Thursday, December 17, 1998
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B U S I N E S S | Thursday, December 17, 1998 |
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IRA Bill keeps foreign players in
check NEW DELHI, Dec 16 — Faced with intense criticism from within its own quarters and several Opposition parties, the Government has trodden very cautiously in preparing the Insurance Regulatory Authority Bill, 1998.
Data
bank for textiles |
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MUL
drops 20 per cent casual workers Escorts’
strike hits ancillary units Crisil
puts Kopran on rating watch |
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IRA Bill
keeps foreign players in check
To begin with, the Government while proposing the establishment of an autonomous Insurance Regulatory Authority has inserted a clause that the Government would continue to have the final say on all policy matters regarding the insurance sector. Clause 18 clearly says that “without prejudice to the foregoing provisions of this Act, the Authority shall, in exercise of its powers or the performance of its functions under this Act, be bound by such directions on questions of policy as the Central Government may give in writing to it from time to time....The decision of the Central Government, whether a question is one of policy or not, shall be final.” The Bill also has a provision that in extraordinary circumstances the Government can supersede the Authority for a period of not more than six months and appoint a person to be the Controller of Insurance. The proposed Authority would have a Chairperson, not more than five whole-time members and not more than four part-time members. They would be appointed by the Central Government from amongst persons of ability, integrity and standing who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which would, in the opinion of the Government, be useful to the Authority. Another amendment proposed in the Bill is to the Insurance Act, 1938, which are consequential in nature to empower the Insurance Regulatory Authority to effectively regulate, promote and ensure orderly growth of the insurance industry. It also provides for certain definitions, including definition of an Indian insurance company. To prevent back door entry of foreign companies in the insurance sector, the Bill defines an Indian insurance company as one which is formed and registered under the Companies Act, 1956. It also entails that an aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees do not exceed 26 per cent of the paid up capital in such a company. There is a separate provision for foreign institutional investors, non resident Indians, overseas body corporate bodies to hold an aggregate share holding of not more than 14 per cent. This 14 per cent would be excluded while calculating the 26 per cent paid-up share capital. In other words, this 14 per cent holding would not have any say in the management of the insurance company. The Bill also proposes a leash on the domestic promoter with a specification that the promoters would divest in a phased manner the share capital in excess of 26 per cent after a period of six years from the date of commencement of business. This provision has been inserted to ensure that the shareholding is more broadbased and distributed. Widely dispersed shareholders in an insurance company would help minimise the risk of misuse of people’s savings by a dominant shareholder. In a bid to prevent the promoters from selling their stakes in an insurance company with the motive of making quick profits, the Bill lays down that in case an insurer wants to transfer his holding or amalgamate his life insurance business with any other insurance company, he will have to follow a rigid code set out by the IRA. Fears of flight of capital from the Indian insurance business has been allayed by a provision which says “No insurer shall directly or indirectly invest outside India the funds of the policy holders.” Even within India, stringent norms for investments have been laid out to ensure full protection of the policy holders’ money. Companies in life insurance business will have to invest 85 per cent of their assets into Government and approved securities while those in general insurance business would have to invest a minimum of 75 per cent of their earnings in Government and approved securities. Norms for the investment of the remaining amount are also very comprehensive and these ensure that large amounts are not exposed to any single instrument or company. The criticism that private companies would not have any commitment to the social sector is also not true as according to the Finance Minister, Mr Yashwant Sinha, all guidelines that apply to the state-owned LIC and GIC would be applicable to the private companies. The details, however, would be worked out by the IRA. Apprehensions about the foreign insurance companies taking out money through the reinsurance business has been tackled with a provision which says every insurer has to reinsure only with Indian reinsurers and that too such percentage which would be specified by the Government from time to time. It has also been provided that no percentage so specified would exceed 30 per cent of the sum assured on the policy. No major changes are proposed in the LIC and the GIC. Clause 30 of the Bill merely seeks to amend Section 30 of the Life Insurance Corporation Act, 1956. The amendment provides that the exclusive privilege of the Life Insurance Corporation would cease so as to enable other Indian insurance companies to do life insurance business. Similarly, Clause 31 seeks
to amend Section 24 of the General Insurance Business
(Nationali-sation) Act, 1972. The amendment provides that
the exclusive privilege of the General Insurance
Corporation and the four subsidiary companies would cease
so as to enable other Indian insurance companies to do
non-life insurance business. |
Banks have lost crores of
rupees, courtesy CMDs NEW DELHI, Dec 16 — The gross abuse of official position by top functionaries of banks might have resulted in losses of crores of rupees to public sector banks, says an official report. The third report of the Committee on Estimates (1998-99), which was presented to the Lok Sabha on December 15, observed that “top functionaries” of the central board/board of directors, CMDs of certain banks sanctioned credit facilities to parties without taking into account the necessary information pertaining to the status of earlier advances, repayment capacity and other relevant factors for sanction of loans. In certain cases credit facilities were sanctioned or enhanced by the CMDs orally in excess of their discretionary powers without assessing the need-based requirement or taking into account the borrower’s financial position or past performance. In one case, a loan was sanctioned by a CMD of a bank to a company for the development of real estate without ascertaining whether the borrower company would be in a position to execute the project work. The company had a low capital base and did not submit the proposed plan duly approved by a competent authority, the report observed. The committee also expressed unhappiness over the fact that despite the AFI reports of the RBI containing adverse comments against the top management of banks, no specific action was taken, except an advice made by the Deputy Governor of the RBI to ensure that such deficiencies should not recur. Of late, specific timeframe has also been prescribed to individual banks for the rectification of deficiencies brought in AFI reports. The committee has observed that such adverse comments against top management of banks made in the RBI. AFI without any follow-up purposeful action would send wrong signals to their functionaries of banks for abusing their official position “in total disregard of laid down norms for sanction of credit facilities to the detriment of the banks”. It has observed that the Ministry of Finance should not allow the Chief Executives to regard the banks “as their personal fiefdom so long as they are at the helm of affairs and indulge in any violation of norms laid down for sanction of credit facilities”. “If the top functionary violates the rules, he should be punished with the same severity as the other officers of the bank”, the report added. In addition poor motivation and inadequacy of professional skills, corporate failures, both in the public and private sectors, and scandalous siphoning-off of funds by corporate racketeers are among the major factors causing the hike in non-performing assets (NPAs) of public sector banks, says an official report. The report says that at present, 17 banks have non-performing assets in the range of 10 to 20 per cent and eight banks hold NPAs above the level of 20 per cent. “The committee is extremely unhappy to observe that none of the public sector banks has been able to contain NPAs as per the international standards where the tolerable levels of NPAs are around 3 to 4 per cent”. At the same time, the introduction on the new system of income recognition, asset classification and provisioning norms for bad debts on a prudential basis, the concept and treatment of NPAs have brought about a “complete transformation in the banks in India”. Banks now have to assess
their profitability on more realistic basis and reflect
the true health of financial health, the report notes. |
LONDON, Dec 16 (Reuters) — The union of 11 European currencies into one unit called the euro is a daunting task for the world’s foreign exchanges but technically is more straight forward than for other markets. The person in the street might wonder what all the fuss is about since national currencies taking part will remain legal tender until July 2002. But for banks it has required years of preparation as all of the high-tech computer systems that handle billions in transactions in the blink of an eye have had to be readied for the new unit. Here is a rundown of what actually takes place as a currency transforms into the new single currency, over the so-called conversion weekend from December 31 to January 4. Conversion calculation The rates at which these 11 currencies trade against each other have been locked since May, but the rates at which they will convert into euro are still unknown. This is because the euro is designed to trade one-for one with the European currency unit (ECU), a basket currency for a dozen European Union countries, including both euro “ins” and “outs’’ such as Britain. On December 31 at 1030 GMT, the European Commission will calculate the final official exchange rate of the ECU, before the ECU ceases to exist. It will then take daily rates from central bank fixings to come up with euro conversion rates. For example, the German mark is already locked in at a rate of 3.35386 French francs. Both of the two have floating ‘rates against the ECU, which is worth around 1.9620 marks and 6.5803 francs. Those ECU/mark and ECU/French franc rates may move a bit in the run-up to the euro — maybe not a lot to an out-side observer but enough to make a difference for banks with huge accounts. Once the commission has set the conversion rates, banks will be able to programme their computer systems to hopefully process any transaction in a European currency and express it in either its original form or in Euros. At 1130 GMT the EC will have a special televised council session to propose these rates for adoption by the European Union Council as irrevocable rates for the euro. They will also be made public on the Internet on a “eurobirth” site (http://europa. eu.int/eurobirth) and through providers of financial information. This is followed by a meeting of European finance ministers at 1330 CET (1230 GMT) to adopt the rates. Making systems work At midnight local time the euro conversion rates will come into force. But it is not expected to be much of a New Year’s Eve party since bank staff will be frantically working to make sure all of their systems are working correctly. Due to time zone differences in the euro zone, Finland will be the first European country to have the single currency, and will kick off the changeover one hour ahead of its European partners. Ireland and Portugal, both one hour behind most of mainland Europe, will be the last. The euro will finally exist, at least electronically, although there will be no financial markets open since it will be New Year’s Day. But the foreign exchanges are an inter-bank market, meaning transactions take place between banks directly rather than on an exchange. That means that theoretically banks can begin trading the euro from midnight. On January 1-3 banks will have staff in over the weekend to test their systems and get acquainted with where they can find all the information they will need at split-second notice. Markets reopen If all goes according to plan — and experts have said that is still an “if” — financial markets will reopen on January 4 from their holiday weekend and a live market in the euro against the dollar, yen and other currencies will begin. The first place this will
actually take place will be in the Far East, where
January 4 will begin several hours earlier than in
Europe. |
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NEW DELHI, Dec 16 (UNI) — In a major initiative to enable the textile industry to use information technology, an Economic Research and Market Intelligence Unit (ERMIU) has been set up. The unit was inaugurated today by Union Textile Minister Kashiram Rana here. This is the first time that a common data bank for textiles which will provide analysis forecasts trends is being set up for the benefit of both industry and the government. The unit is designed to work as a nodal centre for the collection and dissemination of the information on production, designs and fashion and other market and trade developments in the area of textiles. The unit will also be analysing a vast treasure of data which will be of immense significance to policy makers and the industry in planning of production, etc. With the operationalisations of the this unit, the headquarter of which will be in Delhi, the government, the trade and industry will have a single source of date bank. The data bank can be accessed by anyone having the internet facility. A similar unit is being
planned for the jute sector also. |
Market chills make Ludhiana shiver LUDHIANA, Dec 16 (ANI) — India’s largest hosiery industry based in Ludhiana is suffering heavy losses due to the delayed onset of winter season. Hosiery shops in Ludhiana, popularly called India’s Manchester, look deserted at what the manufacturers call the peak season. Many shops in the city are displaying signboards of “off season” discounts due to the depressing market conditions. “There is no sale in the market and the season is unfavourable. Unlike last year the temperature is fairly high and it is not cold at all. No one is buying sweaters, so we have organised discount sales”, said Anish Dhawan, a retailer. Shop owners have announced several freebies to lure the otherwise unamused buyers. Manufacturers say premature discounts and panic reaction by retailers is worsening the situation. “It is only December and people have started organising discount sales, which is bad”, said Girish Kapur, Managing Director of a leading hosiery company. “We normally think winters start from November and last till February. But the season is changing. Winters now start from December and end in March”, he added. After losing one of the most lucrative markets of Russia, Indian manufacturers are facing stiff competition in the European market, which is highly sensitive to quality and timely delivery. Russia, which accounted for more than 50 per cent of woollen exports, now imports less than 10 per cent. Manufacturers are required to adhere to stringent labour norms for export to European countries which they say need large investments. Harbhajan Singh, an exporter, terms it as one of the worst phases in his life and says many exporters have already defaulted on their bank loans due to the rejection of their consignments. He sought some relief from the federal government to pep up the market. Manufacturers say there
has been a steep fall in the domestic demand, and rise in
inflation and increase in prices of woollens have further
driven away the domestic customers. |
MUL drops 20 per cent casual workers NEW DELHI, Dec 16 (UNI) — Hit hard by the ongoing recession in the automobile market, Maruti Udyog Limited (MUL) has trimmed its casual labour force by over 20 per cent. With the company resorting to major production cuts last month, the company decided not to renew the agreements with its casual workers employed through various contractors, company sources told said here. The sources pointed out that as against around 2,500 casual workers employed with the company, contracts of only 1,800 were renewed in November. “Around 20 to 25 per cent of the employees were not taken in this time.” MUL Managing Director R.S.S.L.N. Bhaskarudu confirmed the move stating that the workforce was reduced in line with the cut in production. “We are presently working at 15 per cent below the normal levels of 140 per cent capacity utilisation. However, we have just trimmed the casual workforce and not the regular workers,” he added. Mr Bhaskarudu was also optimistic that things would return to normal soon and the entire workforce would be hired back. The company had, as a
result, recorded a near 20 per cent drop in overall sales
for November. It had attributed the move to a combination
of factors, including recessionary trends and requirement
of permanent account number for purchase of cars. |
Escorts’
strike hits ancillary units FARIDABAD, Dec 16 — The continuing strike by the Escorts group of industries here for the past 24 days has badly affected the ancillary industry which supplies parts for the manufacture of tractors and motor cycles. According to an estimate there are at least 800 small units which have been hit by the strike. As there is no demand from Escorts, a big quantity of goods have accumulated in their stores. If the strike did not end in the near future the ancillary units will be left with no alternative but to close down, making the workers jobless. A spokesman of the Association of Industry said the auto-parts industry was already under a severe recession and the Escorts strike had further deteriorated the situation. The strike is continuing, despite the fact that the Haryana Government has declared it illegal and asked the workers to resume duty immediately. A number of employees and their leaders have already been suspended and dismissal from service is on the cards. Both management and
employees are reported to be taking a tough stand on the
strike. The management says that they are already giving
a good salary and any increase is not possible. It blames
vested interests for prolonging the strike. But the
workers are insisting on a better package before the
strike is called off. |
Crisil puts Kopran on rating watch MUMBAI, Dec 16 (PTI) — The Credit Rating and Informations Services of India Ltd (Crisil) has put Kopran Drugs Ltd’s (KDL) outstanding Rs 200 million non-convertible debenture (NCD) issue under rating watch with developing implications and pending completion of the de-merger related formalities. The NCD-issue, which was being transferred from Kopran Ltd as part of a de-merger scheme, had been assigned “BBB” rating implying moderate safety with respect to the timely payment of the principal and the interest. The rating factors in the company’s proposed capital structure, post de-merger, characterised by high-gearing levels, and thereby low interest coverage ratio. The high-gearing levels were attributed to the high debt funding capital expenditure over the past two years in the pencillin-based business which was being transferred from Kopran to KDL, Crisil said. The rating also factors in the high degree of competition and declining realisations in pencillin-based products, the rating agency added. Meanwhile, Crisil has
downgraded the rating assigned to Nath Capital and
Financial Services Ltd’s fixed deposit programme
from “FB” to “FD”, indicating that
the instrument was in default or was expected to default
on maturity.
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| Forex rates MUMBAI, Dec 16 (PTI) — The following are inter-bank forex and the RBI rates (in rupees per unit): US $ 42.53/54 The reference rate of the RBI was Rs 42.55. Gold static Escotel Insurance Travel software |
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