Cash Reserve Ratio caught in Reserve Bank of India crosshairs again

The Reserve Bank of India (RBI) on Tuesday made it clear that its priority would be to rein in inflation. The central bank did this by hiking the cash reserve ratio (CRR) the funds banks have to keep with RBI by another 25 basis points, to 8.25%,sucking out around Rs 9,000 crore from the system.

While this may not immediately prod banks to hike lending or deposit rates, banks may review their liquidity positions later and hike rates, if necessary.

In the Annual Policy Statement for 2008-09, RBI governor Yaga Venugopal Reddy, however, kept the other two key rates the repo rate (the rate at which banks borrow from RBI) and the reverse repo rate (the rate at which banks park short-term funds with RBI) unchanged at 7.75% and 6%, respectively.

RBI had, on April 17, hiked CRR by a hefty 50 bps to suck out excess liquidity and cool inflationary expectations.

The CRR hike aims to make liquidity scarce for banks.This may eventually force banks to realign their lending and deposit rate store flect the higher cost of funds. But bankers say this may not be immediate, or across the board, and would be selective. Since funds parked as CRR don't earn interest, the banks' earnings would be reduced to that extent.

RBI has made some concessions on home loans. It has hiked the limit of housing loans,to individuals,having a lower risk weight of 50% to Rs 30 lakh from Rs 20 lakh. This is good news for households since 75-80% of all home loans belong to the Rs 30 lakh or under segment. Interest rates on home loans will remain stable, or even head lower, reckon experts. This could spur demand for real estate.

According to Reddy: "High priority has been accorded to price stability, well-anchored inflation expectations and orderly conditions in financial markets, while sustaining the growth momentum."

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Indian Oil Corporation plans Rs 80k crore war chest

Indian Oil Corporation is preparing a war chest of Rs 80,000 crore to fund a major acquisition in the exploration & production (E&P) sector. The country's largest oil refining & marketing company will ask its board to approve a doubling of its borrowing limits on Tuesday.

IOC can currently borrow up to Rs 20,000 crore from the domestic market through loans and credits, besides foreign currency loans of up to Rs 18,000 crore ($4,500 million). The company's paid-up capital and free reserves, as on December 31, 2007, works out toRs41,341crore.

"IOC keeps exploring the possibility of acquisition, particularly in the field of E&P. The additional funds (following the increase in borrowing limits) may also be required in case of (any) acquisition," states an IOC note for consideration by its board. IOC holds E&P assets in Libya, Gabon, Iran and Nigeria."It is on the look out for an oil producing company, mainly in Africa or in CIS countries," said a senior company official.

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Flying high in testing times

In the aviation industry, characterised by intense competition and high cost structures, streamlining every aspect of operations to bring in efficiencies is a high priority. Improving management's visibility to operational and business performance is imperative to achieve this. It was this objective that drove Jet Airways to conduct a business process reengineering exercise and reimplement core backend modules of SAP and extend its footprint simultaneously. Jet Airways caters to both domestic and international routes.

The main challenge lay in improving business visibility and reducing delays in MIS. Project E3 (it stands for efficiency, empowerment and effectiveness) was executed to deliver information regarding the performance of all routes/flights flown by the airline taking into account the revenues and various costs incurred to the top management. It works by intricately integrating critical information into data models from various core modules of SAP and an in-house developed module for cost and revenue accounting system.

Jet Airways has an in house applications module for revenue accounting system and costing developed using FoxPro, which was outside the SAP environment. Related reports or MIS had to be manually fed into the SAP systems, which was integrated with FICO and Business Warehouse (BW) to generate MIS reports. RN Moorthy, senior general manager (IT), Jet Airways says, "We had to cull out the data from our legacy applications, feed it into R/3 and do budgeting to produce MIS reports. There was a lot of time delay in reconciling the data from disparate systems and it was error prone as it required manual intervention." He adds, "The delay could be anywhere between a week to ten days after the closure of the week. Our people had to burn midnight oil to dig into the reports; it was taxing on our bottom line."

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It's Khan vs Khan today!

Last year it was Amitabh versus Shah Rukh on Star Plus as KBC 2 battled it out with KBC 3. This year the war has turned more complicated, with entertainer Shah Rukh taking on entrepreneur Shah Rukh, as Kya Aap Paanchvi Paas Se Tez Hain ( KAPPSTH ) on Star Plus duels with the IPL match on the Sony Max channel on Friday.

An industry source says Star has invested over Rs 10 crore promoting KAPPSTH on and off air, excluding the ad spots the channel gives from the quota of its own on-air time. On Kaun Banega Crorepati's (KBC) first launch, Star had spent Rs 5 crore on on air promotion and Rs 2.5 crore on off-air promotion.

Media planners are putting their bet behind KAPPSTH, saying historically well-promoted programmes have managed a good opening, if not a sustainable viewership. "It has been eight days of IPL already.
After a great opening in terms of viewership that IPL matches registered, the TRPs have declined in the weekdays and the viewership is expected to stabilise around Saturday. If one has to predict about this weekend, KAPPSTH definitely has brighter prospects than its counterpart. Traditionally also, well-promoted programmes get good openings," said Nandini Dias, COO of Lodestar Universal.

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Price rise tactics shift

Slashing interest rates on NRI deposits and splitting the commodity market into priority and non-priority segments form, inter alia, the government's latest blueprint to tame inflation. Moving away from the sledgehammer tactics of price control, the Centre is now planning to adopt a more nuanced approach.

It is, therefore, considering paring interest rates on Foreign Currency Non-Resident (B) Accounts from the current 5.5-6.5%.

The rates were originally aligned to Libor (the London inter-bank overnight rate), which has since eroded to 2.5%, as of Wednesday. Government officials said there was fresh room to narrow the differential, especially after interest rate cuts by the US Federal Reserve.

Speaking about the possible change, HDFC Bank chief economist Abheek Barua said though the interest rate differential did matter, currently arbitrage possibilities were limited. "However, if the government sees an excess inflow of money through private remittances or NRI deposits, especially since NRI deposits are arbitrage driven, they can tweak the rates by closing the margin to control this inflow," he said.

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Private jets flying thick and fast

It's not just the airlines that are on an aircraft-buying spree. There are 230 aircraft owned by Indian business tycoons and non-aviation companies circling the sky. It was just six in 1990. But now private aircraft are about two thirds the size of the domestic airline fleet in numbers.

The craze for private jets is spreading.DGCA expects the number to exceed 300 by December, riding on a booming economy. "The demand for private jets and helicopters in the country would rise to around 300 to 400 in the next three to five years," said civil aviation minister Praful Patel recently.

It's not just the big corporates that are buying these airplanes. Mining companies in Bihar, Madhya Pradesh and Jharkhand have recently sought permission to acquire and import about 80 helicopters, despite the hefty price tag. The number of small airplane owners has gone up to 76 in FY08, up from 36 in 2000.

A single engine Cessna costs about $5 million and a high-end Gulfstream, which can fly Delhi-London non-stop, $50 million. The top ones come fitted with features like a personal bedroom, office space, modern communication facilities and even Jacuzzis.

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Reliance Industries Ltd net up 63% to Rs 19,458 crore

Reliance Industries Ltd(RIL),India's largest company in the private sector, on Monday said its net profit for the fiscal ended March 2008 stood at Rs 19,458 crore, an increase of 63% compared with Rs 11,943 crore in 2007.

However, this included exceptional gains of Rs 4,733 crore in FY08, made from transactions concerning shares of subsidiary Reliance Petroleum Ltd(RPL). RIL sold 4.01% of its stake in RPL last November. Excluding this,net profit for the fiscal increased 28% to Rs 15,261 crore in FY08,compared with Rs 11,943 crore in FY07.

A 36% increase in revenues from the refining & marketing segment,added to high refining margins, fuel led this growth. The company registered refining margins of $15 a barrel in FY08, compared with just $11.7 a barrel in FY07. Refining margins this fiscal was significantly higher than the $7.6-a barrel mark registered by the Singapore benchmark index. However, RI L's raw material consumption increased to Rs 91,446 crore during the fiscal, compared with Rs 77,769 crore in FY07.

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Tatas go ahead with BlackBerry

Tata Teleservices (TTSL) has decided to proceed with the roll out of BlackBerry services, without waiting for the government permission.

The company has told the government the delay was costing it "significant loss of business opportunity and recurring revenues."

The company's step is significant as it was TTSL's application seeking permission to launch the BlackBerry services that alerted the government that the services gave no means for lawful interception. The department if telecommunication had therefore denied TTSL permission to start the services.

Other operators like Bharti Airtel, Vodafone Essar, BPL and Reliance Communications currently offer BlackBerry services. Apparently, these companies never sought the government's approval for launching the services.

The operators maintain that around the time they launched the services there was no specific provi sion mandating an approval. However, the officials contest the point.

In a recent communication to the department of telecommunications (DoT)-a copy of which is with FETTSL has written, "we are proceeding with the rollout of BlackBerry services and undertake that whatever solution is arrived at by the government through its deliberations with the BlackBerry suppliers and the operators currently offering such services will be applicable to us also, in the manner that it is made applicable to the other operators."

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World trade growth to slow further this year: WTO

World trade growth will slow to 4.5 percent this year from 5.5% last year and 8.5% in 2006, the World Trade Organisation (WTO) said on Thursday.

But financial market turbulence and economic slow down in some developed countries has not so far disrupted trade, the WTO said in its first forecast for this year.

WTO economists said the forecast was based on expectations of growth in world output of 2.6% this year, comprising economic growth in major developed markets of 1.1% and growth in developing countries of above 5 %.

But the trade projections were unusually difficult to gauge this year because of financial market turbulence which has reduced economic growth prospects in the developed markets.

"These are uncertain and troubling times for the global economy," WTO Director-General Pascal Lamy said in a statement."To date, the financial market turmoil, significant price surges and the slow-down of developed economies have not led to a disruption of trade."

But Lamy said protectionist pressures were building and it was necessary to strengthen the global trading system with transparent, predictable and fair rules. A conclusion of the Doha liberalization round was the best way to do this, he said.

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Supreme Court ends Birla plea against administrators

The Supreme Court on Wednesday dismissed as withdrawn petitions by the Birlas, challenging a Calcutta High Court judgment quashing a single judge order appointing joint administrators for controlling a block of shares held by late Priyamvada Birla in four Birla group companies.

The four companies-East India Investment Co Pvt Ltd, Gwalior Webbing Co Pvt Ltd, Baroda Agents and Trading Co Ltd and Punjab Produce Holdings Ltd-control the majority shares in five manufacturing companies, including flagship company Birla Corporation.

A bench headed by Justice SB Sinha dismissed the three petitions as withdrawn in view of its earlier judgment.

The court on March31 had dismissed three petitions filed by Birla family members against the high court order that denied them the right to raise objections to late Priyamvada Birla's 1999 will. It had held that KK Birla, BK Birla and Yashovardhan Birla were not the heirs of MP Birla and Priyamvada and they have no caveat able interests.

It had also dismissed another petition filed by the Birlas, challenging her Chartered Accountant RS Lodha's right to object to MP Birla and his wife Priyamvada's 1982 will, through which the couple left their property for charity.

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Delta-NorthWest, world's largest airline

Delta Air Lines Inc, one year removed from bankruptcy, agreed to buy Northwest Airlines Corp in a $3.63-billion stock deal that would create the world's largest carrier and unleash more industry consolidation.

The airline will keep Delta's name, Atlanta headquarters and CEO Richard Anderson, 52. The purchase will produce a total of $1 billion in new revenue and savings and won't shut any hubs, the companies said.

Delta, the third-biggest US airline by traffic, is betting that combining with North west,the fifth-largest,will help overcome a 77% increase in jet fuel over 12 months. It will control about 25% of the US air-travel market,estimates Ray Neidl,aCalyon Securities analyst in New York.

Delta fell 86 cents, or 8.2%, to $9.62 at 9.56 am in NYSE composite trading, while Northwest slid 27 cents, or 2.4%, to $10.95 as crude oil rose to a record $113.66 a barrel in New York. Northwest was trading at 16%less than Delta's premium for the shares, based on Monday's closing.

Delta and Northwest and their regional partners carried 176 million people last year. The combined carrier would vault past AMR Corp's American Airlines as the world's largest by traffic,and would have 800 aircraft and 75,000 employees.

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The American economy The long hangover

It may not be official but it is increasingly obvious: America's economy has slipped into recession. The latest labour-market figures-a jump in the unemployment rate to 5.1% and the loss of 98,000 private-sector jobs in March, the fourth consecutive month of decline-point to a shrinking economy.So do surveys of manufacturing and services. So does Ben Bernanke, chairman of the Federal Reserve. On April 2nd he told a congressional committee that output was unlikely to "grow much, if at all, over the first half of 2008 and could even contract slightly."

The official judges of American downturns-a group of academics at the National Bureau of Economic Research (NBER)-define a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales." (Contrary to popular belief, recession does not require two consecutive quarters of falling output.) Though the NBER's wonks will not pronounce for many months, their criteria look increasingly likely to be met.

The question now is: what kind of recession will this be? Shallow or deep; short or long? So far, it seems remarkably gentle, given that many think America is suffering its worst financial shock since the Great Depression. Since December the economy has shed an average of almost 80,000 jobs a month. In most recessions a rate of 150,000200,000 is normal.

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Sebi to make electronic-application easy

Sebi has decided to set up a working group of banks for a pilot project aimed at implementing its biggest move yet on the primary market, that of making the new issue application process simple so that funds do not have to exit the accounts of investors.

This move, loosely seen as an electronic form of the earlier Stock invest scheme, will ensure that applicants do not have their funds locked into the new offers without any certainty over how much allotment they will get. The pilot project,to be implemented in a clutch of cities, would begin in three months' time,a top Sebi official to ldFE.

This process would essentially mean that the money committed to applying for public offers would remain locked in investors' bank accounts. But, this amount does not leave a bank,it is merely locked.
Once applicants are allotted shares, an equivalent amount is the non locked from their accounts,electronically.

This process eliminates the hassle of refunds, since the funds remain in the accounts of the applicants. Of late, several investors who have applied for new offers have been crying hoarse about their funds being blocked, while they await refunds for days. In fact, Sebi sources aid the regulator was still grappling with refund problems of some large issues of this calendar year and even of those floated four years ago.

"We are talking to the banks. The working group will be comprising banks from both public and private sectors. They will then let us know how the system will be put in place and what the challenges are," the Sebi official said.

The pilot project would begin in three months in cities where these banks had the required infrastructure in place,the official added.

Sebi has made it clear that reducing the time gap between the closure of an issue and its listing is also a key priority, but the first big move it wants to make on the primary market is to make sure that monies do not leave investors' accounts when they apply for offers."That will be a big change from the current regime,"Sebi sources said.

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It is the most serious crisis of our lifetime

Billionaire investor George Soros, chairman of Soros Fund Management, calls it the end of an era. The current financial crisis and several aspects of the financial markets are the subject of his new book The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means , released online. In the course of a global conference call from New York, Soros says things will get worse before they get better. Excerpts from the conversation:

Role of the dollar

This is a joke. There is no question that there is reluctance in the rest of the world to keep accumulating dollar balances. That is why sovereign wealth funds have stepped in. There is a general flight from currencies as there is a need to create other assets, other than monetary assets. This is also one of the factors that have created a spectre of inflation.

This is what makes this crisis different. It puts authorities in a double bind: facing the prospect of recession and inflation at the same time.

Each requires exactly the opposite response and this constrains the ability of the authorities to respond to either case. That is why I call it an end of an era rather than a typical crisis before. It is one of the most serious financial crises of our lifetime.

New finance paradigm

I am making a serious, even shocking statement that the global financial system is relying on a false paradigm. Mainly, that the financial markets tend towards equilibrium and deviations from the equilibrium are random. I disagree with this and propose a different paradigm that is based on the concept of reflexivity.

Economic theory has been based on the model of Newtonian physics, and the theory of equilibrium and that is how this idea of markets moving towards equilibrium has come in. This is wrong, because this can bring about self-defeating boom-bust sequences.They occur frequently in financial markets. Right now, we have not just one of these situations connected with the housing market, but what I call a ‘super bubble'.

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G-7 readies reply to market crisis

The Group of Seven economic powers are likely to deploy an international team to keep closer tabs on the world's big banks while demanding better risk management and information disclosure across financial markets. The move, due to be announced at G7 talks on Friday, is in response to a global markets crisis which could cost close to $1 trillion in losses and downgrades in the value of toxic assets accrued over years of investor euphoria.

Finance ministers and central bankers of the G7 nations meet in Washington on Friday to plot their next move in response to the crisis, based on a list of recommendations from the Financial Stability Forum, a body they created.

Among the key FSF ideas, elements of which were published in the Wall Street Journal and confirmed to Reuters by a G7 source on Wednesday, is the creation by the end of this year of a team of supervisors to watch over the biggest international banks.

As news of the action plan emerged, so did news that German regulators had ordered the closure of a small bank which blamed its downfall on the credit crunch. This hit in August as a defaults crisis in the US mortgage market snowballed. If implemented, the plan should "minimise the possibility that the challenges we've faced will reoccur", David McCormick, U.S.Undersecretary of the Treasury for International Affairs, said, according to the Wall Street Journal.

FSF recommendations include:

By July, supervisors should improve their guidelines for the way banks plan for cash shortages. Banks should run "stress tests" to ensure they can get cash in emergencies.

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As Orchid draws up battle plans

Orchid Chemicals & Pharmaceuticals Ltd (Orchid) is drawing up a boardroom battle strategy to thwart any attempt at a takeover by Solrex Pharmaceuticals, reportedly an arm of Ranbaxy Laboratories, said sources close to the development.

Solrex Pharma had, on Monday, upped its stake in Orchid by close to over 11% and mopped up more shares from the secondary market on Tuesday.

According to the sources, Orchid's options include a preferential offer to raise the promoters' stake, initiating discussions with Ranbaxy or Solrex and seeking help from financial institutions. The company's share price rose sharply on the NSE to Rs 240.10 on Tuesday, a 15% jump over the previous close.

Orchid managing director Raghavendra Rao told FE: "We see no threat at this point of time. Things happened quickly and we need to analyse it. It is too early to react and we need to wait and see how things unfold in the days to come."

Stating that he had not yet thought of initiating talks with Ranbaxy or Solrex, and declining to comment on the possibility of hiking the promotors' stake, Rao said: "Our options are wide open, but we have nothing specific to comment at this point of time."

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Snubbed Microsoft bares fangs

Microsoft Corp , the $44.6billion takeover offer of which was spurned by Yahoo Inc, said the Internet company's directors risk facing a proxy battle and a lower bid if they fail to agree to terms in three weeks.

If the directors refuse to negotiate, Microsoft plans to nominate a board slate and take its case to investors, Chief Executive Officer Steven Ballmer said on Saturday in a statement. He suggested the deal's value might decline if Microsoft takes the bid directly to them.

Ballmer said the companies have had no "meaningful" talks in the two months since the bid, a 62% premium to the stock price at the time. His stance may force Yahoo chief executive officer Jerry Yang to start discussions to avoid a fight with the world's biggest software maker.

"I think they're surprised that Yahoo's board has strung this out this long,'' Pat Becker , chief investment manager at Becker Capital Management in Portland, Oregon, said in an interview. ``If they have to go to a proxy fight, they possibly will lower the bid to compensate themselves for the time.'' Becker manages Microsoft shares among its $2.4 billion in assets.

Combining with Yahoo would allow Microsoft to unite the second- and third most popular search engines in the US, helping them to take on Google, which gets more than half the Internet queries in the country.

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Inflation At 3-Year High

News on the inflation front just got worse. The relentless rise in prices forced a jittery government to pledge the "strongest possible measures" against hoarders, while the Cabinet committee on prices scheduled to meet again on Monday to chalk out a further plan of action.

The three-year high rate of 7% reached by wholesale price index-based inflation for the week ended March 22 has clearly caught the government off-guard, even though some experts predicted a cooling of rates by May once the Centre's corrective measures kick in.

Spiralling prices will not only hit consumers hard but also intensify pressure on the UPA government in the run-up to state and national elections.

In a kneejerk response, the Sensex of the BSE tumbled 490 points on Friday, renewing fears of a slowdown in economic growth. The London-based Economic Intelligence Unit has already forecast India's GDP to grow at 7.8% in 2008-09, positively anaemic in comparison to the 9.6% achieved in 2006-07 and significantly slower than 3.1% Oct 13 , ‘07 the government's forecast of 8.7% in 2007-08.

With the March 22 data, inflation breached RBI's 5% tolerance level for the fiscal year that ended last Monday for the fifth consecutive week. Inflation-which stood at 6.68% in the previous week and 6.54% in the same week a year before--last hit 7% in early December 2004.

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Steeldons battle gear to fight inflation,cut prices

Steel companies and the government on Thursday worked out a plan that will ensure adequate supply of steel in domestic markets and spare curbs on current export commitments of the companies. The companies in turn agreed to reduce prices of long products, like TMT bars, by Rs 2,000 per tonne and corrugated sheets by Rs 500-1,000 per tonne. These products account for about 25% of the domestic steel demand.

The companies also agreed to use imported hot rolled coils to manufacture high grade steel for exports. The meeting-attended by representatives of Sail, RINL, Tata Steel, JSW, Jindal Steel and Power Ltd, Essar, Ispat, Bhusan Steel & Power and the steel ministry officials-decided to exclude domestically produced HR coils from exports, thereby easing local supply constraints.

Sources said the decision will avert a 10% export tax on steel exports. Another proposal being toyed with is to scrap the 5% import duty on steels.

"Producers of long steel products like TMT bars, prices of which had increased sharply, have agreed that they will roll the prices back.

It is expected that these companies, including Tata and state-run RINL, will provide a relief of Rs 2,000 per tonne to ensure that the common man is not hit," steel secretary R S Pandey said after the meeting.

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ISB plans to set up second campus

Indian School of Business (ISB), rated among the world's top 20 best B-schools, would set up a Rs 200-crore new campus.The Hyderabad institution is weighing the options between Chandigarh and Tirupati for the new campus. The donor-based institution is also looking for fresh donors to fund the campus.

While Andhra Pradesh chief minister YS Rajasekara Reddy has promised free land and related infrastructure in Tirupati for the second campus, ISB has also received an invitation from the Punjab government.

"We have received positive requests from the Andhra Pradesh, Assam and Punjab governments. However, we have not yet decided on the location," said Savita Mahajan, associate dean, strategic initiatives, admissions & career services, ISB. A board meeting is scheduled on April 5 to decide on the matter.

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Reserve Bank of India hard as inflation threats grows

With Reserve Bank of India (RBI) governor Yaga Venugopal Reddy describing the spurt in inflation to 6.68% as "unacceptably high" and economists predicting 8% soon, bankers and money markets now expect swift, multi-pronged action by the central bank via a mix of key shortterm rate hikes and a cash reserve ratio (CRR) increase.

Various players feel RBI may not even wait for its annual monetary and credit policy announcement slated for April 29."We expect RBI to announce some urgent measures very soon, maybe this week itself. RBI may go in for both a hike in CRR and a hike in the reverse repo rate to suck out liquidity," said a senior banker. "A sharp increase to deal a body blow to inflation should not come as a surprise."

Higher interest rates, along with a stronger currency and weak global growth, are now taking their toll and will continue to do so. The economy has already begun to see supply-side constraints. WPI-based inflation could further outstrip RBI's 5% target, possibly reaching 8%, and prove slow in dropping back again.

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Tough terms for broker-client ties

The Securities and Exchange Board of India (Sebi) has proposed a new, stricter policy for improving the sales practices of stock brokers. The proposed policy has put a slew of obligations on the brokers with respect to their non-institutional clients, or retail investors.

Sebi wants to strengthen the know your client (KYC) norms for retail investors. It wants retail investors to know more about the brokers with whom they are entering into a trading relationship.Sebi also wants brokers to know more about their clients,their financial standings and, based on these details, the broker should hand the clients investment advice.

The capital market regulator has proposed this policy following the suggestions it received.In a discussion paper posted on its website on Monday, Sebi said the matter was discussed with the stock exchanges (SEs). There is a need,it said,to enhance the regulatory framework and also to create a sense of awareness among investors.

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