Telecom companies and insurance providers had reasons to cheer this week. Government increased foreign direct investment (FDI) limit in these sectors, aiding higher foreign capital inflow. Currently many global majors have invested in the Indian companies operating in these sectors. However, telecom and insurance being capital intensive, additional inflows are welcome by Indian players.
FDI in Telecom: FDI limit in the sector has been increased to 100 per cent from the current 74 per cent. This increase will likely ease the debt burden of telcos who have been struggling with ballooning interest outgo.
With foreign partners owning 74 per cent equity in Vodafone, Telenor Maxis, they will be the immediate beneficiaries of this move. Others such as Bharti Airtel, Idea Ceullar who are well below the limit of FDI holdings are also set to gain. The sector may also likely see more consolidation due to higher FDI inflows.
FDI in insurance: The government has proposed to increase FDI limit in insurance from 26 per cent currently to 49 per cent. By end-March 2012, the capital invested in Indian life insurance ventures totalled Rs 24,931 crore. Of this, foreign promoters had infused nearly a fourth. The joint venture agreements of many insurers allow foreign partners to increase their stake in the Indian venture, if regulations permit.
The foreign partners who already hold 26 per cent or less and are hoping to increase their stakes include German Allianz group (for Bajaj Allianz), Japanese Nippon Life (Reliance Life), the British Aviva plc (Aviva Life the joint venture with the Dabur group). Others - Samsung Life and Hitachi may be scouting for opportunities in the Indian insurance market.
New remittance card
Sending money from UAE to Kerala got simpler with a new product launched recently. State bank Xpress Money Card can be used to receive remittances from abroad and as a debit card at the ATMs or for e-commerce transactions. A maximum of 30 remittances can be made through the card in one calendar year and the limit for daily withdrawal is Rs 25,000. The card is offered through a partnership between Xpress Money, State Bank of India and UAE Exchange and Financial Services Ltd. The service is currently available only in Kerala.
RBI’s bond auction woes
RBI had a rough week but finally managed to place Rs 15,000 crore worth of bonds with primary dealers on Friday. On Wednesday, it rejected two Treasury Bills’ auction worth Rs 7,000 crore and Rs 5,000 crore, as bidders sought higher yields. This was quickly followed by an unsuccessful Open Market Operation (OMO) on Thursday, wherein RBI barely raised Rs 2,532 crore, as against the notified amount of Rs 12,000 crore. Yields for benchmark 10-year bond currently hover around 8 per cent. The government plans to borrow Rs.5.79 trillion from the market of which Rs.3.49 trillion is slated to be raised by September.
Oh! Fine
Banks found themselves at the paying end this week, when RBI fined 22 banks for violating KYC norms. Flaws were found in banks’ customer identification procedure, KYC practice for walk-in customers and sale of third party products, in addition to lapses in monitoring of dormant account transactions. Ten private banks and 12 PSU banks were asked to pay fines ranging between Rs 50 lakhs and Rs 3 crores. Bank of Baroda, Bank of India, Federal Bank and Indian Overseas Bank were among those heavily fined. Earlier, RBI had charged a cumulative penalty of Rs 10.5 crore from Axis Bank, HDFC Bank and ICICI Bank.
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