HIKE IN FOREIGN HOLDING Booster for Axis Bank stake sale

Cabinet also clears mega port, government housing projects, among others ■

THE Cabinet Committee of Economic Affairs (CCEA) on Tuesday let foreign investors raise their holding in Axis Bank from 42.6% at present to 74%, the policy ceiling for such stakes in private banks. The decision would help foreign investment flows of close to R41,000 crore at current market prices. A resultant valuation boost to the bank’s scrip could come in handy for the government wanting to sell its residual 11.9% stake in the bank held via Suuti (Specified Undertaking of UTI) and bolster its non-debt capital receipts. At current prices, the Suuti stake in Axis bank is worth close to 15,400 crore.

The gover nment said the approval for Axis Bank to up foreign investment (it had the nod for 62% holding by overseas investors) would produce “up to 7,000 jobs over the next three years”. This assumes an expansion of the bank’s network and business because at least part of the foreign investment could come in as fresh equity.

The government also cleared two major projects entailing mammoth government investments: The three existing “major (state-sector) ports” in Tamil Nadu — Ennore, Tuticorin and Chennai — will come together to set up a new major port at Enayam near Colachel in the state at a cost of R25,000 crore; and seven general pool residential accommodation (GPRA) colonies in the national capital will be developed and a government office complex set up in Netaji Nagar over a 30-year period at a total cost of R32,835 crore, including maintenance and operational expenses.

The new port at Enayam, according to telecom minister Ravi Shankar Prasad, would not only act as a major gateway container port for Indian cargo that is presently transshipped outside the country, but also become a transshipment hub for the global east-west trade route. Currently, all of India’s transshipment traffic is handled in Colombo, Singapore and other international ports; domestic ports lose out around R1,500 crore in revenues annually due to this.

The UPA government had in December 2013 allowed Axis Bank to hike foreign ownership to 62% from an earlier ceiling of 49%. It had also R5,500 crore by selling a 9% stake in Axis Bank through Suuti in 2013-14.

The foreign ownership in the bank has, however, remained at the current level of below 43%.

With a Narendra Modi government decision in November last year, the 74% policy cap on foreign investment in private banks is a composite one: The investment on a fully fungible basis can be by way of foreign institutional investors/foreign portfolio investors/non-resident Indians, foreign director investment covering American depository receipts/ global depository receipts and indirect foreign investment.

While the Centre is aiming to raise R36,000 crore in revenue from minority stake sales in PSUs in the current fiscal, it has estimated another R20,500 crore could be mobilised via strategic stake sales in them. The latest Union Budget was, however, silent on the sale of the Centre’s stakes in private companies, including the Suuti holdings, although analysts said given the fiscal constraint, it could opt for this route and Axis Bank stake sale appeared the most feasible.

Meanwhile, the CCEA on Tuesday also approved a 9% increase in pension of 1.88 lakh BSNL employees who retired prior to October 6, 2013, by allowing the benefit of merger of 50% DA/DR with basic pay/pension, effectively amounting to 78.2% DA/DR for the purpose of fitment. It modified the liability of BSNL towards the payment of pensionary benefits to the retired employees. “The revision entails an estimated recurring annual expenditure of R129.63 crore for pensioners and R24.93 crore for family pensioners and arrears from 2013-14 would be R239.92 crore for pensioners and R44.62 crore for family pensioners,” an official statement said.

“We have taken a big decision with respect to pensioners of BSNL. When BSNL was formed as a new entity, salary of employees was given by BSNL but obligation of pension was on the government,” Prasad said.

Regarding the redevelopment of seven GPRA colonies in Delhi, a government statement said three of these — Sarojini Nagar, Netaji Nagar and Nauroji Nagar — will be done through National Buildings Construction and the remaining four — Kasturba Nagar, Thyagraj Nagar, Srinivaspuri and Mohammadpur — through the Central Public Works Department. In all, existing housing stock of 12,970 dwelling units of Type I to IV with a built-up area (BUA) of 7.49 lakh sq m will be replaced with 25,667 dwelling units of Type II to VI with BUA of 29.18 lakh sq m with supporting social infrastructure facilities. Additionally, a government office complex of nearly 2.42 lakh sq m will be set up at Netaji Nagar. and foreign investment, the passage of laws related to land acquisition and the goods and services tax (GST) have stalled, illustrating our expectation that political friction will keep the reform process uneven and slowmoving,” the rating agency in its “Inside India” report.

Domestic political developments amid an uncertain global environment in 2016 are likely to keep market sentiment volatile, it said.

The passage of the bankruptcy law and bad loan (NPA) recognition in banks would be credit positive, if it leads to improved bank capitalisation levels, renewed loan growth and robust risk processes, Moody’s said.

As for whether or not the UK’s majority vote to leave the European Union will affect India’s financial markets, it said that any effects would be limited because exports to the UK and the rest of the EU account for just 0.4% and 1.7% of India’s GDP, respectively. In addition, India is not significantly exposed to a potential sharp fall in capital flows to emerging markets.

Moody’s analysis also took note of India’s state-run oil firms’ acquisition of energy assets in Russia to enhance the country’s energy security.