Business standard updates

Govtchecks into IFCI through backdoor

NSUNDARESHASUBRAMANIAN Mumbai, 17 October In an unprecedented move that is in contradiction with its drive towards divesting stakes in companies it owns, the central government today turned acquirer, gaining control over publicly listed institutional lender IFCI Ltd. The government used an option to convert debentures it had issued 11 years ago when IFCI was in financial trouble to acquire control over the lender. IFCI Ltd has issued 400 million shares worth ~400 crore to the Government of India, making it the largest shareholder in the company. “The Committee of Directors (constituted for the purpose of issue and allotment of equity shares on conversion of optionally convertible debentures held by the Government of India), at the meeting held on October 17 has allotted 400 million (40 crore) equity shares of the company at par i.e ~10 each to the Government of India,” the company said in a statement to the exchanges. The shares were issued on conversion of optionally convertible debentures totalling the same amount held by the government. Following this, the central government has become the largest shareholder in the company, with a holding of 35.15 per cent. The issue has expanded the equity base of the company, as total shares increased to 1.13 billion from 737 million earlier. This is likely to bring down the holdings of other shareholders substantially. For example, Life Insurance Corporation, which held 8.4 per cent before the issue, will see its holding down to 5.44 per cent. Similarly, PSU banks which held 5.97 per cent before the issue will now hold just 3.87 per cent. The dilution does not end here. In the second tranche, the government is likely to convert another ~523 crore worth of debentures into equity. “The second tranche of debentures worth ~523 crore will be converted as soon as the government gets the debenture certificates,” said an official familiar with the development. In August, the Union Cabinet approved conversion of ~923 crore of debentures held by it in IFCI into equity. The decision came after the privileges committee of the Rajya Sabha found irregularities in the appointment of chief executive Atul Rai and recommended a CBI inquiry. The committee also had expressed concern over the government’s apparent lack of control over an institution in which it had invested a substantial amount of money in the form of debt and grants. Some insiders also point out that Rais closeness to Comptroller and Auditor General of India Vinod Rai made him a soft target for vested interests. When the second tranche gets converted, the government holding will be 55.57 per cent. About 761,605 small investors own 33. 29 per cent. Some of them had resisted the move. Some even moved the Calcutta High Court, challenging the government decision. The court dismissed the petition yesterday. In the normal course, such acquisition of voting rights would have attracted provisions of the takeover code, which requires the acquirer to provide an exit option to minority shareholders in the form of an open offer. However, the government was spared even this burden after the market regulator granted a special exemption from making an open offer. On August 29, the management of IFCI had written to the Sebi expressing concern over the deal affecting the interests of minority investors. But Sebi brushed aside these concerns saying, “Since a substantial amount of public funds have been pumped into IFCI by Gol, the enhanced accountability will provide additional safeguard to the investment of public funds.” The takeover also puts a question mark over the future of the company’s mercurial CEO, Rai. The love-hate relationship between Rai, aformer Indian Economic Services officer and North Block was a trigger that led to this forced acquisition, say observers. Though, Rai was given a second term in office by the board earlier this year, it is not clear if the new owner would like to continue with him. Rai declined comment. IFCI shares gained 0.3 per cent to close at ~30 on the BSE. Aftergovernment As of June 2012 acquisition No. of % of No. of % of Name Shares* Holding Shares* Holding LICof India 61.9 8.40 61.9 5.44 PSU Bank 44.1 5.97 44.1 3.87 Nippon InvestmentAnd Finance Company 18.8 2.55 18.8 1.65 GICof India 16.5 2.24 16.5 1.45 Tourism Finance Corporation of India 15.6 2.12 15.6 1.37 Macquarie Bank 14.3 1.94 14.3 1.26 Oriental Insurance Company 10.2 1.39 10.2 0.90 Barclays Capital Mauritius 9.9 1.34 9.9 0.87 The Royal Bankof Scotland NV (London) Branch 9.7 1.31 9.7 0.85 Bakulesh Trambaklal 8.7 1.18 8.7 0.76 NewIndia Assurance Company 8.5 1.16 8.5 0.75 Total Outstanding shares 737.8 100.00 -GovernmentHolding - 400 35.15 Postissue total outstanding shares - 1,137.8 100.00 *in million; Data compiled by BS Research Bureau Source: Capitaline ABUYBACK? IFCI’s shareholders before and after the issue to government Centre is largest shareholder by converting first tranche of debentures

Minimum land need forSEZto be lowered

NIVEDITAMOOKERJI & SHARMISTHAMUKHERJEE New Delhi, 17 October Many key changes are in the works to change the contours of the Special Economic Zone (SEZ) policy and boost growth across these units. Following a discussion paper last November, the commerce ministry has prepared a draft SEZ policy, detailing revision in the minimum land requirement for these zones, easier contiguity norms, clarity in land sale and transfer, relocation of the zones, development of infrastructure, extending focus market schemes to these units and exit policy for developers and units, among others. Commerce Secretary S R Rao is slated to meet his counterpart in the Revenue Department, Sumit Bose, later this month to firm up the changes in the SEZ policy, it is learnt. The minimum land requirement for multi-product SEZs may be brought down to 250 hectares from 1,000 hectares now, while the maximum area would remain capped at 5,000 hectares, according to the draft policy that Business Standard has reviewed. For multi-services units, SEZ for a specific sector, port or airport, the ministry has proposed reducing the minimum size to 40 hectares from 100 now. In the case of north-eastern states, union territories and some hilly states, the minimum area requirement may be brought down to 50 hectares from the current 200. Reduction in the SEZ land requirement will come as a significant relief to developers. For IT SEZs, the minimum land requirement criterion of 10 hectares may be dropped, while enforcing the minimum built up area criteria. Also providing an exit route to developers, they could be allowed to sell after developing an IT SEZ. “Towards this end, sale of built up space to units by the developer may be permitted. To ensure that the incentive is utilized in the right earnest, such sale would be permitted only after the minimum built up area requirement is fulfilled by the developer.” Other changes may include those on the contiguity norms. For example, the contiguity between the processing and nonprocessing area may not be insisted upon. And national or state highways, railway lines, natural water bodies falling within an SEZ area may be addressed through suitable mechanisms, according to the draft policy. “Regulatory concerns from lack of physical contiguity could be addressed by way of additional entry/exit gates manned by SEZ personnel.” Also, the Board of Approval (BoA) will have the discretion to allow the developer to suitably address lack of contiguity and relax the strict contiguity requirements through innovations implemented at the expense of the developer, while not compromising the regulatory concerns, it says. The revised policy also aims to give clarity on sale and transfer of land in SEZs, besides pointing at the need for focus market scheme and infrastructure development funds for these units. In addition, the draft policy talks of popularizing SEZs among the Indian diaspora through embassies, consulates and road shows abroad to attract FDI. SEZ rules allow 100 per cent FDI through the automatic route. Vikram Bapat, executive director at PricewaterhouseCoopers (PwC), told Business Standard that there were some practical problems in the SEZ policy and that changes were required. WHAT THE NEW SEZPOLICYMAY PROPOSE |Lower minimum area of land required for multi-product SEZs to 250 hectares from 1,000; multi-service, sectorspecific units, airports and ports to 40 hectares from 100 |Define contiguity as land connected without a break, within a common boundary |Divisions due to highways, railway lines, natural water bodies falling within an SEZ area, which can be addressed through suitable mechanisms, should not constitute a break in land contiguity |Permit sale of built-up space to units after the minimum area requirement is fulfilled |Permit no transaction that is merely a sale of land or even amounts to a sale of land

RBI tweaks priority sector lending norms

BS REPORTER, Mumbai, 17 October Heeding the demand of bankers, the Reserve Bank of India today revised priority sector lending norms. Loans up to ~2 crore to companies involved in farming and allied activities will be treated as lending for direct agriculture under priority sector lending (PSL) status. Also, credit to housing finance companies for onward lending for rehabilitation of slum dwellers and economically weaker sections will enjoy PSL status. The cap on such loans will be ~10 lakh per borrower. The limit on loans to SMEs in services sector under PSL stands doubled to ~2 crore. RBI said the eligibility under PSL (for HFC exposure) is capped at five per cent of total priority sector lending. The maturity of bank loans should be coterminous with average maturity of loans given by housing finance companies. Banks should maintain necessary borrowerwise details of underlying portfolio. In July, bankers had raised certain concerns over revised PSL guidelines. Later, RBI had discussions with CMD/CEOs of select banks and officers in-charge of PSL. In the earlier guidelines issued in July, the central bank had completely taken out loans to HFCs from priority sector lending. The decision was criticised by the stakeholders, including the chairman of India’s largest HFC, HDFC, and Deepak Parekh. RV Verma, chairman, National Housing Bank, said, “The relaxed norms gives enough space to HFCs to borrow from banks, and the five per cent cap on loans to HFCs is reasonable. HFCs resource position would be improved. They can get more funds from banks at lesser costs, as it will be classified as priority sector loans.” Referring to funding to companies for agriculture operations, the banking regulator said the short-term loans for raising crops and for pre and post-harvest would be eligible for PSL status. Earlier, loans given only to individual farmers up to ~25 lakh were classified as priority sector lending. RBI has also doubled the limit of bank loans to ~10 lakh per dwelling unit for any government agency which would constructs the houses under slum rehabilitation. PSLGAINS |Loans to HFCs for low-cost housing to get PSL status |Loans up to ~2 cr to companies in farming will amount to lending to direct agriculture |Entire agri loan with limit above ~2 crore to be indirect finance to farming |Credit to services sector SMEs for PSL status doubled to ~2 cr Corporate agri loans up to ~2 cr to be treated as direct exposure; PSL status for low-cost housing credit to HFCs

‘Avoid litigation with creditrating agencies’

BS REPORTER Mumbai, 17 October Securities and Exchange Board of India (Sebi) Chairman U K Sinha today asked companies raising capital from the public to be transparent, adhere to norms and avoid litigation with credit rating agencies. “My message to corporates is they should be willing to follow the rules if they are raising money from the public or any institution, rather than be upset if something has been changed,” Sinha said on the sidelines of the India Securitisation Summit. When asked about companies dragging credit rating agencies to court, he said, “I think good sense will prevail upon the companies. I am also sure all courts in the country are aware if Sebi is regulating a particular industry or particular instrument is being looked at by Sebi…they will let the due process prevail, rather than come in the way of this.” Yesterday, Sebi officials held ameeting with officials from credit rating agencies. At the meeting, various issues, including litigation from some companies, were discussed. While Sebi asked the agencies to ensure their rating methodology was “sacrosanct”, the agencies expressed concern on litigation and the fact that some companies didn’t share complete information with them. Recently, Kolkata-based Srei Infrastructure Finance had moved the Calcutta High Court after rating agency India Ratings & Research, formerly Fitch Ratings India, cut its rating. Srei also terminated its contract with the rating agency. “It is for regulators to protect the interests of investors and ensure rating agencies are able to express their opinion in a free manner,” said Atul Joshi, managing director and chief executive, India Ratings. Sinha said after wide consultations, Sebi might look at revising the guidelines for credit rating agencies. “After yesterday’s dialogue with rating agencies, Sebi would engage all entities in the chain and try to improve the system,” he said, adding, “Our aim will not only be to help the industry, but also ensure investors’ interest is taken care of.” The Sebi chief also highlighted a few procedural hurdles regarding rating companies’ financial instruments, such as bank loans. “There are issues. For example, how does one recognise and ensure information flow when a company has defaulted to a bank, even for a single day?” he asked. “As a rating agency, it is their duty to inform the public about a change in the status of a company or an instrument they have rated.” Sebi chief tells India Inc to be transparent, adhere to norms >“Mymessage to corporates is theyshould be willing to follow the rules if theyare raising moneyfrom the public orany institution, ratherthan being upset if something has been changed” >“Sebi would engage all entities in the chain and tryto improve the system…Ouraim will not onlybe to help the industry, but also ensure investors’ interest is taken care of” UKSINHA, Chairman, Sebi

Don’tpanic when a firm defaults TANIAKISHORE JALEEL Shareholders of Suzlon would be a worried lot after the wind-turbine maker announced it was to default on redemption of $200 million of foreign currency convertible bonds (FCCBs). But is the concern unwarranted? In the past, companies like Wockhardt have faced similar situations but recovered sharply. When companies issued FCCBs during the 2006-08 boom, it seemed a good idea. The rupee was at 40-to-thedollar levels and the Sensex around 20,000. The steep drop in the value of the rupee against the dollar over the past two years has exacerbated the problem. “The result is many FCCB issuers may have trouble finding funds to repay bondholders. Those who can’t will face payment default,” said a Standard & Poor’s (S&P) report. Some of the companies, which have their FCCBs up for conversion in the remainder of 2012, include Pidilite Industries, Prime Focus, GTL Infrastructure and GV Films. Marketmen are of the view that investors should not press the panic button yet. Arun Kejriwal of Kejriwal Research and Investment Services says one should look at the difference between the conversion price and the current share price. “If the conversion price is higher by 30-50 per cent, then the chances of a turnaround of the shares could be less. One should exit such companies completely,” he says. If the conversion price is slightly higher or is the same as the current market price, then one need not worry. However, new investors should avoid companies with FCCBs coming up for conversion any time soon, says Kejriwal. Financial advisors say even if one were to exit, there could be opportunities to re-enter the scrip later. V K Sharma, business head, private broking and wealth management, HDFC Securities, says, “Once there are signs of a turnaround by these companies and there is more clarity with regard to the FCCB situation, one can enter the scrip again. Entering these stocks at a lower level can help make profits in the long run.” There are other companies likely to default as well. According to a research report issued by S&P in June, of the 48 companies which have their FCCBs coming up for conversion in the rest of 2012, half could default. The report says investors do not want to convert the $5 billion in FCCBs into stock worth 20-90 per cent less than the conversion price. Companies such as Zenith Infotech and Sterling Biotech have defaulted on payments to bondholders. In such a case, bondholders have the option to take the company to court if they fail to pay and request that it be wound up. FCCBs could burden some companies, but that will depend on the company, its rating and the industry it belongs to. For example, Wockhardt defaulted on FCCB payments in 2009, following which the bondholders filed a windingup plea in court. At that point its share traded at ~67. But now, the company is almost done paying off the bondholders, is planning to repay its bank loans and has seen an improvement in its profits. Its shares are trading at ~1,470 as of today. JSW Steel redeemed its FCCBs at a much higher price. The conversion price of ~953.4 was almost 30 per cent higher than the price as on the date of conversion, which was ~669. But its shares are trading higher now. Its current market price is ~724.8. Though the company’s balance sheet did take a hit, it is not a big concern, say analysts. One should also look at performance. “Look at the top line and the profit over the last year. Also, check the company’s ability to refinance,” says Sharma. Ideally, one should start analysing the scrip a year before the date of conversion and not wait for the eventuality to happen and then decide whether to sell. You should keep track of the date when the FCCB would be up for conversion, Sharma adds. In the case of Suzlon, brokerages have a ‘hold’ view, as there are chances of a turnaround if the company comes up with a plan to get itself out of its financial mess. Manish Sonthalia, vice-president and fund manager, Motilal Oswal AMC, says in the long run things could turn around for the company, though it will still be a risky proposition for most small investors. In cases like Suzlon, the decision to exit should depend on whether you are sitting on profits or losses Price setfor conversion Price on *Current attime of date of market Company issuance (~) conversion (~) price (~) JSWSteel 953.4 669 746.85 Tata Motors 181.4 236.65 262.30 Suzlon Energy 97.3 16.20 15.70 GTLInfrastructure 53 - 8.58 Karuturi Global 19 - 4.46 Easun Reyrolle 315 - 73.75 Sterling Biotech 163 8.10 6.12 *FCCBs already reached maturity Source: S&P Report & BS Research Bureau DON’T FORGET THE REALITYCHECK Good credit score doesn’t mean cheaper loans PRIYANAIR If you have a good credit score from a credit bureau, don’t think you might get a loan at a lower rate. But you could get it faster and with fewer checks. Process differentiation is the first advantage customers can look forward to as a result of their good credit scores. Next could be the rate differential, which might take some time, says Mohan Jayaraman managing director (MD), Experian Credit Information Company of India. A credit score is a number indicating the borrower’s potential to repay and chances of default. It indicates creditworthiness of the person. Banks and lenders now increasingly rely on credit scores to decide if a loan should be approved. Usually, the higher your score, the better the chances of your application getting approved. Explaining why banks are not yet offering lower rates for customers with good credit scores, Jayaraman says for Indian banks, consumer lending segment is a fairly low-margin business. So, their aim would be to keep margins steady. But several banks have simplified the process for customers with better scores. For example, for a customer with a good score, the bank might do away with multiple field investigations. If normally, a bank conducts two field investigations before approving a loan, in this case it could be just one. Also, the turnaround for approving the loan could be faster. For instance, a day or two. For others, it might take up to a week. Unsecured loans, such as personal loans, is where the differential, especially the rate differential is likely to be seen before other segments, since the margins are higher. In personal loans, some banks offer better deals for customers of a particular profile, such as those working in a particular company and who could have their salary accounts with the bank. Or customers who already have a relationship with the bank. Eventually, the credit score will be a new segment for banks to approve the loan. “For instance, banks will say that borrowers in certain bands will get better scores, says Jayaraman. According to Prashant Joshi, MD and head of private business clients, India, Deutsche Bank, a good credit score does help reduce the turnaround for approving a loan, more so in the case of unsecured loans. In the case of secured loans, such as home loan, a bank will need to conduct property verification, which might take time. For a customer to get the benefit of a better rate in line with a superior credit score, the score needs to stabilise over a period, say three to five years. Only then will it be possible for banks to offer risk-based pricing, he says. Shyamal Saxena, general manager, retail banking products, Standard Chartered Bank, says the market will eventually evolve to pricing differential based on credit scores. As of now, for a customer with a good score, banks might do fewer verification. "The retail credit penetration in India is still very low and there are a large number of customers for whom banks will conduct extra verification, he says. Customers can know their individual scores by accessing their individual credit report from bureaus. Most charge between ~100-150 for this.

Business standard updates

RBI to setaside funds forbuying illiquid gilts

BS REPORTER Mumbai, 16 October The Reserve Bank of India (RBI) is working with the government to set aside funds for buying illiquid gilts from the market. “Over a period of time we will have some budget where we will try to repair some of those securities in which volumes are low, and create volumes for those securities which have higher volumes,” said Harun Rashid Khan, deputy governor, RBI, on the sidelines of a banking summit organised by the Financial Times -YES Bank on Tuesday. According to Khan, there is a joint group between the RBI and the government where this has been discussed under cash and debt management. But it is difficult to say if immediately they will be in a position to do so, said Khan. Experts say this move should come in when liquidity tightens in the system. “In a scenario of tight liquidity, the RBI can announce this. If this happens, it will pump in liquidity into the system, and gilt yields will also fall,” said N S Venkatesh, chief general manager and head of treasury, IDBI Bank. This move will also help banks to get rid of illiquid securities. “Banks hold a lot of illiquid securities. The difference between the yield of liquid and illiquid securities of same maturity tenure is about 10-15 basis points. If these illiquid securities are bought by the RBI, the yield curve will get realigned,” said Debendra Kumar Dash, assistant vice-president (money markets) at Development Credit Bank. Khan says the fiscal deficit is a major concern and it should be handled by the government and the political system. “Fiscal deficit needed to be brought under control,” he said. The fiscal deficit for the current fiscal is budgeted at 5.1 per cent of the gross domestic product (GDP). However, many economists expect it will be higher than the budgeted estimate. “As we have articulated time and again, monetary policy has to be in tandem with the fiscal policy,” said Khan. It has to be a joint venture, not a solo play, according to Khan. “Fiscal deficit is a major concern in the macroeconomic scenario; so, that has to be handled. Supply-side response is also needed for inflation management,” said Khan. The rupee has been volatile against the dollar in the last oneand-a-half years. Khan assures if there is extreme volatility the RBI would intervene in the market. Khan is also of the view that Quantitative Easing 3 (QE3) is like adouble-edged weapon, and, hence, its impact needs to be balanced. It may put pressure on commodity prices. Experts say move should come when liquidity in system tightens BIG BOOST |RBI working with govt to set aside funds for buying illiquid gilts |Discussions between RBI and government under cash and debt management |Move to boost liquidity and will help banks get rid of illiquid papers |It will also help to bring down gilt yields

Land Bill comes to Cabinetin two weeks

BS REPORTER New Delhi, 16 October The group of ministers (GoM) on the land acquisition Bill today agreed to present the draft legislation before the Cabinet in two weeks. The GoM would go through some consultation and tying up of loose ends at ameeting this week between Rural Development Minister Jairam Ramesh and Agriculture Minister Sharad Pawar, who is also the GoM chairman. The minutes of the GoM would be released and views of all members will be taken. A meeting this week would finalise the draft, Pawar said after the meeting. He said there was no unanimity yet but the issues would be sorted. Ramesh called the Bill a progressive one at this stage and said there was general agreement on most issues, with just minor changes remaining to be done. One major difference of opinion was over acquisition for private projects meant for public purposes and for public-private partnerships. While the original draft wanted consent of 80 per cent of landowners before any acquisition, today it was decided to stick to consent of two-thirds. There was overwhelming consensus for a two-thirds consent, a minister said. Defence Minister A K Antony had in the last GoM expressed reservation against acquisition for any private project. He did not attend the GoM today. The ministers have also broadly agreed on the issue of when the new law would be effective. Finance Minister PChidambaram pointed out at the GoM that two laws should not be in operation simultaneously. So, it was decided to have a cut-off for the Land Acquisition Act to lapse and the new law to kick in, a member of the GoM said. The date would be decided at the Pawar-Ramesh meeting. The Bill would now no longer be effective in a retrospective way except from the cut-off date, sources said. Another important decision taken today was that the SEZ Act and two defence Acts —Cantonments Act and Works of Defence Act — mentioned in the draft Bill would come under the new law as soon as it came into force. At the same time, the remaining 13 central laws concerning land acquisition would be required to be at par with the relief and rehabilitation clauses of the new law within one or two years of its coming into force. A clause that again has been accepted by all concerned was regarding the acquisition of land in Scheduled V and VI areas. There was opposition initially to the requirement to seek approval of local bodies and the gram sabhas for this. Now it has been unanimously agreed to make it mandatory to get the approval of gram sabhas before any land is acquired, sources in the GoM said. The clauses pertaining to scheduled areas ensure that as far as possible, no acquisition will be made in these. And, where it is done, it must be only as a demonstrable last resort. The approval of the gram sabha and other local bodies would be required for such acquisitions. There was also agreement regarding retaining the compensation package. Compensation would comprise market rates in urban areas and twice the market rate up to 20 km. The decision in this matter was left to states. General agreement on most clauses; GoM to finalise loose ends in a few days HIGHLIGHTS OF THE DRAFT BILL |Consent of 2/3rd of owners needed for acquisition of land for private projects and PPP |Acquisition in scheduled areas with approval of gram sabha |R and R to be completed before six months of submergence in i rrigation projects |R&R to be completed before possession of other projects |Market rates in urban areas as compensation |Cutoff date to be decided when old Act would lapse and new Act would be effective |No clause on retrospective effect |SEZ Act not exempt, other central Acts to comply with R&R clause in two years According to the new agreement, compensation for the land will comprise market rates in urban areas and twice the market rate up to 20 km. The decision in this matter is left to states

Nationwide Aadhaar-based paymentlaunch on Saturday

SANTOSH TIWARI New Delhi, 16 October About two years after the allotment of the first set of Aadhaar numbers in September 2010, Prime Minister Manmohan Singh is slated to announce the national launch of a payment system based on these numbers. The function is at Jaipur on Saturday, with United Progressive Alliance (UPA) Chairperson Sonia Gandhi present. A senior government official in the know of the preparations told Business Standard the PM would also hand over the 210 millionth Aadhaar number. And, that Aadhaar-based pilot projects across the country would be connected through video conferencing. The Aadhaar-based system would be launched simultaneously at all these places, the official said. The official said the pilot projects were in Andhra Pradesh covering the Public Distribution System, in Maharashtra for pensions, in Mysore for cooking gas distribution and in Jharkhand for Mahatma Gandhi National Rural Employment Guarantee Scheme payments, beside other payments. The PM has already outlined a national architecture for Aadhaarbased payments. The government expects with the enrollment expansion and creation of the national system, it would spread speedily. On September 29, 2010, Prime Minister Singh and Gandhi together had inaugurated the rolling out of the project for providing unique identification Aadhaar numbers for all citizens, handing over the first set to 10 tribals in Tembhli, Maharashtra. The project, for targeting subsidies and entitlements to the real beneficiaries, has since passed through tumultuous phases with even opposition from the ministries of home and finance. However, The Unique Identification Authority of India (UIDAI) officials handling the project, led by chairman Nandan Nilekani, are confident the controversies and problems have been left behind and the assigned enrolment of the entire population with the National Population Registry (NPR) work would be completed by next year. The Union cabinet in January this year cleared a roadmap for coverage of Aadhaar numbers by allowing UIDAI to enroll 400 million additional people, over its earlier mandate of 200 million, in 16 states. The rest of the country would be covered by the NPR project of the home ministry. An Aadhaar-based payment system for subsidies and entitlements under various government schemes through the online biometric identification process is being seen as a major tool to reduce leakages in the payments, of ~2 lakh crore subsidy and ~1 lakh crore of entitlements in ayear. The scheme is being envisaged to cover all government payments for beneficiariesfor both central and state schemes. Prime Minister Manmohan Singh

E-governance initiatives boostcivic life in Bangalore PRAVEEN BOSE Bangalore, 16 October Sarat from Bangalore has not been able to find time to pick up his ration card. But, he keep getting SMSes from the department concerned reminding him to do so. Jumped a traffic signal? You can check if you have any traffic violation case pending against you on the BangaloreOne website. If you discover that you do, you can make an online fine payment. There is no chance of paying a smaller bribe to a traffic constable and getting away with it this time. While Karnataka has been embroiled in some of the biggest corruption scams in the country— such as the mining debacle in Bellary — a wave of internet-based initiatives is succeeding in adding some lustre to state’s reputation for good governance. Wave of initiatives Sakala, BangaloreOne, Bhoomi, and Nemmadi are all e-governance initiatives spearheaded by the Karnataka government that have slowly begun to change the nature of transparency and governance in the state, and are beginning to make an impact on ordinary citizens. “E-procurement and e-tender have cut out political interference in the procurement process and there’s no intervention from MLAs that used to be seen earlier. This should ensure better quality of public works,” said I S N Prasad, principal secretary, information technology, bio-technology and science & technology, Karnataka. There’s a sense of urgency on the corridors of power and government offices today. Not long ago, people habitually chased officials and files. Now, it’s the other way around, with officials chasing people. Sakala, or the Karnataka Guarantee of Services to Citizens Act (2011), which was kick-started in April this year, has begun to check corruption and harassment of citizens by officials across departments, and has even managed to root out touts outside government offices who promise to get your job done for you for a fee. Since its inception, the Sakala helpline has received over 100,000 queries. You can call to find out the procedural queries or delay in the delivery of services of the government under the Sakala scheme. Here’s how it works: Whenever arequest for a particular service is made under Sakala, the applicant first receives an acknowledgement slip with a unique number. This ensures that the request for service will be processed within specified period. Sakala currently takes care of 151 services of 11 departments. Just last month, the government decided to add 118 new services to its existing ones. Transparency and accountability Today, if someone doesn’t get the service one has requested for, one can demand compensation from the official responsible for not delivering it within a certain time frame. It has made officials very alert about being monitored, reinforcing the notion that they are accountable to a time-bound approach, with a defaulter liable to be pulled up at the highest level. “Any official can be pulled up. The system monitors it so closely and all are made to feel accountable. Till now, there was only democratisation of governance through voting; People had no say in the administration. Now, there is a democratisation of administration,” said Shalini Rajneesh Goyal, secretary, department of administrative reforms, and Sakala mission director. The ultimate challenge, though, according to an official who did not want to be named, is adding medical services under it. “The chief reason for this is the reluctance of doctors to feed data on to the network,” says an official in the department. Sakala is now the flagship of the Karnataka government’s e-governance initiative. While 22 states have passed similar acts, Karnataka has been among the most successful in implementing it. “We were able to do it because we had the information techonogy-enabled environment. We are already where others are yet to reach. Since most departments were computerised, it was easier to build on the infrastructure and, hence, easier to implement,” said Goyal. The second phase of the programme has started with SMS services commencing on October 10. However, the most visible symbol of e-governance initiatives in Bangalore is BangaloreOne. The service, launched in April 2005, now allows one to file job applications, pay life insurance premia, or even check online if one has any fine outstanding for traffic violations. This means no more waiting in long queues multiple times in a month for paying bills. The project has now been extended to nine additional cities in the state under Karnataka One. The earliest of these e-governance initiatives, which started in the late 1990s, is Bhoomi (meaning land), which deals with the crucial area of land records. Transparency in land record management takes away discretion from civil servants at operating levels. Bhoomi allows for online delivery and management of land records in Karnataka. The Revenue Department in Karnataka, with the technical assistance from the National Informatics Centre (NIC), Bangalore, has built and operationalised the Bhoomi system throughout the state. Bhoomi has computerised 20 million records of land ownership of 6.7 million farmers in the state and has reduced the power of public officials by introducing provisions for recording a mutation request online. Farmers can now access the database and are empowered to follow up. In the Bhoomi project, a printed copy of the record of Rights, Tenacy and Crop (RTC) expand can be obtained online by providing the name of the owner or plot number at computerised land record kiosks in 177 taluk offices, for a fee of ~15. A second computer screen faces the clients to enable them to see the transaction being performed. A farmer can check the status of a mutation application on touch-screen kiosks. If the revenue inspector does not complete the mutation within 45 days, a farmer can approach a senior officer with his grievance. Old habits die hard These are all impressive strides in e-governance, but if there is one complaint, it is that Sakala is yet to gain large-scale traction. People are still to be completely familiarised with the system. Currently, government departments aggressively monitor and chase documents or applications through the SMS system. There are many instances, particularly in cases involving driving licences and the transport department, where people are repeatedly intimated via SMS. Pay your fee and avail of your service, say government officials today, but sometimes citizens find it hard to adapt to this new world. Laments Goyal: “They (people) take their own sweet time. It’s applicable to us and not to citizens. Chase is now in the reverse manner.” With 118 additions to its latest governance initiative, Karnataka officials are now more accountable to people. So, why is it that citizens are not becoming proactive? E-governance initiatives now allow Bangaloreans to avail of basic services without having to deal with an unwieldy bureaucracy POWER TO THE PEOPLE |While Karnataka has become famous for corruption, a wave of e-initiatives is enhancing governance |From ordering a ration card to requesting a birth certificate to paying a traffic fine, citizens can do all of these online |Sakala, or the Karnataka Guarantee of Services to Citizens System, an Act introduced this year, has begun to check corruption and harassment of citizens by officials across departments |BangaloreOne allows a citizen to fill out job applications, pay life insurance premia as well as traffic fines online |Bhoomi is another service that deals with the transparency in land-record management |Bhoomi has computerised 20 million records of land ownership of 6.7 million farmers in the state |Officials are liable to be asked for compensation for delayed services, thus increasing accountability |Interestingly, citizens are not reacting to these services as quickly as the government would have liked Ex-banker’s girlfriends doubled money on insider trading BLOOMBERG London, 16 October Two girlfriends of former Mizuho International Plc investment banker Thomas Ammann reaped returns of more than £2 million ($3.2 million) trading on illegal tips about Canon Inc’s acquisition of OCE NV, prosecutors said. Christina Weckwerth took in nearly £2 million after investing ^1 million ($1.3 million) before the deal in 2009, Amanda Pinto, a lawyer for the UK Financial Services Authority, said in opening arguments at a London criminal court today. Jessica Mang, aBritish chiropractor, made £65,000 on a £39,000- stake. “These two women managed to almost double their money by trading on just one stock,” Pinto told the jury. “Each of the girlfriends considered Thomas Ammann to be their boyfriend, and neither knew of the other.” Both paid half the profits they made to Ammann, Pinto said. Weckwerth was charged with one count of insider trading between April and November 2009, and Mang with one count of insider trading in November of that year. They have pleaded not guilty. Insider trading in the UK can be punished by as much as seven years in prison. Canon, the Tokyo-based maker of cameras and photocopiers, agreed to buy OCE in a^730-million deal in November 2009. Ammann, who worked for the Mizuho mergers and acquisitions team that advised Canon on the deal, pleaded guilty earlier this year to insider trading and encouraging both women to commit insider trading, Pinto said. The banker was in financial difficulties and was living beyond his means, Pinto said. Weckwerth, a single mother living off a “very generous divorce settlement” of ^1.7 million, met him in 2008 on a dating website, the prosecutor said. “He had the inside information, they had the money,” she said. Weckwerth and Mang “provided the distance and made it harder to trace where or from whom the insider information came from.” Weckwerth, who has dual Cypriot and British citizenship and was training to be a psychotherapist during 2008 and 2009, had “invested conservatively” before meeting Ammann, Pinto said. Her trading in OCE shares “was quite exceptional” in comparison, she said. Mang, who now owns a chiropractic clinic in Surrey, England, met Ammann at a nightclub in July 2009, Pinto said. When he first asked her to invest, she didn’t have the money or a trading account. He told her she would get returns as high as 80 per cent, so she borrowed money from her mother and on credit cards and opened a brokerage account. Mang bought OCE shares and then sold them five days later for almost twice what she invested, Pinto said. She wrote in her personal diary that Ammann advised her to invest, according to the prosecutor. Two girlfriends of former investment banker Thomas Ammann ( above )reaped returns of more than $3.2 million trading on illegal tips about Canon Inc’s acquisition of OCE NV. PHOTO: BLOOMBERG NSE chief to head world bourses panel BS REPORTER Mumbai, 16 October Ravi Narain, managing director and chief executive officer (CEO) of the National Stock Exchange, is set to take charge as chairman of the working committee of the World Federation of Exchanges (WFE). At its annual meeting in Taipei yesterday, WFE elected Andreas Preuss, Deutsche Börse AG’s deputy CEO, as WFE chairman. Thomas A Kloet, chief executive of TMX Group, would be vice-chairman of WFE’s working committee. Preuss, who would succeed Hong Kong Exchanges and Clearing’s Ronald Arculli, would hold the post for two years. He takes charge at a time when the business model of stock exchanges across the world is seeing structural changes — competition has intensified and the regulatory framework is swiftly evolving. Key strategies global exchanges are pursuing include bringing the over-thecounter (OTC) market on their platforms. The Singapore Stock Exchange has already cleared OTC derivative products. Other priorities for exchanges include partnerships on various fronts like cross listing of products and technology. “Changes to regulatory frameworks around the world have led to considerable structural changes in our business. As exchange organisations, we can further improve how we articulate our roles as market organisers and communicate our importance for the real economy,” Preuss said. “Close consultation and cooperation between regulated exchanges is essential if our voice is to be heard by policymakers and regulators. I am, therefore, looking forward to working with the WFE as a globally recognised and influential exchange organisation,” he added. Hüseyin Erkan, chairman of the Istanbul Stock Exchange, would take charge as CEO of WFE, while Peter Clifford would be chief operating officer. The WFE plans to use its vast network of exchanges to promote a consistent and engaging dialogue on pressing market issues across the world. Ravi Narain, MD and CEO, National Stock Exchange