Foreign currency loans for India Inc may turn costlier

FC Vikas Srivastav May 05 2013 , Mumbai

New hedging norm can drive firms to rupee debt

Foreign currency loans for Indian companies may turn expensive after the Reserve Bank of India (RBI) directed banks to evaluate risks arising from such unhedged loans by increasing the provisioning.

This is expected to drive borrowers to domestic rupee loans or the external commercial borrowings, said industry officials.

“If the RBI makes it mandatory to fully hedge the principal and the interest on the foreign currency loan, then it will increase the provisioning of the banks and they will pass it on with higher spreads to the borrowers, making the loan costly. Hence, the new provision would become counterproductive, reducing the total foreign currency loan intake,” said a senior official of L&T.

“At present, on a fully hedged basis – both interest and the principal – foreign currency loan is available at 12 per cent to 12.5 per cent. There are other companies who are getting loans at 13 per cent, which is hardly one per cent more. Hence, any higher provision would drive borrowers away,” he added, declining a request to be identified by name.

The central bank, in its monetary policy statement on Friday, said banks should put in place a proper mechanism to rigorously evaluate the risks arising out of unhedged foreign currency exposure of companies and price them in the credit risk premium. It also asked them to consider a limit on the unhedged positions of companies.

The final guidelines on higher provisioning for unhedged forex loans are expected on June 30.

According to RBI, these measures are of utmost importance since unhedged forex exposures of borrowers are a source of risk not only to them, but also to the financing banks and the financial system, especially in times of currency volatility. “The measures need to be strengthened by requiring the companies to put in place a risk management policy for their unhedged forex exposures,” the RBI note said.

"These measures have not yet been adequately put in place. In view of this and in order to address the risks on account of unhedged forex exposure of companies, it is proposed to increase the risk weight and provisioning requirement on banks’ exposures to companies on account of the companies’ unhedged forex exposure positions,” the note added.

Another official from GMR concurred that if there was higher provisioning for the unhedged portion of the loans, the banks would have to separately keep some money aside. This higher provision would then be passed on to the borrowers in terms of higher rates, making it unattractive. However, there are companies who have a natural hedge for whom the higher provisions would not apply, like in case of Delhi Airport, which has duty-free income in dollars and the aviation turbine fuel that is charged in dollars on international operators, the GMR official said.

A senior treasury official of TCS said, what RBI was trying to do was to ensure good control over companies that had not yet disclosed the hedged and unhedged portions of their total loan portfolio. The public sector companies normally do not hedge fully. It is not feasible to hedge for 10-year terms as the cost is very high and also the volatility may not be as much as expected.

AK Prabhakar, senior vice president and head of retail research at Anand Rathi believes it is advisable to know the unhedged portion of companies since a lot of infrastructure companies that borrow abroad, also borrowed in India, and they were highly leveraged, creating serious problems during currency volatility. They are not properly hedged. “The mandatory hedging would rein in their appetite to borrow,” Prabhakar said.

Cobrapost finds all hands in till: Black money is the India story

FP Staff May 6, 2013

Live: 'Offering help to launder money is punishable'   
Analysis:Everything you need to know about money laundering  
 Report: How Cobrapost carried out the sting   

Cobrapost is skeptical if the RBI will take any tough action against the banks and insurance companies alleged to be part of the money laundering racket

12:30 pm Cobrapost is not hopeful of the Reserve Bank of India taking a tough stand on money laundering, even after the latest expose which showed leading state-owned banks , Life Insurance Corporation and private insurers being party to the racket.

“Although the RBI has announced action, both at the systemic level and at the individual bank level, one can only hope they are not cosmetic, and the latest expose would spur both the RBI and the IRDA to address the malaise, for all times to come,” says the Cobrapost release.

“However, looking at the RBI’s rather suspicious, Protector-instead-of-Regulator conduct, it looks highly unlikely that any worthwhile cleansing of the system will happen. We are sure the RBI top brass will again go about town touting the expose as something of a non-issue since no transaction of cash has taken place,” the release said.

12:00 pm Offering help to launder money is also punishable, says Bahal

Aniruddha Bahal also  drew attention to clauses in the Indian Penal Code (IPC) and Prevention of Money Laundering Act (PMLA) which say that offering to support an offence, even if that is not committed, is also punishable by law.

In March this year, after the money laundering expose on Axis Bank  , HDFC Bank  and ICICI Bank  , Deputy RBI Governor KC Chakrabarty had been quoted as saying that “Allegations do not mean flouting norms,” and that not a single transaction had taken place.

This is what Section 120 of The Indian Penal Code, 1860 says, as mentioned in the Cobrapost release:  

“Whoever, intending to facilitate or knowing it to be likely that he will thereby facilitate the commission of an offence punishable with imprisonment, voluntarily conceals, by any act or illegal omission, the existence of a design to commit such offence, or makes any representation which he knows to be false respecting such design, if offence be commited-if offence be not committed.

Shall, if the offence be committed, be punished with imprisonment of the description provided for the offence, for a term which may extend to one- fourth, and, if the offence be not committed, to one- eight, of the longest term of such imprisonment, or with such fine as is provided for the offence, or with both.”

And, according to Section 3 of Prevention of Money Laundering Act 2002, “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering.”

11:30 am How Cobrapost carried out its sting operation

Taking an alias, Cobrapost Associate Editor Syed Masroor Hasan, posed as a relative of a fictitious politician. He made cold calls at dozens of bank branches and insurance companies. And the proposition was the same: A politician of stature wants to convert black money into white. Could the officials help?

“It didn’t take much effort to pull the lid off the murky world of money laundering as the officials of these companies rolled out a red carpet for our Masroor Hasan who visited dozens and dozens of branches across the length and breadth of the country, including many major cities and state capitals, across all five zones,” said Aniruddha Bahal, editor of digital magazine Cobrapost.

According to the press release, Hasan was never disappointed as no bank turned him down and almost every banker and insurer he met with was willing to help launder huge unaccounted cash the fictitious politician Masroor Hasan was representing.

10:30 am Cobrapost alleges LIC facilitated money laundering, also alleges nexus between banks and insurance companies

He has accused 23 private and public financial institutions of aiding money laundering. Life Insurance Corporation, State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, IDBI Bank, Yes Bank, Federal Bank, Reliance Capital, Birla Sunlife are among the few that have been named.

Revealing the nexus between banks and insurance companies, Bahal said, ” If banks don’t have their own insurance companies, they have joint ventures with other private insurers where they invest the money. Yes Bank, for instance, has a tie-up with Bajaj Allianz, which would question an investor only when the investment crosses Rs 1 crore.. and  such investments can be done in cash. Whenever we went about proposing to bankers, public or private, that we wanted to invest our black money in insurance, they immediately called the managers of the their insurance associates to our presence or sought their advice on phone, making it amply clear that banks and insurance companies are hand in glove.”

The gem to fall from grace is the iconic Life Insurance Corporation of India, the largest financial institution in the country,  Bahal explained.

With 30 crore policies under its belt, the insurance giant manages assets worth Rs 1474 lakh crore, about 15 per cent of India’s GDP. LIC underwrites about a-fourth of government bonds and securities.

“It also acts as a bulwark against unprecedented upheavals on Dalal Street, at the behest of the government, so that investors’ confidence in Brand India and in its amazing growth story does not dwindle,” said the Cobrapost release.

“Investigation puts a big question mark on the legitimacy of the business these institutions garner & profits they make,” he added.

According to Firstpost’s editor-in-chief  R Jagannathan, if everyone is guilty, the real question is not about corrupt individuals and institutions alone, but rather a systematic problem.

Here is the list of all public banks named in Cobrapost’s latest expose:

SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, IDBI, Indian Overseas Bank, Dena Bank Corporation Bank, Allahabad Bank, Orient Bank of Commerce, Central Bank of India.

Private bankers named in the expose:

Yes Bank, Dhanlaxmi Bank, Federal Bank, DCB Bank, HDFC Bank, ICICI Bank  Axis Bank .

Insurance companies named in expose:

Life Insurance Corporation of India, Reliance Insurance, Birla Sublife, Tata AIG

“Operation Red Spider 2 establishes beyond doubt that money laundering is not confined to private banks, and is not an aberration, as is being made out in certain quarters in the wake of the first expose on March 14 in which HDFC Bank, ICICI Bank and Axis Bank were shown involved in money laundering; it is rather endemic overarching the entire banking system and insurance sector, without exception, however shocking it might be,” the Cobrapost release said.

 Watch the expose on LIC below:

Arvind Kejriwal raises doubt whether banks and instance companies are laundering terror money

Aam Aadmi Party’s supremo Arvind Kejriwal  said the expose revealed that the government of India is directly allowing and encouraging money laundering. He also raised doubt whether banks and insurance companies are laundering terror money.

According to the expose, banks provide facilities to customers such as multiple lockers and machines to count money. For money laundering, banks enable creation of forged pan cards and multiple accounts, said Bahal, adding that they advise investors to maintain fictitious accounts for seven years saying that all details  vanish after this period.

Cobrapost has named Andhra politician  Sailijanath Saake in money laundering expose and also alleged that senior bank executives personally go to collect cash to help customers launder black money.

The Cobrapost sting revealed that  laundering transactions were not confined to a few low-level front-office staff members as is being made out in all the bank ‘inquiries’.

“Bank officials holding the ranks of divisional managers, territory manager, assistant general manager and vice presidents say they are all party to such money laundering transaction, said Aniruddha Bahal.

10: 00 am Bank Nifty recovers post Cobrapost expose

Bank Nifty recovered over 100 points from its intraday low after Cobrapost press conference began this morning.

In its continuing expose on the involvement of leading financial institutions in money laundering, media website Cobrapost on Monday said that 23 major banks and insurance companies were part of the racket. However, immediately after the press conference began, banking stocks recovered from the morning’s losses. The bank Nifty is down just 0.8 percent.

Bahal alleges money laundering by 23 fin institutions

10am:  In his second expose on irregularities in the Indian financial system, Aniruddha Bahal today accused 23 public and private financial institutions for facilitating money laundering. Cobrapost has named public banks including State Bank of India, Canara Bank IDBI, Punjab National Bank, Oriental Bank of Commerce and Central Bank.

The Cobrapost investigations were conducted fore more than half a year in many states including Uttar Pradesh, Rajasthan, Delhi, Haryana, Andhra Pradesh & Karnataka

The second round of secret videos have revealed violation of several provisions of the Income Tax Act, FEMA, RBI regulations, KYC norms, the Banking Act, said Bahal in a press conference today. “The revelations amounts to crystal clear offenses under IPC as well as the PMLA (Prevention of Money laundering Act).”

“Money laundering services are being offered openly as a standard product across the board. Even a walk-in customer can avail of such services that help him launder all his unaccounted cash. Money laundering practices are part & parcel of banking & insurance business across the board,” added Bahal.

Watch the clips of the sting operation below:

SBI, LIC facilitated money laundering: Cobrapost

From aiding customers to invest unaccounted money in insurance policies to advising them on ways to avoid coming under the income-tax scanner, officials of the banks have been caught on tape violating the so-called KYC norms, says Cobrapost. Photo: Pradeep Gaur/Mint
Live Mint : Remya Nair : Mon, May 06 2013. 10 43 AM IST
In its latest expose, Cobrapost accuses more than a dozen public banks, financial institutions of money laundering

New Delhi: State Bank of India (SBI), Life Insurance Corporation of India (LIC), Bank of Baroda and Punjab National Bank are among more than a dozen state-owned banks and financial institutions that have been accused of money laundering by online magazine Cobrapost.com in its latest expose.

Cobrapost has also accused private sector banks and financial institutions such as Yes Bank Ltd, Reliance Capital Ltd and Birla Sunlife, and some politicians of indulging in money laundering.

From aiding customers to invest unaccounted money in insurance policies to advising them on ways to avoid coming under the income-tax scanner, officials of these banks have been caught on tape violating the so-called KYC (know your customer) norms put in place to prevent tax evasion and also various laws under the Prevention of Money Laundering Act and the Income Tax Act, Cobrapost said.

Other banks named include Canara Bank, Oriental Bank of Commerce, Indian Bank, Indian Overseas Bank, Dena Bank, Allahabad Bank, Corporation Bank, IDBI Bank Ltd, Central Bank of India, Dhanlaxmi Bank Ltd and Development Credit Bank Ltd.

Cobrapost had alleged in March that ICICI Bank Ltd, Axis Bank Ltd and HDFC Bank Ltd were involved in money laundering.

Subsequently, the central bank along and other government agencies initiated investigations to probe the allegations.

The Reserve Bank of India’s investigation revealed certain lapses on the part of these banks pertaining to KYC guidelines and also raised some systemic issues that needed to be addressed, financial services secretary Rajiv Takru said last month.

Cobrapost has released transcripts of conversations involving executives at banks and finance companies where they are shown to be all-to-eager to gain business, even at the cost of violating the country’s laws. Mint hasn’t seen the original recordings and cannot vouch for their authenticity.

Mint is also in the process of reaching out to the banks and finance companies named for their response.