equip MFIs with banking capabilities as well. “Anybody can become a BC, except NBFCs. As MFIs we are already delivering credit. It is easy for us to add the savings account to our portfolio, as well and we can succeed as a commercially sustainable model. But today we are banned from doing so,” he laments. At present 70 per cent of the areas where MFIs have been able to make headway are located in the 5 states of Andhra Pradesh, Karnataka, Tamil Nadu, West Bengal and Maharashtra.Krishna also feels that there is no right incentive for people to work in remote areas. “The 10 per cent margin cap under which we are operating, as per the RBI (for MFIs with a portfolio of more than 100 crore) will drive MFIs to work only in dense, concentrated territories. This leads to exclusion and people will work only in urban areas,” he says. The regulatory framework also encourages MFIs to work with specified income groups: households with an annual income of less than Rs 60,000 in rural areas and those with an annual income of less than Rs 1.2 lakh in urban areas. “One of the main problems is how do we identify annual income? There may be declaration forms but also, what happens to families with an annual income of Rs 62 or 65,000. This again drives exclusion. Moreover, these figures may vary on a year to year basis depending on a number of factors: agricultural yield, the employee’s heath etc.,” Krishna argues.
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Investors in Singapore are concerned over the pending implementation of General Anti-Avoidance Rule (GAAR) and its impact on investments there, according to legal and tax executives.They said investors here were seeking more clarity on the GAAR at a seminar last night on the Indian Budget, 2013-14."While the deferment (of GAAR)...has definitely lifted market sentiment, the ambiguity regarding whether the GAAR framework would override the India-Singapore Double Taxation Avoidance Agreement (DTAA), has left our Singaporean clients in the lurch," said Shwetambari Rao, Partner at the Bangalore -based Krishnamurthy & Co.The investors including MNCs are concerned about the GAAR impacts on the investments, both those already committed and those to be made in the future, said Gagan Malik, Director, International Tax Services at Ernst & Young Solutions LLP in Singapore. The invested were concerned about " Grandparenting" or back dating the taxes, according to Malik.Experts said investors were monitoring the Vodafone case related to GAAR, where move to back-dating of taxes had made them "uncomfortable".The UK-based Vodafone was slapped with around $2 billion tax demand notice by Indian authorities for buying Hong Kong-based Hutchison's telecom business that involved substantial Indian assests.Aimed at preventing tax evaders from routing investments through low tax jurisdictions, GAAR rules have been criticised for being poorly drafted and causing widespread uncertainty for investors, said PricewaterhouseCoopers Services LLP.Presenting the Budget on February 28, Finance Minister P Chidambaram had said that the modified version of the GAAR provisions will come into effect from April 2016.A number of representations were received against GAAR provisions introduced in the last Budget. Following which the government had set up an expert committee under Parathasarthi Shome to give recommendations on these tax proposals."I propose to bring the modified provisions into effect from April 1, 2016," Chidambaram had said.Although the delay in GAAR implementation has brought some relief, investors would have to prepare their taxation system by 2015, which was not far away, said Krishnamurthy & Co's senior lawyer Rahul Singh Talwar.He said, however, that the Indian government was aware of the steps taken by Singapore to differentiate itself from tax havens and keep in mind the growing commercial relationship between the two countries.GAAR and its impact on the investments were some of the highlights of discussions at the three seminars on the Indian Budget held here this week, aiming to explain the benefits for foreign investments in India in the coming year.Among other things, the proposed infrastructure and residential spending, as proposed in the Budget, are expected to generate business opportunities for large scale material and equipment supplies which were not currently available in India, said S Narayan, Head of Research and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS) at the National University of Singapore. (PTI)
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Old age pension is likely to be linked with inflation index on the pattern of MNREGA besides being made universal by doing away with APL and BPL criteria, the government on 7 March' 2013 informed Rajya Sabha. The government is also contemplating amendments to other two pension schemes to make widows eligible for it at 18 years instead of present age cap of 40, and disabled with 40 per cent disability qualify for it instead of 80 per cent. "Government has reached a broad consensus on the issue after two rounds of talks with Pension Parishad. Elderly people from different states are staging dharna at Jantar Mantar for universalisation of pension scheme. The Prime Minister has asked me to talk to them...An agreement is likely in the next three to four months," Rural Development Minister Jairam Ramesh said.apl,bpl,government, Ramesh was responding to members' concern over dharna by the elderly people, who are demanding increase in the pension to Rs 2,000 a month from Rs 200 at present. Informing members that it will be made Rs 300 per month, Ramesh said, "I agree that today Rs 300 a month is nothing and it should be increased. It should be linked to inflation as in case of MNREGA. I will speak to the Finance Minister and Prime Minister," Ramesh said. He said the government was implementing three pension schemes at present -- Rs 200 a month for the elderly, Rs 300 a month for the widows and Rs 300 a month for the disabled -- and as a first step all these three should be made Rs 300 a month. "While the government spent Rs 8,400 crore in 2012-13 on pensions, it plans to spend Rs 9,400 crore in 2013-14," Ramesh said, regretting that barely four or five states like Odisha, Andhra Pradesh and Tamil Nadu were disbursing the pension amount every month while others distributed the same once in seven or eight months. "This is a very important issue ...pension distribution system needs to be changed," Ramesh stressed.(PTI)
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The deadline mandating Indian banks sign agreements to settle FX forward trades via Clearing Corporation of India Ltd (CCIL) has been removed for now, two sources with direct knowledge of the development told Reuters on Thursday.The Forex Dealers Association of India (FEDAI) informed banks and CCIL in a notification that a previous deadline of 31 March had been postponed, according to the two sources.Foreign lenders had been reluctant to sign up because of a lack of clarity on rules regarding defaults by a central counterparty and on single borrower limits.FEDAI's notification also said the body will announce a new implementation date along with revised instructions "in due course of time," the sources said. They declined to be identified as the statement was not made public.FEDAI officials were not immediately available for comments.(Reuters)
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In a major move aimed at reforming the global financial architecture, the BRICS finance ministers on Tuesday, 26 March 2013, agreed on the setting up of a development bank to fund infrastructure and development projects in the five-nation grouping of emerging powers."We are reporting to the Heads (of governments) that the BRICS bank is feasible and viable," Finance Minister P Chidambaram told PTI after a meeting with his counterparts from Brazil, Russsia, China and host South Africa in this port city ahead of the summit on Wednesday (27 March).The agreement came after weeks of negotiations among the five emerging economies in a move aimed at changing the rules of governance in global governance, especially the Bretton Woods institutios like the World Bank and International Monetary Fund.The summit formally opened tonight with a cultural programme and a dinner hosted by South African President Jacob Zuma but main discussions will be held tomorrow. A 'Durban Declaration' will be released at the end of the summit.Senior Indian negotiators have said that the BRICS bank initiative will be cleared at the level of the heads of government when the summit adopts the report of the finance ministers.Issues including capital, membership and governance still dog the BRICS bank over which a final document may get ready by next year. Still it may take years before it finally gets going, Indian sources said.Hailing the BRICS bank initiative, FICCI President Naina Lal Kidwai, who is leading the Indian delegation at the BRICS business forum, said first it will lead to credit enhancement as existing banks alone were not able to fund projects in the countries because of the tenure of the loans and deposits they have.The BRICS bank can also borrow from other banks to pitch in with the much-needed capital, she said.The BRICS bank will focus on funding infrastructure and development projects in the BRICS and other emerging economies and developing countries in a direct challenge to the way the World Bank and IMF do their business.However, Indian negotiators are also conscious of the fact that issues like capital, membership and governance are yet to be thrashed but before the summit can put a seal of approval on launching the BRICS bank.Discussions are on over the capital for the development bank, initially envisaged to be set up with a corpus of USD 50 billion, to be shared equally by the five members. Now Indians are a little cautious over the enthusiasm of Chinese to pick up higher stakes in the capital if some members find it difficult to come up with their share. The other issues are whether the membership should be confined to just the group's members are should it be open to including developed economies as members. Also whether the development bank should fund projects on differential rates of interest or whether it should be at the market rates to sustain itself as a viable unit in the long run.Also whether the bank should be on the lines of the Bretton Woods institutions like the World Bank and IMF but with no dominance to one country in the quota and voting rights, Indian sources said.The finance ministers would present the report for the heads of government (President Zuma of South Africa, Xi Jinping of China, Vladimir Putin of Russia and Dilma Rouseff of Brazil and Prime Minister Manmohan Singh) tomorrow who are expected to approve the roadmap for the creation of the bank.The final document on setting up the bank could be ready by next year and from then on it could take a few years to start operations of the bank.The setting up of the bank has been generally welcomed as a very important step which can address gaps and challenges in critical sectors. The public and private sectors in these countries could be expected to seize the opportunities and evolve collaborations at the level of group, bilateral as well as third country collaborations.The other major issue at the summit is the need for reforms of global governance architecture, including the international financial institutions. There is a feeling in the BRICS and developing countries that the global institutions are yet to reflect the changing global picture where the emerging economies are playing a larger role.Another agenda for the BRICS economies is to work with the international community in keeping the multilateral trading system stable, curb trade protectionism and push for a comprehensive and balanced outcome of the Doha round.(Agencies)
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Higher coupon rates and comfortable collateral cover are prompting affluent investors to invest in non-convertible debentures (NCD) of real estate companies.Wealth managers such as Karvy, India Infoline and Edelweiss, among others, are selling 'collateralised' real estate NCDs, which promise to pay 16 – 18 per cent per annum to investors, in large numbers.Each NCD offering has a size of 200-300 crore. In most cases, the threshold limit for investors starts at 10 lakh, and goes up to 1 crore. Sheth Developers, Kumar Housing, Lodha Developers and Wadhwan Group are among real estate companies that have issued NCDs over the past few months.NCDs are similar to bank fixed deposits in many ways. These securities are issued by companies for varying periods, often one to three years, and are listed on stock exchanges. However, most real-estate NCDs are not listed.“Real estate NCDs are quite safe for investors. The collateral kept to protect investors is as high as 2.5–3 times the money invested," said Sunil Mishra, CEO, Karvy Private Wealth.“Some of these issuances have a monthly pay-out option. The money raised via NCDs is only deployed at the project level; this product is used to raised funds for 2 – 3 years,” Mishra said.Funds mobilised from investors are deployed at the project level. Most NBFCs and wealth managers only agree to sell NCDs of builders with a track record of developing more than 5 lakh sq feet in a city. Most NCD issuers start the repayment of principal in 18-22 months time, wealth managers said.According to Raghvendra Nath, MD, Ladderup Wealth Management, the most comforting factor in real estate NCDs is that these are secured issuances. On the negative side, investors are taking a high risk exposure in the portfolio by investing in these NCDs, he said.Investors should understand real estate NCDs well before committing funds. They should understand the sector well and also companies (NCD issuers) in which they are investing.According to equity analysts, real estate is still a sector with no real “growth visibility”. In overall terms, real-estate developers may continue to face sluggish demand, high construction costs and liquidity pressures.
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Taxpayers having an annual income of over Rs 5 lakh will be required to file their returns in electronic form, a senior Finance Ministry official said on 5 March' 2013. Besides, the Finance Ministry is also making provisions for e-filing of Wealth Tax returns. "Income tax returns for the group above Rs 5 lakh, all such returns will be e-filed. This is a move towards using technology so that the interface between Assessing Officer and assessee is minimised," Revenue Secretary Sumit Bose said at a Ficci event here. The government had last year introduced the system of e-filing of Income tax returns for assessees with annual income of Rs 10 lakh and above. Section 14 of the Wealth-tax Act provides for furnishing of return of net wealth as on the valuation date in the prescribed form. At present, certain documents and reports are required to be furnished along with the return of net wealth under the provisions of Wealth-tax Act read with the provisions of Wealth-tax Rules. Sections 139C and 139D of the I-T Act contain provisions for facilitating filing of return of income in electronic form by certain class of income-tax assessees. "In order to facilitate electronic filing of annexure- less return of net wealth, it is proposed to insert new sections 14A and 14B in the Wealth-tax Act on similar lines... The amendments will take effect from June 1, 2013," said the Memorandum to the Finance Bill 2013. Bose further said the Income Tax Department is making all efforts to widen the tax base and is in the process of identifying PAN holders who have not filed returns. He said the tax department would be sending out second set of "polite letters" to 35,000 assessees.(PTI)
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Deutsche Bank has set a year-end target of 22,500 for Sensex, basing their target on the Finance Minister promise to reign in fiscal deficit, “economic pragmatism”, probable monetary easing, global growth recovery and turnaround in corporate earnings cycle.“Since September 2012, there have been a lot of policy-related initiatives – all hinting at growth. The government is hinting at a diesel price hike in a calibrated manner – and that too, in an election year. Such steps go a long way to increasing investor confidence,” said Abhay Laijawala, head of research at Deutsche Equities, on the sidelines of their investor meet.According to Laijawala, growth green-shoots (in private sector) will start coming out in the second half of this year. It will also re-start ‘stalled’ infrastructure projects. “A recovery in global growth will help our current account deficit in a big way. Expectations of a bounce-back in Chinese economy will help global markets in a big way,” he said.On the near-4 per cent fall in equities since February this year, Laijawala said, “The correction was primarily due to the outcome of Italian election and resurfacing US fiscal cliff situation. Also, the market had a significant rally prior to the correction in February.”Read Also: India Posts Biggest Gain In 3 Months Laijawala’s sectoral preferences include interest ‘rate sensitives’ like banks and automobiles, global plays like IT and metals and domestic plays like oil and gas.Deutsche expects the RBI to continue on the rate easing cycle and expects a further 75 bps cut in repo rate over the next few months.“A 5 per cent growth is hardly anything for India. I think the RBI will now show urgency to bring back growth. Growth will take precedence over inflation,” Laijawala said.Deutsche expects first level of earnings upgrades from June quarter onwards. The group is quite upbeat about budgetary proposals like the industrial corridor project, direct benefit transfer and development of rural infrastructure.Among infrastructure projects, brokers are placing a lot of hopes on Delhi Mumbai Industrial Corridor (DMIC), for which the government has committed additional funds on a need-basis.“Work is happening at a good pace on the DMIC stretch. It’ll be show-piece project for the country,” said Varun Goel, head of portfolio management at Karvy Stock Broking.Like Laijawala of Deutsche, Goel is also quite bullish about equities market. He expects market (Sensex) to touch 25,000 levels by end of this year.“We’re not expecting much downside from current levels. If we take a bad scenario, the market may consolidate at 5500-levels on the Nifty,” Goel said.Goel likes private sector banks, IT, pharmaceuticals and mid-cap FMCG companies; he prefers to stay away from infrastructure, metals and cement.“I’ve not idea about infrastructure; am not sure when the infra pack will start performing. Metals will continue to be at mercy of global events while cement companies will register low growth because of low demand and inadequate capacity utilisation,” Goel said.
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In an attempt to curb investment in gold, Finance Minister P Chidambaram on 28 February announced three measures to encourage the common man to invest in other avenues. The FM also introduced a surcharge of 10 per cent on persons with income above Rs 1 crore for a year. Further, While making Rajiv Gandhi Equity Saving Scheme (RGESS) more liberalised, Chidambaram also introduced inflation indexed bonds.In a move that will bring cheer to many prospective home-owners, Chidambaram also announced incentives for home loan borrowers. Chidambaram said that any person taking a first time home loan up to Rs 25 lakh during the financial year 2013-14 will be allowed an additional tax deduction of interest of up to Rs 1 lakh. A look at the impact of Union Budget 2013 on your personal finance.
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