Current Affairs – An Overview

The deadlock on the Comprehensive Economic Cooperation Agreement (CECA) signed be
·RBI lets Singapore banks to open branches in India
tween India and Singapore has finally lifted. The Reserve Bank of India (RBI) on Tuesday granted license to two Singapore banks - DBS and United Overseas Bank (UOB). In turn, the Monetary Authority of Singapore (MAS) has approved a full bank license to State Bank of India (SBI) with privileges to establish up to 25 outlets, including ATMs and offer full range of financial services. This makes SBI the first Indian bank to get a qualifying full bank (QFB) status in Singapore. The license will enable the country’s largest bank to kick off retail operations in Singapore. DBS, Singapore’s largest bank, has received RBI clearance to open another eight branches in the country. UOB has received the RBI nod for opening its maiden branch in the country in Mumbai.
·Subprime exposure hits ICICI Bank
ICICI Bank is reported to have taken a hit of $263 mn because of its exposure to the subprime crisis.
Following is an educative excerpt explaining the subprime effect on Indian Banks:
a. Why are Indian banks hit?
The Indian banks are hit because they have exposure to derivatives like credit default swaps and credit-linked notes. There is a mark-to-market loss on these instruments when markets are in turmoil.
b. Why they invested in CDS and CLN?
The return was higher. It was also an opportunity to participate in the funding of big overseas acquisitions.

c. How it works?
Foreign bank that lends to an Indian co. for an acquisition buys CDS from ICICI. CDS is like an insurance against which ICICI earns a premium. For the foreign bank, the credit risk is transferred from the Indian firm to ICICI. In CLN, the bank not only sells protection but also buys bonds from the foreign bank.

d. What subprime changed?
Liquidity dried up and CDS premia surged, reflecting a rise in the cost of protection. ICICI and other banks had to make a provision on CDS and CLN, since the premium they earned was less than the market rate. This is similar to a provision on bond when interest rate goes up. While we are reeling under our entry into the subprime mess, Ben Bernanke, the Federal Reserve Chairman (USA’s Reserve Bank) has opined that bank write-downs may be overdone. This is because banks are marking their securities against an index that suggests the losses will be 32 times worse than the actual loss.(05-03-2008).

·New MSS ceilings
Remember the Market Stabilization Scheme?

The MSS scheme, which was launched in April 2004, entails the issue of treasury bills and dated securities to absorb excess liquidity arising from significant foreign exchange inflows. The issuance of MSS bonds drains out liquidity from the system and stems Rupee appreciation.

The cap for market stabilisation bonds for 2008-09 at Rs 2.5 lakh crore is significantly higher than the originally budgeted amount of less than Rs 1 lakh crore for 2007-08.

The provision for interest payments on account of these bonds has gone up to Rs 13,958 crore as against Rs 8,351 crore in the revised estimates (RE) for the current fiscal. The originally budgeted amount for such interest payments in 2007-08 was Rs 3,700 crore. The interest payments have been calculated with an estimated 8% rate for such bonds.

The receipts from borrowings under MSS are being held as cash balance in a separate and identifiable account with RBI. These receipts are not available to meet any expenditure of the government, other than repayment of treasury bills or dated securities issued under MSS.

While MSS is a part of the total public debt, the interest payment is accounted for in the budget. The outstandings under the MSS amounted to Rs 1,61,058 crore as on January 18, 2008. There has been a steady increase in MSS outstandings as reflected in the significant build up of liquidity overhang since August 2007.(12.03.2008)


·India to develop 6 multi-modal airport hubs
o India will soon have multi-modal airport hubs across its landscape, similar to the one proposed at Nagpur.
o They will be developed in six metros to cater to not only commercial airlines but also to cargo airlines. They will have MRO (Maintenance, Repair and Overhaul) facilities.
o The proposed places where these will be established are: Amritsar, Ahmedabad, Hyderabad, Thiruvananthapuram, Kokata and Guwahati.

·Regional stock exchanges in limelight again. Why?
o There is a rising interest in regional stock exchanges because of new FDI norms that allow foreign investments up to 49% in stock exchanges, depositories and clearing corporations, with a cap on single investment, direct or indirect at 5%.
o One more reason is the ‘corporatisation of exchanges.’ This allows them to be run like any other company. They exist and operate to earn profit.
o The interest evinced by Nasdaq (the largest electronic equity securities trading market in the US) to partner with Ahmedabad Stock Exchange and the German multinational bank Deutsche Bank’s attempt at owning about 5% stake in the Delhi Stock Exchange are examples of this trend.

·Tatas clinch the Jaguar deal – Jaguar Land Rover deal
o It is a $2.3 bn all-cash deal. Under the deal Ford would pay about $600 mn towards the pension liabilities of Jaguar-Land Rover employees and Tata Motors would continue to source motors from Ford.
o However, the cost of the final deal is expected to be about $3 bn because this price of $2.3 bn just covers the price of brands, assets and technology know-how. A big part of the additional cost would go for engine and component supply.

· Some more salient features of the pay award announced by the Sixth Pay Commission
o It has liberalized the conditions relating to pension payment. So far, only when a service of not less than 33 years is put up by an employee, is he eligible for full pension. Now the Commission recommended that soon after 20 years of service, the employee will be entitled for full pension.
o It has increased the limit on gratuity payment also from Rs. 3.5 lakh to Rs. 10 lakhs.
o These recommendations are expected to benefit about 38.41 lakh pensioners. The increased payment to pensioners will result in an additional expenditure of Rs. 1,365 crores per annum.

· Inflation worries for government
o Inflation has touched an 11-month high of 5.92%; much beyond the comfort zone of 5% tolerated by the RBI. This is the third consecutive week that the WPI based inflation has breached the 5% mark.
o This has prompted the government to immediately announce some fiscal measures, as the scope on monetary front appears to be limited.
o It has announced a slew of duty cuts – customs duty cuts on edible oils and rice. While the customs duty on rice has been slashed to nil from 70%, duties on all crude and edible oil imports have been reduced from the present level of 75% - 52% to 20% and 27.5% respectively.
o The government appears to be thinking about introducing export duty on steel.(21.03.2008).

· New Prime Minister for Pakistan
President Pervez Musharraf administered oath to Syed Yousaf Gillani as Pakistan`s 25th Prime Minister here today, a day after challenging the US-backed leader`s authority by freeing judges detained under Emergency Rule.


· Ravi Kant Sharma, a senior Indian policeman, has been found guilty of murdering Shivani Bhatnagar, a journalist of the Indian Express newspaper.

In January 1999, Shivani was found strangled in her flat in the capital, Delhi. Mr Sharma and three others found guilty of the murder are due to be sentenced on Thursday. After Ms Bhatnagar's death, Mr Sharma absconded before giving himself up in September 2002. The case created a sensation when Mr Sharma's wife accused a late former minister of having a relationship with the journalist.