NEW DELHI l WEDNESDAY l MARCH 28 l 2012 V O L X X X V I I I N O 2 4 2 0 P A G E S I R s 4 . 0 0 READ TO LEAD P 18 M O N E Y & P 12 B A N K I N G RBI STRESSES ON STATUS QUO, TO MAINTAIN TIGHT LIQUIDITY STANCE: KC CHAKRABARTY P U B L I S H E D F R O M : A H M E D A B A D S H O W Service tax on talent is B A N G A L O R E twist in the Budget tale C H A N D I G A R H C H E N N A I P APPLE CEO TIM COOK ON 20 B U S I N E S S B U S I N E S S H Y D E R A B A D K O C H I CHINA MISSION TO CLEAR MOUND OF PROBLEMS K O L K A T A L U C K N O W M U M B A I P U N E NOW, SBI HIKES GAAR will not harass honest DEPOSIT RATES foreign investors, assures FM fe Bureau New Delhi, Mar 27 uiditycrunchthismonthascompaniestook out funds to pay advance taxes. The last instalment of advance tax was due on March LOSE on the heels of the hike in 15. Banks have been borrowing over R1.5 small savings schemes interest lakhcroreadayfromtheRBItotideoverthe rates by the governliquidity deficit. ment, the country's largest Bank of India and Bank lender State Bank of India of Baroda recently raised (SBI) on Tuesday aninterest rates on deposits to nounced a hike of up to 1 raise short-term funds. The percentage point on shortRBI cut the cash reserve raterm retail deposits. The tio in early March for banks move will benefit savers to 4.75% from 5.50%, releaswhile enabling SBI to raise ing R48,000 crore of liquidifunds to tide over an exty into the banking system. treme liquidity crunch. The pressure on bankThe new retail deposit ing system liquidity could Pratip Chaudhuri, rates come into effect from aggravate further as SBI chairman Wednesday, SBI said in a filthe government begins its ing to stock exchanges. borrowings pegged at R5.7 UPSWING SBI also decided to allow lakh crore in 2012-13, the ■ Home loan borrowers customers to reprice their highest ever. can switch to lower rate existing home loans at lower The move to allow cus■ Deposits for 7-90 days rates, a move that would bentomers to switch to lower to earn 8%, up from 7% efit existing borrowers. The home loans rates would switch can be made by payhelp all those borrowers ■ Rates on FDs over 1 year left unchanged ing a fee of 1% of the outwhose home loans are standing loan amount. linked to the prime lending ■ SBI is 4th PSB to raise SBI will pay a uniform rate, which is as high as deposit rates this month rate of 8.0% on retail de14.75% at present. Currentposits in various brackets ly, the floating rate of the from seven days to less than a year. The uni- bank is linked to the base rate which is formity has been brought by raising rates of 10%. SBI's current floating rates vary from deposits of 7-90 days by 100 basis points, 9110.5% for loans up to R30 lakh, 10.75% for 179daysby75bps,181-240daysby100bpsand between R30 lakh and R75 lakh, and 11% for 241 days to one year by 25 bps. loans above R75 lakh. The banking system has been facing liq- ■ Continued on Page 2 C fe Bureau New Delhi, Mar 27 I will examine and modify GAAR as and when required. This is essential for anti-avoidance F INANCE minister Pranab Mukherjee said on Tuesday that proposed the General AntiAvoidanceRules(GAAR)will notharasshonesttax-payers. These are targeted at tax evaders and the government would not punish genuine foreigninvestorsinvestingin Indian equities through participatorynotes,hesaid. Stockmarketswhichtumbled on Monday on concerns regarding GAAR provisions recovered on Tuesday after finance ministry officials sought to clarify the proposal. Mukherjee's comments cameaftermarkethoursduring his reply to the discussion on the Union Budget in the Lok Sabha. The BSE Sensex gained 205 points to close at 17,257.36 on Tuesday . Mukherjee said provisions to prevent tax avoidance are aimed at bringing back black money stashed abroad and preventing its generation. It is feared that GAAR, which will kick in from April 1, could result in levy of short-term capital I understand the plight of small jewellers...I will come out with an acceptable formulation We must see light at end of the tunnel on GST. We cannot go on compensating states endlessly Pranab Mukherjee, finance minister gains tax on FIIs or overseas investorsfoundtobeevading tax. Some tax experts have said that even Mauritius and Singapore-based investors who have treaty protection might end up paying tax. Under GAAR, going for- ward, a tax residency certificate (TRC) may not be enough for FIIs to avoid payingtaxesinIndia.TheIndian tax authorities will have the power to ascertain the veracity of the residency status even after the certificate is Sensex up 205 pts; P-notes won’t be targeted I N high volatility, the Sensex bounced back 204.58 points at 17,257.36 on Tuesday on reports that the government may not tax all FII investments under the proposed rules that aim to check tax avoidance. Besides, firm equity markets globally provided good support. On Monday, the Sensex had tumbled 308.96 points on concerns that P-notes could be taxed. ■ P13 provided.Asof now,merelya TRC from Mauritius was enough for FIIs to not pay tax in India. India has a double tax avoidance treaty with Mauritius. The finance ministry will come out with the checks and balances for acSensex intra-day, Mar 27 High: 17,366.84 Low: 17,061.16 204.58 % chg:1.20 chg: 17,400 17,300 17,200 17,100 17,000 ■ See Edit: And now, finmin P-notes!, Page 8 17,257.36 17,209.13 Prev close: 17,052.78 9.00am 3.30pm cepting the TRC's validity . Mukherjee said only in caseswhereaninvestordoes nothaveanestablishmentor other infrastructure abroad would the GAAR provisions kickin.He alsoindicatedthe possibility of modifying GAAR,if aneedforthesame was felt. “I will go through the standing committee's recommendations. If required, we will go for modifications in GAAR,” he said. As far as imposition of 1% excise duty on gold jewellery is concerned, Mukherjee said an acceptable solution would be found. But he ruled out rolling back the customs duty on imported gold. Jewellers across the country have shut shop protesting against the excise impost. Mukherjee said the taxes were needed to curb huge gold imports that topped $46 billion in the current fiscal. This would help reduce the current account deficit next fiscal. The CAD for 2011-12 is pegged at 3.6% of GDP far , abovethecomfortablezoneof 2.5%. India is one the world's biggest importers of gold. ■ Continued on Page 2 IL&FS Investment joins Milestone in selling holdings in 2 JV funds Kingfisher slashes summer schedule; no infusion in sight 12 CRPF men dead, 29 injured in blast Baiju Kalesh Mumbai, Mar 27 fe Bureau Mumbai, Mar 27 Twelve CRPF personnel were killed and 29 injured in a landmine blast triggered by Naxalites in Gadchiroli district of Maharashtra on Tuesday. ■ Page 2 NDIA'S largest private equity fund IL&FS Investment Managers (IIML), which manages $3.2 billion, will join its partner Milestone Private Equity Advisory to sell its stake in their two joint venture funds, which invest in commercial properties that give rental income, a person with direct knowledge of the transaction said. “IIML, promoted by India's Infrastructure Leasing & Financial Services, has decided to tag along with its partner to sell off their stake,” the person said. He cannot be named as the deal is in the works. IIML and Milestone Private Equity Advisory pro, moted by the late Ved In the news INDICES BSE Sensex Closing Up/down 17,257.36 ▲ 204.58 S&P CNX Nifty 5,243.15 ▲ 58.90 Cable digitisation deadline stands The government said on Tuesday that the June 30 deadline for mandatory cable digitisation in four metros is "nonnegotiable". Come July 1, the 1.2-crore TV viewers in the four metros will require a digital and addressable STB. ■ P3 EDIT P8 To market, to market … Centre cash-strapped means states may have to borrow more from the market & that’s a good thing Subhomoy Bhattacharjee I Prakash Arya, own and managed $229 million two rentalincome-basedrealestate funds — IL&FS Milestone Fund I and IL&FS after the sudden demise of its main promoter Ved Prakash Arya in an accident last year and had appointed Standard Char- ness, which is nascent now, is yet to develop for two reasons, an investment banker with a consulting firm said. “One, the high tax struc- STAKES CHANGE HANDS ON FINANCE STREET Fund II — which primarily invest in income-generating commercial properties. The Arya family, the promoters of Milestone, has decided to sell the company tered Bank as advisor to the sale. “We cannot make any comment at this point of time,” a Milestone spokesperson said. The rental yields busi- tures pushes Indian real estate investment trust funds to list in Singapore and London stock exchanges and second, there is no stability of return from rental L&T Finance Holdings acquires Fidelity’s India fund business L &T Finance Holdings has acquired Fidelity Worldwide Investment’s India mutual fund business to boost growth in the country’s growing but highly competitive asset management business. It has executed definitive agreements to acquire the companies — FIL Fund Management (Fidelity AMC) & FIL Trustee Company — carrying on the mutual fund business of Fidelity in India subject to regulatory approvals, L&T Finance said in a filing to the BSE. ■ Details on Page 13 income as investors look at appreciation of properties.” IIML's public relations agency did not respond to a query regarding the development. Media reports said home mortgagerDewanHousingpromoted PE fund Arth Veda Star Fund is in the lead to purchase Milestone. Real estate PE funds, which had earlier shown interest in purchasingthefund,saythe Milestone PE, which manages roughly R3,200 crore, will fetch R180-200 crore, much less than the R300 crore value sought by the seller. Milestone has a slew of funds managed independently and two joint ventures — one with ILML and other with Religare Financial Services Group. ■ Continued on Page 2 RBI to be lenient on debt-like FDI Rajat Guha & Timsy Jaipuria New Delhi, Mar 27 T HE Reserve Bank of India has toned down objections to FDI instruments with alleged debt nature and agreed to allow them subject to certain conditions. According to sources, during the discussions for the bi-annual FDI policy review, the government and the RBI have come to agree that a blanket ban on these instruments may not be a good idea. Given the difficult global economic situation, the policy focus should be on encouraging longtermcapitalinflows,thetwo have concurred. These instruments — with underlying put/call options that allow the foreign investor to exit and ward off risk — are allegedly being used to circumvent the curbs on external commercial borrowings in certain sectors like real estate. The new regime will, however, be marked by certain safeguards. The Indian promoters will not be allowed to buy back shares from foreign investor who came in through instruments with alleged debt character for a period of three years. That apart, the DURING TALKS FOR THE BI-ANNUAL REVIEW OF THE FDI POLICY, THE GOVERNMENT AND THE RBI AGREED THAT A BLANKET BAN ON THESE INSTRUMENTS MAY NOT BE A GOOD IDEA. IT IS FELT THE POLICY FOCUS SHOULD BE ON LONG-TERM CAPITAL INFLOWS FDI policy will specify a separate format for the reporting and monitoring of these inflows and subsequent transactions. Sources said the RBI and the government have also agreed to consider thesecapitalflowsunderthe head of “other capital” insteadof FDIorportfoliocap- Duvvuri Subbarao, RBI governor ital for the purpose of balance of payment (BoP) calculation. These changes will be part of the revised FDI policy to be announced on March 31. “I think the minimum lock-in period being planned will apply to foreign investments through theseinstrumentsinrealestate sector. There is no rationale for having such a lockin in other sectors,” said PwC's Akash Gupt. Compulsorily convertible debentures and compulsorily convertible preference shares are among the instruments through which foreigners invest in Indian firms. ■ Continued on Page 2 ■ The government will raise R2.85 lakh crore from the market between April to September in 2012-13, which amounts to 63% of its annual borrowing target of R4.79 lakh crore. Gross borrowing during the period would be R3.7 lakh crore during the first half of the next fiscal. T HE cash-strapped Kingfisher Airlines said on Tuesday that it willuse20planestofly120daily flights, less than half it operatedinitssummerschedule betweenAprilandSeptember, last year. The new operations termed as “holding plan” did not give any details of bringinginfreshequity ,acondition set by banks to help revive the country's fifth largest passengercarrier.Thecarrier,which owes money to lessors, fuel companies and government agencies,willcutdownflights toseveralcities. The airline, under its new plan, will have to keep 44 planes idle, but have to pay lease rentals to lessors and parking charges to the Airports Authority of India. “We have taken adequate carethatpartof ourcoreintermetro schedule is retained, while connectivity is maintainedtomanycitieswherewe are the sole operator,” the airline said in a statement. “There are several stations to which operations have been temporarilysuspended.” The airline also said it will stop flying international routes from April 10 as the International Air Transport Association,aglobalaviation body suspended its member, ship from its payment platforms on Mar 12. Travel agencies and airlines which had code share or seat sharing agreement was unable to sell or use airline tickets. People familiar with the carrier said the airline, owned by liquor baron Vijay Mallya,mightalsoannounce staff layoffstosavecosts.The airline has told its staff employed at routes it ceased to fly to stay home while contin- uing on company rolls. The airline employs 7,000 staff. “We are in a holding pattern right now and are waitingforvariousdecisionsfrom the government and our consortium of bankers on issues of foreign direct investment policy working capital and , funds,” the airline said in a statement.“ Allthesewillhave amajorimpactonthestaffing decisions we make.” Meanwhile, on Tuesday, Vijay Mallya, Kingfisher chairman CLIPPED WINGS ■ Summer plan has half as many flights as last year ■ 44 planes to be idled as part of ‘holding pattern’ ■ Overseas flights to be suspended from Apr 10 ■ Banks have asked co to raise fresh equity for loans the airline’s shares hit a new low during intra-day trading on the BSE but recovered slightly to close 0.25% lower at Rs 16.50. Analysts say Tuesday’s announcement will do little to infuse investor confidence. “There is no sign of revival,” said a Mumbai-based broker, requesting anonymity “What they need is money . , be it from banks or from strategic investors. Till such an announcement comes, I see no value in their stock.” ■ Continued on Page 2 ■ Air India wages to be cut further on restructuring. It said on Tuesday that its board had agreed to directly import ATF, P7
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