The United Forum of Bank Unions (UFBU), an umbrella body of nine unions, has given a call for a two-day strike from December 16 to protest against the proposed privatisation of two state-owned lenders. In the Union Budget presented in February, Finance Minister Nirmala Sitharaman had announced the privatisation of two public sector banks (PSBs) as part of its disinvestment plan.
The government has already privatised IDBI Bank by selling its majority stake in the lender to LIC in 2019 and merged 14 public sector banks in the past four years.
The government has listed the Banking Laws (Amendment) Bill, 2021, for introduction and passage during the current session of Parliament.
In view of this, UFBU has decided to oppose the move for privatisation, All India Bank Employees Association (AIBEA) General Secretary C H Venkatachalam said in a statement.
Strike notice for December 16 and December 17, 2021, has been served by UFBU on the IBA, he said.
In a developing country like India, where banks deal with huge public savings and they have to play a leading role to ensure broad-based economic development, public sector banking with social orientation is the most appropriate and imperative need, he said.
Hence, he said, for the past 25 years, under the banner of UFBU “we have been opposing the policies of banking reforms which are aimed at weakening public sector banks”.
Members of UFBU include All India Bank Employees Association (AIBEA), All India Bank Officers’ Confederation (AIBOC), National Confederation of Bank Employees (NCBE), All India Bank Officers’ Association (AIBOA) and Bank Employees Confederation of India (BEFI).
Others are Indian National Bank Employees Federation (INBEF), Indian National Bank Officers Congress (INBOC), National Organisation of Bank Workers (NOBW) and National Organisation of Bank Officers (NOBO).
The Reserve Bank of India has given its approval to Life Insurance Corporation of India to raise its stake in Kotak Mahindra Bank to 9.99 per cent.
“Kotak Mahindra Bank has received an intimation from LIC stating that the RBI had granted its approval to LIC for increasing its holding in the Bank up to 9.99 per cent of the paid-up equity share capital of Bank, subject to compliance with the provisions of the Master Direction on ‘prior approval for acquisition of shares or voting rights in private sector banks’ dated November 19, 2015, and Master Direction on ‘ownership in private sector banks’ dated May 12, 2016, provisions of the applicable regulations issued by the Securities and Exchange Board of India, provisions of the Foreign Exchange Management Act, 1999 and any other guidelines/regulations and statutes, as applicable,”the private sector lender said in a stock exchange filing on Monday.
The approval is valid for a period of one year, it further said.
LIC currently holds 4.96 per cent stake in the bank as of September 30.
I have a few doubts with respect to my ITR for FY 2020-21 i.e. current AY 2021-22. I have invested ₹20,000 in Templeton India Equity Income Fund in 2006 under NFO. Since then periodical dividends declared under the scheme are getting credited to my savings a/c through ECS regularly and are accounted for in my ITR returns of the respective financial years. Since the Finance Act 2020 is modified and the dividends are now taxable in the hands of investors, the mutual fund has deducted TDS and paid the balance of the dividend to my savings account. Since I have not received Form 16 A for the TDS made by the mutual fund, I have sent a mail to the RTA of the MF. Initially, they have asked for a self-attested copy of my PAN card which I have provided to them. Now the RTA has replied that my PAN was not registered in FY2020-21 with them and was registered subsequently and hence, they are unable to fetch the TDS certificate for the FY2020-21. Since, the TDS was deducted on the dividend amount paid to me, kindly inform me how I can obtain TDS certificate and show them in my returns.
I also request you to kindly inform me how to show them in the current ITR in the absence of Form 16A.
Further, I am a retired pensioner and an amount of ₹15 lakh is invested in PMVVY Scheme and am receiving quarterly amount. Please clarify under what head should the amount be shown. Apart from my pension, during the year I have incomes including interest on bank deposits, dividend income from shares and MFs, interest income from NCDs, sovereign gold bonds, savings bank A/c, infra bonds, interest on NHAI tax-free bonds and short term & long-term capital gains. I have one self-occupied house property. My total income during the year is less than ₹50 lakh and I do not have any agriculture income. In the light of the above, I request you to kindly inform me which ITR return I have to file?
Rama Krishna
Dividend shall be taxable under the head ‘Income From Other Sources’ (IFOS) as per the Act. If your PAN is available with brokerage company/fund manager, the taxes deducted would be reported in your Form 26AS based on which the TDS credit can be claimed in the tax return. Where the company has not deposited the TDS/filed the TDS return, due to absence of your PAN details, you are required to complete the KYC formalities and provide the scanned copy of PAN to enable them to do the needful.
Pension income earned from Prime Minister Vaya Vandana Yojana Scheme (PMVVY) of LIC of India is fully taxable and shall be reported under the head IFOS. Please be informed that bank interest, dividend income from shares/mutual funds, interest income from infrastructure bonds, NCDs and sovereign gold bonds shall be taxable under the head IFOS. Short term capital gain/long term capital gain on sale of shares needs to be reported under the head capital gains.
Considering your income pattern, you are required to file ITR 2 for the FY 2020-21.
In the issue dated September 5, 2021, you have mentioned that if money is gifted to relatives, any interest earned out of that will be taxed in the hands of the recipient only. In a similar manner If shares allotted in an IPO are gifted to spouse, and if they are sold within a period of one year, will the short term capital gain be taxed in the hands of the recipient of the gift? If yes, what sort of record should be kept?
Niranjan
Your spouse is not required to pay any tax on receiving shares from you as a gift. However, Section 64(1)(iv) of the Act provides for clubbing of income in the hands of the transferor when assets are transferred for inadequate consideration. Providing gifts to your spouse would amount to transfer for inadequate consideration. Accordingly, any gains arising from sale of such shares is taxable in your hands. Besides documentation evidencing cost of acquisition of shares, sale consideration, selling expenses, etc., and documentation related to gift (like gift deed) needs to be kept on record.
Nilesh Shah, MD of Kotak Mahindra AMC, explains why he is confident about India being a “long-term growth story” and why markets will “continue to correct”, says he doesn’t believe RBI will increase interest rates to a level where it derails growth, and calls for regulation of cryptocurrencies. This session was moderated by Associate Editor Sandeep Singh.
Sandeep Singh: From a peak of around 62,200 a couple of weeks ago, the Sensex lost around 5% or 3,000 points over the last week. How do you see this and do you expect to see the correction continuing? In the near future, I think the corrections will continue. However, every correction is an opportunity to buy into the market. I believe, in the market, there is a red zone and a green zone. In the red zone are stocks, where floating stock is limited and there is a concentrated holding. That concentrated holding allows people to put any price on those stocks. Now at some point of time, the law of gravity will apply and those stocks have got corrected. Second, in every bull run, we see operators pull up prices of, let’s say, penny stocks. Some of them have gone up as high as 8,000%, some 4,000% and some by 500%. Now all these stocks too have to come to an end. And generally, they make the top of the market. So we are seeing more correction in this red zone than in the green zone. The momentum of the market now is a bit negative. It will take some time to correct and consolidate it.
Sandeep Singh: What makes you confident that markets will rise in the medium-term? Let’s get a slightly long-term view. In the pre-90s, the villain in most of our Hindi films was a black marketeer — Roti Kapda aur Makaan, Kalicharan and so on. We have shifted from double-digit inflation to mid-single-digit inflation. That is a big change in the economic fundamentals of India. Pre-1990, we were always short of foreign exchange reserves. Fast forward to 2021, we have a$636-billion reserve… For most of our 75 years, we were an infrastructure-deficit economy. Now we are becoming an infrastructure-available economy. Our power consumption has gone through the sky, but are also able to produce power. We are also moving from physical to physical-digital infrastructure. Today, in a developed world, if you want to transfer money from one bank to another bank, it is a seven-day job. In India, it is happening instantly, thanks to RTGS and NEFT, among others. Earlier, we were a capital-constrained economy; not any more. Also, public-private partnership is emerging. From the government running all the businesses to the government saying that we have no business to be in business, is a big mindset change. Air India, BPCL, IDBI, LIC, Container Corporation, Shipping Corporation, Neelachal Ispat — if all these things get divested, then imagine the benefit this country and the economy will get.
All this is changing India like never before. Have we achieved everything? No. It is a work in progress. We need to bring rule of law in the country. We pass a law which says that if your cheque bounces three times, you will go behind bars. What have we achieved in reality? Forty lakh cases of cheque bouncing are clogging up the judicial system. This cannot work. An entrepreneur will invest when he is convinced that there is the rule of law. We have to reform our judicial infrastructure. Also, when you are trying for economic growth, you are labelled as suit boot ki sarkar. Our whole focus is on dividing the pie and getting equality rather than expanding the pie even with inequality… You can’t become a prosperous country until you respect business…
We were growing at mid-single digit, now we have laid the foundation for a higher single-digit growth and that is giving investors the confidence that now India is a long-term growth story.
Sandeep Singh: The current stock market rally has continued for 15 months despite issues of job losses, loss of life, impact on businesses. The common refrain is that the stock market is delinked from the economy. Stock market could have been delinked from the economy for a while, not for 18 months. We saw that kind of madness during the Harshad Mehta, Ketan Parekh times… Today, can someone take out money from the banking system and put it in the stock market? No. At that time, the average PE (Price to Earnings) of the market was 40, today we are at 20. At 20 PE, how can one say there is a bubble? In 2008 too, we saw correction but that was driven by sub-prime. But it is unlikely that we are seeing a sub-prime kind of an event. I wouldn’t say markets are delinked from the economy; I would instead say they are optimistically discounting the future and if that future is not delivered, there will be correction. But there will not be any crash in the market because even if the 20 PE comes down to 15 PE, people will go to buy. Unless a sub-prime kind of an event happens, where all FPIs (Foreign Portfolio Investments) decide that they have to move out, I don’t think markets will crash. They will undoubtedly correct. And right now, we are in a negative momentum, but markets most likely will not crash like 2008 or 2020.
George Mathew: Why do we see many more retail investors jumping onto the stock market bandwagon? Does the RBI’s accommodative policy have a part to play in increasing liquidity? Where will the retail investors deploy money? Can they buy real-estate? It is a big-ticket investment. Bank deposits will get them 3-5%. Gold and silver had negative returns last year. So where will you put your money? By definition, it is equity. And they have seen their neighbour making money so they have also jumped onto the bandwagon. Not all retail investors are blind followers. There is a fair amount of mature investors who have been investing in the stock market through its ups and downs and have been building up their positions in equity because interest rates are so low in other places. Is RBI’s accommodative policy fuelling the equity market rally? The credit growth in the economy does not suggest that the liquidity that the RBI has built up has moved to retail investors. I don’t think credit growth is 30-40 per cent, where I need to be concerned. So RBI has excess liquidity in the system but unfortunately, it is only moving from the banks to the RBI and vice-versa. It has not moved from the RBI to banks to the customers. This is mine and your savings getting invested in the market. People have started taking increasing exposure because of low interest rates and the last 18 months’ positive experience of making money.
Sandeep Singh: A lot of FPI money is flowing into the market. How does it translate into change in the real economy for sectors such as healthcare, education? Digitisation of education is our solution to the shortage of quality teaching. There will be stories of children not having electronic instruments or good network coverage. But at least with digitisation I am able to cover 10-50 % of the population. Without that, no one will be covered. So you have to see if the glass is half full or half empty. In healthcare, we have seen top-of-the-line consultancy being provided in whichever part of India you are in… Digitisation is changing the way things are moving and more importantly, for ideas, capital is available… Capital availability is helping them expand at a much faster rate. Byju’s without global capital could not have reached where it is.
George Mathew: There is speculation around the world about interest rates rising again. In India, do you think interest rates have bottomed out? When will they start rising again? In September 2020, we said RBI will raise interest rates by March 2021. In March 2021, we said RBI will raise interest by September 2021. In September 2021, we are saying RBI will raise interests by March 2022. Today, India’s CPI inflation at 5.3 % is the same as the US’s. Our interest rates are at 6.3%, 100 basis points real, their interest rate is 1.7, it is negative. RBI has managed our monetary policy significantly better than other countries. They have ensured that liquidity remains absorbed, interest rates remain under check, the borrowing programme of the government goes through, the financial market remains stable and functioning. At the same time, inflation and growth rate remain supported. I don’t think we could have got a better RBI Governor than Shaktikanta Das. Rates will rise in India and globally, but not as much as the market is fearing. I don’t think central bankers are going to increase interest rates to a level where it derails growth. They will raise so that inflation remains under control but post that, they will again support growth. Today, we have $636 billion of reserves, positive interest rates, our inflation numbers are well under control. Put all this together, rates will rise, but it will not rise to derail growth.
Sunny Verma: The government is pushing ahead with a giant privatisation plan… they plan to privatise two banks. Should we allow industrial houses and corporate houses entry into banks? We, as a democracy, do not have the screening process where only good people get the license… We open the gates for everyone and then keep on tightening the screws…. You need a good screening process to give licenses to good people and have strict boundaries… It is ironic that the ADR shareholders of Satyam have been compensated but the Indian shareholders have got nothing. Isn’t it a shame that for a crime committed in India, the compensation is paid in the US? Our regulators, judicial system should be ashamed of it.
Sandeep Singh: Since you bring market intelligence to the table, has there been any discussion within the government on crypto currency? I believe regulators are working on it. There will be some regulation. Cryptocurrencies are becoming too big to ignore now. It is more of a semi-urban and rural phenomenon. In Tier 2 towns, it’s spreading like wildfire. I am not qualified enough to say if crypto is a fraud or not… who knows, it may be the future and we are early entrants. So why not regulate and make people aware that this is high-risk, high return? So that tomorrow if it goes out of hand, it does not jeopardise many investors.
George Mathew: The RBI Governor recently spoke about the need to tighten the auditing process. His observations came after three major financial groups collapsed in the last 2-3 years. Do you think the auditing process is weak in corporate India, especially the financial sector? This malaise is not only in the auditing profession. For an investor, there are six layers of protection. The first is the management… If you look at the Bernie Madoff scandal — that was a US $60 billion scandal, but the actual money was $18 billion. Out of that, Irving Picard (a court-appointed trustee for the liquidation of Bernard L Madoff Investment Securities) recovered $16 billion. How did he recover? Madoff’s, his wife’s, son’s every piece of property was sold — shares, bonds, investment, personal items, everything… Madoff had to submit any spending above $100 to Picard… Now look at the cases in India. You have to go after the management… that’s not happening here. Then comes the Board of Directors. But how many are discharging their job? Then comes the auditor. Now there are a few very good auditors. In the pre-90s, Y H Malegam refused to sign the balance sheet of a leading textile company. How many such CAs have we seen? Very few. Then comes the rating agencies. The rating agencies which gave AAA rating to Dewan Housing Finance Limited have a lot of introspection to do. Then comes the investors. Our jobs is to keep the management and companies on their toes on good governance. Finally come the regulators and judicial authorities. All of them have to work together to ensure good governance.
Sandeep Singh: While there’s optimism over the future, over the last one and a half years, there have been a lot of job losses. MSMEs lost businesses to listed companies. What’s your prescription for a more inclusive growth? Let me give you the example of when SMEs have worked well. You would have heard of Morbi, a town in Gujarat. There was a dam burst in the 80s and the entire town was flattened. Then Morbi started coming up by making tiles. They initially used coal to make tiles, but the pollution levels rose and the HC ordered that they switch to natural gas. But that switch from coal to natural gas meant that the entire industry became formalised — unlike coal, natural gas couldn’t be bought in the black market. Then, the units there began focusing on improving quality. With LPG or CNG burning, you will know how many tiles you have produced. Then they focused on quality, on economies of scale. Some focused on becoming contractors, some on the export market. Today Morbi exports 7,000 crore worth of tiles. There was a fear that Chinese tiles would invade the market; instead, they compete with China in the Middle East etc. All this happened because you formalised MSMEs. From tiles, Morbi moved to clocks. World’s largest clock manufacturer Ajanta is based in Morbi. Then, calculators… Orpat is a Morbi-based company. This is the model for us. Another such model is Tirupur in Tamil Nadu… How do we ensure formationalisation of MSMEs? When you are evaluating MSMEs, you have to allow market forces to work.
A corollary to that is Amul, which brought millions of farmers on a formal platform. Now that is a cooperative model, while Morbi is a private model. Sitting in Delhi, I can’t decide the model to revive MSMEs. Market forces at the local level will have to do what is right for the industry.
Sunny Verma: We saw the US taper tantrum in 2013 and saw how the jerky policy announcements impacted markets. Now people have been saying the impact of such a tantrum on emerging markets could be 10 times what it was then. People become wiser from experience. What happened in 2013? Ben Bernanke talked about taper tantrum to warn markets. That warning itself created a correction in the markets because some people panicked. All those people who sold in 2013 became wiser because when the taper tantrum actually began, there was no correction. In fact, markets went up. All those people who bought despite Ben Bernanke warning, will buy 10 times what they bought then because they made a lot of money. So will people be as stupid as in 2013? No. Secondly, in 2013, India was dependent on FPI to a much more extent than what it is today. Third, in 2013, China was competing with India to collect FPI inflows. That’s no longer the case. More importantly, if the taper tantrum starts at 21,000 Nifty, of course there will be correction, but what if it begins at 15,000 Nifty? There’ll be no effect then.
Sandeep Singh: You spoke of certain changes in India over the years when it comes to economics, inflation, infrastructure. Have these set off any changes in the political economy? By and large, most parties are focused on economic issues. But unfortunately, Opposition parties and the ruling party may have a stand on a particular issue, but when their roles reverse, they also change their stand. For instance, Air India should have been divested when it had a monopoly over the Indian skies. We would have got some much more money if it had been divested then. Similarly, MTNL-BSNL. How to make decisions that make economic sense? That’s our biggest challenge. This political process has to evolve. We as citizens also have to realise that there will be short-term pain for long-term gain. Mis-allocation of capital is the real challenge.
Sandeep Singh: We hear of a lot of Centre versus state issues. How do you look at this? The states and the Centre have to work together, there is no choice. We are a federal structure. If the Central government opens the door… right now, we have this great opportunity of China Plus One. Because of Wuhan, because of China’s acrimony with others, every country that has a base in China is looking to diversify. All the countries in the world, including India, are chasing that investment. Even if the Centre makes this image of the country, invites manufacturers to be in India, builds highways, builds dedicated freight corridors, at the end of the day, the factory will be run in the state jurisdiction. The local administration will have to support it. Then we will be able to capture this China Plus One. If we don’t work together, the opportunity will be missed like in 1980.
Sandeep Singh: Do you see rising commodity prices as a threat to growth? Commodities are a cycle — they go up and down. I have to create an economy that’s insular to commodity price movement. Today, India has moved in that direction. Our IT exports are more than Saudi Arabia’s oil exports. Our remittances plus software combined gives us an edge to manage rising commodities prices. As oil prices go up, there is an impact on the economy, undoubtedly. But by pushing my IT exports, remittances, I can neutralise it to an extent.
Shubhajit Roy: You spoke about people and economies becoming wiser with experience. With the benefit of hindsight, how would you look at demonetisation? Demonetisation had its positive and negative effects. The negative effects were felt on MSMEs. But the positive effect was on digital adoption as a lot of payment models evolved. Now one intended benefit of demonetisation didn’t come through, not because the government failed, but because citizens failed. When demonetisation happened, we hoped people would not put the black money into their accounts, that they’ll take the hit on their balance sheet.
Unfortunately, people found many ways to convert black money into white and deposited that bank into the banking system.
In an ultra-aggressive bid, Deutsche Bank is willing to accept a fee of just ₹100 a year for being the custodian of India’s pension fund which has total assets under custody of more than ₹6 lakh crore across various schemes.
The existing custodian, Stock Holding Corporation of India, a large depository participant owned by public financial institutions, charges close to ₹19 crore for the job.
Other institutions in the race for the custody mandate of the National Pension Scheme (NPS) include Citi, SBI-SG Global Securities Services (a joint venture between SBI and Societe Generale Securities Services), and ICICI. The fees quoted by these organisations are more than ₹1crore.
NPS, launched by the central government and involving multiple asset managers handling one of the largest fund pools in the country, is regulated by the Pension Fund Regulatory and Development Authority.
“It’s a prestigious mandate. So, Deutsche has probably taken a call to make money from a transitory float it could enjoy as a custodian,” said an official of a bank that has not put in a bid.
A Deutsche India spokesman said the bank would not comment on a client mandate.
“Beyond fees, there could be other ways to earn. Discount brokers charge little or nothing from stock traders. But, with so much liquidity available, earnings from float have come down with the fall in overnight rates. It may further shrink with T+1 (settlement in stock exchanges),” said an official of a financial intermediary.
A custodian has the opportunity to enjoy a day’s float by parking some money with the Reserve Bank of India under the reverse repo facility or in the inter-bank market.
Funds into NPS move from the employer (when salaries are paid) to the collection banks following which the money is transferred to custodians when an asset manager decides to invest in bonds and equities. Since investments happen within a day or two, custodians have a limited float.
The Deutsche bid has to pass the test laid down by the finance ministry.
According to the government’s ‘Manual for Procurement of Consultancy & Other Services’, “An abnormally Low bid is one in which the bid price, in combination with other elements of the bid, appears so low that it raises material concerns as to the capability of the bidder to perform the contract at the offered price. Procuring entity may in such cases seek written clarifications from the bidder, including detailed price analyses of its bid price in relation to scope, schedule, allocation of risks and responsibilities and any other requirements of the bid document. If, after evaluating the price analyses, (the) procuring entity determines that the bidder has substantially failed to demonstrate its capability to deliver the contract at the offered price, the procuring entity may reject the Bid/Proposal.”
Recently, a similar bid from another MNC bank for the custody mandate of postal life insurance was rejected on this ground.
While custody is a stable and sought after business, a few institutions have recently changed tack in choosing custodians. Life Insurance Corporation of India (LIC) recently shut the doors to foreign banks in selecting the custodian for its ₹10 lakh crore holding of stocks and corporate bonds. MNC banks lost out as LIC’s condition was that if the bidder was a foreign company or MNC, any of its securities had to be listed in India.
New Delhi, IDBI Bank on Thursday reported a 75 per cent jump in net profit to Rs 567 crore for the second quarter ended September 30. The LIC-controlled bank had earned a net profit of Rs 324 crore in the same period (July-September) of the last fiscal.
The net interest income grew 9 per cent to Rs 1,854 crore during the reported quarter against Rs 1,695 crore a year ago. Net Interest Margin (NIM) improved by 32 basis points to 3.02 per cent, compared to 2.70 per cent in the second quarter last fiscal, IDBI Bank said.
The lender’s stressed assets ratio also improved, with gross non-performing assets (NPAs) declining to 20.92 per cent of gross loans as of September 30, 2021, against 25.08 per cent a year ago. Net NPAs improved to 1.62 per cent from 2.67 per cent. Provisions for bad loans and contingencies rose to Rs 434.47 crore for the September quarter from Rs 389.44 crore in the year-ago period.
Staff costs fell 12 per cent to Rs 698 crore in September 2021 from Rs 789 crore a year earlier while tax expenses fell 39 per cent to Rs 208 crore from Rs 341 crore a year earlier.
“As of September 30, 2021, the bank had COVID-19 related provisions of Rs 863 crore (other than provisions held for restructuring under COVID-19 norms). The provision made by the bank is more than minimum required as per the RBI guidelines,” the lender said.
The provision coverage ratio, including technical write-offs, stood at 97.27 per cent as of September 30, 2021.
BC Patnaik has taken charge as Managing Director of Life Insurance Corporation of India on Friday. “He was appointed as Managing Director by Government of India notification dated July 5, 2021,” LIC said in a statement.
Prior to taking charge as Managing Director of LIC, Patnaik was Secretary General, Council for Insurance Ombudsmen, (CIO) Mumbai. He joined LIC of India in March 1986 as a Direct Recruit Officer.
The government is set to start consultations with the Reserve Bank of India (RBI) to devise a new security clearance framework for screening potential bidders of public sector banks (PSBs), according to a report.
As potential buyers of IDBI Bank and two other PSBs will need to meet the RBI’s fit and proper criteria, the government is planning to bring the central bank on board to vet candidates in the first step itself.
The RBI will screen bidders as early as when expression of interest is placed and only then the process will move forward.
The RBI considers several factors, including the applicant’s integrity, reputation and track record in financial matters and compliance with tax laws, ongoing proceedings of serious disciplinary or criminal nature, financial misconduct for its ‘fit and proper’ tag.
On the radar
The NITI Aayog, which has been entrusted with the job of identifyng suitable candidates for the privatisation, has recommended names to a high-level panel headed by Cabinet Secretary Rajiv Gauba.
Central Bank of India, Indian Overseas Bank, Bank of Maharashtra and Bank of India are some of the names that may be considered for privatisation by the Core Group of Secretaries on Disinvestment.
The other members of the high-level panel are Economic Affairs Secretary, Revenue Secretary, Expenditure Secretary, Corporate Affairs Secretary, Secretary Legal Affairs, Secretary Department of Public Enterprises, Secretary Department of Investment and Public Asset Management (DIPAM) and the Secretary of administrative department.
Following clearance from the Core Group of Secretaries, the finalised names will go to the Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by Prime Minister Narendra Modi for the final nod.
IDBI Bank
The government has invited bids from transaction advisors and legal firms for assisting in the strategic sale of IDBI Bank.
The Union 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 government wants to block Chinese investors from buying shares in Life Insurance Corp (LIC), underscoring tensions between the two nations.
State-owned LIC is considered a strategic asset, commanding more than 60% of India’s life insurance market with assets of more than $500 billion.
India has sought to limit Chinese investment in sensitive companies and sectors, banned a raft of Chinese mobile apps and subjected imports of Chinese goods to extra scrutiny.
“With China after the border clashes it cannot be business as usual. The trust deficit has significantly widen(ed),” a government official said, adding that Chinese investment in companies like LIC could pose risks, according to a report.
Meanwhile, the government is mulling allowing foreign direct investment (FDI) in LIC, a move that would help overseas investors take part in the company’s proposed mega IPO, sources said.
The proposal is under discussion between the Department of Financial Services and the Department of Investment and Public Asset Management (DIPAM).
According to the current FDI policy, 74 per cent foreign investment is permitted under the automatic route in the insurance sector. However, these rules do not apply to the Life Insurance Corporation of India (LIC), which is administered through a separate LIC Act.
Change of rules
As per Sebi rules, both FPI and FDI are permitted under public offer. However, sources said since LIC Act has no provision for foreign investments, there is a need to align the proposed LIC IPO with Sebi norms regarding foreign investor participation.
The Cabinet had in July approved the initial public offering (IPO) of LIC.
The DIPAM had in January appointed actuarial firm Milliman AdvisorsLLP India to assess the embedded value of LIC ahead of the IPO, which is touted to be the biggest public issue in Indian corporate history.
The government expects to come out with the LIC IPO by the end of the current fiscal. Up to 10 per cent of the issue size would be reserved for policyholders.
The government has already brought in the required legislative amendments in the LIC Act for the proposed IPO.
Deloitte and SBI Caps have been appointed as pre-IPO transaction advisors.
India wants to block Chinese investors from buying shares in Life Insurance Corp (LIC), which is due to go public, four senior government officials and a banker told Reuters, underscoring tensions between the two nations.
State-owned LIC is considered a strategic asset, commanding more than 60 per cent of India’s life insurance market withmore than $500 billion assets. While the government plans to allow foreign investors to participate in what is likely to be the country’s biggest-ever IPO worth a potential $12.2 billion, the sources said it is cautious of Chinese ownership, the sources said.
Political tensions between the countries rocketed last year after their soldiers clashed on the disputed Himalayan border, and since then, India has sought to limit Chinese investment insensitive companies and sectors, banned a raft of Chinese mobile apps and subjected imports of Chinese goods to extra scrutiny.
“With China after the border clashes it cannot be business as usual. The trust deficit has significantly widen(ed),” said one of the government officials, adding that Chinese investment in companies like LIC could pose risks.
The sources declined to be identified as discussions on how Chinese investment might be blocked ongoing, and no final decisions have been made.
The finance ministry and LIC did not respond to Reuters emailed requests for comment. China’s foreign ministry and commerce ministry did not immediately respond to requests for comment.
FII investments likely
Aiming to solve budget constraints, the Centre hopes to raise ₹90,000 crore by selling 5 per cent to 10 per cent of LIC this financial year which ends in March. The government has yet to decide whether it will sell one tranche of shares seeking to raise the full amount or choose to seek the funds in two tranches, sources have said.
Under current law, no overseas investors can invest in LIC, but the government is considering allowing foreign institutional investors to buy up to 20 per cent of LIC’s offering.
Options to prevent Chinese investment in LIC include amending the current law on foreign direct investment with a clause related to LIC or creating a new law specific to LIC, two of the government officials said.
They added that the government was conscious of the difficulty in checking on Chinese investments that could come indirectly and would attempt to craft a policy that would protect India’s security but not deter overseas investors.
A third option being explored is barring Chinese investors from becoming cornerstone investors in the IPO, said one government official and the banker, although that would not prevent Chinese investors from buying shares in the secondary market.
Ten investment banks, including Goldman Sachs, Citigroup, and SBI Capital Market have been chosen to handle the offering.
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