Tides of 3.04.2007

1. The rising inflation has driven the RBI to raise the CRR to suck liquidity out of the system. Though given up as an indirect instrument, the CRR seeks to impact the level of money supply by affecting the value of the multiplier and is thus on a par with Open Market Operations.

2. It's now the turn of public sector banks to hike lending rates, including interest rates on housing loans. Close on the RBI’s recent announcement to hike the cash reserve ratio by 50 bps and the repo rate by 25 bps, PSU banks are gearing up to hold meetings to discuss the unfolding interest rate scenario. Bankers said that the cost of funds was going up in such a manner that there was no way PSU banks could stay away from hiking their lending rates.

3. Fullerton India Credit Company is looking at launching a co-branded (with a bank) credit card, subject to the RBI approval, in the near future. A major segment of its customers are self-employed individuals with an annual turnover of less than Rs 2 crs. The company has a biometric card (pre-loaded cash card) in collaboration with ICICI Bank. Fullerton, a non-banking finance company, is a subsidiary of Asia Financial Holdings Ltd, a wholly owned subsidiary of Temasek Holdings, Singapore. It is mainly involved in disbursing loans to salaried individuals, shop-owners, traders and entrepreneurs.Temasek has invested $150 mn in the company and plans to invest an additional $50 mn during the last quarter this year.

4. In the coming months, ICICI Bank will strive to establish a connection in the minds of its customers between using their debit cards and saving the planet. Today, most people use debit cards to draw money from ATMs and spend the money at shops and restaurants. ICICI Bank wants its customers to use debit cards straightaway in shops and restaurants and thereby minimise the use of paper currency. Less paper use is more environment-friendly. The RBI's figures say that in 1935, India had 100 mn pieces of currency notes in circulation. As at the end of March 2005, the notes in circulation were 36,985 mn or, about 370 times more.

5. BBVA, a Spanish financial services group, has received the RBI approval to open a representative office in Mumbai. It will have five staffers and will be managed by BBVA's Singapore branch. The bank's present business in India amounts to more than € 400 mn (about Rs 23.1 crs). In 2006, the group had signed an agreement on money transfers with ICICI Bank.

6. Karnataka Bank Ltd, which achieved business turnover of over Rs 23,500 crs during 2006-07, is planning to reach a turnover of Rs 28,500 crs during 2007-08 with incremental business growth of Rs 5,000 crs. This includes Rs 3,000 crs of deposits and Rs 2,000 crs of advances.

7. An ICICI-Securities (I-Sec) report on the recent monetary policy measures said that the chances of another CRR hike in this quarter would be low, given the fact that the first quarter in the fiscal is seasonally slow for forex inflows. But there is a 50-50 chance of another 0.25% hike in the repo rate at the time of the April policy, I-Sec said. Adding that the next three inflation readings would be critical, it said, "Should headline inflation fail to come below 6%, and manufacturing inflation continues to rise, RBI may be compelled to nudge repo rate once more, to show its commitment to containing inflation."

8. Mr Aditya Puri, MD & CEO of HDFC Bank, has won the `The Asian Banker Leadership Achievement Award 2006 for India”. The awards were announced last week at Jakarta, Indonesia, at the Asian Banker summit. The Citation for Mr Puri said "he had kept his eye on the ball by pursuing growth with quality. In 2006, he also notably achieved the lowest asset impairments, highest cost efficiencies and best quality growth in core deposit generation among all of the Indian banks. His skilled leadership has seen HDFC Bank stay away from irrational pricing strategies pursued throughout 2006 in the Indian market... " The selection was headed by an international jury chaired by Mr William Seidman, former Chairman of the Federal Deposit Insurance Corporation (FDIC) in the United States.

9. Realty loans, once ardently wooed, are now turning sour for banks as non-performing assets start mounting. A chief executive of a public sector bank, who declined to be identified, said the realty non-performing loans (NPL) portfolio of his bank was as high as 3% of the gross housing loan assets. Under current regulations, if the debt service payments are overdue for more than 90 days, the loans automatically become NPAs. "There are payment overdues of more than 90 days," he said. The CEO said that a substantial chunk of the NPLs came from organised builders and large housing projects. The situation was similar in almost all the public and private sector banks in the country, he added. In some of the banks, the NPLs were as high as 4 %, bankers said. Steep increases in home loan rates over the last three years have also contributed to the deterioration in asset books, the bankers said. The worst affected were floating rate borrowers. Many customers had borrowed floating rate loans when interest rates were as low as 7.25 and 7.5%. The same borrowers were currently forced to cough up double-digit rates on the loans now, leading to a sharp increase in debt service payments.

10. The year 2006 saw a 3% dip in banking sector ad volumes in the print medium over 2005. However, according to a survey conducted by AdEx India, there was a growth of 10 % compared with the year 2004. While public sector banks had a share of 60% of the ad volumes, the rest came from private sector banks. With State Bank of India leading the pack with 10 per cent share, the top five advertisers contributed 37% of the total volumes in 2006, says the study. Compared with 2005, there was a dip of 7 % in ad volumes of public sector banks, whereas private sector banks saw a 4% rise.