ECO BRIEFS - 10.12.2008

ECONOMIC BRIEFS – 10.12.08
* * * * *

SBT, United India tie up (BL 10.12.08)
State Bank of Travancore (SBT) has entered into a tie-up with United India Insurance Company to provide personal accident insurance cover to its savings account holders. The insurance cover is of Rs 5 lakh at a subsidised premium of Rs 50 per annum per account holder. This works out to just 0.01 per cent of the sum assured or 14 paise a day. All savings bank accountholders, including NRIs, will be eligible to join the insurance scheme. The scheme will, at present, be available at 101 select branches of SBT and by January 2009 it will be available at all the 715 branches of the bank across the country.

Kapol Co-op Bank beefs up internal security (BL 10.12.08)
The Mumbai-based Kapol Co-operative Bank has stepped up internal security system after the arrest of a woman employee for siphoning off Rs 2 crore from the bank. “Henceforth, all money transfer irrespective of any amount will now need the approval and signature of the manager and assistant manager of the branch,” Mr K.D. Vora, Chairman of The Kapol Co-operative Bank Ltd, said. After the transfer of the application, the bank will communicate via SMS to the account holder to confirm the dealing.

Small debt funds face concentration risk: Crisil (BL, BS, FE 10.12.08)
Rating agency Crisil said a majority of the debt schemes have single industry concentration and that many small schemes have single company exposure, representing a high risk of losing money. Crisil has defined portfolios where more than 25 per cent of AUM (assets under management) is exposed to a single industry or company as “significantly exposed”. The rating agency said almost all debt schemes have significant exposure to at least one sector. Half of the schemes have significant exposure to the banking sector and 38 per cent have a significant concentration in the NBFC sector. Of the 58 debt schemes that have AUM of Rs 1,000 crore and above, only two are “significantly exposed” to single companies. However, of 802 schemes studied by Crisil, 249 have significant exposure in one company. While larger schemes are well-diversified, 30 per cent of the smaller schemes have significant single company exposure.

MCX-SX garners 50% market share (BL 10.12.08)
MCX-SX, the currency futures exchange promoted by Financial Technologies and MCX, has garnered 50 per cent market share in two months of operations. The exchange witnessed a growth of 187 per cent by clocking an average daily turnover of Rs 1,003 crore at the end of the second month on December 7, against the average daily turnover of Rs 349 crore in the first month. The average daily volume was 201,234 contracts at the end of the second month against 71,242 contracts traded in the first month.

United India posts 12.67% growth in biz (BL 10.12.08)
United India Insurance Co Ltd, the second largest non-life insurer in the country, has achieved business growth of 12.67 per cent as on November, against the insurance industry growth of 10 per cent, thereby becoming the fastest growing public sector non-life insurer. Mr G. Srinivasan, Chairman-cum-Managing Director, United India Insurance Co Ltd, said that the company had clocked business of Rs 2,750 crore till November against the target of Rs 4,300 crore for the current financial year. He pointed out that the company recorded premium of Rs 3,740 crore in 2007-08, the highest growth amongst public sector insurers. The company registered a net profit of Rs 631.62 crore. Among the four public sector insurance companies, United India’s market share was 23 per cent.

Oberoi staff death claims to cost LIC Rs 55 lakh (BL 10.12.08)
The Life Insurance Corporation of India may face claims to the tune of Rs 55 lakh from the death of employees of EIH Ltd killed in the Mumbai terror attack at the Oberoi Trident. Over 5,200 employees of EIH all over the country are currently insured under LIC’s group gratuity schemes. The Corporation has no exposure under group insurance in the Taj - the other hotel attacked.

All about terrorism risk covers (BL 01.12.08)
Terrorism insurance is mostly offered as a rider or add-on cover to the main policies by domestic insurers. Internationally, it is available even as a standalone policy. After the September 11, 2001 attacks on the WTC twin towers in the US, the General Insurance Corporation of India started maintaining a pool for terrorism premium. Currently, the claims against the terror cover are paid out of this terrorism pool. The damage caused to Indian Hotels’ Taj Palace and Oberoi’s Trident in Mumbai may turn out to be the first major terror-related claim in the country.

Out-of-pocket spending on health care high: Report (BL 10.12.08)
The Indian healthcare industry is poised to grow at a compounded annual growth rate (CAGR) of 25 to 30 per cent to reach a market size of around Rs 28,000 crore by financial year (FY) 2015, according to global consulting firm KPMG. The sector has grown at a CAGR of 37 per cent over the last seven years. Limited public funding on healthcare in the country has necessitated out-of-pocket spending to be the dominant component, funding 76 per cent of the total healthcare expenditure.

Claims settlement process needs to be improved: IRDA (BL 10.12.08)
Health insurance in India currently covers only around five per cent of the total spending in the healthcare sector. This should at least increase to 20 per cent, said Mr J. Harinarayan, Chairman, Insurance Regulatory and Development Authority of India, while addressing the CII Health Insurance Summit. “Insurance companies’ payout, allowing for a 100-105 per cent claim, is only around Rs 5,000 crore as against the total health care spending of around Rs 1,70,000 crore,” Mr Harinarayan said. The regulator emphasised the need to improve the claims settlement process. At present, 70-75 per cent of the claims are settled within a year. He underscored the need for third party administrators and insurance companies to build IT-based systems and establish their own systems to address consumer grievances.

Allahabad Bank decides against Centre recap support (ET 10.12.08)
Allahabad Bank has decided against seeking recapitalisation support from the Centre as its capital adequacy ratio (CAR) stands well above the stipulated requirement. Instead, the bank plans to use its headroom to raise resources directly from the market. Currently, it can raise up to Rs 2,750 crore by way of various tier I and tier II bond options. As on September 30, 2008, its capital adequacy ratio stood at 11.46% over the mandated 9%."We don't intend to go to the government for capital infusion. The headroom of Rs 2,750 crore is sufficient to grow our balance sheet for the next two years. We can plough back capital from profits. Then, with the easing of risk weightage norms, there will be some free capital to the tune of Rs 5,400 crore, which can be leveraged for lending," Allahabad Bank, CMD, KR Kamath told.

PNB chief expects profits to grow by 20% (ET 10.12.08)
Shunning the idea of making quick money in stocks like gamblers, Punjab National Bank chief K C Chakrabarty has said that the bank’s profit would rise by 20% even in the current fiscal. Commenting on the bank’s financial performance in the wake of tumbling capital markets, the PNB chairman and managing director said, “In equity, I am not making money, but in fixed income securities, I will be making money... treasury profit is always speculative profit, we are not gamblers...My total treasury profit may be Rs 200-300 crore, against my operating profit of Rs 4,500 crore. So, I don’t bother for that.”

Deutsche Bank starts layoffs in India (ET 10.12.08)
Even after receiving a fresh dose of capital for business expansion, Deutsche Bank India is learnt to have started laying off employees following the general industry trend. Though Deutsche Bank remains mum about job cuts, a senior official close to the development indicated the bank had asked several officials to quit as a cost-cutting measure.

IL&FS fund mops up $895 m, promises 25% return (ET, BS, FE 10.12.08)
IL&FS real estate fund has mopped up $895 million (Rs 43,855 crore), promising overseas investors a return as high as 25%. The fund, called the IL&FS India Realty Fund 2 (IIRF-2), closed on Monday. Nearly 50% of the investment in the fund has come from US-based investors. The money has been raised at a time when hedge funds worldwide are struggling to raise resources with investors pulling out.

Your credit card could cover you from terror attack (ET 10.12.08)
Kin of those killed in terrorist attacks such as the recent one in Mumbai may want to double-check victims’ credit cards for personal accident cover. Terror attacks are automatically included in policies that cover “death due to any cause” and claims by beneficiaries must be honoured, the insurance regulator and card issuers say. While in most cases, card holders interested in personal accident cover are required to pay for it, HSBC provides such cover free of charge to holders of its ‘Premium’ and ‘Platinum’ classes of cards. “Terror attacks like the one which happened in Mumbai are covered under the terms and conditions of the policy. This cover is not for free and the customers opting for this policy pay for it,” says a representative of SBI Cards.

Rating agencies likely to face greater scrutiny (ET 10.12.08)
The country’s financial regulators, Sebi and RBI, together with the ministry of finance are working on a plan to focus on closer supervision of rating agencies, greater accountability for their actions and disclosure of rating methodologies. The high-level committee on financial and capital markets - an interregulatory mechanism to monitor developments in the financial markets - has already approved this move. The efforts to put new rules in place have gathered pace in the aftermath of the financial turmoil when these agencies were slammed for their ratings of debt instruments, especially subprime mortgage loans.

Economy to grow by 7.5-8% this fiscal: CEA (ET, BS 10.12.08)
“Services will generally have no (bigger) cyclical decline than overall GDP and certainly (decline) much less than manufacturing, which is cyclical in most countries. Services will act as a stabiliser for us,” chief economic advisor Arvind Virmani said, adding the services sector, along with others, did slow down in the first half, moderating growth to 7.8% in the first half of the current fiscal compared to 9.3% a year ago. However, he did not agree with the view of some that services would slow down in a major way in the second half. “We know from cyclical events that historically services are less affected by the cyclical shocks. Whatever the source of these cyclical shocks, I don’t see any reason why that should be overturned,” Mr Virmani said.

Manufacturing firms may cut output by up to 50%: Ficci (ET 10.12.08)
Manufacturing firms in sectors such as textiles, metal & metal products, machinery & equipment, leather and chemicals are expected to cut production up to 50% and downsize workforce up to 30% in the next 4-5 months, industry body Ficci says. Despite the government’s stimulus package, manufacturing sector is unlikely to see any revival in growth soon.

Pvt life insurers pump in Rs 3k cr, may infuse 2k cr more this fiscal (ET 10.12.08)
The global meltdown notwithstanding, domestic private life insurers have infused Rs 3,000 crore of extra capital during this fiscal to bolster business and maintain their ability to pay claims to policy-holders, according to Insurance Regulatory Development Authority of India (Irda) chairman J Hari Narayan. The cumulative capital of life insurers topped Rs 17,030 crore on 30 September 2008, factoring in the additional capital infusion of Rs 3,000 crore. Indications are that life insurers may bring in another Rs 2,000 crore of additional capital before the end of this fiscal. Insurers need capital to grow and promoters have to bring in extra capital till the venture manages to break-even.

Health insurance council soon: Irda chief (BS, FE 10.12.08)
Insurance Regulatory Development Authority (Irda) is in talks with the government and other stakeholders to set up a self regulatory organisation for health insurance companies, said Irda Chairman J Hari Narayan. He said the proposal is with the government and could be in place by January or the end of this financial year. “This will involve amendment to the Indian Insurance Act,” he added. The new organisation may be called Health Insurance Council, which will have representatives from related industries and regulators. Hari Narayan also said the Tariff Advisory Committee (TAC), a government-constituted body under the Insurance Act, is working on building a database like Cibil for health and motor transport.

LIC's investment in MFs rises 3-fold (BL 10.12.08)
After banks, it’s the country’s largest insurer Life Insurance Corporation of India (LIC) that has come to the aid of cash-strapped mutual funds (MFs), which are reeling under redemption pressure on liquid and fixed maturity plans (FMPs). The public-sector insurer has pumped in over Rs 14,000 crore into liquid funds of various fund houses. This is more than three times its investment of around Rs 4,500 crore in such instruments last year. “Last year, conditions were better. But this year, mutual funds have been facing huge redemption pressure, especially on FMPs and money market funds. These funds approached us and we have parked money across 10 top fund houses. Our investments in funds remain within the regulations of the Insurance Regulatory and Development Authority (Irda),” said LIC Managing Director Thomas Mathew T.


****
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express