Tides of 24.12.2007

1. Some people call it a ‘micro branch’, while some others call it ‘branchless banking’. Finally, it comes to the point of leveraging the power of IT (information technology) for implementing financial inclusion programme. With the vast number of rural populace yet to get banking facility and the potential it provides for bankers, ‘branchless banking’ is all set to become the next killer product in the industry. Pilot projects by some banks, in association with technology partners, have proved that new generation technology tools and the dedicated human resource base will make branchless banking a gold mine for bankers in the years to come.

2. Old private sector banks are vulnerable to forces both within and from outside and it is time for them to focus on improving the work culture to face the threat from these forces, according to Mr Anantakrishna, Chairman and Chief Executive Officer of Karnataka Bank Ltd. Speaking at the inauguration of the 15th conference of the Karnataka Bank Officers’ Organisation (KBOO) in Mangalore on Sunday, he said that old legacy culture is the force affecting the old private banks from inside and ‘vulture’ is the force from outside.

3. Bonds softened last week in thin trading as credit offtake slowed down ahead of a long holiday season. Traders said that volatility in the foreign exchange market had little impact on bonds, as domestic factors overwhelmed exit by foreign institutional investors. In fact during the week, there was hardly any RBI intervention. The only intervention was to pump in liquidity through reverse repurchases. Net outflow on account of selling by foreign institutional investors was $907 million last week. This has prompted exporters and some potential foreign direct investors to take cover. As a result, one-month forward premia dropped below one per cent to 0.61 per cent last week. The previous week it was 1.75 per cent. Forward premia for three, six and 12-month also narrowed to 1.01 (1.73), 1.42 (1.88) and 1.11(1.40) per cent respectively.

4. Some of the public sector banks that have largely been sellers of bad loans are now considering buying such assets, sensing the business potential this market can offer.
A senior official from State Bank of India said that the bank has, in principle, decided to purchase assets and could start the process by April next year. “We have agreed in principle to start aggregating debt. We could either invest in them or try to sell to other asset reconstruction companies.

5. After steadily increasing for the past couple of months and surging by an all-time high of $11.871 billion during the week ended September 28, the country’s forex reserves fell by $599 million to $272.954 billion for the week ended December 14, 2007. The reserves increased by $33 million to $273.553 billion for the week ended December 7.

6. The World Bank approved $225 million loan/credit to Bihar to support the State in implementation of critical structural reforms to attain sustainable and inclusive development besides improving the delivery of services.

7. In a bid to give a further boost to infrastructure financing, the Finance Ministry has now allowed India Infrastructure Finance Company Ltd (IIFCL) to receive certain interest payments without them being subjected to tax deduction at source (TDS). The TDS exemption would be available only on interest payments other than ‘interest on securities’. It would basically be available on IIFCL’s loans and inter-corporate deposits.

8. The demand for commercial papers (CPs) is on the rise with mutual funds investing more in such short-term instruments. The total amount of outstanding CPs issued by companies rose by about 80 per cent to Rs 42,183 crore on October 31, 2007, against Rs 23,521 crore during the same time last year. “There is a latent demand from mutual funds for commercial papers and certificate of deposits as these are typically short-term instruments and they fit the overall maturity profile. The demand for CPs, however, falter when the mutual funds are hard pressed for cash particularly during the time of advanced tax outflows or tight liquidity conditions in the market.

9. The Reserve Bank of India is now rooting for environment conservation and fair social practices. In a circular issued today, the central bank has asked banks to put in place a suitable and appropriate plan of action towards helping the cause of ‘sustainable development’, with the approval of their boards. Spurred on by the worldwide momentum in sustainable development and the initiative being taken on various fronts by different organisations, including all major banks globally, Indian banks have been encouraged to actively look at corporate social responsibility, sustainable development and non-financial reporting.

10. Central Bank of India has launched a bouquet of products and services to cater to the needs of diverse strata of customers. Ms H.A. Daruwalla, Chairperson and Managing Director, Central Bank of India said that the new range of products and services would make Internet banking a reality. This would enable the bank to introduce a host of services and facilities like online booking of railway tickets and payment of utility bills, said a press release from the bank.

Tides of 20.12.2007

1. Financing costly professional courses is set to become cheaper for students from modest middle class homes. A Rs 4,000-crore plan is in the works that will enable the government to take over the interest burden on education loans during the 'moratorium period' — the time when students are pursuing academics and have not yet begun earning. As things stand, education loans come with a clause that allows students not to pay interest during their academic life. The interest for this period is added to the principal and payments begin once the student starts working. But now, according to a mega scheme being finalised by the Planning Commission, the Prime Minister's Office and the ministry for human resource development, the government will take over the interest burden for the moratorium period — estimated at around Rs 650 crore a year, assuming that five lakh students from families earning Rs 2.5 lakh a year or less avail of the loans. To qualify for the scheme, the student's household income must not exceed Rs 2.5 lakh per annum. The scheme will be open for professional and technical courses at the undergraduate or postgraduate levels.
2. The move for a Rs 4,000 crore plan to enable the government to take over the interest burden on education loans during the "moratorium period" — the time when students are pursuing academics and have not yet begun earning, is aimed not just to check brain drain from the country but also ensure that the government taps talented students who cannot otherwise afford professional studies because of high fees. According to government estimates, there are approximately 50 lakh students in professional courses of which about 5 lakh students come from families within the income range of Rs 2.5 lakh per year. In recent years, a large number of students, especially those pursuing MBA courses in India or going abroad for higher studies, have borrowed from banks. According to latest RBI data, there was a 51% rise in education loans, from Rs 9,962 crore at the end of March 2006 to over Rs 15,000 crore at the end of March this year. Tax sops too have played a role in accelerating loans and with the government allowing parents to avail of benefits, there could be a further spike in the coming year. Earlier, tax sops were available only if the student borrowed and paid the loan individually on completing his education.
3. As a first move towards making India the first country to adopt accounting standards on carbon emissions, the board of ICAI (The Institute of Chartered Accountants of India) has constituted a group which will come up with the draft guidelines before March 31, 2008. The group, set up on December 11, will be headed by ICAI accounting standards board chairman, Amarjit Chopra. When contacted, Chopra said the group will look into development of accounting and disclosure practices on emissions trading. The group will study the full scope and relevance of the carbon market from India’s point of view. ICAI president Sunil Talati said, the group will seek clarity on how corporates need to treat the income earned from carbon credits. "There is a view that carbon credits should be recognised for the purpose of accounting after they have been traded. The group is likely to seek views of corporates like SRF and Coal India."
4. The Indian carbon sector is getting hot. Venture capital firms are making a beeline to set up exclusive carbon funds for clean development projects (CDM) which have the potential to generate carbon credits. Kick-starting the process is IFCI Venture Capital Fund, which is planning to float Green India Venture Fund with a corpus of around euro 50 million, to begin with. The fund could be raised to euro 100 million once a partner is roped in. ‘‘We are currently looking out for a partner. We will raise the corpus of the fund, depending on the appetite for the carbon sector in India. One can size up the growth potential after the interest generated in greenhouse gas mitigation projects post-Bali,’’ said IFCI Venture Capital Fund managing director Ashok Kumar Choudhary. Green India Venture Fund is expected to be two-tiered, one for the domestic market and one, probably, for outside India. The fund will scout for viable CDM projects which could generate a good amount of carbon credits. Other financial institutions and banks are also said to be considering similar carbon funds, on the expectation that the carbon market will witness a huge upside in terms of valuations.

Tides of 19.12.2007

1. Muthoot Exchange Company which has obtained the Authorised Dealer Category II Licence from the RBI recently and plans to start its own money transfer operations. The company already undertakes close to six lakh money transfers valued at Rs 1,200 crore every year. Having obtained the Category II Licence enabling it not only to remit money from abroad to India but also f rom India to foreign countries. The transaction undertaken through the 400 branches of Muthoot Finance and other agencies such as hotels, resorts, travel operators and franchisees have enabled easy foreign exchange transactions to NRIs, students, tourists and business visitors.

2. The Prime Minister’s Council on Trade and Industry today discussed the adverse impact of rising rupee on exports and industry, besides the challenges of managing the surge in dollar inflows into the country. The Government was looking at measures to counter the impact of the rising rupee, particularly on labour-intensive sectors.

3. A Watson Wyatt study on India’s bancassurance sector has revealed that bancassurance would generate about 35 per cent of the private insurers’ premium income by 2008.
The study entitled ‘India Bancassurance Benchmarking Study 2006-07’, which Watson Wyatt claims to the first of its kind on the Indian market and part of an Asia-wide analysis has focused on bancassurance distribution.

4. Tata AIG Life Insurance Company Ltd (Tata AIG Life) has launched ‘United Child Solutions’ – a range of insurance offerings for the customers of United Bank of India. It is available in three variants.Educare 18 is a graduate plan, which gives the child lumpsum benefits at age 18 to provide for his graduation expenses. Educare 21 is a post-graduate plan, which gives the child lumpsum benefits at age 21 for his post-graduate expenses. Career Builder Plan provides a lump sum at 18, 21, 24 and 27 to take care of expenses at various critical milestones. In these three plans, a payer benefit rider can be attached to ensure the child’s policy continues in case of untimely death of the paying parent.

5. The odds were for a 25 bps cut, but, when the Federal Open Market Committee (FOMC), which sets the benchmark Fed Funds and discount rates, did just that, the stock market was very disappointed. The Dow Jones Industrial Average fell more than 200 points. The much-read and dissected post-meeting statement conceded inflation risk is diminishing and growth risk increasing. It repeated the mantra of future rate decisions being guided by incoming data.

6. Mr R. Seetharaman, CEO, Doha Bank, and Chairman, Doha Brokerage & Financial Services (DBFS) Ltd, has won an American award for his contribution to promoting US-Qatari trade and financial ties.

7. The Finance Ministry has relaxed encashment norms for joint holder type term deposits under the tax-saving ‘bank term deposit scheme’ framed last year. This scheme was developed to encourage flow of long-term deposits into the banking system.In the event of the death of the first holder, the Central Board of Direct Taxes (CBDT) has now allowed the joint holder to encash the term deposit before its maturity. Hitherto, the scheme did not permit any encashment of term deposits before the expiry of five years.

8. I-flex® solutions has forayed into the private banking and wealth management space with the launch of FLEXCUBE® Private Banking Suite. The FLEXCUBE Private Banking Suite provides financial institutions and their customers a unified view of customer wealth across their portfolios, including the ability to consolidate the holdings of a family. “The FLEXCUBE Private Banking Suite empowers institutions to shift their approach from a “one size fits all” to a personalised model. It will also help them reduce costs by giving them the ability to retire standalone wealth management solutions.

9. The Reserve Bank of India has detected and plugged a loophole in FEMA (Foreign Exchange Management Act) regulations which some Indian companies were exploiting to raise funds abroad and bring to India.The regulations are related to repayment of advances that are paid by overseas investors to Indian companies for allotment of shares under automatic FDI route. Under these regulations, while Indian companies are allowed to receive advance payment from NRIs and overseas investors, no time limit was stipulated for issue of shares or refund of the amount.

Tides of 14.12.2007

1. There has been a 63 per cent increase in external commercial borrowings made by Indian companies during the first seven months of this fiscal. About 384 companies have borrowed about $19 billion during the seven months ended October 2007, according to information released by the Reserve Bank of India.During the whole of the last fiscal, about 921 companies borrowed money worth about $25 billion abroad. This year the heavy borrowing comes despite steps taken by the Reserve Bank of India to limit access to external commercial borrowings to certain sectors and also tighten it generally by imposing a cap on the interest rates that can be paid on such borrowings.

2. The forex reserves increased by $33 million to $273.553 billion for the week ended December 7, due to currency revaluation. Compared to the earlier weeks the increase in this week is slightly subdued. The reserves went up $1.239 billion to $273.520 billion for the week ended November 30. In the week prior to that as well, forex reserves had increased by over $1 billion.

3. International ratings agency, Fitch Ratings, today upgraded Axis Bank’s National Long-term rating to ‘AAA (ind)’ from ‘AA+(ind)’. Fitch has also upgraded the bank’s individual rating to ‘C’ from ‘C/D’ and Support rating to ‘3’ from ‘4’. The ratings of debt programmes have also been upgraded.

4. Bank loans to equity-oriented mutual funds will now form part of the bank’s total capital market exposure, said the Reserve Bank of India in a note issued today.
In its note the RBI said, “Banks are advised to be judicious in extending finance to mutual funds and grant loans and advances to mutual funds only to meet their temporary liquidity needs for the purpose of repurchase/redemption of units.”

6. CITI BANK-The bank generated in 2001-02 business worth Rs 15.7 crore per employee. But the bank has been able to generate only Rs 13.6 crore in fiscal 2006-07, down roughly 13 per cent. On the parameter of profit per employee, another key element, the figure for the latest year stands at Rs 17.33 lakh as against Rs 22.14 lakh, its best in 2001-02.

7. As many as three consortia have submitted their financial bids for buying 26 per cent stake in the country’s oldest financial institution, IFCI Ltd. The last date for submission of financial bids was December 14.

8. Asian Development Bank (ADB) would provide India with up to $500 million in loans designed to promote public-private partnerships (PPP) between the Government and the private sector in order to ramp up investments in infrastructure.The funds would be provided to government-owned India Infrastructure Finance Company Ltd (IIFCL) in multiple tranches over the next four years. It is estimated that the money would help catalyse private sector investments in infrastructure of up to $3.5 billion.IIFCL would provide funds at commercial terms with over 20-year maturity for infrastructure projects, which is not being currently provided by the market.

9. Calyon Bank, Mumbai, belonging to the Credit Agricole Group of France, has signed a `White Label' agreement with Karnataka Bank Ltd, to provide risk management services. This agreement will enable the bank to provide hedging products like derivatives to its customers.

10. Corporation Bank will now offer a ‘financial health check-up’ for its customers. The bank is offering this service at two of its centres, Mumbai and Bangalore. Customers can get their finance portfolio examined, find out if it is a healthy mix and get advice on making investments.
The bank plans to introduce this service at all its other important centres.

11. UTI Mutual Fund and SBI Mutual Fund have been given the mandate to manage the funds mobilised under the life insurance services provided through the post offices network.
Such services are currently administered by the Postal Department under the banner of Postal Life Insurance (PLI) and Rural Postal Life Insurance (RPLI) schemes.

12. Small Industries Development Bank of India (SIDBI) would within the next two months approach the Reserve Bank of India for approval to set up an asset reconstruction company (ARC) targeted at the small and medium enterprises (SME) sector. It is in talks with many public sector banks including Punjab National Bank, Canara Bank, United Bank of India to set up an ARC for the non-performing loans in the SME sector.

13. Vijaya Bank plans to raise Rs 500 crore this year through issue of the perpetual bond issues. It is raising the resources to strengthen the tier-one capital. Perpetual bond issues are treated as tier-one capital under the Reserve Bank of India guidelines. Vijaya Bank’s move to tap perpetual bonds was partly due to the fact that it has little room to raise equity resources. This was because current regulations allow government equity in public sector banks at a minimum of 51 per cent. Government stake in Vijaya Bank’s paid-up equity of Rs 433.52 crore is currently 53.87 per cent.

Tides of 5.12.2007

1. Reliance Money has announced a distribution tie-up with Kerala-based Muthoot Group, a non banking finance company, for retailing its pure gold coins.
2. There is huge uncertainty on the growth prospects of Indian IT industry over the next four to five years if the rupee appreciation goes unabated, according to Mr Kiran Karnik, President, Nasscom.
3. Premature liberalisation of money and bond markets can lead to large and volatile capital inflows, intensifying complications for macroeconomic and monetary management, said Dr Rakesh Mohan, Deputy Governor, Reserve Bank of India.
4. Private sector projects in India supported by the International Finance Corporation (IFC) have a ‘high development outcome ratings’ than in China. The success rate in India — per cent of tracked companies with successful development results ratings — was 72 per cent compared with 43 per cent in China.
5. Centurion Bank of Punjab has launched ‘Post Box Service’ in the two countries for NRI customers who can use the service to send documents, statement and cheque requisition, account instructions, electronic banking application form, mandate application form, change of address form, PIN re-generation, debit card re-issue or any other account operating instructions including FD opening or renewal instruction.
6. Karur Vysya Bank (KVB) has tied up with IDBI Capital Market Services Ltd to provide online trading facility on both BSE and NSE for its demat account holders. These transactions could be put through idbipaisabuilder.in of IDBI Capital and the service would be available from March 1, 2008.
7. The Securities and Exchange Board of India has relaxed guidelines for issue of corporate bonds through the public issue route. The new norms permit companies to come out with bonds with below investment grade popularly known as “junk” bonds. A SEBI circular issued today said that for developing a market for debt instruments, the regulator has decided to allow issuances of bonds below investment grade to suit the risk as well as returns appetite of investors.SEBI has reasoned that as of now corporates were not allowed to issue bonds below investment grade, but in a disclosure-based regime, it should be left to the investor.
8. It is obvious that Indian policymakers can do little about containing the magnitude of the liquidity squeeze that has been the by-product of the sub-prime saga in the US. The RBI will have to factor in this reduced availability of external credit in its plans, if any, to tighten the credit delivery system.
9. The forex reserves went up by $1.133 billion to $272.281 billion for the week ended November 23 following constant intervention by the Reserve Bank of India in the market.
10. Banks may no longer be able to resort to strong-arm techniques for loan recovery. The draft guidelines issued by the Reserve Bank of India suggest that banks should use the forum of Lok Adalat for the recovery of personal loans, credit card loans or housing loans of less than Rs 10 lakh. Recently, some banks have been in the spotlight for alleged harassment of their customers by recovery agents.