Byapaar.com – The Indian Business Blog

In an unprecedented move, Mr. Ramalinga Raju, promoter and Chairman of Satyam Computer Services, the fouth largest IT company in India has announced that he has been showing false and inflated data in the company balance sheet for years. He stated that from what was a minor gap in the company book when it was a company with only handful of employees, the magnitude of the problem grew with that of size of the company that currently employs around 53,000 and has operations in 66 countries worldwide. It boast of serving one third of Fortune 500 companies and also the US government.

Satyam has been under scrutiny since World Bank banned the company in October for allegedly installing spywares in some of their computers which Satyam denies. Then, in December Satyam management faced a revolt by investors for a proposed takeover of two companies engaged in construction for approximately $1.6 billion. It has later been found that Mr Raju has big stakes in those two companies.

Since then a tussle between the board and shareholders has been going on and shareholders have been demanding resignation of the Chairman and complete overhaul of the board. In the meantime it was found that promoters were just holding meager stake in Satyam as they have pledged most of their shares with lenders against loans. All these controversies led to huge loss of Satyam’s shares at the stock market. Already speculation was doing the round that Mr. Anil ambani – the Chairman of cash rich ADAG group might step in for a friendly takeover.

The problem got so big that Mr. Raju had no alternative but to reveal all his frauds and resign because he no longer has enough stake to control the company and if others seek to take over- they will find all the wrongdoings by him once they go through Satyam’s books.

Analyst say that Mr. Raju has not only damged future of Satyam but has created a bad impression on whole IT and outsourcing industry of India. Some commentators say that foreign clients might loose confidence in Indian companies as there is a big question mark on India’s corporate governance and transparency of their operations. Otherwise how could Satyam keep on with the fraud despite being auditored by world renowned accounting firm Pricewaterhouse Coopers?

Amidst all these, top leadership at Satyam has resolved that they would carry on and make Satyam a transparent corporation. But the maimum damage has already been inflicted not only for Satyam but questions are being raised on corporate ethics of whole Indian Corp. Shame on Satyam.

First of all, Happy and Prosperous New Year -2009 to all my readers and others. Hopefully, the New Year will bring much joy to all of us which were gone in 2008 due to economic downturn that occurred suddenly. And it seems governments are not sitting idle – indeed Indian government is trying its best to lessen the effect of global economic meltdown on Indians. Last Friday, the Prime Minister cum Finance Minister of India, Dr. Manmohan Singh announced second round of packages meant to stimulate the economy and protect it from global slowdown. In the first package , the government mainly focused on releasing more funds in the market by way of reducing interest rates and thereby improving liquidity. It also offered soaps to exporters. It seems the first package was aimed at immediate goals whereas the second package is more fundamental and might go a long way in reviving the economy.

In the first place the government doubled the cap on foreign investors in bonds and made ways for states to raise around Rs. 300 billion market loans. Moreover, the new initiative has given special emphasis on the automobile industry that has gone back gear after the economic crisis started. A plan of depreciation of fifty percent on car finance has been announced to shore up demand for the beleaguer industry. Exporters have seen rollback of entitlement passbook scheme rates amidst negative export growth in experienced in November.

On the financial sector, The Reserve Bank of India has announced further reduction in REPO and reverse-REPO rates. Special vehicle has been announced for improving liquidity in the non-banking financial market that may raise up to 250 billion Rupees. Rs 200 billion has been earmarked for state owned banks over net two years.

The government says it is not possible for more stimulus packages within this financial year that ends on March 31^st due to political and electoral compulsions. Over all, the two packages announced will take the country’s fiscal deficit to 5-6 percent from a comfortable 2.5 percent now.

Industry has more or less welcomed the anticipated second round of package and the stock market gained more than around 3 percent. But as always, industry want more from the government and argues that these schemes are not enough to push industrial growth which has come down to 0.4 percent from 5 percent at this time last year.

Amidst global economic turmoil and financial crisis caused by US subprime lending crisis that caused havoc in markets around the world, Indian nationalized banks in consultation with the government have announced reduction of interest rates on home loans of up to Rs. 2 million that could lead to partial impetus in the realty sector. Just last week industrial production in India contracted for the first time in 14 years.

According to the new rates set by the banks, housing loans of up to half a million Rupees will now have interests of 8.5 percent and that of loans between half a million to two million will have interest rates of 9.25 percent. Presently, interest for home loans is 9.75 to 10.5 across various sectors in the banking industry.

This brings very good news for millions common people who can not afford to think of a house or flat beyond Rs. 2 million. Another additional feature of the new housing loan package is that interest rates will remain frozen for 5 years which means clients will not have to worry about increased equated monthly installments (EMIs) during this period. Also they will enjoy the benefit of rate cuts in between while banks will take the burden if rates rise. After five years, consumers could choose either fixed or fluctuating rates according to their choice. This makes debt management a lot easier for the common person.

Not only this, but banks have also reduced the margin requirements for loans. While previously, borrowers were required to pay between 20 to 25 percent of the total amount as margin money, it has been trimmed down to 10 percent for loans up to half a million and 15 percent for loans between half a million to 2 million.

According to bankers, this move will see around Rs. 150 to 200 billion being released over next few years and help the common men who constitute eighty percent of nationalized banks’ housing loan book. (continue reading…)

Different people have different needs at various stages of life. So they have to plan accordingly and make some investments for financial security. For long, state owned insurance companies like Life Insurance Corporation of India (LICI) have been offering lots of investment options in India along with traditional saving agencies like banks and post offices. LICI has been the most dominant player in this field with almost monopoly status.

But the scenario has changed since Indian economy started liberalizing and opened up the sector to private and foreign players through IRDA bill in 1999 amidst protest from many quarters. Not surprisingly the who is who of global insurance majors rushed into Indian market and set up shops after tying up with local companies who have little or no experience in insurance business. Soon the market became hot as news players started to market their products more aggressively seldom seen in India. People got spoilt of choice as agents now came to homes or offices with insurance quotes their offered by their respective companies. My intention here is not to write about the history of insurance companies but it is absolutely necessary to know the background for the main topic.

So everything has been going smoothly for all with a booming stock market and fast growing economy. It has been like honeymoon for both investors and insurance companies. But nothing in a market environment is permanent and one fine day in the middle of September this year everything came tumbling down as world financial markets crashed. As most insurance companies invest funds they collect from clients, most of them suffered huge losses due to the global financial problem phenomenon.

To cite a personal example, one of my colleagues invested Rs. 50,000/- with an insurance product offering high returns (thus highly risky) and linked to stock market with life insurance as an added option, (continue reading…)