Tides of 30.09.2007

1. Experts in forex management from HSBC Eastern India, analysing the risk and problems faced by exporters in the wake of rupee appreciation, said here that the best strategy for corporates would be “combined hedging”. They also stressed on the formulation of a clear-cut policy on risks and hedging with appropriate levels of controls and authority. Once a strategy is zeroed in, it is necessary to choose the available instruments in the prevailing context of regulatory framework, and then execute the strategy. They also advocated periodic review of performance. The key market parameters that need to be studied, according to them, are spot exchange rate, forward premium differential, long-term forward premium and currency volatility.

2. With the successful issue of further capital to the tune of two crore equity shares at Rs 163 per share, which includes the premium, the net worth of South Indian Bank has crossed Rs 1,000 crores.

3. Bankers and primary dealers are of the view that the Reserve Bank of India’s suggestion to provide a mechanism for corporates to calculate the variation in the prices of derivative products, would not be practical.

4. The Insurance Regulatory and Development Authority (IRDA) has set up a 10-member committee to look into the working of the various distribution channels of insurance companies.

5. Tractor manufacturer TAFE today shook hands with City Union Bank over an agreement under which the bank will provide quicker and easier finance for those who buy the company’s tractors. A farmer could avail himself of a loan paying only 5 per cent of the tractor’s cost upfront. A typical loan arrangement will be for an interest rate of 11.75 per cent and a period of seven years.For TAFE, which is the country’s second largest tractor manufacturer (after Mahindra & Mahindra), this is not the first agreement with a bank, but for City Union Bank it is the first and the only one with a tractor company.

6. Economists do not seem to be too perturbed by the external debt data put out by the Reserve Bank of India. Total external debt amounted to $165.4 billion as of June 2007, recording an increase of $8.7 billion or 5.6 per cent over the March-end levels. External commercial borrowings (ECBs) contributed around 63 per cent of the increase in total external debt, followed by NRI deposits (15.6 per cent).

7. Pandyan Grama Bank, the regional rural bank of Indian Overseas Bank, has registered a record achievement of zero non-performing assets (NPAs) for the past five years.

8. The Government of India has reportedly advised the Reserve Bank of India (RBI) to subscribe to bonds issued by the overseas arm of India Infrastructure Finance Company Ltd (IIFCL) using $5 billion from the country’s foreign exchange reserves. This directive has wide-ranging implications and raises several issues.Over the last few years, there has been a surge in capital flows into the country leading to swelling of foreign exchange reserves to over $225 billion. However, this is not purely a blessing. Capital inflows lead to appreciation of domestic currency, thereby reducing the country’s export competitiveness and worsening trade deficit.

9. Non-resident Indians are sending more money ‘home’. Individual remittances from Indians working overseas have surged 50 per cent at $8.6 billion in the first quarter of 2007-08, against $5.9 billion in the year ago period, according to the Balance of Payment data released by the RBI.Economists believe that although the US has seen a slow down in economic growth, remittances may not have been hit. Regions such as West Asia and Europe, which are the other sources for remittances into India, have shown strong growth.

10. The forex reserves surged by $ 3.704 billion to touch $ 235.891 billion for the week ended September 21, due to currency revaluation and the central bank’s buying of dollars to stem the appreciation in rupee.In the earlier week, the forex reserves had increased by $1.810 billion to touch $232.187 billion. This is the third week in a row that forex reserves have shown an accretion.

Tides of 26.09.2007

1. The Annual General Meeting of Federal Bank approved a dividend of 40% for the year 2006-07. Addressing the AGM, Mr M. Venugopalan, Chairman, said the business volume of the bank had grown by 23.19 %.

2. While the Indian rupee has appreciated to a nine-year high against the dollar, its neighbouring counterparts the Pakistan rupee, the Bangladeshi taka and the Chinese yuan have a different story to tell.The Indian rupee has appreciated by around 13 per cent in the past one year- the currency which is at 39.80, was at 45.95 in September last year.However the political turmoil in Pakistan and Bangladesh has meant that these currencies have not seen much movement against the dollar. This is bad news for India’s exporters, since Bangladesh and Pakistan are strong competition in textile exports.

3. Nabard has sanctioned Rs 50 crore from its Rural Infrastructure Development Fund XIII (RIDF XIII) for a new IT complex at Infopark in Kochi being implemented by the IT Department of Kerala Government.The complex, covering an area of 4.27 lakh sq ft, will house 50 IT companies and is expected to create employment for around 5,000 professionals.

4. Union Bank of India has cut interest rates on home loans by 25-50 basis points, depending on the size of the loan. The reduced rates are applicable to new home loans.For loans less than Rs 20 lakh.

5. Punjab National Bank today signed an MoU with the Government of Assam to provide housing loans to employees of the State Government with a minimum service period of three years. The bank has agreed to provide relaxation of the interest rate over and above the current flexible rate. The rate will be subject to change as decided by the bank. The house building loans will be for purchase of house/ flat / plot etc., and also for taking over of loans from other financial institutions.

6. In a bid to ease the pressure of forex inflows in the wake of the rate cut by the US Fed, the Reserve Bank of India on Tuesday allowed Indian companies to invest more funds overseas without its prior permission.RBI would now allow higher limits for corporates in direct and portfolio investments besides pre-payment of external commercial borrowings. Individuals have been permitted to remit up to $2 lakh per annum ($1 lakh earlier) without RBI permission.

7. The public sector banks are now gearing up to shed their dowdy image and introduce upmarket branches in order to tap the younger generation customers. They are looking at bringing the ‘luxury element’ to their branches to attract tech-savvy customers.Senior officials at public sector banks feel that a majority of the affluent young customers flock to the new generation private sector banks.

8. Public sector banks (PSBs) in the country are equipping themselves to successfully take on the challenges by the entry of foreign banks into the country in 2009.

9. The Boston Consulting Group (BCG) has been given a deadline of six months for submitting its report on restructuring of the three public sector general insurance companies.

10. The Union Cabinet is set to approve a proposal to allow sugar mills to access interest-free loans from banks against their excise payments during the 2006-07 and 2007-08 seasons (October-September).

11. ICICI Bank has launched a floating rate repayment product for car loans, commercial vehicles loans, construction equipment loans and professional equipment loans from September this year.

12. Axis Bank plans to offer wealth management services to its semi-urban and rural customers. The bank, which launched its focussed group on wealth management two years back, is now planning to give wealth advisory and wealth management tips to the customers in Tier II and Tier III cities and villages.

Tides of 15.09.2007

1. Interest rate hikes notwithstanding, public sector banks are supporting farm sector with credit below the current benchmark prime lending rates (BPLR).
Bankers said that the credit support for the farm sector was not just for crop loans, but also for non-crop loans, including consumption credits and rural housing. Currently, crop advances are priced at 7%.

2. International credit enhancement agencies may get to operate in India, with the Finance Ministry urging the Reserve Bank of India (RBI) to frame appropriate regulations for the entry of such companies. Credit enhancement agencies are basically institutions whose backing enhances the credit worthiness of debt issuances of municipal corporations and other organisations and helps them raise funds at better rates.

3. The country’s forex reserves increased by $1.530 billion to $230.377 billion for the week ended September 7 on account of reasonably good inflows and revaluation of currency assets, said a dealer with a private bank. “The central bank has also been constantly intervening in the forex market to cap the appreciation of rupee,” said the dealer.The reserves had fallen by $2 million to touch $228.847 billion for the week ended August 31, according to the weekly statistics from the Reserve Bank of India.

4. LIC has set itself a target of 31 per cent growth in new business premium for the current fiscal.

5. Greater attention to price stability and pre-emptive measures taken in the economic policy has helped contain inflation rates and inflation expectation.
Maintenance of price stability and financial stability is essential for healthy corporate sector performance, said Dr Rakesh Mohan, Deputy Governor, Reserve Bank of India.

6. The public sector Bank of India is receiving encouraging response from the trading community following the introduction of various unique schemes, which are designed to provide hassle free financial assistance for businessmen in Kerala State.

7. Indian Overseas Bank is looking for a tie-up with another bank to expand its business and reach. Without naming the likely partner, Mr S. A. Bhat, Chairman and Managing Director, IOB, said, “Talks are at a very formative stage. We will tie up with a bank that will complement us in terms of business and geographies".

8.The intermediate holding company model being proposed by ICICI Bank and State Bank of India will insulate banks from the risks of raising capital for non-banking business, as the holding company would be able to raise funds independent of the bank. It will also limit exposure of the parent bank and its investors to the non-banking business. This is the view expressed by the Indian Banks’ Association in its response to the discussion paper on the holding companies released by the Reserve Bank of India.

9. India is largely insulated from the subprime crisis and will continue to see mergers and acquisitions, said investment bankers, speaking at a banking seminar. “Indian corporates are largely under-leveraged and we will not see any drying up in the financing of large Indian contracts. Pricing of these deals may, however, be higher than what has been in the last few years,” said Mr Tarun Kataria, Head, Investment Banking & Markets, HSBC, speaking at a FICCI-IBA seminar.He added that the uncertainty due to a global credit slow down could continue for a while. Deals that are stuck will get repriced and restructured.

10. Trade finance opportunities in India could offer revenues in excess of over $2 billion in the next five years, against the current $1.2 billion, said Mr J. Chandrasekaran, Chief General Manager, Small and Medium Enterprises, State Bank of India.

11. HDFC Bank expects its overall advances to grow by over 30 per cent this fiscal, much higher than the anticipated credit growth of about 20-25 per cent for the banking industry in the period.An important driver of this growth is likely to be retail advances, which are expected to grow by 30-40 per cent this fiscal, according to Mr Pralay Mondal, Country Head, Retail Assets and Credit Cards.

Tides of 8.09.2007

1. The RBI’s Annual Report admits of “some evidence of cyclical elements in the growth process” albeit significant structural changes in the economy. The accent is on the continuing need for vigil on price stability, including financial stability.

2. Housing Development Finance Corporation was at an all-time high of Rs 2,140 on Friday on the BSE. Despite the sub-prime originating out of housing finance companies in the global markets, domestic housing finance companies such as HDFC and LIC Housing Finance are faring well.Analysts feel that the banking finance sector is comparatively better off than others, one of the reasons being the low mortgage penetration to GDP ratio i.e., the amount of mortgage banks have in turn for their lending for housing to the GDP. It is as low as 7.1 per cent, whereas in the US and the UK it is 54 per cent and 57 per cent, respectively, according to an analyst.

3. The Mumbai city based Financial Technologies India Ltd has partnered with the University of Mauritius Trust (UoM) to set up a ‘Centre for Organized Markets’ in Mauritius, an initiative aimed at create a sizable talent pool for financial markets. The UoM signed an MoU with MCX Centre of Academia, a part of the Financial Technologies group, on August 27. The collaboration is expected to benefit university staff in terms of staff exchange and training, and also professionals and students who wish to work in the financial services at large.

4. The Reserve Bank of India would like foreign banks to get a flavour of semi-urban India and the rural hinterland. Going by the statistics provided in the RBI’s annual report, it appears that foreign banks are being gently nudged away from metros, when they apply for permission to open a new branch.The branches of foreign banks that have been approved between July 2006 and June 2007 are mostly in smaller towns and tier-2 and tier-3 cities. Of the 13 branches for which permission was given, only one branch belonging to Shinhan Bank has been allowed in New Delhi.

5. Centurion Bank of Punjab (CBOP), which had recently merged with the Kerala-based Lord Krishna Bank, has chalked out ambitious plans for the State with a focus on NRIs. The NRI population from the State is the immediate priority.

6. Corporation Bank has offloaded its stake in the National Stock Exchange by 0.27 per cent. Fidelity Trustee Corporation and HDFC Ltd have together picked up the stake sold by the bank for Rs 35 crore on September 7.

7. Banks in India are becoming cautious about lending to weak borrowers, says India Knowledge @ Wharton, an online resource centre for information on India-related issues at the University of Pennsylvania, quoting industry experts.
The online resource centre quoted data on provision for non-performing assets made by banks in the first quarter of fiscal 2007-08 which it says are higher than similar provisions made the same time last year and cautions that it could go up further. It referred to State Bank of India (SBI)’s performance which saw gross NPAs rise to Rs 10,760 crore as on June 2007 from Rs 9,720 crore in June 2006, a level that it says is the highest in the last 14 quarters. The bank had also substantially hiked (161%) its provision for such NPAs at Rs 538 crore in June 2007.

8. While employees and officers of banks under the United Forum of Bank Unions (UFBU) banner have decided to observe an all India strike on September 12, the Central Bank Employees Union has given a strike call on September 13.

9. The Indian Institute of Banking and Finance (IIBF) has started a diploma course in Banking and Finance (DBF) for graduates of any discipline or students in the final year of graduation.The diploma was being offered in association with Manipal Universal Learning. The course, equivalent to Junior Associate of Indian Institute of Bankers (JAIIB), is aimed at fulfilling the demand for qualified manpower for the banking sector, which is expected to grow in the coming years.

10. Andhra Bank will be hiring about 2,000 personnel in different categories over the next three years to strike a balance between retirements and new business needs.