Business standard updates 26-4-2012

Cabinetto take up Bill on bankvoting rights



SANJEEB MUKHERJEE

New Delhi, 25 April

The Cabinet is likely to take up a Bill tomorrow to increase voting rights of stakeholders in banks. The development comes less than a week after Finance Minister Pranab Mukherjee exuded confidence that key financial sector reforms Bills would be legislated this year.

“The Cabinet may deliberate on the Banking Laws (Amendment) Bill 2011, on the basis of recommendations by the parliamentary standing committee on finance,” sources privy to the development told Business Standard.

The Banking Laws (Amend-ment) Bill, 2011, clubs various banking amendment Bills, including changes in the Banking Regulations Act, to increase the voting power of shareholders in banks.

According to the Bill, tabled in Parliament in 2011 and sent to the parliamentary panel, the voting power of stakeholders in nationalised banks would be capped at 10 per cent, against the current one per cent.

In private sector banks, the cap on voting rights of a single entity are scheduled to be increased in proportion to their stakes, against the current cap of 10 per cent of total voting rights.

However, the standing committee, headed by former finance minister Yashwant Sinha, recommended capping this right at 26 per cent. So, the Cabinet is likely to consider a cap of 26 per cent for private sector banks.

Last week, the finance minister had said in Washington, “On the legislative front, we have already committed the preliminary legislative process for the Pension Fund Regulatory Act, the Insurance Act and the Banking Amendment Act. These three Acts, I do hope, would get legislated this calendar year. If not in this Parliamentary session, then in the next.” His remarks followed Chief Economic Advisor Kaushik Basu claiming he had been misquoted as implying major economic reforms in India would have to wait till the 2014 Lok Sabha elections.

After Standard & Poor’s downgraded India’s rating on today, all eyes would now be on the government’s reforms programme.

For2011-12, while coal demand is estimated at 696 mt, only 554 mt is likely to be available

Decks cleared, CFAInstitute to expand in India



KALPANAPATHAK Mumbai, 25 April

As the nearly six-year-long battle between the US-based Chartered Financial Analyst (CFA) Institute and the All India Council for Technical Education (AICTE) has ended, the former plans to expand in India.

In an email statement to

Business Standard ,the institute said, “With the AICTE case behind us, we will explore more partnership and collaborations with universities and business schools in India. More than 200 scholarships a year will be offered in India.” At a hearing on April 17, AICTE declared that its executive committee had concluded that the existing AICTE Regulations do not apply to the CFA Programme.

This means CFA Institute can offer Indian test centres the same advanced schedule, and with the same certainty, as its other test centres worldwide. There were more than 20,400 exam registrations in India in 2011.

In 1997, it filed a case against Hyderabad-based Institute of Chartered Financial Analysts of India (ICFAI), which had launched its certification programme for financial analysts in 1985, over the use of CFA in its name.

In August 2006, the Delhi High Court issued an interim injunction asking ICFAI to drop the word CFA from its name by the end of May 2007.

In March 2007, ICFAI filed apetition in Gauhati High Court alleging AICTE and the University Grant’s Commission were not taking any action against the CFA institute for allegedly running "an unapproved technical programme in India”. The Gauhati HC directed AICTE to look into the matter, following which AICTE issued a regulation notice to CFA institute, asking it to cease operations with immediate effect.



EASIER NORMS ON ANVILFOR QUALIFIED FOREIGN INVESTORS

Sebi eyes greaterfund flows from abroad



SAMIE MODAK

Mumbai, 25 April

To improve the framework for qualified foreign investors (QFIs) and facilitate broad-based participation, the Securities and Exchange Board of India (Sebi) is working on large-scale changes to the framework notified earlier this year.

It has convened an informal forum with key market participants, such as custodians, qualified depository participants (QDPs), brokers and tax consultants. Representations on an ongoing basis have been made to Sebi and the finance ministry by various entities to iron out issues. Market players have also sought clarity on certain issues related to taxation and qualification of investors.

The market regulator, in January, had issued guidelines for direct entry of QFIs. However, flows have not started to come through this route, which experts say is due to lack of clarity on the subject.

According to sources, QDPs have strongly opposed the norm asking them to file tax returns on behalf of QFIs. They want Sebi to transfer the responsibility to QFIs themselves. By the current rules, QDPs are responsible for deduction of tax at source on profits or dividends or any other income made by QFI.

CR Sasikumar, managing director of SBI-SG Global Securities Services, said, “Sebi is clearing ways and removing bottlenecks to realise QFIs’ full potential and is supporting the QDPs with active discussions in various forums.” “A QDP is just apass-through, who would overlook the money entering and leaving Indian shores. Deducting tax is a huge responsibility to take for a small fee. It is a risk QDPs don’t want to take,” said Naresh Makhijani, partner, KPMG.

Another major move contemplated is to permit QFIs to place orders directly with a broker and take confirmation from custodians, as allowed in foreign institutional investor trades. The present rules require QFIs to place orders directly with QDPs, who are to process these through the broker. Also, the tax framework could be tweaked to bring it at par with those for non-resident Indians.

Another change discussed in recent meetings



PE firms notkeen to become ‘nominated investors’ forSMEs



MEHULSHAH & REGHU BALAKRISHNAN

Mumbai, 25 April

Private equity (PE) and venture capital (VC) firms are not keen to become “nominated investors” for firms planning to list on the exchanges for small and medium enterprises (SMEs).

Market regulator Securities and Exchange Board of India (Sebi) has allowed qualified institutional buyers (QIBs) and PE/VCs to become nominated investors for companies planning to list on an SME exchange.

The nominated investor enters into an agreement with the merchant banker to subscribe to the issue in case of under-subscription or to receive or deliver the specified shares in the market making process.

Market makers infuse liquidity in a stock by providing both bid and ask quotes. According to Sebi norms, merchant bankers are required to ensure compulsory market making in the SME counter through the stock brokers of the exchange for a minimum period of three years from the date of listing.

In case of firms listed on the SME exchange, market makers are allowed to buy from or sell to the nominated investors the required number of shares for market making. However, not many PE firms are willing to do this.

“PE & VC firms are essentially ‘pooled investments’, where the primary job of the general partner (GP) is that of a professional investment manager. The role of a nominated investor is to provide liquidity, a totally different paradigm within the overall market system of alternative exchanges,” said S M Sundaram, partner and chief financial officer at Baring Private Equity. “Unless generating returns to their investors explicitly includes such ‘market maker’ roles also as part of their investment management strategy, PE and VC funds may not just be uninterested in performing this role, but they may also not have the organisational capability to do that” he added.

Being a nominated investor for SMEs is not the investment thesis of PE/VC firms, experts say. “PE/VC firms don’t buy or sell shares on a daily basis. They don’t operate that way,” said Avinash Gupta, leader, financial advisory, Deloitte India.

“PE

E-insurance likely by June



NEHAPANDEYDEORAS

Amonth down the line, you may be holding insurance policies in electronic form. According to sector experts, the regulator is in the last lap of checking repositories preparedness and infrastructure, and is likely to allot licences by May-end or early June. Though e-policies will be available across life, health and motor insurance segments, the service will first start for life covers.

Experts say companies, such as ICICI Prudential Life Insurance and Birla SunLife Insurance are ready to launch. “Five to 10 insurance companies are ready for issuing einsurance,” says an industry official. “The rest may start by September.” The industry initially expects customer traction to be low. It sees two to five per cent of the new business premium in the electronic form in the first year of e-policy. This may increase to 10 to 15 per cent in the second year. “Policyholders will understand the ease of owning an epolicy and gravitate towards it once they own one,” feels K R Chandrasekaran, head (insurance and banking), CAMS, an insurance repository with NSDL, CDSL and Stockholding Corp. Insurance repositories, like share depositories or mutual fund transfer agencies, will hold e-policy records.

If you buy an e-policy and do not want to continue with it, you can convert it to paper, and vice versa, too.

How to buy an e-policy?

You can approach an insurer and ask it to issue an e-policy in your name, explains Chandrasekaran. The company will inform the repository, which, in turn, will call you and complete the know your customer (KYC) norms for an einsurance account (e-IA). Once the policy is issued, the insurer will share the details with the repository, who, in turn, will update it in your account. Then, you will be given a receipt with your transaction summary. Or, you open an e-IA and then buy a policy either online or offline. The repository service will be free of cost; the insurer will pay them. You will need your identity and address proof for KYC.

For policy conversion, you can open an account and send the policy conversion request and policy document alongwith the repository. Each e-IA will get a login ID and password to access one’s account and electronic policy details online on the repository’s website.

Benefits

Convenience, mainly. You can hold multiple policies in a single e-IA. You can access any of your policies at any time by logging on to the repository site. And, pay premium(s) online.

Also, a single KYC window means less paper work. If you want to make changes to your personal details, you cam change it in your e-IA with one request. The repository will inform all the companies with whom you hold electronic policies.

All policies can be serviced just by providing your e-IA by placing a request to your repository instead of visiting different insurers.

Buy e-policy either through insurer or by opening an e-insurance account