Highlights of RBI's Mid-term Review of Annual Policy for 2006-07

· Repo Rate increased to 7.25% from 7.0%.
· The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially is retained.
· Reverse Repo Rate, Bank Rate and CRR kept unchanged.
· GDP growth forecast at around 8.0% during 2006-07.
· Inflation to be contained within 5.0-5.5% during 2006-07.
· Monetary and credit growth expected to be higher than the initial projections.
· ‘When issued’ trading to be extended to fresh issues of Central Government securities.
· Scheduled commercial banks and primary dealers to be allowed to cover their short positions in Central Government securities within an extended period of five trading days.
· Resident individuals would be free to remit up to US $ 50,000 per financial year as against the earlier limit of US $ 25,000.
· Foreign exchange earners may retain up to 100% of their foreign exchange earnings in their EEFC accounts.
· AD banks may borrow funds from their overseas branches and correspondent banks (including borrowing for export credit, ECBs and overdrafts from their Head Office/Nostro account) up to a limit of 50 % of their unimpaired Tier I capital or US $ 10 million, whichever is higher.
· Borrowers eligible for accessing ECBs can avail of an additional US $ 250 mn with average maturity of more than 10 years under the approval route.
· Prepayment of ECB up to US $ 300 mn without prior approval of the Reserve Bank.
· Authorised dealer banks may allow remittances on behalf of their customers up to 15% of the average annual sales/income or turnover during the last two financial years or up to 25% of their net worth, whichever is higher, for initial expenses, and remittances up to 10% of the average annual sales/income or turnover during the last two financial years for recurring expenses. They may also permit remittances for acquisition of immovable property for the overseas office, within these limits.
· The existing limit of US $ 2 bn on investments in Government securities by FIIs to be enhanced in phases to US $ 3.2 bn by March 31, 2007.
· The extant ceiling of overseas investment by mutual funds of US $ 2 bn is enhanced to US $ 3 bn.
· Importers to be permitted to book forward contracts for their customs duty component of imports.
· FIIs to be allowed to rebook a part of the cancelled forward contracts.
· Forward contracts booked by exporters and importers in excess of 50 per cent of the eligible limit to be on deliverable basis and cannot be cancelled.
· Authorised dealer banks to be permitted to issue guarantees/LCs for import of services up to US $ 100,000 for securing a direct contractual liability arising out of a contract between a resident and a non-resident.
· Lock-in period for sale proceeds of the immovable property credited to the NRO account to be eliminated, provided the amount being remitted in any financial year does not exceed US $ one mn.
· Banks, with approval of their boards, may formulate a transparent policy for providing One Time Settlement facility to those farmers whose accounts have been rescheduled/ restructured due to natural calamities as also those who have defaulted on account of circumstances beyond their control.
· For opening small accounts, banks need to seek only a photograph of the account holder and self-certification of address.
· Indian banks having presence outside India and foreign banks to migrate to the Basel II framework effective March 31, 2008 and other scheduled commercial banks to migrate in alignment but not later than March 31, 2009.
· Prudential limit on credit and non-credit facilities to Indian Joint Ventures/Wholly Owned Subsidiaries abroad to be enhanced to 20 % of unimpaired capital funds.
· Financially sound Urban Co-operative Banks (UCBs) registered in States that have signed MoU with the RBI and those registered under the Multi-State Co-operative Societies Act, 2002 to be allowed to convert existing extension counters into full-fledged branches.
· NBFCs to be allowed to issue co-branded credit cards with banks without risk sharing and to market and distribute mutual fund products.
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Tides of 31.10.2006

1. RBI is likely to defer the deadline for implementation of revised capital adequacy guidelines (Basel II) by six months to a year. The central bank is close to issuing the final guidelines. In the draft Basel II guidelines issued over a year back, the RBI had suggested March 31, 2007 as the date for banks to shift to Basel II capital adequacy norms. The central bank may also prefer a phased implementation of the Basel norms starting with foreign banks and internationally active Indian banks and then gradually moving to other banks. Banking sources said empanelment of rating agencies is understood to be a big hurdle in going ahead with Basel II norms as the current credit rating capacity is not enough to cover all loan accounts of banks. Banks would be required to have their loan accounts rated by rating agencies under Basel II for allocation of capital according to the perceived level of risk.
2. In what is seen as further tightening of the norms for non-banking finance companies, RBI has said that in case of change of management and control of an NBFC a public notice should be given by both parties - the acquirer as well as the acquiree.
3. UTI Bank has stirred a hornet's nest with a recent letter to UTI Mutual Fund regarding its plans to register the UTI Bank brand name after 13 years of existence. The bank was allowed to use the UTI name but had never formally registered it.
4. The aggregate interest cost of 419 major companies rose to Rs 2,488 crs in July-Sep 2006, a 23.1% increase over the same period's level of Rs 2,021 crs in the previous fiscal.
5. Karnataka Bank has posted a net profit of Rs. 59.61 crs for the second quarter ended September 30, 2006, as compared to Rs. 41.81 crs in the same period last year, registering an increase of 43%.
6. Seeking to boost its commercial relationship with India, Canada has demanded more access to 'key' markets in the country including in agriculture and retail sector.
7. Andhra Bank posted 10.19% rise in NP at Rs 146.77 crs for the quarter ended Sep 2006 against Rs 132.89 crs recorded during the corresponding period of the previous financial.
8. Allahabad Bank has posted a 24% rise in net profit at Rs 210 crs in the quarter ended Sep 30, 2006, compared with Rs 168 crs in the corresponding period last year.
9. Competition between banks is hotting up to open fresh bank accounts for state government employees. This has been triggered by a state directive urging government employees to get their salaries through the ECS. The cash salary system will be withdrawn soon. The West Bengal government has asked Allahabad Bank, SBI, UCO Bank, United Bank of India and West Bengal State Cooperative Bank (WBSCB) to open new salary accounts for state employees. There are nearly 3.9 lakh government employees across the state. Interestingly, the government has detected that most of its employees, especially in rural areas, do not have bank accounts, or accounts with ECS.

Tides of 30.10.2006

1. DCB Ltd made its debut on the stock markets today. DCB was listed at Rs 35.35, a premium of 35.96% over the issue price of Rs 26 on the BSE. DCB offered 7.15-crs equity shares aggregating Rs 186 crs. The issue was oversubscribed 35.68 times. It will strengthen the capital base of the bank and also help meet the capital adequacy norms under Basel II.
2.Commission earned on selling other companies' products (or third-party distribution business) is emerging as a new revenue source for many banks. The commission or fee is earned mainly through selling insurance products (both life and general) and mutual funds. HDFC Bank, earned about Rs 200 crs through sale of insurance products and mutual funds.
3. The net profit of SBI has fallen marginally by 2.53 % to Rs 1,184.49 crs (Rs 1,215.36 crs) for the second quarter ended Sep 30. The slight decline in profits follows higher tax provisions. Also, the bank did not enjoy the benefit of interest on income-tax refund at Rs 712 crs, available last year. For the first quarter ended June 30, the bank saw a 34.7% dip in net profit to Rs 798.57 crs (Rs 12,299.23 crs). Provisions have been placed at Rs 1,288.07 crs (Rs 767.56 crs).Net Interest Margin stands at 3.32% (3.13%). Deposits increased by 10.77% and cost of deposits declined to 4.51% (4.64%).
4. Growth in net interest income and operating profit have helped BOB to post a 11.31% rise in net profit at Rs 288.36 crs (Rs 259.07 crs) for the quarter ended Sep 30. Total income has increased to Rs 2,507.66 crs (Rs 2,003.59 crs). Other income has grown following a 19.4% rise in fee-based income, profit on exchange transactions and NPA recovery. The bank has cut its net NPAs to 0.77% (1.13%)
5. Development Credit Bank (DCB) is to double its balance sheet size by March 2008.
6. RBI is expected to announce a slew of measures to bring vibrancy into the debt market as part of its mid-term review of the annual monetary policy.
7.Morgan Stanley and Fidelity picked up over a 10% stake in Development Credit Bank which made its debut on the bourses recently.
8. BoB is open to sharing a majority stake in its asset management company with an undisclosed foreign partner for starting a joint venture in its AMC.
9. SBI Cards plans to launch cards in association with players in the healthcare industry such as pharmacy chains and hospitals. The first-of-its-kind credit cards would be launched in early 2007. Health is a sunrise segment. It expects card spends in this segment to go up. It will look at partners to tie up within the entire chain from pharmacy to clinics to pathology labs to hospitals. SBI Cards, a joint venture of SBI and GE Money, overtook Citibank to emerge as the second largest issuer of credit cards in September. SBI Cards had a credit card base of over 30 lakh at the end of September 30, 2006, against Citibank’s around 29 lakh. ICICI Bank, the country’s second largest bank, is way ahead of both with a card base of over 50 lakh.

Tides of 29.10.2006

1.The net profit of SBI has fallen marginally by 2.53 % to Rs 1,184.49 crs (Rs 1,215.36 crs) for the second quarter ended Sep 30. The slight decline in profits follows higher tax provisions. Also, the bank did not enjoy the benefit of interest on income-tax refund at Rs 712 crs, available last year. For the first quarter ended June 30, the bank saw a 34.7% dip in net profit to Rs 798.57 crs (Rs 12,299.23 crs). Provisions have been placed at Rs 1,288.07 crs (Rs 767.56 crs).Net Interest Margin stands at 3.32% (3.13%). Deposits increased by 10.77% and cost of deposits declined to 4.51% (4.64%).

2.Growth in net interest income and operating profit have helped BOB to post a 11.31% rise in net profit at Rs 288.36 crs (Rs 259.07 crs) for the quarter ended Sep 30. Total income has increased to Rs 2,507.66 crs (Rs 2,003.59 crs). Other income has grown following a 19.4% rise in fee-based income, profit on exchange transactions and NPA recovery. The bank has cut its net NPAs to 0.77% (1.13%)

3.Development Credit Bank (DCB) is to double its balance sheet size by March 2008.

4.RBI is expected to announce a slew of measures to bring vibrancy into the debt market as part of its mid-term review of the annual monetary policy.

5.Morgan Stanley and Fidelity picked up over a 10% stake in Development Credit Bank which made its debut on the bourses recently.

6.Andhra Bank posted 10.19% rise in net profit at Rs 146.77 crs for the quarter ended Sep 2006 against Rs 132.89 crs recorded during the corresponding period of the previous financial.

7.Allahabad Bank has posted a 24% rise in net profit at Rs 210 crs in the quarter ended Sep 30, 2006, compared with Rs 168 crs in the corresponding period last year.

8.BoB is open to sharing a majority stake in its asset management company with an undisclosed foreign partner for starting a joint venture in its AMC.

9.SBI Cards plans to launch cards in association with players in the healthcare industry such as pharmacy chains and hospitals. The first-of-its-kind credit cards would be launched in early 2007. Health is a sunrise segment. It expects card spends in this segment to go up. It will look at partners to tie up within the entire chain from pharmacy to clinics to pathology labs to hospitals. SBI Cards, a joint venture of SBI and GE Money, overtook Citibank to emerge as the second largest issuer of credit cards in September. SBI Cards had a credit card base of over 30 lakh at the end of September 30, 2006, against Citibank’s around 29 lakh. ICICI Bank, the country’s second largest bank, is way ahead of both with a card base of over 50 lakh.

10.RBI is likely to defer the deadline for implementation of revised capital adequacy guidelines (Basel II) by six months to a year. The central bank is close to issuing the final guidelines. In the draft Basel II guidelines issued over a year back, the RBI had suggested March 31, 2007 as the date for banks to shift to Basel II capital adequacy norms. The central bank may also prefer a phased implementation of the Basel norms starting with foreign banks and internationally active Indian banks and then gradually moving to other banks. Banking sources said empanelment of rating agencies is understood to be a big hurdle in going ahead with Basel II norms as the current credit rating capacity is not enough to cover all loan accounts of banks. Banks would be required to have their loan accounts rated by rating agencies under Basel II for allocation of capital according to the perceived level of risk.

11.In what is seen as further tightening of the norms for non-banking finance companies, RBI has said that in case of change of management and control of an NBFC a public notice should be given by both parties - the acquirer as well as the acquiree.

12.UTI Bank has stirred a hornet's nest with a recent letter to UTI Mutual Fund regarding its plans to register the UTI Bank brand name after 13 years of existence. The bank was allowed to use the UTI name but had never formally registered it.

13.The aggregate interest cost of 419 major companies rose to Rs 2,488 crs in July-September 2006, a 23.1% increase over the same period's level of Rs 2,021 crs in the previous fiscal.

14.Karnataka Bank has posted a net profit of Rs. 59.61 crs for the second quarter ended September 30, 2006, as compared to Rs. 41.81 crs in the same period last year, registering an increase of 43%.

15.Seeking to boost its commercial relationship with India, Canada has demanded more access to 'key' markets in the country including in agriculture and retail sector.

Tides of 28.10.2006

1. Indian Bank has launched a new `premium' current account with built-in `sweep' facility for corporates, traders, businessmen and professionals.
2. The Oriental Bank of Commerce, Indian Bank and Corporation Bank business alliance is looking to share payment modes and launch a joint credit card.
3. Corporation Bank has posted an increase of 20.27% in net profit at Rs 127.01 crs for the quarter ended September 30, as compared to Rs 105.60 crs for the same quarter last year. The total income increased 20.41% to Rs 945.54 crs for the second quarter ended September 30, from Rs 785.26 cr. for the corresponding quarter a year ago.
4. Allahabad Bank has posted 24.76% increase in net profit at Rs 210.03 crs for the quarter ended September 30, as compared to Rs 168.34 crs in the corresponding quarter last year. The total income increased by 19.16% to 1267.83 crs for the quarter ended September 30, as compared to Rs 1063.93 crs in the same quarter last fiscal.
5. The “sunrise” sector of microfinance, billed to have a potential of Rs 35,000 crs is likely to be regulated by the Nabard. This would mean a regulator for more than 400m Indians who are out of the banking system and who are currently being serviced by microfinance institutions. The microfinance bill, currently under review, is likely to be introduced in Parliament in the winter session.
6. For. reserves rose by $1.202 bn to $166.153 bn for the week ended Oct 20, due to a rise in foreign currency assets. In the previous week, reserves fell by $324 mn to $164.95 bn.
7. Higher interest income boosted the net profit of BOI by 61% to Rs 212.13 crs (Rs 132.18 crs) for the second quarter ended September 30. The bank trimmed its net NPAs by over 40% to Rs 788.75 crs (Rs 1,333.41 crs) with the net NPA as a proportion of total assets standing at 1.07% (2.25%). Net interest margin improved to 2.86% (2.34%).
8. Peerless General Finance & Investment Company Ltd, a major residuary non-banking company (RNBC), celebrated its platinum jubilee recently.
9. SBI has opened a branch at Singur (Hooghly district), the controversial location where the WB Government wants Tata Motors to set up a factory for producing small cars but faces stiff opposition from various quarters over the issue of handing over fertile farm lands for industrial purposes.
10. Gross bank credit has gone down by Rs 11,014 crs to Rs 16,43,720 crs as on Oct 13.
11.IndusInd Bank has launched "Indus GOLD Debit Card" in association with VISA at an annual fee of Rs 350 (plus service tax). The card has a daily withdrawal limit up to Rs 50,000 from ATMs.
12. The one-day nationwide strike called by the United Forum of Bank Unions hit banking services, including clearing operations across the country. Over 10 lakh employees and officers of nationalised banks stayed away from work.

Tides of 27.10.2006

1. RBI has said that ARCs will have to start operations within six months of receiving licences. The move aims to spur into action ARCs which have remained dormant for years after receiving licences. It said that those companies where the certificate of registration (CoR) is already issued, the deadline of six months would begin from the date of notification, which is October 19. RBI added that if any ARC was unable to commence operations within six months from receiving the CoR, they would be granted another six months, but not more than one year from the time the CoR was issued.
2. HDFC Bank, the country’s second largest private sector bank, has been rated higher than the largest commercial bank in the country, State Bank of India. International rating agency Moody’s Investors Service has assigned a “C-” financial strength rating (FSR) to HDFC Bank as against a D+ rating to SBI, which is one notch below. ICICI Bank, the country’s second commercial bank, was early this year upgraded from `D+’ to `C-’.
3. The tight liquidity conditions seen in the local banking system last week seem to be abating. With the festive season coming towards a close, liquidity has eased relatively. Although banks’ inability to estimate cash requirements forced them to keep off from lending to the central bank in morning sessions of liquidity adjustment, RBI was able to mop up Rs 16,000 crs in the afternoon session through reverse repo transactions.
4. Deprecating the strong-arm methods allegedly employed by private banks for recovering loan amounts, the Delhi High Court has dismissed an appeal by Standard Chartered Bank, challenging the order of a single judge who directed police to investigate complaints of such harassment of the family of a deceased credit card holder.
5. Andhra Bank has posted 10.19% increase in net profit at Rs 146.44 crs for the quarter ended September 30, as compared to Rs 132.89 crs for the same quarter last year. The total income increased 19.58 % to Rs 900.75 crs for the quarter ended September 30, from Rs 753.23 crs for the corresponding quarter a year ago.
6. ICICI Bank is expecting over 40% growth in its vehicle finance business at Rs 50,000 crs by March 2007. Its vehicle financing business is growing by over 40% y-on-y basis. It has over 40% market share in auto financing, expects the total book value of vehicle finance to increase to Rs 50,000 crs by March 2007 from Rs 34,000 crs as of March this year. The book value of the auto loan portfolio was at Rs 42,000 crs as of September 2006. The vehicle loan disbursement was Rs 20,000 crs in 2005-06, while the incremental loan disbursement is expected to be Rs 29,000 crs this fiscal. Meanwhile, ICICI Bank has tied up with Sixt India, a car leasing and renting service provider, for car leasing business in India. Under the arrangement, the bank will finance 100% value of cars bought by Sixt and Sixt in turn will lease the cars out to corporates for a certain period at a price of 60-80% of the cost. Sixt India plans to have a fleet of 3,000 cars by 2007 and 35,000 cars in five years.

Tides of 26.10.2006

1. ICICI Bank, has done a minor reshuffle of its board and certain changes in the senior management, with JMD Lalita Gupte slated to retire on October 31. V Vaidyanthan, SGM, will be the new executive director on the board, while Bhargav Dasgupta, SGM, will leave the bank to join ICICI Pru Life as executive director. Following Ms Gupte’s retirement, the bank has assigned Chanda Kochhar, deputy MD, the responsibility for international banking. However, she would continue to be in charge of corporate banking. So far, international banking is overseen by Ms Gupte, who had joined the bank’s board in 1994.
2.UBI and BoI, have joined hands with infrastructure lending institution IDFC to provide banking facilities to customers on a single platform. Although the three entities are yet to sign an agreement, the move is aimed at optimising branch network and gets the better of competition. Since both Union Bank of India and Bank of India have the same technology platform, Finacle, they would be in a better position to undertake cheque collections and payments activities.
3.Federal Bank Limited has reported a net profit of Rs 69.46 crs for the second quarter of the current fiscal, an increase of 28.25% over the corresponding period last year. The operating profit for the quarter went up by 36.60% at Rs 139.01 crs for the quarter. The net profit for the half year this fiscal stood at Rs 109.64 crs compared to Rs 102.84 crs in the same period in 2005-06. For the half-year ended September 30, the bank's total business increased by 21.71% to Rs 31,002.6 crs from Rs 25,473.49 crs over the corresponding half year in the previous fiscal.
4. Banks are likely to push for restoration of the income-tax sops withdrawn in Budget this year to encourage investment in infrastructure.This includes restoration of 10(23)G of the IT Act under which banks had an exemption on their interest income for financing infra projects. In fact, banking sources say that these two issue will figure prominently in the pre-Budget discussions of the banking community with the RBI and finance ministry.
5. Employees and officers of commercial banks will participate in the all-India bank strike on 27.10.2006, called by the United Forum of Bank Unions (UBFU).
6. The Federation of Indian Export Organisations (FIEO), in association with HSBC, is organising a seminar on `Forex and credit risk management and logistics'.
7. Concluding their month-long strike in Kerala, employees of the Lord Krishna Bank, on Wednesday gave their consent to the bank's proposed merger with Centurion Bank of Punjab.The management of the private sector bank has assured the employees that there will be no retrenchment of staff as well as no closure of any rural branches. The assurances had been earlier incorporated in the scheme of amalgamation of the two banks as well.
8. Allahabad Bank on Thursday posted 24.76% increase in net profit at Rs 210.03 crs for the quarter ended September 30, as compared to Rs 168.34 crs in the corresponding quarter last year. The total income increased by 19.16% to 1267.83 crs for the quarter ended September 30, as compared to Rs 1063.93 crs in the same quarter last fiscal.

Tides of 25.10.2006

1. ICICI Bank has reported a 30% rise in net profit at Rs 755.01 crs in the second quarter against Rs 580.05 crs in the same period last year. The increase in profit was contributed mainly by higher interest and fee income.
2. A salary revision and spate of redesignations in HDFC Bank have once again stoked rumours of a possible reverse merger of the parent HDFC with the bank. Even though the market and banking circles have been betting on it for quite some time now, both HDFC and HDFC Bank have denied any move towards a merger in response to a report filed by a news agency.

Today's tidings

1. The Punjab & Sind Bank has reported a net profit of Rs 72.93 crs for the quarter ended September 2006 recording an increase of 102.13% compared with Rs 36.08 crs in the second quarter last fiscal.
2. Besides celebrations and crackers, an inevitable currency crunch is turning out to be a hallmark of Diwali. On Friday, banks borrowed a record Rs 1,500 crs from RBI to tide over a temporary cash crunch as corporates withdrew large amounts for bonus payments and consumers withdrew cash ahead of a stretch of holidays. The cash shortage pushed up rates in the interbank call money market. The rates touched an intra-day high of 7.20%. In order to cope with such a huge cash outflow, banks have braced up the cash-holding limits of their ATMs and raised the cash supplies towards agencies undertaking cash management at ATM outlets.
3. With PNB rolling out its online trading business in November and BOB firming its plans for a foray into the space, the neighbourhood banker will soon become the de facto broker. In fact, major MNC banks including Citibank, ABN Amro and HSBC recently started their operations in the segment. This is expected to give retail investors the confidence to participate in the capital markets in a big way since they have a long-standing association with their banks.
4. IndusInd Bank, has launched its Indus Gift Card which can be used for purchase from any point-of-sale terminal in India and abroad. The gift card, launched in association with Visa, is a pre-paid card available in any denomination, including odd amounts and ranges from Rs 250 to a maximum of Rs 20,000. The gift card can be used for online purchases, on Visa BillPay and at any point-of-sale outlet, both in India and abroad.
5. PNB has plans to sell Rs 100 crs worth of gold coins in the next 12 months. Already a long list of banks, including ICICI Bank, HDFC Bank, Corporation Bank, SBI and Indian Bank has been betting on bullion for their retail customers. Denominations in gold ranging from 5 gm to 100 gm are on offer.
6.PNB is planning to offer a medical insurance cover from November to depositors for a lower price than market rate. The bank has tied up with private insurer Reliance General Insurance for the purpose.
7. Kotak Life Insurance (KLI) has now joined the Ratnakar Bank Ltd . KLI would now be able to tap the strong customer base of RBL, which also would gain by the new non-banking.

My initial start

Today is a good day.
I have started this blog with the help of Mr.R.Maniappan of Bangalore.