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MFs maintain good inflows on redemption fall
COIMBATORE: Though sales from diversified equity schemes have come down sharply in February, a huge fall in redemptions helped the mutual fund (MF) industry to maintain healthy net inflows for the month. While sales from existing equity schemes dropped 36.1% to Rs 5,006 crore, redemptions, which hit a two-year high this January, plummeted 49% to Rs 3,492 crore, data with the Association of Mutual Funds in India (AMFI) shows. Redemptions from equity schemes for February are the lowest since last April.
After registering net outflows for five consecutive months, equity funds saw a turnaround in January on the back of a strong growth in sales from existing equity schemes. The MF industry has consolidated the gains in February with net inflows for the month coming at Rs 1,514 crore, AMFI data shows.
“Redemption pressure has come down significantly. Many investors who came at higher levels have made an exit,” says Gopal Agrawal, head, equity, Mirae Asset global investments. “People were in a wait and watch mode till the budget. Since the budget has largely been investor friendly we haven’t seen huge redemptions,” says a top official with a leading fund house.
Though foreign institutional investors (FIIs) are bullish on the Indian market and have pumped $1.1 billion so far this year, local fund houses continue to sell shares.
Local fund houses have net sold equity worth more than Rs 12,000 crore since September, Sebi data shows. In 2010 alone, they have offloaded shares worth Rs 2,458 crore (till March 4) at the net level.
Banks’ exposure to mutual funds (MFs) fell around Rs 11,000 crore in the fortnight ended February 26, as lenders strove to meet year-end disbursal targets, aided by a rise in demand for credit.
According to the Reserve Bank of India (RBI) data, banks’ MF investments stood at Rs 1,09,453 crore at the end of February 26. Banks have maintained over Rs 1 lakh crore in MFs in the current quarter.
This is despite RBI expressing concerns about banks’ high exposure to MFs. RBI has asked banks to set limits for MF investments. On Friday, the government said RBI was reviewing the steps taken by banks to cut exposure to debt schemes of MFs. “At present, RBI is reviewing the measures initiated by banks in this regard and analysing movement of funds between banks and MFs,” Minister of State for Finance Namo Narain Meena said in the Lok Sabha. He said most banks had placed board approval limits on exposure to MFs.
Banks’ MF investments have risen significantly in the last few years. These are classified as capital market exposure and so cannot exceed 40 per cent of a bank’s net worth. Assets managed by MFs stood at Rs 767,000 crore at the end of February 28, of which debt schemes accounted for two-thirds. Banks account for a sizeable chunk of this figure. Banks park the surplus left after meeting the demand for credit in mutual funds, the call money market and RBI’s reverse repo window.
RBI Governor D Subbarao had advised banks against investing heavily in MFs during the half-yearly review of the monetary policy. Banks typically withdraw funds from MFs at the end of every quarter to meet capital adequacy requirements. MF investments carry a high risk weight of 150 per cent.
After tightening regulatory oversight over urban cooperative banks (UCBs) through its pact with state governments, the Reserve Bank of India (RBI) now wants UCBs to follow the International Financial Reporting Standards (IFRS) to improve governance practices.
Expressing strong displeasure over most UCBs failing to comply with existing norms and regulations, RBI Chief General Manager Uma Shankar said the bigger challenge would be the implementation of IFRS sooner or later.
It is expected to be rolled out in phases. For commercial banks and corporate entities, the IFRS norms will be applicable from 2011.
Despite a long history of audit standards in the country, the situation in the cooperative sector (urban) seems to be a big worry. Much of the work (auditing) was below standard, the RBI official said while addressing a seminar on “Challenges and opportunities before urban banks” here.
There is a wide gap between the top 10 urban banks (that meticulously follow governance norms) and other banks in the sector. The official wondered how the 10 banks could adhere to the accounting norms set by the Institute of Chartered Accountants Institute of India (ICAI), while other banks were unable to follow it.
Self-regulatory bodies such as the National Federation of Urban Co-operative Banks and Credit Societies (NAFCUB) need to take stock of the situation. There were 1,721 urban banks at end of March 2009 with a deposit base of about Rs 158,733 crore and advances of Rs 97,918 crore, respectively.
RBI has classified UCBs into four grades. While UCBs from Grade I and II are considered as relatively stronger banks, those belonging to Grade III and IV can be classified as sick or weak banks. There was a decline in the number of UCBs from 1,770 at the end of March 2008 to 1,721 at end the end of March 2009. This decline was an outcome of the consolidation process. There was a fall in the number of sick/ weak banks belonging to Grade III and IV in 2008-09.
NEW DELHI: There is no case for a withdrawal of sovereign guarantees on insurance policies issued by state-run Life Insurance Corp of India, a parliamentary panel said on Friday.
Any move to do so would affect the business and profitability of the country's top insurer and a major institutional investor, the panel said in a report presented to parliament.
Bank consortium to fund Techno park III
Thiruvananthapuram-based Technopark has tied up with a consortium of four banks - Indian Bank, Catholic Syrian Bank (CSB), Federal Bank and South Indian Bank -- to fund its Phase III development. The four banks with SIB as the consortium leader will extend a loan of Rs 220 crore to the IT park.
“This is the second consortium arrangement among banks for funding Technopark projects. Early this year, other four major banks — Central Bank of India, Bank of India, Indian Overseas bank and State Bank of Travancore -- joined together to fund the Technocity project's land acquisition programme worth around Rs 390 crore. This is in addition to Nabard funding of Rs 50 crore for Technopark Kollam project as soft loan,” said Mervin Alexander, CEO of Technopark.
The new IT building can accommodate 10,000 professionals and generate approximately 25,000 indirect employment. With the completion of Phase III, Technopark will create 75,000 job along with the co-developers in the SEZs.
The third phase will be developed over 92 acres and house one of India’s largest IT buildings with a total built-up area of one million sft. Support facilities like 110 KV sub-station, and water supply system are already in place while work on land development, internal roads, sewage treatment plant and canal embankment is on full scale.
http://www.business-standard.com/india/news/bank-consortium-to-fund-technopark-iii/388321/
SBI may not charge royalty from its associates for logo
Shobha Roy
Kolkata, March 14
State Bank of India seems to have put on the backburner the issue of charging royalty from its associate banks for using its logo. The issue, which was proposed in March 2009, has not been discussed and debated thereafter, according to senior officials at some of the associate banks.
SBI had demanded a royalty of about one per cent of the associate bank's net profit for using the bank's logo. The pricing was more ‘on account of security than for the purpose of earning revenue', the SBI Chairman, Mr O.P. Bhatt, had earlier indicated.
The boards of associate banks were supposed to meet and take a call on paying a royalty to its parent bank by the end of this year. “But the issue which was proposed in the Board meeting in March last year was not discussed thereafter and we continue to use the logo and we haven't been paying any royalty to the bank,” said Mr K. Vijaya Kumar, General Manager, Treasury, State Bank of Mysore. “It looks like the bank is re-examining the issue,” he added.
The likely merger of all the associate banks with SBI in due course could be a reason for not charging a royalty, it was felt. State Bank of Saurashtra was seamlessly merged with SBI recently and the bank is now mulling the proposal of merging State Bank of Indore with itself. The other banks are likely to follow suit soon.
Some of the associate banks such as State Bank of Jaipur and Bikaner and State Bank of Patiala had also objected to the demand of royalty by SBI earlier.
“I have not heard about it in the recent past, now that you asked me I am reminded of it, there has been no such update so far,” said a senior official at State Bank of Travancore.
Subsidiaries pay royalty
The subsidiaries of SBI are, however, paying a royalty to the bank for using its logo. “We have been paying a royalty to SBI for using its logo since the beginning of this fiscal,” said Mr S. Vishvanathan, Managing Director and Chief Executive Officer, SBI Capital Markets. SBI Caps is the investment banking subsidiary of SBI and American Development Bank holds a 13.84 per cent stake in it.
Overseas ventures
The charging of royalty from associate banks was conceived to be important for the bank, as that would be the first step towards charging royalty from its foreign ventures.
With SBI charging royalty from its subsidiaries it is felt that the model will be replicated in its foreign ventures as well. “They might ask for a royalty from their overseas joint ventures and not from associate banks,” Mr Vijaya Kumar said.
http://www.thehindubusinessline.com/2010/03/15/stories/2010031550681000.htm
SEBI
Sebi moves to check FIIs' PMS play
MUMBAI: The capital market regulator is putting in a new condition to restrain individuals from using foreign institutional investors (FIIs) to manage their money like a PMS (portfolio management service).
It’s widely perceived that many rich Indians and NRIs often use FIIs to play the Indian stock market — transactions that not only go against the spirit of FII regulations but are also outright violation of rules.
Many foreign funds offer the service by structuring themselves in a way where they can cater to different sets of investors with distinct investment strategies. However, regulatory authorities want FII money flowing into the local stock market to be institutional in nature and broad-based in character — like a mutual fund bringing in funds raised from several investors.
At least three FIIs, which have received permission in the past two weeks to trade in the Indian market, have been told that their investments have to be spread across the portfolio. In catering to separate sets of investors, FIIs pick stocks to suit distinct requirements and strategies. For instance, a particular scrip, attractive to one class of investors, may not be preferred by another. But the latest condition will ensure that the stock is spread across the different pools or classes of investors in the overall portfolio of an FII.
“For the first time, Sebi is incorporating this as a specific condition for FIIs which are coming in for registration,” said a person familiar with the development. The regulator is also seeking information on the constitution of the Mauritius entity of an FII.
A closer look at the Mauritius entity — the vehicle through which most FIIs route their investments to India in order to get the tax advantage — will reveal that it often has a multi-class structure. A multi-class structure is one where the FII is like an umbrella asset management company of a mutual fund with different schemes of the fund pursuing their respective strategies. These classes are called cells in legal parlance. In its edition dated February 2, ET had reported that Sebi was holding back the registration of several FIIs due to their multi-class nature. Here, the fear is that “while the umbrella firm gets registered as an FII, the regulator may have little control over the different pools, or cells, under the firm.” This is because once a multi-class share entity is registered, it can go on adding new cells which, outside the regulatory radar, can be conduits for round-tripping.
“As far as multi-class FIIs are concerned, the debate may be far from over. We feel that Sebi may finally appreciate the fact that different classes, or cells, under an FII should be allowed as long as each of the cells is broadbased in nature — i.e., each cell having several investors and not one which operates at the discretion of one or two large investors,” said a person advising one of the FIIs. However, the regulator is yet to spell this out.
For the regulator, it could be a challenge to encourage genuine India-focused investors to pour money into the country while simultaneously minimising the scope of abuse. “Even a broadbased cell can be of a nature where one or two large investors call the shorts while others play a passive role. It’s almost impossible to put an end to such manipulation...Banning of PCCs did not really help,” said a senior official of a foreign bank.
Earlier, Sebi had banned protected cell companies (PCC) structures, a popular structure globally for funds wishing to segregate assets and liabilities into each cell dedicated to different strategies or investors, from getting registered as FIIs. Multi-class FIIs are very similar to PCCs, with each cell having separate accounts and functioning with an understanding that losses of one cell can not be recovered from another.
Foreign fund managers have become more alert after the recent regulatory action against two FIIs controlled by large foreign banks. For instance, even debt FIIs are doing a closer ‘know your customer’ check while issuing participatory notes to overseas investors coming in to buy Indian bonds. Participatory notes, or PNs, are instruments that allow offshore investors, barred from accessing the Indian market directly, to trade in Indian securities — stocks, government and corporate bonds and listed debentures.
http://economictimes.indiatimes.com/SEBI-smells-a-rat-moves-to-check-FIIs-PMS-play-/articleshow/5684014.cms
Sebi considering new products for derivative trading |
Equity futures’ volume growth trails those in currencies, commodities.
Derivative markets in the country are set for a big jump in the coming years, as regulators have an open mind on the expanding horizons on the products covered for trading on exchanges.
The Securities and Exchange Board of India (Sebi) had, in principle, approved several such products. Most are for the debt and currency markets. This is at a time when the commodities and currency futures markets are growing bigger then equity futures. On most days in March, the average volumes in currency and commodities futures were higher than equity futures. This is despite index futures not being permitted in currencies and commodities. However, if volumes in option trading are considered, the equity market is still well ahead of other markets but in the near future, these would also get traded in the commodities and currency markets.
A week earlier, Sebi permitted five-year options in equity and in trading on the official volatility index. It decided in principle to permit physical settlement in equity derivatives, too. It also asked exchanges to prepare several indices with the aim of allowing derivative products based on those in the currencies and bond markets. According to Sebi, the operational modalities for introduction of currency options (USD-INR) are being worked out by the RBI-Sebi Standing Technical Committee.
Exchanges need to prepare
Once exchanges are ready with indices in currencies, derivative trading on those will be permitted. Sebi’s derivative committee had recommended cross-currency futures trading on exchanges — dollar-yen, dollar-euro and so on. It is learnt that regulators, particularly the Reserve Bank of India, are not in favour of that. At present, only futures in foreign currency denominated in rupees are permitted.
Sebi had also asked stock exchanges to construct a Bond Index (for both corporate bonds & government securities) and disseminate these to permit derivative trading as in equity indices. Introduction of various exchange-traded credit derivatives is on the cards, in a phased manner in consultation with RBI. This includes trading in credit-default swaps. Sebi is also open to allow trading in third-party exchange traded products such as structured warrants, though it first wants an over the counter market to develop in such products. Many more new derivative products are expected to be introduced across markets, which include trading of options in currencies on exchange platforms, futures and options in currency indices, option trading on interest rate futures and exchange-traded third-party products such as structured warrants.
Average daily volumes in commodity futures in March so far had been Rs 27,748 crore in equity (stock and index futures), while futures volumes in four currencies were Rs 30,890 crore (of which Rs 27,007 crore were in rupee-dollar and Rs 3,882 crore in rupee/yen-euro-pound.) The commodity futures volume was Rs 37,298 crore, the highest among all markets.
Currencies are traded on two stock exchanges, while commodity futures are traded on four. Equity derivatives are traded on the National Stock Exchange and the Bombay Stock Exchange, but the latter’s share was minimal. Options trading is also a big market, many times the volume of of futures on the NSE. Options are also a cheaper hedging instrument, as the risk is confined to only the premium paid by buyers of options.
Global trend here, too
Globally, said an official from a leading exchange, the currency and commodities markets are much bigger and the trend is now visible in India, too.
Even in commodities, once Parliament amends the Forward Contracts Regulation Act, introduction is possible of index futures, weather derivatives and options. Says U Venkataraman, executive director, MCX-SX: “World over, equity is just 15–20 per cent of the asset classes traded on the exchange platform and bonds, interest rate futures, currency, commodities, etc constitute the remaining 80–85 per cent.”
He said, “The currency segment witnessed robust growth from a mere Rs 200 crore per day when launched 16 months ago to close to Rs 38,000 crore per day in a little over a year, which is higher than the cash equity segment. For true financial inclusion, we will need world class exchanges with domain expertise and management bandwidth to develop new asset classes on the exchange platform. Indian financial markets will witness transformation in its true sense with the emergence of new-generation, multi-asset class exchanges such as MCX SX.”
In currencies and commodities, foreign institutions are not allowed. In commodities, even domestic institutions and banks are not presently permitted to trade. Once the window is opened for more institutional players and more instruments are introduced in these markets, they will grow much bigger then equity futures, said an official from a leading exchange.
“With better food production inflation will die down. Food inflation is high; it’s a concern. My own expectation is by April-May the base effect would have gone,” Mr Basu said. The government has taken action and that is why we are witnessing some decline in food prices, Mr Basu said, adding that the overall average inflation will be around 4% for 2009-10.
Earlier, he had said though fuel prices would lead to a marginal rise in the wholesale price infaltion, however, a lower fiscal deficit in the long-run will dampen the average inflation. Changes in the tax structure announced in the Budget 2011 have caused fuel prices to go up. The WPI will rise by 0.4 percentage points due to the fuel hike.
The government had hiked customs duty on petrol and diesel to 7.5 % from 2.5% while excise duty was raised by Re 1 on non-branded (normal) petrol and diesel.
Meanwhile, Minister of State for Finance Namo Narain Meena in a reply to query in the Rajya Sabha said the hike in prices of items could be attributed to expectations of supply-side constraints of food items, especially due to unfavourable Southwest monsoon.
The government has taken several measures to check infaltion in food items, including reducing import duties to zero for rice, wheat, pulses, edible oils and sugar, Mr Meena said.
Besides, the government allowed import of raw sugar at zero duty under open general licence, he said. Two million tonne of wheat and one million tonne of rice have been allocated to states for distribution to retail consumers over and above normal public distribution system allocation, he added.
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