Tides of 28.04.2008

1. ICICI Bank, India’s second largest bank, reported profits for the fourth quarter and for the financial year 2007. Net profits for the quarter ended March 31 was up by 39 per cent to Rs 1,150 crore and for the full year it was up 34 per cent at Rs 4,158 crore. The bank has also hiked the dividend payout to shareholders to 110 per cent (Rs 11 per equity share) from 100 per cent paid last year. However, growth in advances and deposits have not kept pace with the kind of increase shown in previous years.

2. HDFC Bank has posted about 37 per cent rise in net profit at Rs 471 crore for the quarter ended March 2008, which is in line with the market expectation. The bank announced an enhanced dividend of 85 per cent for 2007-08, against 70 per cent for the previous fiscal. “The results are in line with the market expectations in the key areas like revenue, profitability and margin. Though the market was expecting the bank to maintain net interest margin (NIM) at 4.3 per cent like it did in October-December 2007 quarter, it has actually improved the performance,” said Bhavesh Shah, Vice-President:Research of Asit C Mehta.

3. Oriental Bank of Commerce has reported a net loss of Rs 99.4 crore in the fourth quarter ending March 2008 as against a net profit of Rs 54.9 crore in the corresponding period of the previous year, largely on account of higher provisioning on account of merger of erstwhile Global Trust Bank. The bank was supposed to write off Rs 1225 crore of losses on account of merger of since 2005. It had already written off Rs 738 crroe till March 2007 and in 2007-08 it had written off balance Rs 487.72 crore, of which Rs 241.7 crore was slated for 2008-09. And large part of this – Rs 304 crore – was written off in fourth quarter, resulting into a net loss of Rs 99.4 crore.

4. The State Bank of India, India’s largest public sector bank, is likely to make a provision of Rs 40 crore in the quarter ending March 31, 2008, for potential losses in derivatives trading. The bank is expected to announce its fourth-quarter results on May 2. The bank's clients were likely to face Rs 700 crore losses in currency derivative trading for the year ended March 31, 2008, OP Bhatt, chairman SBI, told reporters in Mumbai on Wednesday. Indian companies took to buying forex derivative instruments to hedge against foreign currency exposure when the rupee started appreciating last year.

5. Polaris Software Labs plans to focus on tier–II banks this fiscal to improve margins. “The tier-I story is established. We would now like to look at tier-II,” said Mr Arun Jain, Chief Executive Officer of the company, in a conference call with analysts. There are 1,000 tier–II banks in the world and the company plans to look at this pool for new clients, he explained.“These banks are more secure than large banks when it comes to issues like sub-prime crisis,” he said. Working for them would mean Polaris would avoid being hit by the sub-prime crisis and associated risks. Currently, 10 of the top 20 large banks in the world, each with IT assets worth $5-10 billion, use Polaris’ Intellect banking suite of products. The company expects the product, which contributed 19.6 per cent to revenues for 2007-08, to make leeway into the tier-II segment this fiscal. “More and more product implementation will hold up our margins,” Mr Jain said.

6. Having hitherto concentrated on traditional industrial growth segments, State Bank of Mysore is now eyeing other potential growth areas for better reach.Its Managing Director, Mr P.P. Pattanayak, admitted that the bank neither had a strong presence here nor was its growth rate high. “We were all along concentrating on industrial hubs such as Erode, Tirupur, Avinashi and Salem. We now see this region (Coimbatore) growing rapidly, especially in the services space and have also perceived a strong need for banking services. We have therefore decided to offer and improve our services in this belt,” he said.

7. Talks for the 9th bipartite industry-level wage settlement between Indian Banks’ Association (IBA) and the bank unions will commence in Mumbai on May 5.The previous wage settlement, which was entered into in June 2005, lapsed on October 31, 2007. The 8th industry-level wage settlement was valid from June 2002 to October 31, 2007. If a new settlement is arrived at between the IBA and bank unions, it is expected to be valid for a five-year period from November 1, 2007. The first industry-level wage settlement was entered in 1966.

8. IDBI Bank reported a 15 per cent increase in net profit at Rs 245 crore for the fourth-quarter ended March 31, 2008, against Rs 214 crore in the corresponding quarter last year, due to higher interest income and fee income. The bank’s board has recommended a dividend of Rs 2 for the fiscal 2007-08.

9. Canara Bank has begun exploring foreign joint venture opportunities for its nine subsidiary companies. This follows the successful tie up with Robeco of Netherlands and HSBC for its asset management and life insurance business, respectively.The insurance business is expected to begin operations shortly. Speaking to journalists here on Saturday, the Canara Bank Chairman and Managing Director, Mr M.B.N. Rao, said, “We would like to unlock value in each of these subsidiaries.” The subsidiaries include Canbank Factoring Ltd.He said the bank had seamlessly migrated to the Basel II capital adequacy regime. The bank now intended putting in place advanced risk management architecture and for the purpose, plans to move into the advanced indicator approach, he said.

10. Canara Bank reported a net profit of Rs 1,565 crore or 10.15 per cent over the last financial year, and has recommended a dividend of 80 per cent to its shareholders. The bottom line growth was partly achieved by a cash recovery of Rs 1,030 crore this year. The bank also managed to contain its provisions for investment depreciation. The bank’s provisions were at Rs 1,054.37 crore, down from the previous financial year’s Rs 1,241.66 crore.

11. Aided by a sharp jump in treasury profits, better NPA management and a surge in core business operations, Corporation Bank on Saturday reported a 37.09 per cent rise in net profit for the financial year ended March 31, 2008 at Rs 734.99 crore against a net profit of Rs 536.14 crore in the previous year.For the period under review, the bank’s treasury profits (net of depreciation) were Rs 140 crore, which represented a 105 per cent increase over treasury profits of Rs 68 crore in 2006-07. In 2007-08, Corporation Bank provided a lower amount towards bad debts at Rs 123 crore (including agriculture) against Rs 186 crore allotted in the previous year. Moreover, the net interest income increased by 139.55 crore during the year ended March 2008, representing a 10.70 per cent increase.

12. Vijaya Bank is on track for meeting its September deadline for compliance with Basel II guidelines.Accordingly, the bank reported a 9 per cent growth in net profit for the financial year 2007-08 at Rs 361.26 crore and high provisions for depreciation on investments. The bank made a provision of Rs 272.12 crore for depreciation of its marked to market investments double the previous financial year’s figures. The bank also reported a dividend of 20 per cent.

Tides of 22.04.2008

1. Rabobank, the Netherlands-based financial institution, is planning to set up a $100 million private equity fund in India which will focus on the agriculture value chain. The plan to set up an agri-focussed fund is a logical extension of more than a century old tradition of backing the food and agribusiness by Rabobank.

2. Axis Bank today reported a 70.56 per cent increase in net profit during the fourth quarter of 2006-07 to Rs 361.4 crore mainly due to a steady rise in interest and fee income. The private bank announced a dividend of 60 per cent for the year ended March 2008. The diluted earnings per share (EPS) were at Rs 31.31 compared with Rs 22.79 at the end of March 2007. During 2007-08, the bank¡¯s net profit rose 62.52 per cent to Rs 1,071.03 crore as against Rs 659.03 crore during the previous financial year. The private bank ended the last financial year with a capital adequacy ratio of 13.73 per cent compared with 11.57 per cent in 2006-07. The increase in profits during the fourth quarter is despite non-tax provisions more than doubling to Rs 164.22 crore on account of provision of Rs 72 crore for mark-to-market losses on six derivatives transactions and a Rs 20 crore provision for depreciation in its credit-linked notes portfolio.

3. The liquidity in the system continued to remain surplus. The Reserve Bank of India absorbed around Rs 18,000 crore from the system. The hike in cash reserve ratio (CRR) comes into effect from April 26 and the system will thus remain in surplus mode till then, said a dealer. Call rates fell to a low of 2 per cent before closing the day at 5.75 per cent. The mutual funds are flush with funds and thus the collateralised borrowing and lending obligation (CBLO) rates fell to a low of 1.10 per cent. The government expenditure and the RBI’s intervention in buying dollars to stem the rupee appreciation are the major source of revenue for the markets.

4. The Reserve Bank of India (RBI) proposes to come out with prudential norms for reverse mortgage loans to safeguard banks in a falling real estate market. The prudential norms are likely to be announced in the forthcoming annual monetary policy of RBI on April 29. Reverse mortgage allows senior citizens with inadequate income sources to mortgage their own homes for a monthly stream of income for up to 15 years. It involves a senior citizen borrower mortgaging the house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. It is a way of monetising the owner’s equity in the house.

5. Karnataka Bank will take up the matter of bringing in a fresh investor at its next board meeting scheduled for April 24. The move comes on the back of the Reserve Bank of India (RBI) rejecting the Mangalore-based private sector lender’s proposal to rope in Washington-based International Finance Corporation (IFC) as an equity investor through a preferential allotment of shares.

6. tepid response to the Employee Stock Purchase Scheme (ESPS) has forced State Bank of India (SBI) to relax the one-year lock-in period norm under the scheme. After raising about Rs 17,000 crore through a rights issue, the country’s largest commercial bank had offered its shares to employees at a price of Rs 1,590 apiece. This was also the price for the rights issue. The number of shares that an employee is eligible for under ESPS is linked to his or her position in the bank hierarchy. Starting with 20 shares for award staff, entitlement rises to a maximum of 1,500 for the chairman.

7. State Bank of India (SBI) and ICICI Bank, the nation’s two biggest banks, will be worst hit by the central bank’s decision to increase the amount of cash they must hold with it, according to a Goldman Sachs Group report. The Reserve Bank of India (RBI) said on April 17 it would raise the cash reserve ratio (CRR) to tackle inflation, which is running at a three-year high. Banks, already facing slower loan growth with interest rates at the highest in six years, would see earnings and returns fall by 1 per cent to 2.7 per cent, the Goldman analyst said.

8. Axis Bank today said it has made provisions of Rs 71.97 crore during the fourth quarter of 2007-08 for six foreign exchange derivatives transactions that have been repudiated by two of its customers. While the bank has 188 derivatives transactions with an aggregate mark-to-market (MTM) loss of Rs 673.55 crore at the end of March 2008, there are six transactions where companies are not unwilling to honour the contract. Of the 188 deals, 113 are outstanding transactions dealing in foreign exchange derivatives where the aggregate MTM loss is Rs 547.72 crore.

9. Standard Chartered is poised for an expansion unprecedented in scale and one that will transform the bank by giving it a sizeable presence in the rural areas, including a consumer finance brand. Already the largest foreign bank in India, Standard Chartered has sought the Reserve Bank of India’s permission to open 100 rural branches, which are in addition to its annual plan of 40 new branches and 300 ATMs this year, which it has submitted to RBI for approval.

10. The Hyderabad High Court yesterday said that the ICICI Bank cannot treat as non-performing assets the amount of money Hyderabad-based NCS Sugars owes the bank on account of losses on foreign exchange derivatives. However, the court did not restrain the ICICI Bank from proceeding against NCS Sugars on other issues. The next hearing of the case NCS and ICICI Bank, which are locked in a legal dispute over losses incurred by the former on derivatives products, is scheduled for next week. When contacted, NCS Sugars executives declined to comment.

Tides of 18.04.2008

1. The Reserve Bank of India on Thursday increased the Cash Reserve Ratio – the share of deposits that commercial banks must hold in cash with the central bank – from 7.5 per cent to 8 per cent, in a bid to curb inflation by leaving less money with spenders. The 50-basis-point hike, which will come in two equal tranches effective April 26 and May 10 respectively, will result in sucking out Rs 18,500 crore from the banking system. It may increase cost funds for commercial banks, forcing them to increase interest rates they charge on loans to consumers.

2. India's wholesale price index rose 7.14 per cent in the 12 months to April 5, a government official said on Thursday. This is lower than the previous week's annual rise of 7.41 per cent and just below a median forecast of 7.19 per cent in a Reuters poll of analysts.

3. Interest rates on home and retail loans are expected to rise, as a fallout of Reserve Bank today announcing a 0.5 per cent hike in Cash Reserve Ratio (CRR) to squeeze money supply to rid the economy of inflation.The CRR, the amount of funds banks are required to park with the apex bank, has been raised to 8 per cent to suck out Rs 18,500-crore liquidity from the system.
Since banks would be left with less cash to lend and have to source funds at a higher cost, including by raising deposit rates, they may increase lending rates that will in turn temper demand and cool inflation that is at a three-year high of 7.14 per cent.The CRR would be hiked by 0.25 per cent from April 26 and by an identical percentage from May 10.Year-on-year inflation, which was 3.83 per cent during the last credit policy in January, had gone up to 7.41 per cent on March 29 before marginally falling to 7.14 per cent on April 5.

4. A plan by India’s capital markets regulator to reduce the time it takes to list stocks after an initial public offering (IPO), from 21 days to seven days, will deal a significant blow to bankers to the share sales who enjoy the so-called float money on which they do not pay any interest.
Typically, the time between an investor putting in money for investing in an IPO and getting a refund after the shares are allotted, is three weeks and the bankers to the issue enjoy this money free for that period. Most IPOs are subscribed many times over and the banks have enjoyed this huge free float. According to Delhi-based primary market data provider Prime Database, a set of domestic and foreign banks active in this space could have gained at least Rs 2,300 crore in 2007-08 from this float. In 2006-07, banks have made Rs 630 crore from this business. A Mint analysis of IPO subscription data, provided by Prime Database, shows that 76 IPOs last year collected more than Rs 6.3 trillion, from retail investors, high net worth individuals (HNIs) and qualified institutional investors (QIBs) and the money was kept with banks for 14-35 days.

5. To take on competition from private and foreign banks head on, SBI Card is firming up plans to distribute credit cards from the State Bank of India's branches from June. "We are working closely with State Bank of India to leverage the branch channel for increasing the company's reach and expand customer base substantially," SBI Card Chief Marketing Officer Nirupam Sahay told PTI.The company is a joint venture between between State Bank of India and GE Money.Currently, the company is operating from its own outlets and the tie up would offer huge business growth potential for the company, he said.

6. HDFC Bank has unveiled plans to foray into Bahrain by the middle of the year, following Bank of Baroda's re-entry into the Kingdom after 18 years. According to a media report, HDFC Bank announced plans to raise $ 1 billion through a medium-term note issue to fund its overseas expansion plans, beginning with Bahrain.Bahrain has been the hunting ground of Indian banks since there are 300,000 Indians working in the Gulf state and the country's authorities are liberal in issuing news licences.BoB and HDFC joined the list of Indian banks eyeing Bahrain. India's leading bank - State Bank of India and the country's largest private sector bank, ICICI, already have operations in Bahrain.

7. In a move to help CEOs of small and medium enterprises sharpen their skills and knowledge, ICICI Bank on Tuesday launched a programme SME CEO Knowledge Series in collaboration with CyberMedia. The programme envisages to provide a platform to the CEOs of various SMEs for interacting with experts of various fields including human resources, finance and entrepreneurship. For this purpose it has identified clusters in 26 cities across the country.
The bank has already conducted the programme at a leather cluster in Agra, ICICI Senior General Manager and Global head SME Vijay Chandok told reporters here."The SME CEO Knowledge series will enable us to cater to the entrepreneurs at the root level," he said.
A host of SBI branches are being identified for issuance of credit cards and the initiative would be operational by June, he said.The company is also planning to launch new products specifically for the SBI Branch channel.

8. Market regulator SEBI said on Friday it will issue guidelines on real estate mutual funds in the next 15 days, enabling retail investors as well to access the realty market which has witnessed a boom in the last few years."SEBI is ready with guidelines on real estate MFs that could be issued any day. The outer time limit to issue guidelines is 15 days," Securities and Exchange Board of India's whole time member TC Nair told reporters in New Delhi.Speaking at a conference on Real Estate Mututal Funds, organised by Assocham, he said all legal issues including accounting and valuation have been resolved and norms could be issued anytime. SEBI board has already given its nod, he said.

9. Family Credit, a non-banking finance company fully owned by Societe Generale Consumer Finance, France, is planning to ramp up its India operations by doubling its branches.The Kolkata-based NBFC would add 35 new branches to its existing 36 branches by end of December 2008, Mr Parthanil Ghosh, Country Head (India), Family Credit, told Business Line here.
“Though our network is now present across the country there will be more focus on tapping the South Indian market over the next two years,” Mr Ghosh said.Plans were afoot to open new branches in the tier-II and tier-III towns, he added.

10. Some corporates who filed cases against banks after they suffered losses on currency derivative deals, are willing to settle out of court, as court may take a long time to settle these cases, said Ms Chanda Kochhar, Joint Managing Director, ICICI Bank.She said there is no systemic risk from currency derivatives transactions and the estimated loss is not very large compared to the total cash flow of corporates. Speaking to presspersons on the sidelines of a banking seminar, Ms Kochhar said that it is unfair to take a general view that many corporates did not understand the derivatives deals. “The corporates were aware. More than 80 per cent of the corporates involved who have exposure to currency derivatives are mid and large corporates. Sometimes there are profits and sometimes there are losses,” she said.

Tides of 4.04.2008

1. A high-powered study by the Planning Commission has suggested the government bring its holding in public sector banks to below 51 per cent and also enhance foreign ownership in the insurance industry from the current 26 per cent. The ability of the state-run banks to raise capital for growth would be severely constrained unless the government’s holdings were allowed to fall below 51 per cent, the Planning Commission study on the services sector said.
"It would be appropriate to consider the evolution of a path towards reduction of government ownership in a manner that minimises dislocation among various stakeholders," the report said.

2. Citigroup, battling to restore profit after a record loss, will set up an independent credit-card unit and overhaul consumer banking along geographical lines," two people with direct knowledge of the plan said. "Steven Freiberg, the current co-head of consumer banking, will run the card unit," the people said, asking not to be identified before an announcement that may come as early as on Monday. "The rest of the consumer group, mainly bank branches and non-bank lending, will be led by five regional heads," the people said.

3. The standoff between monetary authorities of India and Singapore seems to have eased with the Reserve Bank of India (RBI) taking the lead in fulfilling its promise to sanction the agreed eight branches to the DBS Bank in India on Tuesday.It is for the Monetary Authority of Singapore (MAS) for reciprocate by granting approval to State Bank of India (SBI) and ICICI Bank, largest Indian banks in Public and private sectors respectively, the preferred bank status. ICIC Bank has confirmed there was nothing new on the issue.

4. As many as 30 public sector banks and financial institutions, which insisted in converting their loans to the once-troubled IFCI Ltd into equity, have taken hit of nearly Rs 800 crore as its shares have fallen 60 per cent in just two months.The irony is that, in some cases, the shares have not even been credited to their account, but under the mark-to-market norms for listed securities, these banks and financial institutions have to write off huge losses incurred before the close of the financial year. The biggest loser is Life Insurance Corporation of India, which converted debentures worth Rs 507 crore into equity, has seen the value of its holding erode more than Rs 300 crore.

5. Employees of City Union Bank are all set to get stock options soon. The Kumbakonam headquartered private bank has already got an in-principle nod from the Reserve Bank of India for introduction of the Employee Stock Option Scheme.The bank now awaits the consent from its shareholders. The Extraordinary General Meeting (EGM) of the bank is slated for April 26.
It has taken the cue from the new generation banks. ESOP has become the order of the day and our introduction is an extension of the logic.”

6. Bank customers may soon be able to negotiate for settling their debts using the expertise of banks themselves. The Reserve Bank of India has suggested that banks should set up financial literacy and credit counselling centres, which can help borrowers in negotiating with banks for restructuring debts. While these centres may initially be funded by banks, banks should maintain an arms-length relationship with the centres, said the RBI. In a concept paper, issued on Thursday, the RBI said that banks can set up Financial Literacy and Credit Counselling Centres (FLCCs). Banks may set up trusts or societies for running these FLCCs. While the FLCC may include respected local citizens on the board of such a trust, the RBI has warned that serving bankers should not be included in the board.

7. Bank of Maharashtra has opted out of its proposed joint venture with the Chennai-based Shriram Financial Services Holdings Pvt Ltd and Sanlam Ltd of South Africa for the general insurance foray.

8. A Planning Commission-appointed High Level Group on services sector has made a case for the abolition of bank branch licensing, phasing out of directed priority lending by banks and gradual reduction in the statutory liquidity ratio (SLR) requirement for banks.
Currently, banks have to keep 25 per cent of their net demand and time liabilities in government securities as SLR requirement. Last year, the Government empowered the RBI to specify the SLR to be maintained by banks.The report of the High-Level Group has favoured alignment of banks’ cash reserve ratio (CRR) over time with global benchmarks. The Group was established to comprehensively examine the different aspects influencing the performance of the services sector and suggest short-term and long term policy measures to improve and sustain its competitiveness in the coming years.

9. South Indian Bank (SIB) plans to expand presence in North India and aims to more than double the number of branches in this region over the next five years, its Chairman Dr V. A. Joseph, said.“We want to add another 150 branches in North India by 2013. In this period, we want to increase the total number of branches of the bank to 750 from the current 500 branches”, he told Business Line during his recent visit to the Capital.Currently, SIBhas 100 branches in North India out of total network of 500 branches. The bank is targeting business of Rs 75,000 crore by 2013 — a business of Rs 100 crore from each of the 750 branches.

10. Corporation Bank’s business, as per provisional and un-audited figures, exceeded Rs 95,000 crore as on March 31 2008, as compared to Rs 72,000 crore as on March 31, 2007. A bank release said here on Wednesday that with this business the bank has clocked the annual growth of 32 per cent. Buoyed by the strong growth, the bank is now advancing the earlier projected target date for crossing the milestone goal of Rs 1 lakh crore of business from March 2009 to the middle of the year.