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.
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.
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
