Wednesday, January 30, 2008

Highlights of RBI's third quarter monetary policy review

The highlights of the third quarter review of India's monetary and credit policy for fiscal 2007-08 conducted by the Reserve Bank of India (RBI) here Tuesday:
* Bank rate kept unchanged at six percent
* Reverse-repurchase rate and repurchase rate kept unchanged at 6 and 7.75 percent, respectively
* Cash reserve ratio unchanged at 7.5 percent * Economic growth projection for 2007-08 retained at 8.5 percent
* Stated priority of containing inflation close to 5 percent
* Headline inflation has picked up since the beginning of Dec 2007
* Money supply has accelerated
* Aggregate deposits of banks have grown 14.6 percent
* Non-food credit, although below the projected growth of 24-25 percent given in the Annual Policy Statement, has been picking up since mid-August 2007
* India's foreign exchange reserves increased by $48.6 billion during April-Sep, 2007 as against $13.7 billion in the first half of 2006-07.
* Rupee has appreciated 9.61 percent against the US dollar by Jan 25, 2008 --Indo-Asian News Service.

Monday, January 28, 2008

Unemployment on rise

Five million more people risk being made unemployed in 2008 as the global economy struggles with the US subprime crisis and rising oil prices, the International Labour Organisation (ILO) said today.
"This year's global jobs picture is one of contrasts and uncertainty," said ILO director general Juan Somavia. "While global growth is annually producing millions of new jobs, unemployment remains unacceptably high and may go to levels not seen before this year," he added.
The gloomy outlook is in contrast to the previous year, hailed by the ILO as a 'watershed' with 45 million new jobs created and only a slight rise in unemployment, which stood at 189.9 million people at the end of 2007.
The Geneva-based ILO said in its Global Employment Trends report for 2008 that the worldwide jobless rate is set to increase to 6.1 per cent from six per cent the previous year.
Economist Dorothea Schmidt said that five million fewer jobs are expected to be created in the year ahead. But the organisation's employment director Jose Salazar-Xirinachs conceded that these forecasts will have to be further revised after recent market turmoil wiped billions of dollars off stock exchanges, further stoking fears of a global recession.
"It is very likely that there will be a downward revision of production growth. If this happens we will have to revise our estimation in the labour market," he said.
South Asia was at the vanguard of job creation in 2007, accounting for 28 per cent of all new jobs. But the ILO cautioned that many of these new jobs remain vulnerable, with more than seven out of ten people in work classified as 'own-account' workers who lack social security and workplace protection.
The ILO urged governments to place labour market policies at the heart of macroeconomic strategy to ensure that growth translates into new jobs. "The current economic situation is therefore cause for significant concern, and the ILO will monitor developments closely over the coming year," Somavia said.
The ILO noted that, to date, the slowdown in industrialised countries due to the credit crunch and soaring oil prices has been offset by strong growth in developing economies, especially in Asia.
"Probably, for the first time ever, it can be seen that turbulence in one region (developed countries and the EU, and upfront the US) may not necessarily impact on other regions to the extent that a global slowdown is caused," the report stated.

Sunday, January 27, 2008

Market turmoil fuels new gold rush

Turbulence on world stock markets has fuelled a new gold rush, sending high-tech traders in search of the same "barbaric" treasure mankind has lusted after for millenia.
It was British economist John Maynard Keynes who called gold a "barbaric relic" early last century, but modern investors are showing the same enthusiasm for the precious metal as the grizzled prospectors of legend."We have to put gold into perspective right now with the meltdown in the financial system," Warwick Grigor, chairman of Far East Capital, said. "There's great fear out there, and gold stands out as a safe haven.
"When there's fear of inflation gold is something investors want to purchase because there is a very limited supply -- you can't flood the market with gold."Governments can print money -- that creates inflation. Paper money is just a promise and that promise gets abused constantly by governments." Gold hit an all-time peak of 923.73 dollars an ounce on the London Bullion Market on Friday after a week in which global stock markets plunged on fears of a recession in the United States.To staunch the bloodbath on the markets, the US Federal Reserve intervened with a surprise 75 basis points cut in interest rates, a move Grigor described as a short term fix which would push up inflation.While gold's rarity is cited as the main reason it will maintain its value in volatile times for stocks and paper money it also seems to wield a primitive fascination beyond its worth."Gold may not be rational but human beings are not necessarily rational either," said author and analyst Trevor Sykes."Gold has been around for about 3,000 years whereas paper money has been around for only a couple of hundred years and the way things are going I would back gold to outlast most of the paper money in this world.
"It does make nice jewellery, it's very attractive, it appeals to our primeval urges and it looks like it's got a terrific future." It has been used for centuries as a symbol of wealth in anything from jewellery to gold bathroom fittings or even the coffin of Egyptian Pharaoh Tutankhamun, who died more than 3,000 years ago.
As currency, the history of gold coins is usually traced through the Roman billion yen for the third fiscal quarter, compared with 55.9 billion a year earlier. Toshiba is also seen suffering from declining prices of flash memory chips, which are used in iPods and other digital consumer products.
"Given the decline in flash memory chips and an expanded loss in its DVD business, Toshiba may have to revise down its full-year profit forecast," said Goldman Sachs analyst Ikuo Matsuhashi.
-- AFP

Saturday, January 26, 2008

Gold Rush: Its never too late to invest on yellow metal

Did you know you do not need fat wads of greenbacks to buy gold from New York? And, did you know you can purchase it right from your home without having to make a full payment, avoiding several costs and risks associated with it?
Commodities and Metal Exchange Nepal (Comen) has introduced gold as the first metal to the country's futures market under futures contract. A futures contract is an obligation to buy or sell a specific quantity of gold, say, one kilogram, just by investing a part of the total value.
Buying futures obligates one to take delivery at a particular date in the future. To trade in gold futures, one has to initially deposit a margin money of Rs 50,000 for a kg and Rs 30,000 for a half kg, to be delivered within three months.
Some have already made a fortune in past nine months since Comen started the futures trading of the precious yellow metal. "It's never too late to join the gold rush," says Vijay Satyal, CEO and director of Comen. "Futures traders can also dispose it off almost instantly, and certainly on a profit margin."
Why invest in gold? "Because it's a wise investment like equities and land and can easily be converted into money," says Satyal. "Perhaps, no other market in the world has the universal appeal of the gold futures market. Around the world, gold has always established itself as a traditional store of purchasing power and it's gaining ground due to the weakening of the US dollar."
"Gold hit historic highs at $924 an ounce on Friday," he says.
Earlier, one would have to hoard and trade in gold physically. "Now one has the option of not physically stocking it to gain from its price movements," said Dirghayu N Bhari, a business promoter affiliated with the Comen. "Trading in futures is better than the option of hoarding gold," said Bhari. "There are several costs associated with the process of physically stocking gold – transportation, storage, and safety risks, just a few to mention."

The futures trading are certainly not free from risks, though. Here one must trade carefully. Before becoming too excited about the lucrative returns possible from futures trading, it is a good idea to take a sober look at the risks. "Futures traders can however arbitrate and mitigate the risks if they are fully aware of these," said Satyal. Although the risks can be managed, they can never be eliminated, he added.
Managing the risks of trading is a very important part of any trader's success.

Friday, January 25, 2008

NRB Report: Rs 9.81b budget deficit

High government expenditure has pushed the budget to Rs 9.81 billion deficit, in the first five months of 2007-08. However, it was at the surplus of Rs 4.95 billion, in the same period last year.
"Of the sources of deficit financing, the government mobilised Rs 5.08 billion through the fresh issuance of securities and Rs 2.57 billion from central bank in the form of overdraft," states Nepal Rastra Bank's (NRB) first five-month report of 2007-08.
The amount raised through the issuance of securities is 24.8 per cent of the budgeted ceiling of Rs 20.5 billion for 2007-08. "Of the total budget deficit, remaining Rs 2.24 billion was financed through external borrowing," the report states.
The revenue mobilisation has also grown by 21 per cent to Rs 32.36 billion compared to a rise of 13 per cent in the same period last year.
In comparison to mid-July 2007, the Nepali currency appreciated by 2.53 per cent vis-à-vis US dollar in mid-December 2007, states the report. It had appreciated by 3.71 per cent in the same period last year.
Based on the monetary statistics, the overall balance of payments (BoP), which was at deficit for last couple of months, returned to a surplus of Rs 24.1 million, as of now, claims the central bank.
Similarly, total imports grew by 1.5 per cent compared to a growth of 10 per cent in the last year. While imports from India rose by 2.4 per cent in the review period, imports from other countries were at the same level of 9.2 per cent.
But total exports fell by 6.9 per cent as against a rise of 0.2 per cent in the corresponding period last year. Of the total exports, export to India plummeted by 9.3 per cent compared to a growth of 0.9 per cent in the same period of 2006-07. Exports to other countries also posted a decline of 1.4 per cent.
The decline in the exports to India was primarily attributed to the decrease in the exports of vegetable ghee, toothpaste, chemicals, textiles and wire. Similarly, exports to other countries also dropped arising from the lower exports of woolen carpet, pashmina, readymade garments, Nepali paper and paper products and tanned skin.
The net purchase of $464.8 million from the commercial banks resulted in the injection of liquidity of Rs 29.76 billion in the review period. Last year, such net purchase was $394.5 million leading to the liquidity injection of Rs 28.9 billion.
The purchase of Indian currency by selling $550 million amounted to Rs 35.08 billion in the first five months. During the same period in the previous year, the purchase of Indian currency had amounted to $320 million, an equivalent of Rs 23.39 billion. A higher level of payment by NOC to IOC in the review period compared to the previous year and a widening current account deficit with India resulted in the rise of the purchase of IC in the review period.
For managing short-term liquidity, net liquidity amounting to Rs 6.81 billion was absorbed through reverse repo auction of Rs 5.57 billion and outright sale auction of Rs 1.24 billion, states the NRB report.
The y-o-y inflation moderated to 5.7 per cent in mid-December 2007 from 7.3 percent a year ago. The moderation was on account of the base-effect of hike in prices of petroleum products in March 2006 and the nominal appreciation of the Nepali currency against the US dollar. In mid-December, 2007, the y-o-y core inflation moderated to 4.7 per cent from 6.7 per cent a year ago.

Wednesday, January 23, 2008

NT mega issue

The much-awaited and most controversial mega issue of 7.5 million units — in the first phase — of Nepal Telecom's (NT) shares received a lukewarm response today on the opening day due to nationwide protests against petroleum products' price hike.
The government is planning to raise Rs 9 billion by selling NT's share — held by the finance ministry — through auction. The price of per unit share is quoted at Rs 600 minimum — Rs 100 face value with Rs 500 premium. People can apply within 35 days from today.
However, NT has alloted five per cent of the shares to its employees at the subsidised rate of Rs 90 per unit, which drew a lots of criticism. "But we cannot sell our shares within three years," one senior employee of the NT said.
After three years lock-in period also, they can sell only 25 per cent of the shares and the remaining shares could be sold only after their retirement. However, NT is alloting shares to its retired employees also. "In that case, we don't know what will happen after the lock-in period," he said.
Earlier, the issue manager Citizen Investment Trust (CIT) has fixed some of the NT branches as collection centres outside the valley. But CIT has cancelled that today. "We are talking to Rastriya Banijya Bank (RBB) for the alternative out side the valley," said Anil Dhakal, head, merchant banking department of CIT.

Tuesday, January 22, 2008

Yeti Airlines goes international

Yeti Airlines International Pvt Ltd — under the brand name — today commenced its international flight with the inaugural flight to Kuala Lumpur (Malaysia) from Kathmandu.Minister for Civil Aviation Prithivi Subba Gurung and high ranking officials from the Civil Aviation Authority of Nepal (CAAN) were present during the inaugural is a Low Cost Carrier (LCC) that plans to operate low cost flights to destinations in South East Asia, India and the Middle East. "As with most Low Cost Carriers, meals and refreshments can also be purchased on board the aircraft," states a press release.
Meanwhile, Orient Thai, one of the major Airlines of Thailand has also begun its operations in Nepal. "It is in service since 2000 and flies to various Asian countries," states a press release.On December 29, 2007, Orient Thai made its inaugural flight with its luxurious 170-seater MD82 aircraft. It is scheduled to have three filghts a week on Tuesdays, Thursdays and Saturdays.
Orient Thai aims at providing its customers a pleasurable journey to Thailand and has designed its fares and services accordingly, claims the company.
It offers its customers full service in budget fare and wants to establish itself as a 'full service low fare airlines'. The Airlines has assigned Orient Asia International Pvt Ltd as its international authorised agent, which has further join hands with other travel agencies to make the tickets available conveniently to its customers.

NOC rolls back price

Amid nationwide protests after steep price hike of major petroleum products, Nepal Oil Corporation (NOC) today said that it would not withdraw its decision, citing a heavy loss due to price disparity.
The state-run petroleum supply monopoly — that is blamed to be fleecing the poor and serving the rich by hiking prices of diesel, kerosene and LPG that are used by the middle-and-lower classes — hiked the prices by Rs 5.05 a litre, Rs 10 a litre and Rs 130-150 per cylinder respectively in diesel, kerosene and liquefied petroleum gas (LPG) yesterday evening.
"Though the decision was an unpleasant, it was obligatory to bail out NOC and to ensure smooth supply of petroleum products," NOC managing director Digamber Jha said, adding that the price hike of major petroleum products is aimed at the ongoing efforts to aid repayment of Indian Oil Corporation (IOC) dues and end the festering fuel shortage in the country.
However, Dr Raghab Dhoj Pant, a prominent economist warned that such a price hike would have a severe negative impact on standard of living of common people. "It will cause a spiral impact on inflation resulting in market prices of goods and services shooting up," he said. "Poorest of the poor will be hit hard. Income has not improved but market inflation is going up every one or two months," Dr Pant said, adding that such trend will increase poverty in long-term.
CPN-UML lawmaker and economist Dr Dilli Raj Khanal termed the price hike as government's move to aggravate the ongoing peace process by creating space for regressive elements. He also criticized the government, particularly NOC, for disobeying a parliamentary committee's directives.
"NOC has deliberately defied the Finance Committee's directives of adequate consultation with the concerned stakeholders, public awareness before any price hike, transparency on stock and accounts, structural and administrative reforms," Dr Khanal said, adding that the government even dared to consult with other ruling parties for this price hike.

"Under the pricing of IOC on January 16, NOC has been incurring Rs 604.6 million loss a month on diesel, kerosene and LPG," Jha said, claiming that the NOC would still be incurring a loss of Rs 230.28 per cylinder in cooking gas and Rs 6.08 a litre in diesel despite the price hike, making a total monthly loss to the tune of Rs 230 million.
He maintained that NOC has been incurring a minimal loss of Rs 0.54 in petrol but makes a profit of Rs 2.55 per litre in kerosene, which is the cooking fuel for many of the lower-middle and lower classes.
NOC has but said that it would continue to provide subsidy for students in cooking gas and people from lower income bracket in kerosene on monthly basis. It said that it would issue subsidy card with help of local administration for families and college or universities for the students.
"Each family will get Rs 50 subsidy in kerosene monthly and Rs 100 per cylinder in cooking gas for the students," Jha said. But the procedure to get subsidy is too lengthy and lacks transparency.
According to him, NOC's total liability including outstanding dues to the IOC stands at Rs 10.22 billion, currently. Of the amount, NOC has yet to pay Rs 2.05 billion to its sole supplier IOC, Rs 4.83 billion to various financial institutions and borrowings worth Rs 3 billion from the government.

Asians enjoy largest pay hike

Salaried workers in Asia are tipped to enjoy the world's largest pay increase of 7.3 per cent on average this year, an international human resources firm said.
The increase in Asia will be higher than the global figure of 5.9 per cent, said ECA International. Asia's economic growth along with the need to retain skilled talent are the main factors fuelling the wage rise, it stated.
"Relatively high rates of salary increase in Asia in comparison to elsewhere in the world reflects that robust economic growth recorded in 2007," said Lee Quane, ECA's Hong Kong-based general manager.
"Principal causes of these salary increases are inflation, economic growth and the need for organisations to retain key talent," he said. Within the region, Indian workers' pay packets will likely see the biggest rise of 14 per cent, which is also the highest increase among the 47 countries included in the survey of 250 multinational firms.
Vietnamese workers' wages are expected to jump by 10 per cent, the second highest growth in Asia, while at the other end of the scale Japanese employees will have the lowest rise of three per cent, the survey stated.
"These high increments are mainly the result of fast economic growth and widespread skills shortages which are prompting companies to pay more for talent while keeping pace with the inevitable inflation that comes with economic development," ECA International said.
In China, wage growth is expected to remain at eight per cent while in Hong Kong, the forecast is four per cent and in Singapore five per cent, stated ECA International.
In Indonesia, wages will rise by 11.3 per cent, the Philippines eight per cent and Thailand 6.5 per cent, according to the survey carried out in the second half of last year.

Monday, January 21, 2008

NRB brings new rule

Rastra Bank (NRB) has today brought a new directive replacing the earlier one that is has published on December 27 temporarily stopping the margin lending.
According to the new directive, promoters can now sale 49 per cent of their shares and retain 51 per cent. Short supply and high demand has been blamed for the abnormal rise of share prices.
"The capital market was heated due to the short supply. Now with the new rule, shares volume at the secondary market will increase stabilising the capital market," an official at the central bank, the regulator of the financial institutions said adding that the margin lending has been yet another reason.
However, the central bank has also stated that the financial institutions can lend against the shares. "Unlike the practice of lending against the cheat of a broker, now the share certificate is mandatory."
A financial institution can lend 50 per cent of the total amount against the original share certificate in average of 180 days price. "But the financial institutions can not lend more than their core capital," said the official, adding that the financial institutions that have lent will get time till Asad to bring its lending within the ceiling, until then they are not allowed to lend any more.

Friday, January 18, 2008

NAC lacks plane, pilots

After a series of technical glitch, the ailing national flag carrier Nepal Airlines Corporation (NAC), is now facing shortage of pilots who can fly Boeing solo.
“There is an acute shortage of senior pilots, who can fly the Boeing full fledged. Only 14 captain pilots are with the corporation at present,” said one senior pilot, without wanting to be named.Agreed, K B Limbu, the newly appointed managing director (MD) of the NAC, “There are now only 14 full fledged senior captains. After my resignation — to be appointed as MD — the number is reduced to 14, which is not sufficient, if both Boeings — Gandaki and Karnali — comes into operations.”
Currently, NAC is flying only one Boeing, Gandaki as the other one, Karnali, is in Brunei for regular C check. “But its engine is in Beijing for maintenance,” he said adding that it will start to fly from March 30.
The newly appointed MD Limbu, who has spent his life with the national flag carrier, plans to operate both the Boeings in full capacity. But the situation is not supportive as the remaining pilots are also in a mood to quit.
“Seven senior pilots have already resigned,” he said.“Its an expensive brain drain as the government has spent millions on the pilots,” one pilot, who left NAC, said adding that they do not want to leave but they have no choice.
In such a critical situation what is the new MD planning? “I don’t sell dre-ams,” he said, adding that he prefers to work to regain the national flag carrier’s lost glory. He wants to make NAC commercial airliner. Private, public partnership may be a better option, he said. “But not like Bansbari Leather Factory and Harishiddhi Brick.”

Wednesday, January 16, 2008

Yeti Airlines spreads its wings, goes international

Yeti Airlines, Nepal's leading domestic carrier and Air Arabia, the largest low cost carrier in Middle East and North Africa, entered into a joint venture to start a new budget airline.
Lhakpa Sonam Sherpa, chairman of Yeti Airlines, domestic and Air Arabia chairman Sheikh Abdullah bin Mohhammad al-Thani recently signed an agreement for the joint venture in Dubai. Nepal government has already approved the accord.
According to the agreement, the two airlines will jointly establish a new low-cost carrier — under the brand name — based in Kathmandu providing affordable and convenient service to a broad range of international destinations. The new markets would stretch from South and Central Asia to the Far and Middle East as well as the Indian subcontinent.
The new venture will have major share of Air Arabia and will apply its successful low-cost business model to the management of Nepal's first international LCC.The Airlines has received an 'A' category air operator certificate to operate as an international airline. “Operating at higher standards established by both carriers, Yeti Airlines International and Air Arabia will together revolutionise air travel in Nepal and across a much wider region,” he added.
The new carrier will begin operations From January 20. The first destination will be Sharjah and to selected destinations in India as well as to Doha and Kuala Lumpur in Malaysia and other destinations in Asia.
“As we set our sights on global expansion, we remain focused on youthful, fast-growing economies where opportunities for growth are greatest. We are pleased to join efforts with Yeti Airlines,” said Air Arabia ch-airman Mohhammad al-Thani.
Ang Tshiring Sherpa, MD of Yeti Airlines termed the agreement as Yeti’s continuous effort to open up Nepal to travellers both nationally and internationally. “What is more is that the true potential of Nepal as an 'all season' tourist destination is being seriously addressed for the first time,” he said.
Currently, Yeti Airlines operates with a fleet of 10 aircrafts and flies over 29 domestic destinations.

Tuesday, January 15, 2008

NRB to contract out NBL management

Nepal Rastra Bank (NRB) has decided to contract out Nepal Bank’s management to a team of Nepali professionals, initially for a period of two years.
The central bank today called for bids with technical and financial proposals by February 22. Interested Nepali individuals, firms, companies having qualifications, eligibility and adhering to the terms and conditions can submit their bids, according to the bank.
“The management team should include chief executive officer, chief credit officer, treasury manager, chief operating officer,” said K B Manandhar, acting governor.
The bidders may form their teams by optionally including one foreign consultant with hands-on international experience.“The initial contract will be for two years, but it may be extended mutually,” Manandhar said. The bidders must also submit tax clearance certificates and individual self-declaration of proposed candidates for being eligible and qualified to participate legally and work full time.
It will take another one month to completely hand over the contract as it will take time for verification process and for obtaining no-objection from the World Bank, which has been assisting the financial sector reform programme, Manandhar said.
“The NBL management contract is part of the financial sector reform programme that startedin 2002.”The troubled Nepal Bank Ltd is being managed by a team headed by Dr Binod Atreya under the supervision of the central bank. NRB appointed Dr Atreya’s team about six months ago, when the foreign management team of the Bank of Scotland (Ireland) Ltd, ICC Consulting decided to walk out suddenly, unhappy over NRB’s decision to extend the contract for another three months.
An unaudited report proves that Nepali management team is capable of handling the bank as its financial health has been improving, Dr Atreya said.
The foreign management team has downsized staff, computerised 44 branches, prepared operational and HR manual. Reform has also helped modernise the ailing bank and made it more professional and reduced non-performing assets from a whopping 59 per cent to 13 per cent.
The bank, apart from injecting fresh blood, has also started reinstating its branches that were displaced due to the armed conflict.

Sunday, January 13, 2008

Dry port agreement

Himalayan Terminals Pvt Ltd (HTPL) and Nepal Intermodal Transport Development Board (NITDB) signed a supplementary agreement for managing the Sirsiya dry port (ICD) in Parsa, on Thursday.
Executive director Sharad Bikram Rana and HD Gujarati signed the agreement on behalf of NITDB and HTPL, respectively. Three years ago, the government has given the dry port to HTPL on lease for Rs 940 million for a period of 10 years. HTPL has, however, repeatedly, urged the government to review the lease agreement saying it has been incurring loss.
Under the reviewed agreement that will be effective for three years, HTPL will have to pay NITDB Rs 40 million for the first year, Rs 45 million for the second year and Rs 50 million for the third year.
Apart from this, HTPL will have to pay Rs 2,200 revenue — for 14,100 containers for the first year, 17,200 containers for the second year and 20,200 containers for the third year — for each container. Similarly, HTPL will also pay Rs 2,14,000 for the first year, Rs 2,37,000 for the second year and Rs 3,41,000 for the third year as revenue that is at Rs 19 per metric tonne for the open cargo.
They will decide — after two-and-a-half years — on either to continue the agreement for the rest of the four years or not. "For the remaining four years, we may sign another agreement after extensive discussion between the two sides," said Rana. He said that HTPL has agreed to pay the first instalment of Rs 70,000 — out of the total due rent of Rs 60.29 million — within a week. "It will furnish a bank guarantee for the remaining amount," he informed, adding that failure in paying the due amount within three years will attract 5.5 per cent interest per annum.
Meanwhile, contractors in Bhairahawa and Biratnagar have expressed resentment over the agreement review with HTPL.
According to a Commerce Ministry official, they also want their agreement to be reviewed. "If HTPL can have supplementary agreement, why not others," they said, adding that they also want their old contract reviewed as they are also incurring losses.
Last year, HTPL handled 12,000 containers and earned Rs 45 million but after paying Rs 52 million rent, it had incurred a loss of seven million rupees.

Saturday, January 12, 2008

How Harshad Mehta was caught

Nepali capital market and banking system can learn from how Harshad Mehta pulled off one of the most audacious scams in the history of the Indian stock market.
Harshad Mehta first started working as a dispatch clerk in the New India Assurance Company. Over the years, he got interested in the stock markets and along with brother Ashwin started investing heavily in the stock market.
As they learnt the ropes of the trade, they went from boom to bust a couple of times and survived. Mehta gradually rose to become a stock broker on the Bombay Stock Exchange, who did very well for himself. At his peak, he lived almost like a movie star in a 15,000-sq-feet house, which had a swimming pool as well as a golf patch. He also had a taste for flashy cars, which ultimately led to his downfall.
The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC). The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation.
Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the 'Big Bull', who was said to have started the bull run. But, where was Mehta getting his endless supply of money from? Nobody had a clue.
On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying.
The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another.
Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery. The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price.
It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system.
A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasn't the case in the lead-up
to the scam. In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In the process, the buyer and the seller might not even know whom they had traded with, either being know only to the broker.
This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank.
Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower or the seller of securities, gave the
buyer of the securities a BR, that 'confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name — bank receipt. It promises to deliver the securities to the
buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer.
Having figured this out, Metha needed banks, which could issue fake BRs, or BRs not backed by any government securities. Two small and little known banks — the Bank of Karad and the Metorpolitan Co-operative Bank — came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned.
The game went on as long as the stock prices kept going up and no one had a clue about Mehta's modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs that did not have any value — the banking system had been swindled of a whopping Rs 4,000 crore Indian currency.
Interestingly however, by the time he died in a jail in December 2001, Mehta had been convicted in only one of the many cases filed against him.
(Source — The Great Indian Scam: Story of the missing Rs 4,000 crore by Samir K Barua and Jayanth R Varma)

Friday, January 11, 2008

Nepal-Korea ink service commitment pact

Nepal and South Korea today signed service commitment agreement — the final agreement among the three that Nepal has signed with South Korea to send aspirant job-seekers to Korea under EPS programme.
South Korean Human Resource Development Centre (HRDC) chief Kim-Young-Dal and Keshar Bahadur Baniya, director general of EPS division under the Ministry of Labour and Transport Management (MoLTM) signed the agreement on behalf of their respective governments.
According to the agreement, South Korean government will take Korean Language Proficiency Test (KLPT) and Nepal government will help conduct the exam.
However, the government is planning to give management contract to hold KLPT exam to TU. The exam will be conducted on any Saturday between the last week of February and first week of March. The exam fee will be $30 (around Rs 2000).
Though the exam centres will be at different parts of the country also — to provide easy access to job aspirants from across the country — the test would be conducted by the Koreans and the exam papers will be sent to Seoul. The result will be published from Seoul.
However, one can learn Korean language in the government registered language institutes or self and sit for the KLPT exam. The government has called language institutes to register with the EPS section of ministry to impart the language training. Among the 215 registered institutes, only 171 institutes were qualified. Few language institutes have also not met criteria.
To pass the KLPT, one has to score 120 marks in two subjects — 60 per cent in aggregate in each subjects. The successful applicant will then be enrolled and forwarded to the job seekers' roster in Korea. Upon examining the roster details, HRDC will forward the list to the companies seeking foreign migrant workers.
The employers will select workers from among the recommended ones. Once the workers are selected, the employers will sign labour contract with them and apply for certificate for confirmation of visa issuance.
After that an applicant has to pass through pre-departure process like medical check-up, orientation and training before job. All the cost of a worker will not exceed Rs 1,25,000.
Nepal and South Korea has signed an agreement to send Nepali workers to South Korea in July and in December 11, they have signed implementation agreement.

Thursday, January 10, 2008

Nepal to host global microfinance meet

Nepal is hosting a world summit on Microfinance on February 14-16 as the country continues its long battle to expand and consolidate the service delivery institutions.
The main output of the summit will be the joint declaration and an action plan for building a strong and inclusive microfinance sector. The three-day long conference — the first of its kind in Nepal — has a slogan 'Reaching the Poorest of the Poor for Sustainable Income'.
"Microfinance is an effective tool for poverty alleviation," said Dr Harihar Dev Pant, chairman of the National Steering Committee, adding that the summit is intended to facilitate a broader dialogue between the stakeholders and create a common understanding among them, including policymakers and politicians to make micro finance a priority issue in the national development strategy.
The participants will discuss their experiences and jointly decide on the future course of microfinance in Nepal that has over 3,600 microfinance institutions providing services to roughly one million families.
According to Dr Pant, Nepal has an ambitious target of reaching out to poorest of the poor that is bottom 20 per cent.
Some 300 participants — policy makers, practitioners, rural development, micro-finance development and commercial banks and cooperatives and representatives, NGOs and INGOs — from around the world are taking part in the summit.
The first Micro finance summit was held in Washington in 1997.

Wednesday, January 9, 2008

Cheapest car to be launched

India's giant Tata Group is tomorrow unveiling the world's cheapest car, which analysts say could revolutionise prices worldwide.
Ratan Tata, the reclusive tycoon who heads the tea-to-steel conglomerate, will kick off an auto show here with the unveiling of the long-awaited 'People's Car', which will carry a sticker price of Rs 100,000 Indian Currency (IC) or $2,500.
The cheap car is a pet project of the Cornell-trained architect Ratan Tata, who helped design it, and is aimed at getting Indian families off their motorbikes and into cars. Ratan Tata has spearheaded the growth strategy of the company known for its philanthropic values. "I hope to make a contribution to making life safer for them the masses," he said.
Small cars are expected to dominate the biennial auto show, which has become one of Asia's largest and is expected to draw 1.5 million visitors, up from one million in 2006, organisers say.
"India's auto industry has found a new confidence — the show can be seen as the automotive industry coming of age," said Ravi Kant, president of the Society of Indian Automobiles (Siam).
Domestic and international carmakers have been in a race to corner India's small car market, which accounts for over two-thirds of domestic sales in the country of 1.1 billion people.
Small car sales are expected to nearly double to around two million units by 2010 as India's population becomes more affluent and trades up from motorcycles to cars.
The eight-day show features automakers from around the world from Honda, Ford, Hyundai and Volkswagen to luxury carmakers like BMW and Daimler, which are reaching out to India's new free-spending wealthy in an economy growing by nine per cent.
India's automotive industry, which produces 1.5 million vehicles annually, is worth $34 billion a year and contributes five per cent of the country's gross domestic product (GDP).
An Indian government mission plan aims for automotive sales to more than quadruple to $145 billion by 2016, and for indirect and direct auto sector employment to grow to 25 million from 13 million today.
The new car to be unveiled by the Tatas could 'revolutionise car costs downward,' said leading Indian car analyst Murad Ali Baig. "This car is bound to be followed by other low-cost ones. A lot of people just want a car that takes them from home to the market, they don't want something fancy or they want something small as a second car," he said.

Indian motorcycle maker Bajaj and France's Renault are looking at making a $3,000 car for the Indian market that would get 34-km per litre of fuel. Tata has said it is targeting its car at Indian and other emerging markets. The car would cost about half the price of its nearest rival in the Indian market made by Japanese-owned Maruti Suzuki that sells for $4,800.
A Tata Motors board member said the car would get 25-km per litre of fuel. Tata has said it believes it could eventually sell one million 'People's Cars' annually.
Tata, which has been on an aggressive overseas expansion drive, is also expected to win its reported two-billion-dollar bid for the British Land Rover and Jaguar brands in January — which would put it in the unusual position of making two prestige cars as well as the world's lowest-cost automobile.
Environmentalists see clouds on the horizon if the cheap car is a winner, fearing it will further congest India's clogged roads and add to choking pollution. But Tata says the car will create no more pollution than a motorbike.
India's car market is a huge draw because car penetration is just seven per 1,000 people compared to 550 per 1,000 in such countries as Germany or 476 in France, said Dilip Chenoy, Siam director general.

Monday, January 7, 2008

Tamakoshi get EPF nod for fund

The much-talked 309 Megawatt (MW) hydro project is going to be built. The board meeting of Employees' Provident Fund (EPF) and Nepal Electricity Authority (NEA) decided to finance the project as principal investors.
The highly attractive and low-cost project had been awaiting decision on its fate from the Employees' Provident Fund and Nepal Electricity Authority for long.
The EPF agreed today to invest a total of Rs 12 billion – Rs 10 billion in loan and two billion in shares, following the consent of the Ministry of Finance to invest on the Tamakoshi project. Earlier, there was a confusion on whether the project should be built on domestic or foreign investment.
As the EPF has decided to invest, Citizen Investment Trust (CIT), different banks and Rastriya Beema Sansthan (RBS) also are joining in for the hydel project.
The peaking run-of-river project Upper Tamakoshi that has 309 MW capacity is estimated to cost around Rs 27.44 billion. "Out of which 70 per cent will be invested jointly by NEA and EPF and 30 per cent would be raised by floating shares to the people and financial institutions — Citizen Investment Trust, Rastriya Beema Sansthan and other financial institutions," said chief of the project Mrigendra Bahadur Shrestha.
The first phase of the hydro project will generate 309 megawatt and in next ten years it will be upgraded to 556 Megawatts, said project chief Shrestha. "If, the project kicks-off in 2009, it will be completed by 2019," he said, adding that the project will take 10 years to complete.
It is thought to be spinning money after 30 years. "NEA will be earning a huge amount of money that can help construct at least one hydroproject every year."
The project will float 10 per cent of the shares to the locals of Dolakha district, where the project is being constructed.

The ownership pattern
NEA — 51 per cent
EPF — 20 per cent
Dolakha residents — 10 per cent
General public — 10 per cent
NEA employees — 5 per cent
Financial Institutions — 4 per cent

Saturday, January 5, 2008

Gold hits record

Gold price touched historic high of Rs 17,490 per 10 gram, in the domestic market on Friday. Earlier, it had recorded the highest of Rs 17,000 some 20 months ago.
Gold price in the domestic market increased by Rs 515 to Rs 17,490 per 10 gram from last week's closing of Rs 16,975.
The precious yellow metal in the local bullion market opened at Rs 17,105 on Tuesday as the market remained closed on Sunday and Monday due to the murder of a gold trader. The traders also held protest rally against the murder of one of their colleagues.
On Wednesday also, the price of hallmark gold remained stable at Rs 17,105 but on Thursday it shot up by Rs 115 to Rs 17,320. However, the price continued to rise on Friday, the last day of trading, and touched the historic high of Rs 17,490 — a rise by Rs 170 — per 10 gram. "The market closed at Rs 17,490 a new record high," according to Nepal Gold and Silver Dealers' Association's (NEGOSIDA).
"The record price in global crude prices that crossed $100 per barrel for the first time and further weakening of dollar pushed the price of gold up," states the association.
Similarly, in the international market also, it recorded $865 per ounce — a record high in last 28 years. A year back on January 4, the gold price was hovering around $600 but within a year, it shot up to $865 per ounce.
Similarly, silver price also witnessed a rise by Rs 10 this week from last week's closing of Rs 315 per 10 gram. It was traded at Rs 316 on Tuesday and Wednesday. But on Thursday, the silver price increased by Rs 4.50 to Rs 320.50 and on Friday, the last day of the trading it closed at Rs 325.

Thursday, January 3, 2008

NRB plans new package

Nepal Rastra Bank (NRB) is bringing a package — within the first week of Magh — to deal with current capital market dispute. "The central bank is categorically going through the books of financial institutions on margin lending and its repercussions on financial institutions and capital market," a senior official at the central bank, said adding that the new package will minimise the risks of financial institutions and stabilise capital market. However, the NRB refused to revoke its decision of temporary ban on margin lending.
Today, the fourth consecutive day, also Nepse did not witness any trading because of a group of investors, who opposed the trading at the Nepse floor. Earlier, brokers and investors had agreed, in the morning, to open the floor for two hours today. "Stock exchange should not be closed," Navaraj Pokhrel, president of Nepal Brokers Association, said adding that brokers are against the trading halt.
"NRB might have done mistake but the investors should not halt trading," he added. But a group of investors, fearing a huge fall in shares prices, forced the brokers not to trade from Monday.
Meanwhile, speaking at an interaction at the Reporters' Club today, Dr Chiranjivi Nepal, chairman of Securities Board of Nepal (SEBON), the regulatory body of capital market said that globally capital market is directed by three principles: transparency, fair play and reduction of systemic risk. "But Nepali capital market lacks all these parameters," he said challenging the investors to open the market and prove that margin lending is not fuelling the market.
Rewat Bahadur Karki, general manager of Nepal Stock Exchange (Nepse), the sole secondary market, also requested the opposing investors to trade and test the market.
Narayan Poudel, director at the regulation department of NRB, the regulatory authority of the financial institutions, said that policies continue to change. "However, the central bank is trying to minimize the risk of financial institutions," he said adding that the central bank can not let financial institutions risk depositors money.