HDFC sells Unitech loan

By: Priyanka Yadav

With Unitech defaulting on loan repayment, housing finance major HDFC on Saturday said it has sold the realty firm's outstanding loan of Rs 869 crore to JM Financial Asset Reconstruction Company (JMFARC).

JM Financial has paid HDFC Rs 155 crore upfront and has issued security receipts to HDFC amounting to Rs 705 crore which will be redeemable over the period of construction, according to the filing. All projects are located in prime locations and financially viable but require additional funding, according to HDFC. "JMFARC will arrange for funds to support and kickstart these projects. Progress of the projects and the resultant cash flows will thereafter be closely monitored," it said. As these projects are financially viable, HDFC said the future cash flows are likely to be sufficient to cover the repayment of the loan with interest thereon.

Gurgaon-based Unitech had a consolidated net debt of Rs 5265 crore at the end of the first quarter of this fiscal. Stating that its current exposure to the Unitech group involves certain projects across various locations, HDFC said "it has assigned the outstanding loans in these projects to JMFARC".

HDFC in a filing to BSE on Friday said, "In the recent past, the Unitech Group has faced sluggishness in the sale of apartments in its projects. This has affected the cashflows of the group, which is in turn has had an adverse impact on the progress of construction and has resulted in irregular servicing of the loans. HDFC has assigned the outstanding loans in these projects to JMFARC ."

HDFC further said that these accounts were standard assets at September end, and turned NPA (non-performing assets) only at the end of October, 2016. In view of irregular payment history, HDFC has made provisions of Rs 240 crore in respect of these accounts. "No further provisioning is required as a result of the sale of the loans to ARC," it added. It further said that after considering the provision of Rs 240 crore already made (34 per cent of SRs), the net carrying value of SRs will be Rs 465 crore.

When loans disbursed by a bank turn bad due to non-payment, banks usually resort to selling these accounts to asset reconstruction companies, which, in turn, purchase the loan amount in less than the actual value from the bank and take over the responsibility of recovering the loan from the client. This way the liability from bank's balance sheet is reduced.

Surgical strike on black money!

By: Priyanka Yadav

Prime Minister Narendra Modi on Tuesday announced that the currency notes of Rs. 500 and Rs. 1000 denominations will not be legal tender beginning November 9. He  also said new notes of Rs. 2000 and Rs. 500 will be circulated soon.

"With a view to curbing financing of terrorism through the proceeds of Fake Indian Currency Notes (FICN) and use of such funds for subversive activities such as espionage, smuggling of arms, drugs and other contrabands into India, and for eliminating Black Money which casts a long shadow of parallel economy on our real economy, it has been decided to cancel the legal tender character of the High Denomination bank notes of Rs.500 and Rs.1000 denominations issued by RBI till now" as mentioned in a press release by the Ministry of Finance.

'Across the border, our enemy uses fake currency and dodgy fuinstructions

or terror - this has been proven repeatedly. The process of cash circulation is also directly related to corruption in our country impacting the lower classes of our society. From midnight November 8 today, Rs. 500 and Rs. 1000 notes are no longer legal tender,’ Prime Minister Modi said while addressing the nation.

Important instructions

(i) Old High Denomination Bank Notes may be deposited by individuals into their bank accounts and/or exchanged in bank branches or Issue Offices of RBI till the close of business hours on 30th December, 2016.

(ii) Old High Denomination Bank Notes of aggregate value of Rs.4,000/- only or below held by a person can be exchanged at any bank branch or Issue Office of Reserve Bank of India for any denomination of bank notes having legal tender character, provided a Requisition Slip as per format to be specified by RBI is presented with proof of identity and along with the Old High Denomination Bank Notes. Similar facilities will also be made available in Post Offices.

(iii) The limit of Rs.4,000/- for exchanging Old High Denomination Bank Notes at bank branches or at issue offices of Reserve Bank of India will be reviewed after 15 days and appropriate notification issued, as may be necessary.

(iv) Cash withdrawal from a bank account, over the counter will be restricted to Rs.10,000/- subject to an overall limit of Rs. 20,000/- in a week for the first fortnight, i.e., until the end of business hours on November 24, 2016.

(v) Withdrawal from ATMs would be restricted to Rs.2,000 per day per card up to November 18, 2016. The limit will be raised to Rs.4,000 per day per card from November 19, 2016 onwards.

(vi) For those who are unable to exchange their Old High Denomination Bank Notes or deposit the same in their bank accounts on or before December 30, 2016, an opportunity will be given to them to do so at specified offices of the RBI on later dates along with necessary documentation as may be specified by the Reserve Bank of India.

(vii) Instruction is also being issued for closure of banks and Government Treasuries, on 9th November, 2016.

(viii) In addition, all ATMs, Cash Deposit Machines, Cash Recyclers and any other machine used for receipt and payment of cash will remain shut on 9th and 10thNovember, 2016.

(ix) The bank branches and Government Treasuries will function from 10thNovember, 2016.

(x) To avoid inconvenience to the public for the first 72 Hours, Old High Denomination Bank Notes will continue to be accepted at Government Hospitals and pharmacies in these hospitals/Railway ticketing counters/ticket counters of Government/Public Sector Undertaking buses and airline ticketing counters at airports; for purchases at consumer co-operative societies, at milk booths, at crematoria/burial grounds, at petrol/diesel/gas stations of Public Sector Oil Marketing Companies and for arriving and departing passengers at international airports and for foreign tourists to exchange foreign currency at airports up to a specified amount.

LOCAL PARTS IN MOBILES TO AID EXPORTS

By: Priyanka Yadav

The government has recently mandated the use of over 20 per cent indigenous components in mobile devices and 40 per cent in telecom equipment made in India for companies seeking 3 per cent interest subsidy on exports. The order also states that only the companies involved in complete manufacturing of products in India  will be eligible for the interest subsidy over those who just assemble their products in the country.

The mandate has come following a recommendation by DoT to the Commerce Ministry to impose minimum value addition criteria for telecom products for eligibility under "Interest equalisation scheme on pre & post shipment Rupee export credit" announced in November 2015. The Directorate General of Foreign Trade had informed the DoT that in February the Department of Commerce has accepted the telecom department suggestion to impose minimum value addition criteria for telecom products for eligibility under the scheme. However, eligibility for benefits under the scheme will be subject to notification by the DoT.

 The DoT said that to avail benefit under the scheme of interest subsidy, "The entire product ,including all populated printed circuit boards (circuits), should be manufactured in India at completely knocked down level, i.e full Electronic Manufacturing Services (EMS) done in India."

The decision was appreciated by the mobile industry body Indian Cellular Association, and electronic component makers body ELCINA. But more benefits were demanded to boost exports.

"It is a positive step towards mitigation of disabilities but very comprehensive package for export is required if we want to compete at global scale. This is a very small step," ICA National president Pankaj Mohindroo said. Electronic Industries Association of India (ELCINA) said that the new rules will ensure only those who are doing minimum acceptable value addition get the benefit of the Interest Equalisation Scheme.

At present, almost every telecom equipment maker and mobile phone manufacturer imports circuits of their products with components pre-mounted on it and put them as one piece at their factory in the country to make final product. The present practice leave scope for little value addition in products that are 'Made in India'.

"It is important that this additional benefit under Interest Equalisation Scheme is provided only to those manufacturers who achieve minimum local value addition and move up from SKD (semi-knocked down circuits imported with components fitted on it) to CKD manufacturing with use of some locally manufactured components," Goel said.

JAIL PRODUCTS CROSS RS 200 CRORE TURNOVER IN 2015

By: Himanshu Modi 

The locked-up labour force in the country made goods worth Rs 200 crore in 2015 through carpentry, weaving, farming and tailoring. The value of goods produced by jail inmates was Rs 201.8 crore, according to a report by the National Crime Records Bureau (NCRB), which is a 33% jump from Rs 151.8 crore in 2014.

Tamil Nadu alone contributed nearly a fourth, or Rs 47.8 crore, worth of merchandise sold with the highest per inmate earning of Rs 34,000 among the states. Not all inmates choose to work because it is voluntary. New Delhi ranked second with sales of Rs 31.1 crore with most products sold under brand TJ's, that started two decades ago. Nearly four years ago, Tihar Jail held roadshows in retail outlets such as Select CityWalk and Reliance Retail to market their wares. “The work is voluntary and has a soothing effect on convicts who can find a purpose in life through such vocation,” said Neeraj Kumar, former director-general of Tihar Jail. “The challenge, however, is high overhead cost to set up sales counters and convince consumers who might have reservations in terms of hygiene against products, especially food.”

For several years, prison-made products were mostly sold through in-house outlets, government offices, Kendriya Bhandar stores or supplied directly to hospitals. But there has been an increased retail push beyond the walls and iron gates of bleak prisons. The other high earning states were Kerala (Rs 9.50 crore and Bihar Rs 22.9 crore), Maharashtra Rs 19.45 crore) in 2015.

A bulk of the profit goes to staff welfare funds or is ploughed back for sourcing supplies. Nearly 71,100 inmates were trained under various vocational training programmes in jails across the country. Authorities hope vocational skills could ease inmates' transition back into everyday life and reduce relapse into criminal behaviour.

Boycott Chinese Products: Ire of Common Indians

By: Simarjeet Singh

In the light of recent tension between India and Pakistan, China has shown its support openly to Pakistan igniting the ire of the common Indians. A large section has taken to social media and also spreading the call for boycott by word of mouth.

The demand for the Chinese products is shrinking and the imports from China would see a big crash in the coming months according to a report, which revealed a significant shift in the consumption pattern of Indian consumers towards domestic products.

Major part of the decline in India's imports from China has been witnessed in products such as ships and boats, tobacco products, aquatic products, pearls and precious stones, musical instruments and parts thereof, mineral fuels and oils, lead and articles thereof, cocoa products, and wool and products

According to a analysis by PHD Research Bureau, India's imports from China increased more than 500 percent from USD 10 billion to USD 61 billion during the last ten years from 2005 to 2015. China's share in India's imports increased from 7 percent in 2005 to around 16 percent in 2015.

but in first six months of the current financial year 2016-17, The trend has been reversed and growth of imports from China decelerated by 8 percent

In response to the boycott from India, China said any such move will negatively impact the India-bound investments from its enterprises and also the Indo China Bilateral relations.

China also claimed that any such boycott would not have much signifance on its exports, but "without proper substitutes, the biggest losers of the boycott of Chinese goods will be Indian traders and consumers".

In its statement, Chinese embassy referred to reports that local sellers in Sadar Bazaar, the largest wholesale market of household items in India, have complained about their Chinese goods sale dropping by at least 20 per cent.

The Chinese embassy also said that "The boycott effect will not limit to Diwali related products, but extended to other Chinese products that are not related to the festival. In the long-run, boycott will not only hurt Chinese goods sale, but also cause negative effects to consumers in India".

Foreign interest rate costlier

By: Dhruv Kharayat

The overseas borrowing window for Indian companies is narrowing as rising US treasuries and Libor(London Interbank Offer Rate) make debt from abroad expensive and domestic interest rates are on their way down, bankers said. US rates have risen in line with expectations of a Federal Reserve rate hike sooner rather than later, while local borrowing costs have come down due to rate cuts by the Reserve Bank of India (RBI). 

Ten-year US treasury yields have risen to 1.85%, the highest since May and a jump from 1.35% in July as strong economic growth numbers make an interest rate increase inevitable. The benchmark Libor has also risen, with the six-month rate at 1.26%, the highest since June 2009. About a year ago, even post hedging, the rates were competitive. For example SBI raised some tier I capital at 8.75% from the domestic market a few days ago. It has also raised some tier I dollar funds at 5.5% which post hedging comes to around 11%. Both these bonds would have been approximately between 9% to 9.50%, that gap has now widened.

Indian companies have borrowed about $7.6 billion from overseas until September, on track to beat the $8.2 billion borrowed in 2015, mainly due to record low borrowing costs in the last two years. However, borrowing from abroad also involves hedging costs. On the other hand, local policy rate cuts seem to be getting transmitted with the highest rated companies paying 7.44% for five year money, the lowest since April 2009 and down from the 11% peak in mid-2013.

Because domestic rates have come down, the gap between overseas and domestic rates are wider. Cost of borrowing for Indian companies borrowing from abroad is going up, though there are enough funds out there for companies with decent ratings.

MUTUAL FUNDS VS LIC: MUTUTAL FUNDS TURN OUT AS WINNER

By: Divya Vohra

For the first time that the value of mutual fund equity portfolio in listed Indian firms crossed the portfolio holding of LIC

According to the data collected by Prime Database, at the end of September, the value of mutual fund equity portfolio in listed firms stood Rs.4.94 lakh crore compared to Rs.4.75 lakh crore held by PSU insurance behemoth Life Insurance Corp. of India (LIC).

– This was thus the first time that the country’s 44-firms strong mutual fund industry overtook LIC as a bigger owner of local stocks. Mutual fund holdings were spread across 1,088 companies while LIC has invested in 310 firms.

– On total assets managed, however, mutual funds continue to lag LIC. In the September quarter, the 44 mutual fund houses, managed an average Rs.16.10 trillion of investor assets (as disclosed in the data from the Association of Mutual Funds in India (AMFI). In comparison, LIC, which manages insurance contracts for at least 250 million people, had total assets worth Rs.21 lakh crore.

In words of Dhirendra Kumar, chief executive of Value Research Ltd, a New Delhi based mutual fund analytics firms, “This is a clear positive for equity markets”. Also, “Broad based institutional play improves the market’s efficiency to a great extent”. “Since mutual funds are required to follow regulatory disclosure for every investment and the fund managers are subjected to great probity by investors, the increase in mutual funds’ equity participation in such a scenario is a strongly positive development. Additionally, since the equity inflows are steady growing rather than abruptly jumping, it means the money coming to the fund industry is a sustainable asset.”

According to Pranav Haldea, managing director of Prime Database, during the September quarter, the holding of mutual funds went up in 338 companies and came down in 322 companies listed on NSE. Between July and September, LIC increased its stake in at least 38 firms while trimming its stake in 71 firms.