The Hindu Business Line : Discretionary investment cap — Peerless pitches for review by RBI

The residuary non-banking company's worries stem from a measured removal of investments under the discretionary category, from 20 per cent of the average liability to depositors (permitted till fiscal 2005) to 10 per cent in 2006 and zero after that.

Peerless is aware that it will now have to allocate the entire depositor's funds to fixed-income securities - a scenario that will put its portfolio yield at risk in view of the over-exposure to a just one class of assets.

"The norm that allows an Residuary Non-Banking Companies to invest 20 per cent of its deposits in investments according to its discretion is being shortly withdrawn," Mr D.N. Ghosh, Chairman, has explained to shareholders, pointing out the entire amount mobilised from April 1, 2006, must be invested in debt papers.

The company may end up in trouble in case of unfavourable interest rate movements, compounded by an absence of equity exposure, its latest annual report has indicated.

"The company will not have the ability to switch quickly from one asset class to another for augmenting income through trading operations," Peerless has stated, adding that margins will decline, especially when the floor level of interest on deposit is not changing.

"We believe it is essential to earn incremental yield from equity operations to buttress earnings from fixed-income securities and maintain the average portfolio yield at an acceptable level," Peerless has told shareholders even as it underlined the need to maintain this approach in the years ahead. It also felt that there is a case for reviewing the limits placed under discretionary investments, taking into considering all the critical factors.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
BoB merges 3 RRBs in Gujarat

Why developing countries court dollar assets

Rupee weakens; bond prices fall

Insurers get aggressive with tech adoption

Discretionary investment cap — Peerless pitches for review by RBI

Cashew growers in pact with insurers for `transit' cover

SBT to raise Rs 235 cr as Tier II capital

UBI opens 2 retail marts at Khairatabad and Jubilee Hills

Globus, ICICI Bank in talks for co-branded card

RBI okays merger of Centurion, Bank of Punjab

PNB keen on overseas acquisition

`Factoring has huge growth potential'

Net banking? Use dynamic keyboard

Karnataka Bank hosts meet on `inspection & audit'