Monday, October 31, 2011

Banks Rs 56k crore loans to power sector under stress- Crisil


Souece :20 OCT, 2011, 12.44AM IST, ET BUREAU 


MUMBAI: The Rs 56,000-crore exposure of banks to the power sector could be under stress, according to a study by rating agency Crisil. 

The trouble stems from two areas - mounting losses by distribution companies, which have doubled to Rs 40,000 crore in 2010-11 from 2008-09 levels. 

The other cause of concern is availability of fuel and its pricing. 

The Crisil study estimates that the advances to the sector will grow at 23%, based on pending disbursements and distribution losses which will have to be funded by banks, which is currently at Rs 4.8 lakh crore. Of this, 12% of the total advances, or Rs 56,000 crore, is at risk, if no reforms are made to bring the distribution companies out of the red andtariffs revised. 

The gap per unit between the supply cost and the tariffs charged by distribution companies has been rising, the study mentioned. 

There will have to be a 50% tariff hike in order for these power distribution companies to break even. "A 50% rise in tariffs is a tall order. This calls for tremendous amount of political will," said Roopa Kudva, MD & CEO, Crisil. 

States like Bihar, Jammu and Kashmir, MP, Punjab and UP are in the highest risk category in terms of the state governments' ability to support the state power utility companies by capitalising them. Lenders' exposure to such states and the utility companies is about 40% or Rs 1.2 lakh crore. 

The level of debt of distribution sector is also estimated to rise to over Rs 3 lakh crore in 2011 from Rs 1.75 lakh crore in 2010.






As power projects trip, banks like SBI and ICICI may have to look at recast of loans




S0urce : ANITA BHOIR & RUCHIRA ROY,ET:1 OCT, 2011, 02.32AM IST,
State Bank of India and ICICI Bank are among the dozen lenders staring at the possibility of restructuring loans to the crisis-hit power sector that has been hobbled by state electricity board defaults and delays in new projects. 



A sector that only a few years ago was a gold mine of opportunities for investors and lenders, is turning out to be an unwanted child with both private equity investors and lenders. So far this fiscal, private equity investment in the sector has halved while lending has slowed to a trickle due to a number of reasons.

At least for the record, no power producer has defaulted so far, but the state of affairs has begun to ring alarm bells with some estimates showing that losses on loans could squeeze the banking system and revive memories of what happened when the textile industry went through a similar crisis in the 1990s.

For some, it is like revisiting the nightmare of Dabhol Power after its parent Enron went bankrupt in 2001. The RBI is inspecting banks to assess the potential damage. "So far, there have been no delinquencies as the projects are in the implementation stage, and if there are any stress, banks will restructure the accounts at the individual level,'' said Romesh Sobti, chief executive at IndusInd Bank that has loaned Rs 895 crore, or 8.9% of its total loans, to power sector.

"State electricity boards have always been in bad financial health, however, they carry a sovereign guarantee, hence the chances of default are very less.'' ICICI leads the list of banks with the highest exposure to the power sector.

It has given Rs 37,233 crore, or 5.9% of its total book, followed by State Bank with Rs 36,915 crore, or 2.5% of its total book. Axis Bank ranks third with Rs 17,110.60 crore, or 5.7%, annual reports of all the banks show. State Bank and ICICI Bank officials declined to comment, citing silent period ahead of their quarterly earnings.

"Our power sector book continues to perform satisfactorily,'' said an Axis Bank spokesman. "The projects are progressing as per schedule and most of them are expected to become operational over the next 2-3 years. With the longterm outlook positive, the portfolio is expected to perform satisfactorily....''

Lack of major reforms in the power sector is hurting the economics of the industry. In most cases, the state-owned electricity companies are monopolies in distribution, and sell power at heavily subsidised rate to consumers, especially farmers.

Years of uneconomical operations have pushed many, such as Rajasthan and Tamil Nadu's distribution companies, into losses, followed by default to power producers. The state-owned power distribution company in Tamil Nadu has seen its losses rise to Rs 38,000 crore in fiscal 2011 from Rs 4,900 crore in 2006. Its debt is up at Rs 40,300 crore from Rs 9,300 crore over the same period.

"Structural reforms are required in the transmission and distribution," said RK Bansal, executive director, IDBI Bank Ltd. "State regulators will have to make sure that they increase tariffs as fast as they can. The delay is largely in new power projects.

In one case, there has been a delay in implementation which can be handled.'' Scores of power projects, including JSW Energy and Reliance Power, are also facing delays due to nonavailability of fuel, such as coal and gas, and land acquisition. The government's flip-flop in mining, and environmental policies have also hurt.

Some, such as Tata Power and Adani Power, are importing coal, but even that is becoming unviable given the surge in coal prices. These issues may manifest themselves as losses to banks. "Our supervisors are assessing the situation in each bank and also the entire banking sector,'' Reserve Bank of India Governor Duvvuri Subbarao told ET in an interview earlier this month. 

Sunday, October 30, 2011

Wipro, Workday ink pact for enterprise solutions



Wipro Technologies, the global IT, consulting and outsourcing business of Wipro Ltd, today announced an alliance with Workday, a leader in SaaS-based enterprise solutions for HR, payroll and financial management.

The Bangalore-based, NYSE-listed Wipro will provide consulting and IT services to clients deploying Workday solutions, the company said in a statement.

"With increasingly decentralised workforces, the rise of social networking, and rapidly evolving government, privacy, and regulatory compliance requirements, the value of a truly integrated enterprise solution is significant.

"It effectively aligns the industry's best practices with the overall business objectives of a company," said Preet Takkar, Global Head, Cloud Applications and Solutions, Wipro Technologies.

Look before you leap: It’s risky to be loan guarantor



Standing guarantee for your friend’s debt may also affect your own credit worthiness

Ravi Prasad is a worried man. 

His Rs 40 lakh home loan application has been rejected by a leading private sector bank. Reason, he was the guarantor for a friend for the same amount since the past five years.

 As a guarantor for his friend’s home loan, Prasad is legally bound to pay off the debts if his friend defaults.

If you stand as a guarantor for someone’s loan, be it a home loan, education loan or even a personal loan, it means that you agree to be responsible for the repayment of the person’s debt in case of a default. It implies that you are equally responsible for paying off the loan.

 According to home loan contracts, the liabilities of a guarantor are similar to that of a borrower.

Here is a snapshot of the possible situations that could arise if you agree to be a guarantor for someone’s loan and the risks involved.

When does a bank ask for a guarantor? 

A senior official of Canara Bank said, “We ask for a guarantor for a home loan, car loan and, invariably, insist for a guarantor for a personal loan because it does not have an asset attached and is unsecured. If the borrower has a transferable job, or has a job that involves frequent overseas travel or the loan is applied at a place other than the applicant’s permanent address, then too, we insist on a guarantor.”

Remember, the bank is asking for a guarantor to protect itself from a possible default and to have the means to recover the money it is lending.

 However, if the value of the property and the net worth of a borrower are very high and the loan availed is too small, then a bank can make an exception by not asking for a guarantor.

Relatives, friends, earning children can become a guarantor for a loan.

How to decide on being a guarantor? 

The question you should ask yourself is whether you will be able to repay the loan if the primary borrower defaults. You need to check the borrower’s financial capability to pay off the loan. If you are confident that the primary borrower will pay off his loan and not default, then you can opt to become a guarantor. You also need to completely read and agree to the terms and conditions put forth by the bank in their agreement. Remember that your credit standing will get affected and the chances of you getting a loan in the future would be slim if the borrower defaults.

Your chances of getting a loan for yourself may get affected: Most banks and financial institutions look at the loan that you are a guarantor for as a loan that you hold. 

They will, therefore, deduct that much amount from your loan eligibility value when you apply for any loan.

“Banks will check with the Credit Information Bureau India (Cibil) records, which will show the home loan for which a person was a guarantor. Banks also will look into the income to obligation ratio of the guarantor, which takes into account the net salary and the sum total of all the instalments for loans he has taken. If both (the primary borrower and his own) loans can be paid off comfortably, then the bank may approve a loan to the guarantor, otherwise no,” Kamlesh Rao, head of home loans at Kotak Mahindra Bank, said.

 “If income to obligation ratio is 50-60 per cent, we approve the loan. For example, if the guarantor’s net salary is 1 lakh and Rs 50,000-Rs 60,000 is the sum total of all the instalments for the loans he has taken or guaranteed, then a bank can give him a loan.”

If the borrower defaults:
In case the borrower does not pay up his equated monthly instalments (EMIs), the bank issues notices simultaneously to both the borrower and the guarantor.

“For a home loan or a loan for an immovable property as per the provisions of the Sarfaesi Act (the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002), we take action by taking symbolic possession of the property. We try and recover the due from the asset against which a loan has been given. For residual liabilities, the guarantor has to pay up,” said the official of Canara Bank. “For residual liabilities, we file a case in the court asking to attach the personal assets of the guarantor, such as bank accounts, cash as well as property.”

Also, a guarantor will be considered a defaulter, which will get reflected in Cibil records, thus, affecting a guarantor’s ability to get a loan in the future.

In normal course, banks do not ask for a security from the guarantor. However, if the title of the property is defective, then a collateral is taken from the guarantor too.

How many loans can you be a guarantor for? 

To ensure that one person does not stand guarantor for too many loans, banks have a policy of not allowing a person to stand as a guarantor for more than two loans.

Documents required for being a guarantor: “A bank will want to know the net worth of the guarantor to ensure he has the financial capability to pay for the loan, in case the borrower defaults. Therefore, all ‘know your customer (KYC)’ documents, along with income proof will have to be submitted,” Rao said.

If the guarantor wants to revoke the guarantee: Normally, a guarantor cannot revoke his guarantee. However, if the primary borrower agrees to substitute the guarantor with someone else, the old guarantor can revoke his guarantee.

“If the guarantor does not want to continue to be a guarantor, he can ask the borrower to swap with another guarantor. This will have to be with mutual consent of all the parties involved,” Jaideep Lunial, a certified financial planner, said.


Wednesday, October 26, 2011

Jaroslovsky: “Steve Jobs” is Remarkable Book





Source :Bloomberg :Rich Jaroslovsky:Oct:25,2011


Jaroslovsky

Steve Jobs was a remarkable man. Walter Isaacson’s “Steve Jobs” is a remarkable book, fully capturing its brilliant, maddening, sometimes appalling, always fascinating subject.
Written in a short span as its prime source lay in the grip of mortal illness, “Steve Jobs” shows no signs of haste in its reportage, writing or critical thinking. Its sole concession to the unusual circumstances of its creation is that, unlike Isaacson’s previous biographies of Benjamin Franklin and Albert Einstein, it doesn’t attempt to place Jobs in a broader historical context. The focus here is on the man, what he achieved and how he achieved it.
The overarching theme of those achievements was Jobs’s ability to locate himself at the nexus of technology and the humanities. His experiences as an acid-dropping, India- sojourning, Dylan-loving ex-hippie had at least as much to do with his eventual success as his fascination with things electronic.
He was shaped, too, by a complex family history. Born out of wedlock to parents who later married, produced another child -- the novelistMona Simpson -- and then split up, he was adopted by Paul and Clara Jobs, a working-class couple in the San Francisco Bay Area.

Feeling Special

Isaacson sees this as the origin of a sense of abandonment that eventually led Jobs to seek substitute father figures throughout his business career. It’s worth noting, though, that Jobs himself rejected that analysis. To him, the most important message of his childhood was the one conveyed by the Jobses.
“I have never felt abandoned,” he told Isaacson. “I’ve always felt special. My parents made me feel special.”
The specialness manifested itself in the form of academic achievement and an unruly and sometimes volatile personality. Then, in high school, he found Steve Wozniak, who shared his love of electronics and mischief.
Together, they made and sold “blue boxes,” gadgets designed to rip off the telephone company for free long-distance calls. Eventually, they gravitated toward the nascent field of personal computing, making first a kit they sold to fellow hobbyists, then a revolutionary breakthrough: a complete, plug- and-play machine that normal people could use. It was the Apple II, the first true personal computer.

Creating Apple

If much of the technological wizardry was Wozniak’s, it was Jobs who burned to create a business around it. At one point, Wozniak’s father confronted Jobs to demand a larger share for his son. “Wozniak, however, understood better than his father the symbiosis they had,” Isaacson writes. “If it had not been for Jobs, he might still be handing out schematics of his boards for free.”
In short order, the Apple II launched the company now known as Apple Inc. (AAPL), landed Jobs on magazine covers and made him a millionaire. It also made him insufferable, particularly to the series of poor saps tasked by investors to manage the unmanageable boy wonder.
Indeed, one comes away from “Steve Jobs” with a sense of pity for figures like John Sculley, recruited by Jobs himself from PepsiCo Inc. to become Apple’s chief executive. Jobs developed the Macintosh, yet another revolution in computing, then mismanaged and schemed his way into a boardroom showdown with Sculley that he lost.

On the Defensive

In one of the book’s most memorable scenes, Sculley is so demoralized even in victory that he tells his wife he’s thinking of resigning. She jumps into her car, hunts Jobs down in the parking lot of a Silicon Valley restaurant and confronts him, demanding, “Do you have any idea what a privilege it has been even to know someone as fine as John Sculley?” For once, it’s Jobs on the defensive.
Far more often, though, Jobs was the one orchestrating confrontations. Isaacson doesn’t sugar-coat his behavior, recounting the screaming tirades, tears and perhaps the worst insult he could aim at employees, colleagues and competitors: dismissing them as bozos, worthy only of contempt.
And yet. Somewhere along the line, perhaps during his years in exile, he honed his vision of that technology-humanities aesthetic. Or maybe it’s just that the technology finally caught up with where his mind had been all along.

Building Pixar

From “Star Wars” creator George Lucas, he acquired a tiny computer company called Pixar that, working with a supremely talented staff, he built into a motion-picture powerhouse that he took public and eventually sold to Walt Disney Co. (DIS) -- but only after a memorable clash with Disney CEO Michael Eisner that brings to mind the old line about irresistible forces and immovable objects.
Then came his return to a nearly bankrupt Apple, where he engineered the ouster of yet another “bozo” CEO, seized the reins himself and began the string of products that revolutionized -- there’s that word again -- how everyday people do everyday things: the iPod, iPhone and most recently the iPad.
As proud as he was of those accomplishments, Jobs told Isaacson, his most important goal was to do what an earlier pair of Silicon Valley giants, Bill Hewlett and Dave Packard, had achieved: to “create a company that was so imbued with innovative creativity that it would outlive them.”
As Hewlett-Packard Co. (HPQ) lurches from management crisis to management crisis, that seems a far-fetched desire. Yet HP has strayed far from the culture instilled by its founders. The question for Apple as it looks to the future is whether the vision will prove strong enough to sustain it in the absence of the visionary.
“Steve Jobs” is published by Simon & Schuster (630 pages, $35). To buy this book in North America, click here.
(Rich Jaroslovsky is the technology columnist for Bloomberg News. The opinions expressed are his own.)

Rajat Gupta Surrenders to Federal Authorities



Source :PatriciaHurtado:Bloomberg:oct 26,2011:6.34pm ist



Rajat Gupta, the former Goldman Sachs Group Inc. director once accused of feeding tips to Galleon Group LLC hedge fund manager Raj Rajaratnam, surrendered to federal authorities to face insider trading charges, making him the highest-ranking executive to be arrested in the probe.
Gupta, 62, gave himself up today in Manhattan to face “various insider trading charges,” said J. Peter Donald, an FBI spokesman. After a four-year investigation by the agency of insider trading at hedge funds, Gupta will be prosecuted by the office of Manhattan U.S. Attorney Preet Bharara, who with the FBI has directed a nationwide investigation of illegal trading at hedge funds, technology firms, banks and consulting firms.
“Any allegation that Rajat Gupta engaged in any unlawful conduct is totally baseless,” his lawyer, Gary Naftalis, said in an e-mailed statement yesterday. “He did not trade in any securities, did not tip Mr. Rajaratnam so he could trade, and did not share in any profits as part of any quid pro quo.”

Westport Home

Gupta left his home in Westport, Connecticut, opposite Long Island Sound today, at 6:15 a.m. The case against him comes seven months after federal prosecutors in court first called Gupta and Rajaratnam’s brother Rengan “unindicted co- conspirators.”
Gupta isn’t being charged based on evidence provided by Raj Rajaratnam, said a person familiar with the matter who declined to be identified because the matter isn’t public. The charges are based on evidence uncovered by the Federal Bureau of Investigation’s probe, the person said.
Ellen Davis, a spokeswoman for Bharara, declined to comment.
Rajaratnam, the central figure in what prosecutors have called the largest crackdown on insider trading at hedge funds in U.S. history, was arrested in October 2009. He was convicted of conspiracy and securities fraud by a Manhattan federal jury in May and sentenced to 11 years in prison on Oct. 13. More than 50 people have been charged in the probe.

Interview

In an interview in Newsweek this month, Rajaratnam said prosecutors pushed him to plead guilty to one criminal charge and inform against Gupta. Rajaratnam understood that he would be sentenced to as little as five years in prison, according to the Newsweek article.
Rajaratnam told Newsweek that he refused to inform on Gupta or wear a wire to record him for the FBI.
At Rajaratnam’s trial, Goldman Sachs Chief Executive Officer Lloyd Blankfein testified that Gupta violated the New York-based bank’s policies by allegedly telling the defendant about the company’s results and plans.
The U.S. Securities and Exchange Commission in March filed an administrative action contending Gupta passed inside information to Rajaratnam about Goldman Sachs and Procter & Gamble Co. That action was dropped in August after Gupta, who denied the allegations, sued the SEC for violating his rights by not bringing its case in federal district court.

Administrative Proceeding

In the administrative proceeding, the SEC had claimed Gupta tipped Rajaratnam, 54, aboutBerkshire Hathaway Inc.’s $5 billion investment in New York-based Goldman Sachs. The agency also said Gupta told Rajaratnam about quarterly earnings of Goldman Sachs and Cincinnati-based P&G, the world’s largest consumer products company.
Gupta left the Goldman Sachs board in 2010 and stepped down from P&G’s board in March.
Aside from serving on those two boards, Gupta from 1994 to 2003 ran McKinsey & Co., the global consulting firm. He remained a senior partner there until 2007.

Northwestern, Harvard

He has been on advisory boards at Northwestern University’s Kellogg School of Management, University of Pennsylvania’s Wharton School, Massachusetts Institute of Technology’s Sloan School of Management and Harvard Business School, his alma mater. In 2001, Kolkata-born Gupta founded the Indian School of Business in Hyderabad.
As of May 2010, Rajaratnam had a stake in a fund managed by New Silk Route NSR Partners LLC, co-founded by Gupta. At a January 2007 benefit honoring Rajaratnam called “A Night for India,” Gupta was the honorary chairman along with conductor Zubin Mehta, according to a program.
Blankfein said Gupta and other board members were told in October 2008 that Goldman Sachs was facing the possibility of a quarterly loss for the first time since it went public in 1999. Prosecutors said Gupta tipped Rajaratnam, who sold Galleon’s position in Goldman Sachs, warding off millions of dollars in losses.

Gupta Recording

At the Galleon co-founder’s trial, prosecutors also played a secret recording of a July 2008 phone call in which Gupta can be heard telling Rajaratnam that the Goldman Sachs board had discussed acquiring a commercial bank or an insurance company.
The SEC brought its action against Gupta in Washington on March 1. He sued in Manhattan federal court on March 18, claiming the SEC violated his rights by pursuing an administrative action rather than a lawsuit. Gupta would have more procedural protections in district court, including the right to a jury trial and the use of federal rules of evidence.
U.S. District Judge Jed Rakoff ruled in July that Gupta could argue that the agency intentionally singled him out for unfair treatment in retaliation for claiming his innocence. The judge said that all the SEC’s other lawsuits related to the Galleon insider-trading case were in federal court.
The agency dropped its administrative proceeding in August and agreed that it would bring any subsequent action against Gupta in district court. Gupta agreed to withdraw his lawsuit against the SEC.