Infra debt funds set to get tax sops

The proposed debt funds for infrastructure would be in the form of venture capital (VC) or private equity (PE) funds and would qualify for special tax incentives. These funds, to which foreign investors are expected to subscribe to, would also be given exemptions from Sebi regulations for foreign VC funds and also the RBI rules on external commercial borrowings (ECBs), official sources said.

When contacted, department of economic affairs secretary, R Gopalan, said the detailed criteria for these funds, which are expected to play a major role in bridging the country’s infrastructure deficit, would be notified within a month. He, however, refused to give further details.

In normal course, creation of such debt funds are required to meet the relevant Sebi norms for foreign venture funds, RBI rules on external commercial borrowings. The special dispensation is being mulled with a view to providing regulatory leeway to the proposed funds, the sources added.

Finance minister Pranab Mukherjee proposed setting up of dedicated infra debt funds in order to catalyse the flow of foreign funds to India’s infrastructure sectors, which need long-term, low-cost funds. The country faces a 30% gap in its infrastructure funding requirement—set at R41 lakh crore in the twelfth five year plan (2012-17).

As for the tax incentives, the government has already incorporated the changes that will be needed to float these funds in the Finance Bill, 2011 itself. According to budget papers, Section 10 of the Income Tax Act is being amended to provide enabling power to the Central government to notify an infrastructure debt fund. The income of such fund would be exempt from tax, but it would require to file a return of income.

Section 115A will also be amended to provide that any interest received by non-resident from such a fund is taxed only at 5%. These amendments are proposed to take effect from June 1, 2011. The lower withholding tax of 5% is aimed at attracting overseas investors.

Sources added that a policy decision has been taken to give the special regulatory benefits to the proposed infrastructure debt funds without having to amend existing rules. “When Planning Commission came out with the idea of such a Fund, they said certain exemptions should be given to it from the Sebi regulations as a special dispensation. We thought it would look odd if exemption is given to one particular fund. So a general framework is being worked out so that all such funds can enjoy these benefits,” the sources said.

Planning Commission had originally proposed a $11 billion India Infrastructure Debt Fund.

Source: Financial Express

Read more »

Oriental Bank raises FD rates on two maturities

PSU lender Oriental Bank of Commerce (OBC) raised fixed deposit rates up to 50 basis points on two select maturities.

Fixed deposit rates for maturity between one year to 499 days and that of 501 days to two years have been raised from 8.50 per cent to 9 per cent.

The 9 per cent interest rate will be applicable to both, term deposits of less than Rs. 15 lakh and that between Rs. 15 lakh to Rs. 1 crore, OBC said in a statement.

However, the rates on term deposits above Rs. 1 crore for the same period have been kept same, it added.

The new rates would be effective from March 7, 2011.

Source: Financial Express

Read more »

Canara Bank raises $350 mn via bonds

Public-sector lender Canara Bank said it has raised USD 350 million (about Rs. 1,575 crore) through issuance of bonds.

"The Bank has raised USD 350 million through issue of senior unsecured bonds under medium-term note (MTN) programme through its London Branch," Canara Bank said in a filing to the Bombay Stock Exchange (BSE).

The interest rate for the bond is 5.125 per cent per annum and is for a period of 5.5 years, it said.

It further said the bonds are listed on the Singapore Stock Exchange.

Shares of Canara Bank ended at Rs. 610.30 on the BSE, down 1.36 per cent from its previous close.

Source: Financial Express

Read more »

Indian Bank to add 100 branches, come with IPO

Press Trust of India / Kochi March 4, 2011, 17:56 IST

Public-sector lender Indian Bank today said it aims to expand its branch strength by adding 100 branches across the country by next financial year.

Of this 25-30 branches would be in Kerala, bank's Executive Director Rajeev Rishi told reporters here.

Currently, Indian Bank has over 1,800 branches in India and three overseas -- Singapore, Colombo and Jaffna. Within the three years, it plans to increase its branch strength to 2,500, total employees to 25,000, business to Rs 5 lakh crore and net profit to Rs 2,500 crore, he said.

The bank also plans to enter the capital market through IPO route by next fiscal, he said, adding they have already written to the government and the RBI.

The bank's focus would be on the rural population, particularly those in remote villages and unbanked areas, he said.

Under the Financial Inclusion project, the bank would be covering about 20,000 villages within the next two years, he said, adding in Kerala, it has already brought Kollam district under complete financial inclusion.

Kerala has been bifurcated into two zones Ernakulam and Thiruvananthapuram. Ernakulam zone has 50 branches and 30 ATMs. The bank will be opening two more branches at Manjeri and Koyilandy before this fiscal-end, he added.

Source: Business Standard

Read more »

Banks' borrowing from RBI to soar in mid-March

Reuters / Mumbai March 04, 2011, 16:37 IST

Banks' woes over tight liquidity conditions will mount in the middle of March during advance tax outflows, which could push up the call rate and also borrowing from the central bank's daily repo window.

Dealers expect banks to borrow more than Rs 1.25 lakh crore a day from the central bank compared with an average daily borrowing of Rs 74,000 crore daily so far this month.

"Borrowing from the Reserve Bank of India (RBI) could touch a peak of Rs 1.5 lakh crore during mid-March and the inter-bank cash rate will be around 7.5%," said Manish Wadhawan, director and head of rates trading at HSBC India.

The call money rate, which is the overnight borrowing and lending rate of banks, may not breach 7.5%, which should be a comfort to the central bank given that banks can meet their funds requirement from the RBI's repo window.

Cash tightness in the banking system has been acute since November following inadequate government spending after the windfall collection from telecom spectrum, and public withdrawal of money from banks.

From November through January, banks borrowed an average around Rs 85,000 crore a day from the RBI's repo window, touching over Rs 1 lakh crore even in February.

Dealers estimate the advance tax outflows to be around Rs 50,000-60,000 crore, which could take the average liquidity deficit to around Rs 1.5 lakh crore.

Liquidity-driven short-term rates have been edging up with the three-month CD rates at 10.10% while the one-year was at 10.20% on Thursday.

Short-end rates on certificates of deposits are expected to inch up faster compared with the long-end in March, leading to an inversion in the CD curve, a phenomenon not seen since October 2008, when the global recession was at its height.

Expectations of at least a 25-basis-point rate hike at the March 17 central bank policy review, to contain inflation pressure, is also adding to upward pressure on short-term rates, bankers added.

Besides the existing cash crunch, a pick-up in credit growth for banks will also keep the demand for funds high.

Banks' loan growth has been a robust 23.9% on year to February compared to the RBI's projection of 20% for FY11.

"Repo borrowings should go up also because we expect that the credit growth will pick up. There has been good incremental credit growth. So going forward if it becomes stronger as expected, the repo borrowing will also go up," an official from a state-run bank said.

However, dealers expect the cash crunch to ease by March-end and liquidity deficit to come down to around Rs 40,000 crore on government spending.

The RBI has said it aims to maintain liquidity in the range of positive Rs 50,000 crore to negative Rs 50,000 crore and therefore should be comfortable with cash conditions March-end.

"Post the advance tax, for a short while the call rates may go up to 7% but that will be only a temporary aberration for about a week's time," said RVS Sridhar, president and head of markets of treasury at Axis Bank.

MARKET STRATEGY

While many banks may be genuinely borrowing from RBI to meet liquidity mismatches, some may try to make hay while the sun shines.

These banks usually during such cash crunch conditions, use their excess government bond holdings, otherwise known as statutory liquidity ratio or SLR, to borrow funds from RBI at the repo rate which is 6.5% now, and lend in the uncollateralised call market at 7.25-7.50%, thereby making a plum arbitrage gain.

"This is nothing new and always happens with mostly public sector banks who run high SLR during advance tax payments," said a foreign bank dealer.

Some dealers also expect cash rate to remain near 7.50% on March 31 despite improved liquidity, as typically banks prefer to stay away from lending on the last day of a quarter as they would otherwise need to set aside capital for such lending, which would reduce their capital adequacy ratio.

Source: Business Standard

Read more »