OPINION, P8 COMPANIES, P6 EDITORIAL After driving RBI to breaking point, a small pull-back INTERNATIONAL, P14 SUNIL JAIN BEATING ESTIMATES FUTURE TENSE Jaitley’s wrong in saying govts get punished each time they make mistakes Subrahmanyan-led L&T’s Q2 net up 23% on fresh order wins Facebook’s daily visits growth slows as sales miss forecasts NEW DELHI, THURSDAY, NOVEMBER 1, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL.XLIV NO. 209, 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: 34,442.05 ▲ 550.92 NIFTY: 10,386.60 ▲ 188.20 NIKKEI 225: 21,920.46 ▲ 463.17 HANG SENG: 24,979.69 ▲ 394.16 `/$: 73.96 ▼ 0.28 `/€: 83.94 ▼ 0.29 BRENT: $75.51 ▼ $0.40 GOLD: `31,698.00 ▲ `10.00 RBI VS GOVERNMENT ● RAFALE DEAL Govt steps back for fear of Governor quitting SC seeks pricing details from govt Though no Section 7 directive yet, govt began discussions under this on stressed power assets, the PCA framework and RBI parting with capital PRESS TRUST OF INDIA New Delhi, October 31 THE SUPREME COURT on WednesdayaskedtheCentreto place before it in a sealed cover within 10 days the pricing details of 36 Rafale fighterjets India is buying from France. AbenchheadedbyChiefJustice Ranjan Gogoi also said details, including the steps of thedecision-makingprocessfor the procurement of jets,which could“legitimately”be brought into public domain, be made availabletothepartieswhohave filed petitions in the matter. After the apex court dictated the order, Attorney General KKVenugopal told the bench that pricing details of these jetswere not shared even with Parliament. The bench,which also comprised Justices UU Lalit and KM Joseph, then told the AG that if the pricing details were “exclusive” and it could not be sharedwith the court,the Centre should file an affidavit in this regard and say so.“If pricing is something exclusive and you are not sharing it with us, please file an affidavit and say so,” the bench told Venugopal in its oral observations. The bench made it clear that at this stage,detailswhich might be considered“strategic and confidential” by the government be placed before the court and might not be given to the advocates appearing for the petitioners. BANIKINKAR PATTANAYAK New Delhi, October 31 THE TENSIONS BETWEEN the government and the Reserve Bank of India (RBI) cametoaheadaftertheformer invoked the powerful-butnever-usedSection7oftheRBI Act to initiate consultations with the central bank through three letters on a range of contentious issues, including the corrective regime for weak banks,liquiditycrunch,capital adequacynorms forbanks and credit to micro, small and medium enterprises (MSME). In its reply, the RBI stuck to its stance, without promising changes that the government may have wanted, a source aware of the development told FE. However, the finance ministry hasn’t yet given direction to the RBI to abide byits diktat using the Section 7 that gives powers to the government to seek consultations with the central bank as well as give it binding orders,if necessary,in public interest,said the source. Nevertheless, the invocationofthesection—whichwas never used even in times of wars or balance of payment Continued on Page 2 WHAT THE SECTION SAYS "The central government may from time to time give such directions to the Bank (RBI) as it may, after consultation with the governor of the bank, consider necessary in the public interest." ■ DEA has written three letters to the central bank in recent weeks, invoking Section 7 ■ In its reply, the RBI underlined ‘stringent’ PCA framework for stressed banks, denied a liquidity crunch ■ Finmin, RBI have also differed on capital adequacy norms for banks and sub-prime crises — may have added to the RBI’s discomfiture and triggered deputy governor Viral Acharya’s stern warning last week against “potentially catastrophic” consequences of any government incursion into the central bank’s autonomous regulatoryspace. The Section 7 has three parts, of which the first one is the most relevant here.It says: “The central government may from time to time give such directions to the Bank (RBI) as it may, after consultation with the governor of the bank, consider necessary in the pub- lic interest.” While talks between the finance ministry and the RBI usually take place without resortingtoSection7,theinvocation of this section for consultations is important, as it leaves the scope for the government to issue directions as itdeemsfittothecentralbank, another source explained. The second part of the section says: “Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a central board of directors, which may exercise all powers and do all acts and things which may be exercised or done by the Bank.” One of the sources said the government might have drawninspirationforusingthe Section 7 from a recent judgment of the Allahabad High Court, when the latter was hearing a case filed by power producers against the RBI’s February circular that mandates early detection and time-bound resolution of stressed assets. The HC had asked the finance ministry to hold consultations with the RBI within 15 days,underSection 7 of the RBI Act 1934, and see if the issue could be resolved. But in its order on August 28, the HC had also said:“The central government, however, is not expected to issue any directions, as contemplated under Section 7(1), indiscriminately or randomly. Such directions are possible when there exists sufficientmaterialinsupport.” Continued on Page 2 Now, RBI autonomy seen as ‘essential’ FE BUREAU New Delhi, October 31 WHAT THE GOVT SAID ON WEDNESDAY AMID STRONG RUMOURS that Reserve Bank of India governor Urjit Patel has threatened to step down, upset by an election-bound government meddling with the central bank’s regulatory turf, the finance ministry on Wednesday sought to de-escalate the situation by issuing a statement where it asserted it respected the RBI’s autonomy as an “essential and accepted governance requirement”. “Both the government and the central bank,in theirfunctioning, have to be guided by public interest and the requirements of the Indian The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this. ...extensive consultations on several issues take place between the government and the RBI from time to time. (GoI) have never made public the subject matter of those consultations. economy. For the purpose, extensive consultations on several issues take place between the government and the RBI from time to time.This is equally true of all other regulators. Government of India PRESS TRUST OF INDIA New Delhi, October 31 S&P BSE Sensex PARING ALL EARLY losses,the benchmark indices on Wednesday rebounded after the government said RBI’s autonomy was essential. The Sensex rallied 550.92 points, or 1.63%, to close at 34,442.05,while Nifty surged 188.20 points, or 1.85%, to end above the 10,350 mark at 10,386.60. The rupee,however,depreciated by 27 paise to close at a nearlythree-weeklowof73.95 against the dollaras theAmerican currency strengthened against major global curren- Nifty 50 39,500 37,521.62 12,000 11,346.2 38,000 34,442.05 11,500 36,500 11,000 35,000 10,500 33,500 10,000 32,000 `/$ 68.00 Aug 1, 2018 68.43 Oct 31, 2018 (Inverted scale) 69.50 Tata, IDFC offer to sell ATC stakes TATATELESERVICES (TTL) has offered to sell half its stake and IDFC its entire stake in mobile tower firm ATC TIPL to majority shareholder American Tower Corporation (ATC) for `2,940 crore, reports PTI. TTL has also offered to pay $320 million or about `2,360 crore to ATC Telecom Infrastructure for termination of lease obligations following closure of its mobile services business and affiliates, according to a regulatory filing by ATC. PAGE 7 8.230 7.853 8.075 72.50 7.765 74.00 7.610 75.50 Aug 1, 2018 Oct 31, 2018 7.455 Aug 1, 2018 Oct 31, 2018 cies overseas amid steady capital outflows. Forextraderssaidincreased demand for the US currency from importers and concerns around the rift between the government and the RBI weighed on the local unit. “Multiplereportsofthegovernment invoking Section 7 of theRBIActtoissuedirectivesto the RBI and also rumour about the likelyresignation of the RBI Governorhad the marketsworried,andevenpushedtherupee lowerbeyondthe`74level,”said Joseph Thomas, head research, EmkayWealth Management. Detailed reports on P10&11 NCLT HEARING IL&FS board says solution possible in next 60-90 days BHAVIK NAIR & MITALI SALIAN Mumbai, October 31 The festival of lights is back with a lot of excitement. It is again time for Diwali parties, meeting relatives, friends and dear ones. Check out some of the hottest gadgets trending in the market. ■ Gadgets, P13 IN THE first big ticket disinvestment of the current fiscal, Coal India share sale kicked off for a smooth sail on Wednesday as institutional investors put in bids worth `4,300 crore and over-subscribed the shares reserved for them, reports PTI. Of the 14.89 crore shares on offer, institutional investors put in bids for 15.84 crore shares or 1.06 times the shares reserved for institutional buyers, as per data available with NSE. PAGE 10 Oct 31, 2018 73.96 7.920 7.701 Ditch the sweet box, go geeky this Diwali `4,300-crore bids for CIL shares Aug 1, 2018 71.00 Oncology startup OncoStem Diagnostics has developed a promising diagnostic test that can spare breast cancer patients from unnecessary chemotherapy. ■ eFE, P13 THE INDIAN Railways on Wednesday increased freight rates by 8.75% for major commodities such as coal, iron and steel, iron ore, and raw materials for steel plants, in a move that could stoke inflation to an extent, reports fe Bureau in New Delhi. However, the freight rates for 'essential goods' including foodgrain, flours, pulses, fertilisers, salt, and sugar have not been raised, keeping in mind farmers and the common man, it said. PAGE 2 9,500 10,386.6 10-year bond yield (%) Test to tell if chemo is needed for breast cancer treatment Rail freight up 8.75% on some items Continued on Page 2 Markets bounce back, but rupee weakens Special Features QuickPicks has never made public the subject matter of those consultations.Onlythe final decisions taken are communicated,”the ministry said. The ministry’s conciliatory tone comes a dayafterfinance minister Arun Jaitley blamed the RBI for not doing enough to control “indiscriminate lending” by the public sector banks during the 2008-14 period under the UPA government’s watch,which precipitated the twin balancesheet problem of both the lenders and borrowers under severe,seemingly inescapable stress. Jaitley’s remarks were widely perceived to be in response to the RBI deputy governor Viral Acharya’s public assertion last week, virtually warning the government of extreme economic/financial sector consequences if it attempted to undermine the RBI’s authority. Homage to Iron Man PM Narendra Modi at the ‘Valley of Flowers’ after inaugurating a 182-metre high statue of Sardar Vallabhbhai Patel on his 143rd birth anniversary, at Kevadiya colony of Gujarat’s Narmada district on Wednesday Report on Page 19 EASE OF DOING BUSINESS India leaps 23 notches to 77th slot FE BUREAU New Delhi, October 31 INDIAWITNESSEDA23-notch jump to a record 77th position in the World Bank’s latest report on the ease of doing businessthatcapturedtheperformanceof190countries.The country showed an improvement in six of the 10 parameters,havingwitnessed a leap of 129 notches in the ever-laggard ‘construction permit’, 66 in ‘trading across borders’ and 19 in‘starting a business’. Thecountry’srankunderthe current NDA government jumped from 142nd in the World Bank’s 2015 report (whichreflectedreformsundertakenmostlyuptoMay2014)to 77 now. In the last two years WHERE RANKS IMPROVED 2018 Construction permits 2019* Trading across borders 181 52 146 80 Starting a business 156 137 Overall ease of doing business 2018 2019* 100 77 alone, India has jumped 53 spots—sharpestbyanycountry. India’s position, however, worsenedabitinthelatestrank- WHERE RANKS WORSENED Registering property 2018 2019* Paying taxes 154 166 119 121 Resolving insolvency 103 108 RANKS UNDER NDA REGIME# Each year's rank reflects reforms undertaken up to May of the previous year # ingon‘payingtaxes’and‘resolving insolvency’— two parameters where improvement was expected following the roll-out *Based on perception of reforms in the year through May, 2018 (except for paying taxes); survey captures 190 countries Source: World Bank's Doing Business 2019 report 2015 2016 2017 2018 2019 142 131 130 100 77 of GST and the insolvency and bankruptcycode. Continued on Page 2 THE NEWBOARD of the troubled Infrastructure Leasing & Financial Services (IL&FS) on Wednesday said it would work towards the final resolution,in stages and parts,over the next six-nine months. It indicated the possibility of some early outcomes and part resolutions in the next 60-90 days after consent of the National Company LawTribunal (NCLT). In a presentation to the Mumbai bench of the NCLT, it identified the primary and core problem of the IL&FS Group as excessive leverage, without commensurate asset values or cash flows, from the perspective of both timing and quantum. The board said the final resolution will inevitably involve substantial deleveraging from the current levels, notwithstanding the various challenges. Suchdeleveraging,itnoted, will necessarily need to be achievedinanorderlymanner, considering the scale and complexity of IL&FS Group. Else,therecouldbedireimpact on the values of the company or assets especially at the level of certain key verticals, it cautioned. The board has not zeroed in on any specific plan or approach at this stage. It said various options would be considered — group resolution or partresolutionofbusinessverticals and assets.It merelyoutlined the direction and approach before the NCLT, which fixed the next date of hearing on December 3. Should a resolution be considered at the group level, it would involve signifi- Roadmap presented by the new board AUSTERITY MEASURES Reduction of sitting fees of boards and its committees 10% salary rationalisation for all employees with a CTC of `50 lakh or above ` ` 69 superannuated employees retained as consultants are to be, in principle, discontinued CHOICES FOR RESOLUTION PLAN Group level resolution Vertical level resolution Asset level resolution Payments of `1 crore and above requires approval of the MD FINAL RESOLUTION Board will work towards the final resolution over the next 6-9 months, with the possibility of some early outcomes/part resolutions in the next 60-90 days cant capital infusion from credible and financially strong investors. This would necessitate a condition that such investors along with the board engage with the creditors such that it will lead to a final resolution on a groupwide basis. Continued on Page 2
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