Tuesday, January 19, 2010

TMB to raise Rs 1000 crore: BS

TMB to raise Rs 1000 crore: BS
Tamilnad Mercantile Bank (TMB) is targeting a business of Rs 50,000 crore by 2012-13 for which it would
require around Rs 1,000 crore capital. Speaking to Business Standard on the sidelines of its 86th and 87th
annual general meeting here on Wednesday, G Nagamal Reddy, managing director and chief executive
officer, TMB, said the bank would look at raising the proposed money through IPO, qualified institutional
placement (QIP), Tier II bonds or rights issue. ?This will be decided in the coming board meetings,? he
added.
The bank?s current networth is around Rs 1,000 crore. It did a business of Rs 16,137 crore as on March 31,
2009.
?TMB is a small bank and to become a medium-sized bank we have to go for an IPO,? said Reddy, adding
they needed to improve the paid-up capital, which is currently at around Rs 28.45 lakh.
The bank is also planning to appoint a consultant to initiate re-engineering processes including human
resource, marketing and expansion.
It had applied for 40 branch licences ? it currently has 215 branches ?with the Reserve Bank of India.
Reddy said the bank saw good potential in Mumbai, Delhi, Kolkata and Gujarat and would focus on these
markets as part of the expansion plan. ?We will enter Madhya Pradesh and Chhattisgarh next year and are
planning to recruit 500 clerks,? he said.
The Tuticorin-based, largely seen as community bank, declared a dividend of Rs 500 per share (face value
of Rs 10) for the fiscal 2007-08 and Rs 600 per share for 2008-09.
The new normal-different world for banks': BL
BANCON ?2009-10, the annual gathering of bankers and economists, addresses the theme of ?normalcy' ?
that most desirable of attributes ? especially so in the aftermath of a traumatic economic crisis. Most
advanced economies have just escaped a second ?great depression' and suffered just a few months of
recession ? thanks to unprecedented monetary steroids and fiscal stimulus across all top economies.
As these economies struggle towards recovery ? with the prospect of a gradual unwinding of the stimulus,
this is perhaps the right time for bankers and economists to reflect on how Indian banks should handle the
new scenario.
They'll need to debate the argument advanced by Nobel Laureate Paul Krugman that banking should be
made boring ? citing the US experience that when they were tightly regulated, conservative and stripped of
the incentives that encourage dangerous risk taking, it actually proved to be an era of spectacular progress
for the economy as a whole! In contrast, when regulations were lifted, banks expanded credit, debt rose and
eventually the finance industry exploded, he noted. That's something for bankers to ponder.
Reality checks
Although India did not suffer as much as the rest of the world in this crisis, there were some reality checks.
Most notably, the idea that for the foreseeable future, economic growth was one straight, linear and easy
path of continuous 9 per cent plus growth was disturbed.
Another idea that got a jolt was the so-called ?de-coupled Indian economy' because of its innate strengths
and large domestic market.
This was expected to insulate us from any shocks world-wide. Reality proved a bit different as various
sectors from software to textiles were affected by the ripples from abroad. For an increasingly integrating
economy, the slowdown in GDP growth was perhaps an eye-opener.
The last time this conference was held two years ago, the mood was different. Every one was gung-ho
about 9 per cent GDP growth and India's status as the second fastest growing economy and a new
emerging economic super power.
Although software companies put India on the world map, manufacturing sector was also catching up. Many
Indian companies ventured outside to other shores, making high profile acquisitions, with bankers in tow.
Bank loan growth didn't seem like coming down below 30 per cent. In the post-2009 scenario, that
exuberance has been replaced by a lot more caution. That doesn't however mean that we get back to the
complacent 3.5 per cent Hindu rate of growth.
In fact, after earlier fears that GDP growth may fall to 5.5 per cent, most experts think growth will return to 8
per cent by the end of this fiscal. With some planning and help from normal monsoons, a revival in other
economies (that are export destinations) and good luck, it is possible to target double-digit GDP growth in
the immediate future.
Looking back at the crisis, one can't but help get the feeling that its timing was perhaps a blessing in
disguise for the sector.
For, April 2009 was the time that was fixed about four years ago to open up the Indian banking sector to
foreign competition. In the interim, domestic banks were expected to strengthen themselves, improve their
capital base, consolidate wherever possible on the lines of the roadmap laid down by reputed committees
(Narsimham Committees I & II) and prepare to share turf with foreign banks.
If the crisis had not set in during the second half of 2008, it is possible that the gates may have been opened
a bit, notwithstanding the resolute reluctance of the regulatory authorities to such moves. Foreign banks that
eyed the potential of the Indian market and often lectured on the moral hazards of bailing out public sector
banks in India, themselves had to face the ignominy of being bailed out by their respective governments.
When their market capitalisation dropped precipitously, there were jokes floating around about how Indian
banks could even consider taking over some of these foreign banks ? provided there was really something
left in the books.
The wheel had turned a full circle.
In the event, we got a reprieve. But, to use Churchill's memorable phrase after the miraculous evacuation of
British troops stranded on the beaches of Dunkirk, ?We must be very careful not to assign to this deliverance
the attributes of a victory.?
That's sound advice for Indian banks too. It will probably take at least another two years for foreign banks to
recover their strength (paying off their dues to local governments) before they think of venturing out again.
That's providential time ? for the sector to pull up its socks and prepare for the next round of invasion.
Although Indian banks have weathered the crisis fairly well so far, and flaunt strong capital adequacy ratios
and low NPA numbers (even if one makes allowance for the restructuring of assets), there are still a lot of
milestones to cross and benchmarks to reach. Consolidation in public sector banks still remains a distant
goal, notwithstanding some encouraging sound bytes once every few months from the Finance Ministry and
a couple of bank chairmen. High governance standards and autonomy still lie in the realm of text books.
Customer service has improved when compared to a decade ago ? but there's still a long way to go.
Financial inclusion is still a distant mirage, notwithstanding impressive achievement of ?targets'. Speedy
recovery of delinquent loans, despite the presence of numerous legal remedies, remains unfulfilled.
Use of new risk management tools has increased, although that's not necessarily proved foolproof.
Transaction costs still remain high in segments of the banking industry. HR practices need improvement.
Banks need to address all these and more - apart from tackling macro challenges such as interest rate
volatility, high government borrowing, high inflation etc.
Even as economies limp back to normalcy, bankers and regulators need to remember that it was easy
liquidity and low interest rates that fuelled the sub-prime crisis that finally brought down so many reputations
and institutions. Those conditions are still there.

The logistics of organising a BANCON: BL

The logistics of organising a BANCON: BL
BANCON (earlier BECON for Bank Economists' Conference) is a mega event on the calendar for top
bankers. The conclave invariably sees heavyweight presence of the top officials from the Ministry of
Finance, the Reserve Bank of India and banks, both domestic and foreign.What's special about this annual
conference of bankers, you may wonder? The conference is usually hosted by a bank with organisational
support from the Indian Banks Association. For each host bank, it is a matter of prestige and pride to better
the record set by every previous host ? much in the manner of countries competing to outdo each other at
the Olympics. And each host bank tries to make the event ?unique and special' in its own way.
In recent memory, BANCON 2006 held at the International Convention Centre, Hyderabad and hosted by
Andhra Bank, was considered a magnificent show. The next conference was hosted by Bank of Baroda with
the objective of making it a ?value-added event for bankers'.BANCON 2008, scheduled to be held in Srinagar
in the last week of August 2008, never saw the light of day. And now, BANCON 2009-10 is being hosted by
State Bank of India with organisational support from IBA at Hotel Trident, Mumbai, on January 11and 12.
Special significance
The last conference held on November 26 and 27, 2007 was particularly special for Bank of Baroda as it
coincided with the bank's centenary year. It faced a tall order in trying to best the record set by Andhra
Bank.Newspersons covering the eventwondered how BoB would manage to conduct the event of that
magnitude at Hotel Taj Lands End, Mumbai, as the area appeared small compared with the the venue in
Hyderabad. But as a senior BoB official who was involved with the organisation of the event, explained, ?We
designed it differently. Instead of making it a conference filled with presentation and lectures, we chose to
have panel discussions on various issues. And for the first time, we also charged a participation fee.?
Justifying the participation fee, the official said, ?the venue was not as huge as the International Convention
Centre in Hyderabad. We were therefore constrained to limit the participation to senior bankers and top
executives of banks.??Serious discussions about the conduct of the event commenced in August, though the
hotel and venue booking were firmed up in May,? he said.
While admitting that there were some last minute hiccups, the official said, ?We got them resolved without
much fuss. On the whole, it was a satisfying experience.?Preparatory work commenced at least four months
ahead of the scheduled date of the event. Papers were invited; that kept the community moving.Closer to
the event date, Bank of Baroda roped in some of its officials for coordinating the entire programme. More
than a dozen committees were formed headed by an officer not less than the rank of a General Manager,
and comprising not more than four for a team to manage the assigned task.
The jobs which these committees had to oversee and manage included taking care of the participants'
conveyance, receiving and dropping guests from the airport to the venue and back (airport committee);
ensuring comfortable accommodation (reception committee); food committee (to ensure no guest went
without food and everyone got what they liked); stage committee (to take care of stage-seating
arrangement); hall arrangement; media management committee and so on.
Bank of Baroda pulled it off and could justifiably claim that the event was a grand success. Now it is for State
Bank of India to carry the baton forward.
Sugar output may rise on lower cane diversion:BL 241209
Mawana Sugars says kolhus unable to pay farmers higher price.

"…This time, although there are 25-30 per cent more kolhus, they are drawing much less cane and working
barely 8-10 hours against 24 hours last year."

Mawana Sugars Ltd (MSL) expects to crush 10 per cent more cane during the current 2009-10 season
(October-September) on the back of reduced diversion of raw material to makers of alternative sweeteners
such as gur and khandsari.
"Last season, we crushed only 23.4 lakh tonnes (lt) of sugarcane compared with 33.4 lt in 2007-08. Sugar
recovery, too, fell from 9.7 per cent to 8.93 per cent due to which we could produce only around 2.05 lt", said
Mr Sunil Kakria, Managing Director, MSL.
According to him, based on current trends, "we might crush about 10 per cent more cane this season, with
recovery also improving to 9.5 per cent." The company also plans to refine 25,000 tonnes of imported raw
sugar during the season, which will overall translate into increased output.
Mr Kakria based his expectation of higher crushing on reduced cane diversion to gur and khandsari units.
"Last season, the kolhus bought about half of the marketable cane in our reserved area, leaving only the
balance for us to crush. This time, although there are 25-30 per cent more kolhus, they are drawing much
less cane and working barely 8-10 hours against 24 hours last year," he told Business Line.
Unattractive prices
One reason for this, he felt, was that gur prices were currently not all that attractive. At the start of the
season, gur was being sold in the Muzaffarnagar and Hapur markets at Rs 1,200 a man of 40 kg, i.e. Rs 30
a kg. This was higher than the prevailing ex-factory price of Rs 28-29 for M-31 sugar.But today, wholesale
gur is trading at Rs 950-960 a man or Rs 24 a kg, having gone as low as Rs 850 a month back. On the other
hand, sugar has rallied to Rs 35 a kg. "At current gur prices, the kolhus are not in a position to pay cane
farmers as much as we are, given their much lower recovery levels. Therefore, more cane is coming to us,"
Mr Kakria pointed out.
Mills in west Uttar Pradesh (UP) are currently paying a cane price of Rs 210-215 a quintal. But this could
change with Uttam Sugar Mills announcing a price of Rs 220-225, which is more than even the Rs 215-220
being offered by mills in Uttaranchal. Either way, it would render the operations of kolhus unviable, unless
gur prices stage a revival.
Production
Mr Kakria estimated UP's sugar production this season at 45 lt, up from the 40.64 lt of 2008-09. "The crop
size may be lower this time, but that will be more than offset by higher recovery and cane drawal rates," he
added.MSL operates three factories in UP aggregate crushing capacity of 29,500 tonnes cane a day (tcd).
Of these, two - Mawana (13,000 tcd) and Nanglamal (6,000 tcd) - are in Meerut and the third, Titawi
(10,500 tcd), is in Muzaffarnagar district.
State Govt borrowings become expensive on tight liquidity:BL 241209
Banks favour short-dated papers.

The last round of borrowings through State Development Loans saw the average spreads over ten-year
sovereign papers rising to about 45 basis points.

State governments' market borrowings have become more expensive with the liquidity overhang
dissipating.The last round of borrowings through State Development Loans (SDL) saw the average spreads
over ten-year sovereign papers rising to about 45 basis points.
Banking sources said that the rise in spreads was largely on account of reduced interest in SDLs among
banks. Spreads for some States like Jammu and Kashmir were however, about 80 basis points. This was
despite the sovereign guarantee cover on the papers. States like Madhya Pradesh have raised funds at
spreads of 55 basis points or 8.45 per cent. Only in the case of some of the southern States like Kerala and
Tamil Nadu, the spreads over sovereigns were lower than the average at about 40 basis points. The lower
spreads were largely on account of better credit rating of the States, unlike the northern States that still have
arrears in debt service payments.
Despite the discriminatory perception in the financial markets, the rise in average spreads was largely on
account of the tightening liquidity conditions, on account of the external factors and the Reserve Bank of
India's aggressive sterilisation operations.
Long maturities
Besides, the bankers said that few of them were interested in having SDLs in their investment portfolios in
view of the long maturities of the loans. Although SDLs by virtue of their sovereign guarantee status are zero
risk-weighted, the papers are largely illiquid in the secondary markets, bankers said.
Typically, in a tight or anticipated tight liquidity situation, the preference tends to be more for short-dated
papers, particularly Treasury Bills. With the derisking of investments, banks have contained the average
maturity to about two years. Besides, they added, the derisking was also resorted to in view of the Basel II
compliance, where depreciation charges would be high on long-dated papers.
Consequently the only investors in SDL papers were life insurance companies, the bankers said. Insurers'
preference was also for compliance with mandated investments directives of the insurance
regulator.However, bankers said, most life insurers who are the largest investors in SDLs, have mean yield
expectations in excess of 8.5 per cent. These expectations are likely to rise in the coming months, the
bankers said, to partly offset the turndown in the equity markets.
Sensex gains 540 on Pranab talk:BL 241209

Stocks rose sharply on Wednesday, the BSE Sensex gaining by a massive 539 points, the highest in nearly
two months.The Sensex notched a 3.23 per cent rise, closing at 17,231, while the broader Nifty rose by 3.18
per cent and ended the day at 5,144.
The Finance Minister, Mr Pranab Mukherjee's reassurances on GDP growth helped bulls take control of the
entire market, causing huge short covering in the Nifty, said Mr Alex Mathews, Head of Research at Geojit
Financial Services.
The Minister's statements were only the spark, the markets rose to the extent they did because key technical
resistance levels set up by various brokerages were surpassed - roughly 17,000 for the Sensex and 5,050
for the Nifty, said market-men.This "upside confirmation" brought a momentum to buying, and the index
gains were actually heavily supported by volumes. "There was bound to be a rally," said Mr Daljeet Kohli,
Head of Research, Emkay Global Financial Services.
According to BSE data, retail players booked profits, being net sellers for Rs 313 crore. Retail investor Mr
Kalpesh Parikh sold several Nifty shares and booked profits as he wanted to take advantage of what he
perceived a "short-lived rally coupled with an uncertain future."
FIIs bought afresh, their net purchases amounting to Rs 769 crore while DIIs bought for Rs 13 crore in the
net. IT stocks were in demand due to the weak rupee and expectation of strong economic recovery (which
assures more contracts for IT companies) said brokers. Metal stocks were also hugely in demand on hopes
of global economic recovery.
The gainers on BSE were Hindalco Industries - 7.77 per cent; NTPC 6.96 per cent, Sterlite 5.05 per cent,
Reliance Industries 4.62 per cent, Tata Steel 4.45 per cent, and ICICI 4.3 per cent.
SBI scheme for varsity students:BL 241209
State Bank of India has launched a scheme, 'Power Jyothi', for the students of Madurai Kamaraj
University.The scheme facilitates payment of university fee from anywhere in the country on a charge of Rs
22. This is cheaper than obtaining a draft at Rs 30 in the normal course. All SBI branches will accept the
fees and credit the same to the Madurai Kamaraj University Account simultaneously.
In a press release, the bank said the fees would be credited to the university account with details such as
student's name, course, year, enrolment number and fee details, which could be verified at a later date.Dr
Karpaga Kumaravel, Vice-Chancellor, Madurai Kamaraj University, launched the facility.
Savings and investments: BL

Investments could be current or long-term, whereas savings are always of a long-term nature

Deployment of funds can be done in two ways: Investments and savings.
There is no specific definition for the term ?savings' as it is not a part of business. Accounting Standard 13
defines an investment to be funds set apart with the objective of growth, security or earnings.
Thus there are three objectives of an investment ? growth, security or income.
Investments are classified as current or long-term. Current investments are those held for short periods
(conventionally for less than 12 months) whereas long-term investments are held for longer periods. Savings
stand on a different footing altogether.
Objective: The objective of investment does not exist in the case of savings. The objective of savings is to
save for the rainy day or to meet unforeseen eventualities. A person saving money is interested in the
availability of funds at a future date and earnings from savings become secondary.
Duration: Investments could be current or long-term, whereas savings are always of a long-term nature.
It is only individuals who can save. A business entity does not save. Savings are personal in nature whereas
investments constitute an asset and appear on the asset side of the balance sheet. Savings are properties
while investments are assets.
Regularity: Savings are made over a long period on a regular basis, whereas investments tend to be
sporadic in nature.
Sources: Savings are made out of income while investments can be made out of borrowings also.
Tax benefits: Savings by way of life insurance premium, national savings certificates, etc, are eligible for
deduction from taxable income (if they are paid out of income chargeable to tax) whereas investments are
not deductible.
Certainty: There is no certainty that the amount invested would come back, whereas there is no such risk in
the case of savings. Fixed deposits with banks (up to a certain limit) are assured, even if the bank goes into
liquidation. Amounts invested in shares may, at times, have to be written off.
Types of savings
Savings can be made through many ways. It could be by way of bank accounts such as savings bank
accounts, recurring deposits, fixed deposits, etc.
The banking sector offers certain small benefits to savings accounts, which are not available to current
accounts, such as cheque books that are charged for in the case of current accounts but free of charge in
savings accounts. Small interest is paid on savings while no interest is paid on current accounts.
They may also be by way of National Savings Certificates and the like issued by the National Savings
Organisation. Contribution to provident fund during the active life of a person is a long-term savings, which
would come in handy when the person retires.
The income generated out of savings (except for interest on provident fund accounts) is chargeable to tax.
Specific exemptions have been provided for in the Income-Tax Act for the earnings from life insurance
policies making the maturity value of insurance policies as also the periodic money back received from
insurance exempted from the tax purview.
Types of investments
Investments could be fixed income yielding investments such as bonds and debentures. They may also be
fluctuating income yielding investments such as investment in shares and mutual funds.
AS 13 also provides for ?investment property?, where investment could be in the form of real estate. Where
an entity acquires landed property out of its disposable funds with a view to dispose it of at a profit at a later
date, it qualifies to be investment property.
The resolution passed for such acquisition should specify it to be investment property.
In such a scenario, the property so acquired will be disclosed under the head ?investments? and not under
the head ?fixed assets?.
It being so, the entity cannot charge depreciation on this property as it is not an asset. But if the entity
decides to utilise the ?investment property? as a business asset, the property ceases to be an investment
and should be disclosed under the head ?fixed assets?. In such a case the entity is entitled to claim
depreciation on that property from the time the asset is first put to use.
Is FD an investment?
A business entity cannot categorise its fixed deposits with banks as investments. A fixed deposit is made for
a defined period of time. This deposit could be taken to meet a business exigency or when the funds are not
immediately required. The objective of investments is absent in the case of a bank fixed deposit. No doubt,
the fixed deposit yields certain income. The deposit is not made with the objective of earning income or for
growth.
The Companies Act also prescribes fixed deposits to be disclosed under the head cash at bank on deposit
accounts under the head ?current assets, loans and advances' and not under the head ?investments'.
But it may not be so in the case of an individual. The person may put the retirement benefits into a fixed
deposit with a bank and live on the interest so generated by the deposit. Under these circumstances, the
objective is earnings and sense of security, which qualifies to be an investment.
Generally, fixed deposit qualifies to be savings. Considering this, the I-T Act has clubbed fixed deposits for a
period in excess of five years to be eligible for deduction under Section 80C.
Life insurance premium
The objective of life insurance premium is for the protection of the survivors in case of death of the assured.
Premium is paid over a long period of time to converge in to a lumpsum at the end of the term of the policy.
Insurance premium is paid out of the earnings of the person. Therefore, it is more of savings than
investment, though, it is arguable that it provides security and hence is an investment.
Sachin highest tax paying sportsperson in country: ET

Cricketer Sachin Tendulkar has become the highest taxpayer among sportspersons in the country for the last quarter of
2009 while film stars Akshay Kumar and Aamir Khan edged past others in Bollywood on individual tax payers
category

Sachin paid Rs 1.5 crore for the quarter till December and stood at 115th position ahead of Indian cricket team captain
MS Dhoni among the 500 top tax payers of the country.

Dhoni and Sehwag had paid Rs 1 crore each for the same period and stood at 199 and 201 positions respectively in the
latest list of top 500 tax payers with the Finance Ministry.
Akshay Kumar and Aamir Khan have occupied 25th and 26th positions respectively edging past all others in
Bollywood, including Shah Rukh Khan and Hrithik Roshan by dishing out Rs 4.5 crore each for the December period
in the current financial year.
However, the Bollywood icon Amitabh Bachchan is missing from the top 500 list though his son and daughter-in-law
have figured in it.

Businessman Mahesh Gordhandas Garodia is the top tax payer in the country dishing out Rs 20 crore.
Lawyer-politician Abhisek Singhvi figures in the list by paying Rs 1.5 crore for this period.
Other cricketers who have figured in the list are Saurav Ganguly (Rs 90 lakh) and Harbhjan Singh (Rs 70 lakh).

IPL mastermind Lalit Modi has occupied the 47th position with a deposit of Rs 3 crore.

While Aishwarya Rai Bachchan is ahead of all other Bollywood heroines at 193rd position giving Rs 1 crore tax,
Abhishek Bachchan has paid more than his wife. He has deposited Rs 1.2 crore. IT czar Nandan Nilekani who is now
heading the ambitious Unique Identification Authority of India, figures at 11th position having paid Rs 9 crore.

Leading lawyers Harish Salve (Rs 2 crore) Soli Sorabjee (Rs 90 lakh) and Ram Jethmalani (Rs 55 lakh) are also in the
list prepared by the Central Board of Direct Taxes.

Shreya Ghosal, the only playback singer to figure in the list, paid Rs 51 lakh. While Hrithik and Shahrukh have paid Rs
2 crore each, Salman has paid Rs 1.5 crore for the December period in the current fiscal. Kajol and Deepika have paid
Rs 75 lakh each while Rani Mukherjee has deposited Rs 51 lakh.

Saif Ali Khan and Ranbir Kapoor have also found their place in the top tax payers list as both have paid Rs 1.2 crore
each.

Government has earned Rs 741 crore for this quarter as against Rs 418 crore from the corresponding period in the last
fiscal.
Rupee weakens on dollar demand:BL 241209

The rupee weakened slightly from its previous close due to dollar demand from importers, said dealers. The
rupee opened at 46.83 and closed at 46.87, against the previous close of 46.81. According to a dealer with a
public sector bank, there is demand for the dollar from importers as they fear further appreciation in the
rupee, which is why the currency weakened despite the huge gains in the stock markets. Volumes continued
to be thin as banks did not want to take positions ahead of the long weakened and Christmas holidays, said
dealers. In the overseas market, the dollar was strong against other global currencies like the pound and
yen. In the forward premia market, the one-year premium closed unchanged at 2.81 per cent.
Rule versus principle: BL

Both rule-based and principle-based accounting have their protagonists. The debate on which is better will
be put to rest when the US GAAP converges with IFRS eventually and becomes principle-based.



Students of accounting would be well aware of the long discussed differences between rule-based
accounting and principle-based accounting. Both have their protagonists. While the US GAAP is rule-based,
the International Accounting Standards (IAS), both as IAS and IFRS, are principle-based.
The debate on which is better will be put to rest when the US GAAP converges with IFRS eventually and
becomes principle-based. Being principle-based means that broad principles are laid out by the standard-
fixing body and the interpretation is left to the users of these standards.
The problem (and also the benefit) with principle-based accounting is that most of the times, in a situation
that requires a finding, one will have to exercise a great deal of judgment based on substance as opposed to
a readymade solution being available for a particular issue prescribed in the rule-based accounting.
While the US accounting is considered to be rule-based, one can find echoes of principle-based accounting
also in it. In the widely publicised 1969 case of Continental Vending where the auditors were questioned for
lack of professional standards, the court gave a direction to the jury to look at the facts and the substance of
the case rather than rules of accountancy and mere adherence to GAAP.
The court held that in the audit report the statement ?fairly presented ? in accordance with generally
accepted accounting principles? is two statements rather than one, i.e., ?fairly presented? is principle-based
and the other ?in accordance with generally accepted accounting principles? is rule-based.
Problems for auditors
The preparation of financial statements in accordance with the GAAP in a rule-based environment, however,
presents problems to the auditors. If an auditor were to confront the management over a certain treatment of
a transaction, the management is likely to ask the auditor ?show me where it says I can't do that?.
In other words, in a rule-based environment, the onus is on the auditor to demonstrate clearly that the
particular treatment is not permitted and hence closes the avenues for the auditor to develop further
arguments that would be available in a principle-based accounting environment ( Principles-Based
Accounting, by Ronald M. Mano, Matthew Mouritsen and Ryan Pace, published in The CPA Journal,
February 2006).
Since accounting standards followed in India have their origin in the IAS, the Indian accounting standards
are principle-based. However, there are exceptions to the rule. One prime example is the Income
Recognition and Asset Classification (IRAC) norms prescribed by the Reserve Bank of India for provisioning
for non-performing assets applicable to banks.
Thus, where if any asset is non-performing, based on certain prescribed criteria, a provision is created for
the potential loan loss irrespective of the security available with the bank.
Subjectivity issue
Principle-based accounting has its own issues too. Ian Wright, Director of Corporate Reporting at the
Financial Reporting Council of UK, writing in accountancy magazine (October 2008), talks about the
subjectivity that is present in the IFRS.
The IFRS is full of words and phrases that are open to interpretation. The accompanying table has a
selection of the probabilities in IFRS literature that a user is expected to interpret in the context of
understanding what an accounting standard requires.
Ian Wright also identifies other issues that are potentially problematic.
The IFRS literature contains an increasing range of technical terms which don't translate well into languages
other than English. Also, the standards were written in different eras and sometimes by individual national
standard-setters due to which the usage of the English language differs resulting in them being structured in
disparate ways.
One can therefore see the potential hazards in interpreting a principle-based accounting standard that
contains highly subjective phraseology.
In this context, one can expect problems of interpretation in India also. For instance, the word ?shall? (a key
word in accounting standards) is used in a manner that is completely different from its usage in countries
where English is the mother tongue. Any user of IFRS would therefore need to be alive to these issues when
interpreting IFRS.
PNB halves penalty on premature withdrawal of deposits BS 241209
Government-owned Punjab National Bank (PNB) has halved the penalty for premature withdrawal of
deposits - a move aimed at attracting more depositors at a time when the medium-term outlook on interest
rates is uncertain. The second-largest bank in terms of business has been charging 2 per cent penalty for
premature withdrawal for the last one year. The rate will be 1 per cent from January 1.
PNB Chairman and Managing Director K R Kamath told Business Standard: "We are falling in line with the
market. Once you have taken a fixed deposit, if somebody prematurely withdraws, it creates problem in
asset liability management. To that extent, this 1 per cent is reasonable and in tune with the market
practice."
Most of the state-run banks charge 1 per cent penalty for premature withdrawal.
"Levy of 1 per cent penalty at the time of premature cancellation or part-withdrawal for all tenures and the
interest payable would be the contractual rate minus 1 per cent," the bank said in a statement to its term-
deposit customers.
Though there is widespread expectation the Reserve Bank of India (RBI) will hike policy rates and the cash
reserve ratio during the fourth quarter review of its annual policy at January-end to signal beginning of a
tighter interest regime, banks are however not certain whether they can take the cue in the last quarter of a
financial year when credit offtake is lowest in the decade.
The PNB move comes at a time when banks are trying to address their asset-liability mismatch problems
arising from lending long while borrowing short.
Outsourcing: Europe edging out NA?
Advisory player TPI shares insights into the changing equations globally..

?The European market has been steadily climbing since 2001??



In overtakemode.
In a year wracked by slowing down of global economies, Europe may well emerge the top outsourcing
continent, beating North America for the first time. In a recent research report, TPI, a global player in the
sourcing data and advisory business, says that through the first three quarters of the 2009 calendar ending
September, Europe outsourced $1.2 billion more than North America in average annualised contract value,
among the Forbes Global 2000 companies. (ACV is an estimate of annual yield. So, a $ 100 million contract
over 10 years would have an ACV of $ 10 million but the same over 5 years would have an ACV of $ 20
million.)
eWorld chatted up Siddharth Pai, Partner & MD, TPI India and Melany Williams, Partner & MD, TPI
Momentum, (the arm of TPI that brought out the report). Excerpts from the e-mail conversations:
Your report pegs Europe as possibly leading North America (NA) the past year in outsourcing spending.
Could you elaborate?


Siddharth Pai
Pai: Based on data available (as of third quarter of 2009), it appears that Europe will surpass NA in 2009 as
the region with the highest annual spending on outsourcing. According to TPI Research, NA is home to 606
G2000 companies, of which 45 per cent have an active IT outsourcing (ITO) or BPO contract. Though we
find that the number of G2000 companies in NA with an active outsourcing contract has been increasing
each year, the average spending levels per company have been gradually falling since 2002. The factors
that contributed to this decrease include
1. 30 per cent of the NA based companies spent less on outsourcing in 2009 versus 2008.
2. Recent outsourcing adopters are among smaller companies on the G2000 list
3. Hence, the spend is less on outsourcing, resulting in the overall decrease in average spending per
company


Melany Williams
Williams: The European market has been steadily climbing since 2001 while the North American market has
stayed in the $25-$31 billion range over the same time period. ACV within North America was $25.1 billion in
2001. It peaked in 2005 at $30.8 billion and ended 2008 at $29.6 billion. Our research for 2009 contracts
(excluding any new contracts signed in the fourth quarter) projects North America 2009 ACV will exceed $28
billion. ACV in Europe was $11.4 billion in 2001 and has steadily climbed each year. We project it may
exceed $30 billion in 2009 when all the numbers are calculated, on pace to achieve a 7 per cent growth rate,
and while this is the smallest growth rate over the last decade, it will still surpass North America in ACV. The
largest growth area for this region since the start of 2006 is among companies ranked in the Forbes? 501 ?
1000 range
What does this mean to outsourcing service providers? A blip in the radar or a turning point?
Pai: As the broader economic picture settles, TPI anticipates an uptick in outsourcing activity in Europe. We
are both seeing and hearing of a noticeable increase in new outsourcing programmes being launched. We
anticipate that this will be driven (as before) by north-western European countries
Williams: The G2000 companies in North America and Europe have been adopting outsourcing at similar
rates in recent years. In 2009, for example, 45 per cent of G2000 companies in North America had an active
ITO/BPO contract, compared with 42 per cent in Europe.
Why do we see this surge now in Europe? Cost-cutting as a reason exists even for US clients but offshoring
is still muted.
Pai: Cost reduction and efficiency issues will remain high on many corporate agendas. It's therefore
probable that many more functions and processes will be at least considered as potential candidates for
outsourcing by a wider cadre of European businesses as they seek to compete effectively with the rest of
the world
Which parts of Europe are offshoring more? The UK, as usual or Continental Europe?
Pai: European activity is strongly towards the northern part of the region with the UK remaining, by some
measures, the largest country market for all outsourcing services.
Williams: Further, Germany, Spain and the Netherlands are outsourcing more. While we already observe a
noticeable increase in outsourcing activity across the region, our report does not address offshoring
specifically.
Who would Indians fight there frequently? The likes of CapGemini and Logica in their respective markets?
Or would the IBMs and Accentures be at an advantage?
Pai: Both. When one looks at the more successful service providers over the past five years by European
country, it's clear just how influential domestic roots are: T-systems, Siemens, Atos Origin, Capgemini,
TietoEnator and Logica
On the other hand, the largest multinational service providers have been the ones to invest the most in
European delivery centres since the start of 2007. Accenture, ACS, Capgemini, IBM and T-systems have all
opened multiple centres in Europe during the time frame
Williams: I agree ? it would be both kinds. In Japan, for example, IBM and HPES have the strongest
penetration, followed by local firms such as NTT Data and Hitachi. In China, Unisys has the greatest
penetration, followed by IBM, Ericsson, Alcatel-Lucent, and Nokia. Both most likely vary by service line.
What kinds of projects are being outsourced now?
Pai: In the ITO space, particularly for bundled infrastructure and application services, there has been a
marked increase in demand from Germany, The Netherlands, Sweden and Switzerland. France remains a
relatively small market for outsourcing services (in relation to the size of its economy). Horizontal BPO
services such as HR, F&A will enjoy some growth in overall contract values signed but will remain very
much the minority segment of the European outsourcing market.
Ireland, Eastern Europe and Southern Europe are yet to signal any notable increase in appetite for larger
scale outsourcing
Williams: We have not observed any strong trends in Europe, except that ADM continues to be strong ?
with 15 companies adding ADM services to their outsourcing portfolio since 2006 ? this has been the
largest growth in any single service line (for both ITO and BPO).
Will Indian players see more manpower being deployed in their global delivery centres in regional markets to
service clients there? Or would offshoring see another boom as it did in 2003 after the 2000-2001
slowdown? Wouldn't language barriers come in the way?
Pai: Each country in Europe has a unique set of challenges when selling or delivering outsourcing services.
When selling, it's important for companies to have an established presence in each country where they want
to do business. Although it's acceptable for services to be delivered from other country locations in many
European nations, local account and service management, local relationships and local language capability
are all basic requirements for doing business of any scale in most European countries. For near-shore
delivery perspective, service providers need to consider the strengths and weaknesses of each country's
availability and composition of labour pool, infrastructure and the government support.
Williams: Generally, the India heritage firms are realising increased penetration in G2000 companies
headquartered in Europe and several large and medium-size India heritage firms have all seen their
penetration rates increase in each of the last four years. Penetration rates are similar for India heritage firms
in Asia-Pacific, though perhaps slightly lower on average.
Several Eastern and Central European countries are now firmly established as viable offshore/nearshore
locations, e.g., Bulgaria, the Czech Republic, Estonia, Hungary, Ireland, Latvia, Poland, Romania, Russia
and the Ukraine. With the possible exception of Russia, the key constraint for all of these locations is the
size of the qualified labour pool. In a number of these countries ? e.g., the Czech Republic, Hungary and
Poland ? major cities have reached a saturation point for service delivery, and new centres are moving to
secondary, and sometimes tertiary city locations.
On the flip side, as outsourcing adoption continues to grow in north-western continental Europe, it is likely
that the demand for solutions that leverage many of these nearshore locations ? especially for services that
interact with client internal and external clients ? will also grow.
Although nearshoring may grow in 2010, attitudes toward offshoring vary significantly from country to
country. In the UK, some 70 per cent of transactions include some significant element of global service
delivery in the solutions procured. In Scandinavia and The Netherlands, for example, this figure is nearer to
60 per cent, while in Germany, it is 50 per cent and in France, only 30 per cent of outsourcing contracts
involve the use of lower-cost geographies.

Motor claims ratio improves in 2008-09: BS

Motor claims ratio improves in 2008-09: BS
But general insurance industry sees deteriorationInsurance companies have managed to reduce the losses
incurred on the motor insurance portfolio, that accounts for nearly half the business underwritten by
them.According to the latest data released by the Insurance Regulatory and Development Authority (Irda) in
its annual report, general insurers lowered the incurred claims ratio to 88.84 per cent during 2008-09 from
92.31 per cent in the previous year.Claim ratio is the proportion of claims incurred to the premium
underwritten by them. In simple terms, it means that insurance companies paid Rs 88.84 in claims on a
premium of Rs 100 that they earned.
The reduction in claims has once again pushed insurers, who avoided underwriting the motor business due
to claims exceeding the premium income to once again look at the segment. One of the key reasons for the
portfolio earning handsome profits is Irda?s decision to keep third party insurance outside the ambit. Now,
the premium on the annual third party business, which continues to be fixed, is transferred to a pool and all
general insurance companies share the losses.
Despite the improvement in the claims ratio for the motor business, the overall claims ratio for the industry
deteriorated from 84.88 per cent in 2007-09 to 86.30 per cent in 2008-09.A part of the reason for the
increase was the dent in the fire and marine portfolios. During the last financial year, marine saw the highest
jump in the claims ratio from 86.68 per cent in 2007-08 to 102.90 per cent in 2008-09 mainly due to high
severity in the segment and steep discounts offered by companies to garner business.
As a result, insurers paid more claims on the marine business ? which includes hull, cargo and offshore
energy ? than the premium they earned during the year.Health claims improved marginally from 107 per
cent to 106 per cent. ?Insurers are trying to reduce discounts in health,? said ICICI Lombard Chief Financial
Officer Rakesh Jain.Group health has been a bleeding portfolio for most insurers while most of them are
making underwriting profits in retail health. Similarly, fire saw a slight increase from 68 per cent to 75.72 per
cent. This segment has been highly discounted and insurers were offering 90-95 per cent discount.
During the last financial year, the underwriting losses of the general insurance companies increased to Rs
5,326.11 crore from Rs 3,899.49 crore in the previous year. However, there appeared to be a slowdown in
the growth of underwriting losses in 2008-09 which stood at 36.58 per cent. The slowdown in growth rate
was observed in the case of all public insurers. In contrast, the private non-life insurers continued to witness
high growth in underwriting losses, which increased to 83.54 per cent.Whereas net profit of the four public
sector companies dropped by 81 per cent to Rs 426.81 crore as against Rs 2,205.48 crore. Oriental
Insurance reported a net loss of Rs 52.66 crore, as against a profit of Rs 9.30 crore during the previous
year.
National Insurance incurred a loss of Rs 149.21 crore though the same company reported a net profit of Rs
163.43 crore in the earlier year. Six private players reported losses during the year including Reliance,
HDFC Ergo, Future Generali, Universal Sompo, and newly established insurers such as Shriram and Bharti
AXA.
Microsoft Word may get a facelift, post patent loss :ET 241209

Microsoft, the world's biggest software maker, is preparing to alter its popular Word software after it lost its appeal of
a $200-million patent-infringement verdict won by a Canadian firm. The company, based in Redmond, Washington,
was given until January 11 to make the change or stop sales, in a decision released on Wednesday by the US Court of
Appeals for the Federal Circuit in Washington. Word is part of Microsoft's Office software, used by more than 500
million people.

The court upheld a verdict that has since grown to $290 million, won by closely held I4i of Toronto. The dispute is over
an invention related to customising extensible markup language, or XML, a way of encoding data to exchange
information among programmes. Microsoft has called it an "obscure functionality."

Microsoft said it has been working on making the change since the trial judge first ordered a halt in August and has
"put the wheels in motion to remove this little-used feature from our products."

Copies of Word 2007 and Office 2007 with the feature removed will be available for US sale by January 11, and "beta
versions of Microsoft Word 2010 and Microsoft Office 2010, which are available now for downloading, don't contain
the technology covered by the injunction," said Kevin Kutz, a company spokesman. Microsoft is testing Office 2010
with customers and will release the completed version in the first half of next year. The unit that sells Office is
Microsoft's biggest, with $18.9 billion in sales in the year ended June 30. Microsoft can continue to provide technical
support to current Word users. It can't instruct new users who buy Word after the deadline on how to use the custom
XML editor or sell copies of Word with the feature, the court said.

The software maker said it may ask the Federal Circuit to reconsider the decision or appeal to the US Supreme Court.
The Federal Circuit isn't likely to grant such a request, and "there's no issue really sexy or different for the Supreme
Court to address either," said James Kulbaski, a patent lawyer with Oblon Spivak in Alexandria, Virginia, who isn't
part of the case. "This was a small company that appeared to be doing reasonably well, and Microsoft's product
essentially eliminated that part of the business," Kulbaski said. "I4i could not compete with Microsoft Word
incorporating their feature."

Based on the company's statement, it's doubtful that Microsoft will try to reach a licensing deal with I4i, said Matt
Rosoff, an analyst with Directions on Microsoft, based in Kirkland, Washington. "There may be conversations going
on now, but the safest thing is to not include it in 2010," said Rosoff, whose company is a research firm focused on
Microsoft's technology and business strategy. "They have to look at this feature, see how important it is, who's using
it, and decide how much they're willing to pay for it." I4i's business was based on preserving its patent rights, and
"Microsoft is not entitled to continue infringing simply because it successfully exploited its infringement," the three-
judge panel said. "A small company was practicing its patent, only to suffer a loss of market share, brand recognition,
and customer goodwill as the result of the defendant's infringing acts," the court said. "The district court found that
Microsoft captured 80% of the custom XML market with its infringing Word products, forcing I4i to change its
business strategy."

The decision is "an important step in protecting the property rights of small inventors," Michael Vulpe, I4i's co-
founder, said in an e-mail. Company Chairman Loudon Owen called it "both a vindication for I4i and a war cry for
talented inventors whose patents are infringed." "The same guts and integrity that are needed to invent and go against
the herd, are at the heart of success in patent litigation against a behemoth like Microsoft," Owen said in a statement.

There was "sufficient evidence" for the jury to reach both its verdict and damage award, the court said. It also upheld
the trial judge's decision to add $40 million to the original $200 million verdict for intentional infringement. The
remaining $50 million is for post-verdict damages and interest.

Microsoft claimed the product was a small part of its Word package and the damages are inordinately high. The
company also argued in court papers that it was under an unrealistic deadline to "redesign its flagship Word software to
remove an obscure functionality" or be "compelled to stop distributing Word and the popular Office software suite."

The appeals court said the scope of the order was narrow in that it wouldn't affect existing customers. It did say
Microsoft should have been given more time to implement any change to Word, based on a declaration from a
Microsoft employee that it would take at least five months to do so. The judge originally allowed just 60 days.

XML is a common way of encoding data, and nothing in the order prevented Microsoft from continuing to offer that
feature in Word, or for allowing customized XML when it's used in plain text. The disputed feature is one used by
large companies to add special data to Word files, such as information in forms submitted by customers. I4i's patent
was issued in 1998.

Customized XML is a key feature of the software and services sold by I4i, Owen has said. Customers including
drugmakers Merck & Co. and Bayer AG use I4i's software to make sure that people get the correct and most up-to-date
information on the labels of their medicine.

Life and health combi policies to be available through single insurer:BL 241209

Life and health combi policies to be available through single insurer:BL 241209

A tie-up is permitted between one life insurer and one non-life insurer only and between these two insurers
any number of products may be promoted.

Combi Products, a combination of life and health insurance schemes, will soon be available in India through
a single insurer.The Insurance Regulatory and Development Authority on Wednesday released the
guidelines for insurers to bring out such products primarily through a tie-up between a life insurer and non-
life insurer.
One package
IRDA has been considering a proposal to allow promotion of combined products of pure term life insurance
offered by life insurance companies along with standalone health insurance products offered by non-life
insurance companies in one package.This is chiefly intended to enhance the penetration of health insurance
in the country on the back of the huge distribution network built by the life insurance sector.The total health
insurance premium is estimated at about Rs 6,000 crore, while the life insurance segment (including renewal
premium) is over Rs 2 lakh crore.
According to the IRDA guidelines, which are not applicable to micro-insurance products, the Combi Products
could be promoted by all life insurance and non-life insurance companies through a tie-up.
However, IRDA said, a tie-up is permitted between one life insurer and one non-life insurer only and
between these two insurers any number of Combi Products may be promoted.
Prior approval needed
The partnering insurers should have in a place an MoU covering the modus operandi of marketing, policy
service and sharing of common expenses - they should also obtain prior approval of IRDA.The regulator
expects that under this product class, the common strength of both insurers are leveraged and consequent
benefits passed on to policyholders.Hence, it has proposed that both the independent products are
integrated as a single product and filed with a common brand name.
The guidelines said the premium components of both risks are to be separately identifiable and disclosed to
policyholders at both pre-sale and post-sale stages. Further, the integrated premium amount of the Combi
Product shall be the basis for reckoning the threshold limit/ applicability of extant regulations.
Lead insurer
IRDA suggested that as two insurers will be involved in offering the product, one of the companies may be
mutually agreed to act as lead insurer, which would play a major role in facilitating underwriting and policy
service.However, IRDA does not absolve either of the companies in relegating the responsibility of proactive
settlement of claims.
Infrastructure lending is high growth area: BL
Infrastructure lending has emerged as a high growth area for Indian banks in the current financial year
amidst the overall slack in credit growth.At a time when India is showing the ?promise' of achieving a 7.0-7.5
per cent GDP growth when advanced economies are trying hard to come out of recession, it is a no-brainer
that only infrastructure ? mainly power, roads, ports, airports, and oil rigs ? build-up can ensure continued
socio-economic development on sustainable basis.Notwithstanding the fact that they face serious asset-
liability mismatches and get little support by way of tax concessions (despite making innumerable
representations to the Finance Ministry in the last few years), banks have risen to the challenge of financing
infrastructure projects.
As per the latest available Reserve Bank of India data, year-on-year (as on August 28, 2009), banks clocked
a robust 44.7 per cent growth in credit to the infrastructure sector (or Rs 93,647 crore in absolute terms) as
compared with 36.1 per cent growth (or Rs 55,533 crore) .Overall, the year-on-year credit growth as on
August 28, 2009 was subdued at 13.3 per cent (or Rs 3,08,718 crore) as compared with 26.5 per cent (or Rs
4,84,805 crore) as on August 29, 2008.Given that infrastructure project developers are showing robust
appetite for credit, bankers are laying much store by this segment of borrowers to grow their balance sheets.
They are hoping that in the coming few quarters, drawals will begin from their ?healthy' loan sanctions
pipeline, which currently is estimated to run into a few thousand crore rupees for each bank.
In the context of the Prime Minister's latest statement at the Pravasi Bharatiya Divas 2010 function in Delhi
late last week that the country will return to a 9-10 per cent growth trajectory in the next couple of years,
bankers feel that it is imperative that the Government as well as the Reserve Bank of India put in place
enabling measures that will encourage infrastructure lending.
Enabling measures
What are the enabling measures that the banks are seeking?
Banks have moved the Finance Ministry seeking the benefit of tax deduction in respect of income received
from financing infrastructure projects via introduction of a new section (Section 80LB) in the Income-Tax Act,
1961.
They want 100-per-cent tax deduction on income earned from infrastructure financing for five consecutive
years beginning with assessment year 2011-12 and 50 per cent deduction for the subsequent five
consecutive assessment years. ?If tax deduction is allowed, then banks will be more enthusiastic about
lending to infrastructure projects. As our post-tax yield will be higher, we will be in a position to charge
project developers lower interest rates,? said a senior official of a public sector bank.
According to the Indian Banks' Association, the primary constraints for banks in financing infrastructure
projects arise from their funding structure and applicable liquidity ratios (cash reserve ratio and statutory
liquidity ratio).
While banks' resources are mainly in the form of deposits, which are typically of maturities up to three years,
infrastructure projects require long-term financing i.e. for tenures extending beyond 15 years.
Apart from asset-liability mismatch, interest rate risk and pricing are also key issues. ?With regard to
infrastructure lending, there is an overall asset-liability mismatch because funds are required for 14-15
years, but deposits are of shorter maturity. Today, all banks are supporting infrastructure lending. But going
ahead, individual sectoral gaps could arise. Whether we can meet sectoral requirements is a big question,?
said Mr M.D. Mallya, Chairman and Managing Director, Bank of Baroda.
Take-out financing
Bankers are hoping that ?take-out' financing, which has been a long time coming, takes off this time round.
Take-out financing, which was mooted over a decade ago by IDFC and State Bank of India, is a mechanism
designed to enable banks to avoid asset-liability maturity mismatches that could arise out of extending long-
term loans to infrastructure projects.
Under this mechanism, banks financing infrastructure projects enter into an arrangement with a financial
institution to transfer, say after seven years, to the latter the outstanding on their books.Given the multiplier
effects of infrastructure projects, the time may be ripe for the Government and the RBI to make small
concessions to banks so that 9-10 per cent growth envisaged by the Prime Minister in the coming few years
can become a reality.
'Indian regulatory regime has brought us a world of good' BS 241209

Q&A: Deven Sharma, President, Standard & Poor`s
In the backdrop of the global financial crisis, credit rating agencies have faced criticism worldover.
Regulations are now being strengthened to guard against such crises. Rating agency Standard & Poor's
(S&P) is using the experience of working with the Indian rating agency, Crisil, a subsidiary of S&P, to its
advantage. Deven Sharma, president, Standard & Poor's, spoke to Rajesh Bhayani how they are leveraging
their Indian experience for global operations. Excerpts:
How the Indian economic situation has changed after the new government took charge at the
Centre, and when the change will be reflected in S&P's rating for India?
We feel the Indian economy is set to grow faster than 6.5 per cent. Apart from a stable government at the
Centre, there are several positives like the growing industry and service sectors and so on. What is worth
watching is how the fiscal deficit is being reduced and how inflation is controlled when commodity prices are
going up.
A sovereign rating is an independent exercise subject to periodic reviews. Analysts independently decide
when to review the rating. Recently, we have changed sovereign ratings of some European countries. For
example, ratings for Ireland, Greece and Spain ratings have been lowered, while we have reaffirmed the
rating of Germany. We are eager to see the Indian government continuing the reform process decisively.
Perhaps the budget might give us more clarity.
The Indian government had disagreed to the downgrading of India's sovereign rating. How did you
tackle that?
As in any other case where we deal with issuers, companies, or investors, we explained the rationale for the
downgrade transparently to the government.
But later did you have to change the analyst who downgraded India's rating?
We have policy and guidelines to move analysts. I don't remember any such movement after the
downgrading, but a change in analyst, if any, was certainly not linked with India's rating decision. I must tell
you that analysts are given full freedom to give their decision on ratings and they have to maintain
transparency.
When do you think India should withdraw economic stimulus?
Economies worldwide coming back to the growth path provide a chance to bring down the level of stimulus.
However, it is crucial to manage this transition. Withdrawal of stimulus should not affect growth. The
government in India and elsewhere should navigate uncertainties like rising commodity prices and
inflationary pressures while any decision on raising interest rates is taken.
The credit rating business is increasingly coming under stricter regulations everywhere. How do you
react to this?
The US stipulated regulations for credit rating agencies in 2006, and Europe, Japan, and Australia followed
up. We were regulated in India much earlier. In fact, India gave us a good learning experience of working in
a regulated environment. We have operated really well under regulation.
You have taken over as chairman of Crisil too. How do you propose to integrate Crisil more and
more with S&P's operations?
This integration is an ongoing process. A few years ago there were a hundred Crisil analysts working for
S&P, and now the figure has increased 5-6 times. We are increasingly leveraging Crisil's analytical skills and
resources to support our global operations. We are also using Crisil's innovations and creativity as a
learning lab to expand in other emerging markets.
Do you propose to merge Crisil with the S&P brand?
We plan to continue the Crisil brand, as it is a great one with very good recognition.
Can you name some of the areas where you would like to carry forward Crisil's work in other
market?
Crisil's rating for small and medium enterprises (SMEs) is a good example and we would like to use this
product in other markets. Another area where Crisil's experience and practices can be used is the various
initiatives taken by them on the infrastructure side. In fact, Crisil is a very good learning lab for us,
continuously providing training and innovations.
S&P has good business experience in developing indices and products. How will that be brought to
Indian market?
We have a joint venture with the National Stock Exchange for the indices business, and we will continue to
expand that business and develop more indices and exchange-traded funds (ETFs). Fixed income indices
could be a product category that Indian investors might be interested in. A senior official of the bank said an
official announcement of the scheme was being finalised and would be made in the next 2 days. Under the
scheme, the bank would offer home loans at 8 per cent for the first two years, after which floating rates
would be charged, the official said.

Indian employee confidence among highest in the world: ET

Indian employee confidence among highest in the world: ET
The Indian employees, along with their peers in Brazil and China, portray highest levels of confidence in the future of
their companies, a study says


.

As per global HR solutions provider Kenexa, the global employee confidence index score saw a slight improvement to
98 in the fourth quarter ended December 2009 from 97.9 in the third quarter.

"Brazil (107.5), China (105.6) and India (101.3) reported the highest levels of employee confidence in the fourth
quarter of last year," the report revealed.

On the other hand, France (94.9), Japan (94.0) and Spain (92.4) reported the lowest confidence levels. The US
employee confidence declined 0.6 per cent to 97.1 in Q4 compared to the previous quarter.

In the September quarter of 2009, Indian employee confidence index was 100.2 points, China's 102.8 and Brazil's
105.3. "Employee confidence fluctuated throughout 2009, with the majority of countries reporting both increases and
decreases. India and China were the only two that had an increase in scores, quarter over quarter," Kenexa Research
Institute research consultant Anne Herman said while releasing the report.

A high level of employee confidence is achieved when they perceive their firms are being effectively managed and
competitively positioned, and believe that they have a promising future in the organisation, job security and skills that
are attractive compared to other employers.

"We enter 2010 on a positive note. Our studies have linked employee confidence to higher country-level GDP and
stronger organisation performance, among other metrics. Therefore, this indicates that as employee confidence rises,
GDP and organisation's performance should both improve, indicating that we appear to be in a state of resurgence,"
Herman added.
The 12 largest economies reported an increase in employee confidence index scores in 2009, with the exception of
Japan, which reported a slight decrease for the year. Moreover, the countries which reported the most scores
throughout the year were China (15.8 point increase), Italy (8.1) and Brazil(7.1), the Kenexa report revealed.

The Kenexa Employee Confidence Index is measured quarterly taking opinions from employees in Brazil, Canada,
China, France, Germany, India, Italy, Japan, Russia, Spain, Britain and the US.
?Indian banks robust': BL
Banks accounting as they do for 60 per cent of the country's financial assets are systemically
important.Indian banks are ?financially robust', declares the ?India's Financial Sector: An Assessment' report
released by the committee on financial sector assessment (CFSA) nine months ago.In the light of the global
financial crisis, many countries, including the US, were testing their financial systems for vulnerabilities.
The Reserve Bank of India, in association with Government of India, set up a CFSA which released the
foresaid report. While the data used for assessment are almost one and a half year old, the results are
relevant even today as the environment got worse, with banks sitting on higher proportion of non-performing
assets and restructured assets.
Capital adequacy
Take a look at what the report says on two main indicators: Capital adequacy and the asset quality of
banks.Providing a cross-country comparison, the report reveals that the Indian banks had capital adequacy
ratio and capital-to-asset ratio lower than those of their emerging market peers in Brazil, Mexico and South
Korea as of March 2007.However, the capital adequacy ratio of the banks is much above the 8 per cent
mandated by the Basle Committee and 9 per cent by the RBI. As of March, 2009, the capital adequacy ratio
of Indian banks stood at 13.98 per cent, thanks to the high capital adequacy ratio maintained by private and
foreign banks. Although government-owned banks have relatively lower ratios, they are still quite
comfortable.That said, nationalised banks would require recapitalisation from time to time to maintain this
ratio. The report states that thegovernment may need to pump in Rs 49,552 crore by 2012-13 for the
nationalised banks to grow their loans (risk weighted assets) at 30 per cent per annum. Asset quality
The Report says that Indian banks' capital adequacy ratio may fall by 140 basis points for 100 per cent
increase in the NPAs.
The Report acknowledges, that historically, Indian banks managed to clean up their balance sheets, thanks
to high treasury income during the falling interest rate regime, legal reforms such as SARFESI Act (2000)
enabling them to reduce the NPAs and the economy doing well in 2004-08.
It must be noted that when the report was written, the NPAs of banks had bottomed out. Since then they
have been trending up - Net NPAs have since risen by 32 per cent in 18 months ended September 30,
2009. High proportion of restructured loans is an added concern.
H-1B quota of 65,000 for fiscal 2010 filled up:BL 241209
Initiatives by Indian cos to hire local skills, says Nasscom.

Mr Som Mittal
More than eight months after it began receiving H-1B applications, the US Citizenship and Immigration
Services (USCIS) has reached the Congressionally-mandated quota of 65,000 visa slots for FY2010.
Any new H-1B visa applications received after December 21, 2009 will be rejected.
"As per the latest available data, Indian companies have applied for fewer visas this year. In fact, this year
we have seen far more work being done from offshore locations, due to flexibility of customers. Also, given
the current employment situation in the US, companies have been hiring local workers. Many large Indian
companies have put in specific initiatives to hire local workers based on specific domain expertise," the
Nasscom President, Mr Som Mittal, told Business Line.
The pace of H-1B filings gained momentum in the last few weeks.In early October, over 18,000 H-1B visas
were available. This narrowed down to 9,400 visas (as on November 13) and 6,100 visas (November
27).Given the spike, the updates by USCIS on H-1B visa filings became more frequent in December.On
December 4, just about 3,900 slots were vacant, by December 8 only 3,500 visas slots remained, and last
week the applications received were just 800 short of the fiscal's quota of 65,000.Typical H-1B occupations
include architects, engineers, computer programmers, accountants, doctors and college professors.
Demand visibility
The US began accepting H-1B applications for fiscal 2010 on April 1, 2009, whereas the H-1B employment
season kicked off on October 1, 2009.While the stabilisation of the US economy was widely seen driving H-
1B appetite over the last few weeks, another reason could be the greater demand visibility attached to filings
post-October as the visas approved can be utilised almost immediately.Simply put, if a company applies for
H-1Bs just after April, in any case the visas can be used only when the season starts (in October).This
effectively means that the businesses that apply for H-1B visas need to have a medium-term visibility on
business environment.However, if they apply after October, they can utilise it immediately for positions that
are open.
Meanwhile, earlier this month, US Rep. Solomon P. Ortiz (from Texas) and US Rep. Luis V. Gutierrez (from
Illinois) have introduced the Comprehensive Immigration Reform for America's Security and Prosperity (CIR
ASAP) in the House of Representatives. The proposed Bill has sections on border security and enforcement
but also deals with areas such as H-1B visa fraud and abuse protection issues."The Comprehensive
Immigration Bill is likely to suggest that foreign students hired should directly get into the green card
processing rather than the H-1B pool," said Nasscom's Mr Mittal.

Govt shortlists Citi, Kotak among 6 to advice on NMDC selloff: ET

Govt shortlists Citi, Kotak among 6 to advice on NMDC selloff: ET


Six leading bankers, including Citigroup and Kotak Mahindra, are learnt to have been shortlisted for managing the
estimated Rs 14,000-crore divestment programme of state-owned iron ore producer NMDC. Last month as many as 17
investment bankers had made presentations to the inter-ministerial group (IMG), set up under the Finance Ministry, for
advising the government on the follow-on-public offer (FPO) of the country's largest miner.

"The IMG shortlisted six bankers, which include Citigroup, Kotak Mahindra, RBS Equities, UBS Securities, Morgan
Stanley and Edelweiss Capital to advice on the FPO," one of the investment bankers said on Sunday.

The IMG also shortlisted the Mumbai-based law firm Crawford Bayley to advice on the share sale from the seven firms
which presented their cases before it in December, a Finance Ministry official said, who also confirmed the
appointment of the six bankers as book runners-cum-lead managers of the FPO.

The development could not be confirmed independently with the shortlisted bankers or the law firms.

ICICI Securities, Citigroup, Morgan Stanley, SBI Caps, JM Financial, Kotak Mahindra, IDFC-SSKI, Enam Securities,
DSP Merril Lynch, Deutsche Bank, Nomura Financial, IDBI Capital, Edelweiss Capital, Axis Bank, Karvy Investors,
RBS Equities, and UBS Securities comprised the 17 banks which made presentations to the IMG.

Amarchand Mangaldas, Luthra & Luthra, S&R Associates, Fox Mandal, Khaitan & Co, Dua Associates and Crawford
Bayley were in the fray to offer legal advice to the government on the additional stake sale in NMDC.

The Government is proposing to offload 8.38 per cent of its stake in the NMDC through an FPO, which is expected to
fetch Rs 14,000 crore to the exchequer, depending on share price on NMDC and also of the issue price.
NMDC closed at Rs 419.05, down 0.05 per cent on the BSE on January 8.

At present, the Government holds about 98.38 per cent in the Navratna mineral company, as the rest are already with
the public. The Cabinet last month cleared the proposal to sell government's additional equity in the company and is
working to complete the process by the end of this fiscal.
Goods, services tax could boost India Inc's bottomline: Bhide:BL241209
Burden between domestic, imported goods will be equalised.

The Revenue Secretary, Mr P.V. Bhide, with the Assocham President, Dr Swati Piramal,at the National
Conference on 'GST - Roadmap to 2010', in the Capital on Wednesday. -Ramesh Sharma
The proposed dual-goods and services tax (GST) system could boost the bottomline of India Inc in an
appreciable manner as it will bring down their net burden of taxation by as much as 25-30 per cent, informal
calculations made by the Finance Ministry showed.That the GST would substantially enhance the
competitive edge of both the manufacturing and services industry was brought to the fore by the Revenue
Secretary, Mr P.V. Bhide, at aconference organised by Assocham here today.
His remarks on the visible advantages of GST come at a time when there are some who still question the
wisdom of planned switchover to the dual GST. The GST sceptics feel that the existing VAT system needs
some more time to settle down and that the GST introduction should not be rushed through.
Mr Bhide used the occasion to also highlight some of the invisible advantages that needed to be factored in
by the GST sceptics. He pointed out that GST could remove the disability that domestic producers suffer
from and also equalise the burden between domestic and imported goods.
Currently, domestic industry is subject to a variety of indirect taxes on its output. As the rates of tax and their
nature vary from State to State, it becomes impossible to apply these taxes fully to competing products that
enter the domestic stream through imports in a WTO-compatible manner.
Mr Bhide said that special additional duty of 4 per cent currently applicable to import of goods does not fully
counter-balance all domestic taxes such as Central sales tax, value added tax and others, as the rates of tax
on a given product varied from State to State.
Once these taxes are subsumed within GST and the rate of SGST for a product is uniform across the
country, a border tax equivalent to that rate would equalise the burden between domestic and imported
goods, Mr Bhide said.
Exporting community
The Revenue Secretary also said that the GST regime is likely to confer substantial benefits on the
exporting community in so far as it would permit the neutralisation of a substantial burden of State-level
taxes suffered on inputs and finished products, which was not the case today. Moreover, this would be true
of both goods and services in respect of all State taxes that are subsumed within the GST.
Meanwhile, Mr Bhide said that every effort was being made to pave the way for the introduction of GST in a
timely manner. The scope and nature of constitutional amendments that are needed to enable the
implementation are under active discussion at the Centre.
Mr Bhide said that the draft amendment Bill has already been prepared and was being examined by experts.
Work was also underway on the drafting of CGST law and model legislation for SGST. Progress has also
been achieved in the conceptualisation of IT infrastructure that would be required to implement the IGST
model for inter-State supply of goods and services.
Gold mining funds outperform ETFs in 2009:BL 241209
DSP BlackRock, AIG World beat the benchmark.
Gold prices were often in the news this year due to its upward movements. However, investors who wanted
to piggyback on the firm trend should have chosen global gold funds rather than the gold ETFs.
Funds that invest in gold mining stocks (which underperformed gold ETFs in 2008) staged a sharp recovery
in 2009. The rebound in world equity markets and safe-haven buying in gold led by dollar's value
depreciation fuelled the run-ups in gold stocks.
Smaller miners perform
Since December-end last year, DSP BlackRock World Gold Fund has delivered a 37 per cent return and
AIG World Gold Fund a 48 per cent return, rallying far past their benchmark - FTSE Gold Mines index. The
interesting sidelight here is that the rally in frontline gold mining stocks such as Barrick Gold, Newcrest
Mining, Lihir Gold and Gold Corp weren't all that high.
However, gold funds have staged a strong performance on the back of smaller mid-cap gold miners such as
Keegan Resources, Evolving Gold, Hochschild Mining and Petropavlovsk Plc, which have seen prices more
than double this year.
The stocks of gold miners benefited from an improving earnings outlook. With gold seeing a 28 per cent
appreciation in price - from $866/ounce in December-end last year to $1082/ounce now - their realisations
improved. The commodity price correction also aided costs.
Gold itself managed a strong performance with help from fundamental factors. There was investment-led
demand for gold following the weakness in dollar (the US dollar index is down 3.8 per cent this year).
The holdings of the US SPDR gold trust, the world's largest gold backed ETF has gone up by 45 per cent
this year. In 2008, this fund's holdings had gone up by a smaller 24 per cent.
The trend of central banks turning from net sellers of gold to buyers, also aided gold's price rise.For
domestic investors, listed Gold ETFs have delivered a 23 per cent return this year, in-line with the domestic
gold prices that moved from Rs 13445/10 gram to Rs 16500/10 gm.Gold's rally in rupee terms was restricted
by the currency's appreciation against the dollar. In the domestic context too retail jewellery demand had
been subdued this year, but gold ETFs saw some good inflows.
Gold futures may test resistance: BL


Comex gold futures ended the year higher in choppy trade as the dollar fell sharply after a report showed US
employers cut more jobs than expected in December. The dollar plunged against the euro in volatile trade
after the weak job report. The disappointing employment report dampened hopes of an economic recovery
putting a dent on rate hike expectations. Players in gold could focus mostly on interest rate expectations.
Investment demand for gold-backed exchange-traded funds remained soft after a lacklustre start to the New
Year. The largest gold ETF, New York's SPDR Gold Trust, reported a further 0.4 tonne dip in its holdings on
Thursday.
Comex gold futures are inching higher in line with our favoured view. Rise above near-term resistance at
$1,115 took prices higher towards important resistance at $1,145. This should prove to be a strong
resistance in the near-term. However, a successful daily close above this level could add to bullishness and
take prices further higher towards $1,160 or even higher towards $1,170. Crucial support is now at $1,115.
Move below this level could trigger a sharp fall towards $1,055 or even lower towards $1,011. Only a deeper
fall below $1,007 will indicate bearishness. Such a fall could take it lower towards $980 or even lower
towards $928, which we do not favour presently.
Elliot wave analysis indicates either a corrective move in the form of A-B-C in progress after a strong
impulse move or a possible end of a five wave impulse at $1,227. All the potential fifth wave targets have
been met. However, one more push above $1,225 cannot be ruled out to complete the fifth wave sequence.
An important Elliot wave objective comes in the $975-980 range for the correction to end. RSI is in the
neutral zone now indicating that it is neither overbought nor oversold. The averages in MACD are still below
the zero line of the indicator indicating bearishness. Therefore, look for gold futures to test the resistances
and then correct lower subsequently.
Supports are at $1,024, $1,115, and $1,082. Resistances are at $1,145, $1,160 & $1,172.