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TRENDS: LEADER Whose Money Is It Anyway? America's banking watchdog raps the State Bank of India on its knuckles for alleged money laundering. The bank pleads not guilty.
For India's biggest and most trusted bank-which operates five branches and a subsidiary, SBI California in the US-it was more than a slap on the wrist. For the first time in its history, the bank's name had been embroiled in international conspiracy. Worse, it was within the Federal Reserve's right to ask SBI to wind up its operations in the US. And as a bank that accounts for more than a third of all forex transaction to and fro India, being ousted from the biggest financial market was not an option. Janki Ballabh, SBI's Chairman, admits that US regulator did ask the bank to tighten its internal processes, but denies that there were any instances of money laundering. ''The US regulators have made no such charges,'' says Ballabh. He also claims that Russian exporters had no access to the escrow accounts maintained by SBI and, therefore, there was no possibility of money being laundered. Still, the SBI has been made to sign a memorandum of understanding (MoU) stating that it would fully comply with the local laws such as ''know your customer rule'', by revamping its systems and procedures and putting in place electronic filters to ensure full compliance.
Ever since the Pokhran tests in 1996, the US government had been keeping an eye on SBI's forex transactions to ensure that no 'black-listed' companies like the BHEL were getting any supplies from American firms. But the bank's accounts came under the lens only after the September 11 attacks. There are three specific types of accounts that the Fed suspects may have been used for money laundering. These are: escrow accounts relating to the Indo-Russian Trade; the export earners' foreign currency accounts (EEFC); and the returning foreign currency (RFC) accounts. All such accounts, which are operated by Indians in India, need to have a 'mirror' account in the US. The immediate responsibility of ensuring clean transactions is with the bank and then the RBI. However, since SBI's branches were on the US soil, the Fed also has jurisdiction. ''It's just like the RBI having a say in how foreign banks conduct their business in India,'' points out a Mumbai-based banker. The SBI chairman says that the Fed has also asked the bank to create a separate department to comply with the US banking laws for the New York branch, which is used for several dollar remittances and payments from the US. The move could also force the other two Indian banks in the US-the Bank of India and the Bank of Baroda-to clean up their act. Quite simply, global banks must play by global rules. -Ashish Gupta POLICY
Across the Pacific Ocean, the Bank of Japan admitted that the world's second largest economy was heading for a recession. The Bank has revised its growth forecasts from an earlier estimate of a 0.8 per cent growth in fiscal 2001-02 to a decline of between 0.9 per cent and 1.2 per cent. Things aren't any better in Germany, Europe's biggest economy, though the R-word isn't being uttered just yet. The German government has revised its forecast for GDP growth from around 2 per cent earlier this year to around 0.75 per cent. Six leading economic research institutes had also predicted a 0.7 per cent growth while the German chambers of commerce and industry was even more pessimistic, estimating a paltry 0.5 per cent growth. The World Bank's just-released Global Economic Prospects report points to a mild recovery in 2002, but those forecasts haven't factored in the post-September 11 situation. So why should the crisis in the world's three largest economies please Sinha? Chief economist at the National Council of Applied Economic Research Shashanka Bhide has a take on this: ''The global recession will only give our policy-makers an excuse for poor economic management at home.'' There's no need, he argues, for India to lose its sleep over the global economic situation. Concurs chief economist of Tata Services J.K. Mukhopadhyaya: ''The Indian economy is not a globalised one.'' Sure, exports have and will continue to be hit and Mukhopadhyaya wonders how the government can continue to stick to its 12 per cent export growth target in the circumstances. But with imports also stagnant, the current account balance won't be upset greatly. Bhide points to other positive signs-an improvement in agricultural production and in manufacturing. ''The small increases are not impressive but they are important,'' he argues. That's why some economists are placing their bets on an early recovery. ''A turnaround in 2002 is a possibility,'' asserts Planning Commission advisor Pronab Sen. Growth in the US slipped only in q3, he points out, and traditionally, the American economy does well in q4, which coincides with the festive season in India. Besides, the Indian economy, too, normally peaks around March. All of this may, he's confident, lead to a moderate turnaround at the beginning of the next fiscal. If it doesn't, Sinha won't have to look around for new excuses. -T.R. Vivek INSURANCE
Suddenly, big industrial units are literally running for cover. Be it the Indian Petrochemicals Corporation Limited's (IPCL) plants in Vadodara and Nagothane, or Tata Engineering's plant in Pimpri, there is a strident demand for terrorism cover from India Inc. But guess what? Trying to get one is proving harder than finding Osama bin Laden. The reason is simple: Unless the New India Assurance Co.-insurers for most industrial complexes-and other insurance companies themselves get re-insurance cover from one of the big companies like Swiss Re or Munich Re, they won't stick their neck out. The most recent example of a company being left high and dry is IPCL, which has three petrochemical plants. While the earlier 'mega risk policy'-as policies for big industrial houses are termed-provided limited terrorism cover, the renewed policy, which came into existence on October 1, has no terrorism cover at all. Still, IPCL is not giving up hope. ''We are continuing our talks with the New India Assurance Company for a terrorism cover,'' a senior IPCL official told BT. Although officials of New India Assurance maintain that they have indeed received cancellations orders for a few projects that enjoyed limited terrorism cover, they are not willing to give out details. However, projects of Oil and Natural Gas Commission (ONGC) and Reliance Petrochemicals in Jamnagar still enjoy limited terrorism cover. US reinsurance companies have their own problems to deal with. Post September 11, they have been reeling under a wave of insurance claims. A study conducted by Jardine Lloyd Thompson has shown that in the first six weeks of the attacks, major insurance companies incurred an insured loss of $38.6 billion. Hence, they are not too keen to provide terrorism reinsurance cover to projects that are so close to the war zone. One man, who has impeccable knowledge of any such threat, could still make money. And that is Pervez Musharraf. -Ashish Gupta WEALTH This isn't an interview. It's more an instruction on what the government's recent guidelines on ESOPs mean for the Indian exec. And the instructor is hr consulting firm Watson Wyatt's Senior Consultant Madhav Keswani. What will the tax impact of the recent guidelines on ESOPS be? The new guidelines have brought relief for the employee: there will not be any tax incidence at the time the options are exercised. As you can see from the illustration, the new guidelines bring down the tax paid. What happens to foreign companies that aren't listed here? Unlisted foreign companies will be covered by these guidelines. But they will have to disclose the basis of valuation with reference to the company's financial statements for the last three financial years. So, what's the next step for companies? The next step for companies is to document and submit the schemes. Multinational companies will have to submit their global stock option plans, which may become a bit of a problem. The guidelines also state that the conditions of the scheme shall not be changed after the scheme comes into effect. This may pose a problem for companies as they may want to change provisions for valid reasons like mergers. -Seema Shukla BIOTECH
Stem-cell research isn't as much an issue in India as it is in the West. Still, the use of four-day-old aborted embryos for research that promises to be medicine's next big thing could easily offend religious sects and social bodies. And so the government has put together an exhaustive, 18-page ethical policy on matters related to the human genome, genetic research, and services. The Department of Biotechnology (DBT) is aware that if the opposition is nipped now, stem-cell research has enormous potential in a country where abortion is not just legal, but no big deal. Stem cells are primordial cells from which every body tissue springs, so they could theoretically replace everything from damaged cells to-some day-entire organs.
Private companies like Reliance Lifesciences, Bharat Biotech, and BiologicalE-and publicly funded labs-are currently looking at three sources of stems cells: umbilical cords, artificially fertilised embryos and aborted embryos. However, ''the use of aborted foetuses for research can give rise to commercial exploitation and abortions can become a trade,'' says V.K. Vinayak, Advisor, DBT. According to Vinayak, no social or religious body or an NGO, has so far opposed stem-cell research. That could be because they don't know about it, reasons Ashis Dutta, Vice Chancellor of Jawaharlal Nehru University and a prominent biotechnologist. Dutta believes that anger might grow as research expands. This is thus the right time to do some proselytising. ''NGOs involved in patient aid groups are supportive,'' says a spokesperson of Reliance Lifesciences. Vinayak expects opposition mainly from religious bodies: ''Several religious bodies believe that life starts the moment a sperm and ova fertilise." But at that stage, the human embryos are pretty much like all animal embryos. It's only after 40 days that the embryo starts taking some human shape. "We need to convince religious and social bodies about this, once and if, they raise any objections,'' he says. -Swati Prasad
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A month and
10 days after the World Trade Center attacks, a high-powered team from
India's largest bank, the State Bank of India, and the regulator, the
Reserve Bank of India, flew into New York. They had made the trip in
response to the US Federal Reserve Board's allegation that some of SBI's
accounts in America were being used to launder money. A country
high-strung over terrorist attacks was in no mood to let lax bankers abet,
even if unknowingly, global criminals. Therefore, it had issued a ''cease
and desist'' order to the SBI, and indicated that a monetary penalty would
also be imposed.
Finance
minister Yashwant Sinha can take heart. There's nothing but gloomy news on
the world economy front. After teetering on the brink for almost a year,
the US economy finally slipped. Gross domestic product (GDP) growth
declined 0.4 per cent in the third quarter (Q3), the first time in eight
years. A formal declaration of recession will come only if growth slips in
the next quarter and there aren't any economic indicators signalling a
recovery in q4. With unemployment rates on the rise, consumer spending
(which accounts for nearly two-thirds of GDP) fell 1.8 per cent in
September.
