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  Working capital loans to now come with withdrawal commitment & fees  The Reserve Bank of India on Thursday tightened norms for firms seeking working capital loans by ordering them to pay a fee and commit on withdrawal of sanctioned funds in an attempt to shore up bank treasuries to handle surplus funds from now on. The RBI said large borrowers will have to stipulate a minimum level of ‘loan component’ in fundbased working capital finance to promote greater credit discipline among borrowers. RBI said that a draft norm on this will be released soon.  “The working capital requirements of borrowing entities are met by banks through a cash credit limit which is a revolving facility. The cash credit facility places undue burden on the banks in managing their liquidity requirements. Currently banks do not charge any commitment fee and do not maintain any capital on the undrawn portion of the cash credit because it is classified as an unconditionally cancellable fac...

For mid-cap stocks, optimism may be priced in, but not the uncertainties The rosy mid-caps bull story is pretty much over for now. So far this calendar year, the Nifty Midcap 100 index has shed 11%. On the other hand, the Nifty index (comprising of 50 large cap firms) has gone up 2.7%. Its sharp outperformance earlier had resulted in soaring valuations for mid-caps and a correction was overdue. Ritesh Jain, chief investment officer at BNP Paribas Asset Management India Pvt. Ltd says mutual funds (MFs) had to rebalance their portfolio in keeping with Sebi (Securities and Exchange Board of India) norms, which defined categories such as large caps, mid-caps and small caps. “This put many mid-cap stocks out of favour with the MFs. Secondly, global liquidity has vanished from emerging markets,” added Jain. A combination of these two accentuated the problem. Nonetheless, valuations of midcaps are at a premium to their large cap peers. Have a look at Chart 1. Even as the one-year forw...

  Foreign holding rules for NBFCs raise risk of data breaches  The Indian financial system faces a new threat from overseas – data and capital dumping. The regulatory arbitrage between NBFCs and banks could open up avenues through which Chinese investors in NBFCs could take out data of Indian borrowers. While the Reserve Bank of India has been strict with foreign ownership of Indian banks, a loophole in NBFCs’ ownership, which are competing and eating into market share of banks, poses a threat.  The industry is concerned about the easy access of data by foreign entities in the financial services sector. Some leading players want to have a relook at the regulation relating to holding structure of NBFCs.  “There are two different issues --one is data and the other is capital dumping,” said Gagan Banga, vice chairman, Indiabulls Housing Finance. “If capital dumping is coming from promoters, who are in the habit of losing capital for the first few years and buildin...

Bank Nifty likely to be rangebound, experts recommend short strangle  Traders can hope to rake in modest gains by initiating a risky short strangle on Bank Nifty options, which data show would trade in a 26,000-27,000 range this series. The strategy consists of selling a Bank Nifty call and put at 26,800 and 26,000, respectively, which covers the 1,000-point range when the premium for selling the strangle is included. Both the options expire on June 28. The Bank Nifty closed at 26,417.4 on Friday.  The risk lies in the index breaking sharply above or below the 1,000-point range, if global trade tensions escalate, in which case losses can be unlimited, unless the trader puts stop losses.  Assuming Friday closing prices of Rs 124 a share (40 shares equal one contract) for the 26,000 put and Rs 118 for the 26,800 call, the seller receives a combined Rs 242 from the sale of the two strikes. The expectation as of now is that the Bank Nifty would not break out of the 26,8...

Rising corporate deposit rates likely to move further up  Savers have enough reason to rejoice after the Reserve Bank of India (RBI) effected the first rate increase in more than four years, pointing to a commensurate rise in rates for corporate deposits.  Although commercial banks did not raise rates in bulks, at least four nonbanking finance companies (NBFCs) — Bajaj Finance, Dewan Housing Finance, Shriram Transport Finance and Mahindra Finance — have increased rates by 10-60 basis points. On renewals, most of them now offer 15-25 basis points extra.  Senior citizens can earn about quarter to half a percentage points more in returns.  Following RBI’s policy action, the latest series of rate hikes have come from non-banking finance companies than any commercial banks,” said Anil Chopra, group director — corporate affairs, at Bajaj Capital. “Retail investors have again started making a beeline for highyielding corporate deposits after the rises in past one or t...