News Flashes

Bank rate cut to 7%

1st March, 2001. Reserve Bank of India governor Bimal Jalan today cut the benchmark bank rate by half a percentage point (50 basis points) to seven per cent today hours after the finance minister expressed the hope that his reform-oriented Budget would prompt the central bank to cut interest rates. This is the second bank rate cut in a fortnight. On February 16, the central bank had cut the bank rate as well as banks’ cash reserve ratio (CRR) by half a percentage point each in the run-up to the Union Budget, in which Sinha pared all administered interest rates on small savings schemes by between one and one and a half percentage point (100-150 basis points). Bank of Baroda cut its prime lending rate (PLR) and housing finance major Housing Develop- ment Finance Corporation (HDFC) cut its loan as well as deposit rates in immediate response to the latest rate cut by the RBI. Industrial Development Bank of India (IDBI) is expected to announce a rate cut on Friday while ICICI is adopting a wait and watch policy for the next few days. In the gilts market, long-term bonds’ prices zoomed by over a rupee while short-term bonds’ prices gained around 60 paise. The yield of the 10-year bond crashed to a historic low of 9.60 per cent. In the forex market, forward premiums softened. Bank of Baroda introduced a tenor-linked PLR and cut its short-term rate (up to 180 days) by two percentage points to 10 per cent, medium-term rate (181 days to less than one year) by one percentage point to 11 per cent and long-term rate (above one year) by half a percentage point to 11.5 per cent. HDFC chairman Deepak Parekh said the corporation had cut its lending and deposit rates by half a percentage point.“The loan rates have come down to 12.5 per cent. We have also introduced a new slab for small loans up to Rs 2 lakh, which is aggressively priced at 11.75 per cent for 15-year tenure,” Parekh said. State Bank of India chairman Janaki Ballabh said the bank would take stock of the changing situation when its asset liability committee (Alco) meets next week. The bank is expected to refrain from a further cut in the PLR but may pare its deposit rates. Bank of India's Alco is meeting over the weekend to decide on a rate cut."A PLR will be accompanied by a similar cut in the deposit rates as the bank will need to protect its spread," said a senior BoI official. Union Bank of India is expected to announce a rate cut tomorrow. Among the new private banks, the Centurion Bank's board is meeting next week to decide on a rate cut. "The rates may go down by 50-100 basis points," said Centurion Bank director VS Srinivasan.IndusInd Bank, which has already cut its PLR, might go for another rate cut, its managing director KR Maheshwari said. HDFC Bank will also take a decision on a rate cut next week. ICICI Bank, which cut its PLR as well as deposit rates yesterday, immediately after the Budget was presented, will not go for a second round of cuts."We had already factored in another rate cut when we changed our interest rates," the bank's senior executive vice-president, MN Shenoi, said. Global Trust Bank's executive vice-president, A Anchan, hinted at a rate cut in the next few days.

Fast Track Scheme under Section 560 of the Companies Act – Extension of Scheme for the State of Gujarat till 31.3.2001

The last date for Fast Track Scheme under Section 560 of the Companies Act launched by the Department was 31.1.2001. However, keeping in view of the magnitude of the calamity that has unfortunately be-fallen on the State of Gujarat on 26-1-2001, causing massive loss to life and property in the State and so also the wide spread disruption of public services including posts, telegraph and communication along with the representations received from the concerned bodies the Government has extended the scheme under section 560 till 31-3-2001 for the State of Gujarat only.

Nasdaq opens India office, to help local firms

The Nasdaq stock exchange on Monday opened its Indian office in Bangalore and said it would help more Indian companies access low-cost funds. "We want to give the existing Nasdaq-listed Indian companies a very high level of service and see that they are properly presented to US investors," Nasdaq vice-chairman Alfred R Berkeley told a news conference in the southern city. "Secondly, we want to assist other companies looking to list on the Nasdaq," he said. "The intention is to open a window for Indian companies to access global funds." Nasdaq officials said the Bangalore office was the fourth outside the United States for the 30-year-old exchange after London, Tokyo and Brazil. Bangalore-based Infosys Technologies in 1999 became the first Indian company to list on the Nasdaq. Since then, internet firms Satyam Infoway and Rediff.com have also listed on the tech-laden exchange. Berkeley said that Indian firms aspiring to list on the Nasdaq exchange should use the present lull in the U.S. capital markets to do their homework on listing requirements. "Indian companies have to adopt US accounting standards, US (corporate) governance standards and disclosure norms," he said. "Some people see it as a burden but I think it is a small price to pay to access low-cost capital." Source : The Economic Times Dated : 13 February, 2001

DCA to cut 17,000 firms' name

About 17,000 companies would cease to exist in the next few weeks when the Department of Company Affairs completes the process of striking off their names from the Register of Companies. These companies had opted for the department’s fast track deregistration scheme — Fast Track Section 560 — for defunct companies launched on September 28, 2000. The department, according to some estimates, expected at least 60,000 companies which are not carrying on any business operations to opt for voluntary deregistration, though the number of such entities, according to other estimates, is closer to 80,000. DCA sources said it had sold a little less than 26,000 forms over the four months the scheme was open. "We expect about 70 per cent of the companies which purchased the forms for fast track deregistration to wind up operations in the next few weeks," DCA sources said. The real picture will emerge in the next few weeks. In the first three months of the scheme, till December end, about 10,000 companies had opted for the scheme and 20,000 forms had been sold. In the last month — January 2001 — of the scheme, several more companies came forward to avail the scheme. The scheme assured companies deregistration within 37 days of application before the Registrar of Companies: seven days to process the application and 30 days to complete the striking off the name of a company from register of companies. The scheme had been planned as a simple exit route for companies which have no business. Maximum number of forms were sold in the southern region (8,698) followed very closely by the western region (8,077). A little more than 6,050 forms were sold in the northern region while just about 2,360 companies in the eastern region were considering the option of taking the fast track route for winding up. Source : The Economic Times Dated : 12 February, 2001

Preference issues’ policy to be reviewed

The Policy relating to the issue of non-convertible preference shares issued by Indian companies to foreign Investment Promotion Board (FIPB) by several ministries, particularly telecommunications. The department of telecommunications (DoT) secretary has pointed out to the FIPB that the possibility of a breach of the sectoral cap through an investment company has become stronger after the department of economic affairs (DEA) in the finance ministry relaxed guidelines relating to the issue of preference shares by taking them out of the sectoral cap. As a result, several companies have issued preference shares many times their paid-up capital, to the extent that it smacks of abuse of this provision. The DoT secretary has citied the example of Telecom Investment India (TIIL) whose paid up capital is about Rs. 5 crores. The company has issued preference shares to Hutchison Whampoa Group of Hong Kong to the tune of Rs. 570 crores. So far, no limits have been set on the quantum of non-convertible preference shares, which could be issued by a company. This is a because preference capital comes to the aid of capital-deficient Indian companies to raise capital without breaching the sectoral cap, at a slightly higher cost than normal equity. However, once companies leverage as much as 100 times their paid-up capital through preference capital, then their ability to service this capital becomes an issue. Monies raised through preference shares constitute high-cost capital, because investors have to be rewarded “additionally” for forgoing voting rights. It may be recalled that at one point, Indian companies were issuing preference capital to their foreign promoters at such high rates of return that ultimately, FIPB was forced to move in to limit the returns to 1 percent. Source : The Economic Times Dated : 6 February 2001

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