Overview of Banking Sector - September.

Here updates will be done constantly, on recent happenings in the banking sector especially in India. In this post you can see the recent major changes/ initiative by the RBI or other banks in the month of August and September 2011.  

Its just an overview of the Banking industry/sector current affairs.

• The RBI has come up with new guidelines (eligibility criteria) for the new banking license. Here is the New Eligibility Criteria for New Bank License.

• RBI has tightened the finance companies norms by increasing the capital requirement to 15% from 12%.

• NBFC's new rules under consideration. Where only NBFC's with assets worth of Rs.1000 crore should be regulated, even if they are doing business with their own funds.  This step will ensure that only players who are serious remain. 

• Top 10 Non-Banking Financial Companies(NBFC's)

• Company Name	Assets ( In crores) apprx
  Shriram TransFi	24,786
  M&M Financial	12,165
  Sundaramfin	11,479
  Cholamandalam	9,017
  Shriram City	8,539
  Bajaj Finance	8,066
  SREI infra	7,842
  Manappuram Finance	7,577
  Magma Fincorp	5,130
  First Leasing	1,297

• RBI said to end the Pre-Payment
(paying the loan amount before the maturity) penalty charges on floating rate loans,(home or car loan).  The bank charge as high as 3% on outstanding loan amount as charges. As this will discourage the loan seeker to end up the loan debt burden, bank has taken this step. Already banks like Axis has initiated this move.

• The Major Micro Finance companies, Spandana Spoorthy Fianacial Services and Share MicroFin and Ashmitha Microfin plan to merger their businesses, thus creating a largest lender for small entrepreneurs. As of now only SKS  Microfinance is the only listed major player.

• The increasing inflation has forced the RBI Governer, Subba Rao to make another increase in the interest rates by 25basic points(0.25%) which cumulative a 12th increase in the last 18months which is about an increase of 3.25%. 

Previous Month:

BANKING SECTOR CURRENT AFFAIRS: APRIL - MAY 2011

BANKING SECTOR CURRENT AFFAIRS: JUNE - JULY 2011

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Patent Laws, Rights and System: FTC

Patent rights promote innovation; give incentives to inventors to express their ideas by giving them assurance that ideas will be protected. The reason for this is to improve patent quality and to restrict relationship between competition and intellectual property. 

Antitrust laws affect intellectual property in two restraints: Horizontal Restraint and Vertical Restraint.

Horizontal restraint contains Patent Pooling which occurs when patent rights are exchanged between two or more parties. Vertical restraint that contains Tying Arrangement i.e. a sale or lease of a product on the condition that the buyer or lessee take a second product as well.

By granting patent protection, this provides incentives for inventors to disclose their inventions. To ensure that these inventions are available for the public benefit, antitrust laws monitor the patent system, to make sure that others are not hindered from exposing their ideas. Patienter should be very careful when drafting their licensing agreements and royalty arrangements as patent is non-obvious even without a showing of obviousness by the patent examiner.

  


* Submitted by Haripriya.

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New Bank License Eligibility rules by RBI.

As the Reserve Bank of India has opened the new players to enter the banking sector, has given a hope for many private major players to enter the booming sector where the scope is very high for growth and huge potential as most of rural market is still untapped.


The draft guidelines are being issued with regular modification with cautions and conditions for the purpose of laying a strong rules and regulations. 


Few Eligibility criteria as per the new guidelines are.,

• Minimum paid up capital of Rs.500 crores,
• Should get listed within 2 years of time,
• Should setup at least 25% of their branches in rural unbanked areas (especially tier-III) 
• Be owned by a separate holding company that cannot borrow money to float the bank.
• Foreign holding in the bank has to be less than 49%,
• Operating company has to get its share in the company to 20% within 10years from start.

Finance companies has a chance to convert themselves into bank and even promoter groups with good credential(10 years record will be considered) in running their business can setup banks.


The Major companies who are in the race for new bank licenses are.,

Tatas, Anil Dhirubhai Ambani Group(ADAG), Power Finance Corporation(PFC), Aditya Birla Group, Bajaj Group, Larsen & Toubro (L&T), LIC Housing, Industrial Finance Corporation of India(IFCI), Religare, Srei, Mahindra and Mahindra(M&M).

BANKING SECTOR CURRENT AFFAIRS: APRIL - MAY 2011

BANKING SECTOR CURRENT AFFAIRS: JUNE - JULY 2011
BANKING SECTOR CURRENT AFFAIRS: AUGUST - SEPTEMBER 2011

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Evolution of Indian Commodity Market.

Commodities Market History of India
1875	Bombay Cotton Trade Association Ltd. Set up the first organized futures market.
1893	Bombay Cotton Exchange Ltd. Was established following widespread discontent amongst leading cotton mill owners and merchants over the functioning of Bombay Cotton Trade Association.
1900	Futures trading in oilseeds, groundnut, castor seed and cotton started with establishment of Gujrati Vyapari Mandali, Futures’ trading in whear was existent as several places in Punjab and Uttar Pradesh.
1913	Chamber of Commerce set up at Hapur for trading wheat.
1919	Calcutta Hessian Exchange Ltd. Established for futures trading in raw jute and jute goods.
1920	Futures trading in bullion began in Bombay.
1927	Organized futures trading in raw jute began with the establishment of East Indian Jute Association Ltd.
1945	Amalgamation of the two association to form the East Indian Jute and Hessian Ltd.
1952	Forward Contracts (Regulation) Act enacted.
1953	Forwards Markets Commission (FMC) established under the Ministry of Consumer Affairs and Public Distribution.
1963	Futures trading in commodities banned.
2003	Futures trading in commodities allowed again.

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SEBI Regulation of the Indian Securities Market: Major Development

The importance, developments of SEBI on the Indian Capital market and the implication over the time on the various regulations and regimes introduced.

The increasing scams, to regulate such scams a bill was passed in the parliament in 1992, giving birth to Securities Exchange Board of India (SEBI) Act 1992, an autonomous organization for reviewing, regulating the security market by introduction of various rules and regulations for market development.

The major developments can be classified into three important things,

• The New guidelines for Book building, where a shift in fixed price regime to offer price introduced, as the former had an higher risk of failure if there is any market condition changes.
• Introduction of Dematerialization and Electronic Book building.
• Allowing participation of various Institutional Investors, Merchant Banking, registrars to issue, Share transfer agents.

Dematerialization was made compulsory in phased manner by September 2001, for quick and efficient allotment of securities and to avoid the problems of fund blocking.  The introduction of Electronic Trading mechanism has made the whole operational process simple and easier further which has also lead to reduce the manipulation of prices, correct prices for trades, and a complete shift in the fundamental operational working of major stock exchanges. 

The major advantages on introduction of Demat is, 

• lead to reduce no delivery period, 
• a greater liquidity as minimum trading lot sizes requirement are removed, 
• short period of book closure for corporate, which helped them in making further decision like 
• dividend payments, 
• bonus issue decision quick.

"SEBI's Regulation of the Indian Securities Market: A Critical Review of the Major Developments" written by "G Sabarinathan".  

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Major Indian Capital Market Reforms

The major Capital market reforms can be classified into three,

•         Change in the structure and functioning of Stock Exchanges.
•         Automation of Trading and Post trade systems.
•         Introduction of Surveillance and Monitoring systems.

Market Surveillance and Monitoring systems were introduced to detect the Insider trading or market manipulation transactional activities and a protocols were established for investigation of abnormal stock fluctuations and in case of an wrong going to curb the excessive volatility in the market, suspension of stock scrip trade for a period of time in the way of "Circuit breakers" were introduced.

Financial Institutional Investors(FII) under SEBI regulated 1995 governing the regulation of portfolio investment by FII's and allowing the FII to participate by making the investment in the Indian securities market and a proper pricing procedures were made mandatory for the purpose of transparency in the trade execution for e.g., a proper separation in levering the order and brokerage charges. Further a modification of Takeover Code, which comes under play when an acquisition takes places.

Over the years for the proper functioning of Capital market, a collaboration with ICAI and formed National Committee on Accounting standards(NACAS) and made mandatory the presentation of the company's performance report in detailed within equal intervals.  This disclosure clause has given a birth to corporate governance where policies like clear indication of director remuneration, whistle blowing, cash flow and financial statement certification by CEO/CFO has made mandatory and transparency in disclosure of reports for public offering, periodicals and other transaction related. Such move by SEBI has made the capital market function smooth and more reliable on it thus other policies created a trust among the investors.

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Wal-Mart's Departure from Germany.

Wal-Mart the most successful and biggest retail chain in the world, started with an objective to provide products to the customers at the lowest possible prices, starting its first retail outlet in Rogers, Arkansas(AK), in 1962 by Sam Walton, where the city had only 6000 residents living.   Lately Wal-mart has started its presence all over the world which is very much famous in starting its outlets with 100,000-200,000 square foot Super centers.  

The strategy behind the growth goal is to,

1. expanding into new markets with multiple formats;
2. opening new stores in existing markets; and
3. increasing sales at existing international stores

What are the Reason for Walmart to enter Germany market?

Germany is the biggest market in Europe and located centrally, strategically thinking that it can expand into other markets in Europe from Germany off late. The enter was by acquiring 21 Wertkauf hypermarkets, which was in need of renovation for new start up and the retail outlets were wholly owned subsidiary of the parent company.

Mistakes/Blunders done by Wal-mart which has forced them to shut down/ closure of its retail stored in Germany. 

Ownership: The company had complete ownership and had the flexibility in implementing its own approach for carrying the operations, but it failed to use the best out of it, for example.,

making delays in changing the name of the stores to Wal-Mart.

missed renovating the stores immediately, which has further lead to poor Wal-mart brand image( got an image of run-down stores)

No product/service differentiation maintained compared with competitors.

Lack of awareness of Germany legal system, and fell in a trap of strict zoning laws, thus delayed in opening new stores.

Wal-Mart’s failure to achieve price leadership and because of low profit margins sales forced not to reduce the prices. Further it is illegal to sell below the buying price in country like Germany.

Another major challenge faced by Wal-mart was the cultural differences between American and German consumers, where the customization was not carried properly to the need of the German market making a huge hindrance in the company's success.

Consumer Buying behavior: The consumer buying pattern was not properly assessed for its decisions, for example German people buy items esp.,food in low quantity, but not in bulk. Whereas the walmart stores were carrying huge share of food, which has reduced the operating margins.

Internal Problem: Cultural difference in the internally existed, where the german workforce is asked to follow the American management style practices, which forced the workers to resist the management’s demands.

External Environment/Legal Issues: Not scanning the environmental issues has made walmart to pay a huge price for exploiting the local labor laws which directly impacted by increasing Wal-Mart’s labour costs.

Merchandise Issues: Last but not the least, though the stores were carrying millions of dollar worth goods but couldn't meet the German customers need, as those products were not desired by them.

Wal-Mart has never became a well-recognized brand name in Germany, because of above reason and usually made fun saying in Wal-Mart’s shopping bags were free compared to other stores in Germany. Company departed the country with a small loss.  
FYI: Walmart has failed to make its presence in Germany and South Korea.

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E-voting: New Implementation.

Shareholder Voting: The CDSL(Central Depository Services (India) Limited) which provides demat account has come up recently introduced a new service in the company’s voting process called E-Voting, where a eligible investor/shareholder can cast their vote for an resolution taken by the company/organization.

What is e-voting and How e-voting works?

E-voting is a facility made available for the Companies to make their shareholders to cast their vote electronically on the resolutions where usually requiring postal ballot.

How e-voting benefit the shareholders of the Company?

It is an platform using internet which will enable an investors/shareholder to take part in the decision making process of companies by expressing his willingness and the shareholders can vote easily on any number of resolutions for any number of companies in which they are eligible to vote.  One can view the resolution file on the e-Voting website.

As the traditional form of filling up the physical Postal Ballot and returning it to the Company, is now not required instead use this service which will help in reducing the paper work, time as well as cost involved. The investors is provided ample time to vote where even till the last day & last minute one can cast the vote.

This new process will help in following a fair and transparent manner for all stakeholders by providing the convenience, reducing delays and increase the shareholders involvement in the various kinds of shareholders meetings.  The main objective for the introduction of this service is to maintain transparency in the voting system, thus maintaining good corporate governance and of course reducing the administrative cost.

*This service is offered for absolutely free of cost.

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