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DoT demand: Idea, Vodafone may pay under protest

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The $23-billion merger deal between Idea Cellular and Vodafone India may soon get the final nod from the department of telecommunications (DoT) as the companies are likely to pay the Rs 7,268 crore in dues towards spectrum charges demanded from the government. However, the companies are likely to pay the demand under protest, which means once the merger is approved by the DoT they will challenge the demand in court.

Sources said that the companies have decided to first pay and then challenge rather than first contest the payment in court because the latter move would delay the merger.

 

 

Of the Rs 7,268 crore demand raised by DoT, the contentious one that is likely to be challenged later is the Rs 3,322 crore raised on Idea towards one-time spectrum charge (OTSC) for spectrum held beyond 4.4 MHz. Idea Cellular had earlier obtained a stay order from the courts on paying this but the merger and acquisition guidelines state that in the event of a judicial intervention companies will have to furnish a bank guarantee of the said amount.

The balance Rs 3,926 that has been raised on Vodafone is not to be contested as it pertains to the entry fee and the auction-determined price of the start-up spectrum of 4.4 MHz which needs to be paid in the event any company goes for an M&A.

Though both the companies declined to comment on the matter, sources aware of the development said that the payment in the form of a bank guarantee is likely to be made as soon as DoT reverts to the companies’ request to recalculate the demand.

“They (the companies) have come back to us saying there is some difference of opinion in calculation of dues. So DoT is looking into it and we have not taken a view yet,” DoT secretary Aruna Sundararajan told PTI on Wednesday.

Vodafone and Idea Cellular had cited some difference of opinion on the way dues have been computed by DoT.

Earlier this month, DoT had granted conditional approval to the long-pending merger asking for the requisite payment.

The merged entity would be the country’s largest telecom operator with total revenues of over Rs 80,000 crore, 437 million customers, 35% subscriber market share and 39% revenue market share.

The combined debt of the Vodafone-Idea will stand at Rs 1.07 lakh crore, which according to a Bank of America Merrill Lynch report would constrain their capex at around Rs 13,000-14,000 crore for the next couple of years. In contrast the annual capex of Bharti Airtel is at around Rs 24,000 crore.

Once the merger is completed the two would remove overlapping sites, which would result in annual savings of around Rs 2,000 crore.

The merged entity will hold 1850 MHz of spectrum that will include 1645 MHz of liberalised spectrum, which will be capable of building substantial mobile data capacity, utilising the largest broadband spectrum portfolio with 34 3G carriers and 129 4G carriers.

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RBI Governor Das, bankers may not be on same page over passing rate cuts

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Mumbai: Reserve Bank of India (RBI) Governor Shaktikanta Das will meet bank chiefs to impress upon the need to improve transmission within the confines of it being a business decision. However, certain indicators suggest that bankers won’t be wrong in disagreeing with Das on the all-important rates issue.

So far, only State Bank of India (SBI) has reduced its home loan rates (up to Rs 30 lakh) by only five basis points (bps) after the policy rate cut of 25 bps on February 7.

High credit deposit (CD) ratio, with incremental ratio over 100 (indicating credit disbursement is more than deposit mobilisation) leaves banks with no room to cut deposit rate. They cannot cut lending rates without cutting deposit rates. Even when deposit rates are pared, because of their fixed nature, the cost of deposit doesn’t come down readily. Contrary to that, the lending rate cut immediately translates into hit on profitability.

 

Pallab Mahapatra, managing director and chief executive officer of Central Bank of India, said his bank’s marginal cost-based lending rate (MCLR) for one year and deposit rates are already lower than many large banks. For reducing loan rates further, the bank will have to cut deposit rates further, which would make the bank vulnerable to poaching for deposits from competing banks. And this, therefore, makes transmission a challenge.

One reason why the banking system is also increasingly getting vulnerable to rates is because the low cost current and savings account deposits (CASA) are running down as a share, whereas costly bulk deposits are increasing because of liquidity tightness in the banking system.

The system liquidity was running a deficit of more than Rs 1 trillion as on Tuesday, having improved from Rs 1.13 trillion on February 18. This is despite RBI’s bond purchases from the secondary market reaching about Rs 2.7 trillion. The liquidity deficit will only increase with tax-related outflow from companies in the coming days. “Liquidity is leaking from other channels also, for example, high currency in circulation (CIC) in an election year,” said a senior economist.

Latest data shows currency in circulation, as on February 15, was at Rs 21.06 trillion, compared with pre-demonetisation level of Rs 17.97 trillion. The growth in CIC on a year-on year basis was 18.4 per cent, much higher than the normal 13-14 per cent even in busy periods.

Clearly, the RBI’s record open market operations (OMO) was not enough when supply of bonds remained elevated, and while not much of dollars are flowing into the country.

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Growths set to slow down to 6-6.5% in H1 of 19: Nomura

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Mumbai: Despite the almost lose fiscal and monetary policies, the economy is likely to slow down to 6-6.5 percent in the first half of 2019, due to weak global demand, political uncertainty and tighter financial conditions, says brokerage report.

The Reserve Bank under the new governor had last week projected a GDP growth of 7.4 percent for 2019-20–7.2-7.4 percent in first half, and 7.5 percent in the second half.

“Consistent with our index, we expect GDP growth to slow from 7.1 percent year-on-year in the third quarter of 2018 to 6.6 percent in the fourth quarter and further to 6-6.5 percent in the first half of 2019,” Japanese brokerage Nomura said in a report Tuesday.

 

Citing the fall in the Nomura composite leading index fell to 99.9 in Q1 of 2019 from 100.1 in Q4 of 2018, indicating the business cycle is headed lower, at least into the first half of 2019, the report said.

“Fiscal and monetary policies are turning expansionary but are unlikely to change the near-term trajectory,” the report added.

The monetary and fiscal policies have shifted to easing mode, although it remains cautious on their near-term impact, it said.

“On fiscal policy, while we compute the fiscal impulse of the budget at 0.36 percent of GDP, we foresee implementation challenges ahead of the government’s ‘farm charm’ package,” it said.

On monetary policy, the RBI reaffirmed its focus towards headline inflation and its willingness to support growth, which suggests the February policy cut was not a ‘one and done’, it said.

“With its inflation projection remaining below the 4 percent target through 2019, and our assessment that growth will disappoint the RBI, we expect another rate cut in Q2 (very likely in the April review),” it said.

As the previous divergence between exceptionally low food and elevated core inflation closes, the report does not assess the need for a deeper rate cut cycle. It sees a 20 percent probability to a third rate cut in the third quarter.

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Indian economy fundamentals sound, set to reach USD 5 trillion: PM Modi

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Seoul: Prime Minister Narendra Modi on Thursday said fundamentals of the Indian economy are sound and it is on the way to becoming a USD 5 trillion economy soon.

Addressing the India Korea Business Symposium here, he said India is now a more open economy and has attracted USD 250 billion foreign direct investment (FDI) in the last four years. He said no other large economy in the world has grown at 7 per cent year after year.

India, he said, has jumped to 77th spot on the World Bank’s ease of doing business ranking on the back of reforms and is determined to break into the top 50 next year.

 

The role of the government is to provide a support system, Modi said, adding that India has emerged as a land of opportunities.

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