ICICI Bank's Kamath: Not a time to worry

If American banking goliath Citigroup owns 12.3 per cent of housing finance major HDFC, which in turn holds 22 per cent of HDFC Bank's equity, and if 9 per cent of ICICI Bank's equity is held by a financial investor (Temasek Holdings of Singapore), should Messrs Aditya Puri and K.V. Kamath be worried? Maybe not; the heads of HDFC Bank (Puri) and ICICI Bank (Kamath) can rest assured that regulations today do not allow foreign banks to acquire or merge with their Indian private sector counterparts. Currently, banks (foreign or Indian) can buy only up to 5 per cent in other banks, and non-banking entities can go up to 10 per cent. However, come 2009, there's a fair chance that such alliances and takeovers will gain ground, if the Reserve Bank of India (RBI) sticks to its roadmap of permitting such consolidation in the banking sector.

It's this prospect of action three years down the line that has head honchos at foreign banks rubbing their hands in glee. For instance, Barclays Bank of the UK recently picked up a 4.5 per cent stake in UTI Bank (which follows HSBC's acquisition of 14.62 per cent via two transactions; that number came down to 12.18 per cent following a GDR issue last March; HSBC had to subsequently bring its stake down to 4.99 per cent to comply with RBI norms). Barclays for its part is pretty clear about its longer term objective. "There is a possibility that the market may open up after 2009 and we want to ensure that we are well placed to take advantage of opportunities should this happen," says Robert Morrice, Chief Executive, Barclays Asia-Pacific.

Barclays may not be the only bank thinking that way (see A Foot in the Door). Already six private sector banks have foreign banks as shareholders with an over 1 per cent stake. And don't forget there will doubtless be a string of foreign banks eyeing Temasek's holding in ICICI Bank.

For the moment, though, most of these banks would be content to remain financial investors, as the very prospect of hectic activity by 2009 should result in an appreciation in their holding. Says H.N. Sinor, CEO, Indian Banks' Association: "Value investors who are ready to wait for two-three years will find a huge upside in bank stocks." HSBC prefers to look at its acquisition of shares in UTI Bank as a pure investment, and officials at the bank point to the neat killing it made when it sold 7.19 per cent in the Indian private bank earlier this year (it had to do so to fall in line with RBI norms). HSBC sold its stake at Rs 318.61 per share (originally bought at Rs 90 a share in June 2004). The original price tag for 14.62 per cent works out to $67.2 million (Rs 302.4 crore). When it finally sold 7.19 per cent in February, it pocketed a cool $142 million (Rs 639 crore). With such gains there for the taking-coupled with uncertainty surrounding the 2009 roadmap-don't be surprised if many foreign banks bid adieu much before 2009.

-Mahesh Nayak

A Con Job In The Making?
Bogus muster rolls may derail a rural employment scheme.

Is the national rural employment Guarantee Act 2005, made operational in 200 districts across the nation from February 2, 2006, proving to be a leaking bucket-and a sizeable one at that? Till date Rs 6,742 crore has been released via this scheme, and 2.12 crore job cards issued. The Act gives legal guarantee of 100 days of wage employment in a financial year to adult members of a rural household who demand employment and are willing to do manual work. However, scattered reports of mismanagement have already started emanating from some of these most backward districts where the scheme is being implemented in the first phase. In Madhya Pradesh, for instance, job cards were issued to people on the basis of the voter list which included the civil servants, among others. Says Rural Development minister Raghuvansh Prasad Singh: "The biggest challenge is ensuring that the muster roll is not bogus. If properly implemented this will change the rural landscape of the country." That's a big if.

-Shalini S. Dagar

Heavy, Heavy Fuel
Auto sales are growing, but so are input costs.

HMML's Munjal: Not quite happy

Most CEOs would settle for a 22 per cent spurt in the top line quarter on quarter. For Pawan Kant Munjal, CEO, Hero Honda Motors Ltd (HHML), however, selling 803,000 motorcycles in the quarter ended June-as against 658,000 in the previous year's corresponding period-isn't quite reason for celebration. Reason? Input costs have eaten into margins; net operating margins of HHML are down to 13.5 per cent for the April-June period as against 16.1 per cent in the preceding quarter. The country's second-largest two-wheeler manufacturer Bajaj Auto Limited (bal) has also announced shrinking operating margins-from 19 per cent in the January-March quarter to 16.1 per cent now. Both scrips were duly hammered on the stock exchanges.

"Raw material costs have increased significantly and keeping prices at their current levels might be difficult," Munjal told the media while announcing the results. Says Kalpesh Parekh, auto sector analyst at brokerage firm ask Raymond James: "Manufacturers will have to focus on volume and value. The heady days of 18-20 per cent operating margins are gone, but even 13-16 per cent margins are not bad on the kind of volumes that these two companies see. Companies will have to play with their product mix and increased volumes can also imply more savings because of economies of scale."

-Kushan Mitra