Reebok India in its FIR filed last year had alleged financial fraud to the tune of Rs870 crore by top officials of the company
The Serious Fraud Investigation Officer (SFIO) is finalising its report into the alleged financial irregularities at sportswear maker Reebok India, corporate affairs secretary Naved Masood said on Monday.
“The SFIO is looking at the case more from the technical violations (view) and observance of the corporate law view point... They are finalising the report,” Masood said.
Reebok India in its FIR (first information report) filed last year had alleged financial fraud to the tune of Rs870 crore at the company.
Explaining the reasons for the delay, Masood said, “It is not a question of looking at the delay but looking at all possible issues so that the final outcome is watertight”.
Last year, Reebok India had filed an FIR alleging fraud by its former managing director, Subhinder Singh Prem and Vishnu Bhagat. However, both of them have denied the charges.
Earlier this month, the German sportswear giant Adidas had said its balance sheet for 2011 is negatively impacted by 153 million euros (over Rs1,090 crore) due to “commercial irregularities” at its arm Reebok India Company.
The company had in April last year stated that the estimated maximum negative impact due to the alleged fraud by its two top executives at Reebok India, could be up to a pre-tax amount of 125 million euros.
The DMK party, which has five ministers in the Union Cabinet, are expected to put in their papers shortly
The RBI supported the UPA government’s agenda by cutting the repo rate by 25 basis points for the 2nd time in 2013 but this was overshadowed political developments.
The Reserve Bank of India (RBI) in its mid-quarter policy review on Tuesday, cut the repo rate by 25 basis points (bps) to 7.50% but kept the cash reserve ratio (CRR) unchanged at 4%. The cut in the repo rate for the second time in 2013 is seen as an attempt to spur growth.
While the RBI obliged by supporting the United Progressive Alliance (UPA) government’s growth agenda by cutting repo rate by 25 bps, its tone remained hawkish. The unfolding of political events led by Dravida Munnetra Kazhagam (DMK) chief M Karunanidhi took the stock market and Parliament by storm resulting in a market collapse which saw the Nifty ending near day’s low plunging over 100 points in intra-day trade. But more about politics later.
“The RBI’s mid-quarter credit policy today left little to expect for the markets given its disappointing commentary on the forward trajectory of inflation—expected to remain high for the year—and on the limited room to cut rates further. But the negative reaction was exacerbated with the DMK, a key ally of the UPA withdrawing support from the government on the Sri Lankan Tamils issue. We believe the legislative arithmetic is the government’s favour for now, and would be more concerned on the lack of positive triggers for the market after the credit policy,” said Dr Tirthankar Patnaik, chief economist of Religare Capital Markets.
In its monetary policy review, the RBI pointed to the unrelenting rise in food inflation, and suppressed inflation related to administered prices which carry latent inflationary pressures. It also mentioned that the key challenge is to reduce the current account deficit, which is well above its sustainable threshold.
“The forward guidance given by the RBI suggested limited room for rate cuts. The hawkish statement by the RBI corroborates our view, and we think that market expectations of more than 50 bps of rate cuts in 2013 from here will gradually come down. We continue to expect no more rate cuts in 2013,” said Tushar Poddar, managing director and chief India economist of Goldman Sachs.
In its mid-quarter review, the central bank said on the domestic front too, growth has decelerated significantly, even as inflation remains at a level which is not conducive for sustained economic growth. Although there has been notable softening of non-food manufactured products inflation, food inflation remains high, driving a wedge between wholesale price and consumer price inflation, and is exacerbating the challenge for monetary management in anchoring inflationary expectations, it added.
The year-on-year (y-o-y) headline wholesale price index (WPI) inflation edged up to 6.8% in February 2013 from 6.6% in January, essentially reflecting the upward revisions effected to administered prices of petroleum products. Worryingly, retail inflation continued on the upward path that set in from October 2012, with the new combined (rural and urban) consumer price index (CPI) inflation at a high of 10.9% in February 2013 on sustained price pressures from food items, especially cereals and proteins. Consequently, the divergence between wholesale and consumer price inflation continued to widen during the year, RBI said.
Lending rates to come down gradually and selectively
The credit-deposit ratio at 78% is at all-time highs thanks to falling deposit growth as investments in physical assets (real estate/gold) are preferred over fixed deposits. This leaves little room for the banks to pass on the repo cut benefit to the consumers especially when the scope of any cut in the deposit rates is very limited.
“We believe that the 25 bps cut in the repo rate will not immediately translate into a proportionate reduction in lending rates. Subdued deposit mobilisation and an all-time high credit-deposit ratio (78.1% as of 22 February 2012) will constrain banks’ ability to cut deposit and lending rates across the board. Banks are likely to cut lending rates gradually and that too selectively for some portfolios. During April-February 2012-13, the median base rate reduction of 10 banks was 20 bps, while the RBI reduced repo rate by 75 bps and the CRR by 75 bps during this period,” said ratings agency CRISIL in a report.
Echoing the same, Naina Lal Kidwai, president, Federation of Indian Chambers of Commerce and Industry (FICCI), said, “The key for industry is for lending rates by banks to come down but this would happen only when banks are comfortable with deposits and deposit rates come down. Bank deposits grew at around 12.5% while credit growth was 15%-17% with credit deposit ratios at a high of 78% leading me to believe that banks will not cut interest rates in a hurry”.
Will UPA-II survive on outside support?
Without the DMK, which hold 18 seats, the UPA’s tally in the Lok Sabha will be reduced to 230 seats while a minimum of 272 seats are required for a majority in the House. However, the UPA has outside support of around 59 members of Parliament (MPs), including 22 from the Samajwadi Party (SP), 21 from the Bahujan Samaj Party (BSP), four from the Rashtriya Janata Dal (RJD), three from the Janata Dal (Secular) (JD(S)) and nine independents. As a result, with 289 MPs still in favour of the government, there does not appear to be an immediate risk.
“Some reform legislations will still be passed, but with the general elections due by May 2014, we expect political uncertainty to resurface in in second half of FY14 and politics to trump economics,” said Sonal Varma and Aman Mohunta, both economists at Nomura Financial Advisory and Securities (India) Pvt Ltd in a report.
“However”, it added, “We see three implications. First, it makes the political situation less certain, and any instability is bad for the reform process. Second. It increases the risk of outside supporters leveraging on the UPA government’s weakness. Third, it increases the risk of an early election. In the near term, we expect the government to shift its focus to managing coalition partners.”