Thu, 22nd June 2017

Anirudh Sethi Report


Archives of “due diligence” Tag


Investments in domestic capital markets via participatory notes (P-notes) have surprisingly surged to 4-month high of Rs 1.78 lakh crore at the end of March despite stringent norms put in place by Sebi to curb inflow of illicit funds. P-notes are issued by registered Foreign Portfolio Investors to overseas investors who wish to be a part of the Indian stock markets without registering themselves directly. They however need to go through a proper due diligence process.

According to Sebi data, total value of P-note investments in Indian markets – equity, debt and derivatives -increased to 1,78,437 crore at March-end, from Rs 1,70,191 crore at the end of February. Prior to that, the total investment value through P-notes stood at Rs 1.75 lakh crore in January-end and Rs 1.57 lakh crore in December-end. In March, investments through the route had touched the highest level since November, when the cumulative value of such investments stood at Rs 1,79,648 crore.    

Sebi tightens P-Note norms to check money laundering

Tightening its norms to check any misuse of controversy-ridden PNotes, regulator Sebi today made it mandatory all end-users of these overseas instruments to follow anti-money laundering law in India and asked their issuers to report any suspected breach immediately.

Acting upon recommendations of the Supreme Court-appointed Special Investigation Team on black money, Sebi tightened the due diligence requirements for issuance and transfer of controversy-ridden P-Notes and put the onus on investors to ensure the AML compliance.

The issuers would have to conduct periodic review and report the complete transfer trail of Offshore Derivative Instruments (ODIs) — commonly known as Participatory Notes or P-Notes — to Sebi on a monthly basis in addition to the present requirement of reporting details of their holders.

Any change in P-Note regulations often results in a significant impact on the markets. As a Sebi board meeting was on today, markets plunged sharply on anticipation of tightening of the norms.

After the meeting here today, Sebi said its board has approved additional measures for the purpose of enhancing the transferability and control over the issuance of ODIs.


The much delayed coal bed methane (CBM) policy has been finalised by the Petroleum Ministry and is to be sent to the Cabinet any time this month, even though Coal Ministry officials say that there are still some “outstanding overlapping issues” which remain to be addressed as off late there have been a lot of discussions between the two ministries in recent times over reallocation of several blocks containing the natural resource.

In fact Coal Ministry officials expressed surprise that the Petroleum Ministry was planning to take the CBM policy for Cabinet approval.

Official sources told The Pioneer that the much-delayed CBM policy has been given the final touches by the Petroleum Ministry and is now to be taken to the Cabinet in the following weeks as all issues with the Coal Ministry have been resolved.

Recently the Defence Ministry gave its go ahead to 21 oil and gas blocks on which it earlier had put restrictions against any exploration activities owing to security concerns. Petroleum Ministry sources said that some of them are CBM blocks and with the policy almost ready, due diligence on them would be done once it is cleared by the Cabinet.

They added that the Petroleum Minister M Veerappa Moily gave a major push to the policy after taking charge of the ministry in October last year with the focus being on making the country more self reliant in the field of natural gas production. Read More 

India to lose heavily, disproportionately on gas price hike:CPI MP

A veteran CPI MP Gurudas Dasgupta has been at a forefront to oppose hike in gas price while terming it suicidal and anti people. Dasgupta in an exclusive interview with Sanjay Jog explains his stand.

What is your comment on Centre’s decision to increase gas price from April 1, 2014 onwards?
The government’s decision is definitely disastrous and suicidal one. Why the pricing is done in dollar when the imported coal is not being priced in terms of dollar? Linking it with dollar, the recipient or contractor will be the beneficiary. Why on the basis on dollar payment, it is a matter of mystery. This was done during the BJP led NDA government and the UPA government is continuing that line. In the wake of declining the exchange rate value, the outgo will be more and if the price rises, the country will lose heavily and disproportionately.
Why are you opposing it?
The government has agreed to double the price without any scientific study of cost of production per unit, what has been the actual revenue and what has been the profit. It is reported that the contractor has recovered much more that what was invested. Further, the government did not study the impact on two main users -fertilizers and power sectors.
The increase in the price of power per unit will involve more subsidy from the states. Stake holders are not consulted and the government has taken the decision without due diligence. Therefore, it is not only anti people, disastrous but in violation of all norms of appropriate functioning of the government machinery. The government cannot do it. Our battle will continue in and outside the parliament.
Neither the states were consulted nor the opinion of main users were taken into consideration. The decision was taken without analyzing. The government has responded to arm twisting methods of corporate.
Do you stick to your earlier observations that gas price rise is a scam?
It is certainly a mega scam. In view of the collusion between the corporate and the petroleum ministry, we have seen that a petroleum minister was removed in the past. This apart, there has also been the involvement of the finance ministry and the planning commission. The timing of the government’s decision is more intriguing as the deal has been struck on the eve of election. It is a known fact that the corporate is generous in making political investments. Read More 

Rajiv Takru says bankers reckless, casual as bad loans rise

 Bankers are being “reckless” and “casual” towards lending, finance secretary Rajiv Takru said on Wednesday, blaming them for increasing bad loans.
The government may increase the maximum penalty possible on banks for breaking rules to Rs.500 crore from the current Rs.1 crore, Takru said, in a reference to a Cobrapost expose on how bank officials bent rules for customers.
“We are in a sorry state of affairs. There has been a huge disregard for the fundamentals of the financial system by respectable people. While doing due diligence for loans of hundreds or thousands of crore, the least we expect you is to do due diligence of the company’s balance sheet. But there is a percentage of people who have a casual approach to non-negotiable things (in banking) like financial data,” Takru said, much to the discomfort of the bankers present in the audience at the conference where he was speaking.
Takru provided an example of a company against which a police complaint was filed for cooking up balance sheets to get loans. Read More 

PE funds consortium in talks to acquire Reliance Globalcom

RCOM-ANILAMBANIA consortium of PE funds including Samena Capital is in advanced stage of negotiations for acquisiton of Anil Ambani Group firm Reliance Globalcom Ltd.      

Reliance Globalcom is a unit of Reliance Communications and owns undersea cable firm Flag Telecom.      
RCom in a communication to the stock exchanges said: “Samena Capital, in a proposed consortium with certain other global PE funds, is at an advanced stage of the process of due diligence and completion of definitive documents in relation to the acquisition of Reliance Globalcom Ltd, our global communications services business unit.”      
The deal is likely to conclude by May-end.       Read More 

Nationalised banks in Rs 1.55 lakh crore debt trap

At a recent meeting with PSU bank chiefs, Chidambaram expressed concern over the unmitigated surge in bad loans at state-owned banks. His fear is justified. Recent figures from the finance ministry show that gross NPAs of PSU banks had gone from Rs 71,080 crore in March 2011 to Rs 1.55 lakh crore in December 2012.

PSU banks have shown an exponential increase in NPAs and restructured loans from 2011 to 2012. NPAs rose from 6.7 per cent in 2011 to 11.6 per cent in 2012. The State Bank of India (SBI), Central Bank, Punjab National Bank (PNB), Oriental Bank of Commerce, Punjab & Sind Bank and Indian Overseas Bank are currently reeling under the worst debt burden. Central Bank showed the highest rise in NPAs from 4.9 per cent to 18.1 per cent, followed by PNB from 4.5 per cent to 15.5 per cent. Read More 

11 Biases That Affect Traders

As the name suggested, it is the irrational faith in one’s skills, methodology or beliefs. For example, you see a certain chart pattern and make a maximum leveraged trade, even though you understand that any chart pattern cannot predict market with certainty. Trading excessively after a winning streak also shows overconfidence.

Cognitive Dissonance
It means finding excuses for something which makes you ‘uncomfortable’. For example, jumping from one indicator to another when you face losing trades; or continuing to trade in stock even your trading methodology does not gives you a positive expectancy. 

Availability Bias
It means being biased to information which is readily and easily available. For example, people begin to trade using RSI without understanding the internal relative strength; that is, RSI is most talked about on forums so start using them without rationally researching it. Being affected from attractive advertisement or intelligent sounding articles (including this one!) without due diligence also signifies availability bias.

Self-Attribution Bias
It means giving yourself unwarranted praise for outcomes which may just be an outcome of chance. For example, people make money in a bull market through buy and hold and start begin to believe on their trading acumen rather than the market regime which favors their trading style. Read More 

Bourses ask investors to trade cautiously in 2,400 stocks

In order to safeguard investors’ interest, country’s leading bourses BSE and NSE have advised extra caution while trading in illiquid stocks – around 2,400 in all.

Illiquid stocks are those that can’t be sold easily because they see limited trading. They pose higher risks to investors because it is difficult to find buyers for them, as compared to the frequently traded shares. “Trading members are advised to exercise additional due diligence while trading in these securities either on own account or on behalf of their clients,” BSE and NSE said in similar-worded separate circulars to their broker members.

As per directions from market regulator Sebi (Securities and Exchange Board of India), the BSE has listed out 2,133 such stocks, while NSE has also named 260 illiquid stocks where additional due diligence is required.

There are about 5,000 listed companies on the BSE, while NSE (National Stock Exchange) has more than 1,600 companies listed on its platform. There are many stocks common to the two bourses. Read More 

ING Vysya Bank Ltd. and ICICI Bank Ltd. – Penalised

The Reserve Bank of India has imposed monetary penalties of `55 lakh on ING Vysya Bank Ltd. and `30 lakh on ICICI Bank Ltd., in exercise of the powers vested with it under the provisions of Section 47A(1)(b) read with Section 46(4)(i) of the Banking Regulation Act, 1949. The penalties have been imposed on these banks for contravention of various directions and instructions issued by the RBI on ‘Know Your Customer (KYC) norms/Anti-Money Laundering (AML) Standards/Combating of Financing of Terrorism (CFT)/Prevention of Money Laundering Act, 2002’, such as failure to obtain adequate documents for opening accounts, failure to carry out sufficient customer identification procedures, failure to examine control structure of entities, failure to ascertain the identification of natural persons behind entities, failure to carry out effective enhanced due diligence, failure to carry out appropriate risk categorisation and delay in filing the Suspicious Transaction Reports.

The RBI had issued Show Cause Notices to these banks and in response thereto, the banks had submitted their written replies. On a careful examination of the banks’ written replies and the oral submissions made during the personal hearings, the RBI found that the violations were established and the penalties were accordingly imposed.