Tides of 6.10.2015

1.      With big banks, such as State Bank of India and ICICI Bank cutting their base rates (or the minimum lending rates) over the last one week, more banks joined the bandwagon on Monday. Union Bank of India on Monday reduced its base rate by 0.35 percentage points to 9.65 per cent from 10%. A senior Union Bank official said following the base rate cut, new customers will get home loans at 9.65 per cent. Existing customers too will benefit as their floating rate home loans will get re-priced at the base rate. The equated monthly instalment on a 30-year floating rate home loan will come down to Rs. 852 per lakh from Rs. 878 per lakh. So, a customer, who has taken a Rs. 50-lakh home loan, will save about Rs. 1,300 in EMI every month. Standard Chartered too announced a reduction of 0.25 percentage points in its base rate from the current level of 9.75 per cent to 9.50 per cent. The base rate change in the case of these two banks is effective from October 5, 2015. Canara Bank’s board has approved reduction in its base rate by 0.25 percentage points to 9.65 per cent from 9.90 per cent for loans/ advances effective from October 7.State Bank of Mysore has revised downward its base rate to 9.65 per cent from 9.90 per cent, effective from October 7.Corporation Bank has announced a reduction of 20 basis points in its base rate. The bank informed the NSE on Monday that it has reduced the base rate for lending to 9.70 per cent from 9.90 per cent. The reduction comes into effect beginning October 8.Following the Reserve Bank of India cutting its policy repo rate on September 29, State Bank of India became the first bank to get off the block, announcing 0.40 percentage points cut its base rate to 9.30 per cent.Andhra Bank and Bank of India followed suit on the same day, cutting lending rates by 0.25 percentage points each to 9.75 per cent and 9.70 per cent, respectively.Repo rate is the interest rate at which Reserve Bank provides short-term funds to banks to help overcome liquidity mismatches.

2.      Union Bank of India will buy KBC Asset Management’s 49 per cent stake in Union KBC Asset Management.The joint venture was established in 2009. In the July-September 2015 quarter, Union KBC Asset Management had average assets under management (AAUM) aggregating to Rs. 2,672 crore.According to the Association of Mutual Funds in India data, the AAUM of 44 mutual funds during the reporting period was at Rs. 13,15,760 crore.The public sector bank, however, did not disclose the deal size. According to mutual fund industry thumb-rule, an acquirer usually pays 2 to 2.5 per cent the AUM to buy equity schemes and 0.75 to 1 per cent for debt schemes. So, the pay out by Union Bank to KBC Asset Management will be in proportion to the latter’s holding. Union Bank, in a statement, said the transaction, which is subject to regulatory approvals, will have no impact on the joint venture’s client positions and product portfolio.Arun Tiwari, Chairman and Managing Director of Union Bank of India, said the transaction reaffirms Union Bank’s vision to provide all financial solutions under one umbrella which apart from banking products and services includes life insurance products through its joint venture Star Union Dai-ichi Life Insurance Co and mutual fund products through Union KBC AMC to its customers. Tiwari said his bank is committed to offering a portfolio of services to investors under its own brand.Shares of Union Bank of India closed at Rs. 182.35 apiece, up 4.83 per cent over the previous close on the BSE.

3.      Rating agency Crisil downgraded debt worth Rs. 2.4 lakh crore in the first six months of the current financial year. Of this, 90 per cent is owed by firms from either investment-linked or commodity sectors.The rating agency said that the credit quality pressures intensified for the highly leveraged firms, companies with a debt to EBITDA ratio of more than 2.5 times, in the first half of the current fiscal ended September 2015, according to Crisil’s definition.“They will remain under pressure till deleveraging happens through asset sales...The firms in the metals, real estate and infrastructure space continue to face pressure because of high debt or a steep fall in product prices,” Crisil said in the report.