During the last quarter, the company garnered Rs 125 crore from a private placement of seven lakh shares at an premium of Rs 1775 to foreign institutional investors. Flush with funds, the company intends to retire the existing debt. This would further improve the net profit margin as company is expected to save about Rs 7 crore of interest cost during the financial year 2000-01. Moreover, Gramophone has announced exiting out of the risky business of film production.

Gramophone has a content library of about 10,000 music albums. Moreover, Saregama Plc, a subsidiary of Gramophone company, has been having a dream run on the OFEX (exchange for small companies) in London. The management intends to merge Gramo Films and its international music (RPG Music) distribution arm with Gramophone company of India. Thereby, the company would consolidate its music and entertainment related business under GCIL or Saregama Plc. With the positive economic sentiments across the country, industry analysts expected a higher growth during the current year.

The scrip was hammered down to a low of Rs 1,312 per share from a high of about Rs 2,300 per share last month. At present, the scrip is quoted at a price of Rs 1,545 per share with a price earnings ratio of about 200 times. With the expected revival of media and entertainment stocks, the scrip is expected to gain in the short to medium term.

Software Technology Park of India
The Finance Bill 2000-01 triggered the scramble of IT companies to state-run Software Technology Parks of India (STPI). According to the ministry of information technology, about 4,322 units were registered during the month of March. On an average over 500 applications were cleared each day during the last week of March alone. This is the proof as to what was the logic behind restricting tax holiday to March.

The proposal to phase-out the tax holidays on export earnings for companies registered on or after April 1, has forced many small and medium-sized software companies to register with the STPIs. Although, the various small sized companies appreciate the efforts of the state-run STPIs in smooth and fast clearing of the applications, there exist issues which require to be addressed by the policy makers.

For instance, the STPIs insist on solvency certificates (in the region of about 10 lakhs) from the small and newly formed companies. But the director of a small company argues that there is no need for solvency certificates as most of the small companies do not require to import any equipment.

Moreover, most of the banks are not willing to provide solvency certificates to these newly formed companies. However, the government authorities have a very rigid stand on this issue. According to industry sources, there also exists the issue of an unreasonably vast difference between the square feet rates quoted by the STPIs and the prevailing rates in the same vicinity.

Perhaps a more logical and flexible approach by government authorities will save entrepreneurs from the bureaucratic entangles.

Banks and non-SLR investments
Following on the heels of the rate cuts announced on all fools day, the RBI is certainly not in the mood for fooling around. It has come up with new guidelines with respect to the bank's non-SLR investments. If implemented, these could have far reaching consequences. Investments in bonds and debentures, would now be treated as investments as long as they fulfil certain criteria. A technical group instituted by the RBI in 1998 relating to banks' holdings in non-SLR securities has concluded with these suggestions.

Debentures would be treated as advances if they are part of a proposal for project finance, if the tenure is 5 years or more and the investor's stake is 10 per cent or above and if the issue is part of private placement when borrower has approached the investor and is not part of a public offer where the investor can subscribe to the open offer.

These measures would attempt to plug the loopholes which the banks used to their advantage. Till now huge portions of banks' debt investments were lying in privately placed and unquoted securities, the advantage (for the banks) being that these escaped scrutiny in the event of default in interest payments or principal and the NPAs declared excluded these investments thereby understating the NPAs to this extent.

Another significant implication of the categorisation. If the bonds and debentures being classified as investment is that the banks would not be able to escape the priority sector lending and hence forth 40 per cent of all investment in this category (which is mandatory in case of other category of advances) would have to go to the priority sector which would be a welcome outcome although it may mean a loss in terms of opportunity cost for the banks.

The investment in these securities by the banks was done only on the basis of the credit rating of the paper, however, now a full-fledged technical appraisal will have to be undertaken, as is the case with normal loans before arriving at the investment decision. This would ensure investments in corporate papers of better profile.

The steps would definitely further the RBIs goal of attaining world standards in regulation and accountabilty in the banking sector. These would provide further transparency and would help in giving the real picture as far as NPA levels are concerned. However, this could hamper the large scale debt volumes of the corporate sector through the private placement route.

Last year, the total borrowings through this route cumulatively was in excess of Rs 84,000 crore.

Also, in another related move the RBI has freed banks to charge interest rates without reference to their prime lending rate on advances up to Rs 2 lakh against third party domestic and non-resident deposits including NRE and FCNR (term deposits). Earlier, banks could fix their own rates in case of loans against borrowers own deposits, although loans above Rs 2 lakh would continue to be governed by the RBI.

This would help bank treasuries to manage their assets and liabilities due to floating rates on deposits as they have funds at different rates of interest. At the same time this would give customers access to funds at more realistic rates.

Emcee (with contributions from Gaurav Dua and Sachchidanand Shukla)