Regulations
SEBI finds 22 PSUs violating norms

A total of 17 companies were found to be non-compliant with the norms pertaining to the composition of the board of directors. These rules were related to minimum number of independent directors.

 

Market regulator Securities and Exchange Board of India (SEBI) has found 22 public sector companies including giants like Oil and Natural Gas Corp (ONGC), Coal India and Indian Oil Corp (IOC) to have violated various capital market guidelines. State Bank of India (SBI), the country's largest lender, however, filed for settlement of a case against it with the regulator, Parliament was informed Friday.

 

Rural Electrification Corp, ONGC, NHPC, NTPC, Neyveli Lignite Corp and Steel Authority of India (SAIL), are among the 17 PSUs found to have violated these board of directors norms by capital market regulator SEBI. Others include SAIL, ITDC, HMT, Shipping Corporation, NTPC, NHPC, STC, Nalco and EIL.

 

A total of 17 companies were found to be non-compliant with the norms pertaining to the composition of the board of directors. These rules were related to minimum number of independent directors.

 

SBI has filed for a consent application to settle adjudication proceedings against for alleged violations of debenture trustee norms.

 

It is alleged to have had outstanding loans with certain companies when it acted as debenture trustee for their issues.

 

The details of violations by these public sector units (PSUs) were submitted in a written reply by Minister of Finance Arun Jaitley to the Lok Sabha.

 

Other companies are Chennai Petroleum Corp, SJVN Ltd, Mangalore Refinery and Petrochemicals, Natural Fertilizers, National Aluminium Co, Engineers India, Shipping Corp of India, Container Corp of India and State Trading Corporation of India (STCI).

 

"SEBI in a letter dated 7 November 2014, informed the Ministries concerned about the non-compliance... SEBI also requested the Ministries concerned to expedite the appointment of independent directors in these 17 PSUs," Jaitley said.

 

Two state-run units -- Indian Tourism Development Corporation Ltd (ITDC) and HMT Ltd -- had failed to submit annual audited financial results within the prescribed time limit.

 

SEBI had rejected pleas from the companies for extension of time and were further advised to publish an announcement disclosing the reasons for the delay as well as indicate the timelines for announcement of the results, Lok Sabha was informed.

 

Other violations by PSUs include non-compliance of minimum public shareholding norms by Haryana Financial Corp. Accordingly, the company has been imposed with various restrictions from SEBI such as it cannot offer corporate benefits like bonus shares dividends to its non-public shareholders, till it achieves 10% public holding.

 

Public sector units Sicom Ltd and Dena Bank were found to have violated disclosure norms.

User

COMMENTS

Dipakkumar J Shah

2 years ago

Some bank at Branch level contravening the Direct in collusion with the Companies for making payment of Dividend , though the amount not credited to Dividend account and permits the Company to draw a cheque of dated before credit of amount to dividend account. It is State Bank of India Industrial Finance Branch Vadodara and Vijaya Bank Capital Market Branch Ashram Road Ahmedabad.. Not only this but in the case of Payment of Debenture Redemption by Jindal Iron and Steel Co Limited many years back collused wtih Vijaya Bank P D MEllow Branch and made the payment of debenture redemption 5 months and half month later!!! Even Reserve Bank of India do not bother !!! When complaint is lodged with Banking and Supervision Department. They say that I should go to SEBI!!!
Who is who can be judged from this statement.

Why are banks cutting interest on deposits?

When RBI increases rate, banks immediately jump to increase lending rates. However, when there is no change in RBI’s policy for the past 12 months, why banks are regularly reducing interest rates on deposits, the most important source of income for most financial consumers?

 

In yet another example of cartelisation, three leading banks in India have cut interest rates on term deposits that too when there is no change in the monetary policy rates for the past 12 months. Last time, the Reserve Bank of India (RBI) increased interest rate in December 2013. It has remained at 8% since then. Even earlier this week the central bank kept all key rates unchanged in its fifth bi-monthly policy. When there is no change in monetary policy rate, why banks are cutting interest rates on deposits? Since they are not cutting rates for lending, why depositors are being ‘penalised’ as happens each time? 

 

Last month, State Bank of India (SBI), the country's largest lender, announced a steep 1% cut for short-term deposits up to Rs1 crore maturing in seven to 45 days to 5%. In the September quarter, SBI reduced rates thrice, twice in September alone, on retail deposits. As if this was not enough, the state-run lender on Friday cut interest rates on long-term deposits by 0.25%.

 

SBI said that the interest rates for deposits of one year and above would be reduced by 25 basis points or 0.25% per annum. While the rates for deposits of one year to less than three years and three years to less than five years are reduced from 8.75% to 8.50%, for deposits of five years and above, the new rate would be 8.25% against 8.5% at present.  

 

When the state-run lender takes lead in cutting interest rates, why should private banks not follow the suit? Few days back, ICICI Bank, the largest private sector lender, cut its deposit rate offering in the 390-days to two-year buckets by 0.25% to 8.75%, according to its website. HDFC Bank too, cut its retail deposit rates by 0.25%-0.50% in the 46-days to under-one year bucket.

 

Banks are citing easy liquidity and slow credit offtake as main reasons for cutting interest rates on deposits. According to media reports, the reduction has been due to deposit growth outpacing credit growth, a drop in the money market rates and aligning with the competition, which has already cut the rates.

 

However, this is nothing but blatant misuse by banks of floating rate policies and 'free hand regime' allowed by the RBI. When interest rates rise, banks immediately step in to increase their spread, but fail to pass on the benefits to customers when the situation is reversed.

 

At the post-policy press conference, governor Dr Raghuram Rajan had expressed concern that the RBI measures are not getting transmitted into rate corrections at banks but said that he is not asking the banks to do the review.

 

Over the past year, RBI has repeatedly exhorted banks to treat customers fairly (TCF) through various public statements, meetings and circulars. However, this is clearly not enough. While moral suasion may have worked in a closed economy, the freedom to fix charges and the formation of an informal pricing cartel through the Indian Bank’s Association (IBA) seems to have weakened RBI’s ability to compel good behaviour.

 

As on 5 December 2014 savings deposit rate of five major banks was 4.00%, while base rate for lending was between 10.00% and 10.25%. No bank lends money on the base rate and charge 1.00% and above interest over and above the base rate. Even at the base rate level, this shows a spread of 6.00% to 6.25% between interest paid to customers on savings account and interest charged by banks on advances and loans. This spread is enough for banks to cover all basic cost for providing services, like ATMs, SMS Alerts and cheque books to customers. Instead, banks have been allowed to charge based on the claims of the IBA without even having to justify costs.

 

According to data from RBI, during 2010-11, base rate for lending was 8.25% to 9.50%, while savers were paid in interest of 3.50% on savings bank account. The interest rate for term deposit (one-three years) was 8.25% to 9.00%. Over the next four years, while lending rates gone up, the deposit rates increased marginally. For 2014-15, the base rate is 10.00% to 10.25% and the term deposit rate is 8.75% to 9.05%. Interest on savings deposit also remained static at 4% since 2011-12.

 

 

STRUCTURE OF INTEREST RATES

 

Year

Call/Notice
Money
Rates

Deposit Rates*

Lending
Rates*

Savings#

Term Deposits

1-3 yrs

3-5 yrs

Above 5 yrs

2014-15  

8.27

4.00

8.75-9.05

8.75-9.05

8.50-9.05

10.00-10.25

2013-14  

8.28

4.00

8.75-9.25

8.75-9.10

8.50-9.10

10.00-10.25

2012-13  

8.09

4.00

8.75-9.00

8.75-9.00

8.50-9.00

9.70-10.25

2011-12  

8.22

4.00

9.25

9.00-9.25

8.50-9.25

10.00-10.75

2010-11  

5.89

3.50

8.25-9.00

8.25-8.75

8.50-8.75

8.25-9.50

(Source: RBI)

 

If at all banks have more liquidity and credit offtake is slower, why the lenders are not lending more or even thinking about reducing interest rate to attract more borrowers? This is not likely to happen. Because, banks, under the leadership of IBA appear to be more interested in fleecing customers under different charges. One look at banks’ balance sheet would reveal how much they earning from other and other fee based income, rather than from interest earned.

 

One point here. Is the same logic of ‘more liquidity and low credit offtake’ responsible for banks’ lethargic approach to recover big dues or non-performing assets from large borrowers?

 

Last month, speaking at the third Dr Verghese Kurien Memorial Lecture at IRMA, Anand in Gujarat, Dr Rajan, of the RBI, had said, "In fact, the system renders the banker helpless vis-a-vis the large and influential promoter. Who pays for this one way bet large promoters enjoy? Clearly, the hard working savers and taxpayers of this country! As just one measure, the total write-offs of loans made by the commercial banks in the last five years are Rs1.61 lakh crore, which is 1.27% of GDP. Of course, some of this amount will be recovered, but given the size of stressed assets in the system, there will be more write-offs to come. To put these amounts in perspective - thousands of crore often become meaningless to the lay person - 1.27% of GDP would have allowed 1.5 million of the poorest children to get a full university degree from the top private universities in the country, all expenses paid."

 

According to the RBI governor, the amount recovered from cases decided in 2013-14 under Debts Recovery Tribunals (DRTs) was just Rs30,590 crore or 13% while the outstanding value of debt sought to be recovered was a huge at Rs2.37 lakh crore.    

 

Commenting on the monetary policy, Arundhati Bhattacharya, chairperson of State bank of India, said, “The RBI assertion of a possible change in monetary policy stance next year is a clear vindication and acknowledgement of a benign inflation regime. In fact, by advancing the inflation target of 6% to March 2015, RBI has now set out a clear message of the reversal of the rate cycle, sooner than later. With oil prices at historic lows, a stable exchange rate and strong capital inflows, the feel good factor is here to stay.”

 

Well, if the feel good factor is here to stay, then why savers are being punished?

User

COMMENTS

Ralph Rau

2 years ago

Public Sector banks have alarming levels of bad debts, money which has gone into the pockets of the business class at the expense of the common saver.

Indian savers have for been earning negative real rates versus inflation for too long.

Inflation has got embedded in India due to high inflationary expectations, supply demand imbalances, poor infrastructure, erratic food production.

Governments efforts to fix these issues will take a couple of years.

Savers must earn positive real rates else savings will wane. Poor capital formation means the cycle of growth will be deprived of internal fuel and will continue to be dependent on foreign funds - about which there is no certainty especially if US growth continues to attract global investors.

Salvadesswaran Srinivasan

2 years ago

This is why I do not have any fixed or recurring deposits with large banks, although I have a 11% RD with a co-op bank. Smaller private banks offer higher interest on my deposits and have much better customer service as well.

REPLY

Sucheta Dalal

In Reply to Salvadesswaran Srinivasan 2 years ago

Sir

Cooperative banks are far more dangerous. They have dual regulation and fail with regularity. Only Rs one lakh of your deposits will be insured if something goes wrong.

I would strongly urge you to read Moneylife articles -- google coop bank. Also watch our videos on safe and smart investment. You can start with the latest video of our Open House with Dr Chakrabarty. http://foundation.moneylife.in is the link to Moneylife Foundation's website. Please look under Events.

Itee

2 years ago

Savers should be incentivised by paying more interest. On one hand, they want to increase savings in financial instruments to avoid investing (???) in gold and on the other hand, investing in savings gives back just 4%...... Ironical...

Naveensirigiri Reddy

2 years ago

who will consider the demand deposit rates for arriving at net interest margin,ur just considering savings deposit interest rtaes.In a time where psbanks are struggling for existence you had write this amateur article.

REPLY

Itee

In Reply to Naveensirigiri Reddy 2 years ago

PSU banks are struggling due to the crony capitalism prevailing in India. Politicians run the PSUs. What else can we expect from them? But, the fact is that defaulters enjoy their lives after creating NPAs and the poor savers are paid just 4%.......

Bullish mood – Weekly closing report

As long as Nifty continues to remain above 8,500, the rally may continue

 

The S&P BSE Sensex closed the week that ended on 5th December at 28,458 (down 236 points or 0.82%), while the NSE's CNX Nifty ended at 8,538 (down 50 points or 0.58%).

 

From here, as long as, Nifty continues to remain above 8,500, the rally may continue. Previous week, we had mentioned that Nifty may weaken a bit mid-week, but the trend is higher.


After a weak opening on Monday, the 50-share Nifty moved sideways for a long time before it was pulled further lower and ended in the red. Nifty closed at 8,556 (down 32 points or 0.38%). The news of the day was the November HSBC manufacturing PMI for India which stood at its 21-month high at 53.3 compared to 51.6 in October. Price of non-subsidised cooking gas was cut by a steep Rs113 per cylinder and that of jet fuel by 4.1% as international oil rates slumped to multi-year lows.


Petrol prices were reduced on Sunday while Reserve Bank of India (RBI), last Friday eased gold import norms in a bid to curb smuggling of the yellow metal. The RBI, in a circular, said that the government of India has decided to withdraw the 20:80 scheme and restrictions were placed on import of gold.


On Tuesday, the RBI in its monetary policy review kept its main lending rate viz. the repo rate unchanged at 8%. RBI said after a monetary policy review that if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely to happen early next year, including outside the policy review cycle. Nifty closed at 8,525 (down 31 points or 0.36%).


Government data released on Monday showed the output of eight core industries, having a combined weight of 37.9% in the Index of Industrial Production (IIP), galloped 6.3% in October 2014.


RBI’s easing of imports curbs resulted in gold posting this year's biggest single-day rise of Rs840 on Tuesday, and it regained the Rs27,000 per 10-gram level after a gap of over one month.


After moving in a narrow range on Wednesday, Nifty closed higher with marginal gains.

 

Nifty closed at 8,538 (up 13 points or 0.15%). Indian services companies rose from 50 in October to 52.6 in November, the seasonally adjusted HSBC India Services PMI Business Activity Index. Service sector activity grew in November, as new business rose for the seventh month running.


US indices were positive on Wednesday and most of the Asian indices were positive on Thursday. These factors pulled the Nifty higher to hit its new lifetime high. However, the index could not sustain at the level and immediately started giving up gains. Nifty closed at 8,564 (up 27 points or 0.31%). The finance ministry announced the setting up of a high-level committee to interact with trade and industry on tax laws, after trading hours on Wednesday. World food prices were stable for the third consecutive month in November. The Food and Agriculture Organisation's price index averaged 192.6 points in November, barely down from 192.7 in October.


On Friday, Nifty closed at 8,538 (down 26 points or 0.30%) reversing almost the entire gain of Thursday. SEBI has found 22 public sector firms including giants like ONGC, Coal India and IOC to have violated various capital market guidelines, while banking major SBI has filed for settlement of a case against it with the regulator.


Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors for this week were:

 

ML Top sector

 

ML Worst sector

 

Hotels

10%

Refineries

-3%

Shipping

6%

Telecom Services

-2%

Textiles

5%

Oil & Gas

-2%

Auto Components

4%

Sugar

-1%

Foods & Beverages

4%

Energy

-1%

 

User

COMMENTS

VGANESAN

2 years ago

Now a days ur prediction about market is moving against ur anticipation.Similar to other market pundits you are also giving prediction.Nobody can judge market daily movement.Only market manipulators and speculators gain.My suggestion is BAN derivatives in individual stocks.allow only in index.Indian euity market is worst casino in the world.

Urvish Chitalia

2 years ago

Your Friday closing report predicts a sharp decline in case of negative new flow. The weekly report talks of a bullish mood. Can you please explain this difference of opinion? Have I not understood something here?

Urvish

REPLY

Lakshminarasimhan

In Reply to Urvish Chitalia 2 years ago

To be on the safer side! :)

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