OPINION, P8 & 9 COMMODITIES, P14 A GULATI & G MOHAN Direct farm aid, not MSP hikes, benefits Maharashtra farmers INTERNATIONAL, P16 CHANDRA BHUSHAN TARIFF ON STEEL & ALUMINIUM US SECRETARY OF STATE Little reason to extend the green compliance deadline for coal-based power Prabhu: India to take up import duty hike issue with US Trump fires Tillerson, appoints CIA director Pompeo MUMBAI, WEDNESDAY, MARCH 14, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOLUME XXXXXV NO. 305, 22 PAGES, `6.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E SENSEX: 33,856.78 ▼ 61.16 NIFTY: 10,426.85 ▲ 5.45 NIKKEI 225: 21,968.10 ▲ 144.07 HANG SENG: 31,601.45 ▲ 7.12 `/$: 64.89 ▲ 0.14 `/€: 80.05 ▼ 0.03 BRENT: $64.74 ▼ $0.21 GOLD: `30,238 ▼ `33 CLEAN-UP ACT Banks may give PNB short-term loans To be used to repay lenders money they lent to Modi, Choksi entities; will help avoid NPAs on their books Exposure via LoUs of PNB UCO Bank `2,656 cr Allahabad Bank `2,400 cr Union Bank `1,920 cr SHAYAN GHOSH Mumbai, March 13 THE MOST DEFINITIVE RANKING OF INDIA’S TOP 1000 COMPANIES READ TO LEAD March 2018 WITH TODAY’S ISSUE PRESENTED BY `1,360 cr ■ Banks may give PNB short-term loans in lieu of LoU-linked exposure PNB said to have informed police it has uncovered another `942 cr exposure to Gitanjali Groups ■ Move will help banks clean up balance sheets since LoU-linked loans would no longer be NPAs ■ PNB issued LoUs to Nirav Modi and Mehul Choksi Group who used them to raise money from foreign branches of other banks ■ PNB employees were issuing LoU on the Swift system without entering them in the core banking system tional provisioning. “However, if we give PNB a loan,it would be classified as a loan and we would earn interest on it,”he added. Banks are hoping for a decision soon and the IBA has already written to the department of financial services and Reserve Bank of India (RBI) seeking speedyresolution. Media reports on Tuesday indicated the state-run bank has agreed to repay lenders with some riders, citing two senior officials with knowledge of the development. According to the report, PNB would issue a letter stating that if the investigation finds collusion byotherbanks, then they would be liable to refund the money to PNB. Banks that have an exposure to the fraud at PNB include UCO Bank, Allahabad Bank and Union Bank of India. The RBI had said in a 2013 master circular on guarantees that there have been many irregularities in the conduct of letter of credit (LC) business. The“LC transactions not being recorded in the books of the branch by officials issuing them,the amount of LCs being much in excess of the powers vested in the officials, fraudulent issue of LCs involving a conspiracy/collusion between the beneficiary and the constituent”,it had noted. FE BUREAU Mumbai, March 13 THE RESERVE BANK of India (RBI) on Tuesday disallowed banks from issuing letters of undertaking (LoUs) or guarantees for trade credits for imports into India. The move comes in the aftermath of a `14,000-crore LoU-linked fraud unearthed at Punjab National Bank (PNB). However, letters of credit and bank guarantees for trade credits for imports into the country will be permitted providedtheymeetRBIconditions. “On a review of the extant guidelines, it has been decided to discontinue the practice of issuanceofLoUs/LoCsforTrade CreditsforimportsintoIndiaby AD Category – I banks with immediateeffect,”theRBIsaid. An LoU is issued as an undertaking that the issuer will honour a lender’s obligations if the borrowerfails to do so. While bank guarantees are an internationally accepted instrument, LoUs are mostly issued by banks in India and used by importers to raise money from foreign branches of Indian banks. Continued on Page 2 GROUNDING OF A320NEOs Airfares soar as IndiGo, GoAir cancel flights European regulator questions move; DGCA clarifies that only a few aircraft affected; cites safety GROUND REALITY ■ IndiGo & GoAir cancel 65 flights on Tuesday, more likely in next few days ■ DGCA grounded 11 planes of the airlines on Monday MANISHA SINGHAL & ARUN NAYAL Mumbai/New Delhi, March 13 INDIAN CARRIERS INDIGO andGoAircancelledatotalof65 flightstillTuesdayeveningafter theIndiancivilaviationregulator Monday directed these airlinestoimmediatelyground11 aircraft fitted with Pratt & Whitney’s PW1100 engines, which had been reported to be the cause of in-flight shutdowns and aborted take-offs. The move sent passengers and airlines into a tizzy, resulting in travel fares rising byover 10% on several sectors, and tickets on the Mumbai-Delhi route flaring up to `12,000 from their usual band of `8,000-9,000 for late bookings.“With current load factors at over 90%, this reduction in capacity is likely to have a 510% impact on fares on key routes in the short to medium term,” said Sharat Dhall, COO (B2C)attravelportalYatra.com. ■ DGCA had grounded planes on safety issues ■ European Aviation Safety Agency questions DGCA move ■ Fares seen rising on key routes by 5-10% on advance bookings The Directorate General of Civil Aviation (DGCA) on Tuesdayevening clarified that of the total A320neo aircraft in the fleets of IndiGo (32 planes) and GoAir (13), a total of only 14 were using the engines with the defects, and that with the grounding of all such aircraft there was no cause for worry on account of Six steps to avoid insurance policy purchase regrets Before starting the buying journey, be sure about the life goal you plan to secure through the life insurance policy. It is good to buy a policy for a specific need ■ Personal Finance, P15 QuickPicks Bt cotton seed price slashed by 7.5%, trait value by over 20% THE GOVERNMENT has further reduced the Bt cotton seed's maximum sale price in the retail market and the trait value (royalty) payable to the technology provider US-based Monsanto, reports Prabhu Datta Mishra in New Delhi. The MSP for Bt cotton seeds in the 2018-19 kharif season will be `740 for a 450gram packet, down 7.5%; the trait value has seen a steeper 20% cut to `39 per packet. In the 2015-16 kharif season, the seed was priced `830-1,000 per 450-gram packet. PAGE 14 SBI reduces minimum balance charge for savings accounts STATE BANK of India lowered charges payable for non-maintenance of average monthly balance (AMB) for savings accounts, reports fe Bureau in Mumbai. Effective April 1, metro and urban centre customers will have to pay between `10 and `15 if the AMB drops below `3,000, against `30-50 earlier. Those in semiurban areas will have to pay between `7.50 and `12 if balance is below `2,000. Customers in rural locations will have to pay between `5 and `10 if the balance is below `1,000. PAGE 10 ‘India’s monsoon rains seen a tad below normal this year’ INDIA'S MONSOON rains are expected to be slightly below normal this year, while parts of Australia's eastern grain belt could be drier as an El Nino weather pattern may develop in the second half of 2018, private US-based weather forecaster Radiant Solutions said, reports Reuters. “Somewhat weaker than normal monsoon expected in India. (It) may stress soybeans, groundnuts and cotton,” it said, adding “but generally favourable conditions for wheat are expected elsewhere”. PAGE 14 FE BUREAU New Delhi, March 13 SC bars foreign lawyers, firms INDU BHAN New Delhi, March 13 IN A VERDICT at variance the government’s intent to open up the legal services sector,the Supreme Court on Tuesday held that foreign law firms cannot “practise” or open offices in the country, but allowed foreign lawyers tovisit India on a “fly in and fly out” basis forrendering legal advice to their clients on foreign law. Analysts feel the SC’s decision could dampen India’s prospects of foreign investments as availability of quality legal service is what large and sophisticated investors would look forward to. If it wants to surmount the hurdle, the government has no option but to legislate. The apex court, however, permitted foreign lawyers to conduct arbitration proceedings in disputes involving international commercial arbitration,afterfollowing the code of conduct applicable to the legal profession in India. PrimeMinisterNarendraModi had earlier spoken of India emerging as a global arbitration hub — in fact,a high-level committee headed by justice BN Srikrishna in its report submitted to the government in August last year suggested a clutch of steps to improve the overall quality and performance of arbitral institutions in India and to promote the standing of the countryas preferred seat of arbitration. “Fly in and fly out will only coveracasualvisitnotamounting to practise,” a bench comprisingjusticesAKGoelandUU Lalit said, clarifying that such visits must not amount to BARELY AN OPENING ■ SC says no to practise or offices in India, can operate on ‘fly in, and fly out’ basis Another farmer protest After the gathering in Mumbai over the weekend, farmers under the banner of the Bhartiya Kisan Union assembled in New Delhi on Tuesday ■ Can conduct global commercial arbitration subject to Indian code of conduct ■ BPOs, LPOs etc cannot do advocacy work but can render all other services ■ Asks govt, BCI to frame appropriate rules and code of ethics for foreign lawyers advocacy (which also comes under the definition of “practice of law”) under the AdvocatesAct,1961.Itdirectedboth the Bar Council of India (BCI), the top body that regulates the legal practice in the country — ithaspracticallyopposedopening up of the sector — and the Centre to frame “appropriate rules in this regard, including extendingCodeofEthicstothe foreign lawyers” rendering legal advice here. The SC held that the prohibition (on practising law) applicable to any person in India other than an advocate enrolled under the Advocates Actcertainlyappliestoanyforeigner also. Continued on Page 2 Continued on Page 2 SC extends March 31 deadline till it decides the case LOCAL PRACTICE Special Feature safety for passengers. Even as the DGCA seems to have taken its decision to groundaircraftfollowingtroublewithaflighttakingofffrom Ahmedabad on Monday, the European Aviation Safety AgencyorEASAquestionedthe Indian regulator's need to take such a step.Bloomberg quoted EASA as saying,“Grounding of affectedA320neo not deemed necessary for the time being,” adding that “grounding of the IndiGo and GoAir A320neo with one PW1100 engine is a unilateral decision from the India regulator”. EASA is the agency that issued the emergency airworthiness directive for this particular engine type thatmadetheIndianregulator ground the first three aircraft with both engines on an aircraft fittedwith the 450 series. BS Bhullar, director general of civil aviation, told FE that of the eight IndiGo aircraft that were grounded on Monday, eight engines are all right to fly and can be technically used by the airline for salvaging four of its aircraft. “It is technically feasible for the airline to do this and they can salvage at least four aircraft by this exercise till they get new engines,”Bhullar said. ● AADHAAR LINKING OUTSTRIPS SALES GROWTH Oil firms boost CPSE profitability in 2015-17 PRASANTA SAHU New Delhi, March 13 INCREASED PROFITABILITY OF state-run oil companies — thanks to decontrol of product prices and soft global crude prices that allowed complete pass-through without a major political backlash — had boosted central public sector enterprises’(CPSEs) net profit in 2015-16 and 201617, despite their sales growth decelerating. According to the latest vol- ume of CPSE survey reviewed by FE,the aggregate net profit of 257 CPSEs (174 of them were profit-making) in the country grew 11.7% to `1,27,602 crore in 2016-17, comparedwith 11.1% growth in 2015-16. In 2014-15, these CPSEs had seen a 20% year-on-year decline in overall net profit. On the sales front, the CPSEs had posted a growth of just 6.5% in 2016-17 to `19,54,616 crore; their gross sales had declined 3.2% in CPSEs (257) 21 Gross turnover (` lakh cr) 1.28 20 1.28 19 18 17 IOC 1.6 1.2 0.8 FY14 FY15 FY16 FY17 2015-16 to `18,34,635 crore. Prodded by the Centre, the CPSEs have paid a very generous dividend to shareholders with the dividend payout ratio at 61.23% of net profit in 2016-17, sharply higher than 43.23% 2012-13. High dividend payments coupled with buyback of shares by many cash-rich PSUs under the Centre’s directives have dwindled these firms’ cash surpluses in recent years (see chart). Continued on Page 2 Top profit making PSUs (FY17, ` cr) Net profit (RHS) 19.55 A UNIT OF Apple's Taiwanese contract manufacturer Wistron has won approval from Karnataka to build a new assembly unit, reports Reuters. The move signals a potential expansion of iPhone assembly work in India. SBI RBI does away with letters of undertaking 20.66 IN THE NEWS Apple supplier gets nod for new facility A CLUTCH OF public sector lenders may provide shortterm loans to Punjab National Bank(PNB) with which PNB will repay banks the money theylent to the NiravModi and Gitanjali Gems groups against letters of undertaking (LoUs) issued by PNB. The move will help them clean up their balance sheets before the year comes to a close, else the exposure to the Modi group and Gitanjali Gems, promoted by Modi’s uncle Mehul Choksi, will need to be classified as non-performingassets.Adiscussionon this is believed to have taken place recently at the Indian Banks’Association (IBA) but no final decision has been taken. Meanwhile, PNB on Tuesday is understood to have told the police on Tuesday that it has uncovered additional exposure of about `942 crore to the Gitanjali Group, which could be in jeopardy. PNB’s total LoU exposure totheNirav Modi and Gitanjali Gems groups is approximately `14,000 crore. A senior banker explained that unless PNB honoured its commitments to them, the exposurewouldbeclassifiedas stressed assets requiring addi- ● CRACKING DOWN 0.4 0 47.1% Share of oil firms in FY17 total profit of all CPSEs, up from 37.4% in FY16 19,106 ONGC 17,900 Declining PSU cash surplus (` lakh cr) 2.64 2.55 2.39 1.95 Coal India 14,501 NTPC BPCL 9,385 8,039 FY14 FY15 FY16 FY17 THE SUPREME COURT on Tuesday extended the March 31 deadline for mandatory linking of Aadhaar with a range of services, including bank accounts and mobile phone connections, till it decided the constitutional validity of the 12-digit biometric identification scheme. However, it said that the extensionwillnotapplytogovernment services and subsidies under Section 7 of the AadhaarAct. A five-judge Constitution Bench led by Chief Justice Dipak Misra in its interim order said that this extension will not affect the linking of Aadhaar with the disbursal of benefits under social welfare schemes. Section 7 is related to targeted delivery of financial and other subsidies, benefits and services.This means those getting subsidy under government schemes will be required to give their unique identity number. The top court had on December15,2017,extended the deadline for linking of Aadhaar with mobile phones and opening of new bank accounts to March 31. The deadline is also applicable to the central and state government schemes. The Constitution Bench is hearing around 30 petitions challenging several aspects of Aadhaar scheme. The petitions include the validity of Aadhaar and possible leakage of data, making Aadhaar mandatory for social welfare benefits and for filing income tax returns as well as for obtaining and retaining PAN, apart from the mandatory parting of biometric details like iris scans and fingerprints, thus alleging violation of the citizens’right to privacy. Continued on Page 2
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