FDI ceiling in ARCs raised to 74% from 49%

The finance ministry on Friday has increased the ceiling for  FDI (foreign direct investment) in ARCs (asset reconstruction companies) to 74 per cent from 49 per cent. However, This is subject to the condition that no sponsor should hold more than 50 per cent of the shareholding in an ARC, either by way ofFDI or by routing through a foreign institutional investor (FII).

Furthermore the finance ministry has replaced the individual 10 per cent investment limit of a single FII in each tranche of SR, the finance ministry has made the ceiling equal to that of FII limit on corporate bonds.

However, the foreign investment in ARCs would need to comply with the FDI policy, including the one related with sectoral caps.

Hence the 74 per cent FDI limit in ARCs will be the combined limit of FDI and FII.

The finance ministry added that the decision was taken after consultation with the stakeholders and the sector regulators.

Originally Foreign Institutional Investors (FIIs) were permitted to invest only in Security Receipts (SRs) issued by ARCs upto 49% of each tranche of scheme of SRs.

 

India Ratings says Proposed RBI guidelines good for NBFCs

The Reserve Bank of India (RBI) on 12th issued draft regulations for non-banking financial companies (NBFCs) that could significantly impact their growth and tighten the asset classification and provisioning norms of such firms to bring them on par with commercial banks.

These draft rules aim to classify NBFCs under “exempted” and “registered categories”, based on the size of their assets and deposit-taking status.Based on the recommendations of a working group headed by former RBI deputy governor Usha Thorat, the draft rules stipulate a broader framework on a range of issues relating to entry point norms, business criteria and liquidity requirements, among others.In its report  India Ratings and Research said, “Domestic non-banking finance companies (NBFCs) will benefit from the enhanced corporate governance and disclosures standards and tightened liquidity management requirements proposed recently by the Reserve Bank of India (RBI),”It also said that there would be limited financial impact on NBFCs due to the proposed revisions in asset classification, provisioning norms and higher tier-I capital ratio requirements.The proposed rules are open to public comment until 10 January 2013.

According to the proposed guidelines, NBFCs have to recognise a loan as non-performing asset (NPA) if it is not serviced for 90 days from the present 180 days NPA norm.

The new guideline also proposes to implement 10 percent capital adequacy ratio (CAR) norm for most of the NBFCs.

Referring to the capital adequacy ratio, the report by India rating said, “We do not expect any significant impact on the operating performance of the requirement of a minimum Tier I capital ratio of 10 per cent (current requirement of 7.5 per cent for retail finance NBFCs).”

The draft rules say even government-sponsored NBFCs will need to comply with the new norms.

The draft rules don’t permit NBFCs to accept deposits unless they are rated. Existing unrated deposit-taking NBFCs will be given one year to get themselves rated and will not be allowed to accept any fresh deposits or renew existing deposits, unless they are rated by that time.

All deposit-taking NBFCs, irrespective of their size, will continue to be registered with the central bank while the non-deposit taking ones will be exempted from the central bank’s regulation.

The regulator said all NBFCs with an asset size less than Rs.25 crore “whether accepting public funds or not” will be exempt from its rules.

Defining entry norms, RBI said, “No NBFC shall commence or carry on the business of NBFC without having net-owned funds of Rs.25 lakh or such other amount not exceeding Rs.2 crore as may be specified by RBI.”

According to the draft rules, existing NBFCs should reach a minimum Rs.25 crore of financial assets within a period of two years.

Bank Employees to Strike on Dec 20

The banking community in order to protest against the central government’s decision to take up the Banking Law Amendments bill in the ongoing session of parliament, have planned to stage a one day long nationwide strike this week, on December 20 by the employees of all public sector banking institutions.

Around 700,000 employees and officers of the public sector, private sector and foreign banks will strike work all over India on Thursday, an official said in Mumbai on Monday. Work in 27 public sector banks, 12 old generation private sector banks and eight foreign banks shall come to a standstill due to the strike, said Vishwas Utagi, secretary, All India Bank Employees’ Association (AIBEA).

“We are protesting the central government’s move to push amendments to the proposed banking laws bill which is placed before Parliament. We have already served a strike notice to the Indian Banks’ Association,” Utagi told mediapersons.

The President of Jharkhand Pradesh Bank Employees Association, Mr. R. A. Singh, said that the reforms proposed in the bill are not in the best interests of the banking sector of the country. He further added that the bill is aimed to allow easy mergers amongst banks and augment the voting rights of private capital in public as well as private sector banks.

Utagi said “There is an attempt to close down rural branches and resorting to large number of ultra-small branches, thereby privatising rural banking operations, lack of stringent measures to recover increasing non-performing assets and bad loans.”  Also demanding large-scale recruitment in the banking sector, Utagi said the banking employees are also protesting outsourcing of regular banking jobs, thereby jeopardising permanent jobs and job security.

A massive rally has been scheduled at Azad Maidan in south Mumbai. Bank employees will also take part in rallies and processions in all cities in the country.

Banks moves court to liquidate Deccan Chronicle assets to recover dues

Jammu and Kashmir Bank has approached the Andhra Pradesh high court urging it to wind up the Deccan Chronicle Holdings Ltd (DCHL) company, liquidate its assets, auction them and pay its dues to the extent of Rs 52 crore.

The Srinagar based bank in its petition said that it bought a commercial paper (debt instrument) worth Rs 50 crore and the DCHL has not paid the amount so far. The bank is seeking an order from the high court to wind up DCHL under the provisions of the companies Act and sought the appointment of a liquidator under section 450 of the Act. The petitioner asked the court to appoint an official liquidator, and restrain the company by an interim order from “disposing of, transferring or encumbering, alienating or parting with possession of the assets of the Respondent Company”.

Jammu and Kashmir Bank is the fifth firm to file a winding-up petition before the high court against Deccan Chronicle Holdings, seeking liquidation of the company over payment defaults.

IFCI Ltd was the first to file such a petition to recover Rs.27 crore, followed by a Adonis Ltd for recovery of dues worth Rs.128.55 crore, The National Pension System Trust for recovery of dues worth Rs.20 crore and Photon Infotech Pvt. Ltd for recovery of dues worth Rs.5 crore.

Deccan Chronicle Holdings, which publishes English-language newspapers Deccan Chronicle, Financial Chronicle and Asian Age, and the Telugu daily Andhra Bhoomi, has more than Rs.4,000 crore of debt on its books.

Shares of Deccan Chronicle Holdings declined 2.77% to close at Rs.5.96 on BSE, while the benchmark Sensex gained 0.88% to end at 19,339.90 points.

Canara Bank, ICICI Bank Ltd and Axis Bank Ltd have classified Deccan Chronicle Holdings loans as non-performing assets. Canara Bank has an exposure of Rs.330 crore, while ICICI and Axis Bank have Rs.500 crore and Rs.400 crore, respectively.

Canara Bank, which is heading a creditors’ consortium, is conducting a forensic audit on the company’s accounts.