Latest news/views on Banking sector in India

Thursday, May 10, 2007

Tides of 10.05 2007

1. To help banks fund infrastructure, the RBI's latest Monetary Policy has allowed them to transact in `single entity credit default swaps'. However, financial innovation can increase the complexity of risk management. The focus of the policy should, thus, be on improving the quality of shock absorbers in the system.

2. India was the leading remittance receiving country in the world last year and received $26.9 bn from expatriate Indians. The growing strength of the rupee vis-à-vis the dollar has not affected the inflow of remittances into the country to any considerable extent. Most of the remittances come for consumption expenditure and there is no way NRIs can hold back these despatches and they form a vital and assured stream of foreign exchange inflow. India, which recorded a 1% growth in remittances from $23.4 bn in the earlier year, is likely to maintain its leading position this year as well.

3. Customers in need of financial advice can now talk to Mr Mani, the virtual financial wizard on the new Web portal (www. money4you.in) launched by Indian Banks' Association (IBA) in collaboration with MasterCard Worldwide and India Cards Council.Mr H.N. Sinor, Chief Executive, IBA, unveiled the Web-based consumer education initiative - Financial Know-How. Banks are growing at a rapid pace and it is essential to be open and transparent. We should not take advantage of the gullibility of the customers," said Mr Sinor. The objective of the initiative is to empower the average person with financial information and guidance to make informed decisions. The portal will help understand credit, choosing and using a card, besides security aspects.

4. Centurion Bank of Punjab has opened its first full-fledged branch in Vijayawada. Vijayawada is witnessing an explosive growth. The Bank is committed to reach each and every part of the city.

5. Citibank and SKS Microfinance Pvt Ltd have tied up to launch a Rs 180-crs programme to extend micro credit in rural areas. As per the tie-up, each individual loan generated by SKS would be purchased by Citibank, which shares credit risk in the transaction. The deal would add 2.5 lakh clients to our existing clientele of 6.5 lakh. This is the single largest investment in micro-finance by a global playe. The programme would deliver loans ranging from Rs 5,000 to Rs 20,000 in over 7,000 un-banked villages in the country where SKS was present through its 49 branches.

6. Canara Bank, the country’s third largest bank, has set its sights on mid-sized Dena Bank and has appointed Ernst & Young to explore the possibility of the deal. This sets into motion the government’s move to introduce consolidation among public sector banks. Sources close to the development said the chairmen of both banks would meet shortly, after which the matter would be taken up by the respective boards and employees would be consulted. After the merger, the government holding in the new entity is likely to come down to about 65%, depending on the swap ratio. The deal is most likely to be a cashless transaction. The government is in favour of “voluntary” consolidation of state-run banks to create mega banking institutions to counter foreign competition.

7. State Bank of India's local headoffice at Chennai has signed a memorandum of understanding (MoU) with Hyderabad-based Heritage Foods (India) Ltd for financing various activities under the dairy sector.

8. RBI has asked old private sector banks to scout for long-term partners to help them achieve their banking objectives rather than just look for financial investors.

9. RBI has put on hold all new accounts of private banks to conduct government business. This follows dissatisfaction expressed by the Centre on the conduct of government business by private financial institutions. Sources explained that private sector banks are profit-oriented and not interested in increasing the reach of these services to far-flung areas. Government business includes collection and payments of funds which was earlier handled as a retail business by the RBI.

10. ICICI Bank plans to hire Goldman Sachs and Merrill Lynch to help sell about $5 bn of stock, the largest share sale by an Indian company. ICICI Bank may appoint the New York-based securities firms as early as next week to sell shares overseas.

11. Development Credit Bank, promoted by The Aga Khan Fund for Economic Development (Akfed), is exploring the option of ADR/GDR along with other plans to raise Rs 275 crs capital to skirt the recent diktat by the SEBI.