22.09.2008

• Vanishing act of Sub-PLR loans:
• Since the time the Reserve Bank of India (RBI) allowed banks to lend below PLR (Prime Lending Rate), the best-rated borrowers have availed of loans at sub-PLR rates. Top-notch corporates could borrow at rates below prime — a negotiated rate which is well below PLR by playing one bank against the other
• This is done by seeking quotes from many banks and then negotiating with them to lower lending rates. Banks relented, as they too wanted exposure to blue chip companies in their credit portfolio since the risk was lower.
• After gap of almost five years, banks have started charging benchmark prime lending rate (PLR) for loans extended to some of the top corporates
• The squeeze in liquidity and a growing aversion to risk due to recent developments in global financial markets, coupled with a domestic slowdown, has possibly marked an end to the practice
• This also means that this tightening will apply across the entire spectrum of home loans, auto loans and personal loans. Banks are planning to increase lending rates so that the net interest margin remains intact and set stringent lending norms
• Refer to this graphic for a summary
• Banks going for $ swaps for overseas businesses
• With money markets freezing in every major financial district of the world, some of the banks in India have bought dollars here to keep operations afloat in other countries
• A transaction known as ‘buy-sell’ swap in the currency market is executed where banks purchase dollars in the Mumbai spot market and simultaneously sell the dollar forward. The dollar bought in the spot market gets credited to the bank’s nostro account in New York after two days, following which the overseas branch can lend the money to its office anywhere
• Since every bank has an open position limit in foreign currency, a simultaneous spot purchase and an offsetting forward transaction ensure that this limit is not exhausted
• It is an expensive transaction aimed at providing quick, short-term liquidity in centres where inter-bank lending has come to a halt
• Nostro account: An account that a bank in India holds with a foreign bank abroad and is used to hold foreign currency balances
• $700 Billion US bailout:
• The Bush administration plan seeks unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies
• Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world’s largest economy to a standstill.
• The Bill would also prevent courts from reviewing actions taken under its authority
• Differences would be resolved soon and the bailout package is expected to pass by this week’s end.
• The proposal would raise the nation's debt ceiling to $11.315 trillion from $10.615 trillion
• DoT may set user base rider for 3G auctions:
• The Finance ministry wants tighter norms for third generation (3G) spectrum auctions. The ministry will ask the department of telecom (DoT) to allow only those Indian companies to bid for 3G which have an active subscriber base
• Current norms allow foreign telcos to participate in 3G auction only if they furnish experience certificates, but this does not apply to Indian telcos. This meant that companies like Swan, Datacom and Unitech can bid for 3G spectrum along with existing operators despite the new players having no experience in providing telecom services
• The ministry feels the current policy encouraged a newbie to buy 2G spectrum from DoT at a fixed price and auction it to a foreign player at a much higher price. This results in a loss to public exchequer which already has a large fiscal deficit
• Recently, DoT had turned down the ministry’s demand to raise the base price for pan-India 3G radio frequency to Rs 2,500 crore from Rs 2,020 crore now.
• Refer to this graphic for summary
• Reliance KG D6 Oil starts flowing; gas in 2009:
• Reliance Industries (RIL) on Sunday formally announced the commencement of production from its famous Krishna Godavari D6 upstream assets. This is the first of-its-kind production from a deepwater field in India
• RIL will produce 5,000 barrels of crude a day, which will later rise to the peak level of 5.5 lakh barrels of oil equivalent per day (boepd)
• This will increase India’s current oil and gas production by 40%. At this level, it could save the country nearly $20 billion in foreign exchange every year.
• The much-anticipated gas production from KG basin is expected to commence from the first quarter of next year. This signals RIL’s emergence as a major upstream energy player
• Look at this graphic for India’s current energy basket
• Genpact joins race for Lehman India’s captive unit
• GENPACT, the country’s largest BPO firm in terms of revenue and headcount, is in the race to acquire Lehman Brothers’ Mumbai-based captive back-office unit
• Lehman’s back-office operation, Lehman Brothers Financial Services, is based in Powai (near Mumbai). It employs between 1,500 and 2,000 people. The captive unit does back-office operations and analyses for Lehman’s India and global operations.
• It has been reported in the media that Credit Suisse, Barclays and IT services companies like Wipro Technologies and Copal have evinced an interest to acquire the captive unit
• Meanwhile, Lehman Brothers Securities — the investment banking division in India — too is looking for a buyer
• Terrorists breeding most in areas worst hit by communal riots:
• One of the questions troubling security experts and government agencies in the context of growing incidents of terror attacks is the origins of the terrorists
• This article seeks to understand the factors behind this phenomenon
• Today's notes is from Mr. Yusuf Kaydawala, our dear friend and a regular reader of our blogs. I have been personally busy for the last couple of days and couldn't do the notes. He chipped in with this work.