Making up for past measures

Among one of the early measures taken by the newly appointed Reserve Bank of India RBI Governor, Bimal Jalan, in January was to raise the ...

Among one of the early measures taken by the newly appointed Reserve Bank of India RBI Governor, Bimal Jalan, in January was to raise the interest rates by two per cent to stem the fall of the rupee. The move was meant to make life difficult for speculators who were driving down the rupee with the help of cheap funds. The industry was unhappy but did not know how to have a better solution.

Last week though the RBI tried to make up for the rate increase by lowering the bank rate by 0.5 per cent to 10.50 per cent. This was a signal to the banking industry that it should lower the rates at which money is lent to the industry. The bank rate is the most effective monetary tool with the Reserve Bank and is the rate at which banks avail of funds from the central bank.

Deposit rates of banks are also linked with the bank rate. The bank rate reduction follows the RBI decision to cut the repo repurchase agreement of GovernmThe bank rates have been changed increasingly to control the supply of money in theeconomy. Between 1951 and 1975, the bank rate was changed only nine times of which the downward revision was thrice. Between 1975 and 1996 the rate was changed thrice. But in 1997-98, the bank rate has been changed five times, which is quite unprecedented.

As a follow up of the bank rate cut, bankers expect the RBI to cut the cash reserve ratio CRR as there is a good liquidity position in the system. The interest rates on export credit refinance and general refinance to banks, liquidity support to primary dealers through repo operations in 91-day, 364-day auction treasury bills and central Government dated securities will get reduced by 0.5 per cent following the revision in bank rate. Penal interest rates on shortfalls in reserve requirements, which too are linked to the bank rate, also stand revised.

Warring bids

Alcan and Indal are fast realising that Sterlite is a resilient opponent. After some days of speculations, Sterlite Industries put the ball back in the court of Alcan by revising itsoffer price for picking up a 20-per cent stake in Indian Aluminium. Sterlite raised the price to Rs 115 per share from Rs 90 offered earlier. But this is Rs 10 more than the Rs 105 counter bid made by Alcan Aluminium, the principal shareholder of Indal. The only difference is that the offer is no longer subject to any condition of minimum level of acceptance. This means all valid responses will be accepted up to 20 per cent according to the terms in the letter of offer to be mailed to Indal shareholders.

Sterlite will now have to cough up Rs 163.56 crore, if it wants a 20 per cent slice of the attractive cake which is Indal. The war of bids for the Indal shares is likely to continue as Indal and its principal company Alcan appear to be in no mood to be outbidded by Sterlite. Sterlite, in the meanwhile, is reported to have asked the Securities and Exchange Board of India SEBI to ensure that Alcan gets FERA clearance before it can buy extra shares of Indal. In the entire fight for the share of Indal, onesection is clearly the winner the shareholder. In the end, it is the shareholder who will get a great price for his investments.