Jindal Steel in talks to acquire 1,320MW power plant in AP

Jindal Steel and Power (JSPL) is reportedly in talks with Hyderabad-based Kineta Power to buy its 1,320-megawatt (MW) coal-based power plant at Nellore in Andhra Pradesh. The project is currently under implementation and has already received forest and defence clearance. Further, the cost of setting up the power plant is around Rs 5,000 crore.

Kineta Mines and Minerals is primarily engaged in export of iron ore and are also the suppliers of burnt lime, limestone and dolomite.

JSPL is a part of Jindal Group and is a leading player in Steel, Power, Mining, Oil & Gas and Infrastructure. The company produces economical and efficient steel and power through backward integration from its own captive coal and iron-ore mines and passes on the benefits to its customers.

Banks set stringent norms for promoters of debt-laden companies

Concerned over the rising cases of loan defaults, Indian banks have set strict norms for offering loan restructuring to promoters who have run businesses aground. After Reserve Bank of India governor Raghuram Rajan's stern message against defaulters and failed managements, lenders have started taking more careful steps while restructuring loans and have decided to go ahead with restructuring on a loan only after ascertaining that the project is viable and the promoter has not siphoned off funds, or diverted funds to any other project.

Further, banks are now seeking upfront commitment from borrowers in form of guarantee. At Corporate Debt Restructuring (CDR), banks have made it mandatory that promoters' contribution at 25% of bank’s loan should be made upfront and if the borrower fails to repay loans, the CDR package is withdrawn and lenders can take legal action for recovery of loans. 

Recently, the RBI has noted that promoters don’t have the right to use the banking system to recapitalize their failed ventures and suggested the banks to take careful steps while restructuring loans, a method used by banks with outstanding debt obligations to alter the terms of the debt agreements to avoid default on existing debt. The stress on the asset quality is a reflection of slowdown in the economy of the country and over the past two years, non-performing Assets (NPAs) of banks have been increasing on account of prevailing economic downturn. In the April- June quarter, 2013, gross NPAs in the banking system grew by 12.02 percent to Rs. 2.06 trillion and formed 3.85 percent of the industry’s advances.

RBI eases cash squeeze again, cuts MSF rate

Launches term repos; short-term borrowing set to become cheaper

The Reserve Bank of India (RBI) on Monday further eased liquidity by cutting the marginal standing facility (MSF) rate, a key overnight interest rate, by 50 basis points to nine per cent, with immediate effect. This is the second time in less than a month that the central bank has cut the key overnight interest rate, taking advantage from the rupee’s recent surge.

The first cut, of 75 bps, was done on September 20 in the mid-quarter review of the monetary policy.

RBI has also decided to provide additional liquidity through term repos of seven-day and 14-day tenor for a notified amount equivalent to 0.25 per cent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions on every Friday, beginning this week.

The move is the latest by RBI Governor Raghuram Rajan to return monetary policy settings towards normal after a harrowing run for the rupee, which had fallen 20 per cent this year, as of late August. The currency weakened 0.6 per cent to 61.80 a dollar on Monday.

“The notified amount and tenor of the term repo auctions will be announced prior to the dates of the auctions,” RBI said on Monday. It also infused Rs 9,974-crore liquidity through open-market purchase operations. Due to the cut in MSF rate, the bank rate also stands adjusted at nine per cent.

Some banks see the possibility of a cut in lending rates. Bank of Baroda CMD S S Mundra said a reduction of 25-50 basis points in lending rates in some products was possible. “Since this is traditionally the busy period and since the reduction in MSF rate has made liquidity available, spreads can be reduced for some loan segments. Earlier, the cost of deposits was high for banks. But, with additional liquidity being made available, the cost will get aligned, to some extent,” Mundra added.


Other experts said they expected a rally in short-term rates and the government securities curve could steepen and the inversion correct. “The move will ease short-term rates by around 50 bps. The introduction of term instruments will help develop the yield curve in the bucket one- to 91-day tenure,” said N S Venkatesh, chief general manager and head of treasury, IDBI Bank.

In mid-July, RBI had raised the MSF rate to 10.25 per cent from 8.25 per cent, to arrest the rupee’s volatility against the dollar.

According to Sangeet Shukla, advisor (risk), Indian Bank’s Association (IBA), the introduction of repos will bring predictability. Another benefit is that some stability would come, as banks can build pricing models that also capture risks.

Public-sector bank executives said the banking industry had sought term repos in 28- and 60-day brackets, too.

The Street believes there are more MSF rate cuts in store. “Earlier the spread between the MSF rate and the repo rate was 100 basis points. That spread may be restored,” said J Moses Harding, Group CEO, Srei Infrastructure Finance.

The weighted average call money rate stood at 9.55 per cent on Monday, compared with 6.86 on Saturday, while the weighted average collateralised borrowing and lending obligation (CBLO) stood at 9.50 per cent, compared with 7.52 on Saturday.

With further easing of rates in the domestic market, the attractiveness of funds raised using the swap facility — for foreign currency non-resident account (banks) and Tier-I capital-linked borrowings — would decline, said a senior State Bank of India official.

Now, trade currency futures on BSE

Bourse to soon become fourth player in currency futures where it will compete with NSE, MCX-SX and its own United Stock Exchange

BSE Ltd, Asia’s oldest stock exchange, is set to enter the most competitive segment in the stock exchange — currency futures. The exchange has received approval from the regulator.

“We have received the Securities and Exchange Board of India (Sebi) approval and plan to launch the currency futures segment in two months,” said Ashishkumar Chauhan, managing director and chief executive of BSE. The development is interesting as BSE already has a 15 per cent equity stake in the United Stock Exchange (USE), which is active in the currency segment and BSE also provides a trading platform facility at a fee to USE.

With this, BSE will be fourth player in currency futures, where it will compete with the NSE, MCX-SX and its own United Stock Exchange (USE). The development is happening at a time when one of the competitors is facing regulatory action. The currency futures market was Rs 50,000-60,000 crore market, which shrank to Rs 20,000 crore after several restrictions by the Reserve Bank of India in June following a volatile rupee. USE’s market share is around five per cent at present.

        

CLEAR FUTURE

Interest rate futures would also be launched simultaneously BSE to also launch segment for mutual fund distributors Purchased trading technology from Deutsche Börse which will make trading speed much faster than rivals

BSE is also improving technology for derivatives trading. It has purchased the latest technology from leading international derivative exchange and BSE’s equity partner, Deutsche Börse. The technology is so fast that the response time will increase from 10 mili seconds at present to 200 micro seconds. This will result in increase in execution of orders from 15-20,000 per second at present to 200,000 to 500,000 per second.
end. Deutsche Börse introduced this technology only this January.

In newer businesses, BSE is having a good market share, which includes the SME segment, offer for sale and now the exchange is readying for launching a segment for mutual funds where even mutual fund distributors could take membership. This is also expected in next couple of months.

The question came up on why BSE had to launch its own currency futures when it has already a 15 per cent stake in USE, which is into the currency segment. Chauhan said: “USE is working well and they are going on their own. However, BSE members’ demand was to have all the derivatives under one umbrella and, hence, we are offering currency derivatives to the existing brokers-members at virtually no extra cost.”

The timing of BSE’s entry into the currency segment is crucial as there are reports that the government and RBI considering several reforms, which will expand and deepen this market.

Another interesting development is that post the NSEL crisis, MCX-SX has seen a fall in volumes on its currency segment.

Sensex crosses 20K level

Indian stock markets jumped over one per cent in the opening session on Tuesday on heavy capital inflows despite mixed Asian cues.

At 9.15 a.m., the 30-share BSE index Sensex was up 199.19 points (1.00 per cent) at 20,094.29 and the 50-share NSE index Nifty was up 63.35 points (1.07 per cent) at 5,969.50.

Asian stocks swung between gains and losses as telecommunication shares dropped while utilities advanced.

The US government shutdown entered its second week, leaving investors on tenterhooks as politicians in Washington made little headway in agreeing a deal to avoid the debt default.

But a private survey of China's services industry helped cap the losses as it showed the sector continued to expand in September, albeit at a slower pace than in the previous month.

Japan's Nikkei was down 10.31 points or 0.07 per cent at 13,843, Hong Kong's Hang Seng rose 90.50 points or 0.39 per cent to 23,064.40 and Australia's S&P/ASX 200 was down 17.21 points or 0.33 at 5,143.90.

India-Asean trade, services pact may be inked this year

The Free Trade Agreement (FTA) in trade and services between India and the 10-member Association of South-East Asian Nations (Asean) is expected to be signed in calendar 2013, a senior official in the Ministry of External Affairs said on Monday.

“All issues covering the free trade agreement in trade and services investments have been sorted out. The legal study has been completed. There were certain observations by the Philippines and Thailand, which have been addressed. Now, the respective countries are taking their internal approvals. We believe the signing will take place in calendar year 2013. This depends on internal procedures in member countries. But we are optimistic (it will be) this year,” Secretary, East, Ashok Kantha, said.

Kantha was briefing newspersons on the forthcoming visit of Prime Minister Manmohan Singh to Brunei for the XIth India-Asean Summit and the 8th East Asia Summit and the bilateral visit to Indonesia, which begins on October 9.

He said Singh would also meet the newly-elected Australian Prime Minister Tony Abbott on the sidelines of the summit meetings. On the issue of sale of Australian uranium to India, Kantha said the third round of negotiations between the two countries could take place in December.

“There is a firm desire on both sides to try and bring these negotiations to a successful conclusion at an early date,” he said.

Central Bank of India's Tier I-II bonds downgraded by CRISIL

The Mumbai-based public sector lender is witnessing a sharp and sustained deterioration in asset quality

Rating agency CRISIL has downgraded the tier-I and tier-II bonds of Central Bank of India to ‘AA’ from ‘AA+’ on expected weakening of credit profile on the sustained deterioration in asset quality and earnings.

The Mumbai-based public sector lender is witnessing a sharp and sustained deterioration in asset quality. Its gross non-performing assets (NPA) increased significantly to 6.0 per cent as on June 30, from 1.8 per cent as on March 31, 2011.

The deterioration in the bank’s asset quality is also reflected in its higher-than-industry-average slippages at 5.6 per cent (annualised) for the quarter ended June 30, (3.5 per cent in 2012-13), CRISIL said in a statement

Rajeev Rishi, chairman and managing director, told Business Standard non-performing assets is a concern for the bank.

The bank has stepped up efforts to recover non-performing accounts. The recovery has been in excess of Rs 700 crore till now, he said.

CRISIL reaffirmed the bank’s certificates of deposit programme at “A1+”.

The ratings continue to factor in the strong support that Central Bank is likely to receive from the Government of India, the bank’s sizeable scale of operations, and its adequate resource profile.

Furthermore, the bank had a large proportion of restructured standard assets of 13.2 per cent as on June 30. The bank’s asset quality will remain weak over the medium term, given the challenging macroeconomic environment and the bank’s large exposure to vulnerable sectors such as infrastructure (particularly to power sector), construction, and iron and steel.

Central Bank also has a weak earnings profile, marked by low interest margins and high provisioning costs. The bank’s return on assets ratio remains significantly lower than that of its peers at around 0.03 per cent (annualised) for the quarter ended June 30, 2013 (0.4 per cent in 2012-13).

The bank’s profitability will continue to be adversely impacted by an increase in provisioning costs because of the asset quality challenges. Additionally, the bank’s net interest margins are likely to remain under pressure over the next few quarters because of high borrowing costs, CRISIL said.

Banking stocks to see strong opening on RBI move

However, gains made are unlikely to sustain through the day

Banking stocks are expected to open higher on Tuesday on the back of the RBI’s move to bring down short-term interest rates. The NSE Bank Nifty is expected to open up by about 2%, analysts said. However, the gains made are unlikely to sustain through the day, they added.


“The RBI’s measure will help the Bank Nifty to see a strong opening on Tuesday. It could do a peak of 4-5% during the day, but would give away some of the gains by the end of the day,” said Yogesh Nagaonkar, head of equity – institutional broking at Bonanza Portfolio. The NSE Bank Nifty closed Monday's trading session down 1.1% to 10,082.

On Monday, the central bank brought down the Marginal Standing Facility, or short-term borrowing rate by 50 basis points to 9%, further reversing measures taken by it in July to curtail the decline in the rupee.

Banking analysts said that while the rise could be across shares of all banks, those with higher short-term borrowings would benefit the most.

“Banks like Yes Bank, IndusInd bank, which have higher exposure to short-term funds could appreciate more than those with low short-term funding exposure. But the rise in the stock prices may not sustain through the day because the fear of a repo-rate hike by the RBI has still not vanished,” said Sunil Jain, VP-Equity Research, Nirmal Bang Securities.

Since July, the share price of Yes Bank has fallen by 37% while that of IndusInd bank has fallen by 22%.

“The effort of the newly appointed RBI Governor, Raghuram Rajan, has been to flatten the yield curve and the measure taken by the RBI on Monday is a step in that direction. The rupee stabilising at these levels may have prompted the central bank to take this measure,” said Varun Goel, head of PMS at Karvy Stock Broking.

Earlier this year in July, the RBI in its attempt to curb the rupee fall had increased short-term borrowing rates which put liquidity pressure on the system.

Godrej Consumer Products to acquire 30% stake in B:blunt

Godrej Consumer Products (GCPL) has entered into an agreement on October 07, 2013 to acquire a 30% stake in Bhabani Blunt Hair Dressing (B:blunt). B:blunt is a premier hair salon company with one of the strongest consumer franchises in this space.

Since launching the chain in 2005, Adhuna Bhabani Akhtar and Osh Bhabani have grown the brand across India. B:blunt, today has a pan-India presence with 17 outlets and 4 academies.

Godrej Consumer Products is a leader among India's Fast Moving Consumer Goods companies, with leading Household and Personal Care Products. Its brands include Good Knight, Cinthol, Godrej No. 1, Expert, Hit, Jet, Fairglow, Ezee, Protekt and Snuggy, among others, which are household names across the country.

Markets to get a green start cheering the RBI’s measures

The Indian markets made a good bounce back in the late trade of last session, despite being pressured by the weakness in rupee and heavy selling in banking stocks. Today, the start is likely to be modestly in green and the indices are likely to extend their momentum, as in a surprise move, the Reserve Bank of India (RBI) on Monday eased the liquidity tightening measures it had initiated earlier, by reducing the marginal standing facility (MSF) rate by a further 50 basis points (bps). The measure is likely to help the NBFCs and smaller wholesale-funded banks and easing the short-term rates and liquidity in the banking system. Meanwhile, India has lodged a strong protest against some of the proposals in the World Trade Organization's (WTO) planned agreement on trade facilitation as it will force the government to undertake major changes, including the way the Budget is presented. WTO has asked India to work out a solution to the vexed issue of food security programme ahead of the Bali ministerial meeting in December. There will be some buzz in the telecom sector, as the Telecom Commission has accepted telecom regulator’s proposal to permit spectrum trading and sharing, though it has asked TRAI to work out the modalities before implementing it.

The US markets continued their downward slide in the new week with major indices losing about a percent, as lawmakers failed to make any progress on resolving the impasse over a government spending bill. The Asian markets have made a mixed start and some of the indices are marginally in red concerned about the US developments after President Barack Obama reiterated that he won’t negotiate with Republicans over the shutdown.

Back home, Indian equity benchmarks, despite sluggish opening, managed to end the extremely volatile session near the neutral lines on Monday. Buying which emerged in late trade mainly acted as saving grace for domestic equity markets and helped Nifty to re-conquer its crucial 5,900 mark, while Sensex just shied away from 19,900 mark. Earlier, markets made a shaky start tracking weakness in Asian markets; moreover investors opted to remain on sidelines ahead of the Infosys’ quarterly results later this week that will kick start the earnings season for July-September quarter. Some cautiousness also came in after study by CII Ascon showed that industrial growth in the three months ended 30 September remained dismal despite the government introducing a number of reform measures to boost the economy. Choppy start in European counterparts too dampened the sentiments, moreover, most of the Asian markets shut shop in the red terrain with investors choosing to trim down positions on account of US lawmakers’ wrangle over the debt limit and partial government shutdown. Back home, weakness in Indian rupee against dollar too dampened the sentiments. Moreover, stocks related to banking sector remained under heavy selling pressure, led by the sharp fall of ICICI Bank which slipped by 1.50% on reports of raising an alarm over loan default by Dabhol power plant after being rendered idle due to fuel supply issues. However, key bourses witnessed sharp recovery in last leg of trade, supported by buying in software and technology counters on rupee weakness against the dollar. Sentiments also got some support as shares of metal companies continued their northward journey after encouraging data from China and on hopes of higher net profit growth on sequential basis. Additionally, shares of select non-banking finance companies (NBFC) that applied for the banking licenses edged higher after Finance Minister P Chidambaram said that the Reserve Bank of India (RBI) would shortly issue seven licenses. Finally, the BSE Sensex lost 20.85 points or 0.10%, to settle at 19895.10, while the CNX Nifty declined by 1.15 points or 0.02% to settle at 5,906.15.