OPINION, P8 MONEY & MARKETS, P10 TILL OCTOBER 2020 EDITORIAL Govt can’t secondguess RBI, both must work together Gemalto’s apology to Aadhaar irrelevant as damage done, SC was biased by such reports INTERNATIONAL, P14 NO FIFTH TERM RBI okays reappointment of Aditya Puri as HDFC Bank MD & CEO Merkel to quit as party chief, remains chancellor till 2021 NEW DELHI, TUESDAY, OCTOBER 30, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL.XLIV NO. 207, 26 PAGES, `6.00 (PATNA `6.00, RAIPUR `7.00) 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: 34,067.40 ▲ 718.09 NIFTY: 10,250.85 ▲ 220.85 NIKKEI 225: 21,149.80 ▼ 34.80 HANG SENG: 24,812.04 ▲ 94.41 `/$: 73.45 ▲ 0.02 `/€: 83.78 ▼ 0.42 BRENT: $77.20 ▼ $0.42 GOLD: `31,784.00 ▼ `84.00 TIMELY RELIEF ● ESSAR STEEL SC lifeline for Guj power plants Apex court allows CERC to change PPAs for pass-through of IN THE NEWS (imported) fuel costs; Indonesia jet crash: banks to take `8,200-cr haircut Indian pilot among to salvage Tata, 189 feared dead Adani, Essar units AN INDONESIAN Lion Air plane carrying 189 passengers and crew crashed into the sea on Monday, officials said, moments after it had asked to be allowed to return to Jakarta, reports AFP. The jet vanished from radar just 13 minutes after taking off. Indian pilot Bhavye Suneja was the plane’s captain. “My prediction is that nobody survived because the victims that we found, their bodies were no longer intact,” search & rescue agency operational director Bambang Suryo Aji said. SBI inks pact to form payments JV with Hitachi STATE BANK of India (SBI) on Monday said it has signed an agreement with Japan's Hitachi Payment Services to sell a 26% stake in subsidiary SBI Payment Services and form a joint venture (JV) for a card acceptance and digital payments platform, reports fe Bureau in Mumbai. The sale price couldn’t be ascertained immediately. ANUPAM CHATTERJEE New Delhi, October 29 THE SUPREME COURT on Monday extended a lifeline to the three troubled importedcoal-based power plants of Tata, Adani and Essar in GujaratbyallowingtheCentral Electricity Regulatory Commission (CERC) to amend their power purchase agreements (PPAs) to facilitate passthrough of future fuel price escalation subject to a cap. The court said its April 2017 order denying compensatory tariffs to these plants won’t come in the way of implementing the fuel cost pass-through and other measures recommended by a high-level committee to salvage the units. The three units with a combined capacity of 9,940 mega watts reported accumulated losses of `21,250 crore as on March 31, 2018; the plants are now operating at very low capacity utilisation (PLF) levels. A bench headed by Rohinton F Nariman asked the elec- Sept 2011 Change in Indonesian law raises imported coal prices five-fold Apr 2013 CERC orders compensation package; appoints Deepak Parekh Committee Feb 2014 CERC allows compensatory tariff for Tata, Adani July 2014 Aptel 's interim order allows prospective tariff hike Apr 2016 Aptel sets aside CERC order, asks it to compute as per force majeure Apr 2017 SC rejects Tata, Adani's claims for compensatory tariff, but accepts the change in law argument to the extent of Indian laws tricity regulator to come out with necessary PPA amendments within eight weeks. The changes proposed by the committee also included a reduction in fixed charges payable bydiscoms by20 paise per unit (about 8%) in order to avoid a tariff shock to consumers. While the units’ debt outstanding is around `30,000 crore,banks will take a haircut of over `8,200 crore. In April last year, the Supreme Court rejected the petitions by Adani Power and Tata Power seeking compensatory tariffs for their Mundra power plants on account of spikeinimported(Indonesian) coal prices. The court stated that change in foreign law (at this instance, that of Indone- Sept 2012 Adani, Tata approach CERC for compensatory tariffs Aug 2013 Parekh panel moots 52 paise tariff hike for Tata and 41 paise for Adani Mar 2014 Discoms move Aptel Aug 2014 SC stays Aptel order, asks it to expedite matter Dec 2016 CERC allows Tata, Adani to recover higher costs due to increased imported coal prices sia) won’t amount to either Change in Law or necessitate force majeure. However, it made it clear that a change in domestic policy (like the New Coal Distribution Policy) will constituteaChangeinLawand the regulator could fully correct the tariff disadvantage arising from such changes to power generators. Analysts had then said the orderwould provide a big relief to powerplantswith combined capacity of 60,000 mega watts as theywill be completely safeguardedfromthecostincreases due to vicissitudes of policy changes over the entire period — usually 25 years — of their supplycontractswith discoms. Ruias may go to court on offer by ArcelorMittal MITALI SALIAN Mumbai, October 29 THE RUIAS,WHO haveoffered to pay `54,389 crore to clear theirduestothelendersofEssar Steel,are likelyto challenge the resolution plan submitted by ArcelorMittal, persons close to theRuiasconfirmedtoFE.They said an intervention petition may be filed with the National CompanyLawTribunal (NCLT). Late last week,the committee of creditors (CoC) accepted an offer byArcelorMittal which wassubsequentlysubmittedby the resolution professional for EssarSteeltoNCLTforapproval. The persons mentioned aboveandawareofthedevelopments said the Ruias would, in all probability,file an objection withthetribunallatestbyTuesday “to intervene and object against the resolution professional’s submission of the ArcelorMittal resolution plan forthe NCLT’s approval”. Continued on Page 2 HOUSING FINANCE ‘NHB norms mask HFCs’ asset-liability mismatch’ Regulator sanctions `11,135 cr to HFCs in just 19 days vs `8,835 crore in over three months HFCs report decent ALM in annual reports Assets less liabilities (% of AUM) 25 20 15 10 5 0 -5 -10 -15 FE BUREAU New Delhi, October 29 LAX NORMS ADOPTED by the regulator, National Housing Bank (NHB), on how housing finance companies (HFCs) must report their asset-liability management (ALM) could be masking the ALM mismatch in the segment, at a time when nonbanking financial companies (NBFCs) are facing a liquidity crunch, according to a report by Credit Suisse. Although HFCs have come out with decent ALM (asset minus liabilities) records,with shortfall reported at under 10% of their loan books over the near term, the report cautioned that the relaxed guide- HDFC PNBHF Indiabulls HF <1 year 3-5 years 1-3 years 5 years+ Overall, HFCs' assets minus liabilities for near term stand at a decent sub-10% of loan books Source: Credit Suisse lines could be “distorting the true picture”. This is because NHB, a wholly-owned arm of the Reserve Bank of India (RBI), allows housing finance companies to report ALM on behavioural basis (factoring in loan prepayments and liability roll-overs) instead of using run-down rates (repayment) as per loan contracts. HFCs typically base their ALM reporting on their own historical experience of run-down Security cover How riders add value to your life insurance plan Sensex up 718 points, banking stocks lead rally PRESS TRUST OF INDIA Mumbai, October 29 our last swap agreement (signed in 2013).This bilateral swap reflects depth of our deeper economic relationship,” finance minister Arun Jaitley tweeted. The agreement — the latest effort to prop up the rupee — was signed during Prime Minister Narendra Modi’s ongoing two-day visit to Japan. SENSEX ON MONDAY surged over 718 points to close over the 34,000-level buoyed by stellar performance of banking stocks tracking robust quarterly earnings and the Reserve Bank of India’s (RBI) move to ease liquidity crunch. Among the Sensex constituents, ICICI Bank was the biggest gainer with an 11% jump, followed by State Bank of India,which rose 8.04%. The country’s top private sector lender, ICICI Bank, swung into profit in the second quarter of this ongoing fiscal. The bank had reported a net loss of `119.55 crore in the first quarter of the current fiscal. On a year-on-year (y-o-y) basis, ICICI Bank, however, reported a 42% drop in its consolidated net profit to `1,204.62 crore in the September 2018 quarter. Other top Sensex gainers were Adani Ports, Larsen & Toubro, Axis Bank, Reliance Industries,Tata Steel andTCS, rising up to 7.33%. Market sentiments were further revived by RBI’s decision to pump `40,000 crore into the system in November through purchase of government securities, with an aim to tackle liquidity crunch. Continued on Page 2 Detailed report on Page 10 Which bureaucrats worked with IL&FS? Govt has no idea! THE DELHI High Court on Monday issued a contempt notice to the editor of a Chennaibased Tamil news magazine for his tweets against Justice S Muralidhar, reports PTI. A bench of Justices Hima Kohli and Yogesh Khanna initiated contempt proceedings and sought the response of Swaminathan Gurumurthy, the editor of the weekly Thuglak magazine, and listed the matter for further hearing on December 11. Gurumurthy is also a part-time director of the Reserve Bank of India. PAGE 18 Maharashtra deregulates all agri produce from APMC purview THE MAHARASHTRA government has promulgated an ordinance deregulating all agricultural produce from the APMC Act, reports Nanda Kasabe in Pune. This means farmers can now sell all agri commodities outside regulated APMC markets in the state, Sadabhau Khot, minister of state for agriculture and marketing reforms, said. In July 2016, the state government had amended the Act to deregulate vegetables and fruits. Now, flowers, oilseeds and foodgrain have also been taken out of the purview of the APMC Act, Khot said. PAGE 12 Apex court bans 15-yr-old petrol, 10-yr-old diesel vehicles in NCR THE SUPREME COURT on Monday prohibited the plying of 15-year-old petrol and 10-year-old diesel vehicles in the national capital region and directed the transport departments concerned to announce that such vehicles would be impounded if found plying in Delhi-NCR, reports PTI. Terming as “very critical” and “horrible” the prevailing pollution situation in the Delhi-NCR region, the SC directed that a list of such vehicles be published on the websites of the Central Pollution Control Board and the transport department. PAGE 2 (` million) Total income (LHS) Net profit (RHS) 187,988 200,000 160,000 120,000 0 -5,000 80,000 40,000 0 5,000 -10,000 10,875 FY12 FY18 -15,000 -20,000 Getting down to business Prime Minister Narendra Modi interacts with business leaders during the India-Japan Business Leaders Forum, in Tokyo on Monday Related report on P2 BID TO PROP UP RUPEE India & Japan sign record $75-bn currency swap deal FE BUREAU New Delhi, October 29 INDIAAND JAPAN on Monday signed a pact to raise the scope of a bilateral currency swap arrangement to a record $75 billion, aimed at bringing in greater stability in the foreign exchange and capital markets, amid a slide in the rupee in recent months. “This swap arrangement would be 50% higher than ■ Swap arrangement is 50% higher than the last one, aimed at propping up each other's currency in a contingency ■ India agreed to Japan's request to scrap need for mandatory hedging for infra ECBs of five years or more minimum average maturity CLOUD CONTROL IBM to buy Red Hat for $33 billion in its biggest-ever purchase BLOOMBERG New York/San Francisco, October 29 IBM AGREED TO acquire software maker Red Hat in a $33.4-billion bet on jumpstarting its efforts to catch up in the cloud. International Business Machineswillpay$190ashare in cash for Raleigh, North Carolina-basedRedHat,according to a statement from the companies on Sunday, confirming an earlier Bloomberg News report.That’s a 63% premium over Red Hat’s closing price of $116.68 per share on Friday. “The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM’s chairman and chief executive officer, in the statement. Rometty,61,hasbeentrying for years to steer the 107-yearold technology giant toward more modern businesses,such as the cloud, artificial intelligence and securitysoftware. ILLUSTRATION: ROHNIT PHORE Tweets against sitting judge: HC issues contempt notice to editor the Department of Financial Services (DFS) since DFS is the administrative department for a firm that is largely held by government banks or financial institutions. The very same day, DFS sent the request to the Department of Personnel and Training (DoPT). While DFS said that no such information is either available or maintained, DoPT sent a copy of the RTI to DFS saying it was the nodal/administrative department. -18,869 QuickPicks THE LARGE NUMBER of former and serving bureaucrats who worked with IL&FS or its various subsidiaries, it is well recognised, gave it a security cover few could penetrate. Yet, for some reason, the government has no clue of just who worked with IL&FS, at which point in time, and how much they got paid for it. FE filed an RTI with the prime minister’s office (PMO) asking these questions. The PMO transferred the RTI to SURYA SARATHI RAY 3,475 From accident benefit rider to term rider to critical illness rider, each one offers add-on benefits under the same life cover on payment of a small additional premium ■ Personal Finance, P13 Continued on Page 2 ● GOOD SHOW Continued on Page 2 Special Feature rates (over, say, the last five years), while other NBFCs report theirALM on a contractual basis. “This, in an environment of abundant liquidity,could lead to an illusion of shorter-tenure asset book — requiring a matched shortertenure liability book,” it said. NHB data show the rundown rate for home loans at around 25% — implying the duration of about four years, compared with contracted maturities of 10-20 years.“If we move to a situation of tighter liquidity, then such frequent balance transfers maynot materialise — leading to an elongation in asset duration,” it said. “This would require a similar readjustment of liabilities.” An email sent to NHB on October 24 for a response remained unanswered till the paper went to press on Monday.NHB serves as a regulator of HFCs,underthe overall regulatory framework stipulated by the RBI. In its third-quarter results, IBM disappointed investors who were seeking more progressinthoseareasaftersix years of declining sales that had only started to show gains earlier this year. The improvements had been coming largely from IBM’s legacy mainframe business, rather than its so-called strategic imperatives. The Red Hat purchase will give IBM an immediate cloud revenue boost growth as well as a suite of proven software products to sell through its global sales force. “Wewill scalewhat Red Hat has deeply into many more enterprisesthanthey’reableto get to,” Rometty said in a phone interview. Revenue at Red Hat, which sells software and services based on the open source Linux operating system, is expected to top $3 billion for the first time this year as the company’s Red Hat Enterprise Linux product attracts business from large customers. Last quarter the company reported a record 11 contracts valued at over $5 million each and73over$1million,according to a note from JMP Securities analyst Greg McDowell. Continued on Page 2
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