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.
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.
