BFS 50 5 April, 2013 Weekly

th

www.learnwithflip.com

BFS Roundup @ FLIP

New Banking Licenses
RBI recently came up with guidelines for issuing new banking licenses. You must have observed a lot of buzz in the media around the same. The key questions to ask are: Why do we need more banks/branches? Who all can open new banks/branches? What are the specific regulations around these new banks/branches? Why do we need more banks/branches? Even after 65 years of independence,a mere 35% of the Indian adult population has abank account. The Global average is 50%. With the Indian government announcing direct cash transfer scheme (worth almost INR 2.2 trillion! in phases), the need for linking citizens with the banking system has become imperative. Thus, RBI has decided to increase the number of players in the banking sector, as well as issue fresh banking licenses to existing players, subject to certain conditions Who all can open new banks? RBI has laid down certain conditions for entities applying for a banking license, to be accepted as fit & proper: Entity should be financially sound with a successful track record of 10 years. The minimum paid-up capital for setting up a bank has been kept at INR 500 crore. Promoter groups business model should not put the bank or the banking sector in danger due to activities done by other group companies.

The week that was.

RBI redefines core investment firms' rules on entry into insurance The Reserve Bank of India (RBI) has barred core investment companies from the insurance broking business and has laid tighter conditions for entering the insurance business. CICs cannot enter into the insurance business as agents. CICs that wish to participate in the insurance business as investors or on risk ` basis will be required to obtain participation prior approval of the Reserve Bank (which) will give permission on a case-to-case basis, keeping in view all relevant factors, said RBI. FLIPs View: This is a good step, as the purpose of insurance, and the purpose of investment cannot conflict, though there are some products that may have a combination of both, such as ULIPs.
--------------------------------------------------

India Inc. explores new currencies for overseas bonds More and more Indian companies are issuing overseas bonds in currencies, other than the US dollar. Favorable swap rates and diversified investor base are acting as driving factors for companies to borrow in other currencies. In 2009, all the overseas bond issuances by Indian companies were in US dollar, while in 2010 only one out of the 16 issuances was in currency other than the US dollar. In 2012, Indian companies opted for different currency in 11 out of 28 such deals. In the first three months of this calendar year, one out of every four issuances was in currency other than the US dollar.
FLIPs View: This helps in two ways. It diversifies the risk, as a lot of existing borrowings are already in US dollars. s Secondly, atleast in the short term the probability of other currencies remaining weak vis-a-vis the dollar are also high. The only caution is that the companies should not get carried away and keep their exposures unhedged for too long.

Click here to read the article

BFS Roundup @ FLIP

Did you know? National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MultiCommodity Exchange (MCX), all are public ltd. companies.

But only MCX is listed and the other two ARE NOT

Well! How come?

Contrary to popular belief, its not mandatory for a public ltd. company to get listed. It may or may not choose to get listed. The primary difference between a public ltd. and a private ltd. company lies in: Number of members: Maximum 50 for a private ltd. company, no limit for a public ltd. company. Minimum paid-up capital: INR 1,00,000 for a private ltd. company, however for a public ltd. company, the minimum paid-up capital is INR 5,00,000 Hope you find this interesting!
Term of the Week

Share Buy-Back
When a company buys-back its own shares, it is known as a share buy-back. Why does a company buy its shares back? It will do so: to support the market price to prevent a hostile takeover show confidence of management in the companys future performance(this is the most common reason in India) to reward investors (market price shoots on the announcement of buy-back, giving investors an opportunity to reap capital gain).

A company will buy its shares back at a time, when it feels its shares are undervalued, and ofcourse they have a cash surplus to initiate this transaction. How much can a company buy-back? As per SEBI regulations, the repurchase of shares in any financial year cannot exceed 25% of a companys total paid-up capital for that year.

www.learnwithflip.com

BFS Roundup @ FLIP

Term of the week (contd.) What is the process for buy-back? Firstly, the board has to recommend the buy-back of shares. The shareholders must then approve the buy-back. Once its done, a company can buy-back using either a tender offer or open offer. Tender offer: The company offers to buy back stock from shareholders at a declared price, for a specific period of 10 days. Here, the shareholder transfers the shares to a specific demat account opened by the company, and the company pays directly to the shareholder. Open offer: The company announces a price and says it will accept applications to acquire shares till it reaches the limit set by its board. Here, the duration is not restricted to 10 days and can go on for upto a year. Here, a company will directly purchase shares from the market. Its up to the investor to sell or not sell his shares during the buy -back. An investor should evaluate the reason for buy-back, and the companys future earning potential, before selling his/her shares.

www.learnwithflip.com