India Post Signed MOU with National Stock Exchange for Financial Awareness

India post signed a Memorandum of Understanding (MOU) with National Stock Exchange (NSE) on 26 September 2011 for deploying LCD TV screens in selected post offices across the country. The MOU was signed by Alka Jha, General Manager (BP), India Post and T. Vanket Rao, Vice President of National Stock Exchange. This MOU is aimed at creating financial awareness among the public. To begin with LCD TV screens will be deployed in 50 post offices across the country.  

These LCD TV screens shall be utilized for disseminating financial awareness and awareness on various postal products and services for the common public visiting post offices. This step will bring the financial market place closer to the people considering the importance and footfall at post offices.

Besides publicizing products available in post offices, India Post will use the facility to train the postal staff. Showcasing information about market will help people develop live skills about finances and people will be able to manage their finances better.

Bombay Stock Exchange (BSE) received SEBI’s Approval to set up SME Exchange

Asia’s oldest bourse Bombay Stock Exchange (BSE) on 28 September 2011 got an approval to set up an exchange for small and medium enterprises (SMEs) from the capital markets regulator Securities and Exchange Board of India (SEBI).

The permission from SEBI is likely to boost  BSE's efforts in offering multiple asset classes to Indian investors. The permission to set up SME will enable BSE to contribute towards the governmental agenda of greater financial inclusion and allowing promising enterprises of the future to access retail capital.

The new exchange set up by BSE will allow small unlisted domestic companies, with less than Rs 10 crore capital base, to raise money from the primary market.

BSE was committed to deliver the best products, services, and asset classes to all our stakeholders and look forward to the success of the SME segment. While the government has taken several measures to ease access to credit, giving them easier access to equity is the next step in that process. The new exchange will be a facilitator in raising funds for SMEs.

BSE SME Exchange conducted several seminars for educating the SMEs on the benefits of listing and the preparations required for listing on the BSE SME Platform across the country. BSE SME tied up with channel partners, who include various institutions and associations engaged in the development of SMEs. More seminars are lined up in this year.

BSE SME planned for sectoral seminars for auto ancillaries, infrastructure, pharmaceuticals, manufacturing, agro-based industries, suppliers to OEMS and the like.

National Stock Exchange (NSE), India’s largest exchange, is currently awaiting a formal Sebi approval to start a similar SME exchange. In May 2011 Sebi had given an in-principle approval to both BSE and NSE to set up SME exchanges.

Sebi had on 2 June 2011 allowed exchanges to introduce programmes to enhance liquidity of thinly-traded securities in their equity derivatives segments. NSE currently controls almost the entire equity derivatives market, with a turnover of about Rs 29.63 trillion in August. BSE’s comparable turnover was Rs 34.09 crore.

For the 12th time since March 2010 RBI hiked Repo Rate by 25 basis points to control Inflation

In a move to contain persisting inflationary pressure, the Reserve Bank of India (RBI) hiked the short-term policy rate (repo rate) by 25 basis points from 8 per cent to 8.25 per cent on 16 September 2011. The reverse repo rate as a result got automatically adjusted to 7.25 per cent and the marginal standing facility (MSF) rate to 9.25 per cent.

Repo rate is the rate at which banks borrow from the central bank and reverse repo is the rate at which banks park their funds with the RBI. The central bank raised rates for the 12th time since March 2010.

Headline year-on-year wholesale price index (WPI) inflation rose from 9.2 per cent in July to 9.8 per cent in August 2011. Inflation in respect of primary articles and fuel groups moved up in August. Year-on-year non-food manufactured products inflation rose from 7.5 per cent in July to 7.7 per cent in August 2011 suggesting a continupus demand pressures.

Oil marketing companies raised the price of petrol by Rs.3.14 a litre with effect from 16 September 2011. The rise in petrol prices is to have a direct impact of 7 basis points to WPI inflation, in addition to indirect impact with a lag.

GDP growth decelerated to 7.7 per cent in the first quarter of 2011-12 from 7.8 per cent in the previous quarter (January to March) and 8.8 per cent in the first quarter of 2010-11. The index of industrial production (IIP) slowed from 8.8 per cent year-on-year in June 2011 to 3.3 per cent in July 2011. Excluding capital goods, the growth of IIP was higher at 6.7 per cent in July 2011 compared with 4.4 per cent in June 2011. Cumulatively, the IIP increased by 5.8 per cent during April-July 2011, compared with an increase of 9.7 per cent in the corresponding period of 2010.

SEBI issued Substantial Acquisition of Shares and Takeovers Regulations, 2011

Securities and Exchange Boar of India (SEBI) on 23 September 2011 notified the new takeover rule under which an entity buying 25% stake in a listed firm will have to mandatorily make an open offer to buy an additional 26% shares from the public. The notification follows the decision taken at SEBI's board meeting in July 2011.

The new norms mark an increase in the open offer size for public shareholders from 20 per cent currently. The trigger for making such an offer was raised from 15 per cent under the existing regulations.

According to SEBI no acquirer shall acquire shares in a target company which taken together with shares or voting rights held by him entitle them to exercise 25 per cent or more of the voting rights unless the acquirer makes a public announcement of an open offer.

The new regulations, titled as The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 will come into effect from October 2011.

As per the new rules there would be no separate provision for non-compete fees, which allows promoters to higher price than the public shareholders, and all shareholders should be given the exit option at the same price. SEBI, as part of the new code, allowed voluntary offers subject to certain conditions.

Regarding control and offer size, SEBI mentioned that the existing definition of control would be retained and the minimum offer size shall be increased to 26% of the target company.

Accepting the recommendations of a SEBI-appointed panel on the matter, the regulator also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals. While the recommendation on trigger was accepted, the suggestion for offer size has been kept lower due to intense opposition from industry and other market participants.

The panel had opined against non-compete fees for promoters which often worked out as high as 25% of the deal value.

A SEBI panel on new takeover regulation had in 2010 recommended an open offer for buying up to 100% in the target company, while suggesting an increase in the trigger limit to 25%.

RBI directed Banks to implement Fraud Risk Management Practices

The Reserve Bank of India (RBI) on 22 September 2011 directed banks to implement various safety measures related to credit card and debit card usage over a period of next two years in order to eliminate cases of fraud and ensure security of transactions.

The RBI emphasised on the need to migrate to Euro pay MasterCard Visa (EMV) chip and PIN based cards from the present magnetic strip cards as the magnetic strip card is vulnerable to skimming and cloning. The need for a complete migration to EMV chip and PIN based cards could be considered based on the progress of Aadhar (Unique Identification Card) in 18 months time frame.

The RBI directed banks to strengthen the existing payment infrastructure and future proofing system along with adoption of fraud risk management practices within a period of next 12-24 months. An imperative need was felt to secure card based transactions as well to protect the interests of the card holders.

In the circular issued in this repect the central bank directed banks to implement improved fraud risk management practices by 30 September 2012 and secure the technology set up by 30 September 2013.

International Bank for Reconstruction and Development (IBRD)

 

 

IBRD and its associate institutions a group are known as the World Bank. The Second World War damaged economies of the most of the countries particularly of those who were directly involved in the war. The global war had completely dislocated the multilateral trade and dislocated multilateral trade and had caused massive destruction of life and property. In 1945, it was realised to concentrate on reconstructing these war affected economies in a planned way. IBRD was established in December 1945 with the IMF on the basis of recommendation of Bretton Wood Conference. This is the reason why IMF and IBRD are called 'Bretton Wood Twins'. IBRD started functioning in June 1946. World Bank and IMF are complementary institutions.

India is a member of four constituents of the World Bank Group i.e. IBRD, IDA, IFC, and MIGA (Multilateral Investment Guarantee Agency) but not of its fifth institute ICSID (International Centre for the Settlement of Investment Disputes).

Objective of World Bank

According to the Clause I of the agreement made at he time of establishment of World Bank, it was assigned the following objectives:

1. To Provide long-run capital to member countries for economic reconstruction and development. World Bank provides capital mainly for following purposes -
   (i) To rehabilitate war ruined economies (this objective is fully achieved)
   (ii) To finance productive efforts according to peace time requirement.
   (iii) To develop resources and production facilities in underdeveloped countries.
2. To induce long-run capital investment for assuring BOP equilibrium and balanced development of international trade. (This objective was adopted to increase increase the productivity of member countries and to improve economic condition and standard of living among them).
3. To promote capital investment in member countries in following ways:
   (i) To provide guarantee on private loans and capital investment.
   (ii) If private capital is not available even after providing guarantee, then IBRD provides loans for productive activities in considered conditions.
4. To provide guarantee for loans granted to small and large units and other projects of member countries.
5. To ensure the implementation of development projects so as to bring about a smooth transference from a war-time to peace economy.

IMF Vs. World Bank

IMF and World Bank are Bretton Wood Twins. Both the institutions were established to promote international economic cooperation but a basic difference is found in the nature of economic assistance given by these two institutions. World Bank provides long term loans for balanced economic development, while IMF provides short-term loans to member countries for eliminating BOP disequilibrium. Both these institutions are complementary to each other. The eminent world economist George Schultz had suggested in American Economic Association Conference in January 1995, for the merger of IMF and World Bank.

Membership of the World Bank and Voting Right

Generally every member country of the IMF automatically becomes member of World Bank. Similarly, any country which quit IMF automatically expelled from the World Bank's membership. But under a certain provision a country leaving the membership of IMF can continue its membership with World Bank. If 75% member of the bank gives their vote in its favour.

Any member country can be debarred from the membership of World Bank on following grounds:

1. Any member country can quit the bank simply by written notice to bank, but such country has to repay the granted loans on terms and conditions decided at the time of sanctioning the loan.
2. Any country working against the guidelines of bank can be debarred from membership by the board of governors.

Like IMF, World Bank has also two types of members: 'founder members' and 'general members' the world bank has 30 founder members who attained membership by December 31, 1945. India is also among these founder members. The countries joining the World Bank after December 13, 1945 come under the category of general members. At present total membership of the World Bank is 182. The voting right of member country is determined on the basis of member country's share in the total capital of the bank. Each member has 240 votes plus one additional vote for each 1,00,000 shares of the capital stock held.

Capital Resources of World Bank

The initial authorized capital of World Bank was $ 10,000 million, which was divided in 1 lakh share of $ 1 lakh each. The authorized capital of the bank has been increased from time to time with the approval of member countries. On June 30, 1996 the authorized capital of the bank was $ 188 billion out of which $ 180.6  billion (96% of total authorized capital) was issued to member country in the form of shares. Member countries repay the share amount to the world bank in following ways:

1. Two percent of allotted shares are repaid in Gold, USD or SDR. 
2. Every member country is free to repay 18% of its capital share in its own currency.
3. The remaining 80% share is deposited by member country only on demand by the World Bank.

Bank is managed by an elected President. On July 1, 2007, Robert B. Zoellick became the 11th President of the World Bank. The headquarter of World Bank is at Washington DC.

IDA (established on Spetemeber 24, 1960) and IFC (established in July, 1956) are the tow main associate institutions of IBRD. These institutions work under the supervision of World Bank. MIGA is also an associate institution in the World Bank group.

Banks Lending Operations

IBRD gives loan to members in anyone or more of the following ways:

1. By granting or participating in direct loans but its own funds.
2. By granting loans out of the fund raised in the market of a member or otherwise borrowed by the bans and 
3. By guaranteeing the whole or part loans made by private investors through the investment channels.

Before a lone is made or guaranteed the bank ensure that the -

1. Project fro which the loan is asked has been carefully examined by the competenet committee as regards the merits of the proposal.
2. Borrower has reasonable prospect for the repayment of loans.
3. The loan is meant for productive purposes and 
4. Tthe loan is meant for reconstruction and development.

Functions of the World Bank

Presently, The World Bank is playing the main role of providing loans for development works to member countries, specially to under-developed countries. The World Bank provides long-term loans for various development projects of 5 to 20 years duration. The loaning system of the bank can be explained with the help of following points:

1. Bank can grant loans to a member country upto 20% of its share in paid up capital.
2. Bank also provides loan to private investors belonging to member countries on its own guarantee, but for this loan private investors have to seek prior permission from those countries where the amount will be collected. For such loans the consent of that country is also required whose currency is given in loans. For granting such guarantee, the Bank charges 1% to 2% as service charge.
3. The quantum of loans, interest rate and term and conditions are determined by the Bank itself.
4. Generally, Bank grants loan for a particular project duly submitted by the member country.
5. The debtor nation has to repay either in reserve currencies or in the currency in which the loan was sanctioned.

Besides, granting loans for reconstruction and development, World Bank also provides various technical services to the member countries. For this purpose, the Bank has established 'The Economic Development Institute' and a Staff College in Washington.

Appraisal of the World Bank Activities

Bank has sanctioned 75% of its total loans to developing countries of Africa, Asia and Latin America while only 25% was given to developed nations of Europe. IFC, IDA and MIGA were established as the associate institutions of the World Bank in extending financial assistance to member countries. Besides, the Bank also tried its best to coordinate the functioning of nations granting loans to underdeveloped countries. In 1958, the Bank played an important role in establishing 'India Aid Club' for providing specific economic assistance to India. It has now been renamed as 'India Development Forum'. Such types of clubs and forums has also been established for other developing countries. The Bank has also established its mission in various developing countries for providing technical assistance for development project in these countries. The Bank also takes the guidance of experts of various international institutions like FAO, WHO, UNIDO, UNESCO for providing assistance for various projects related to agriculture, education and water supply.

Indian Economy Overview

The overall growth of gross domestic product (GDP) at factor cost at constant prices, as per Advance Estimates was 8.5 per cent in 2010-11, representing an increase from the revised growth of 8 per cent during 2009-10, according to the monthly economic report released for the month of July 2011 by the Ministry of Finance. The index of industrial production (IIP) rose to 8.8 per cent in June 2011, year-on-year (y-o-y), on back of manufacturing and within that, the capital goods sub-segment. During April-June 2011-12, the IIP growth was registered at 6.8 per cent as compared to 9.6 per cent during 2010-11.
The eight core infrastructure industries grew by 5.2 per cent in June 2011 as compared to the growth of 4.4 per cent in June 2010. In addition, exports in terms of US dollar, increased by 46.4 per cent during June 2011. On the back of such facts, India’s GDP is projected to continue to grow at a brisk pace of 8.8 per cent in 2011-12.
In addition, India has entered the club of top 20 exporters of goods and reclaimed its position among top 10 services exporters in 2010. India's goods exports rose by 31 per cent in 2010, helping it to improve its world ranking moving up two places to 20 from 22 in 2009.
Furthermore, the number of millionaire households in India will grow from 2,86,000 to 6,94,000 between 2011-2020, at a growth rate of 143 per cent, as per a study by the Deloitte Center for Financial Services. Among emerging markets, India is likely to have the highest per capita wealth among millionaires with US$ 4.25 million — placing it ahead of the US. In comparison to other BRIC (Brazil, Russia, India and China) nations, India is likely to experience the largest growth at 405 per cent in total wealth held by the millionaires.

The Economic Scenario

India has been ranked at the second place in global foreign direct investments (FDI) in 2010 and is expected to remain among the top five attractive destinations for international investors during 2010-12, according to a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012' by the United Nations Conference on Trade and Development (UNCTAD).
India's FDI gathered momentum with the inflows growing by 310 per cent in June 2011 to touch US$ 5.65 billion. It is the highest monthly inflow during the last 11 years. The total FDI stood at US$ 16.83 billion during January-June 2011, nearly 57 per cent higher than the US$ 10.74 billion received during the same period last year.
Non-resident Indian (NRI) inflows in the first quarter of 2011-12 has witnessed a rise of 38 per cent as compared to the same period in 2010-11. NRIs invested US$ 1.54 billion in various NRI deposit schemes during April-June 2011.
Private equity (PE) investments in India stood at US$ 6.14 billion in value terms, while the number of deals increased by 33 per cent to 195, during January-June 2011, according to data compiled by Chennai-based Venture Intelligence. The rise in the value of the deals so far (June 2011) recorded a growth of 52 per cent, as compared to US$ 4.04 billion raised during 2010.
India's foreign exchange (Forex) reserves have increased by US$ 1.6 billion to register US$ 318 billion during the week ended August 19, 2011, according to data released by the Reserve Bank of India (RBI). The increase in Forex is largely attributed due to valuation changes.
The Government has approved fund raising worth Rs 60,950 crore (US$ 13.24 billion) by companies through external commercial borrowings (ECB) or foreign currency convertible bonds (FCCB) for infrastructure projects in the financial years 2009-2011.
India's merchandise exports have registered an increase of nearly 82 per cent during July 2011 from a year ago to touch US$ 29.3 billion, according to a release by the Ministry of Commerce and Industry. Exports during April-July 2011 reached US$ 108.3 billion, up 54 per cent over the same period a year ago, according to Mr Rahul Khullar, Commerce Secretary. Exports in the referred period increased on back of demand for engineering and petroleum products, gems and jewellery and readymade garments.

Brief Sectoral Update

The Indian metals and minerals sector has received PE investments worth US$ 650 million in the first half of 2011, according to estimates by VC Edge. The metal making industry has attracted PE players in addition the mining assets are also a major draw due to the sharp demand for ownership of raw materials.
India currently holds the 12th position in Asia and 68th position in the list of overall in the list of the world's most attractive tourist destinations, as per the Travel and Tourism Competitiveness Report 2011 by the World Economic Forum (WEF).Foreign tourist arrivals (FTAs) during the period January-June 2011 were 2.91 million with a growth of 10.9 per cent.
Moreover, India's domestic air traffic has been registered as the second highest rate after Brazil, according to global figures for June 2011, compiled by the International Air Transport Association. India's domestic traffic grew by 14 per cent in the same period as against Brazil's 15.1 per cent.
Furthermore, the Indian Railways has recorded earnings worth Rs 24,756.18 crore (US$ 5.37 billion) in the first quarter of 2011-12, as compared to Rs 22,074.92 crore (US$ 4.79 billion) during the same period last fiscal, registering an increase of 12.15 per cent. An increase of 12.61 percent in the total goods earnings and 10.52 per cent in the total passenger revenue earnings have been recorded during April-June 2011.
The Indian automobile industry, the seventh largest in the world, has currently estimated to have a turnover of US$ 73 billion, accounting for 6 per cent of its GDP, and is expected to record a turnover of US$ 145 billion by 2016. India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year ending March 2012, according to Pawan Goenka, President, SIAM. The Indian automakers sold 143,370 cars in June 2011, added SIAM.
Demand for two-wheelers has increased by 16 per cent in June 2011 to over 880,000 units, as compared to 761,000 units in June 2010, according to data released by six of the eight domestic two-wheelers manufacturers.
The growth of Indian agriculture and allied sector was a top agenda in Budget 2011-12 presented by Mr Pranab Mukherjee, the Union Finance Minister. He has estimated that the agriculture and allied sector would grow by 6 per cent in 2011-12.
In addition, sales of tractors continue to post sturdy growth numbers on the back of favourable monsoons and increased use of farm equipment for construction work. As many as 482, 256 tractors were sold in the domestic market in 2010-11. The sales are expected to increase by 15 per cent to 554,594 in 2011-12.
The number of subscribers using their mobile phones to access Internet is estimated to touch 46 million in September 2011, according to a report published by the Internet and Mobile Association of India (IAMAI) and market research firm IMRB, representing a 15 per cent growth quarter to quarter. There are about 40 million mobile Internet users as of June 2011 of which about 30 million are termed as active users.
Software as a Service (SaaS) is estimated to grow by 20.7 per cent in 2011 amounting close to Rs 538 crore (US$ 116.85 million) as compared to 2010 where it was close to Rs 445 crore (US$ 966.60 million), according to IT advisory firm Gartner Inc.Approximately 75 per cent of SaaS delivery can be regarded as cloud services as per Gartner, which is on its way to exceed 90 per cent by 2015. Customer relationship management (CRM) is the largest market for SaaS, which is expected to reach Rs168.83 crore (US$ 36.67 million) in 2011 to represent 32 per cent of the total CRM market.

Growth Potential Story

India's consumption growth story is expected to maintain its course of about 14 per cent growth over the next three years driven by three factors-inclusiveness, mix changes and specific consumption categories, as per senior analysts Vijay Chugh, Ashvin Shetty and Shariq Merchant in the report 'The Indian Consumer: a robust operator in an uncertain world'.
India will emerge as the second largest steel producer by 2013 with an installed capacity of 120 million tonnes (MT), riding on high levels of growth, construction, housing, real estate, automobiles and agriculture, according to Mr Beni Prasad Verma, Steel Minister. The demand for steel in the country is growing at an average of 10 per cent, which may even exceed to 12 per cent in the near future.
In addition, the Indian banking sector is poised to become the world's third-largest in terms of assets over the next 14 years—with its assets poised to touch US$ 28,500 billion by 2025—according to a report titled ‘Being five-star in productivity — Roadmap for excellence in Indian banking’, prepared for the Indian Banks’ Association (IBA) by The Boston Consultancy Group (BCG), IBA and an industry body.
Investment in logistics sector in India is projected to grow annually at 10 per cent. India's logistics market achieved revenues of US$ 82.1 billion in 2010 and is expected to reach revenue worth US$ 90 billion in 2011. The logistics industry forecasts to generate revenues worth US$ 200 billion by 2020, as per Eredene Capital PLC's 2010-11 annual report.
India's engineering research and development (ER&D) providers is estimated to capture about 40 per cent share of global offshore revenues in 11 key verticals by 2020, according to a new report titled 'The Futures Report 2011', by Global Futures and Foresight (GFF).
India's power sector will generate revenue of Rs 13 lakh crore (US$ 282.36 billion) during the Twelfth Five Year Plan (2012-17), as per Mr P Uma Shankar, Secretary, Ministry of Power. The plan is to generate 17,000 mega watt (MW) power during the referred period.
The beauty business in India is set for a remarkable growth. The roughly Rs 7,000 crore (US$ 1.52 billion) organised and unorganised hair and beauty industry is growing at a compound annual growth rate (CAGR) of 35 per cent, on back of an increase in the number of households upgrading to a lifestyle involving higher consumption. At this rate, the industry has the potential to become Rs 30,000 crore (US$ 6.52 billion) business by 2015.
The Indian media and entertainment sector will grow to Rs 1.2 lakh crore (US$ 26.06 billion) by 2015, according to a report, 'Indian Entertainment and Media Outlook' by PricewaterhouseCoopers (PwC). From a size of Rs 30,650 crore (US$ 6.66 billion) in 2010, the television industry is expected to rise at a CAGR of 14.5 per cent to reach Rs 60,250 crore (US$ 13.08 billion) and will continue to hold the largest share of revenues within the sector in the next five years.
The BMI India Retail Report for the second-quarter of 2011 forecasts that total retail sales will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015.
India ranks first in the Nielsen Global Consumer Confidence survey released in January 2011. “India is one of the fastest growing markets in the world and the current consumer belief that recession would soon be a thing of the past has filled Indians with confidence,” said PiyushMathur, Managing Director, South Asia, The Nielsen Co. With 131 index points, India ranked number one in the recent round of the survey, followed by Philippines (120) and Norway (119).

Road Ahead

The Twelfth Five Year Plan (2012-17) is going to maintain its target growth rate at 9 per cent. The planning commission is due to firm up its approach to the Twelfth Plan on August 20, 2011, in a meeting chaired by Prime Minister Dr Manmohan Singh. The priority for resource allocation will continue to be the social sector and infrastructure.
The Government of India has set ambitious targets for more than US$ 1 trillion to be invested in infrastructure over the Twelfth Five-Year period (2012-2017)—more than double the amount invested in the previous five-year period, according to Eredene Capital PLC's 2010-11 annual report. Eredene is a specialist investor in Indian infrastructure with a focus on ports, logistics and transportation.
Significantly, the Government has set an export target of US$ 292 billion for 2011-12, up 19 per cent from US$ 246 billion in 2010-11.
Moreover, the Government of India has been ranked fifth in wielding economic clout globally after the US, China, Japan and Germany, and ahead of European powers France and the UK, according to a study authored by Kaushik Basu, Chief Economist Advisor.
Major players in India's fast-moving consumer goods (FMCG) industry will continue to pursue acquisitions over the medium term, given the scope for expansion in under-penetrated product segments and geographies, as per a report by credit rating agency Crisil. For the global FMCG majors, India remains an attractive market, with its growing economy, large population that offers considerable scope for additional geographic penetration, particularly in the rural areas, and low per-capita consumption.

References: United Nations Conference on Trade and Development (UNCTAD), Ministry of Finance, Press Information Bureau (PIB), Media Report, Consolidated FDI Policy

Quick Facts

	India's foreign exchange (Forex) reserves rose by US$ 266 million to US$ 316.763 billion in the week ended September 16, 2011, according to the Reserve Bank of India's (RBI) 'Weekly Statistical Supplement'.
	Net direct tax collection upto September 15, 2011, in 2011-12 grew by 6.7 per cent at Rs 1,27,858 crore (US$ 26.75 billion) as against Rs 1,19,849 crore (US$ 25.07 billion) collected from April 1 to September 15 in 2010.
	Private equity (PE) and venture capital (VC) investments grew by 29 per cent to US$ 648 million (around Rs 2,916 crore) in the period January-September 2011 as compared to US$ 500 million (around Rs 2,250 crore) in the same period last year.
	The index for eight core sector industries—crude oil, petroleum refinery products, coal, electricity, cement, steel, fertilizers and natural gas—rose 7.8 per cent in July 2011 compared to 5.7 per cent in July last year.
	Exports of spices during April-July 2011 increased 22 per cent in rupee terms and 26 per cent in dollar terms, with total receipts in the period at Rs 2,613.50 crore (US$ 585.46 million), compared to Rs 2,135 crore (US$ 464.92 million) during the same period last year.
	The wind energy sector has attracted foreign direct investment (FDI) worth Rs 1,510 crore (US$ 328.87 million) over the past three years. In the renewable energy sector, wind energy has emerged as the fastest growing category, according to Dr Farooq Abdullah, Union Minister for New and Renewable Energy.
	The monthly net investment by mutual fund (MF) houses in August 2011 has hit a 38-month high, at Rs 2,524 crore (US$ 547.18 million), according to the statistics from the Securities and Exchange Board of India (SEBI).
	Small Industries Development Bank of India (SIDBI) has announced its plans to disburse Rs 1,000 crore (US$ 209.36 million) to microfinance companies in 2011.

Manpower Employment Outlook Survey India (Q3/2011)

The Manpower Employment Outlook Survey for the third quarter of 2011 was conducted by interviewing a representative sample of 4,555 employers in India. Indian employers report bullish hiring plans for third quarter of 2011, with 49 per cent of employers expecting to increase headcount, 2 per cent predicting a decrease and 31 per cent anticipating no change. The Net Employment Outlook stands at +47 per cent.
After the data is adjusted to allow for seasonal variation, the Outlook stands at +46 per cent. The hiring prospects improved by 5 percentage points on year-over-year basis.
Employers in all four regions anticipate an increase in staffing levels during the third quarter of 2011. In the East, employers report the most optimistic Net Employment Outlook of +49 per cent, while in the North, the Outlook stands at a bullish +48 per cent. Employers in the West and the South report dynamic Outlooks of +45 per cent and +43 per cent, respectively.
Employers in all the seven industry sectors forecast an increase in staffing levels during the third quarter of 2011. The most optimistic hiring intentions are reported in the Wholesale & Retail Trade sector, with a Net Employment Outlook standing at +51 per cent. Services sector employers report bullish hiring plans, with an Outlook of +48 per cent, and dynamic hiring prospects are evident in the Finance, Insurance & Real Estate sector and the Mining & Construction sector, with Outlooks of +47 per cent and +46 per cent, respectively. The Manufacturing sector Outlook stands at +45 per cent.

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Public Private Partnerships (PPP) in India

The most significant criteria for a continued growth rate of an economy is rests on the provision of a quality infrastructure. According to the Planning Commission, an approximation of 8 percent of the Gross Domestic Product or GDP needs to be invested. This would help in acquiring a prospective economy as stated in the 11th Five Year Plan. Fund investment of over US $ 494 billion has been conceived of according to the 11th Five Year Plan with effective from 2007 to 2012. The investment sectors under consideration are inclusive of telecommunications, electric power, water transport, road, rail, air, water supply as well as irrigation amounts to about Rs. 20,27,169 crore according to 2006-07 prices.

In order to meet such demands, various Public Private Partnerships or PPPs are being promoted for implementation of infrastructure projects. PPP is often described as a private business investment where 2 parties comprising government as well as a private sector undertaking form a partnership. The deficit can be overcome by ensuring much more private capital investment. Expert guidance is the only way out for enabling efficiency through subsequent reduction in cost.

Promotion of PPP is therefore necessary since its the most preferred mode. Despite of its benefits, there are some constraints too which can be summarized as:

• Sufficient instruments as well as the ability to undertake long-term equity cannot be provided by the market in the present financial scenario. Also financial liability required by infrastructure projects would not be sufficed.
• Most sectors face a lot of hindrance in enabling a regulatory framework as well as a consolidated policy. So its important to convert such policies into PPP friendly. To achieve the desires results, active participation of various state projects are essential.
• Lack of ability of private sectors to fit into the risk of investing in diversified projects also needs to be overcome. Modernization of new airports, transmission systems and building power generating plants are some of the avenues which required skilled manpower.
• Ability of public institutions to manage the PPP process should also be subdued. Maximizing the return of the stakeholders needs to be managed due to the involvement of long term deals including the life cycle of the asset infrastructure.
• Lack of credibility of bankable infrastructure projects used for financing the private sector should also be overcome. Inconsistency is still visible in the limitations of PPP projects, despite of continued initiatives by States and Central ministries.
• Inadequate support to enable greater acceptance of PPPs by the stakeholders forms another source of constraint.

Several initiatives have been undertaken by Government of India to enable a greater PPP framework in order to eradicate the above mentioned constraints. Various foreign as well as private investments by waving off charges are encouraged. Framing of standardized contractual documents for laying down the terminologies related to risks, liabilities and performance standards have been devised. Approval schemes for PPPs in the central sector has been streamlined through Public Private Partnership Appraisal Committee or PPPAC. A website has been launched for the purpose of virtual PPP market serves as an online database for PPP projects.



PPPs can only be mainstreamed by continuous response to the varying goal of people and economy in general. The boundary domains of PPPs should be increased in order to prosper the infrastructure development of India.

Public Private Partnership (PPP) Concept

Public Private Partnership (PPP) Concept

“Public Private Partnership” (PPP) Partnership between a public sector entity (Sponsoring (PPP) authority) and a private sector entity (a legal entity in which 51% or more of equity is with the private partner/s) for the creation and/or management of infrastructure for public purpose for a specified period of time (concession period) on commercial terms and in which the private partner has been procured through a transparent and open procurement system

Traditionally, private sector participation has been limited to separate planning, design or construction contracts on a fee for service basis – based on the public agency’s specifications.

Expanding the private sector role allows the public agencies to tap private sector technical, management and financial resources in new ways to achieve certain public agency objectives such as greater cost and schedule certainty, supplementing in-house staff, innovative technology applications, specialized expertise or access to private capital. The private partner can expand its business opportunities in return for assuming the new or expanded responsibilities and risks.

PPPs provide benefits by allocating the responsibilities to the party – either public or private – that is best positioned to control the activity that will produce the desired result. With PPPs, this is accomplished by specifying the roles, risks and rewards contractually, so as to provide incentives for maximum performance and the flexibility necessary to achieve the desired results.

Some of the primary reasons for public agencies to enter into public-private partnerships include:

• Accelerating the implementation of high priority projects by packaging and procuring services in new ways;
• Turning to the private sector to provide specialized management capacity for large and complex programs;
• Enabling the delivery of new technology developed by private entities;
• Drawing on private sector expertise in accessing and organizing the widest range of private sector financial resources;
• Encouraging private entrepreneurial development, ownership, and operation of highways and/or related assets; and
• Allowing for the reduction in the size of the public agency and the substitution of private sector resources and personnel

                                            PPP Models in practice

There are range of PPP models that allocate a responsibilities and  risks between the public and private partners in different ways. The following terms are commonly used to describe typical partnership agreement.

(a)Build Operate and Transfer (BOT) : a contractual arrangement whereby the concessionaire undertakes the construction, including financing, of a given infrastructure facility, and the operation and maintenance thereof. The concessionaire operates the facility over a fixed term during which it is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding these proposed in its bid or as negotiated and incorporated in the contract to enable the concessionaire to recover its investment, and operating and maintenance expenses in the project. The concessionaire transfers the facility to the Government Agency or Local Government unit concerned at the end of the fixed term.

(b)Build-Own-Operate-and-Transfer (BOOT) : a project based on the granting of a concession by a Principal (the Union or Government or a local authority) to the concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility over the period of the concession before finally transferring the facility, at no cost to the Principal, a fully operational facility. During the concession period the promoter owns and operates the facility and collects revenue in order to repay the financing and investment costs, maintain and operate the facility and make a margin of profit.

(c)Build-and-Transfer (BT) : a contractual arrangement whereby the concessionaire undertakes the financing and construction of a given infrastructure or development facility and after its completion turns it over to the Government Agency or Local Government unit concerned, which shall pay the proponent on an agreed Schedule its total investments expended on the project, plus a reasonable rate of return thereon. This arrangement may be employed in the construction of any infrastructure or development project, including critical facilities which, for security or strategic reasons, must be operated directly by the Government.

(d)Build-Own-and-Operate (BOO) : a contractual arrangement whereby a concessionaire is authorized to finance, construct, own operate and maintain an infrastructure or development facility from which the proponent is allowed to recover its total investment , operating and maintenance costs plus a reasonable return thereon by collecting tolls, fees, rentals or other charges from facility users.

(e)Build-Lease-and-Transfer (BLT) : a contractual arrangement whereby a concessionaire is authorized to finance and construct an infrastructure or development facility and upon its completion turns it over to the government agency or local government unit concerned on a lease arrangement for fixed period after which ownership of the facility is automatically transferred to the government agency or local government unit concerned.

(f)Build-Transfer-and-Operate (BTO) : a contractual arrangement whereby the public sector contracts out the building of an infrastructure facility to a private entity such that the concessionaire builds the facility on turn-key basis, assuming cost overrun, delay and specified performance risks. Once the facility is commissioned satisfactorily, title is transferred to the implementing agency. The private entity however, operates the facility on behalf of the implementing agency under an agreement

(g)Design Built Finance Operate (DBFO) : a contractual arrangement whereby the concessionaire is authorized to detailed design work, which will reduce time and money required for project preparation.  The states could then bid the project based on the Feasibility Report instead of the Detailed Project Report.  For this, appropriately drafted TOR for Feasibility Report consultants and also a Manual of Specification and Standard for BOT Projects needed to be adopted by the States.

(h)Contract-Add-and-Operate (CAO): a contractual arrangement whereby the concessionaire adds to an existing infrastructure facility which it is renting from the government. It operates the expended project over an agreed franchise period. There may, or may not be, a transfer arrangement in regard to the facility.

(i)Develop-Operate-and-Transfer(DOT) : a contractual arrangement whereby favourable conditions external to anew infrastructure project which is to be built by a private project proponent are integrated into the arrangement by giving that entity the right to develop adjoining property, and thus, enjoy some of the benefits the investment creates such as higher property or rent values.

(j)Lease Management Agreement : an agreement whereby the State Government, the government agency or the specified agency leases a project owned by the state government, the government agency, or, as the case may be, the specified government agency to the person who is permitted to operate and maintain the project for the period specified in the agreement.

Link to Payment systems Worldwide

BACS Payment system – UK
SEPA- UK
UK Payments Administration Ltd-UK
British Banker's Association-UK
China Union Pay – China
Zengin Payment System – Japan
Australian Payments Clearing Association -Australia
NACHA – US
The American Banker's Association-US
Electronic Payments Network (EPN) – US
Federal Reserve - Board of Governors of the Federal Reserve System – US
Federal Reserve - Financial Services –US
RPS- Germany
PASA-South Africa
IPSO- Ireland
Canadian Payments Assocation-Canada
The Canadian Banker's Association-Canada
NETS –Singapore

Interbank Mobile Payment Service (IMPS)

Currently majority of interbank mobile fund transfer transactions are channelised through NEFT mechanism. Under NEFT, the transactions are processed and settled in batches, hence are not real time. Also, the transactions can be done only during the working hours of the RTGS system.
In the above context, NPCI has carried out a pilot on mobile payment system initially with 4 member banks viz State Bank of India, Bank of India, Union Bank of India and ICICI Bank in August 2010. Yes Bank, Axis Bank and HDFC Bank have joined this pilot in month of September, October and November 2010 respectively. Interbank Mobile Payment Service (IMPS) public launch happened on 22nd November 2010 by Smt. Shyamala Gopinath, DG RBI at Mumbai and this service is now available to the Indian public.
IMPS offers an instant, 24X7, interbank electronic fund transfer service through mobile phones. IMPS facilitate customers to use mobile instruments as a channel for accessing their bank accounts and put high interbank fund transfers in a secured manner with immediate confirmation features.
This facility is provided by NPCI through its existing NFS switch.
The eligible criteria for the Banks who can participate in IMPS is as follows

• Bank should be member of National Financial Switch (NFS) driven by NPCI
• Bank should have approval from RBI for Mobile Banking Service

National Financial Switch

The Institute of Development and Research in Banking Technology (IDRBT), Hyderabad had been providing ATM switching service to banks in India through National Financial Switch . IDRBT decided to hive off its operational role on ATM switching to have focus on research and development and was looking for a suitable arrangement for shifting this business to some national level payment system organization. National Payments Corporation of India (NPCI) considered this as an opportunity and started discussions with IDRBT on the feasibility of taking over.

The Board for Regulation and Supervision of Payment and Settlement systems (BPSS) at its meeting held on September 24, 2009 has approved in-principle to issue authorisation to NPCI for operating various retail payment systems in the country. Reserve Bank of India has granted authorisation to NPCI to take over the operations of National Financial Switch (NFS) from the Institute of Development and Research in Banking Technology (IDRBT) on a ‘as is where is basis’ on October 15, 2009.NPCI has deputed its officials to IDRBT Hyderabad and NPCI has taken over NFS operations from December 14, 2009.

While the primary site is located in the IDRBT Campus at Hyderabad, the back up site is being developed at Mumbai.

National Payments Corporation of India (NPCI)

Reserve Bank of India, after setting up of the Board for Payment and Settlement Systems in 2005, released a vision document incorporating a proposal to set up an umbrella institution for all the RETAIL PAYMENT SYSTEMS in the country. The core objective was to consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems. The other objective was to facilitate an affordable payment mechanism to benefit the common man across the country and help financial inclusion.

IBA's untiring efforts during the last three years helped turning this vision a reality. National Payments Corporation of India (NPCI) was incorporated in December 2008 and the Certificate of Commencement of Business was issued in April 2009. It has been incorporated as a Section 25 company under Companies Act and is aimed to operate for the benefit of all the member banks and their customers. The authorized capital has been pegged at Rs 300 crore and paid up capital is Rs 60 crore so that the company can create infrastructure of large dimension and operate on high volume resulting payment services at fraction of the present cost structure.

World Payments Report 2011

Growth in global payments volumes during 2009 and 2010 is proving the continued resiliency of payments to the effects of the global financial crisis. This growth was sustained by strong performance of the emerging and more mature markets in the Asia-Pacific region according to findings from the World Payments Report 2011, released today by Capgemini, The Royal Bank of Scotland (RBS) and Efma.
 
Overall non-cash payments volumes grew by five percent in 2009 to 260 billion, continuing the growth trend from 2008 of nine percent, albeit at a slower pace. The growth rate was lowest but still positive in North America and Europe (less than two and five percent respectively), compared to over ten percent in emerging markets and the Asia-Pacific region.

The World Payments Report 2011 examines the latest developments in the global payments landscape, including trends in payments volumes and instrument usage (such as cards and cheques), key payments-related regulatory initiatives and the strategic considerations and options for banks as a result.

Globally, cards remain the preferred non-cash payment instrument,with global transaction volumes up almost 10 percent and a market share of more than 40 percent in most markets. However mobile payments are growing even faster than predicted in our last report reflecting strong user adoption.

Mobile payments will represent 15% of all cards transactions by 2013, and will overcome cards volumes within 10 years if growth continues at the same rate. The report found the use of e-payments and m-payments is expanding, accounting for an estimated 22.5 billion transactions worldwide in 2010. E-payments are expected to grow globally from 17.9 to 30.3 billion transactions between 2010 and 2013 according to the report, and m-payments from 4.6 to 15.3 billion transactions over the same period. At present, the proportion of these transactions handled outside bank payments systems remains relatively small, but is growing rapidly. The use of cheques continues to lessen, accounting for just 16 percent of all non-cash global transactions in 2009, down from 22 percent in 2005, and remains in demand in key markets.

"Payments volumes showed resilience during the global financial crisis with volumes growing in all regions, said Scott Barton, CEO, Global Transaction Services, RBS. "Banks face challenges from the rapidly changing payments landscape including the need to respond to new regulatory initiatives and we can expect to see changes to business strategies and models as a result. However, these changes will also present new opportunities."

Key regulatory and industry initiatives are combining to gradually transform complexities in the payments landscape

Through analysis of a wide range of global and regional regulatory and industry initiatives, ranging from Basel III to the Digital Agenda for Europe, from the Dodd-Frank Act to the work of the National Payments Corporation of India, the report identifies five key industry transformation trends which together are reshaping, or soon will, aspects of the payments market and the positioning of the players who operate within it:

· Systemic-risk reduction and control: In the wake of the financial crisis, regulators are seeking to reduce systemic risk by asking for stricter requirements on capital and liquidity

· Standardisation initiatives aimed at improving efficiency, streamlining processes and reducing costs continue: Some payments instruments and aspects of the value chain are commoditised in the process, making it more difficult for banks to differentiate themselves

· A drive for higher levels of transparency: Several initiatives are concentrating on making service fees to clients more transparent, with potential implications for current business models, such as cards

· Convergence: Developments in technology and evolving user and regulatory requirements are contributing to a gradual blurring of the lines between traditional payments activities supplied by infrastructure providers, potentially increasing competition between Real-Time Gross Settlement (RTGS) and Automated Clearing Houses (ACHs) for certain types of low-value payments.

· Innovation: This remains a critical success factor within the payments industry, allowing players to harness emerging technologies and trends, such as mobile devices and contactless payments, to deliver state-of-the-art solutions to meet evolving user needs.

"Regulatory pressure has increased since the economic crisis and, together with the drive toward standardization and commoditization, is fuelling a fundamental transformation in the payments landscape," said Jean Lassignardie, Global Head of Sales and Marketing, Capgemini Financial Services. "Banks and financial institutions faced with this combination of challenges may wish to look at the examples of the energy and telecoms industries which have responded to similar external pressures by enhancing the level of specialization amongst key players to differentiate their propositions."

Evolving standardisation in the payments landscape: Deriving value from payments

As the trend towards further standardisation in the payments market continues, it is driving increased commoditisation of many aspects of the value chain. Banks and other Payment Services Providers (PSPs) face a heightened challenge to distinguish their propositions and may increasingly need to specialize to demonstrate their ongoing value to their customers. Innovation in this area remains vital for banks/PSPs, allowing qthem to differentiate their propositions and prove their value.

In the mid to long term, the traditional fully-integrated payments model (from supply to delivery) may no longer be optimal for most PSPs. We could see the emergence of two specialist roles: Wholesale Payments Provider (WPP) and Retail Payment Services Provider (RPSP), with very few players in the market able to support the investments needed to play both roles. Evolving into a WPP, RPSP, or both requires important strategic decisions to be made, and will drive banks to understand the role(s) they wish to play in such a future and prepare for this potentially radical shift.

"The evolution of the payments sector is accelerating," said Patrick Desmarès, Secretary General, Efma. "As banks and PSPs consider this reality, they will need to find ways to thrive in the payments market in the nearer-term while positioning themselves to mitigate the risks and capitalize on the opportunities created by the industry's transformation in the longer-term."

"India is currently ranked as the 11th largest non-cash payments market. One of the prominent trends pertaining to the Indian market which the report highlights is how the long-time reliance on checks in the Business to Business (B2B) sphere has kept check usage high, but it is declining (to 65% of all transactions in 2009 from 93% in 2001) while during the same tenure, the market share of cards has increased from 6% to 19%. The Interbank Mobile Payment Scheme launched by the National Payments Corporation of India (NPCI) in 2011 is an important milestone for further developing the usage of secure, inexpensive and efficient electronic payments, m-payments experiencing two digit growth globally as the report reveals", said Christophe Vergne, Leader of the Cards and Payments Center of Excellence, Financial Services Global Business Unit, Capgemini.

Dial a code and get balance enquiry

In a move that could save banks crores of rupees every year, the National Payment Corporation of India (NPCI) has mooted a system where non-financial transactions like balance enquiry could be moved out of bank ATMs to mobile phones.
National Payments Corporation of India is in talks with mobile companies to facilitate banking transactions through USSD (unstructured supplementary service data) messages. USSD messages are at present used by mobile companies to enable users check pre-paid balances and get information on offers by dialing a specific code. USSD messages are exchanged over a real-time connection with the telecom company's server and are therefore faster and more responsive than SMS queries. NPCI, a body promoted by banks at the instance of Reserve Bank of India, has taken over the backbone of all electronic payment transactions from an arm of RBI. It is also plays the role of the facilitator in India's Interbank Mobile Payment System (IMPS).

National HRM meet

The Employers' Federation of India will hold a two-day summit on human relations management in Mumbai from October 21. The summit with the theme ‘Fair Employers Finish First', is designed around case studies of organisations that have been fair and have gained competitive edge as a result, said a press release issued by the Federation. The success stories of these organisations will be treated as learning models for the summit because of their fair practices. National awards on ‘Excellence in Employee Relations' will be presented at the event.

India, Indonesia to set up working group on trade

India and Indonesia have agreed to establish a working group to discuss and perhaps solve the latter's ban on import of Indian buffalo meat and the delays faced by Indian pharma companies in drug registration there.

Indonesia continues to impose a ban on import of Indian buffalo meat stating that India is not free from Foot and Mouth Disease (FMD).

The Commerce, Industry and Textiles Minister, Mr Anand Sharma, said, “India is particularly keen on bovine meat exports to Indonesia and higher participation in Indonesia's pharmaceutical sector.”

India claims it has FMD-free zones from which deboned, deglanded buffalo meat is produced, fully conforming to OIE standards stipulated for export of meat from countries reporting FMD. Currently India exports buffalo meat to over 60 countries including Malaysia, the Philippines, Saudi Arabia, Germany, the UAE, Russia and Jordan.

On the pharma front, Indonesia has regulations requiring foreign drug registration holders to set up a production facility in Indonesia within two years of registration and a Foreign Direct Investment cap of 70 per cent. These, including the delays faced by Indian pharma companies in drug registration, inhibit Indian pharma exports and Indian investment in the sector.

CECA LAUNCHED

Speaking at the first Indonesia-India Biennial Trade Ministers' Forum at Jakarta on Tuesday, Mr Sharma also said, “We have launched our bilateral Comprehensive Economic Cooperation Agreement (CECA).” These efforts would help achieve the bilateral trade target of $25 billion by 2015.

Meanwhile National Aluminium Co Ltd (Nalco) signed an MoU with Indonesia's East Kalimantan Province on technical cooperation on aluminium smelter industry and coal based thermal power plant.

Moody’s downgrades SBI's standalone rating to ‘D+’

Rating agency Moody’s has downgraded State Bank of India’s financial strength rating (BFSR) or standalone rating to ‘D+’ from ‘C-’. The revised rating maps to a baseline credit assessment (BCA) of Baa3.

As a result of the lower BCA, the Hybrid debt rating was downgraded to Ba3(hyb) from Ba2(hyb).

The revised BFSR carries a stable outlook and the Hybrid rating a negative outlook. 

Ratings Rationale

“The rating action considers SBI’s capital situation and deteriorating asset quality. Our expectations that non-performing assets (NPA) are likely to continue rising in the near term — due to higher interest rates and a slower economy — have caused us to adopt a negative view on SBI's creditworthiness,” says Ms Beatrice Woo, a Moody's Vice-President and Senior Credit Officer.

SBI reported a Tier 1 capital ratio of 7.60 per cent as of June 30, 2011. The level pushes the bank into a lower rating band. In addition, it was below the 8 per cent Tier 1 ratio that the Government of India has committed to maintaining in public sector banks and substantially lower than those of other ‘C-’ rated Indian banks. The latter includes banks such as Axis Bank (Ba1; C-/Baa2; stable), HDFC Bank (Ba1; C-/Baa2; stable), and ICICI Bank (Ba1; C-/Baa2; stable).

Finally, such a level for its Tier 1 capital ratio provides an insufficient cushion to support growth and to absorb potentially higher credit costs from its deteriorating asset quality.

“Notwithstanding our expectations that SBI's capital ratios will soon be restored through a capital infusion by the Government, SBI's efforts to secure this capital for the better part of the year demonstrates the bank’s limited ability to manage its capital,” says Ms Woo.

“And given that a bank's ability to freely access the capital markets is an important rating criterion globally, we therefore believe a lower BFSR for SBI is warranted, especially as these circumstances are likely to recur,” says Ms Woo.

The Rs 23,000 crore rights issue that SBI is currently seeking would raise its Tier 1 ratio to approximately 9.30 per cent. However, we estimate that capital deployed for loan growth, assuming 15 per cent per annum for the next three fiscal years, will cause the Tier 1 ratio to fall below 8 per cent, thereby necessitating another capital exercise.