Author: root

Most merchant bankers indicate 52 weeks’ time, BFSI News, ET BFSI

Banking & Finance

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Most of the merchant bankers who had submitted bids for facilitating strategic sale of LIC-controlled IDBI Bank indicated a time-frame of one year to complete the elaborate process, sources said.

During a presentation before the Department of Investment and Public Asset Management (DIPAM) held recently, most of the eligible transaction advisers gave a time-frame of 50-52 weeks to undertake several stages of the privatisation process of IDBI Bank, market sources said.

However, the government intends to complete the transaction during the current fiscal itself. Thus the merchant banker has to find a buyer in about 26 weeks or six months.

According to market sources, as many as seven bids — Deloitte Touche Tohmatsu India LLP, Ernst and Young LLP, ICICI Securities Ltd, JM Financial Ltd, KPMG, RBSA Capital Advisors LLP and SBI Capital Markets Ltd — were received.

DIPAM on behalf of Government of India had floated a tender in June inviting bids from transaction advisors from reputed professional consulting firms or investment bankers or merchant bankers or financial institutions for facilitating and assisting strategic disinvestment of IDBI Bank. The last date for submission of bids was July 13.

KPMG placed the lowest bid of Re 1, and was selected as the transaction adviser, market sources said, adding, the firm will assist the government in the sale for Re 1.

The Cabinet had in May given in-principle approval for IDBI Bank’s strategic disinvestment along with transfer of management control.

The central government and LIC together own more than 94 per cent equity of IDBI Bank. LIC, currently having management control, has 49.24 per cent stake, while the government holds 45.48 per cent. Non-promoter shareholding stands at 5.29 per cent.

The transaction advisor would be required to advise and assist the government on modalities of disinvestment and the timing; recommend the need for other intermediaries required for the process of sale/disinvestment and also help in identification and selection of the same with proper Terms of Reference.

The transaction advisor will also assist in preparation of all documents like Preliminary Information Memorandum (PIM), organise roadshows to generate interest among the prospective buyers and suggest measures to fetch optimum value.

The advisor would also be supporting IDBI Bank in setting up an e-data room and assisting in the smooth conduct of the due diligence process.

As per the eligibility criteria outlined in the RFP, the bidders should have advised at least one transaction of strategic disinvestment/strategic sale/M&A activities/private equity investment transaction of the size of Rs 5,000 crore or more during the period from April 2016 to March 2021.

The extent of shareholding to be divested by the central government and LIC shall be decided at the time of structuring of transaction in consultation with the RBI, the government had earlier said.

Insurance giant LIC had acquired controlling stake in IDBI Bank in January 2019.

Finance minister Nirmala Sitharaman in her Budget for 2021-22 had said the process of privatisation of IDBI Bank would be completed in the current fiscal.

The government aims to mop up Rs 1.75 lakh crore in the current fiscal from minority stake sale and privatisation. Of the Rs 1.75 lakh crore, Rs 1 lakh crore is to come from selling government stake in public sector banks and financial institutions, and Rs 75,000 crore through CPSE disinvestment receipts.



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US trade official called India’s Mastercard ban ‘draconian’, BFSI News, ET BFSI

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A senior US trade official privately criticised India’s July decision to ban Mastercard Inc from issuing new cards, calling it a “draconian” move that caused “panic”, according to US government emails seen by Reuters.

The documents show frustration within the US government after India’s central bank banned new card issuance by American Express and Diners Club International in April, then took similar action against Mastercard in July.

The Reserve Bank of India accuses the companies of breaking local data-storage rules. The bans do not affect existing customers.

The ban on Mastercard – a top payment network in India alongside Visa – triggered a flurry of emails between U.S. officials in Washington and India as they discussed next steps with Mastercard, including approaching the RBI, the government emails show.

“We’ve started hearing from stakeholders about some pretty draconian measures that the RBI has taken over the past couple days,” Brendan A. Lynch, the deputy assistant US trade representative for South and Central Asia, wrote on July 16, two days after the Mastercard announcement.

The RBI said that the restrictions have been imposed as in spite of lapse of considerable time and adequate opportunities being given, the entity has been found to be non-compliant with the directions on storage of Payment System Data.

“It sounds like some others (Amex, Diners) may have been impacted by similar actions recently,” wrote Lynch, asking his colleagues in India to get in touch with their central bank contacts “to see what’s going on”.

Lynch, spokespeople for the Office of the U.S. Trade Representative and the U.S. Embassy in New Delhi did not respond to requests for comment. The U.S. government has not publicly commented on the Mastercard ban.

The RBI did not immediately respond.

A Mastercard spokesman told Reuters, “We’ve had very constructive engagements with the Indian and U.S. governments over the past few weeks and appreciate the support of both.” This includes discussions with the RBI, and Mastercard has “made good progress” as it looks to resolve the situation quickly, he said.

“PANIC”, “FULL COURT PRESS”
Mastercard counts India as a key growth market. In 2019 it said it was “bullish on India”, a country where it has made major investment bets and built research and technology centres.

The Mastercard ban rattled the company and upset India’s financial sector as Indian partner banks fear a hit to their income as they struggle to swiftly partner with new networks to offer cards.

The RBI acted against Mastercard because it was “found to be non-compliant” with the 2018 rules despite the “lapse of considerable time and adequate opportunities”.

The rules, requiring foreign card networks to store Indian payments data locally for “unfettered supervisory access”, were implemented after failed lobbying efforts of U.S. firms also soured trade ties between New Delhi and Washington.

Mastercard has said it was “disappointed” with the decision. The company has told Reuters it had submitted an additional audit report to the RBI before the ban took effect on July 22.

The US government emails show there was hope things could be sorted out before that.

In one, Lynch told colleagues the understanding was that “the RBI has info they need and are hopeful that they will respond appropriately.” But as the ban approached, “if the RBI doesn’t change course, I’m sure the panic will resume,” he wrote.

Days later, he wrote that Mastercard was continuing “to put on the full court press” in Washington.

While RBL Bank signed up with Visa as recently as last week, a Yes Bank spokesperson said the bank is evaluating migrating to other platforms. Both banks said they expect no disruption to their existing customers due to the RBI action.

Indian regulations require all foreign payment operators to store card and customer related data in servers physically located in the country.



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Flipkart partners Davinta to offer credit facilities to MSMEs, kiranas, BFSI News, ET BFSI

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New Delhi, Sep 18 (PTI) Flipkart Wholesale, the digital B2B marketplace of Flipkart Group, on Saturday said it has partnered with SME lending platform Davinta to offer a ‘Buy Now Pay Later‘ (BNPL) credit facility to its retailers. Flipkart Wholesale Senior Vice-President and Head Adarsh Menon said access to affordable and transparent credit is one challenge the company aims to solve.

“Partnering with Davinta will give members on our platform access to credit with a single click. The experience for the retailers is seamless and completely digital and was only possible because both our organizations take a technology-first approach,” he said in a statement.

As this partnership is strengthened, this construct will allow more and more of Flipkart Wholesale’s Kirana and MSMEs members to enjoy the benefit of accessible and affordable credit in the pursuit of their growth on the platform, he added.

‘Buy Now Pay Later’ or BNPL has emerged as a credit innovation from new-age fintechs, who are offering this as an alternative to customers who struggle to be eligible for traditional credit constructs such as credit cards.

With more than 6 crore small businesses in India, a majority of whom struggle to get access to traditional credit, BNPL offers a massive opportunity to drive financial inclusion and provide the much needed affordable credit access to these small business owners.

“We are very excited with the opportunity to partner with Flipkart Wholesale and offer our BNPL product to the over 1.5 million members of Flipkart Wholesale,” Davinta CEO Ravi Garikipati said.

He added that with BNPL, the company is now allowing retailers across the country to unlock themselves from cash constraints while purchasing supplies and enjoy simple one-click credit access.

Bengaluru-based Davinta was founded by ex-Flipkart CTO Ravi Garikipati and US-based entrepreneur Raj Vattikuti. The two-year-old firm focuses on micro-enterprises and its flagship product Vyaapaar Shakti is a BNPL credit facility designed for small retailers. PTI SR MR MR



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5 Top Rated Equity Value Mutual Fund With High Returns For SIPs

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IDFC Sterling Value Fund

The IDFC Sterling Value Fund Direct Plan-Growth manages assets of 3,990 crores (AUM).

The 1-year growth returns for the IDFC Sterling Value Fund Direct Plan are 86.56 percent. It has returned an average of 17.80 percent per year since its inception. The fund is ranked number 1 by the CRISIL rating agency.

The Scheme uses a value investment strategy to achieve capital appreciation via a diversified portfolio of equities and equity-related assets.

The fund is invested in Indian stocks to the tune of 96.53 percent, with 23.64 percent in large cap stocks, 19.43 percent in mid cap stocks, and 44.62 percent in small cap stocks.

Investors with a strong understanding of macro trends who seek to make selected bets for higher returns than other Equity funds. At the same time, even when the broader market is performing better, these investors should be prepared for moderate to large losses in their investments.

1-Year 3-Year 5-Year Since Inception
84.81% 16.98% 17.94% 17.7%

Nippon India Value Fund

Nippon India Value Fund

The Nippon India Value Fund-Growth manages assets of 4,200 crores (AUM).It has had an average yearly return of 16.57 percent since its inception.

The scheme invests actively in equity/equity-related assets, primarily in value companies, in order to gain a capital appreciation and/or provide consistent returns. The NAV of Nippon India Value Fund for Sep 15, 2021, is 121.46. The fund has a 4 Star rating by Value Research rating agency.

Value funds are commonly utilized as a part of long-term investment portfolios that can grow steadily over time. As a result, investing in a value fund is frequently associated with diligence and patience.

1-Year 3-Year 5-Year Since Inception
65.53% 17.99% 15.66% 16.5%

The fund is invested in Indian stocks to the tune of 97.48 percent, with 50.16 percent in large-cap stocks, 19.03 percent in mid-level stocks, and 10.66 percent in small cap stocks.

ICICI Prudential Value Discovery Fund

ICICI Prudential Value Discovery Fund

The ICICI Prudential Value Discovery Fund-Growth manages assets of Rs 21,778 crores (AUM).

ICICI Prudential Value Discovery Fund had a 1-year growth rate of 59.52 percent.

It has returned an average of 20.37 percent per year since its inception. The fund invests 90.37 percent of its assets in Indian equities, with 75.22 percent in large-cap stocks, 8.92 percent in mid-level stocks, and 5% in small-cap stocks. The fund also invests 2.36 percent of its assets in debt, with 2.37 percent in government securities. The fund has a 4 Star rating by Value Research rating agency.

By investing largely in a well-diversified portfolio of value equities, the program aims to achieve returns through a combination of dividend income and capital appreciation. ICICI Prudential Value Discovery Fund’s NAV on September 15, 2021, is 238.01. CRISIL has ranked Number 2 for the fund.

1-Year 3-Year 5-Year 10-Year Since Inception
56.97% 16.05% 13.46% 18.38% 20.3%

Templeton India Value Fund

Templeton India Value Fund

The Templeton India Value Fund-Growth manages assets worth 576 crores (AUM). By employing a value investment approach, the program aims to provide long-term financial appreciation to its Unitholders.

It has had an average yearly return of 16.31% since its inception. Templeton India Value Fund’s NAV on September 15, 2021, is 388.69.

The concept underlying value investing is that the market has some inherent inefficiencies that allow companies to sell at prices below their true value for a variety of reasons. In these markets, value fund managers are able to spot inefficiencies. The fund is ranked No. 2 by CRISIL.

1-Year 3-Year 5-Year Since Inception
75.58% 14.03% 12.66% 17.6%

UTI Value Opportunities Fund

UTI Value Opportunities Fund

UTI Value Opportunities Fund Direct-Growth manages assets of Rs. 6,545 crores (AUM).

It has returned an average of 14.67 percent per year since its inception. The goal of the strategy is to achieve long-term capital appreciation by investing primarily in equities and equity-related instruments of companies with a range of market capitalizations. The NAV of UTI Value Opportunities Fund for Sep 17, 2021, is 107.01. The fund has a 4-star rating from the Value Research rating agency.

1-Year 3-Year 5-Year Since Inception
58.6% 18.37% 15.48% 14.6%

Disclaimer

Disclaimer

Mutual fund investments are exposed to market risks; thoroughly read all scheme-related materials. The NAVs of the schemes may rise or fall in response to variables and pressures impacting the securities market, such as interest rate variations. The recommendations and reviews do not guarantee fund performance and should not be interpreted as a judgment of the creditworthiness of a fund or its underlying securities.



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2 Dividend Stocks To Buy For Those Seeking Sound Returns

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Indian Oil Corporation

Based on the track record of Indian Oil Corporation, one can expect good dividends in the future as well. In 2020-21 the company declared a dividend of Rs 7.5 per share in Jan 2021 and again Rs 3 in the month of March, 2021, taking the dividend to a total of Rs 10.5 per share.

If you take the current market price of Rs 118, the dividend yield is close to that 9% mark. Having said that the stock is at a near 52-week high and the Sensex is at around the 59,000 levels. A risk of a downside for the markets means that while the dividend yields would remain good, there is always a possibility of capital erosion, simply because of where the markets are now.

Coal India

Coal India

This is another stock that is worth mentioning as it has an impeccable history of paying dividends. Coal mining business is a monopoly with virtually no disruption to the business, unless there is the occasional labour issues. It is also a debt free company.

So, if you assume the dividend declared in FY 2020-21 of Rs 12.5 per share, the dividend yield works to around 8.91%. The problem with the Coal India stock is that over the last 2-3 years, the stock has lost heavy ground, resulting in capital losses. However, it is okay for dividends.

One good thing that we must point out though is the fact that there is a possibility of the stock going higher as dividend could increase in the next few years. There was a time in 2015, 2016, when the dividend per share was in their twenties. If it comes back to those glory days, the stock will rally as well.

Disclaimer

Disclaimer

Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Please consult a professional advisor. we have been telling investors to avoid lumpsum investments at this stage, given where the markets are.



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Auto and Media Stock To Buy From Broking Firm Sharekhan For Good Gains

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Buy Zee Entertainment Stock, says Sharekhan

Sharekhan has set a price target of Rs 310 on the stock of Zee Entertainment with a buy call, as against the current market price of Rs 256.

Recently, the largest shareholder of Zee Entertainment, Invesco demanded a reconstitution of the board, with the removal of three directors and appointment of six independent directors. “We await greater clarity at the Extraordinary General Body Meeting and monitor closely whether Punit Goenka continues as MD & CEO of the company considering the promoter family’s low holding (less than 4%) in Zee Entertainment. We believe irrespective of any development relating to Punit Goenka would be considered positive among investors, though the continuance of Punit Goenka as MD & CEO would evade any shot-term hiccups in business,” the brokerage has said.

“We believe shareholder activism would be a key re-rating trigger as this could alter the board/management, increase in cash conversion and improve efficiency of capital allocation,” Sharekhan has said.

The brokerage has also stated that the FY2021 free cash flow of Rs. 1,342 crore stood at 75% of EBITDA, implying a strong improvement in cash conversion over previous years. “We expect earnings to report an 18% CAGR over FY2021-FY2024E. We maintain a Buy on the stock with a revised price target of Rs. 310, given reasonable valuations and expectations of improvement of corporate governance standards,” the brokerage has said.

Buy GNA Axles, Says Sharekhan

Buy GNA Axles, Says Sharekhan

Sharekhan is also bullish on the stock of GNA Axles. According to the brokerage the company is well placed to benefit from sharp improvement in commercial vehicle sales across geographies and healthy outlook for the farm sector.

“GNA is witnessing strong traction from domestic and global original equipment manufacturers, driven by recovery in US’s and Europe’s CV market and India’s tractor market. The outlook remains positive with strong recovery expected from FY2022E and FY2023E, driven by normalisation of economic activities. Operating profit margin would expand due to operating leverage and cost-control measures. We have increased our earnings estimates for FY2022E and FY2023E by 1.4% and 9.4%, respectively, and introduced FY2024E estimates,” the brokerage has said.

The stock is trading at P/E multiple of 13 times and EV/EBITDA multiple of 7.6 times of its FY2023E estimates, which is slightly premium to long-term average multiples. We believe the premium valuation is justified, given upcycle in the domestic CV segment and healthy growth momentum in exports and farm segments. We retain our Buy rating on the stock with a revised price target of Rs. 948.

Disclaimer

Disclaimer

The above stocks are picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Please consult a professional advisor.



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How does grandfathering of capital gains apply in case of corporate actions

Personal Finance

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My question pertains to the applicability of grandfathering of capital gains in the case of corporate actions such as demergers and amalgamations. Let me illustrate with an example: I bought 100 shares of Company A in September 2016. In February of 2019, a scheme of demerger was approved by shareholders that entitled them to an equal number of shares in Company B (100 in this instant case; shares listed on the exchange in November 2019). I sell shares of both companies in October 2020. What should I reckon to be grandfathered price as on Jan 31, 2018, for both Company A and B to crystallise my capital gains liability? Please also confirm that the holding duration for both companies will be reckoned from the date of the original purchase, which is September 2016, and hence tax rate applicable in the case of Company B will also be LTCG.

Girish Balakrishnan

The following comments are based on assumption that the shares of company A are equity shares & listed in a recognised stock exchange in India.

As per the provisions of Section 112A of the Act, Long term capital gain (LTCG) on sale of STT paid equity shares exceeding ₹1 lakh shall be taxable at the rate of 10 per cent. Further, surcharge (if any) and health & education cess at 4 per cent shall apply. For the purpose of computing LTCG/LTCL, in cases where the asset is acquired before the 1st day of February, 2018, the cost of acquisition, shall be the higher of the following, as defined in Section 55(2)(ac) of the Act:

· actual cost of acquisition; or

· lower of (i) fair market value (FMV) of such share on 31 January 2018 (highest quoted price) or (ii) full value of consideration as a result of transfer.

The term FMV, in the context of equity shares, has been defined in section 55(2)(ac) of the Act, as follows:

· In case the equity share is listed on any recognized stock exchange, the highest price quoted on such stock exchange as on January 31, 2018;

· Where the equity share, is not listed as on January 31, 2018 but is subsequently listed on the date of the transfer, an amount which bears to the cost of acquisition the same proportion as the CII for the financial year 2017-18 bears to the CII in which the asset was held by the tax payer or for the financial year 2001-02, whichever is later.

On a literal interpretation of the wordings in section 55(2)(ac) of the Act, one may find it difficult to contend that the equity shares in B Ltd have been acquired prior to February 1, 2018. Hence, technically, the grandfathering benefits may not be available in case of the equity shares in B Ltd.

Given the above, one could argue that the FMV of the equity shares in A Ltd as on January 31, 2018 should be adopted for determining the proportionate FMV of the shares in A Ltd and B Ltd. However, adopting the grandfathering benefits for shares in B Ltd is not free from litigation.

The writer is Partner, Deloitte India

Send your queries to taxtalk@thehindu.co.in

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Things to remember while insuring travel in Covid times

Personal Finance

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International travel is opening up, but the widespread Covid pandemic has made travel insurance an absolute necessity for responsible travel today. Apart from the obvious health-related risks, the uncertainty also extends to travel disruptions caused by Covid restrictions in destinations and or in transit airports.

The basic travel insurance covers can be divided into medical and non-medical covers. The medical cover includes medical expenses on sickness or accident in destinations, accidental death, cash on hospitalisation, personal liability and even dental treatment, excluding pre-existing conditions. The non-medical covers typically covers baggage related delays or loss, lost passports, hotel/airline cancellations or delays and repatriation of mortal remains. Today, even as most of the existing covers, medical or non-medical, encapsulate risks arising from Covid-related conditions, most insurance policies have explicitly included Covid situations in their policy wordings in a bid to eliminate confusions to the retail buyer.

Covid-induced covers, add-ons

While travellers gear up to expect the unexpected in a post-Covid world, insurance companies too have warmed up to the new reality.

Beginning with an option to defer or cancel travel insurance without additional charge – announced in early April-2020 – insurance plans now comprehensively cover risks specific to Covid. Upon being diagnosed with Covid-19 during a trip, under accident and sickness clause, medical expenses would be covered up to the sum insured. But this can be claimed only under hospitalisation for most policies. Out-patient treatment coverage is offered only in select plans. Care Health Insurance, for instance, offers it. The other two Covid related risks arise from either trip cancellation or curtailment. Travel insurance policies with Covid cover reimburse ‘non-refundable unused service costs’, including hotel or airline bookings when trips are cancelled due to Covid. If the insured travel companion or immediate family member is diagnosed with Covid-19 prior to the trip, bookings done prior to being diagnosed with Covid are reimbursed upto a certain limit of the sum insured. On being diagnosed with the Covid infection during the trip, similar unutilized non-refundable services can be reimbursed.

Also, additional accommodation and travel expenses incurred due to trip interruption, subject to the sum insured limit are covered as mentioned by Tata AIG. HDFC Ergo travel insurance also provides for hotel accommodation to isolate or quarantine, if one is tested positive during travels. While most policies allow for automatic extension of policy period if a lockdown is imposed in destination regions, ICICI Lombard covers additional lodging and boarding expenses on account of a companion being hospitalized as well. Some plans allow for continued treatment even after policy expires. Tata AIG plans for instance, offers coverage to date of discharge or 60 days post expiry of the policy.

Costs

Pricing primarily depends on trip duration, frequency (multi trip or single trip) and age of the insured. For a 30- year old travelling to the USA for a single trip of 30 days today, the premiums range from ₹1,508 to ₹2,839 (sourced from Policybazaar.com) for a sum insured of US$ 100,000.

Individual needs have to be kept in mind in choosing the right travel policy. For instance, Tata AIG (Travel Guard Silver Plus) comes with a higher premium of ₹2,069 and does not provide hospital cash benefit but does provide US$750 for financial emergency assistance. Reliance General insurance (Reliance Silver) offers a ‘compassionate visit’ feature where a family member can come to the aid of the insured when he/she falls sick when travelling. For a 30 year old travelling to the US for 30 days, the premium comes to ₹1,688 here.

Points to note

The need for travel insurance today becomes more pressing when considering the individual travel restrictions imposed by many countries Travel to Dubai for instance will require two RT-PCR tests, one before travel and one after reaching the destination. The test must be conducted 48 hour before departure and self-isolation is mandated till the test report is out. Entry to most European countries on the other hand requires proof of negative test result from 72 hours before departure, proof of vaccination with EMA- approved vaccine (Covishield vaccine in Indian context) or proof of recovery from latest infection.

Travel insurance becomes vitally important to navigate such regulations – especially for the test to be conducted 72 hours before departure, as is seen with many country regulations. When the test turns out to be positive 2-3 days before travel, travel insurance cover with Covid protections will ensure minimizing travel related losses by helping reimburse airlines, hotels and other allied deposits that would have been incurred. Any positive test report after reaching destination can also be handled smoothly with travel insurance. With test positivity rate ranging from 5-10 per cent, the risk is not small enough to be ignored for essential travel.

This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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How you should choose from among the available AT1 bonds

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Ever since the default in AT1 (additional tier 1) perpetual bonds of Yes Bank, there has been lot of discussion on the risks of this instrument which was hitherto not understood or communicated. Here are some facts about AT1 bonds and how HNI investors can choose from among the available bonds for investment.

Risks

To recap, unlike in other bonds, there are two major risks in bank AT1 perpetual bonds. One, coupon discretion – the coupon or interest payable on these bonds can be serviced only if the bank is earning profits, or from certain permissible reserves.

That is, if a bank is loss-making or does not have adequate reserves, your coupon may not be paid. Two, loss absorption. The stark reality of this hit us in case of Yes Bank where the entire outstanding quantum of ₹8,415 crore was written off.

In this sense, bank AT1 perpetual bonds are similar to equity, that is if an issuer gets liquidated, the holders of the instrument have to participate in the loss. The additional learning in the case was that these instruments can be struck down even without touching the equity shareholders of the bank.

Apart from this, there is the issue of mis-selling too. In many cases, these instruments were sold as ‘similar to fixed deposits’ – buy into AT1 bonds of the same bank for higher returns. Returns are higher due to the risk factors and this needs to be understood.

Implicit safeguards

What then is the case for investment? Is it only the incremental return over the regular bonds issued by the same bank? No. There is also comfort from the fact that public sector banks have the implicit support of the Centre. This is not a stated guarantee like the ₹5 lakh insurance cover for bank deposits under Deposit Insurance Credit Guarantee Corporation (DICGC). However, this is a premise on which the bond market works which is not expected to be transgressed. There are instances of this implied support – when the AT1 bonds of certain loss making PSU banks were facing uncertainty, the regulator arranged premature call-back by all such banks. Apart from PSU banks, there are leading private sector banks too with sound fundamentals. Despite the write-down of AT1 bonds of one private sector bank, we cannot tar every bank with the same brush. While these bonds are perpetual, there is a call option at 5 years from issuance date and every anniversary thereof. Though it is only a call option and not a compulsion, bond market expects the call option will be exercised by the issuer and so far, call options have been honoured.

Suitability

On October 6, 2020, SEBI notified that for primary issuances of bank AT1 perpetual bonds after October 12, 2020, only Qualified Institutional Buyers are allowed and the allotment size and trading lot size shall be ₹1 crore. Individuals can purchase these AT1 bonds only from the secondary market but only in lot sizes of ₹1 crore.

However, for earlier AT1 bond issuances (prior to October 12, 2020), individuals can buy in lot sizes of less than ₹1 crore subject to the bond face value. For example, if the face value of one bond is ₹10 lakh, investment / trading can happen in multiples of ₹10 lakh. For buying AT1 bonds, investors have to approach wealth management firms and bond houses specializing in these bonds.

So, if you are an HNI investor, how do you choose from among the AT1 perpetual bonds available ? You can take the credit rating as one parameter to narrow down the choice. No bank has AAA rating for these instruments, due to the risks mentioned.

The highest credit rating assigned is AA+. In the public sector, AT1 bonds of State Bank of India and Bank of Baroda, and in the private sector, those of HDFC, ICICI and Axis have a AA+ rating. The returns can be another parameter.

Since there is no maturity, it is not yield-to-maturity (YTM) but the yield-to-call (YTC). Broadly, the YTC of AT1 perpetual bonds of these banks with a call option two to three years away, ranges from 6.25 per cent to 6.5 per cent and for those with five years to call, ranges from 7.35 per cent to 7.60 per cent in the secondary market.

The writer is a corporate trainer (debt markets) and author

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A refresher course on Corona Rakshak, Kavach policies

Personal Finance

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Two colleagues find themselves discussing about the various insurance options that are available in the market to cover for Covid-19 specific risks.

Raj: Hey, I just read today that IRDAI is extending the availability of two Covid-specific policies, Corona Kavach and Corona Rakshak till March 31, 2022.

Rohit: Okay. I’m not sure about the details of the two policies but I remember that they were marketed quiet aggressively in our society last year.

Raj: Both are standard policies with very little difference in benefits across insurers. While Kavach is an indemnity policy that covers hospitalization charges upon admission for at least 24 hours, Rakshak is a benefit policy where the insured gets 100 per cent of the sum insured on diagnosis and the policy terminates thereafter.

Rohit: So, Corona Rakshak is like a one-time payment on diagnosis, while Kavach is like a regular health policy where you expenses are covered up to the limit of the sum insured. But what are the incremental advantages of Corona Kavach over a normal health policy which also covers hospitalisation ?

Raj: The basic premise when these policies were introduced last year was to provide an affordable and quick cover to people without sufficient health coverage in the midst of a raging pandemic. But if one has a comprehensive health insurance which covers out-patient, home care and other charges, Corona Kavach may not be needed. Corona Rakshak can be considered for additional cover or if out-patient charges are not covered in your existing health policy.

Rohit: Yes that is a marked advantage. My health policy requires hospitalisation to kick in.

Raj: Also, since the two are standardized products, one need not put extra effort in reading the fine print which is a must before buying insurance policies in general. With Corona Kavach, hospitalisation charges even include charges for most consumables like PPE kit and gloves in addition to room rent, ICU, medical practitioner fees, operation theatres and even ambulance service up to ₹2,000.

What’s more, even pre-hospitalisation medical charges up to 15 days and post-hospitalisation medical charges for 30 days are also covered. The claim amount will be determined by the sum insured. The minimum sum insured available under both the policies is ₹50,000. The maximum can go up to ₹5,00,000 for Corona Kavach and ₹2,50,000 for Corona Rakshak.

Rohit: They seem to be fairly comprehensive in their coverage.

Raj: Apart from covering incurred expenses, optional covers in Corona Kavach provide daily cash of 0.5 per cent of sum insured for a period of 15 days to cover for daily expenses.

Rohit: Is there any waiting period like with other health policies?

Raj: Yes there is a 15-day waiting period under both the policies. The policies can be availed for a period of 105 days (3.5 months), 195 days (6.5 months) and 285 days (9.5 months) and can be renewed to ensure the benefits continue. People between the ages of 18 to 66 can buy these two products.

Rohit: Well, even with an increasing rate of vaccination any cover for Covid does offer peace of mind against any residual risk of infection.

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