ED slaps FEMA charges against top telecom firms

The ED is zeroing on the transactions made by Swan, Loop and S-Tel with legal entities based outside India to find out whether any guarantee/counter guarantee were given to obtain funds from abroad and the first source from where they originated
New Delhi: The Enforcement Directorate (ED) on Saturday slapped various charges of FEMA (Foreign Exchange Management Act) violations to the tune of over Rs4,300 crore against top telecom firms allegedly involved in the second generation (2G) spectrum scam including Swan, Loop and S-Tel, reports PTI.

The Directorate in its complaint filed before the Competent Adjudicating Authority for FEMA violations said it is also probing “suspected contravention” of forex rules in Virgin Mobile, a joint venture of Tata group.

The Adjudicating Authority in this case is a Special Director rank officer of the ED.

The ED, India’s law enforcement and economic intelligence agency, has charged Shahid Balwa-promoted Swan Telecom, with committing FEMA contraventions to the tune of Rs3,608 crore.

“This contravention was done by the company in issuing shares to a foreign investor and resident investor under an agreement and had issued shares to a foreign investor on an abnormal value to avoid the permission of FIPB (Foreign Investment Promotion Board), Government of India,” the ED said in its complaint against Swan Telecom.

Swan Telecom Pvt Ltd issued 44.73% shares to Dubai-based Etisalat and 5.27% shares to Genex Exim as per agreement on 23 September 2009.

Swan Telecom while issuing shares to foreign investor under the agreement also allegedly contravened the provisions of the laid down rules prescribed by the commerce and industry ministry by appointing a director who had been nominated by Dubai-based Etisalat and arrangement of a steering committee having members of their foreign partner for functioning of Swan Telecom.

The ED also alleged that Swan Telecom had disclosed that issue of equity to Genex Exim was under resident category but during investigations it was found that “it was an indirect foreign investment in Swan because funds into Genex were brought from Dubai.” 

“Thus issue of equity on 17 December 2008 by Swan to Etisalat and Genex totalling 50% under automatic route was in contravention” of various sections of FEMA “for the amount of Rs3,608 crore”, the ED alleged.

In the case of Loop Mobile India Limited based in Mumbai, the ED alleged FEMA contravention to a total amount of Rs431 crore.

“These contraventions are done by the said company in not reporting the receipt of funds from abroad within the stipulated period of time to Reserve Bank of India (RBI), in not reporting issue of shares to foreign investor within stipulated period of time and in purchasing shares of an Indian company from the funds of foreign direct investment,” the ED said in its complaint against the firm.

“The Directorate has also come across suspected contravention in Virgin Mobile (Tata group) and is analysing the pricing issue of shares between Unitech and Telenor,” the ED said.

In its complaint against Loop Telecom, the ED has charged the firm with forex violations to the tune of Rs184.28 crore.

“These contraventions are done by the said company in not reporting the receipt of funds from abroad within the stipulated period of time to RBI and in not reporting issue of shares to foreign investor within stipulated period of time,” the ED said.

The least amount of FEMA contravention was found to be at Rs96.60 lakh against S-Tel Private Limited based in Gurgaon after the ED investigation.

“This contravention is done by the said company in not refunding the balance of the FDI to foreign investor within stipulated period of time,” the ED said in its submission against the firm.

The Directorate charged Chennai based Wellcom Communications India and Wellcom Communications for a total amount of Rs11.87 crore in forex violations.

“These contraventions are done by the said company in not reporting the receipt of funds from abroad within stipulated period of time to RBI and in not refunding the balance of the FDI to foreign investor within stipulated period of time,” the ED said in its complaint against the firm.

The Directorate is zeroing on the transactions made by these companies with legal entities based outside India to find out whether any guarantee/counter guarantee were given to obtain funds from abroad and the first source from where they originated, the ED said.

The ED, according to its submission, is also probing the source of funds, ownership of the companies based in foreign shores and end-use of foreign funds.

“For this (probe of sources of funds and ownership) letters have been issued to the source abroad based in 12 countries and Letters of Request have been sent to five countries for investigation outside India,” the ED said.

Other aspects of the forex violations probe by the ED include “cash guarantee issue of Sistema” and the “issue of merger of companies after issue of licences.” 

According to ED sources, the penalty in such cases of FEMA contravention is usually three times of the amount involved.

The ED also submitted that its other angle of probe in the 2G spectrum allocation scam—under anti-money laundering provisions—are underway.

“Investigation under PMLA 2002, is under progress.

Action would be taken against individuals and companies who have figured in the charge-sheet filed by the CBI,” the ED said.

“We have not been able to confirm specific details in the charge-sheet yet. Telenor Group invested Rs61.2 billion over four tranches in a 100% transparent manner. Since Telenor Group increased its ownership in Unitech Wireless at each stage, the Indian authorities were informed about each investment. Telenor Group also announced each investment to media.

“Our investments have gone into the joint venture company and not to Unitech to result in any windfall gains. These are the funds with which Uninor was started and developed into a 25 million subscriber operation today. Beyond this, we will be able to respond once we know what the specific charge is,” director of communications, Telenor Group, Glenn Mandelid said in his reaction.

“We have not received a copy of or are aware of the charge sheet filed by the ED and hence unable to comment on the same,” a Swan telecom spokesperson said.

A Loop Telecom spokesperson said, “We are unaware of any such matter and therefore are unable to comment on the same.”
 

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Q4FY11 preview: IDFC expects higher growth in banking and retail sectors

Strong credit growth is expected to boost the financial sector and economic growth should spur the retail sector, but telecom would be subdued due to competition

IDFC Securities sees huge potential for the financial sector in the fourth quarter of fiscal 2010-11, on the back of strong credit growth and a limited decline in margins. The banking segment is poised for a 42% y-o-y rise in PAT, helped by a low base. While PSU banks are expected to report a 45% growth, private banks are likely to see a 37% growth and non-banking financial companies about 22% increase in net profit y-o-y.

According to Reserve Bank of India (RBI) data as of 11 March 2011, bank credit off-take remained strong, growing by 22% y-o-y, and deposit mobilisation gained pace with a 4% q-o-q rise, leading to a comfortable incremental CD ratio of around 55%. While the rise in deposit rates would exert stress on margins, moderation should be limited in Q4FY11 as banks continue to benefit from lending rate hikes and faster asset re-pricing. Net interest income (NII) for PSU banks is seen up 34% y-o-y, private banks and NBFCs are also likely to see a strong 22% and 29% y-o-y rise respectively.

The IT services sector, which normally has lower project pick-up in January, is expected to see a slower quarterly performance. Top IT companies are likely to see revenue growth of 3%-5% in dollar terms, q-o-q, which will be mainly volume-driven, while tier-2 companies would report revenue growth in the range of 2% to 5%. The sector would witness a modest increase in margins on the back of a weaker rupee, favourable cross currency and flatter employee pyramid.

Among companies in the sector, MindTree is expected to see an improvement in its performance, while TCS would be a let-down on account of a write-back in Q3FY11. Infosys Technologies is expected to announce a guidance of 17%-19% revenue growth in dollar terms and 12% to 14% EPS growth in rupee terms. IDFC is overweight on the sector, with TCS and Infosys as its top picks. Mahindra Satyam from the large-cap space and Persistent Systems from the small-cap space are also expected to do well.

Logistics companies are expected to report revenue growth of 14% y-o-y for the quarter under consideration. Operating margins will receive a boost on higher ground rent and low base effect. However, earnings growth will be under pressure on account of higher depreciation, interest charges and lower other income. IDFC rates Gateway Distripark as a strong company in this sector.

The retail industry is expected to sustain its over 25% growth in the fourth quarter of the just-concluded fiscal. Titan Industries is expected to see a 30% growth with its watch business improving by 20% and jewellery business expanding by 33%. However, EBITDA margins are expected to fall on lower sales. Shoppers Stop profit is likely to be impacted due to losses in HyperCity.

Pantaloon Retail's margins are expected to remain flat on higher input costs in the garment segment. On the other hand, Provogue's revenue growth has been pegged at 5% for Q4FY11 on high base effect in its export business while its retail business is expected to grow at over 20%.

Subscriber additions in the telecom sector at 6%-9% are expected to aid volume growth in the last quarter of fiscal 2010-11. The strong growth is expected to make up for the 3% fall in average revenue per user (ARPU), which would lead to low single-digit sequential growth in the wireless segment.

The GSM segment is expected to see a 7%-9% minutes growth, while Reliance Communications is likely to witness a subdued quarter on the disappointing performance in the earlier nine months of the fiscal in review. The mobile number portability driven re-adjustment of post-paid tariffs would trigger a 2%-3.5% decline in average realisations (ARPM) in Q4FY11.

Margin improvement in African operations is expected to offset the pressure for Bharti Airtel. Besides, the cricketing extravaganza is expected to boost the DTH fortunes of RCom and Bharti Airtel.

In the transportation segment, Jet Airways is expected to report a net loss for the fourth quarter due to spiralling crude prices and subsequently higher jet fuel prices. The airline is expected to report a net loss of Rs25 crore in Q4FY11. Yields are likely to come in 8% to 10% q-o-q as the fourth quarter is normally a weak period for the airline industry.

The shipping business is expected to see a 38% y-o-y decline as the outlook on freight rates remains subdued with global fleet additions keeping freight rates under pressure. GE Shipping is expected to end the quarter with a 23% decline in revenues and PAT at Rs93 crore.

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New SBI boss aims to make the bank the leader in retail

Pratip Chaudhuri is concerned about the bank’s high level of NPAs; plans international expansion 

Pratip Chaudhuri, the newly-appointed chairman of State of Bank of India (SBI), has said that it will be his aim to make the bank the leader in the retail segment, to reduce the bank's non-performing assets and expand its reach in the international market.

"My priority will be to make SBI the leader in the retail segment, amalgamation of associate banks, reduce NPAs, focus on international expansion, increase branches and ATM channels, improve technology and of course to give more attention to my employees," Mr Chaudhuri said at a news conference in Mumbai on Friday.

Mr Chaudhuri said, "There would no major shift in gears, the growth path that we have will continue. Our bank is a successful corporate bank. Our retail expansion would continue at the current pace and we will work to consolidate our position to become the leader in the segment. We will pay more attention towards improving deposit-taking activity to ensure optimal cost of funds. We will also take efforts to ensure that all branches are sufficiently manned."

SBI has reshuffled the portfolios of its top executives. Mr Chaudhuri also announced SBI's new management team. Hemant Contractor will be managing director of international banking, R Sridharan, the existing managing director handling associates and subsidiaries, will continue to hold this portfolio. Diwakar Gutpa will be chief financial officer, while A Krishna Kumar will be managing director-national banking, which primarily includes branch network and retail.

Banking consolidation in the country is limited to the private sector and SBI intends to change this picture. The bank will be aggressive on amalgamation in the future.
 
"We will continue our process of amalgamation of associate banks more aggressively without hurting depositors' interests, as we have enough experience of it. We did one merger every two years," Mr Chaudhuri pointed out.

Right now, the high level of NPAs is the main concern of the bank. SBI's level of NPAs is growing slightly faster than the industry average. Its gross NPAs for the October-December 2010 quarter stood at 3.17%, while net NPAs was 1.61%.

"There has been a bit of concern over the high level of NPAs on a comparative basis, but we will take adequate measures to ensure that the NPA percentages are better than the industry average," Mr Chaudhuri said.

Speaking about SBI's special home loan scheme, Mr Chaudhri said, "We will continue the scheme, but we will also review it from time to time and then we will take a call on whether to revise it or not. SBI's home loan scheme has provided homes to millions of people and that has given us leadership position in the home loan business. The regulator has asked for higher provisioning on such loans, but we will be in talks with the Reserve Bank of India and the final course would be a compromise which will address delivering value to home owners and the RBI's concerns."

SBI will also take concrete measures to increase its market share, but not at the cost of profits. The bank will lay emphasis on increasing the tenure of loans to improve returns, as it has found that short-term loans fetch lower returns.

SBI sees the telecom sector as a sunrise sector and it has started considering new proposals. "The telecom sector is a sunrise sector and we have approved a Rs1,000 crore loan for a leading telecom company. It is a good business and we don't want to miss the opportunity," Mr Contractor, who will head international banking, said.

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COMMENTS

LAKSHMANA C N

6 years ago

The priorities of New Chairman is in right directions. The amalgamation of Associate Banks should take more aggresively as said by the Chairman in coming days in the interest of Customers for more oppurtinities and new products friendly,and also for the benefit of Employees.

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