Tides of 20.06.2010

1. State Bank of India has said that all the regulatory approvals for the merger of State Bank of Indore with itself will be in place by next month. "We are awaiting approval from the government of India, which is expected any time, may be this month or next month, after that it takes about a month to merge it," SBI Chairman O P Bhatt told PTI. The bank has already got approval from Reserve Bank of India. "We are already doing preparatory work (for the merger)," he said, adding that by July all necessary approvals would be in place.
2. Royal Bank of Scotland Group Plc is in talks to sell its Indian commercial and retail unit to HSBC Holdings Plc as Britain’s biggest government-owned bank accelerates international asset disposals, according to two people with knowledge of the situation. The sides may agree a deal as early as next month, said one of the people, who declined to be identified because the talks are private. The unit has about 1.3 million customers, 1,800 employees and 28 branches, according to the Edinburgh-based bank’s website.
3. Reserve Bank Governor D Subbarao today said mobile banking should be driven by banks, not telecom operators, considering money laundering and terror financing threats. "The Reserve Bank has a clear preference for the bank-led model," RBI Governor D Subbarao said at a Banking Technology Excellence awards function hosted by the Institute for Development and Research in Banking Technology (IDRBT). "Given the growing concerns about money laundering and financing of terrorism, a bank-led model is decidedly safer and more sustainable," he said, adding, however, that a mobile operator-led model helps accelerate financial inclusion.
4. Continuing its selling spree, global financial major Citigroup today offloaded shares of two Sensex firms, Infosys Technologies and HDFC, in block deals valued at Rs 46.08 crore. Foreign fund house Citigroup Global Markets Mauritius sold a total of 1,61,941 shares of Infosys Technologies and HDFC for Rs 46.08 crore. These shares were purchased by The Royal Bank of Scotland NV, according to block deal data available with the Bombay Stock Exchange. As per the BSE data, Citigroup offloaded 1.09 lakh shares of IT major Infosys Technologies worth Rs 30.62 crore and the entity also sold 52,941 shares of HDFC worth Rs 15.45 crore.
5. Indian bank loans rose 19.1 per cent on year as of June 4, the central bank's weekly statistical supplement (WSS) showed on Friday. Deposits were up 14.3 per cent from a year earlier. Outstanding loans rose 578.96 billion rupees to 32.88 trillion rupees in the two weeks to June 4. Non-food credit rose 551.50 billion rupees to 32.36 trillion rupees and food credit rose by 27.46 billion rupees to 521.49 billion rupees, the bank said. Bank deposits rose by 150.82 billion rupees to 45.41 trillion rupees in the two weeks to June 4, the WSS showed.
6. ICICI Bank has filed complaints with the Economic Offences Wing and SEBI against various individuals for spreading rumours of a $1-billion US lawsuit against the bank, which triggered a 3.5% fall in the bank’s share price. ICICI Bank officials said they had tracked down individual rumours and there was a suspicion that rumours were initiated by those who sought to gain from a fall in the bank’s share price. One of the mails was forwarded by an individual to contacts in his googlegroups. The bank had obtained details of the individual who described himself as an investor and said his information was obtained from a website. The investor — a Mumbai-based individual in his thirties — was detained by the police for questioning, bank sources said.
7. South Indian Bank has tied up with Bank of New York Mellon to facilitate remittances from the US to India. VA Joseph, the bank's managing director, said that Malayalam superstar Mammootty, the bank's global brand ambassador, would launch this facility at Kochi on Friday. The South Indian Bank has 580 branches spread across 26 Indian states.

Tides of 27.05.2010

1. Jaipur Stock Exchange (JSE), the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) have sent show cause notices to Bank of Rajasthan (BoR). These question the bank for the delay in informing them about BoR’s merger with ICICI Bank.“However, there will not be any impact on BoR’s deal with ICICI Bank, as the board has approved it and all legal procedures have been followed. However, if the regulator feels, it can fine those who delayed in informing the stock exchanges,” said independent equity advisor S P Tulsian.
2. State Bank of India (SBI), which is struggling to meet the regulatory mandate of 70 per cent provision coverage ratio (PCR) by September, has sought a one-year extension to comply with the norm. According to sources close to the development, the country’s largest bank has written to the Reserve Bank of India (RBI) seeking an extension of the deadline till September 2011 to meet the new stipulation. They, however, added RBI was yet to take a call on the issue. Recently, the regulator has provided six months extension, till March 31, to ICICI Bank for achieving the PCR norm. According to State Bank’s internal estimates, it will have to make additional provision of Rs 2,800 crore for non-performing assets to reach a PCR of 70 per cent. At March-end, its PCR was 59.46 per cent, including advances under collection accounts (AUCA). Without AUCA, SBI’s loan-loss coverage is 44.36 per cent, and is seen as a pressure point by analysts tracking the sector.
3. With non-performing assets (NPAs, or bad loans) in the banking sector expected to rise and banks required to achieve a 70 per cent provision coverage ratio by September 30, asset reconstruction companies (ARCs) are preparing for an increase in business. International Asset Reconstruction Company (IARC) is in the process of raising a Rs 400-crore fund to buy distressed assets, with a greenshoe (over-allotment) option to raise Rs 100 crore, according to its Chairman, M S Verma. Domestic investors are expected to contribute Rs 200 crore to the fund. The country’s first ARC, Asset Reconstruction Company (India) Ltd, or Arcil, has already raised Rs 400 crore of its proposed Rs 2,000-crore fund, according to Managing Director & CEO S Khasnobis. Others such as JM Financial ARC and Invent Assets Securitization and Reconstruction are also in the process of drawing up fund-raising plans. There are 13 ARCs in the country. Banks and other financial institutions sell a portion of their bad loans at a discounted rate to ARCs to clean their balance sheets. ARCs pay for these distressed assets either in cash or by issuing a portion of the security receipts (SRs). SRs are interest-bearing securities which entitle the holder to a portion of the recovered amount.
4. The guessing game by banks on each other’s base rate is expected to be over soon when country’s top bankers meet – at the behest of State Bank of India (SBI) – to discuss the new loan pricing mechanism. The meeting would precede SBI’s base rate announcement on June 15, a fortnight before its roll out, SBI Chairman O P Bhatt said today. Most banks are yet to decide about their base rate and the parameters to be taken into account for calculating the new benchmark. A key parameter is the cost of funds, which can cause a huge variance across banks. For example, if a bank takes overnight cost of funds, which is very low, its base rate will also be significantly lower from a bank, which, for example, takes one-year average cost of funds into account. As a result, most banks are eagerly awaiting the move by the country’s largest lender, SBI. This meeting assumes significance, as bankers will get to know what their colleagues in other banks are contemplating and help put in place an industry-wide consensus. Last year, the Reserve Bank of India (RBI) had constituted a committee under Executive Director Deepak Mohanty to review the present system of benchmark prime lending rate. The move was aimed at bringing about greater transparency in risk pricing. The regulator issued the final guidelines in April, but the decision about mechanism was left completely in the hands of banks.

Tides of 26.05.2010

1. Borrowing by telecom companies, which have to pay licence fees to the government, has led to a shortage of liquidity forcing banks to hunt for large deposits. Banks say that by next week lenders may have to seek refinance from the Reserve Bank of India. Reliance on refinance will immediately bump up overnight rates by two percentage points from the prevailing 3.75% to 5.75%, which is the rate at which RBI lends to banks.
2. Govt may allow 100% foreign NBFCs to set up subsidiaries, removing the curbs introduced by the FDI guidelines issued last year.
3. Five-year old Ujjivan Financial Services, a Bangalore-based micro lender with 6.5 lakh poor customers, said it will reduce lending rates by up to 290 basis points from July, as it has earned a profit for the first time since inception. Ujjivan’s announcement comes within a month of Bandhan’s decision to cut interest rates. Bandhan Financial Services is the country’s fourth largest microfinance institution (MFI) with nearly 26 lakh borrowers.
4. The European crisis that plunged global equity markets into the red appears to have deeply impacted the Standard Chartered IDR issue that opened on Tuesday.Of the 20.4-crore Indian Depository Receipts, only 1.11 crore IDRs, or 5 per cent of the total, were subscribed for.This being the first issue where qualified institutional buyers (QIB) had to pay 100 per cent money upfront could have been a reason why institutional response remained subdued, according to analysts. About 12 per cent of the shares on offer to QIBs were bid for.Brokers said that despite their efforts to persuade retail participants to subscribe to the issue, there were few takers. “There is just no excitement for this issue, people think they will not make gains on listing in such a market,” said a retail broker.
5. Lodha Group bids Rs 4,053 cr for MMRDA plot; plans residential complex. The Mumbai-based real estate developer Lodha Group has bid Rs 4,053 crore or Rs 81,818 a sq metre for a 25,000 sqm plot in an auction conducted by the Mumbai Metropolitan authority.
6. The two tribal development programmes, popularly known as Wadi, launched recently by National Bank for Agriculture & Rural Development (Nabard) in Bankura district of West Bengal, are targeted to benefit 1,000 families with sustainable livelihood, according to a Nabard release.The total assistance sanctioned under the programmes is Rs 5.12 crore, including a grant of Rs 4.34 crore and loan component of Rs 40 lakh.The cumulative sanctions under Wadi in West Bengal comprise Rs 33.73 crore of grant and Rs 2.25 crore of loan covering 14 projects in seven districts, totalling 8,566 families.The State Government, through its Backward Classes Welfare Department, has partnered with Nabard in six of the projects with Rs 8.87 crore of grant assistance.
7. Private insurers led by Reliance General are expected to take a hit of around Rs 450 crore from the Air India Express plane crash in Mangalore. The companies had earned a premium of around Rs 110 crore from Air India this year. This was the first time that private insurance companies had provided a comprehensive cover to the country's national carrier. Earlier, public sector players led by New India Assurance provided the cover. Apart from Reliance General, HDFC Ergo, Iffco Tokio and Bajaj Allianz were part of the consortium. Like any large risk, the general insurance companies had reinsured the risk, with Sumitomo being the lead reinsurer, a first for the company. ICICI Lombard had also participated as a reinsurer.
   
   

Tides of 25.05.2010

1. The RBI data shows that bank investment in mutual funds stood at Rs 111,956 crs as on May 7. Banks essentially park funds in liquid mutual fund schemes as the return is a shade better than the return earned by deploying funds in the overnight call money market. Fortnightly trend in data shows that there is a secular rise in such investments over the past three fortnights. According to Andhra Bank executive director Anil Girotra, this a pure fund management strategy by banks and surplus funds are deployed with mutual fund only until there are visible signs of pick-up in loan demand. A recent report by Deutsche Bank notes that there could be demand for funds on account of payment of around Rs 67,000 crore as licence fee by telecos towards payment of license fees for 3G spectrum, besides another Rs 15000-20,000 crore toward the upcoming auction of the broadband wireless spectrum. In addition, there is a likely outgo of around Rs 30,0000-35,000 crore because of advance tax payments starting in the middle of June.

2. The Tirupati Temple in Andhra Pradesh has for the first time deposited 1,075 Kgs
of gold with the State Bank of India (SBI) owing to security concerns.The Tirumala Tirupati Devasthanams (TTD) is an independent trust, which manages temples in Tirupati. TTD officials said they were extremely happy about taking the step due to security reasons, and also for wanting to convert idle gold into a source of income. "This is a great occasion. This is a win-win situation for both SBI and as far as TTD is concerned, this is the best part of it. When the proposal came and we were looking into it, some one or two other counterproposals came which made the SBI to up its interest rates also," said D. K. Adikesavulu, TTD Board Chairman.

3. ICICI Bank, which will see its presence in western India grow with the acquisition of Bank of Rajasthan, has said no to foreign takeovers as it wants to focus on becoming India's top bank in terms of profitability and productivity. "No overseas (acquisition). We are not looking at any prospect (abroad). Internally, our growth strategy is quite India-linked. We are doing just one prospect (deal). I think it is too early to talk of any other prospect," ICICI Bank CEO and Managing Director Chanda Kochhar told when asked which domestic or overseas deals were on its radar. Asked if the latest deal would help her achieve the dream of putting ICICI ahead of number one State Bank of India, she said, "The number one position could be in many ways like productivity, efficiency and profitability. "We are the number one in many of these parameters. Clearly, profits will be a key area to our operations," she said, adding that Bank of Rajasthan would help ICICI Bank not only in terms of branch expansion by 25 per cent but also greater visibility in western and northern parts of the country.

Tides of 24.05.2010

1. SBI has set aside Rs 20,000 crore liquidity for lending to telecom companies that have recently won the bids for 3G spectrum. This will reduce its liquidity to half, assuming that there would be no further outgo other than the Rs 20,000 crore earmarked for telecom operators. Disclosing this to the media in Hyderabad on Saturday, SBI chairman OP Bhatt said for the year ended March, 2010, SBI will be left with 50% of its existing liquidity. Bhatt mentioned that some of the telecom operators, who have bagged 3G spectrum licences, have approached SBI seeking lending. On interest rates, he said it has not hardened so far. But if money for the 3G auctions goes out of the banking system to the government, the liquidity would dry up resulting in the interest rates going up.
2. The boards of ICICI Bank and Bank of Rajasthan (BoR) on Sunday approved the merger of the latter with India's largest private sector bank in a no-cash deal that is valued at about Rs 3,000 crore. The banks have agreed on a final swap ratio of 1: 4.72 one share of ICICI Bank for 4.72 shares of BoR- for the merger. The board considered the results of due diligence covering advances, investments, deposits, properties and branches and employee-related liabilities, and the valuation report of Haribhakti & Co, to arrive at such a swap ratio, said Chanda Kochhar, managing director & CEO of ICICI Bank, adding the bank has to seek permission from RBI and will hold its EGM on June 21 "As per our legal advise we do not need to go to the government for the approval of the Foreign Investment Promotion Board," said Kochhar. This is the first take over by ICICI Bank after Kochhar took over as CEO. Speaking to FE, Kochhar said BoR is a value buying and not a bailout proposition. BoR will add 3 million customers and start contributing to the profit of ICICI Bank from next year. "By diluting 3% equity , we are adding 25 % of more branch network at one go. BoR will augment ICICI Bank's loan book and deposits by around 8% each. We have now the largest number of branches among the private sector banks," she added. ICICI Bank's valuation of BoR is on the basis of Rs 6 crore per branch On BoR's sticky assets, Kochhar said, "We have verified all the details". Pravin Tayal, who was asked by RBI to dilute family's over 55 % equity to about 10%, said "no decision" has been taken on his representation the ICICI board after the merger. "I respect the amalgamation scheme decided by the Board," he said. With BoR board approving the swap ratio the proposal will now go to the Extraordinary General Meeting (EGM) slated on June 21, BoR director KN Bhandari said. Asked whether the merger will adversely impact BoR employees, Bhandari said, "All BoR employees will be retained and there will no job losses."
3. Standard Chartered on Sunday said it has fixed the price band for its proposed issue of 240,000,000 Indian Depository Receipts (IDRs) at between Rs 100-115 per IDR. The issue, which will remain openfrom May 25 to May 28, will raise up to $588 million. The bank has revised the target, which was earlier set at $750 million. Retail investors and eligible employees subscribing to the IDRs under the retail and the employee portion respectively, and whose bid amount does not exceed Rs1,00,000, will benefit from a further 5% discount to the final issue price, a bank statement said. Allotment of the IDRs is scheduled to be completed by June 7, with listing on the Bombay Stock Exchange and the National Stock Exchange shortly thereafter. In late March, StanChart said it aimed to raise at least $500 million and not more than $750 million in its IDR sale. Since then, London-listed shares in the lender have fallen nearly 9% amid a broader global selloff. Ten IDRs will represent one underlying share of the company, and the new shares issued in aggregate would constitute 1.16 % of its post-issue paid up capital,the statement said. "The issue of IDRs is a more brand-building exercise than capital mop up," the bank said. Capital Markets Ltd has been named as the co-book-running lead manager (co-BRLM). The Co-BRLM will only be involved in the marketing of the issue, the statement said.

Tides of 19.05.2010

Why is Greece in trouble?

The Greek government went on a spending spree during the past decade. Public spending soared and public sector wages practically doubled during that time. Thus while the government was spending away its reserves it was unable to replenish the same through tax collections due to widespread tax evasion. All this has placed a huge strain on the country's economy which is in a state of constant debt.

How big are these debts?

Greece's budget deficit (the amount by which a government's spending exceeds its income) last year was 13.6% of its GDP in 2009 (Gross Domestic Product is the value of all the goods and services produced in a year). This deficit is one of the highest in Europe and more than four times the limit under euro-zone rules.

Greece's high levels of debt mean investors are wary of lending it more money, and demand a higher premium for doing so. This is particularly troublesome as Greece has to re-finance more than 50bn Euros in debt this year. As a result, the country needs as much as 45bn Euros in emergency loans from euro-zone governments and the IMF this year. The IMF loan has been approved subject to the approvals from national governments in euro-zone.

Why is it a concern outside Greece?

The euro-zone, officially the euro area, is an economic and monetary union (EMU) of 16 European Union (EU) member states which have adopted the 'euro' currency as their sole legal tender. It currently consists of Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

Everyone in the euro-zone and anyone who trades with the euro-zone is affected because of the impact on the common European currency. The most immediate impact is on the other euro-zone economies who have agreed to loan Greece up to 80 bn Euros over the next year. In other words, taxpayers of these countries will effectively share a part of Greece's burden.

There were also fears that Greece's troubles in the international financial markets may trigger a domino effect, toppling other weak members of the euro-zone, namely Portugal, Ireland, Italy and Spain as well - all of whom face challenges in balancing their books.

Those fears had driven up the interest rates on government debt, meaning it is more expensive for these countries to borrow on the open market. Finally, many major banks have invested in Greek debt. So the economic crisis could affect their shareholders, many of whom are ordinary investors or people who own their shares through pension funds.

What is Greece doing about it?

Greece has outlined plans to cut its budget deficit by 30 bn euros over 3 years. In order to do that, the Greek parliament has approved an initial package of austerity measures to save 4.8bn Euros. It wants to freeze public sector workers' pay and raise taxes, and it has also announced a rise in petrol prices. It also intends to increase the average retirement age in an attempt to save the cash-strapped pensions system.

How has this been received in Greece?

Not too well. There has been a series of public protests, some of them violent. Strikes have hit schools and hospitals and brought public transport to a halt.

Many public sector workers believe that the crisis has been engineered by external forces, such as international speculators and European central bankers.

So what’s the latest development to avert spreading of this crisis to rest of Europe?

To prevent that from happening, the European Union along with the European Central Bank and the International Monetary Fund (IMF) came out with a $962 bn (euro 750 bn) rescue package. The rescue package consists of euro 440 bn in guarantees from euro area states, euro 60 bn in European instruments, and euro 250 bn from the IMF, making for a total of euro 750 bn.

Loans will be given out from this pool of money to those European Union countries that are having trouble with repaying the accumulated debt. The rescue package is just short of $1 trillion at current euro-dollar exchange rates. The idea is to use some of the funds to buy up government bonds, so that the markets for these bonds stabilize.

In addition, the European Central Bank announced buying public and private bonds to lower borrowing costs and increase liquidity.

Meanwhile, the US Federal Reserve restarted its dollar swap operations, in which it offers billions of dollars overseas to boost banks' cash positions in return for foreign currency. Central banks around the world were also involved.

Why is the rescue package being worked out when only Greece is in great trouble?

This rescue effort is being worked out primarily in countries like Germany and France to whose banks the PIIGS economies owe a lot of money. As a matter of fact, Portugal owes Spain — and Spain, in turn, owes a great deal to France and Germany. Italy owes a whopping $511 bn or 20% of its GDP to France and $190 bn to Germany. Spain in turn owes Germany $238 bn and France $220 bn. Ireland owes $184 bn to Germany and $60 bn to France. Portugal owes $47 bn to Germany and $45 bn to France. And the smallest of them all, Greece, owes Germany $45 bn (euro 58 bn) and France $75 bn. Therefore, Greece is not the only country in trouble.

How will this plan work?

The economies in trouble looking to get a loan from the $962 bn pool will have to follow structural reform and fiscal management programs monitored by the IMF. The IMF is known not to lose its money anywhere. One of the norms required from countries using the euro is to maintain a fiscal deficit of less than or equal to 3% of GDP. However to make this plan work one can expect dissent among the people as they would be forced to conform to austerity measures which in turn could have adverse political ramifications for the government.

Could Greece devalue the euro?

One of the ways of handling this problem is currency devaluation. When the currency is devalued it makes goods and the services a lot of more cheaper and hence, more competitive. This in turn would mean the country could export more and earn more dollars or whatever foreign currency they had their debt in. This could then be used to pay off the accumulated debt.

But would this formula work here?

Many of Greece’s most important trading partners share the euro, so there is very little scope for a change in an exchange rate’s value to improve competitiveness. Thus, the only way Greece can improve its competitiveness is through a compression in domestic prices and costs. Thereby products made in the PIIGS countries will become competitive only if they are able to control costs. Controlling costs may mean cutting salaries of employees, which may not be palatable for politicians.

The million dollar question here is ‘Is Europe out of the woods yet’?

The main problems the European economy faces are with rigid labor markets and overblown welfare states. The problems have been compounded by a declining birth rate, which can only be mitigated by allowing freer immigration. Its problems are structural in nature, and these cannot be tackled with financial bailouts.

In fact, the package may create its own recessionary dynamics, since the main conditions attached are that economies with excess debt need to start reducing their public expenditures drastically. The political consequences arising out of this could make things tougher for these countries. Against this backdrop, it would be hasty to conclude that Europe’s troubles are over. It may take a while to set things right.

What can be the likely impact on India?

Some experts are of the opinion that India will be less affected from the downside in global growth due to its relatively balanced economic model with a large contribution from domestic demand to GDP growth. However, it will be important to have stabilization in global capital markets soon, to ensure that the growth momentum is not affected sharply because of reversal in capital inflows.

(From the net)

Tides of 10.05.2010

The Reserve Bank of India (RBI) and the Union government are working in tandem to make banks push the agenda on inclusive growth, both in numbers and spirit.
The finance ministry has asked public sector banks to list their achievements and targets for financial inclusion for 2010-11. RBI has asked for board-approved plans for financial inclusion.
The ministry has asked banks for a provisional statement of intents (SoIs) for 2010-11 this week, which should also mention their plans for financial inclusion, bankers said. The final SoI will go after board approval.
This is the first time banks’ SoI will have such a parameter. According to a chairman of a public sector bank, the government wants to know how many villages having more than 2,000 people are being adopted by the banks and the number of accounts opened so far, and the target for 2010-11.
In addition, the ministry has asked banks to specify performance and plans for regional rural banks (RRBs). However, the latter is only applicable for those banks which sponsor RRBs. Bankers see the government’s move in sync with the larger vision of its owner of providing banking services to all villages having a population of more than 2,000 by March 2012. There are about 64,000 villages, out of 600,000 in the country, which have a population of more than 2,000 but are deprived of a formal banking channel.
Over the past two weeks, the government also held two rounds of meetings with senior officials of public sector banks to take stock on their financial inclusion efforts and had discussed implementation issues. Bankers have highlighted the establishment cost of setting up banking service in rural areas, as they may not earn money for at least three years on their investments. The government said it was open to the idea of providing a subvention in the initial years.
In December last year, government told the banks to send their SoIs for 2010-11. Now the government wants a fresh SoI, with these two additional targets. All other targets remain the same. Like last year, on the business front, the government asked for the target on current and savings account deposits, not total deposits — a practice started last year.

Banking Tides 7.05.2010

SBI seeks services of two U.S. firms
MUMBAI: State Bank of India on Wednesday said it had selected U.S.-based Elavon Incorporation and Visa International as its joint venture partners for merchant acquiring business.
Merchant acquiring business is facilitation of payment through debit or credit card at the retail outlets.
The terms of arrangement are being worked out, SBI informed the Bombay Stock Exchange. The RBI has already approved the setting up of a wholly-owned subsidiary for conducting merchant acquiring business by SBI in the name of SBI Payment Services, it said. Last year, the bank had floated Request for Proposal (RFP) for selection of joint venture partner for merchant acquiring business.
The business would include acquiring bank identification numbers (BINs) from the schemes, as well as managing services for point of sale (PoS) terminals among others.
Managed services
The managed services would include deployment of PoS terminals at customer locations, their replacement, merchant training and maintenance, to name a few.
Meanwhile, SBI is planning to place about 1.50 lakh PoS terminals for debit and credit card payments across the country in the next fiscal.
It plans to deploy six lakh PoS terminals in the first five years of its operations. The business penetration of the new line of operation is envisaged on a pan-India scale, with metro, urban, semi-urban and rural centres. — PTI

Tides of 30.03.2010

1. Gaining traction from the economic turnaround, the annual growth in bank credit has for the first time exceeded the Reserve Bank of India’s (RBI’s) estimate of 16 per cent for 2009-10, giving the regulator more room to raise policy rates to control inflation. According to latest data from RBI, loan disbursement by scheduled commercial banks, including regional rural banks, recorded 16.04 per cent growth at the end of March 12, 2010, on a year-on-year basis. This is above RBI’s projection of 16 per cent credit growth in this financial year. With loans worth Rs 35,527 crore disbursed in the fortnight ended March 12, banks are on track to meet the credit and deposit growth targets set by RBI.
2. The Reserve Bank of India (RBI) today said the banking sector was in a position to withstand asset quality stress even if loans under restructured accounts became non-performing. Following the global financial crisis, Indian banks were allowed, as a one-time measure, to restructure loans without classifying these accounts as sub-standard. The restructured accounts in the standard category constituted 3.1 per cent of the gross advances as on December 2009. “Stress tests indicate that the banking sector is comfortably resilient and, even if, in the worst-case scenario, it is assumed that all restructured standard advances become NPAs (non-performing assets), the stress will not be significant,” the central bank said in its Financial Stability report.
3. For the first time, the Reserve Bank of India (RBI) said it should be privy to information on activities of investment banks (i-banks) in the country to ensure they did not become a potential cause of financial vulnerability. At present, investment banks registered in India are solely regulated by capital markets regulator Securities and Exchange Board of India (Sebi).
4. Given that companies today operate in a climate of increased global economic volatility, it is critical they hedge their exposure to foreign exchange risk, the Reserve Bank of India has said. According to data from commercial banks compiled by RBI, the unhedged exposure of companies as a percentage of total exposure increased from 5.1 per cent as on December 2008 to 25.4 per cent as on March 2009. “As this was a period of heightened volatility, unhedged exposures can impact the health of the corporate sector and translate into increased credit risks for the banking sector,” the report said.
5. The rate of food inflation, as measured by the Wholesale Price Index (WPI), eased to a four-month low of 16.22 per cent for the week ended March 13, primarily due to fall in prices of cereals and onions. The rate of food inflation stood at 16.3 per cent for the previous week and at 7.46 per cent during the corresponding period in 2009. The inflation rate for fuel products rose to 12.68 per cent, compared to -6.06 per cent in the corresponding period last year. The prices of petrol and high-speed diesel oil rose at the rate of 16.82 per cent and 14.99 per cent, respectively, on an annual basis during the week.
6. The Reserve Bank of India (RBI) is likely to take tougher action than Friday’s revision in its key policy rates if headline inflation aggravates, says chief statistician Pronab Sen. “If non-agricultural inflation goes up, RBI is likely to take much stronger action (in its forthcoming annual monetary policy announcement next month),” Sen said. In a surprise move late Friday, RBI raised its short-term lending and borrowing rates — the repo rate (the rate at which it lends to banks) and the reverse repo rate (the rate at which banks park their surplus funds with it) — by 0.25 per cent each to 5 per cent and 3.75 per cent, respectively, to cool off runaway inflation, which has already crossed the central bank’s forecast for March at 8.5 per cent, signalling interest rake increase.

Tides of 6.03.2010

1. Heeding to the request from banks, the Reserve Bank of India (RBI) today postponed the implementation of the proposed base rate mechanism by three months.After a meeting with bank chiefs, RBI said the system would come into effect from July 1. Bankers, however, said there was still confusion on calculating the cost of deposits, a key element for working out the rate.According to the formula proposed by RBI, the base rate will be calculated on banks’ cost of deposits, adjustment for the negative carry in respect of the cash reserve ratio and the statutory liquidity ratio, overhead costs and a profit margin.
2. Faced with increasing cases of anti-dumping duties against a host of Chinese goods, China fears that its exports may be hit this year due to rising trade protectionism. China will face rising trade protectionism this year as a result of an increase in its exports as well as high unemployment rates in the United States and the European Union, Sun Zhenyu, the Chinese ambassador to the World Trade Organization (WTO) said. China, however, is committed to pushing forward the stalled Doha round of WTO talks, although it seems "highly unlikely" that the global trade negotiations can be completed this year, Sun who is also a member of the National Committee of the Chinese People's Political Consultative Conference, the country's top political advisory body told China Daily.
3. The board of the Asian Development Bank (ADB) has sanctioned a loan of $300 million (around Rs 1,380 crore) to develop and expand India’s micro, small, and medium enterprises (MSMEs), the second largest source of employment in the country after agriculture. Around 30,000 small units are expected to benefit from the project. The bank’s board of directors approved a sovereign loan of $50 million (around Rs 230 crore) and a partial credit guarantee of up to $250 million (around Rs 1,150 crore) for the Micro, Small and Medium Enterprise (MSME) Development Project.
4. Private Equity (PE) investments in small and medium enterprises (SMEs) in India fell by 68 per cent in 2009 to $580 million (around Rs 2,670 crore) from $1,824 million (around Rs 8,390 crore) in 2008. According to data compiled by Venture Intelligence, a Chennai-based research firm which tracks PE investments, SMEs had attracted PE investments worth $1,454 million (around Rs 6,670 crore) in 2007. The drop in 2009 has been attributed to the slowdown in the global economy, which prompted PE investors to decide not to access capital.

Tides of 27.02.2010

1. The government today said it would infuse Rs 16,500 crore into public sector banks to ensure that they had a minimum Tier-I capital adequacy ratio of 8 per cent by March 2011.Out of the Rs 16,500 crore, Rs 15,000 will come from the World Bank. The World Bank has agreed to give a $2-billion loan for re-capitalising government-owned banks. As on December 31, at least four banks’ Tier-I capital was less than 8 per cent. These are UCO Bank (6.5%), IDBI Bank (6.6%), Bank of Maharashtra and Central Bank of India (7.14%). Some more banks may fall below the 8% level by the end of March as loan growth, muted for the first nine months of 2009-10, has picked up in the fourth quarter. According to the Reserve Bank of India’s norms, the minimum capital adequacy ratio for banks is 9%, with Tier-I capital of at least 6%.
2. Finance Minister Pranab Mukherjee today exuded confidence the economy would soon break the double-digit growth barrier and said the stimulus measures will not be fully withdrawn until a robust recovery is achieved. Mukherjee, however, remained concerned over high food inflation and the ambiguous nature of recovery in exports due to the uncertainty prevailing in the developed economies. "...I feel the fundamentals of the economy are strong. The positives from our recent performance outweigh the negatives, so that one can hope to see the economy breaking the double-digit growth barrier in the very near future, which is essential for reducing poverty in the country," Mukherjee said in his address to the 82nd AGM of FICCI.
3. Life becomes Saral for salaried-- Two-page Saral-II form for individual salaried taxpayers for coming assessment year.
4. Finance Minister Pranab Mukherjee presented a please-all Budget, that broadly focused on fiscal stabilisation.  Broadens income tax slabs; gives away Rs 26,000 cr in tax breaks
 Cenvat raised from 8% to 10%
 Direct Taxes Code, GST by April 2011
 Withdraws service tax exemption on Railway goods transport
 MAT up from 15% to 18%
 Targets Rs 75,000 crore from disinvestment, spectrum sale
The salaried class received some generous relief, with the upper limit for the lowest income tax slab of 10% raised to Rs 5 lakh from Rs 3 lakh earlier.
The corporate sector, however, was slapped with a higher minimum alternate tax (MAT) at 18 per cent, compared to 15 per cent earlier, but the reduction in surcharge by 2.5 percentage points to 7.5 per cent will offset much of the higher MAT impact.
The roll-back of the fiscal stimulus, introduced 15 months ago, began with a two percentage point increase in the Cenvat rate, a move that did not perturb industry leaders who had feared a bigger cutback.
Proponents of fiscal rectitude, too, were kept reasonably satisfied with the reduction in the fiscal deficit to 5.5 per cent of gross domestic product (GDP) for next year, down from 6.7 per cent in 2009-10.
5. A host of non-banking finance companies such as IDFC, Aditya Birla Financial Services, Reliance Capital, Religare Enterprises and Indiabulls is planning to queue at the Reserve Bank of India to seek banking licences. Following Finance Minister Pranab Mukherjee’s announcement of RBI’s intent to grant fresh bank licences, smaller finance companies such as Srei and Shriram Transport have also expressed their intent to approach the regulator. Foreign banks, most of which operate in the country as branches of an overseas subsidiary, are unlikely to apply given the higher tax that they would have to shell out on setting up an Indian banking company. Besides, many of the global banks are going slow on overseas expansion due to the stress in their home markets. In the last five years, RBI has not given any fresh licences.

Tides of 23.02.2010

1. The proposed new "base rate" regime would prevent large corporations from taking an advantage of ample liquidity in the banking system and negotiate competitive interest rates, State Bank of India chairman OP Bhatt said. In a far-reaching reform measure, the Reserve Bank of India (RBI) proposed to introduce a new concept called "base rate" that would serve as the minimum rate for all loans."Corporate lending is being done on fairly competitive rates but that is for large corporations, which is a function of high liquidity," Bhatt told reporters on Monday on the sidelines of a function organised by the All India Management Association (AIMA). The base rate system, which replaces the existing benchmark prime lending rate (BPLR) system from April 1, is being introduced to make bank lending more transparent. At present about 70 per cent of bank loans are offered at less than BPLR.
2. A sale of shares in Rural Electrification Corp was covered more than three times, helping raise about $760 million and easing concerns that interest in government stake sales was waning. The sale, which ran from Friday through Tuesday, was seen as a litmus test for a plan by the government to offload stakes in 60 state-run firms over the next few years.
3. ING Vysya Bank is looking to grow beyond south India. It raised Rs 415 crore in September 2009 through qualified institutional placement.
4. Chinese banks received a warning on Saturday not to lend too aggressively and to verify that their loans are being used for the intended purpose. The China Banking Regulatory Commission issued two directives on working capital and individual loans with the overarching aims of strengthening risk management and ensuring that banks lend at a steady, responsible pace. Banks lent a record 9.6 trillion yuan ($1,406 billion) in 2009 as they rushed to support the government's economic recovery programme. This year Beijing has set a loan target of 7.5 trillion yuan.
5. The World Bank has severely castigated Mumbai Metropolitan Region Development Authority's handling of infrastructure projects in the city, asking the regional planning body to improve its professional management capabilities of projects.MMRDA's management of the Santacruz-Chembur Link Road has come under the scanner with the deadline for completion being extended time and again. Projects have also been stalled due to non-clearance by the railway authorities.The MMRDA is undertaking infrastructure projects worth Rs 5,127 crore under the Mumbai Urban Transport Project (MUTP).
6. Satyam Computer Services Ltd filed a lawsuit against UK-based Upaid Systems Ltd in a New York state court seeking to declare a settlement pact between the companies valid and enforceable, according to a regulatory filing. Satyam, re-branded as Mahindra Satyam, was bought by Tech Mahindra in April last year after being hit by India's biggest corporate fraud. Satyam, which deposited $70 million as settlement amount into an escrow account as part of the Upaid deal, also sought court approval for the disbursement of funds from the account as per Indian laws.
7. IT firm Mindtree Ltd said on Tuesday its board has in-principle decided to raise $100 million by way of debt. The board has also in-principle approved raising of equity by issuing 15 percent of the current issued capital, it said in a statement to the NSE

Tides of 21.02.2010

1. In a measure that would bring cheers to savings accounts holders, RBI asked banks to start calculating interest rates on these accounts on daily basis from April The move will enable saving accounts holders to earn better interest income on deposits since banks currently calculate interest on the lowest available balance, from 11th and the last date of a month. In the existing system, if one withdraws certain amount from his savings accounts on the last day of a month, he will lose interest on that amount for the whole month. But, under the new system, even if he withdraws in the last day of the month, he will get the interest income on the first 29 days of the month.
2. For the sixth year in a row, the EPFO subscribers are likely to get 8.5% interest on their provident fund (PF) deposits for 2010-2011.
3. In the backdrop of India and Switzerland re-negotiating a bilateral tax treaty for exchange of information on tax evaders, Swiss banks have made it clear that any country seeking secret account details must be specific with names of the individual and the bank involved. "The country requesting information must name the specific individual and also give the name of the bank involved... The idea is to protect the privacy of clients innocent of any wrongdoing, and we believe this is correct," a top official at the apex body of Switzerland-based banks, Swiss Bankers Association (SBA) said. The practice of secrecy in operations of Swiss banks has always been a big political issue, with many Indians alleged to have stashed away billions of dollars in secret accounts there.
4. On February 26, when the Honourable Finance Minister presents the Union Budget, he will have to balance the expectations of multiple stakeholders.From a macroeconomic perspective, 2009 has been a difficult year. The global slowdown impacted Indian businesses in a big way. One of the consequences of the slow-down has been that most companies have resorted to cost cuttings with special attention to reducing employee related costs. From the employees' perspective, reduced bonuses and increments, combined with increase in costs of most essential items due to inflation has caused a hole in their pockets. Salaried persons would be expecting some respite and would be hoping that the Finance Minister proposes measures in the Budget to bring some relief by way of tax concessions for the salaried class.
5. Notwithstanding a grim financial picture in the face of a troubled political situation, Andhra Pradesh Chief Minister K Rosaiah presented a tax-free budget for 2010-11 with an outlay of Rs 1,13,675 crore and a projected expenditure of Rs 1,13,660 crore.The budget estimates, presented to the state Assembly, show a fiscal deficit of Rs 12,983 crore, which will be about Rs 1,300 crore less than the revised estimates for the 2009-10 fiscal, and a revenue surplus of Rs 3,548 crore, up from Rs 2,942 crore.
6. Foreign exchange reserves rose $485 million to $279.2 billion during the week ended February 12, largely on account of revaluation of non-dollar assets in reserves. According to the latest Reserve Bank of India data, of the total foreign exchange reserves, foreign currency assets (FCA) rose by $521million, while the value of SDR (special drawing rights) and reserves with the IMF dipped by $28 million and $8 million, respectively, during the week. The rise in foreign exchange reserves could be largely due to dollar marginally paring the gains against the euro on news about the bailout of Greece, which ran into fiscal trouble earlier in the month, pointed out a treasury official at a public sector bank.