Where are steel-baron Lakshmi Mittal’s younger brothers? After the merger of JSW Ispat with JSW Steel last month, the stake of Pramod and Vinod Mittal became insignificant in the joint entity. They are not visibly present in any other business also. After steering the erstwhile Ispat Industries for about 15 years, the Mittal brothers sold off a substantial portion of their shares to Sajjan Jindal-run JSW group in 2010. Later, JSW increased its holding to 46.75 per cent and finally by the beginning of June, Ispat was merged with JSW. Mittal brothers were on the board of the combined entity JSW Ispat before the merger. Pramod was the vice chairman. With the merger, their stake would have fallen to about 3 per cent. But with the brothers having been offloading their shares in the last few months, there is no clarity on their stake in JSW Steel. Also, they would have naturally lost their director roles after the merger, say market sources. Post-merger, Jindal family holds a little over 35 per cent stake in JSW Steel. The second largest shareholder Japan’s JFE Steel holds 14.92 per cent. Ispat’s major asset was a 3.3 million tonne a year integrated steel plant at Dolvi in Maharashtra. But it was struggling because of the expensive raw material purchases. Even JSW has failed to settle the issues at Dolvi and finally decided to merge for a cost saving of Rs 250 crore. nevin (dot) john (at) abp (dot) in
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Anyone can have an idea. Someone, in a remote corner of the world, might just have a solution to your problem. And If you are a conglomerate the size of the Tatas, chances are you might find the solution within your workforce itself. Based on this premise, Tata companies have been working on driving collaboration among group companies for some time now to propel innovation and facilitate cross-pollination of ideas. But the journey to innovation may have several learnings, hidden under several layers of information, as the Tata group is discovering. The group came up with the Tata Group Innovation Forum (TGIF). The objective of the forum was to facilitate specific innovation initiatives across Tata companies. The Tata Group Innovation Forum in turn has created vehicles like Tata Innoverse, a networking platform that functions as an innovation hub for all Tata companies and also honours innovations across companies under a platform called Tata Innovista. While there were a record number of entries across categories, and the premise that companies can benefit if they accept that they do not have all the answers was underlined, nearly 42 per cent of the solutions to business challenges posted on Tata Innoverse come from outside the concerned Tata company. There were other lessons as well. Take a look at three caselets. Collaborate To ConquerTanishq, the jewellery arm of Titan Industries wanted to ramp up capacity to make gold coins. One of the intermediate steps in this process is the removal of moisture from gold powder. It used to take the company 16 hours to remove moisture through the type of furnaces that were conventionally used in the gold industry. So to ramp up capacity, Tanishq had to either set up more furnaces or look for an alternative method. Tanishq posted this challenge on Tata Innoverse, the internal networking platform that functions as an innovation hub for all Tata companies. A manager at Tata Housing suggested that Titan could use the Fluid Bed Dryers (FBD) used in the pharmaceutical industry. Tanishq explored this solution and after few adaptations brought down the drying time from 16 hours to 1 hour. The Real Time ExperienceThe idea may be a great one, but it needs to work in market conditions as well. The Titan Eye Plus Vision Check, where consumers can get an online eye test done by themselves is one such example. Suggested by an employee at Tata Teleservices, Titan adopted the idea and also implemented it through its website that promotes their optical wear business. While the idea overall was a nice one and saved one the initial visit to an ophthalmologist, there were execution issues. Consumers cannot check their eyesight if they are in office, particularly if they are sitting in a cubicle. To take the online eye test, one has to be at a distance from the screen and the cubicle will be a barrier for that. Then, consumers cannot take the test alone as one needs to keep clicking the mouse to take the test ahead. So again a consumer cannot keep a distance from the screen and operate the mouse unless they have got really long hands. Unless, one has a wireless mouse or a motion controlled computer, that is. Morale Of The StoryInnovation itself may have no connection with employee morale to start with but getting your work showcased at a group level, does give a tremendous boost. Tata Innovista has a category called “Dare To Try” that “recognises and rewards most novel, daring and seriously attempted ideas that did not achieve the desired results”. One entry that won in the category in the past was from Rallis India, where the company tried unsuccessfully to prevent solidification of a herbicide that required heating to be used at the point of usage. This year, the same project won an award for product innovation as a Rallis India team innovated to produce the herbicide, Pedemethalin, in flakes instead of solid form requiring heating. The only difference was that the team that worked on the project this year was different from the team that had tried but failed last year. Would the fear of being upstaged by their peers prevent people from sharing failure stories in the future? Or does that affect the morale of the team that dared to try but did not succeed in the previous year? We do not know the answers. But that is another story. email: prasad (dot) sangameshwaran (at) abp (dot) inemail: alertprasad (at) gmail (dot) comTwitter: @alertprasad
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MNC centres in India are poised for significant growth in the coming decade. The number of Engineering R&D (ER&D), Software Product Development (SPD) and IT captive centers (a.k.a. Global In house Centres - GICs) of top 500 global companies have increased by over 500 per cent —from about 40 centres in 2000 to more than 200 in 2012. The new breed of MNC centres will become the partners of choice in delivering on the transformational initiatives of CIOs and CTOs. However, the journey towards becoming a true partner is ridden with challenges and they need a unique approach towards their 're'-growth.The charters of these centres have evolved dramatically over the last three years and today many of them are looked up to deliver on:Modern IT agenda of the CIOBuilding products in India for India or Emerging Markets Developing the blueprint of a shared services function for the corporateThe ChallengeWhile the MNC centres are starting to enjoy the new found attention, new challenges are beginning to crop up for them. The Talent ConundrumWith MNC centres moving up the value chain there is a need for HR departments to deal with a talent pool that is highly diverse in capability and relevance; resources who are predominantly focused on keeping the lights on part of technology services and a talent pool that is highly experienced, has niche skills and works on next generation technologies. The culture, conditions, processes and metrics needed to manage different ends of the spectrum of work are very different.It is difficult to create such mutually exclusive silos in a single container structure of a GIC.The Efficiency SqueezeOver the years, these centres have embarked upon a journey of consolidation and have demonstrated that they are operating at an optimal level of efficiency. Across the dimensions of cost, operations and productivity, the MNC centres are now comparable to the service providers. It has now become next to impossible to derive further efficiencies from the system for the premise they were set up.The only way that the MNC centres can derive further efficiencies is by making disruptive changes to their delivery models which will consume precious management bandwidth. Innovation ImperativeTo drive innovation, MNC centres need to be nimble and flexible in terms of resources. Also, they need to invest and build the necessary infrastructure back bone to support the innovation eco-system. Be it cross / up skilling their resources, building a development and test technology infrastructure, specialised labs, hiring great talent, partnering with the academia and service providers - all of this needs investments.In spite of these challenges, if MNC centres have to grow, I strongly feel that they should start evaluating themselves as a business in totality andhence adopt re-generation as a growth strategy.The SolutionRegeneration is an approach where in an entity willingly sheds a part of its organization only to regrow the same to perform a different function or the same function better. MNC centres'regeneration involves three key aspects:A thorough portfolio rationalization and franchisingService IntegrationTaking a co-creation based innovation approachPortfolio Rationalisation And FranchisingThis is the first step towards regeneration. MNC centres should look at the portfolio of activities that they are performing at the India center and ask a few critical questions:Are the centres'activities strategic to the enterprise?Are the skill sets that I have in my center sustainable and strategic?Are the systems and applications that am currently working on are part of CIO's strategy?Can I derive further efficiencies from the system?Will I compromise the total customer experience in terms by not working on these systems?If the answer is affirmative for most of the questions then the centre should look to engage with a service provider on a franchise model for that portfolio. The service providers have industrialised most of the IT services and hence they can deploy an efficient engine to deliver the portfolio in a factory model.This is not divesting / terminating a centre, instead this is a franchise approach for specific portfolio. In this model, the employees of the MNC centre involved in managing the portfolio typically get rebadged to the service provider whilst for rest of the centre it is business as usual. ANZ & Philips are some examples of this successful model.When Capgemini took up the testing services from ANZ, they could bring in best practices in terms of automation and process management which resulted in 20% productivity gains and increased the offshore leverage as well.Philips is another classic example where the application support and maintenance activities with about 700 resources was franchised to Wipro and Cognizant and the rest of the centres operations continue to function as business as usual. Service IntegrationThis could be the holy grail of command and control which the MNC centres in India have been searching for. While individual vendors could be achieving their respective SLAs, the overall quality of service gets affected as there is no integrated view of the service. In the service integration approach, the centre will have to create and deliver on the overarching OLAs (Operation Level Agreements) which tie up the SLAs (Service Level Agreements) of multiple vendors of a given service line. The job of the centre in such a support scenario is to act as a traffic controller, ensure that there are no log jams in service delivery and importantly take up accountability for the entire service. This can open up multiple possibilities in terms of providing career paths to senior resources within the centre , enabling panoramic view of the systems within the enterprise and also making the it a nerve center of IT. Co-creation Based Innovation ApproachCo-creation is an approach where in the customer and an IT service provider work jointly in developing solutions and services for the end consumer of IT services. In this approach, the customer brings in the contextual knowledge and business problem on to the table whereas the service provider brings in the accelerators, frameworks (technology and quality) and scale which are key components to the solution.The service providers are willing to make the initial investment required in terms of build / test infrastructure, deploying their key talent and providing market access to their customers. Engineering R&D centres that have become hubs for developing products and solutions for emerging markets can work collaboratively with the service providers in building solutions and importantly taking them to the market through co-creation. Distilled Gyan: Re-generation the way forward for India based GICsIn essence, for MNC centres to be relevant in the coming decade and to become a partner in the overall CIO and CTO strategy they need to re-imagine and re-invent themselves. The centres cannot afford to carry on what they have been doing over the last decade and continue to be relevant in the new scheme of things. The issues around talent management, efficiency improvement and driving innovation could potentially cripple and degenerate them into just another delivery center. Re-generation is a strategy whose time has come - all the necessary conditions for effecting the change are in place. According to the classic formula for change, the dissatisfaction amongst the MNC centres with regards to the current state of affairs is at an all-time high, the vision on where the centres want to be is emerging and is now clearer than ever and the first steps towards effecting a change have already been taken in terms of securing futuristic charters from CIOs and CTOs. This has made a definitive dent to the resistance to change. Re-generation is the way forward for MNC centres.The author is Manager-Consulting at Zinnov
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The Competition Commission of India (CCI), the competition watchdog established under the Competition Act, 2002 (as amended), commenced its journey on 20 May 2009 to establish a level-playing field for all participants in markets. Last month, the Commission celebrated its 4th anniversary which was widely covered in the press and media. In this four year period, the Commission has passed about 230 orders in respect of breaches arising out of Sections 3 and 4 of the Competition Act. The Commission imposed penalties in 19 cases upon defaulting companies. Barring a few minor penalty cases against companies, most of the cases involving large penalties are awaiting the final decision of the Competition Appellate Tribunal (COMPAT), the first statutory appellate authority.In view of the aforesaid backdrop, it would be interesting to examine a few important provisions of the Competition Act and assess the growth of trade-related competition in India. The preamble of the Act inter alia aims at protecting the interests of the consumers besides ensuring freedom of trade carried on by other participants in markets in India. Therefore, protection of consumer interest is one of the main objectives of the legislation. Presuming all orders of the CCI imposing penalties against various companies are upheld by the appellate authorities, even then the consumers in India are unlikely to be benefitted. In terms of Section 47 of the Competition Act, the penalties shall be deposited with the Consolidated Fund of India (CFI). However, the Competition Act does not state the mechanism or process of what would happen to such penalties once deposited with the CFI. It is also unclear as to how the custodian of the CFI would plough back the same in the market, thereby enhancing consumer welfare. The Government of India may have some concrete plan in this behalf but nothing is available in the public domain which will enable consumers in India to expect reduction of excessive charges on goods and services and thereby result in betterment of their livelihoods.Though the law provides for claims of compensation before COMPAT, including class actions subsequent to a final order of the authority, yet in the absence of procedural regulations /guidelines in this behalf, such right of follow-on actions by consumers seems to be a statutory right in vacuum. The challenges a consumer in India may face while claiming damages out of class action would be multifaceted. Very rarely do wholesalers and retailers in India issue formal cash memos to a buyer of any product and over the years such a malpractice has become customary. Consumers also avoid taking a formal cash memo thereby aiding and abetting distortion in the statutory process of collection of taxes by authorities in India. Suffice to say that in the absence of proper documentation of sale and purchase, no claim howsoever serious can be admitted before the authority much less payment made by the defaulting company to the consumers. The chronological analyses raise serious doubt in the minds of consumers as to whether or not this state-of-art enactment (as the Organisation for Economic Co-operation and Development pointed out in March 2008) would really benefit the general consumers and enhance the economic and market efficiencies in India. It is not out of place to highlight that the Commission has found a breach of the provisions of the Competition Act resulting in imposition of penalties in less than 8 per cent of the total cases filed before it. It may be argued by competition experts or micro-economists that the Commission has been overwhelmingly pro-industry and that the markets in India are already highly competitive. If this argument is held to be correct then India may not require rigorous implementation of competition law and the consumers are not affected by any business misconduct or market failure arising out of anti-competitive practices by companies. Is that really so? Or does the fault lie elsewhere which has not been properly scrutinised or attempted to be remedied in the first four years of the existence of this authority. It is a food for thought for all of us.The authors are members of the Competition/Antitrust Law Team of Khaitan & Co - national level full service Law Firm of India
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The legal world has, like every other, an ever changing flavour of the month. One that has endured is called Alternative Dispute Resolution. This means that if you had your butt kicked and need help, or if you want to kick butt, you don’t go to court: your go to a private dispenser of justice. Considering that the courts in India are frequently all that lies between you and your utter and irredeemable descent into anarchy, should you be paying the slightest attention to the idea that justice needs privatising? The answer is a lot more complicated than the question.So back to first principles: what is the case for using arbitration to settle disputes? If you ask a lawyer, you will hear variations of some of the following. It is cheaper because you don’t pay court fees; it is quicker because you get frequent dates of hearing at convenient times; you will; get better results because you can pick the right and relevant expert as an arbitrator; and finally, it’s simpler because formal court procedures and you don’t get stuck with a lot of procedural stuff. That is an impressive list. It’s also largely balderdash in the desi context!Why sayeth I? I am going to put my client’s money where my mouth is with five examples, all culled from my own law practice so each is true (if only because you can’t make this stuff up!). In arbitration under Indian law between a Telecom PSU and a service provider featuring a Rs 300-crore claim, we had one Supreme Court judge as arbitrator. Each party spentabout 30 lakh in fees but we had 60 sittings over half a decade and then the arbitrator died. It took all of 15 years to see the end of this one, in which time I went from being thebastavakeel(the bag carrier!) to the managing partner of a law firm! Here’s another case. In a Rs 20-crore arbitration under Indian law between a leading real estate developer and the owner of a commercial plot of land, we had three judges as arbitrators. Seven years and 40 hearings on, each party has spent Rs 20 lakh in costs, one judge becameincreasingly deaf and resigned and the saga continues. For my domestic arbitration case, I take you to a wildly exaggerated Rs 250-crore claim between an Indian and a European joint venture partner pertaining to a company with a capital of some 3 Crores!Over six years, the three judges had 103 sittings to get to the final arguments before award stage. At this point, they allowed an amendment which increased the claim to 450 Crores and the witness statement procedure started again. In this period, the arbitrators have accepted 1.5 Crores in fees and the client is the poorer by some 7 Crores in total litigation cost with no result in sight.As opposed to this, let me cite two international arbitrations. Ina Rs. 15 Crore claim between an Indian Internet company and a PE Fund under ICC rules, the Sri Lankan arbitrator decided the case in five months, taking eight continuous days to record all evidence and hear arguments. It cost the client Rs. One Crore but it recovered its claim within the year. Here’s another. Between an Indian and aBritish JV partners where Rs 50 Crores was demanded in compensation for breach of contract, a senior British lawyer acted as the arbitrator under UNICITRAL rulesand decided the case in 17 months holding only three sittings! It cost each party about 50 lakhs.The question that shakes us by the scruff of the neck is this: what makes arbitrations in India so difficult and tardy? After 33 years of law practices, I put it down to the 5 Great Paradigms of Desi Arbitration. Behold the tedium to disclose what everybody already knows!First up are the Wages of Buffalo Jurisprudence. You will find the foundation of this domestic school of jurisprudence explained in my book “Bullshit Quotient”. In essence, it means that if you wish to assert control over the village buffalo, you must grab it and take it home before the legal conflict begins. In any legal conflict, your first task is to go grab the property, withhold payment of what you owe, unreasonably invoke a bank guarantee if you have one, trespass into the disputed property and so forth. The main trick is to anticipate and pre-empt the opposition. Naturally, when this happens, the other guy goes to court and then you get yourself a first rate war for stay orders from which appeals lie and then appeals lie from appeals. By the time the warriors have stabilised the “interim situation”, some years have passed. This is when the parties heave a sigh, admit they can’t change the reality on the ground and start the arbitration. Shorn of the embellishments, the point is this: since our legal system works best for the guy who exhibits bad faith, arbitration is doomed to delay.Next up is the Indian Arbitrator Paradigm. In our low trust society, no one settles for less than a high court judge as an arbitrator, frequently three. That’s thrice the cost and thrice the logistic complexity. It does not help that these judges are trapped in the code of civil procedure mind set, meaning that the reasons that delay court proceedings also delay arbitrations. These judges are retired which means that they are on a leisurely (and lucrative) time-pass. The revenue stream is too attractive not to perpetuate, and the mind is too vanprastha oriented not to priorities family affairs and vacations over work. Indian judges’ start arbitration work after the Constitution of India thinks they are too old to administer justice! Given the years these things go on, you could be addressing a Teflon mind to which nothing sticks. Heavens help you if you find yourself confronting a Rogue Arbitrator, meaning not necessarily someone corrupt but someone with a great sense of self-worth, a natural tendencyto consider everyone else a fool and a mind that is slip sliding away. Indian law make him hard to remove and besides, the judiciary may not be too sympathetic to an attack on someone so accomplished in his declining years. Basically, he can go on forever, till death do you part.Third, there is the Indian lawyer paradigm. There are no specialist arbitration lawyers in India, meaning guys who won’t do something else even if they could. What the code of civil procedure does not protract, the priority given to court work does. Arbitration hearings are structured after court hours, on weekends, during vacations, after vacations. Variable fee structures are always a disincentive to quick disposal of cases. Since it is not the karmic burden of a defence lawyer to help the plaintiff, 50 per cent of the bar is always obstructive anyway so perhaps we should demand no more.That takes us to Paradigm Four: Indian legal costs. Indian High Court arbitrators charge in the ball park of Rs. 25,000 to 50,000 per sitting and sittings don’t lasts longer than 2 hrs. Given the retired status of the arbitrators, 25% of the time is spent in the tea-pakora-cookie breaks and another 25% in tedious renditions of hamarezamanemein stories. In that one hour, you have to find a way to achieve any result at all. I will tarry on the sense of entitlement. Everyone in the game demands luxury hotels, quality meals and first class facilities. If it’s an outstation visit, you can add super luxury suites, business class tickets and exotic Islay malts. The lawyers are no cheaper so you end up with a burn rate of 2 lakhs for a local brief, three times as much if the arbitration is out of station. The same guys will argue a case all day in a court without air conditioning and then eat a crappy dal fry with roti in the lawyer’s canteen on the normal working day. This brings us finally to the last of them: the Indian courts paradigm. It could be skulduggery - in which we as a nation so dearly love to believe - or it could be just a deteriorated mind but the quality of many arbitration awards is deeply suspect. So while we all want courts not to interfere with arbitration awards in theory, I for one am delighted that Indian courts are happy to do so because truly, arbitrators do some very strange things. Year after year, the scope of challenge to arbitration awards is widening as courts look at weirder and weirder awards. The upshot is that protracted arbitration hearings are followed by protracted court procedures. As often as not, the arbitration award is upturned meaning that you can now crank the circus up all over again.Where does that leave the incomprehensible idea that arbitrations work because they are cheaper and quicker? As a manic nationalist, it brings me no pleasure to say this but yes, arbitrations work on foreign shores. We have seen that foreign arbitrations are not cheap in rupee terms but they are quick. This is the best there is by way of alternative dispute resolution. The logistics are good (few hearings), Indian courts cannot by law interfere and enforcement is painless if enforced abroad. An arbitration award against a resident Indian is of course another kettle of aging sushi suffering a power cut in a Jaisalmer summer. The upshot of this is that if arbitrate you must, write a clause that takes you out of India. You can rely on Indian law – our law of contracts is okay – but you can’t have the arbitration in India using domestic retired judges. You also cannot run arbitration if there is no strong arbitration secretariat with clear rules overseeing the procedural side of things. For my money though, my firm doesn’t recommend inserting arbitration clauses in domestic contracts at all on the principle that the exotic buffet spreads and the single malts after the hearing are just fun and games on the way to a review of the entire arbitration by a court. For all its failings, it just makes sense to cut to the chase and go to court in the first place.(The author is managing partner of the Gurgaon-based corporate law firm N South. He is the author of “Winning Legal Wars” and “Bullshit Quotient: Decoding India’s corporate, social and legal Fine Print”. He can be contacted at rcd@nsouthlaw.com).
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The new Congress government in Karnataka lead by Chief Minister K Siddaramiah will shortly examine issuing fresh mining leases in the state. This was stated by the CM while addressing the CII's national council, which is meeting in Bangalore. In response to a question from Tata Steel Vice Chairman B Muthuraman, on whether the government would examine granting fresh mining leases, the CM responded: "We are working out all modalities (to examine grant of fresh leases). As you are aware, the state government has put a full stop to illegal mining and export of iron ore. There is a Supreme Court monitored CBI investigation which is going on with regard to illegal iron ore exports which have happened in the past."Earlier, the CM addressing CII's national council said his government was keen to enhance industrial growth in other Karnataka cities outside Bangalore including Belgaum, Hubli, Dharwad and Mysore. Pointing out that of Karnataka's GSDP (Gross State Domestic Product), 59 per cent of its revenues from services and just 25 per cent from manufacturing, Siddaramiah said his government was keen on encouraging the manufacturing sector. "We want Mysore to emerge as a manufacturing hub."Read Also: Karnataka Sees Only A Few Iron Ore Mines Resuming OpsRead Also: SC Keeps Bauxite Mining Ban, Eases Iron Ore CurbsResponding to another query of IT industry veteran and CMD of Happy Minds, Ashok Soota, the CM said all measures would be taken to address the concerns of the IT industry. "The state government will extend all co-operation to the IT sector and will address their concerns." email: venkatesha(dot)babu(at)abp(dot)inemail: venkatesha(at)gmail(dot)comTwitter: (at)venkateshababu
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Maruti Suzuki, India's largest car manufacturer, has recently concluded a survey with its dealers to assess the likely demand for a 660 cc car in the Indian market.The survey which spoke to a cross section of more than 200 of Maruti dealers concluded that the vehicle will be in demand only in rural India. Urban buyers/dealers were not enthused by the prospect of a 660cc petrol vehicle. Maruti conducted the survey 6 months ago, but dealers say it is yet to provide feedback on whether or not it has any plans to launch the car in India.Widely known as Kei or the ‘K’ cars in Japan, the 660cc engine petrol cars attract a lower tax of just 3 per cent — against 5 per cent for higher capacity cars — in the Japanese market to encourage use of smaller cars in the country. Cars such as Daihatsu Motor Co.'s Sonica, Suzuki's new Cervo and Mitsubishi's stylish i minicar come fitted with the 660cc engine in Japan.“The 660cc engine even if it is brought to India, will be modified in a vehicle in accordance with the Indian market,” says a dealer.For long, Maruti Suzuki has denied it plans to launch the 660cc cars in India, saying that such a project would be unviable in the country. Maruti's smallest car in India is the 800cc petrol Alto. “Even if the 660cc engine were brought to India, the price differential with the 800cc Alto possibly will not justify buyer interest in such a vehicle,” says a company official.Maruti incidentally has been struggling with a slowdown in the market, besides increasing competition from even fringe players like Renault and Honda, who have eaten into the market share of Maruti’s most successful models like the Swift Dzire and the Ertiga.swati(dot)garg(at)abp(dot)inms(dot)garg(dot)swati(at)gmailTwitter: (at)swatigarg
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Mahindra and Mahindra Financial Services’ (Mahindra Finance) decision not to press ahead with a banking licence is an indicator of the thorny path that lies ahead for such aspirants. In its statement filed with the Bombay Stock Exchange, the non-banking finance company said “its board has decided not to proceed with the application for a banking licence after reviewing the implications of the present guidelines issued by the Reserve Bank of India (RBI)”Among the sticking points cited by the NBFC are norms on the opening of branches and issues in compliance with reserve requirements -- the cash reserve ratio (CRR) and statutory liquidity ratio (SLR).Tough normsUnder the central bank’s guidelines for new bank licence applicants, 25 per cent of a new bank’s branches have to be in rural areas with populations under 10,000 and without existing banking services. The stipulation is to ensure the country’s unbanked areas are penetrated -- a stance articulated by then Finance Minister, Pranab Mukherjee, in the Union Budget for 2010-11 when he flagged off the need to have more new private banks.In its report on the trend and progress of banking in India (2011-12), the central bank says only one-fourth of agricultural credit reached small and marginal farmers. “Importantly, 13.6 per cent of it was absorbed by corporates, partnership firms and institutions engaged in agriculture,” it says. This is because banks feel it is safe to lend to the big fish within the priority sector pool. However, priority sector loans accounted for 50 per cent of the dud-loan mountain at the end of March 2012. So, it is going to be tough for new banks because the guidelines mandate they will have to open at least 25 per cent of their branches in unbanked rural areas.Mahindra Finance said under the new rules, it would have to convert each of its 670 branches into a bank branch over 18 months with 25 per cent in areas with population of under 10,000.A bigger headache is the norm on reserve requirements. Banks have to set aside 4 per cent of their deposits with the central bank; and invest 23 per cent more as SLR in government securities.“The regulations require that CRR and SLR norms will be applicable from inception, even though building of current account savings account will take some time for newly converted bank” Mahindra Finance said and added “this anomaly will impose an undue penalty on large asset financing NBFC.”In effect what it means is that it will take time for the NBFC to build up a low-cost deposit base to set aside for reserve requirements. It is unlikely the central bank will budge from its stand on the same, but the NBFC stated “if the guidelines are amended to permit co-existence of NBFC and bank in the same group or if concerns are addresses in some other manner, the company will be applying for the banking licence”.The norms will have a bearing on the kind of returns new aspirants will need to generate to justify the capital that needs to be pumped in. While the RBI has not mentioned the number of licences it will give out, the minimum capital needed is Rs 500 crore. The amount (about $93 million) is not high when compared to Malaysia’s benchmark of $618.8 million, Kuwait’s $257.3 million, Indonesia’s $331 million and Singapore’s $1,077.8 million, but you need deep pockets, nevertheless.The central bank’s deadline for submission of entries is July; among the aspirants are Shriram Finance, L&T Finance, Tata Capital, Aditya Birla Financial Services Group, Reliance Capital, Religare, Edelweiss and Bajaj Finance.raghu(dot)mohan(at)abp(dot)in
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