business standard updates 1-11-2012

Bank HTM cap may be cut

BS REPORTER Mumbai, 31 October The Reserve Bank of India (RBI) is considering a cut in the held-to-maturity (HTM) ceiling for banks. Anand Sinha, the deputy governor of the RBI, said in a conference call with researchers and analysts on Tuesday that the RBI is looking into a recommendation from a central bank committee to cut the HTM ceiling. “It is a fact that HTM is on the higher side. We will be looking at it in the context of cutting down of HTM to improve market liquidity,” said Sinha. He, however, did not specify a timeframe as to when the central bank would cut the ceiling. Under HTM, banks hold gilts until its date of maturity. The limit is currently at 25 per cent, but it has traditionally been aligned with banks’ statutory liquidity ratio (SLR). The SLR is the portion of minimum investments in gilts and other approved securities that banks are supposed to maintain. It was cut by 1 per cent to 23 per cent in July and implemented in August.

FinMin forpartial okay to Shome panel’s retro taxsuggestions

VRISHTI BENIWAL New Delhi, 31 October The finance ministry might dilute the Budget’s income tax provisions with regard to retrospective taxation and General Anti Avoidance Rules (GAAR) but is not likely to tow the line of the Parthasarathi Shome panel. The panel gave its final report today on retrospective taxation, recommending foreign companies going for mergers &acquisitions in India should pay tax only prospectively. The Central Board of Direct Taxes (CBDT) is of the view there could be some practical difficulties in fully accepting the Shome recommendations on both retrospective taxation and GAAR. It is trying to find a middle path so that investors’ concerns are addressed without compromising significantly on the tax revenue to the government in a difficult year. A decision will be taken by Finance Minister P Chidambaram. “Some of the recommendations of the Shome panel are not doable. Retrospective amendments are not something new. Maybe some of the current provisions of the Income Tax Act are too harsh and we will try to address those issues,” said a finance ministry official who didn’t want to be identified. Officials said the CBDT might look at scrapping the validation clause and change some definitions in the I-T Act or GAAR to remove any unintended consequences. However, if indirect transfers are taxed only prospectively, it faced the challenge of giving refunds to all those companies which had already paid tax. The ministry was expecting ~35,000 crore to ~40,000 crore by way of retrospective tax on indirect transfer of Indian assets by non-residents. If the validation clause is removed, a large part of this will not come to it. Vodafone, which had the Supreme Court ruling in its favour, might not have to fear a tax notice demanding ~8,000 crore on its 2007 deal with Hutchison. The Shome panel had said if there was retrospective levy, the tax should be collected from the seller and the interest and penalty waived. This will also save Vodafone but the tax department might face many administrative and legal challenges in collecting tax from Hutchison, the seller in this case. This is so because Hutchison does not have operations in India now. THE HURDLES CBDT is of the view there could be some practical difficulties in fully accepting the recommendations on both retrospective taxation and GAAR CBDT might look at scrapping the validation clause and change some definitions in the I-T Act or GAAR to remove any unintended consequences For GAAR, the panel recommended postponing it by three years to April 2016, but the I-T dept says this is too long and the deferral could be for one to two year The panel headed by Parthasarathi Shome ( pictured )gave its final report on Wednesday

‘Will encourage FDI in MSME’

BS REPORTER Mumbai, 31 October The new minister for micro, small and medium enterprises (MSME), K H Muniyappa, today said foreign direct investment (FDI) into the sector would be encouraged. He, however, clarified it would not be at the cost of domestic players in the sector. Speaking to Business Standard, Muniyappa said: “I am in favour of FDI in the MSME sector, which contributes 40 per cent to India’s exports. FDI, in general, is essential for the country. The Opposition is opposing it just for the sake of it.” A ministry official who accompanied the minister during his maiden visit here said a comprehensive plan on the issue was yet to be prepared. “FDI and investments from the private sector can be possible in the sector in the marketing segment, which is currently weak. Further, it can be considered in the Khadi Reform Development Programme, in which 51 per cent would come from the private sector. The private sector can have a joint venture in marketing with FDI partners,” the official said.

Centre wants sickPSUs outfrom free floatnorm

SAMIE MODAK Mumbai, 31 October The government plans to seek an exemption for sick public sector undertakings (PSUs) from compliance with the mandatory public shareholding requirements. The finance ministry is likely to ask the equity markets regulator Securities and Exchange Board of India (Sebi) to give exemptions to companies such as HMT, Scooters India and Andrew Yule, which have either undergone or are currently undergoing rehabilitation with the Board for Industrial and Financial Reconstruction (BIFR). A senior official with the Department of Disinvestment (DoD) told Business Standard it would be difficult for PSUs that were sick or under BIFR purview to comply with the public shareholding norm. He added action had already been initiated to bring down government holding to the required level in the remaining companies. A final list of companies for which exemption is to be sought from Sebi could not be obtained from the DoD. In the Companies Act, an industrial unit is declared sick if accumulated losses equal its entire net worth or exceed half its average net worth during the preceding four years. The other condition is a company failing to repay debt in three consecutive quarters after demand is made in writing for such repayments. Sick companies undergo a rehabilitation package with BIFR. However, the legal process of finalising the package and implementing it is long-drawn and companies take up to a decade to come out of it. According to the Securities Contracts (Regulation) Rules amendment, all listed companies should have a minimum public holding of 25 per cent by June 2013. PSUs have till August 2013 to comply with this norm, and the minimum threshold for them is just 10 per cent. Currently, there are about adozen PSUs with government holding of more than 90 per cent and the value of stake dilution for these companies would be about ~10,000 crore in all. Earlier this month, at a public function, Sebi chairman U K Sinha had said the government had assured it that PSUs will be complaint with the free-float requirement before the deadline. He had even said the finance ministry was on board with it for not extending next years deadline for achieving the 25 per cent public shareholding requirement. Some companies such as Neyveli Lignite, Hindustan Copper and Minerals and Metals Trading Corporation, where the government will have to bring down its shareholding below 90 per cent, are already part of this years disinvestment programme, the target for which is set at ~30,000 crore. By the latest data on shareholding, there are about 125 private companies with promoter holding of more than 75 per cent. These companies will have to offload shares worth a little over ~19,000 crore in all to meet the mandatory public shareholding requirement. To ask Sebi to exclude firms referred to or seeking BIFR protection BIG STAKES Currently, governmenthas over 90% holding in 13 PSUs Govt holding Mkt cap Stake to be (in %) (~ cr) offloaded (~ cr) MMTC 99.33 71,270 6,649 Hindustan Copper 99.59 23,149 2,220 Neyveli Lignite 93.56 13,730 489 National Fertilizers 97.64 3,745 286 HMT 98.88 3,205 285 FACT 98.56 1,783 153 ITDC 92.11 4,051 85 RCF 92.50 2,968 74 State Bank of Mysore 92.33 2,329 54 Andrew Yule 93.30 638 21 ITI 92.98 672 20 STC 91.02 1,343 14 Scooters India 95.38 110 6 Source: BS Research Bureau

Equity trading on MCX-SX to start on Nov 18

DILIP KUMAR JHA Mumbai, 31 October Newly recognised equity trading platform, MCX-Stock Exchange (MCX-SX), is set to kickstart trading in around 1,000 companies’ shares on November 18 — the Diwali day. The company’s board is scheduled to meet on Friday to take a final call on starting equity trading on this day. “We are ready to flag off. But the board, which is to meet on November 2, has to take a final decision,” said MCX-SX Vice-Chairman Jignesh Shah. MCX-SX, which had started its membership drive on September 5 after getting Securities Exchange Board of India’s (Sebi’s) approval to deal in equity, futures and options, interest rate derivatives and wholesale debt market, on October 22, announced it had received over 700 applications for new memberships. In addition to the regular ‘Composite Member Category’, the exchange had announced the introduction of two new categories —professionally qualified members and rural entrepreneurship members. These categories were launched for greater financial inclusion and to harness the potential of domestic savings through various financial instruments proposed to be provided by the exchange. MCX-SX MD & CEO Joseph Massey termed the response overwhelming. It is a historic verdict of the public that demonstrates its faith in our ability for 360degree development of financial markets across equity, debt, SME, currency and other segments. “With an all-round subscription from FIIs handling global brokerage houses, securities firms promoted by financial institutions and banks, companies, retail and institutional brokers, professionals and rural entrepreneurs, we are confident to fulfil the government and regulator vision of true capital formation and employment generation,” he said. The exchange has already started the process of getting members registered with Sebi which involves completing all documentation of members, scrutiny by the exchange and forwarding the application to Sebi for registration. After Sebi registers a member, it provides a registration certificate and a unique registration number. MCX-SX will also begin connectivity enablement of members with the exchange before subsequently going live. Board to take a final call on Friday Jignesh Shah, Vice-Chairman, MCX-SX