APAS MONTHLY Monthly - Volume 11 - November 2017.pdfCredit Information Bureau (India) Limited . ... acceptable risk evaluation tools TransUnion CIBIL has developed a track record first

2017

Volume 11

THIS MONTH

In this issue, Mr. Satish Pillai, Chief Executive Officer and Managing Director, TransUnion

Credit Information Bureau (India) Limited, has presented his thoughts on Risk Management to

Corporate Governance. We thank Mr. Pillai for his contribution to the APAS Monthly

publication.

This month, the APAS column presents its views on Recapitalization of Public Sector Banks.

The economic indicators showed mixed performance. Manufacturing PMI fell from 51.2 in

September to 50.3 in October. India’s annual infrastructure output in October grew at a slower

pace of 4.7% in October. India's Index of Industrial Production (IIP) grew 3.8% in September.

PMI services and composite PMI rose from 50.7 and 51.1 in September to 51.7 and 51.3 in

October, respectively. CPI inflation was increased to 3.58% in October 2017. India’s wholesale

inflation rose to a six-month high of 3.59%. in October from 2.6% in September.

The country’s gross domestic product (GDP) growth recovered up to 6.3% in the second quarter

from a three-year low of 5.7% in the first quarter of 2017-18.

The Reserve Bank of India (RBI) released Fifth Bi-Monthly monetary policy statement, 2017-18

on 6th December 2017, keeping the rates unchanged.

Insurance Regulatory and Development Authority of India (IRDAI) issued guidelines allowing the

Private equity firms to invest in Indian Insurance companies.

APAS

MONTHLY

Moody’s Investors Service has upgraded the issuer ratings of National Highways Authority of

India to Baa2 from Baa3 and revised outlook to stable from positive. Also, the road ministry

announced the implementation of a “Value Engineering Programme” to promote new technologies

and material in highway projects.

Securities and Exchange Board of India (SEBI) amended guidelines on International Finance

Service Centre. SEBI also issued a circular announcing the reporting requirements by FPIs in

Hybrid Securities.

We hope that this APAS Monthly is insightful. We welcome your inputs and thoughts, and

encourage you to share them with us.

Ashvin parekh

On the cover

GUEST COLUMN

Mr. Satish Pillai

MD & CEO, TransUnion, Credit Information Bureau (India)

Limited

Risk Management to Corporate Governance: Credit

Bureax criticality to banking on the rise

APAS COLUMN

Recapitalization of Public Sector Banks

ECONOMY

➢ Index of Industrial Production – September

➢ Inflation update – October

➢ PMI update – October

➢ Core Sector update – October

➢ GDP – Q2 – FY – 2017-18

BANKING

➢ Fifth Bi-monthly Monetary Policy Statement, 2017-18

INSURANCE

➢ IRDAI (Investment by Private Equity Funds in Indian

Insurance Companies) Guidelines, 2017

INFRASTRUCTURE

➢ National Highways Authority of India has been going

strong

➢ National Panel of Experts reconstituted to resolve

technical issues regarding use of new technology/

materials/ equipment

CAPITAL MARKETS

➢ Securities and Exchange Board of India (International

Finance Services Centre) Guidelines, 2015 – Amendments

➢ Investments by FPIs in Hybrid securities

CAPITAL MARKET SNAPSAHOT

ECONOMIC DATA SNAPSHOT

India’s rank in Ease of Doing Business (2018) as per the World Bank has improved from 130 to 100. Of the

10 factors driving the overall rank, in ‘Getting Credit’ India’s rank improved to 29 from an already high 44.

This outcome is the result of an immensely successful partnership between bureax such as TransUnion

CIBIL and Indian banking-particularly retail lending. India witnessed possibly the fastest and largest

financial inclusion drive with currently over 40% of Indian adults having successfully accessed credit

compared to a penetration of 20% in 2012 Between 2012 and 2017, retail credit disbursement grew at

17% annually while keeping delinquency rate firmly in check. The success of retail lending is a case of

significant reduction of information asymmetry among retail lenders enabling better lending decisions

and overall risk management.

Unfortunately rest of Indian banking did not share the same success. The Gross NPA of INR 8.7 trillion on-

balance sheet commercial lending exposure of INR51 trillion (for banking system as of June 2017) is driven

as much by economic slowdown as information asymmetry in commercial lending. As such the system

wide NPA number has been rising for last five years despite expectation of the NPA peaking-out. Individual

banks in the last couple of years have often found it difficult to fathom the extent of NPA problem on their

own portfolio, with the result that their provision requirements continues to burgeon and befuddle

investors on the upside. However, such problems can be addressed immediately by leveraging

information around commercial debt hosted by credit bureax.

TransUnion CIBIL’s commercial database has information on over 13 million Indian business entities from

the smallest MSME to the largest corporate. For live commercial loans the credit performance includes

not just NPA and SMA level tagging but the bureau is able to capture overdue even if they are less than

30 days due. Banks with evolved risk management practices use such data to take a business entity-wise

view of credit risk by considering the corporate borrower’s performance in loans by the entire banking

system. Such inputs are critical components of early warning systems of corporate credit surveillance. The

bureau information and analytical infrastructure is ripe for even wider usage so that the current confusion

with respect to provisioning, credit monitoring and identification of risky corporates is not repeated in

future.

Risk Management to

Corporate

Governance: Credit

Bureax criticality to

Banking on the rise

Mr. Satish Pillai– MD & CEO, TransUnion

Credit Information Bureau (India) Limited

The additional complexity for banks, which could also hasten transformation in banks to improve

provisioning methodology, is that from 1st April 2018, Indian banks are expected to adopt the IND AS

accounting framework. This will mean a sea change in terms of financial reporting and calculating

provisions. The current approach of provisioning, as delineated under RBI’s Income Recognition Asset

Classification and Provisioning (IRACP) is based on the ‘incurred loss’ model. The loss is recognized or

provision is enhanced after the credit event has happened. IND AS prescribes a forward looking the

Expected Credit Loss(ECL) approach. ECL is expected to address the shortcoming of the current approach

which tends to underestimate losses during downturns.

While RBI thus far has not prescribed any approach of calculating ECL, however lenders are expected to

adopt sound and market acceptable approaches to ECL calculation. IFRS 9, on which IND AS is based,

require a bank to base its ECL on reasonable and supportable information that includes historical, current

and forecast information. Both in terms of comprehensiveness of information as well as market

acceptable risk evaluation tools TransUnion CIBIL has developed a track record first with the CIBIL score

for retail and CIBIL MSME Rank for MSME. The depth of data enables banks to take through-the-cycle

view of corporate loan performance, while technology and data ingestion capability ensures high

information quality on commercial loan performance available at earliest instance to banks.

Implementation of IND AS will cause Indian banks at large to adopt global best practices in risk

management and forward looking provisioning sooner rather than later. TransUnion CIBIL is well

positioned in terms of experience and capability to partner Indian banking in this transformative journey

which has already started. This transformation will go a long way in ensuring that the current NPA build-

up does not happen in future. However, if immediately the Boards of Banks want to get a more realistic

estimate of where their bank’s portfolio stands with terms of current and future NPA and get a reasonable

idea of sufficiency of current provisioning they can, right now, by using the commercial bureau.

Indian economy has been growing at a very strong pace. Inflation has been brought under control. There

has been a robust foreign direct investment with a steady improvement in fiscal situation.

Transformational reforms like GST, Insolvency and Bankruptcy code, Demonetization, Housing

Development and institutional reforms, Improved ease of doing business besides disinvestment

programme and welfare programme have certainly added to the growing Indian Economy.

At the same time, Indian banking sector has been in a curious situation: Some of the country’s biggest

banks have been reporting losses. Increased bad loan provisions is one of the major reasons for subdued

earnings. Indian banks’ share of bad loans, those on which borrowers have stopped repaying either the

principal or the interest, had risen over the last three years. At nearly Rs. 10 lakh crore, these stressed

assets account for about 12% of the total loans in the sector. The problem that PSBs have had in front of

them is more than Rs. 9.5 lac cr worth of bad loans (NPAs).

Most of the defaults have mainly come from power, road infrastructure, steel and textile sectors. The

government has announced a major reform for road infrastructure ‘Bharat Mala’ that would help the

sector to recover from economic slowdown and give jobs to people. Similarly, many other reforms have

been announced for various sectors to address fundamental issues hindering the growth and ability to

repay loans.

Also, to combat the NPA issue, government unveiled a bank-recapitalization plan on 24th October 2017.

This plan would mean to infuse Rs. 2.11 lac cr of money into the banking system, which would mean 22%

of the total NPAs. Through budgetary allocations, the government will buy Rs. 18,000 cr worth shares of

public sector banks. Public sector banks will need to go raise Rs. 58,000 cr from the market. The

government will issue “Bank Recapitalization Bonds” for Rs. 1,35,000 crore which will be used to buy more

shares in public sector banks. Therefore, within next two years, the government will buy Rs. 1,53,000 crore

worth shares in banks. They will raise Rs. 58,000 cr themselves, so there’s a 75-25 government-private

infusion of new money into banks.

In short, the banks will give money to the government which will turn around and buys shares in these

banks. The banks get to keep the money; they get bonds and they issue shares in exchange. This is

Recapitalization of

Public Sector

Banks

interesting, because effectively the banks are giving their promoter (the government) money to buy their

own shares. In the past this has not been successful, but since the bonds will be front-loaded, PSB share

prices are expected to rise, making it easier to raise money from the market. This may also be adequate

for provisioning and regulatory requirements as well as to provide growth capital to PSBs.

This is only good if banks recognize losses. If they continue to pretend-and-extend, all that this will do is

to cause extreme inflation. Many details like the kind of bonds that will be issued, whether they will be

tradeable, will they qualify for SLR, etc. are awaited.

This recapitalization move is aimed at providing a differential approach and build bigger and stronger

PSB’s, focus on HR issues, would provide adequate credit for the deserving and fasten the MSME growth.

It would also focus on employment generation. One of the reasons for the delay was the desire to reform

PSBs and make them and corporates accountable. The infusion now came in after the Indian Bankruptcy

Code has imposed valuable deadlines on banks, forcing them to take haircuts and revive assets if

necessary with new owners. The capital infusion should strengthen these incentives by giving more to

banks that have reformed their processes and taken vigorous action to resolve NPAs and resume lending.

The latter is vital for the economy.

The Recapitalization program may provide the strong push needed to revive the banking sector. However,

many voluntary steps including consolidation, top management rejig, and active recovery measures are

required to improve the situation.

-APAS

IIP (Index of Industrial Production) – September

India’s Index of Industrial Production grew 3.8% in September over the corresponding figure for September

2016, data released by the Central Statistics Office showed. However, this is much below the nine-

month high of 4.3% achieved in August 2017.

While the mining sector grew at 7.9% in September year on year, the corresponding figure for the

manufacturing and electricity sectors was 3.4% each. The cumulative growth in these three sectors during

April-September period over the corresponding period in 2016 was 3.9%, 1.9% and 5.7%, respectively.

The industry group “Manufacture of pharmaceuticals, medicinal chemical and botanical products” showed

the highest growth in September at 26.4% followed by 13.2% in 'Manufacture of computer, electronic and

optical products' and 13.1% in 'Manufacture of motor vehicles, trailers and semi-trailers'. The group “Other

manufacturing” declined the most at 27.1% while tobacco products showed the second highest rate of

decline at 23.1%.

Some important items showing high positive growth during the current month over the same month in

previous year include 'separators including decanter centrifuge' (117.4%), 'bodies of trucks, lorries and

trailers' (94.5%), and steroids and hormonal preparations (including anti-fungal preparations).

Under use-based classification, primary goods grew 6.6%, capital goods 7.4% and intermediate goods 1.9%

in September 2017.

Consumer durables output contracted 4.8% in September, against 1.6% in the previous month. In

September last year, consumer durables output grew 14%.

ECONOMY

Source: APAS BRT, www.mospi.gov.in

1.7

-0.1

1.2

4.3

3.8

May-17 Jun-17 Jul-17 Aug-17 Sep-17

IIP (% YoY)

Base rate 2011-12

CPI (Consumer Price Index) – October

The all-India general CPI inflation increased to 3.58% in October 2017, compared with 3.28% in September

2017. The corresponding provisional inflation rate for rural area was 3.36% and urban area 3.81% in October

2017 as against 3.15% and 3.44% in September 2017. The core CPI inflation eased marginally to 4.41% in

October 2017 compared with 4.47% in September 2017. The cumulative CPI inflation was lower at 2.73% in

April-October FY2018 compared with 5.24% in April-October FY2017. Core inflation eases to 4.4% in

October

Among the CPI components, inflation of food and beverages accelerated to 2.26% in October 2017 from

1.76% in September 2017 mainly contributing to the increase in CPI inflation.

The inflation for clothing and footwear increased to 4.76%, while the CPI inflation of fuel and light also rose

to 6.36% in October 2017.

The inflation for housing increased to 6.68%, while that for miscellaneous items declined to 3.48% in

October 2017.

Within the food items, the inflation increased for vegetables to 7.47%, milk and products 4.30%, spices (-)

2.15% and egg 0.69%. The inflation was flat for oils and fats 1.02%, sugar and confectionery to 6.75% and

cereals and products 3.68%. However, the inflation eased for non-alcoholic beverages 2.06%, fruits to

5.05%, meat and fish 3.12% and prepared meals, snacks, sweets etc. 4.96% in October 2017.

Within the miscellaneous items, the inflation for transport and communication dipped to 2.26% and

household goods and services 4.05%, while it eased for education to 4.15% and recreation and amusement

3.89%. On the other hand, the inflation for personal care and effects increased to 3.36% in October 2017.

Source: APAS BRT, www.mospi.gov.in

1.54

2.36

3.36 3.283.58

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Jun-17 Jul-17 Aug-17 Sep-17 Oct-17

CPI

Base rate 2011-12

WPI (Wholesale Price Index) – October

Wholesale inflation rose to a six-month high of 3.59% in October from 2.6% in September as food items and fuel became more expensive. WPI inflation was much lower at 1.27% in October 2016.

WPI Food Index consisting of food articles from primary articles group and food product from manufactured products group increased to 3.23% in October 2017 from 1.99% in September.

However, WPI inflation in manufactured items eased marginally to 2.62% in October from 2.72% a month ago.

Farm gate prices of vegetables rose by 36.61% last month as against 15.48% in September. Similarly, WPI inflation in onions jumped up by 127.04%, while for the eggs, meat and fish segment the rate of price rise was 5.76% in October.

In the fuel and power segment, inflation rose to 10.52%, as against 9.01% in September. Fuel inflation has remained high for the past three months as petrol and diesel prices continued to rule high, tracking global crude oil rates. Power tariffs shot through the roof on lower domestic production.

Pulses continued to witness deflation at 31.05%. Likewise, in potato deflation was at 44.29% and wheat at 1.99%. The final print of August WPI inflation remained unchanged at 3.24%.

Source: APAS BRT, www.mospi.gov.in

0.9

1.88

3.24

2.6

3.59

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Jun-17 Jul-17 Aug-17 Sep-17 Oct-17

WPI

Base rate 2011-12

Manufacturing PMI – October

Growth in India’s manufacturing sector lost momentum in October due to fractional rise in output and

stagnated new orders.

Input cost pressures rose to the fastest since May. Subsequently, firms reportedly raised their output prices

to pass on greater cost burdens to clients and to protect profit margins. Meanwhile, the level of business

confidence eased to the weakest since February. The Nikkei India Manufacturing Purchasing Managers’

Index fell from 51.2 in September to 50.3 in October. At the sector level, improvements in consumer goods

negated deteriorations in investment and intermediate goods. Encouragingly, firms added to their payroll

numbers at a similar pace to September’s 59-month high in response to greater volumes of outstanding

business.

The downward movement in the headline index was partly driven by a stagnation in new business. Subdued

demand conditions can be linked to negative impacts of GST. In response to subdued demand conditions,

both purchasing activity and pre-production inventories decreased. Meanwhile, new export orders for

Indian goods reduced in October. Moreover, the rate of contraction was the fastest since September 2013.

Output growth eased to a fractional pace, and one that was the slowest in the current three-month period

of rising production. Where an increase in output was registered, firms associated this with stronger

demand. Where a decrease in output was observed, firms blamed the negative effects of GST. However,

employment increased for the third consecutive month in October. The rate of payroll growth was modest

and broadly unchanged from September’s recent high. Firms associated a rise in employment with greater

outstanding business. The level of positive sentiment among manufacturers towards output growth eased

to the weakest since February. Optimism was rooted in projected benefits of GST materialising over the

next 12 months. However, some firms expressed concerns over negative GST effects. However, those

manufacturers that were optimistic forecasted benefits of GST materialising over the next 12 months.

Source: www.tradingeconomics.com

Service PMI – October

The Indian service sector’s recovery following the implementation of the goods and services tax (GST)

gathered pace as the sector observed a faster rise in activity, underpinned by greater inflows of new

business.

Posting above the neutral 50.0 threshold in October for the second month in succession, the seasonally

adjusted Nikkei India Services PMI Business Activity Index signalled modest growth in the sector. The

headline figure rose from 50.7 in September to 51.7 in October. The Nikkei Composite Output Index rose

slightly from 51.1 in September to 51.3 in October, and therefore signalled only a slight rate of expansion.

The overall upturn in the service sector was supported by rising new work for the second consecutive month

in October. Increased capacity pressures led to firms raising staffing levels for the second month in

succession. That said, the rate of job creation slowed from the preceding month. On the price front, input

prices rose at the joint fastest pace since April 2016 whilst firms raised output charges. At the sector level,

the sharpest rise in input prices was noted in Consumer Services, followed by Real Estate & Business

Services.

Service providers remained optimistic towards the 12-month outlook for output, despite levels of business

confidence dipping to the weakest since June. Meanwhile, service providers raised their average selling

prices. The rate of inflation picked up from the prior month, but was still modest.

Backlogs of work rose at service providers for the seventeenth month in succession. Furthermore, the rate

of expansion was the most pronounced since the inception of the survey in December 2005. A rise in

outstanding business was attributed by respondents to delays caused by the implementation of GST.

Source: www.tradingeconomics.com

Core Sector Data – October

Eight core sectors grew at a slower pace of 4.7% in October, due to subdued performance of cement, steel

and refinery segments.

The eight infrastructure sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement

and electricity — had clocked a growth of 7.1% in October last year.

Meanwhile, the Industry Ministry has revised downwards September growth print of these eight sectors to

4.7% from the earlier estimate of 5.2%. Official data showed that cement production contracted by 2.7% as

against an expansion of 6.2% in October 2016.

Output growth in the steel segment too slowed to 8.4% in the last month compared with 17.4% in the year-

earlier period. Similarly, there was slowdown in refinery output, whose growth was 7.5% in October this

year. This compared with 12.6% expansion in the same month last year. Electricity generation was slower

on an annual basis, around 2.1%. Meanwhile, coal segment has shown significant improvement as it

expanded by 3.9%. It had witnessed a decline of 1.9% in the year-earlier period.

The fertiliser sector grew by 3% as against 0.7% last year. Crude oil production and natural gas output have

shown improvement, too.

Cumulatively, the growth in the eight core sectors slowed down to 3.5% as against 5.6% in the comparable

period of the last fiscal.

Source: APAS BRT, www.eaindustry.nic.in

6.6

4.95.6

3.4

1.0

5.0

2.5

3.6

0.4

2.4

4.9 5.24.7

Co

re s

ect

or

dat

a %

Month

Core sector Trend - Monthwise

GDP – Quarter 2 - FY – 17-18

India’s economy regained momentum in the September quarter as the manufacturing sector shrugged off

any teething impact from the July 1 implementation of the Goods and Services Tax to propel gross domestic

product (GDP) growth to 6.3%.

GDP growth recovered in the second fiscal quarter from a three-year low of 5.7% in the preceding three-

month period, while Gross Value Added (GVA) growth accelerated to 6.1% from 5.6% in the first quarter,

according to official data released by the government.

According to the press note released by Central Statistics Office (CSO) data, the economic activities that

registered growth of over 6% in the second quarter are manufacturing, electricity, gas, water supply, other

utility services and trade, hotels, transport and communication, and services related to broadcasting.

The agriculture, forestry and fishing sector are estimated to have grown by 1.7%. The manufacturing sector

expanded by 7% in the quarter, a robust acceleration from 1.2% in the first quarter. Still, the pace was slower

than the 7.7% seen in the second quarter of 2016-2017. Other sectors that witnessed growth of more than

6% were electricity, gas, water supply and other utility services, and trade, hotels, transport and

communication services related to broadcasting.

Agriculture, however, remained a cause for concern. The agriculture sector grew by 2.3% in the first quarter,

and by 4.1% in the year-earlier period.

GDP growth for the first half of the financial year (April-September) was 6% compared with 7.7% in the year-

earlier period. GVA growth was at 5.8% compared with 7.2% over the same period.

7.2 7.47.0

6.15.7

6.3

Q1 16-17 Q2 16-17 Q3 16-17 Q4 16-17 Q1 17-18 Q2 17-18

GD

P %

Quarter

GDP Trend

Fifth Bi-monthly Monetary Policy Statement, 2017-18

The Reserve Bank of India (RBI) in its fifth bi-monthly monetary policy statement, 2017-18, kept its repo

rate unchanged at 6%. Consequently, the reverse repo rate under the LAF remains at 5.75%, and the

marginal standing facility (MSF) rate and the Bank Rate at 6.25%.

This decision of the monetary policy committee is consistent with a neutral stance of monetary policy in

consonance with the objective of achieving the medium-term target for consumer price index (CPI)

inflation of 4% within a band of +/- 2%, while supporting growth.

Since October 2017, global economic activity has been gaining momentum through the final quarter of

the year, was driven mainly by advanced economies (AEs). A loss of momentum in global trade has been

due to declining export orders. Crude oil prices touched a two-and-a-half-year high in early November

because the Organization of the Petroleum Exporting Countries’ (OPEC) efforts to rebalance the market.

Bullion prices have been under some selling pressure due to the rising US dollar.

Global financial markets have remained buoyant, reflecting the improving economic outlook and the

gradual normalization of monetary policy by the US Fed.

On the domestic front, the growth of real gross value added (GVA) accelerated sequentially in Q2 of 2017-

18, after five consecutive quarters of deceleration. All the three sub-sectors of industry registered higher

growth. GVA growth in the manufacturing sector accelerated sharply on improved demand and re-

stocking post goods and services tax (GST) implementation. The mining sector expanded in Q2 due to

higher coal and natural gas production. GVA growth in the electricity, gas, water supply and other utility

services sector also strengthened on higher demand. Despite some improvement, construction sector

growth remained tepid due to transitory effects of the RERA and GST implementation.

On the expenditure side, the growth of gross fixed capital formation improved for the second successive

quarter. However, growth in private final consumption expenditure slowed to an eight-quarter low in Q2.

RBI had conducted a survey of households and its shown that the inflation is going to firm further in the

year ahead. Firms responding to the Reserve Bank’s Industrial Outlook Survey are expected to pass on the

BANKING

increase in input prices to their output prices. Turning to other costs, wage growth in the organized sector

edged up, while rural wage growth weakened, particularly in agriculture

Surplus liquidity in the system has continued to decline during October and November. Merchandise

exports declined by 1.1% in October 2017 after showing positive growth for 14 consecutive months.

According to Monetary Policy Committee (MPC) assessment, there have been various developments in

the recent period which augur well for growth prospects. The capital raised from the primary capital

market has increased significantly. This would add to demand in the short run and boost the growth

potential of the economy over the medium-term. The improvement in the ease of doing business ranking

should help sustain foreign direct investment in the economy. Also, the large distressed borrowers are

being referenced to the insolvency and bankruptcy code (IBC) and public-sector banks are being

recapitalized, which should enhance allocative efficiency.

IRDAI (Investment by Private Equity Funds in Indian Insurance Companies) Guidelines, 2017

The Insurance Regulatory and Development Authority (IRDA) issued guidelines for PE funds’ investment

in insurance companies as promoters, stipulating norms including investment period and percentage of

holding. The guidelines set a ceiling of 10% in insurance companies for investors. As an investor, a fund

can invest up to 10% of the paid-up equity of an insurance company, with a lock-in period of five years.

This can be done through special purpose vehicles (SPV).

The Indian investors, including PE funds, jointly should not hold more than 25% of paid-up equity share

capital of the company. In case of the PE investment through SPV, the minimum shareholding of

promoters and promoter group should always be maintained at 50% of the paid-up equity capital. In

cases where the minimum holding is less than 50%, it should be maintained at those levels.

In case of one-time investment, the private equity fund will have to make an upfront disclosure. The

regulator said that after the lock-in period of five years, an undertaking of the divestment plan,

preferably through an IPO, should be submitted.

Indian capital is scarce and largely concentrated with well-established Indian business houses. These

guidelines will enable incremental flow of FDI into the country and will unleash a new era for formation

of new-age insurance companies that will lead to deeper penetration and growth of insurance industry.”

The norms laid out that the chairman of the board of the insurance company should be an independent

director, failing which the CEO should be a professional and not a nominee of a promoter.

At least, one third of the directors on the board should be independent directors. The minimum capital

requirement for insurance companies is INR 100 crore. There are two kinds of capital involved ––

minimum capital requirement and solvency capital requirement. Solvency capital requirement depends

on capital burn based on growth and the kind of business. It varies from business to products and

distribution network.

INSURANCE

National Highways Authority of India has been going Strong

The Government announced that the National Highways Authority of India (NHAI) is likely to have a robust

future as indicated by recent ratings of various agencies. Moody’s Investors Service has upgraded the

issuer ratings of National Highways Authority of India to Baa2 from Baa3 and revised outlook to stable

from positive.

The upgrade in ratings for NTPC, NHPC, NHAI and GAIL followed the upgrade of the Indian sovereign rating

and reflects the strategic importance of these entities to the country, as well as their close operational

and financial links with the government.

On October 9, 2017, Moody’s had assigned a first time Baa3 rating to NHAI. The upgrade to Baa2 has come

for NHAI in a very short time. However, CRISIL on November 16, 2017, had indicated that reforms by NHAI

have resulted in a steep decline in the percentage of high risk highways projects from 53 percent two

years ago to 21 percent now.

The CRISIL report also acknowledged that NHAI reforms have resulted in doubling of highways

construction rate from 12 km per day in 2015 to 23 km per day in 2017. This improved ground situation

in both debt and equity has resulted in investors showing more interest in the road sector.

INFRASTRUCTURE

National Panel of Experts reconstituted to resolve technical issues regarding use of new

technology/ materials/equipment

The road ministry announced in an official statement that it has decided to implement a 'Value

Engineering Programme' to promote new technologies and material in highway projects executed either

under PPP mode or public funding mode.

The programme would aim at using innovative technology, materials and equipment to reduce the cost

of projects and make them more environment friendly, while simultaneously ensuring that the roads or

bridges and other assets get constructed much faster, and are structurally stronger as well as more

durable. The statement said the programme is also expected to increase the speed of construction, reduce

construction cost, increase asset durability and improve aesthetics and safety.

The ministry said it has also reconstituted a nine-member experts' panel for approving proposals for use

of new technologies, material and equipment.

The NPE (National Panel of Experts) would examine all technical matters involving the new technologies,

materials and equipment referred to it by the concerned Engineers or concessionaires/ contractors.

The NPE will also resolve the technical issues that would arise as a result of difference in views between

engineers and contractors regarding implementation, besides deciding about the need for field trials of

any new or innovative technology/ materials/ equipment in the project highway.

Securities and Exchange Board of India (International Financial Services Centre) Guidelines,

2015 - Amendments

Securities and Exchange Board of India (SEBI) notified guidelines on IFSC – Guidelines 2015, and made

various amendments to it thereafter.

On 14th November, 2017, SEBI issued an amendment and decided to amend the definition of the “issuer”

given in Clause 2(1)(i). It shall now be read as,

a) An entity incorporated in India seeking to raise capital in foreign currency other than Indian

rupee which has obtained requisite approval under Foreign Exchange Management Act, 1999

(FEMA) or exchange control regulations as may be applicable or

b) An entity incorporated in a foreign jurisdiction, provided such entity is permitted to issue

securities outside the country of its incorporation or establishment or place of business as per

the laws and regulations of its country of incorporation, jurisdiction or its constitution, or

c) Any supranational, multinational or statutory organization/ institution/ agency is permitted

to issue securities as per its constitution.

This circular has been issued in exercise of powers conferred under Section 11(1) of the SEBI

Act, 1992 in order to protect the interests of the investors in securities and to promote the

development of, and to regulate the securities market.

CAPITAL MARKETS

Investments by FPIs in Hybrid Securities

Market regulator SEBI issued a circular announcing that the foreign portfolio investors should report their

investment in hybrid securities separately and also the depositories must make necessary arrangements

for reporting.

Currently, the daily FPI net investment data and the FPI Assets Under Custody (AUC) data are disseminated

by the depositories (NSDL and CDSLBSE 0.00 %) for equity and debt markets. Presently, FPI investments

are classified as either debt or equity depending on the type of the security in which the FPIs transact.

While FPIs are permitted to invest in REITs and InvITs, which are classified as hybrid securities, presently,

the said investments are not reflected in the daily FPI net investment data or the monthly/fortnightly FPI

AUC data. In a circular, SEBI notified that, in order to capture FPI investment data in hybrid securities, a

third category termed as 'Hybrid Security' shall be created for the purpose of capturing and disseminating

FPI investment data in Hybrid securities. SEBI asked depositories (NSDL and CDSL) to put in place the

necessary systems for the daily reporting by the custodians of the FPIs and disseminate on their websites,

the AUC of the FPIs in debt, equity and hybrid securities. This circular has come into effect immediately.

CAPITAL MARKETS SNAPSHOT

Source: National Stock Exchange Source: Bombay Stock Exchange

Sources: APAS Business Research Team Sources: APAS Business Research Team

Sources: APAS Business Research Team

Foreign portfolio investors (FPIs) infused

INR 16,455 crore in equities during

November 1-24, besides, they put in INR

754 crore in the debt market during the

period under review, resulting in an inflow

of INR 17,209 crore (USD 2.65 billion).

India’s fiscal deficit at the end of October

hit 96.1% of the budget estimate for 2017-

18, mainly due to lower revenue realization

and rise in expenditure. So far this year, the

rupee has gained 5.2%.

63.8064.0064.2064.4064.6064.8065.0065.2065.4065.60

1-N

ov-

17

3-N

ov-

17

5-N

ov-

17

7-N

ov-

17

9-N

ov-

17

11

-No

v-1

7

13

-No

v-1

7

15

-No

v-1

7

17

-No

v-1

7

19

-No

v-1

7

21

-No

v-1

7

23

-No

v-1

7

25

-No

v-1

7

27

-No

v-1

7

29

-No

v-1

7

$/₹ (Nov-2017)

6.756.806.856.906.957.007.057.10

1-N

ov-

17

3-N

ov-

17

5-N

ov-

17

7-N

ov-

17

9-N

ov-

17

11

-No

v-1

7

13

-No

v-1

7

15

-No

v-1

7

17

-No

v-1

7

19

-No

v-1

7

21

-No

v-1

7

23

-No

v-1

7

25

-No

v-1

7

27

-No

v-1

7

29

-No

v-1

7

GIND10Y(Nov- 2017)

1-N

ov-

17

3-N

ov-

17

5-N

ov-

17

7-N

ov-

17

9-N

ov-

17

11

-No

v-1

7

13

-No

v-1

7

15

-No

v-1

7

17

-No

v-1

7

19

-No

v-1

7

21

-No

v-1

7

23

-No

v-1

7

25

-No

v-1

7

27

-No

v-1

7

29

-No

v-1

7

CNX Nifty (Nov - 2017)

1-N

ov-

17

3-N

ov-

17

5-N

ov-

17

7-N

ov-

17

9-N

ov-

17

11

-No

v-1

7

13

-No

v-1

7

15

-No

v-1

7

17

-No

v-1

7

19

-No

v-1

7

21

-No

v-1

7

23

-No

v-1

7

25

-No

v-1

7

27

-No

v-1

7

29

-No

v-1

7

BSE Sensex (Nov-2017)

10.00

10.80

11.60

12.40

13.20

14.00

14.80

Indian VIX (Nov-2017)

ECONOMIC DATA SNAPSHOT

* The Economist poll or Economist Intelligence Unit estimate/forecast;

^ 5-year yield

Quarter represents a three-month period of a financial year beginning 1st April

Countries GDP CPI

Current

Account

Balance

Budget

Balance

Interest

Rates

Latest 2017* 2018* Latest 2017*

% of GDP,

2017*

% of GDP,

2017*

(10YGov),

Latest

Brazil 0.3 Q2 0.7 2.3 2.7 Oct 3.4 -1.0 -8.0 9.11

Russia 1.8 Q3 1.8 2.0 2.7 Oct 3.9 2.4 -2.1 8.13

India 5.7 Q2 6.6 7.3 3.6 Oct 3.5 -1.4 -3.1 7.03

China 6.8 Q3 6.8 6.4 1.9 Oct 1.6 1.4 -4.3 3.90*

S Africa 1.1 Q2 1.1 1.5 4.8 Oct 4.7 -0.5 -3.9 9.31

USA 2.3 Q3 2.2 2.4 2.0 Oct 2.0 -2.5 -3.5 2.33

Canada 3.7 Q2 2.9 2.2 1.4 Oct 1.6 -2.9 -1.7 1.88

Mexico 1.5 Q3 2.1 2.1 6.4 Oct 5.9 -1.9 -1.9 7.26

Euro Area 2.5 Q3 2.2 2.0 1.4 Oct 1.5 3.1 -1.3 0.38

Germany 2.8 Q3 2.2 2.0 1.8 Nov 1.7 7.1 0.6 0.38

Britain 1.5 Q3 1.5 1.3 3.0 Oct 2.7 -3.8 -3.3 1.31

Australia 1.8 Q2 2.4 2.8 1.8 Q3 2.0 -1.3 -1.7 2.47

Indonesia 5.1 Q3 5.1 5.3 3.6 Oct 3.9 -1.6 -2.8 6.55

Malaysia 6.2 Q3 5.5 5.1 3.7 Oct 3.9 2.5 -3.0 3.96

Singapore 5.2 Q3 2.9 2.1 0.4 Oct 0.6 19.6 -1.0 2.12

S Korea 3.6 Q3 2.9 2.8 1.8 Oct 2.0 4.3 0.8 2.48

CAREER WITH APAS

We are growing our client base and service activities. We invite applications from candidates with

business and transaction advisory services experience as well as from risk management and research

and learning backgrounds. Candidates with banking, insurance and capital markets companies may also

apply.

Ideally candidates with 6 – 10 years of relevant experience, in the age group of 29 – 34 years will meet

the requirement. Only candidates with Post Graduate qualifications in Finance and / or Chartered

Accountants may apply. We do prefer management students with engineering background.

Kindly email us your application on [email protected]

Disclaimer – This informative APAS Monthly has been sent only for reader’s reference. Contents have

been prepared on the basis of publicly available information which has not been independently verified

by APAS. Neither APAS, nor any person associated with it, makes any expressed or implied

representation or warranty with respect to the sufficiency, accuracy, completeness or reasonableness

of the information set forth in this note, nor do they owe any duty of care to any recipient of this note

in relation to this APAS Monthly.

Contact Us: 022-6789 1000

[email protected]

www.ap-as.com