LIC prunes Reliance Ind stake; FIIs hike more in Q4

LIC lowered its stake in Reliance Industries Ltd (RIL) with sale of shares worth an estimated Rs 500 crore during the previous quarter, but foreign investors raised their holding by more than Rs 1,200 crore during the same period.

As per its latest shareholding pattern, filed by RIL with the stock exchanges on Tuesday, LIC’s stake in the firm dipped from 7.31 per cent to 7.09 per cent during the January-March, 2012 quarter.

During the same quarter, the total holding of foreign institutional investors (FIIs) in the company rose from 17.03 per cent to 17.55 per cent.

As per RIL’s current valuation of Rs 2,44,412 crore, the decline of 0.22 per cent stake in LIC’s holding would be worth over Rs 500 crore. On the other hand, the increase of about 0.52 per cent in the FII holding is estimated to be worth over Rs 1,200 crore.

Among individual foreign shareholders, the holding of the Government of Singapore in RIL rose to 1.16 per cent during the quarter, from 1.09 at the end of previous quarter.

Also, the stake of Franklin Templeton Investment Funds rose to 1.22 per cent, from 1.08 per cent.

The total holding of domestic institutional investors declined from 11.35 per cent to 10.71 per cent.

For the fiscal ended March 31, 2012, the FII holding declined marginally from 17.7 per cent to 17.55 per cent, while that of domestic institutional investors also dipped from 10.79 per cent to 10.71 per cent.

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SREI Infra welcomes Reserve Bank's cut in repo rate

Reserve Bank of India's move to cut repo rate by 50 basis points is a welcome measure, said Mr Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance Ltd.

“RBI has the habit of springing a surprise every time. This time too when the market was expecting a 25 basis point hike in policy rates, RBI reduced both repo and reverse repo rates by 50 basis points each. This is a welcome development for a stagnating economy as this is expected to spark off fresh investments,” Mr Kanoria said.

Infrastructure sector, which is highly interest rate sensitive, is expected to benefit from this cut.

However RBI's actions alone are not sufficient to improve the investment climate in the country. “I feel any pick-up in investment is now more reliant on easing of policy-related bottlenecks than on reduction in interest rates,” he pointed out.

The central bank's efforts need to be supplemented by government action on various policy fronts. “To attract investments in infrastructure, transparency and certainty on issues like taxation, land acquisition criteria and environmental clearance norms are a must,” he said.

There is a need to step up investments in order to address the supply-side constraints that have kept inflation at stubbornly high levels, he added.

Srei, Mr Kanoria said, would look forward to the draft NBFC guideline which is likely to be released by end-June 2012.

shobha@thehindu.co.in

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Muthoot Fincorp sets up 5 branches in West Bengal

Muthoot Fincorp Ltd has set up five branches in West Bengal. The company plans to set up 25 branches in West Bengal during this fiscal, said Mr. Thomas John Muthoot, chairman and managing director, Muthoot Fincorp.

The five branches are located at Howrah – Dobson Raod, Bow Bazaar, Serampore – Belting Bazaar, Khardha and Baruipur.

A flagship company of Muthoot Pappachan Group, Muthoot Fincorp currently has 2267 branches across the country.

“The thriving unorganised sector, especially in Kolkata, offers huge potential to the organised players. Also considering the type of gold ornaments purchased by consumers here, it is closer to south than north markets with regards to the quality of gold,” he said.

The company will offer a bouquet of products and services to its customers in the state including - Express 3 Minute Gold Loan, a product designed to meet the quick need for liquidity and Smart + Gold Loan, where the customer can repay in easy instalments.

Muthoot Fincorp will employ close to 125 people during this fiscal. EOM.

shobha@thehindu.co.in

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RBI surprises with 50 bps rate cut, but cheaper loans not yet

The RBI Governor, Dr D. Subbarao, cut key policy rates for the first time in 3 years on Tuesday.

The repo rate (the rate at which the RBI lends money to banks) was cut by 50 basis points from 8.50 per cent to 8.00 per cent. Consequently, reverse repo rate (normally fixed at a spread of 100 basis points below the repo rate) is now 7.0 per cent.

The marginal standing facility rate, which has a spread of 100 basis points above the repo rate, is now at 9.0 per cent.

Banks have been given some relief on the liquidity front. The RBI has decided to raise the borrowing limit of scheduled commercial banks under the marginal standing facility (MSF) from one per cent to two per cent of their net demand and time liabilities.

Inflation target

The move to cut rates comes in the backdrop of a slowdown in growth which decelerated to 6.1 per cent in the third quarter of last year. Headline WPI inflation had moderated to below 7 per cent by end March although there are fears that it will flare up again. The RBI has, therefore, played it safe by projecting an inflation target of 6.5 per cent by March 2013. Its GDP projection for this year is 7.3 per cent.

The RBI had given guidance in January that it would reverse its tightening cycle.

There was a pause for two quarters on key policy rates although there was relief on the liquidity front with 125 basis points CRR cut, done in two stages in January and March. This released Rs 80,000 crore into the system. The RBI also injected about 1.3 lakh crore through open market operations. The liquidity crunch at that time, as depicted by bank borrowings in the repo window of the order of 2 lakh crore, has since moderated to around Rs 70,000 crore now.

The RBI flagged all its usual concerns and risk factors to its projections of growth and inflation. They were oil prices, the credibility of fiscal deficit numbers, crowding out effect of government borrowing, difficulties of financing a high current account deficit and persistently high food inflation.

Guidance

The guidance that the RBI gave (to put it simply) were:

1. Don't expect further cuts. Inflationary risks are still high.

2. Unless the Government cuts subsidies, demand pressures will continue and reduce scope for further cuts. Petrol prices need to be raised.

3. Liquidity conditions are returning to the comfort zone of the RBI, as banks are borrowing lesser amounts in the repo window. But lest banks take that as a hint, warnings of appropriate action have been issued.

The RBI also announced some development and regulatory measures in its annual policy.

1. Another no-frills account: In a variation of its 'no-frills' accounts, banks have been told to offer a ‘basic savings bank deposit account’ with certain minimum common facilities and without the requirement of a minimum balance to all their customers.

2. No Prepayment penalty : Banks will be mandated not to levy foreclosure charges or pre-payment penalties on home loans extended on a floating interest rate basis.

3. UID No. for everyone by March 2013: Banks are being advised to initiate steps to allot a unique customer identification code (UCIC) number to all their customers.

4. On Basel III, final guidelines will be issued by end-April 2012, and final guidelines on liquidity risk management and liquidity standards by end-May 2012.

5. Curbing gold loan NBFCs:

First, banks should reduce their regulatory exposure ceiling to a single NBFC, having gold loans to the extent of 50 per cent or more of its total financial assets, from the existing 10 per cent to 7.5 per cent of bank’s capital funds.

Second, banks should have an internal sub-limit on their aggregate exposure to all such NBFCs, having gold loans to the extent of 50 per cent or more of their total financial assets, taken together.

vageesh@thehindu.co.in

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Oriental Bank cuts FD interest rates by up to 0.5%

Ahead of RBI’s annual credit policy announcement, Oriental Bank of Commerce (OBC) has slashed fixed deposit rates by up to 0.5 per cent, a development which could signal a reversal of the high interest rate regime.

The bank reduced interest rate on fixed deposits with maturity between 1-2 years by 0.25 per cent to 9.50 per cent, OBC said in statement.

For term deposits worth Rs 15 lakh to Rs 1 crore with maturity between 46-90 days, the new interest rate will be 0.5 per cent lower than the existing 9 per cent, it said.

The new rates would be effective from tomorrow. Meanwhile, the bank has already reduced base rate or minimum lending rate by a marginal 0.1 per cent effective April 11.

The bank has reduced the base rate to 10.65 per cent from 10.75 per cent, the statement said.

“We have taken a bold decision ahead of the RBI policy. There are some events in the last few months that have enabled us to take this decision and pass on the cost benefit to our customers,” OBC Chairman and Managing Director Mr S L Bansal said.

The reduction in base rate will make all kind of loans, including housing and auto loans cheaper by at least 0.1 per cent.

Further the bank has increased its rate of interest for deposits applicable for senior citizens from 0.5 per cent to 0.6 per cent over and above the card rate.

Interestingly, some of the large public sector banks like Bank of Baroda and Bank of India raised their deposit rates upwards last month.

Increase in the fixed deposit rates by these banks was due to tight liquidity situation.

To improve liquidity in the system, RBI in March had reduced the cash reserve ratio (CRR) - the portion of deposits banks require to keep with the central bank - from 5.5 per cent to 4.75 per cent.

With the reduction, the central bank pumped in Rs 48,000 crore in the economy.

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