OPINION, P6 ECONOMY, P2 BAD LOANS NBFC loans slow but don’t rush to open credit lines Higher raw material costs and lacklustre demand result in another tough quarter TRADE WAR SBI puts up 11 NPA accounts for sale to recover `1,019 cr EDITORIAL INTERNATIONAL, P4 Trump-Xi deal may begin than end at G-20 NEW DELHI, MONDAY, NOVEMBER 5, 2018 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE WWW.FINANCIALEXPRESS.COM READ TO LEAD VOL.XLIV NO. 212, 16 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 EARNINGS SEASON ● WILFUL DEFAULTERS’ LIST Profits barely grow as costs rise sharply (As on Oct 22, 2018) Establishments covered PMRPY PMPRPY (for textile sector) Beneficiaries 84,34,031 1,03,912 2,67,192 795 Financial benefits remitted by Centre (` cr) 24 ■ BRANDWAGON, P10 The festive sale cacophony How e-commerce players are rising above the noise with innovative communication strategies this festive season ■ eFE, P8 Oracle’s thunder in the cloud Oracle’s Gen 2 cloud infrastructure represents a fundamental re-architecture of the conventional public cloud ■ PERSONAL FINANCE, P9 Gold ETFs & SGBs this Dhanteras Given the global macroeconomic backdrop, it does add merit to add gold to your investment portfolio ■ INFRASTRUCTURE, P11 Open up the floodgates Time and cost overruns and other factors have come in way of tapping the hydro power sector’s potential ■ SCIENCE & TECH, P12 Cleaning up shipping Shipping regulators plan to cut greenhouse-gas emissions; that will require bold thinking QuickPicks Dhanteras: Muted gold sales likely A RISE in prices would weigh on gold sales this Dhanteras — considered auspicious for purchases of the precious metal — on Monday, reports fe Bureau in New Delhi. Small players are expecting a lacklustre festival season for them, while established jewellers like Tanishq, Malabar Gold and Anmol Jewellers are eyeing decent sales. PAGE 2 HSBC payment for RIL via blockchain IN A first for India, HSBC has executed a trade finance transaction involving an export by RIL to an American client using the blockchain, reports PTI. The use of blockchain massively reduced the time taken for processing the documents. The blockchainenabled letter of credit transaction facilitated a shipment between RIL and the US-based Tricon Energy. PAGE 3 Source: Ministry of labour and employment SURYA SARATHI RAY New Delhi, November 4 AFTER A LACKLUSTRE initial year, the Pradhan Mantri RojgarProtsahanYojana(PMRPY), the Narendra Modi government’sflagshipschemetopromote job creation launched in August 2016, has picked up momentum. While about 6,600 establishments were covered under the scheme at July-end2017,thenumberhas since shot up to the current strength of over a lakh. The scheme’s beneficiaries were just over 3 lakh one year after its launch, but by March 2018 there was a tenfold jump and the latest figure is 85 lakh. Under PMRPY, the government bears the entire employers’entirecontribution(12%of basic pay) towards employees’ provident fund (EPF) for workers earning less than `15,000/month during the firstthreeyearsofemployment. Clearly, the scheme gained considerable traction since the Budget 2018-19 which increased the government’s EPF contribution to 12% from 8.33%earlierandextendedthe schemetoallsectors.Thetextile sector had availed the 12% scheme(PradhanMantriParidhan Rozgar Protsahan Yojana) even earlier but for other sectors,the government contributionwas capped at 8.33%. Of course, the schemes are still a far cry from what the government intended them to be. The textile/garments-specific scheme itself was meant to“create1crorejobs,achievea cumulativeincreaseof$30billion in the export of textiles and garments and `74,000 crore investments in the employment-intensive sector over three years”. Continued on Page 2 FE BUREAU Mumbai, November 4 Vote for (in %) Against (in %) Outcome ■ Gammon Revise remuneration 33 67 ■ KPIT Tech Reappoint director Reappoint director WITH INSTITUTIONALINVESTORS asserting themselves at least 75 resolutions have been defeated in the last few years. That might seem insignificant given the thousands of resolutionsputtovoteeveryday.However, the fact is non-promoter shareholders rarelyquestioned the actions of managements. Most of these relate to board changes while related-party transactions(RPT)alsoaccount for a big chunk of the resolutions rejected.Companies have seen RPT resolutions being rejectedaftertherulesrequired they be passed by a majority of the minorityvote. Some of these have been related-party transactions, including those at Raymond, Finolex Cables, Kolte Patil and Dishman Pharma.Others have 65 35 75 25 ■ Housing Dvp & Infra To issue equity 65 35 ■ KV Bank To reappoint director 76 24 ■ Ashok Leyland Approve amalgamation 79 21 Source: iiasadrian.com had to do with borrowings such as at Zee Entertainment while resolutions proposed by themanagementsforappointing directors at Bharat Electronics and Sintex have also been opposed. Traditionally, institutional investors — foreign portfolio investors (FPIs), mutual funds, insurers and pension players — havetendedtoabstainandsim- Test of liquidity ply offload the shares if they were displeased with the company’s policies. Consequently,very few resolutions were defeated. In 2016-17, abstentions by FPIs wereclosetozerowhileforMFs and pension funds there were down at 11% from 24% in 2014-15. Continued on Page 2 FE BUREAU `1.5L cr of commercial paper up for renewal in Nov THE MONEY MARKETS have been very nervous ever since news of IL&FS’ insolvency broke, fearing a huge contagion effect since the infra financier owes lenders close to `1 lakh crore. The huge redemptions from liquid mutual fund schemes in September also spooked the markets. Risk aversion has risen and lenders are funding only the better-rated NBFCs and HFCs; many NBFCs and HFCs, it is feared are staring at an asset-liability mismatches CP issuances down significantly in October (` bn) 3,612 Financial cos 2,890 2,167 1,445 722 0 Jun Jul Others ■ Average rollover/ refinancing of over 50% in last fortnight of Oct for CPs from financial firms ■ Govt-backed, 864 1 lakh units covered, 85 lakh benefit How job schemes fared Vox populi ■ Sintex Industries 835 JOB PROMOTION SCHEME With institutional investors voting more, at least 75 resolutions have been defeated in the last few years 862 Continued on Page 2 A lot more vocal now 1,360 257.45 63.69 153.63 which were impacted by input cost pressures. Most consumer–centric companies continue to face top line pressures; Dabur reported mutednumbersmissingexpectations.Promotioncostsateinto profitswhichwereupjust4%yo-y — consolidated gross margins fell 75 basis pointsy-o-y. As analysts pointed out,the management’s bullish tone has been traded for a more realistic assessment of the markets. INSTITUTIONAL INVESTORS 958 remainschallenging.RajivBajaj, managing director, Bajaj Auto, toohaspointedoutitisdifficult totakepricehikes.AtBajajAuto, the operating margin dropped sharply by about 300 basis points y-o-y to 16.8% with the companycompelledtoadoptan aggressive pricing strategy for its entry-level motorcycles.Net profits at HeroMotoCorp were down 3.4% y-o-y. The twowheelermanufacturerreported operating profits or ebitda that were lower by 5% year-on-year following weak gross margins Source: Capitaline An effigy of US government icon ‘Uncle Sam’ is held up by protestors during a rally in front of the former US Embassy in Tehran on Sunday. Washington is set to roll out toughest sanctions yet on the oil producing nation today 2,052 Sample of 717 companies (excluding banks & financials) Q3 Q4 Q1 Q2 FY18 FY19 Tehran on the boil 1,797 825 Q3 Q4 Q1 Q2 FY18 FY19 127.96 7.33 -196.45 -4.62 22.6 23.71 56.06 23.9 20.47 26.29 -209.39 Q3 Q4 Q1 Q2 FY18 FY19 RM to sales (bps, chg y-o-y) 806 FE SPECIALS Q3 Q4 Q1 Q2 FY19 FY18 (% chg y-o-y) THE CENTRAL INFORMATION Commission (CIC) has issued a show-cause notice to RBI governor Urjit Patel for “dishonouring” a Supreme Court judgment on disclosure of wilful defaulters’list. The CIC has also asked the Prime Minister’s Office, the finance ministry and the Reserve Bank of India (RBI) to make public the letter of former RBI governor Raghuram Rajan on bad loans. Irked over the denial of information on the disclosure of the names of wilful defaulters who have taken bank loans of `50 crore and above by the RBIinspiteofaSupremeCourt order, the CIC has asked Patel to explain why a maximum penaltybenotimposedonhim for “dishonouring” the verdict which had upheld a decision taken by then information commissioner Shailesh Gandhi, calling for disclosure of names of wilful defaulters. Patel,speaking on September 20 at the CentralVigilance Commission (CVC), had said the guidelines on vigilance, issued by the CVC,were aimed at achieving greater transparency, promoting a culture of honestyand probityin public life and improving the overall vigilance administration in the organisations within its purview, the CIC pointed out. “The Commission feels that there is no match between what RBI governor and deputy governor say and their website regarding their RTI policy,and great secrecyof vigilance reports and inspection reports is being maintained with impunity in spite of the Supreme Court confirming the orders of the CIC in the Jayantilal case,” information commissionerSridhar Acharyulu said. He concluded that it did not serve any purpose in punishing the CPIO for this defiance, because he acted under the instructions of the top authorities. 1,766 THE FINANCE MINISTRY is likely to finalise the second round of capital infusion for public sector banks (PSBs) towards November end taking into account the latest quarter's performance, reports PTI. In this round, most of the banks would be getting growth capital for expanding their lending, particularly to MSMEs. THE STUPENDOUS PERFORMANCE of Larsen & Toubro (L&T) in Q2FY19, as also the 46%year-on-yearjumpinorder inflows,signals some improvement in the capex cycle. However, much of India Inc is just about muddling through with weak demand, intense competitionandhighinputcostshurting companies badly. Some like Tata Motors, whichreportedalossforthesecond consecutive quarter,struggletonegotiateatoughoverseas environment. With raw material costs rising, JSW Steel’s domestic steel spreads have been falling since October.Vedanta too was hit by higher costs and reported a weak set of numbers. It’s a tough market in which demandissubdued,thecompetition intense and raw material costs high. Most management teams like the one at Asian Paints say domestic demand Net profit OPM (bps, chg y-o-y) 2,404 Govt may finalise capital infusion in PSBs this month FE BUREAU Mumbai, November 4 Net sales (% chg y-o-y) 15.25 THE RBI HAS initiated steps to set up a wide-based digital Public Credit Registry (PCR) to capture details of all borrowers, reports PTI. Borrowers will include wilful defaulters and also the pending legal suits in order to check financial delinquencies. The PCR will also include data from entities like Sebi, the corporate affairs ministry, GSTN and the IBBI. PRESS TRUST OF INDIA New Delhi, November 4 15.24 IN THE NEWS RBI begins process to set up PCR for borrower details While revenues have risen fairly well, operating margins have contracted; few firms are able to pass on higher input costs CIC issues show-cause notice to RBI governor for non-disclosure Aug Sep Oct Source: AIMin, Edelweiss research resulting from borrowing short — from mutual funds — and lending long. With lenders becoming choosier now, corporate spreads corporate-backed and highly-rated entities rolled over CPs of 70%. CP markets are running at 30-35% of the usual levels are widening. Rollovers of commercial paper (CP) issued by finance companies, averaged more than 50% in the last fortnight of October and 70% for better-rated borrowers. The markets are hoping the `1.5 lakh crore worth of CP renewals coming up in November go through smoothly. Banks have said they will pick up assets from NBFCs; already loans to NBFCs from banks jumped a sharp 45% yearon-year in September which is a good trend as this will result in less shortterm debt and stable longterm borrowings. Continued on Page 2 SNEAK PREVIEW Finmin was aware of changes to PCA ahead of its rollout in April 2017 SHRITAMA BOSE Mumbai, November 4 THE RESERVE BANK of India (RBI) had not just written a detailed letter, it had also made a presentation to the finance ministry before it rolled out the tighter norms for Prompt Corrective Action (PCA) in April 2017, persons familiar with these developments said. Atthetime,thefinanceministry responded to the central bank indicating it was“broadly in agreement”with the framework proposed bythe RBI. “The ministry had also sought clarification on one particular point, which RBI responded to. After that, there was no further response from the ministry,”said one of the people in the know of the exchange. The government has been asking for some relaxation in the norms for these banks so they can lend more.The issue Capital to risk-weighted assets ratio* 18 (in %) 16 14 Pvt Banks PSBs - Non-PCA 12 10 2008 *Total capital/ risk-weighted assets Source: RBI PSBs - PCA 16.43 12.04 10.58 2018 is understood to have been raised, among others, in a set of letters from the finance ministry to the central bank written in October. In these letters,the finance ministry is understood to have invoked Section 7 of the Banking RegulationAct (RBI), persons in the know said. “The letters did invoke part (1) of Section 7, which states that directions may be issued to the RBI, but not part (2) of the same section,which refers to the formation of a central board of directors,”they said. Section 7(2) of the RBI Act states that subject to any such directions, the general superintendence and direction of the affairs and business of the RBI 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 RBI”. Continued on Page 2
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