News Rome: An appeal court in Italy’s Milan city Wednesday upheld former premier Silvio Berlusconis four-year conviction for tax fraud in connection with broadcasting rights bought by his television company.

Berlusconis was sentenced last October to four years. He was banned from public office for five for tax fraud in the purchase of broadcasting rights by his Mediaset television company.

However, due to a 2006 amnesty law, he will not have to serve three of the four years of his verdict.

The appeal court also upheld damages set at 10 million euros ($13 million) that Berlusconis and his co-defendants will have to pay to Italian tax authorities.

Wilting local, global demand hits factory activity in March

(Reuters) – Cooling domestic and foreign demand dragged on Indian manufacturing growth in March, with the sector expanding at its slowest pace since November 2011, a business survey showed on Monday.

The HSBC manufacturing Purchasing Managers’ Index (PMI), which gauges business activity in Indian factories but not its utilities, fell to 52.0 in March, after a surge to 54.2 in February.

The PMI has held above 50 – the level that divides growth and contraction – for four years, but the March headline reading was the biggest month-on-month drop since September 2011.

“Manufacturing activity lost momentum in March, with output growth slowing notably on the back of a deceleration in new orders,” said Leif Eskesen, economist at HSBC.

Electricity outages across India over the last month also crimped factory production, Eskesen said.

The new orders index fell from 56.3 in February to 52.8, the weakest pace of growth since November 2011. In turn, overall output grew at its weakest pace in more than a year.

Growth in new export orders also cooled to its lowest level since November 2011, reflecting the deepening global economic fallout from Europe’s three-year sovereign debt crisis.

That is a disappointing signal for an economy with a wide current account deficit that hit a record high at 6.7 percent of gross domestic product in the December quarter.

However, most recent official data showed India’s industrial output grew an annual 2.4 percent in January as merchandise exports snapped a falling trend. Exports grew for the second straight month in February.

The HSBC Markit survey also showed input and output prices rose at a slower pace during the month, suggesting India’s inflation rate will ease over coming months after picking up slightly to 6.84 percent in February,

“Encouragingly, input and output price inflation eased. Even so, the scope for further monetary policy easing remains limited,” added Eskesen.

The Reserve Bank of India, facing intense pressure from industry and government to loosen monetary conditions to arrest the worst economic slowdown in a decade, has cut its key lending rate twice so far this year by 25 basis points each to 7.50 percent after leaving it on hold for nine months.

However, the central bank warned the prospect of further monetary easing is limited.

A recent uptick in headline inflation and a record-high current account deficit limit the RBI’s space for monetary easing despite pressure from a government facing elections in 2014.

Last-minute Cyprus deal to close bank, force losses

(Reuters) – Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro bailout.

The agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.

Swiftly endorsed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus CPBC.CY, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus BOC.CY to create a “good bank”.

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalise Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said.

Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.

Cyprus government spokesman Christos Stylianides said: “We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the euro zone with unforeseeable consequences.”

Asked about the level of losses on uninsured depositors on Bank of Cyprus, he told state radio it was not possible to be specific at this stage. “The assessment is that it will be under or around 30 percent. But that is a bit of an arbitrary estimate.”

German Finance Minister Wolfgang Schaeuble said Cypriot lawmakers would not need to vote on the new scheme, since they had already enacted a law setting procedures for bank resolution.

“It can’t be done without a bail-in in both banks … This is bitter for Cyprus, but we now have the result that the (German) government always stood up for,” Schaeuble told reporters, saying he was sure the German parliament would approve.

Lefteris Christoforou, vice-chairman of the ruling Democratic Rally party, said it was important that Cyprus had avoided a chaotic bankruptcy.

“It is a bad deal, but the extreme scenario we had to contend with was worse.”

Former central bank government Afxentis Afxentiou added: “It’s a new day for Cyprus … I believe that in two or three years Cyprus will find its feet.”

A senior source in the Brussels talks said Anastasiades threatened to resign at one stage on Sunday if he was pushed too far. He left EU headquarters without making any comment.

Conservative leader Anastasiades, barely a month in office and wrestling with Cyprus’ worst crisis since a 1974 invasion by Turkish forces split the island in two, was forced to back down on his efforts to shield big account holders.

Diplomats said the president had fought hard to preserve the country’s business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons but had lost.

The EU and IMF required that Cyprus raise 5.8 billion euros from its banking sector towards its own financial rescue in return for 10 billion euros in international loans. The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.

IMF chief Christine Lagarde said the agreement was “a comprehensive and credible plan” that addresses the core problem of the banking system.

“This agreement provides the basis for restoring trust in the banking system, which is key to supporting growth,” she said in a statement.

With banks closed for the last week, the Central Bank of Cyprus imposed a 100-euro daily limit on withdrawals from cash machines at the two biggest banks to avert a run.

French Finance Minister Pierre Moscovici rejected charges that the EU had brought Cypriots to their knees, saying it was the island’s offshore business model that had failed.

“To all those who say that we are strangling an entire people … Cyprus is a casino economy that was on the brink of bankruptcy,” he said.

The euro gained against the dollar on the news in early Asian trading.

Analysts had said failure to clinch a deal could cause a financial market sell-off, but some said the island’s small size – it accounts for just 0.2 percent of the euro zone’s economic output – meant contagion would be limited.

The abandoned plan for a levy on bank deposits had unsettled investors since it represented an unprecedented step in Europe’s handling of a debt crisis that has spread from Greece to Ireland, Portugal, Spain and Italy.

ORDINARY PEOPLE

Among ordinary Cypriots, there was a mood of wariness about the deal.

“How long will it last?” asked Georgia Xenophontos, 23, a hotel receptionist in Nicosia. “Why should anyone believe anything this government says?”

Cyprus’s banking sector, with assets eight times the size of the economy, has been crippled by exposure to Greece, where private bondholders suffered a 75 percent “haircut” last year.

Without a deal by the end of Monday, the ECB said it would have cut off emergency funds to the banks, spelling certain collapse and potentially pushing the country out of the euro.

Under the bailout agreement, Laiki’s ECB funds will pass to Bank of Cyprus, and the central bank will “provide liquidity to BoC in line with applicable rules”.

Anticipating a run when banks reopen on Tuesday, parliament has given the government powers to impose capital controls.

PARLIAMENT

About 200 bank employees protested outside the presidential palace on Sunday, chanting “Cyprus will not become a protectorate”.

On Tuesday, the 56-seat parliament had rejected a levy on depositors, big and small. Finance Minister Michael Sarris then spent three fruitless days in Moscow trying to win help from Russia, whose citizens and companies have billions of euros at stake in Cypriot banks.

On Friday, lawmakers voted to nationalise pension funds and split failing lenders into good and bad banks – the measure to be applied to Laiki. The plan to tap pension funds was shelved due to German opposition, a Cypriot official said.

The tottering banks held 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros – enormous sums for an island of 1.1 million people that could never sustain such a big financial system on its own.

(Additional reporting by Luke Baker, John O’Donnell, Robin Emmott, Philip Blenkinsop and Rex Merrifield in Brussels, Michele Kambas, Karolina Tagaris, Costas Pitas in Nicosia and Lionel Laurent in Paris. Writing by Paul Taylor, editing by Mike Peacock and Will Waterman)

Revamped Cyprus deal to close bank, force losses

(Reuters) – Cyprus clinched a last-ditch deal with international lenders on Monday for a 10 billion euro bailout that will shut down its second largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians.

The agreement emerged after fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund – hours before a deadline to avert a collapse of the banking system.

The plan, swiftly endorsed by euro zone finance ministers, will spare the east Mediterranean island a financial meltdown by winding down Popular Bank of Cyprus CPBC.CY, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus BOC.CY to create a “good bank”.

Deposits above 100,000 euros, which under EU law are not guaranteed, will be frozen and used to resolve debts, and Laiki will effectively be shuttered, with thousands of job losses.

An EU spokesman said no levy would be imposed on any deposits in Cypriot banks. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.

A senior source involved in the talks said Anastasiades had threatened to resign at one stage if he was pushed too far.

EU diplomats said the president, flown to Brussels in a private jet chartered by the European Commission, had fought to preserve the country’s business model as an offshore financial centre drawing huge sums from wealthy Russians and Britons.

The key issues in dispute were how Cyprus would raise 5.8 billion euros from its banking sector towards its own financial rescue, and how to restructure and resolve the outsized banks.

The EU’s economic affairs chief Olli Rehn said there were no good options but “only hard choices left” for the latest casualty of the euro zone crisis.

With banks closed for the last week, the Central Bank of Cyprus imposed a 100-euros per day limit on withdrawals from cash machines at the two biggest banks to avert a run.

French Finance Minister Pierre Moscovici rejected charges that the EU had brought Cypriots to their knees, saying it was the island’s offshore business model that had failed.

“To all those who say that we are strangling an entire people … Cyprus is a casino economy that was on the brink of bankruptcy,” he told Canal Plus television.

The euro gained against the dollar on the news in early Asian trading.

Analysts had said failure to clinch a deal could cause a financial market selloff, but some said the island’s small size – it accounts for just 0.2 percent of the euro zone’s economic output – meant contagion would be limited.

The abandoned levy on bank deposits had unsettled investors since it represented an unprecedented step in Europe’s handling of a debt crisis that has spread from Greece, to Ireland, Portugal, Spain and Italy.

ANXIOUS MOOD

In the Cypriot capital, Nicosia, on Sunday the mood was anxious.

“I haven’t felt so uncertain about the future since I was 13 and Cyprus was invaded,” said Dora Giorgali, 53, a nursery teacher who lost her job two years ago when the school she worked at closed down.

“I have two children studying abroad and I tell them not to return to Cyprus. Imagine a mother saying that,” she said in a central Nicosia square. “I think a solution will be found tonight but it won’t be in the best interests of our country.”

Cyprus’s banking sector, with assets eight times the size of its economy, has been crippled by exposure to Greece, where private bondholders suffered a 75 percent “haircut” last year.

Without a deal by the end of Monday, the ECB said it would cut off emergency funds to the banks, spelling certain collapse and potentially pushing the country out of the euro.

Conservative leader Anastasiades, barely a month in office and wrestling with Cyprus’ worst crisis since a 1974 invasion by Turkish forces split the island in two, was forced to back down on his efforts to shield big account holders.

Anticipating a run when banks reopen on Tuesday, parliament has given the government powers to impose capital controls.

Cyprus bank tax calculator: here

Euro periphery bank deposits link.reuters.com/vep58s

Cyprus deposits graphic link.reuters.com/fuf76t

PARLIAMENT

About 200 bank employees protested outside the presidential palace on Sunday chanting “troika out of Cyprus” and “Cyprus will not become a protectorate”.

In a stunning vote on Tuesday, the 56-seat parliament rejected a levy on depositors, big and small. Finance Minister Michael Sarris then spent three fruitless days in Moscow trying to win help from Russia, whose citizens and companies have billions of euros at stake in Cypriot banks.

On Friday, lawmakers voted to nationalise pension funds and split failing lenders into good and bad banks – the measure likely to be applied to Laiki. The plan to tap pension funds was shelved due to German opposition, a Cypriot official said.

The revised bailout plan many not require further parliamentary approval since the idea of a levy was dropped.

The tottering banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros – enormous sums for an island of 1.1 million people which could never sustain such a big financial system on its own.

Cyprus risks euro exit after EU bailout ultimatum

(Reuters) – The European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout or face a collapse of its financial system that could push it out of the euro currency zone.

In a sign it was at least preparing for the worst, the Cypriot government sought powers on Thursday to impose capital controls to stem a flood of funds leaving the island if there is no deal before banks reopen following this week’s shutdown.

Parliament will reconvene later on Friday to debate a raft of government crisis measures after lawmakers adjourned a late-Thursday sitting saying they needed more time for consultation.

Even those measures looked likely to fall short of a promised “Plan B” to raise the 5.8 billion euros demanded by the EU in return for a 10 billion euro lifeline from the EU and IMF.

The European Central Bank said it would cut off liquidity to Cypriot banks without a deal, and a senior EU official told Reuters the bloc was ready to see the island banished from the euro to contain damage to the wider European economy.

Angry Cypriot lawmakers on Tuesday threw out a tax on deposits, calling the EU-backed proposal “bank robbery”.

After more talks on Thursday, the currency union’s finance ministers urged Cyprus to table a new proposal.

Trying to placate its lenders, the government proposed to parliament a “solidarity fund” that would bundle state assets, including future gas revenues, as the basis for an emergency bond issue, likened by JP Morgan to “a national fire sale”.

It also sought the power to impose capital controls on banks, a type of measure unseen since before the country joined the single currency bloc five years ago.

ECB PATIENCE FLAGS

The European Central Bank, which has kept Cyprus’s banks operating with a liquidity lifeline, said the government had until Monday to get a deal in place, or funds would be cut off.

“Thereafter, Emergency Liquidity Assistance (ELA) could only be considered if an EU/IMF programme is in place that would ensure the solvency of the concerned banks,” the ECB said.

In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.

“If the financial sector collapses, then they simply have to face a very significant devaluation, and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.

Cypriot banks, crippled by their exposure to Greece, the centre of the euro zone debt crisis, have been closed all week and are not due to reopen until Tuesday.

Long queues formed on Thursday at ATMs still dispensing cash, and there were angry scenes outside parliament where several hundred protesters, many of them bank employees, rallied after rumours the second-largest lender, Cyprus Popular Bank CPBC.CY, was to be wound up.

Chanting “Hands off the bank”, several demonstrators jostled with riot police.

“We have children studying abroad, and next month we need to send them money,” protester Stalou Christodoulido said through tears. “We’ll lose what money we had and saved for so many years if the bank goes down.”

The central bank said it was readying measures to keep Popular Bank afloat. Some banking officials said it could be split between good and bad assets.

LIMITED OPTIONS

Under the levy rejected by parliament, EU lenders, notably Germany, had wanted uninsured bank depositors to bear some of the cost of recapitalising the banks, but Cyprus feared for its future reputation as an offshore banking haven and planned to spread the burden also to small savers whose deposits under 100,000 were covered by state insurance. Lawmakers threw it out.

In Moscow since Tuesday, Cypriot Finance Minister Michael Sarris said he was discussing possible Russian investments in banks and energy resources, as well as an extension of an existing 2.5-billion-euro Russian loan.

He said Cyprus had no plans to borrow more money from Russia and add to its debt mountain. The Russian Finance Ministry had said on Monday that Nicosia sought an extra 5-billion-euro loan.

The chairman of the euro group of finance ministers, Dutchman Joreon Dijsselbloem, told the European Parliament in Brussels that Moscow informed the EU it had no intention of ploughing more money into Cyprus.

Senior euro zone officials acknowledged in a confidential conference call on Wednesday that they were “in a mess” and discussed imposing capital controls to insulate the currency area from a possible collapse of the small Cypriot economy.

Cyprus itself refused to take part in the call, minutes of which were seen by Reuters. Several participants described its absence as troubling and reflecting the wider confusion surrounding the island’s predicament.

Government unlikely to call snap election: sources

(Reuters) – The government is unlikely to call a snap election despite its biggest ally, the DMK, abruptly quitting the ruling UPA coalition, as it needs time to implement flagship welfare schemes and hopes the economy will improve, government sources said on Wednesday.

The withdrawal of the Dravida Munnetra Kazhagam (DMK) has rattled markets, which are worried that it has left Prime Minister Manmohan Singh unable to pass reforms needed to turn around the worst economic slowdown in a decade.

That, in turn, has fired speculation that the government, which is in a minority in parliament and relies on the support of powerful but unpredictable regional parties to stay in power, could call a quick election before its term officially runs out next year.

However, leaders in the ruling Congress party told Reuters the government will wait in order to pass legislation aimed at shoring up its popularity, which has been punctured by corruption scandals and anger over high prices.

“We have been given a mandate for five years and we intend to ensure that it is not aborted,” Jairam Ramesh, rural development minister, told Reuters.

But big-ticket economic reforms such as opening the pensions and insurance sectors to foreign investors are likely to face stiff opposition in parliament, analysts said. A major regional party that often votes with the government said on Tuesday it would oppose the measures.

In particular, the government wants to pass a bill ramping up food subsidies for hundreds of millions of poor who form its core vote base and helped it win back-to-back general elections. It also wants to widen a system – currently being rolled out in different parts of the country – of handing out money to poor families to pay for essentials such as cooking gas.

“We are not looking to hold early elections. We want to do the full term not just to pursue our welfare programmes but also to allow the economy to revive,” said a senior Congress party official.

Senior party leaders also hope that India’s economic climate will improve in line with predictions from the finance ministry, which has forecast growth picking up to 6.1 percent or more next fiscal year from 4.5 percent in the last quarter.

Congress is also worried that it does not yet have a credible leader to replace the 80-year-old Singh.

Rahul Gandhi, the son of party chief Sonia Gandhi who is seen by many as the prime-minister-in-waiting, has faced questions over his leadership capabilities and has so far shown reluctance to step into Singh’s shoes.

“There is no strong leader in the party today,” a party leader said.

NO ‘LAME DUCK’

News of the DMK’s withdrawal, which was sparked by a row over censuring Sri Lanka for alleged war crimes committed during the island nation’s civil war, sent shares to their lowest levels in more than two weeks.

The government sought on Wednesday to dispel the notion that it has become a “lame duck” administration, and said it was still able to pass reform legislation in parliament.

“I am sure on the merits of reform bills, political parties will support the government,” Finance Minister P. Chidambaram told a news conference, adding that the DMK pullout would not affect the government’s ability to cut the fiscal deficit.

He would not answer a question on whether an early election was likely.

The DMK submitted a formal letter of withdrawal to the president on Tuesday night, and its five ministers submitted their resignations on Wednesday.

The source of the row is a draft U.N. resolution on allegations that Sri Lankan troops committed war crimes in the closing stages of the 25-year-long civil war against its minority Tamil population, charges Sri Lanka denies.

The DMK wants India move amendments to the resolution to say that Sri Lankan forces committed “genocide” during the civil war, and get an international commission to investigate abuses.

The DMK, based in Tamil Nadu, has often pressured the government to do more to protect Sri Lanka’s minority Tamil population.

Chidambaram said that the government was working towards amendments and was therefore surprised at the DMK’s pullout.

HSBC, Morgan Stanley cut India’s FY14 GDP forecasts

Reuters Market Eye – Morgan Stanley and HSBC each cut their India’s economic growth forecasts for 2013/14 to 6.0 percent from 6.2 percent to reflect lower-than-expected growth in the October-December quarter.

HSBC says it expects 50 basis points of additional rate cuts in the calendar year 2013, and “a slightly more protracted recovery” in India.

Morgan Stanley says domestic and external environment still remain “challenging,” but notes that an improving growth in the agriculture sector, a slight pick-up in export growth and more stable private capex could help improve economic growth.

Economic growth in India slowing down – OECD

(Reuters) – The economic outlook in major industrialised economies is improving with the United States and Japan leading the way, the OECD said on Monday, adding that activity in the euro zone was also picking up.

The figures come after news last week that the U.S. jobless rate had fallen to a four-year low, offering a bright signal on the health of the world’s biggest economy.

The Paris-based Organisation for Economic Cooperation and Development said its latest monthly leading indicator for the OECD as a whole – covering 33 countries – was at its highest level since June 2011.

Among the major emerging economies tracked by the OECD, the reading for China pointed to “moderating growth” at 99.0 after 99.1 in December. India saw “growth slowing down”, with a reading of 97.2 after 97.3, the OECD said.

The composite leading indicator rose to 100.4 from 100.3 in December, which the think-tank said pointed to “firming growth”.

It also brought the measure, which is designed to flag turning points in economic activity, further above the long-term average of 100.

The OECD says that the turning points in its indicators tend to precede changes in economic activity by about six months.

The United States showed the strongest improvement with a reading of 100.9, unchanged from December. The index for Japan rose to 100.6 from 100.4.

The recession-hit euro zone also showed better signs with its reading at its highest level since April, edging up to 99.7 from 99.6, led by regional powerhouse Germany. The index for Germany rebounded to 99.6 from 99.2.

The OECD said the readings for Italy and France signalled “no further declines in growth” with the Italian index rising to 99.3 from 99.2 while France inched up to 99.5 from 99.4.

India set to halt Iran oil imports over insurance

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(Reuters) – India is set to halt all crude imports from Iran because insurance companies in the country have said refineries processing the oil will no longer be covered due to Western sanctions, the head of refiner MRPL said on Friday.

India is Iran’s second-largest buyer, taking around a quarter of its oil exports worth around $1 billion a month.

“If cover is not available then all Indian refiners will have to halt imports from Iran or else they will have to take a huge risk,” P.P. Upadhya, managing director of Mangalore Refinery and Petrochemicals Ltd (MRPL.NS), told Reuters in a telephone interview.

MRPL is India’s biggest buyer of Iran crude. “Insurance companies said if I buy Iranian crude my refinery’s insurance cover will be cancelled … If we don’t get insurance for the refinery then we will stop buying Iranian crude,” Upadhya said.

Europe and the United States last year introduced tough sanctions aimed at Iran’s oil trade to force Tehran to the negotiating table over its nuclear programme.

European industry sources say Indian insurers have been affected as reinsurers in both Europe and the U.S., who dominate the global market, are increasingly wary of the risk of falling foul of breaching sanctions.

“Insurers and reinsurers are very anxious to ensure they don’t overstep the line on sanctions. These are still relatively grey areas, but fairly standard clauses have been put into contracts which say: ‘we don’t have any legal obligation to pay anything that might be in breach of sanctions,’” said Clive O’Connell, London-based partner at law firm Goldberg Segalla.

“If you are an Indian insurance company and you buy reinsurance from a company that has operations in the U.S. or Europe, and that reinsurer imposes a sanctions-compliant clause on you, you’re going to be very careful about the cover that you give,” O’Connell, an insurance expert, told Reuters.

Oil is Iran’s biggest income generator therefore a halt in sales to India would be a heavy blow for Tehran. Sanctions more than halved its crude exports in 2012.

“Sanctions apply to any Iranian aspect of crude oil and such risks are therefore unacceptable to anyone trading in dollars or subject to EU jurisdiction,” said Neil Roberts, a senior executive at the Lloyd’s Market Association, which represents underwriters operating in Lloyd’s of London insurance market.

“The only people who might consider this (type of re-insurance) would be outside the dollar sphere and outside the EU,” he said. “This is a non-starter for the London market.”

In a letter in January seen by Reuters, the General Insurance Corp of India, the national reinsurer, told the General Insurance Council, an industry group, it had “dawned” on insurers that cover and losses on processing the crude would not be payable by reinsurers due to existing sanctions.

A source at another refiner that buys Iranian crude, Hindustan Petroleum Corp (HPCL) (HPCL.NS), also said imports were threatened by the insurance problems.

“Iran imports will be stopped soon,” the HPCL source told Reuters. “As far as insurance is concerned, we are all sailing in the same boat.”

HPCL is Iran’s third-biggest Indian buyer and warned last month that insurers may withdraw cover because of sanctions.

IMPACT ON REFINERIES

MRPL’s Upadhya declined to say how soon the company would have to stop Iranian imports. But MRPL has issued tenders to buy three cargoes of 650,000 barrels of crude to load in April, according to documents seen by Reuters. Two of the cargoes are high sulphur and could be used to replace Iranian oil.

“There is a problem on the insurance front for Iran oil,” Upadhya said when asked about the tenders.

In January, India imported more than 286,000 barrels per day (bpd) of Iran’s around 1.1 million bpd total exports.

This is the first time that insurance problems have had a direct impact on refineries processing Iranian crude.

The lack of insurance cover dates back to April 2012, Upadhya said, but was clarified by insurers only in February this year.

MRPL has written to India’s federal oil ministry asking for an alternative insurance mechanism, Upadhya said.

“Refineries processing Iranian crude would be severely hit,” MRPL told India’s oil secretary in a letter dated February 27 and seen by Reuters. There would be no cover for claims if the plant was processing Iranian crude, MRPL said.

An Indian government source said last month that New Delhi would find a way to ensure refineries have cover but gave no details.

Insurers rely on European reinsurance markets to hedge their risk. EU sanctions have blocked European maritime reinsurers from any involvement in insuring shipments of Iranian oil.

That forced a temporary halt in mid-2012 to imports by two of Iran’s other top Asian buyers, Japan and South Korea.

India’s government stepped in to provide emergency insurance but it was a fraction of the $1 billion liability coverage that a supertanker would typically need and has rarely been used.

India’s refiners have already slashed imports from Iran as they joined other major Asian buyers in reducing purchases to secure waivers from the sanctions.

MRPL had already expected to cut nearly 40 percent or its Iranian imports in the fiscal year ending March 31.

In the first 10 months of the current fiscal year, India reduced Iran crude imports by nearly 22 percent on the year, data from trade sources shows.

Bond markets shouldn’t fear HTM cut – banks

(Reuters) – HTM. These three letters have loomed large over Indian bond markets, but the fears may be misplaced.

Standing for held-to-maturity (HTM), it refers to a type of debt that Indian banks must hold until maturity.

Reserve Bank of India is widely expected to cut the current limit to 23 percent from 25 percent, starting early next fiscal year, to spur more lending and bolster a sluggish economy.

Indian bond investors had feared any cut in the limit would spark widespread debt sales, but bankers say that is misplaced given major lenders are already well below the existing limits after paring their holdings during a debt market rally.

Banks are also selling some of the debt held under HTM to the RBI under the open market operations, dealers say.

Major state-run lenders – the main buyers of government bonds – have already cut down their HTM holdings to 23 percent or below, according to K.R. Kamath, chairman and managing director of Punjab National Bank (PNBK.NS) in Delhi.

“For PNB, our HTM holding is already below 23 percent, so there won’t be any impact on our debt portfolio due to any HTM cuts,” says K.R. Kamath, who is also the chairman of trade body Indian Banks’ Association.

“Most banks, I think, will be in a similar position. For others at least 2 percent of the 25 percent HTM holding should be in the money,” Kamath says.

Other banks that have already cut their holdings below the 25 percent limit include State Bank of India, Bank of Baroda (BOB.NS), Canara Bank Ltd (CNBK.NS), Union Bank of India Ltd (UNBK.NS), and IDBI Bank Ltd (IDBI.NS), officials at these lenders inform Reuters.

Furthermore, RBI is looking at a gradual reduction of the HTM, spread out over several months with a series of 50 basis point cuts, say officials with direct knowledge of the matter.

The goal is to bring the HTM limit in line with the current limit of 23 percent for the statutory liquidity ratio, which includes a broader category of bonds that banks must also hold.