Tides of 15.08.2008

1 A resolution of Lakshmi Vilas Bank to raise funds through issue of shares to qualified institutions was passed by shareholders on Thursday at the annual general meeting, after the management agreed to modify the resolution.Sources said that a number of shareholders spoke in opposition, but voted for it after the management modified the resolution to the effect that the shares will be sold at a price not less than 2.5 times the book value at the time of placement of shares.Lakshmi Vilas Bank’s book value today stands at around Rs 85. At this level then, the shares cannot be placed at Rs 212.50 a share. On the National Stock Exchange, the bank’s shares closed today at Rs 94, less than Rs 0.45 than the previous close.The Bank’s Managing Director, Mr V. S. Reddy, told Business Line today that the management decided to modify the resolution to allay fears that the shares would be given away at a low price.

2. Karur Vysya Bank has effected an upward revision of 50 basis points on the rates offered on term deposits in time buckets ranging from 181 days to 3 years, from August 11. The interest on deposits for periods from 181 days but less than 1 year has been hiked by 50 basis points to 8.50 per cent and deposits in the one to two year time period by 25 bps to 9.75 per cent (9.50 per cent) and deposits maturing beyond 2 years and inclusive of 3 years would earn 10 per cent (9.75 per cent). It has also hiked its benchmark prime lending rate to 15.25 per cent with immediate effect..

3.The Finance Minister, Mr P. Chidambaram, on Wednesday said that Central public sector enterprises (CPSEs) appear to be violating Government departmental guidelines on placement of funds with banks.“They (CPSEs) are continuing to call for competitive bids… nor are they observing the guidelines that 60 per cent of public sector companies’ monies should be kept with public sector banks. I intend to take up this matter with the Department of Public Enterprises (DPE)”, Mr Chidambaram told reporters after a meeting with the chief executives of public sector banks here today.

4. ith certificates of deposit (CD) headed to breach the 11-per cent mark on the back of tight liquidity, banks have started waiving penalties for loan prepayments.Prepayment penalties were mostly levied by the domestic private sector and foreign banks. The penalties ranged anywhere between one and three per cent of the outstanding loan principal amount. Public sector banks have long done way with the prepayment charges. But private sector banks have now followed suit.ING -Vysya Bank sources said, “We have already done away with penalties on partial prepayments.”Banks typically resisted prepayments when interest rates were low and liquidity was in surplus.Bankers said that the move was influenced by tight liquidity conditions and soaring costs of working funds.The Finance Minister also plans to talk to the Minister concerned (Ministry of Heavy Industries) and call a meeting of CPSEs to urge them to desist from such an unhealthy practice.

5.The recent appreciation of the euro against the Indian rupee has underlined a point that most corporate CFOs intuitively know, but apparently do not always play by: there is a need to be well hedged.Last year, taking a call on the rupee was a one-way bet. Those who had to receive dollar – such as exporters – were battered, while those who had to make payments in the currency were thrilled. The rupee was going down slightly against the euro, and suggestions about shifting to euro receivables were commonplace.Now, the complete reversal of the trend in the last few weeks has turned the spotlight on the need to manage currencies better.

6. Bank unions are planning a one-day strike on August 20 to protest the merger of public sector banks, even as the final Government order on merger of State Bank of Saurashtra with State Bank of India is expected any time now.A union official said three bank unions — All India Bank Officers Association (AIBOA), All India Bank Employees Association (AIBEA) and the Bank Employees Federation of India (BEFI) will join the strike. The other six bank unions have decided not to join the strike and are adopting a wait and watch policy. The merger of State Bank of Saurashtra with SBI is only a prelude for things to come, with the Government looking at privatisation.

.7. HSBC would like to hold on to its stake in Indian private sector lender Axis Bank in the short-term, its India head said on Wednesday.Naina Lal Kidwai, HSBC's country head, said it did not make sense to sell the shares after a fall in the stock's price. Axis Bank shares are down more than 20 percent in 2008.

8. According to research by Seclore Technology, a data security firm that developed the Filesecure information protection software, 80 per cent of consumers’ personal information lies in unprotected files.This lack of security means pesky telemarketers could get hold of your personal information and phone numbers easily, terror groups could use your name and details to send threats, and corporate rivals could get hold of soft copies of your company letterhead to sabotage your operations and ruin your name.

9.State Bank of India (SBI) has launched its first debit card in Canada to raise its client profile in Toronto.SBI is also looking at 84 locations globally to increase its association with international business, chairman OP Bhatt said Wednesday while launching the card in Toronto.With seven branches across Canada, the State Bank of India-Canada (SBIC) - SBI's 100 per cent-owned subsidiary - claims to have captured 65 per cent of the trade conducted between that country and India.

10. A working group set up by the Reserve Bank of India has suggested that all the regional rural banks (RRBs) should move to the core banking platform by September 2011. This will help them undertake 90 per cent of their business on the platform.The cost of moving RRBs to core banking services (CBS) is estimated at Rs 730.78 crore. All RRBs are likely to get financial help but sponsor banks may have to contribute 25 per cent of the cost.

Tides of 11.08.2008

1. Rising bond yields and more flexible regulations have paved the way for the return of foreign institutional investors (FIIs) to the Indian debt market. FIIs, who were nearly absent from the debt market for most part of the year, have stepped up investments in July. According to SEBI data, FIIs invested around $897 million in the debt market in July, while in March, April, May and June, their investments have been negative. FIIs’ outflows between March and June were around $928 million.FIIs had, however, started off the year on a positive note by investing $484 million and $619 million in January and February, respectively. The FIIs are now seeing a significant arbitrage opportunity in debt investment.

2. Max New York Life Insurance plans to expand its distribution network by opening more than 250 new offices every year for the next three to four years and increasing the number of agent advisors from the current 46,800 to 3 lakh. The growth in agency distribution will be complemented by strong growth in partnership distribution. The capital base of the company is expected to expand to Rs 3,600 crore from the current equity base of Rs 1,232 crore. The company has clocked Rs 2,100 crore in collected premium for the January-July 2008 period, recording a growth of 81 per cent over the similar period last year.

3. The Bombay Stock Exchange (BSE) has applied to capital market regulator SEBI for setting up a currency derivative segment. The Reserve Bank of India and SEBI issued the final guidelines for launch of currency derivatives last week. Currency derivatives or currency futures are standardised foreign exchange derivative contracts traded on a stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the date of contract, but does not include a forward contract. The Exchange Traded Currency Futures (ETCF) contracts facilitate increased transparency, efficient price discovery as well as reduced transaction costs. It also enables better counterparty credit risk management, wider participation. “BSE has applied to SEBI for setting up a Currency Derivatives Segment in line with the recommendations laid down in the Report of the RBI-SEBI Standing Technical Committee on Exchange Traded Currency Futures, released by RBI & SEBI on May 29, 2008,” said a BSE release

4. Higher risk weight attached to home loans under Basel II norms could discourage banks from pursuing aggressive lending policies, according to a recent report released by Fitch Ratings.
Risk weight on housing loans is based on the loan/value ratio (LTV) and could increase from 50-75 per cent to 100 per cent for LTVs above 75 per cent as per the Basel II norms. LTV is the percentage of the loan against the value of the house. The Basel II guidelines do not specify whether the LTV calculations should be done on an ongoing basis or at the point of disbursing the loan. The report suggests that the LTV calculations should be done on an ongoing basis, especially during periods of falling prices. According to the report, the differential risk weighting on different asset classes under Basel II could help guide the proportion and direction of bank lending, such as lending to higher rated corporates or hedging exposures to small-scale industries with permitted collaterals and guarantees.

5. Lakshmi Vilas Bank (LVB) expects 50 per cent growth in credit, the bank’s Managing Director, Mr V.S. Reddy, told Business Line today.Mr Reddy said the bank’s advances portfolio stood at Rs 3,900 crore at the end of last year. LVB intends to grow this book to Rs 6,000 crore in the current year, he said.Asked if this rapid scale-up might not affect the quality of assets, Mr Reddy replied in the negative. He said the bank would focus on corporate accounts, where the bank could lend at rates between 12 and 13 per cent and secure a reasonable margin.He said the average yield on advances is expected to grow from 11.1 per cent to 11.8 per cent this year.

6. Punjab & Sind Bank (PSB) may soon be able to tap the capital market through an initial public offering (IPO) at a reasonable premium, with the Union Cabinet on Friday giving its nod for restructuring its equity capital. The additional capital, after the equity rejig, would help the bank expand its business in compliance with Basel-II requirements and also improve its financial position. PSB is entirely owned by the Union Government.

7. Even as the Government is gearing up to disburse the first tranche of farm loan reimbursement by September 30, banks are facing a new problem, which could delay the entire process.Under the current guidelines, banks are not allowed to get any reimbursement until the final claims list is audited by a central statutory auditor. But the fees for the statutory auditors are huge and banks will have to pay before they get the money from the Government. And the audit may also take time, said a banker.The Indian Banks’ Association has taken up the issue with the Government as well as the Reserve Bank of India after it was discussed at its management committee meeting on July 29, said an official from IBA.ccording to the RBI guidelines, banks have to get 20 per cent of the accounts audited by the central statutory auditors, in order to get the reimbursement. However, the RBI guidelines do not make any mention of auditors’ fees. According to an official from a leading public sector bank, some auditors are asking for fees as high as Rs 15-20 per account, which could run into large amounts for some banks.

8. The foreign exchange reserves fell by $1.13 billion to touch $305.474 billion for the week ended August 1, according to figures released by Reserve Bank of India’s Weekly Statistical Supplement. This is the third consecutive week that forex reserves have fallen. For the week ended July 25, the reserves had fallen by $504 million to $306.603 billion. In the week under review, foreign currency assets decreased by $1.65 billion to $295.216 billion. Foreign currency assets expressed in dollar terms include the effect of appreciation or depreciation of non-US currencies. A forex dealer attributed the decline in the reserves to depreciation in the euro and pound, leading to a revaluation effect.Gold increased by $527 million to $9.735 billion, while SDRs remained unchanged at $11 million. The reserve position in the IMF fell by $3 million to $512 million.

9. An RBI technical committee has suggested waiver of Securities Transaction Tax (STT) for trades in Interest Rate Futures. The committee, in its final report released on Friday, said to ensure symmetry between cash market in government securities and interest rate futures, as also imparting liquidity to the market, deals in interest rate futures be exempted from STT.
The committee has recommended that banks be permitted to take trading positions in interest rate futures, subjects to prudential regulations, including capital requirements. The committee also suggested that FIIs may be allowed to take long positions in the interest rate futures market, subject to the condition that the total gross exposure in the cash and the futures market does not exceed the extant maximum permissible cash market exposure limit.

10. Dr K. Ramakrishnan, who retired as Chairman and Managing Director of Andhra Bank, took over as the Chief Executive of Indian Banks’ Association on August 4, said a press release issued by the association

Tides of 7.08.2008

1. Two-wheeler finance has hit a roadblock as banks are pulling out their retail presence from dealerships. After Citibank, the country’s second largest bank ICICI is learnt to have dismantled staff from the retail counters, compelling the dealers to search for alternative modes to make finance available for their prospective customers. Enquiries at various dealerships in the city revealed that the bank had shut its shop at the showrooms. While ICICI Bank says that it is changing the model of its two-wheeler financing, dealers and industry officials view the step as a subtle way to sharply reduce their lending by limiting access to customers at the showrooms.
2. Hongkong & Shanghai Banking Corporation Ltd (HSBC) sees profit growth in its Indian operations moderating in percentage terms in calendar year 2008 on the back of some slowdown in retail credit due to hardening interest rates and difficult collection environment. “Our (Indian operations) profit before tax grew 24 per cent in January-June 2008. I see some moderation in profit growth (in percentage terms) for the entire 2008. Last year, we had high double-digit growth. In 2008, we expect double-digit growth, but not as high as last year,” Ms Naina Lal Kidwai, Country Head, India, HSBC.
3. The Federation of Indian Chambers of Commerce and Industry task force on non-banking financial companies (NBFCs) said that the sector should be treated at par with banks.It has recommended measures, including the setting up of a debt recovery tribunal, removing restrictions on overseas borrowings and on issuing hybrid financial instruments for meeting regulatory capital needs. “It is time that they (NBFCs) are not looked upon as weak links in the system and are given a regulatory treatment in keeping with that perception,” the former SBI Chairman, Mr M.S. Verma, who headed FICCI’s task force on NBFCs, said while releasing the panel’s report.
4. Union Bank of India and IndusInd Bank have hiked their prime lending rates by 75 basis points. This will lead to a hike in the interest rates of floating loans.Union Bank of India raised its benchmark prime lending rate to 14 per cent from 13.25 per cent with effect from August 8. IndusInd Bank raised its PLR to 17 per cent from 16.25 per cent. These are the latest among several banks that have increased prime lending rates, after the Reserve Bank of India increased key rates in the first quarter review of its annual Monetary Policy, last month.A press release from Union Bank of India here on Wednesday said the increase would impact advances with floating interest rate structure linked to BPLR. However, existing home loans will not be impacted by the hike. In order to encourage education loans, the bank has exempt education loans from the hike, the release said.In case of IndusInd Bank, all loans except those under the consumer finance division would be impacted by the hike, said a senior official from the bank.
5. Tamilnad Mercantile Bank (TMB) is setting up a separate overseas credit cell to ensure expedite quick delivery of credit to exporters. The cell, to be headed by an Assistant General Manager is being set up at the head office with the aim to double the clientele base in forex business.
6. In discussions with some shareholder groups , Lakshmi Vilas Bank agreed to withdraw its proposal for a Rs 250-crore Qualified Institutional Placement (QIP) issue. Sources told Business Line today that it was also agreed that after the Annual General Meeting on August 14, Lakshmi Vilas Bank will invite Federal Bank to take a seat on its board. Federal Bank has 4.99 per cent holding in LVB.This development is seen as the first step towards an eventual merger of LVB with Federal Bank, which has made no secret of its intention to take over LVB and a few other banks in the region. Federal Bank has 4.99 per cent in South Indian Bank and has recently bought a similar holding in Catholic Syrian Bank.The decision to withdraw the QIP was prompted by a representation made by one Mr K.R. Pradeep, whose family and associates have 5 per cent stake in LVB.
7. For banks that hoped to make their balance sheets presentable in the second quarter, the Reserve Bank of India has quietly slipped a spanner in the works.Most banks had hoped to convert their weak bottom lines into profits, by writing back provisions on non-performing loans. Bankers had hoped to offset losses on the large depreciation provided on their investment portfolios in the first quarter, by writing back provision on overdue farm sector non-performing assets. Post-farm loan waiver, these advances had ceased to be NPAs though the payment from the government will be over three years. The total farm loan waiver package is about Rs 72,000 crore. The entire compensation payout is expected to be completed only by July 2011. The RBI in a notification on July 30 mandated that banks would not be allowed to write back the provisions made on the overdue farm loans. Instead, the RBI’s notification said that the write-back of the provisions would be permitted only after full settlement of the waiver scheme. This was because a provision represented a permanent loss to the bank’s balance sheet on account of delayed cash flows.
8. To have an “area approach” for targeted and focused banking, the Lead Bank Scheme (LBS) was introduced in 1969, based on the recommendations of the Gadgil Study Group. The banker’s committee, headed by F. S. Nariman, concluded that districts would be the units for area approach and each district could be allotted to a particular bank which will perform the role of a Lead Bank. As a consortium leader, the Lead Bank would co-ordinate with government office s, banks and other stakeholders, undertake planning and formulation of Annual District Credit Plans through Block and District Consultative Committees and help in synergising all efforts to fulfil Plan priorities and district-specific requirements. The objectives of achieving 100 per cent financial inclusion, strengthening the microfinance and cooperative sector, and liberating the rural masses from the debt-trap, are possible only with a revitalised lead bank scheme, says VINOD R. RAO.
9. Standard Chartered Bank India has reported an 89 per cent jump in operating profit at $606 million in the first half of the calendar year 2008 from January to June, against $320 million in the corresponding period of the previous year. The bank now contributes 23.4 per cent of Standard Chartered Group’s global profit and is its second largest market next to Hong Kong.The results include the proceeds from the sale of the bank’s asset management business which contributed $146 million as well as a robust increase in income.Standard Chartered Bank had sold its mutual fund business to IDFC in March this year.Excluding the sale of the AMC, Standard Chartered Bank has seen a 44-per cent growth in profit at $460 million.
10. HDFC Bank is expecting a 35-per cent growth in its credit card portfolio this year despite concerns over the impact of increasing interest rates.“We are number one currently on an incremental basis in the issue of new credit cards and are very positive about this segment growth over next two years,” Mr Parag Rao, Head (Product, Portfolio & Service Delivery, Credit Cards) HDFC Bank, told Business Line over phone from Mumbai.As on date HDFC Bank has 4.2 million credit cards. The year-on-year growth for the last two years was about 35 per cent. “We are confident of maintaining it this year too,” Mr Rao said.Out of 4.2 million, 70 per cent of the cards are with the internal customers of the bank while the rest are in the open market base. On the strategy of the bank in its credit card business, the official said it would be an entry product after a savings account with the bank for many people.

1.08.2008

1. ICICI Bank and HDFC on Thursday hiked home loan rates by a massive 0.75 percentage points, moving quickly to preserve margins in the wake of RBI raising key interest rates. The hike from the top two home loan providers is the second in the space of one month. ICICI Bank hiked the floating reference rate (FRR) for consumer loans, which also includes home loans, to 14.25 from 13.5 per cent, with effect from July 31. HDFC’s adjustable rate home loans will be priced at a minimum of 11.75 per cent with effect from August 1. Its fixed rate remains unchanged at 14 per cent per annum.A 0.75 percentage point hike will mean customers on floating rate home loans will have to pay an additional EMI of Rs 51 per lakh on a 20-year term.

2. The gross non-performing assets (NPAs) in retail loans are set to increase to around 4 per cent by March 2009, from 2.7 per cent on March 31, 2007, said a report by rating agency Crisil.
This is on a retail asset base of Rs 5-5.5 lakh crore across banks. The report, released on Thursday, said that the segments most affected by the decline in asset quality are unsecured segments such as personal loans and credit receivables, as well as two-wheeler, commercial vehicle and used car loans. Delinquencies have increased across the retail portfolios of banks, non-banking financial companies (NBFCs) and housing finance companies (HFCs).

3. The rupee may have appreciated against the US dollar since July this year, but exporters are not taking forward cover, unlike in the past.The rupee has appreciated by about 2 per cent from Rs 43.21 on July 4 to Rs 42.49. Yet bankers said that most exporters remained reluctant to hedge their inward remittances. The reluctance to hedge was evident from the wide forward premia. Six month forward premium is currently at 6.10 per cent. During the corresponding period of last year, six month forward premium was 1.28 per cent, when exporters actually resorted to hedging their earnings.

4. Oriental Bank of Commerce has mopped up insurance premium worth Rs 2.51 crore in the first phase of insurance business in joint venture with HSBC Insurance Holdings Ltd and Canara Bank, according to Mr R. M. Sharma, General Manager of the bank in charge of eastern region. “Our target was to achieve Rs two crore worth premium and we have already exceeded it. This was made possible because of the co-operation of our field functionaries,” said Mr Sharma.According to Mr Sharma, the insurance joint venture would help boost the non-interest income of the bank. “This initiative should shore up our profitability and help increase our customer base to a great extent,” he said.

5.Federal Bank’s net profit increased by 1.81 per cent to Rs 68.15 crore for the quarter ended June 2008 compared to Rs 66.94 crore achieved during the corresponding quarter of the earlier fiscal.The marginal increase in net profit has been attributed to higher provisioning of Rs 131.79 crore towards depreciation on investments held in trading books.While the interest income increased 34.20 per cent to Rs 745.12 crore (Rs 555.22 crore), other incomes slipped 7.92 per cent to Rs 96.21 crore (Rs 104.48 crore). The operating profit was up 34.55 per cent to Rs 253.52 crore (Rs 188.43 crore).The growth in total income is said to be due to an increase in interest income in spite of a slip in trading income from securities and equity portfolios.

6. A month after increasing its PLR by 50 basis points to 16.5 per cent, YES Bank has taken the cue from the recent rate hike by the Reserve Bank of India to effect yet another hike of 50 bps from August 1. The PLR would now increase to 17 per cent.The bank has also proposed to increase the fixed deposit interest rate across varying tenors. Deposits maturing between 12 and 18 months would earn 25 bps more than the existing 9.75 per cent, and the rate of return for senior citizens has been revised to 10.5 per cent from August 1.Profit after tax increased 51 per cent to Rs 54.3 crore during the first quarter of the current fiscal compared to Rs 36 crore during the corresponding quarter of the earlier fiscal.

7. Central Bank of India has suffered a 39.6-per cent decline in its net profit to Rs 59.32 crore for the quarter ended June 30 from year-ago levels. The bank had netted a profit of Rs 98.35 crore during the first quarter of financial year 2008, it said in a filing to the Bombay Stock Exchange on Thursday. The total income rose 37.27 per cent to Rs 2,572.53 crore during the quarter from Rs 1,874.02 crore in the year-ago period. Income on investments was at Rs 611.8 crore and other income at Rs 161.2 crore as at the end of the June quarter. The capital adequacy ratio stood at 10.01 per cent.

8. The rising proportion of unsecured loans, increasing exposure to high-risk customers, spiralling interest rates and a decline in credit standards from 2004 to 2007 will result in more bad debt for the Indian banking sector, rating agency Crisil said today.

9. Riding on higher interest income, Punjab National Bank (PNB) on Wedesday reported a 20.6 per cent increase in net profit to Rs 512 crore during the first quarter of 2008-’09 compared with Rs 425 crore during the same quarter last year. The rise in profit was despite the bank taking a Rs 150-crore hit due to depreciation in the value of government securities.

10. The Manipal-headquartered Syndicate Bank, the 7th largest public sector lender (in terms of total business), today reported 60.18 per cent drop in its net profit at Rs 87.89 crore for the first quarter ended June 30, 2008 compared to the corresponding quarter last year.