Friday, November 7, 2008

BANKING NEWS - AIBEA - 07.11.2008

Banks forced to pump in excess liquidity: Jayalalithaa
Special Correspondent ,CHENNAI: THE HINDU 7 11 08
AIADMK general secretary Jayalalithaa on Thursday alleged that financially sound institutions such as the LIC, GIC and some public sector banks were being forced to pump in the excess liquidity created by the RBI.
“Who are the beneficiaries?”
“This is how the excess liquidity makes its way into the stock markets and from the stock markets to the foreign investors. Why are these institutions being bled to save some investors? Who are the beneficiaries?” she asked in a statement.
Ms. Jayalalithaa said though people’s money was being pumped into the market to jack up share market indices at a time of global fiscal meltdown, the indices refused to go up because someone was selling shares in bulk.
“Whoever is selling is also pocketing the money. Who are these people? Are they Indians? Or are they Foreign Institutional Investors, who have lost out in the global crash and are now trying to make good by looting India? Is this selling being done through the anonymous Participatory Notes system? Does the Finance Ministry, or the market regulator SEBI, or the Reserve Bank of India have any idea who these sellers are? Will they make this list public?” she wanted to know.
Depreciation of rupee
Ms. Jayalalithaa said that in the process of this withdrawal of money by the FIIs, the Indian rupee had fallen to historic lows and depreciated by more than 25 per cent in the past few months.
“In the process the government has not been able to pass on the 50 per cent fall in the oil prices to the domestic consumers. So much for the macroeconomic management of P. Chidambaram,” Ms. Jayalalithaa added.
‘Banks may see rise in bad loans’
Business Line / Mumbai / Nov. 6
Mr O.P. Bhatt, Chairman, State Bank of India, has said that he expects no slowdown in credit growth in the current fiscal, but banks may see a rise in their bad loans due to moderation in the economic growth.
In the last four years, banks have seen an average loan growth of around 30 per cent. Loan growth, more or less at the same level so far in the current year, is unlikely to slow down.
This is because trade and industry will continue to depend on banks for credit as all other avenues for raising resources have dried up. Speaking at the FICCI-IBA Annual Banking Summit here on Thursday, Mr Bhatt said banks would need to raise capital as the onus of funding corporates had shifted to them in the context of other sources of funding (external commercial borrowings, foreign currency convertible bonds, and lines of credit from overseas financial institutions) drying up; they would also have to take care of the write-offs on account of stressed assets.
SBI, which announced a cut in both lending and deposit rates, is planning to raise between Rs 5,000 crore to Rs. 10,000 crore by way of subordinated debt (Tier-II) capital to improve its resource position, by December.
“Liquidity is a big issue. There is no problem with liquidity at this point in time. But we need liquidity not only in the short-term, but in the long-term as well. There is going to be some pressure on liquidity next month as it’s a time when typically the busy season starts and the government borrowings increase,” said Mr Bhatt on the sidelines of the banking summit.
Daily monitoring
He underscored the fact that the policymakers were monitoring the liquidity situation on a daily basis and when required appropriate liquidity management measures would be taken. Calling for reforms in the financial sector by encouraging foreign direct investment in the banking and insurance sectors, the SBI chief felt that banks should tighten their risk management practices by paying attention to credit, market, operations, and counter-party and concentration risks.
Further, there was a need to revisit regulations in order to bring entities that are not being regulated under the regulatory purview. The SBI chief said India had a strong, prudent and well-regulated banking system. “In terms of key banking parameters such as capital adequacy ratios, return on equity, NPAs, etc., we are better than world-class banks,” he added. The bank, which has a credit-deposit ratio of 74 per cent, is not facing any mismatch between loans and deposits, he added.
Lending, deposit rates cut
SBI on Thursday decided to reduce the benchmark prime lending rate by 75 basis points to 13 per cent with effect from November 10. The bank also cut the deposit rates by 50 bps across the maturities from 91 days up to 5 years and by 25 bps for deposits with maturities of 5 years and above effective from December 1.
Mr Bhat said the rate cut would boost demand for home loans and lead to a reduction in equated monthly instalments. SBI had launched a 1000-day deposit scheme at an interest rate of 10.5 per cent. According to Mr Bhatt, the bank was able to mobilise on an average Rs 1,000 crore every day.
Credit squeeze may hit agri-lending target
Business Line / Harish Damodaran / New Delhi / Nov 5
The ongoing liquidity squeeze could affect one of the ruling United Progressive Alliance (UPA) Government’s top accomplishments - the significant step-up in institutional credit flow to agriculture.
The first half of the current fiscal has seen scheduled commercial banks (SCB), cooperatives and regional rural banks (RRB) extend credit totalling Rs 95,064.16 crore to the farm sector in the form of fresh short-, medium- and long-term loans.
This is lower than the Rs 101,021.59 crore lent out over the corresponding six months period of 2007-08. At this rate, meeting the targeted credit flow of Rs 2,80,000 crore for the full 2008-09 fiscal seems a tall order, though the Finance Minister, Mr P. Chidambaram, is confident that it would be achieved.
“We are well on the way to achieving the target (of Rs 280,000 crore). The banks have assured me that the target will be achieved”, he told presspersons following a meeting with the chiefs of public sector banks here on Tuesday to review the overall credit situation.
During the UPA Government’s tenure, total flow of institutional credit to agriculture has registered an increase - from Rs 86,981 crore in 2003-04 to Rs 125,309 crore in 2004-05, Rs 180,486 crore in 2005-06, Rs 229,400 crore in 2006-07 and Rs 243,570 crore in 2007-08.
The Government had originally, in June 2004, had targeted doubling the flow of bank credit to the farm sector in the ensuing three years, whereas it actually ended up doing so within two years. The emphasis on expansion of rural credit, in turn, helped boost sales of tractors and fertilisers. Tractors sales alone nearly doubled between 2003-04 and 2007-08.
The current fiscal, however, has so far witnessed a negative growth in farm credit though a Finance Ministry official said that the April-September 2008 numbers are provisional. “Some of the data, especially from private commercial banks, is not fully updated. So, the Rs 95,064 crore figure could be an underestimate”, he told Business Line.
The official further said that the real pick-up in credit takes place in the second half. “The total credit figure includes both direct credit to farmers and also lending to fertiliser and seed dealers, self-help groups, the National Cooperative Development Corporation (NCDC) and other agri-related institutions. All these will get reflected in the coming months and we will somehow meet the Rs 280,000 crore target”, he added.
Moreover, he pointed out that the negative growth in credit this year has been mainly on account of cooperatives and RRBs, whereas lending by SCBs has actually gone up by over Rs 4,000 crore. “The debt waiver programme had mainly affected the cooperatives and RRBs since, unlike commercial banks, they have limited income streams outside of agriculture. But with the first instalment of Rs 25,000 crore under the farm debt waiver scheme being released, of which Rs 15,000 crore would go to the cooperatives and RRBs, they too will have more funds now to lend”, the official noted.
Goldman Sachs Laying Off 3,200 Employees
November 6, 2008 Linda Young - AHN Editor New York, NY
Investment bank Goldman Sachs Group Inc. (GS.N), is sending pink slips to about 3,200 employees worldwide or 10 percent of its workforce.
The layoffs are reportedly an attempt to cut expenses in the face of the global financial crisis that caused Goldman Sachs to convert from the largest U.S. securities firm to a commercial bank holding company supervised by the Federal Reserve last month.
At that time, Goldman Sachs raised an investment of $10 billion from Berkshire Hathaway Inc. (BRKa.N), and it expects a $10 billion infusion from the U.S. Treasury.
New York-based Goldman Sachs Group Inc., is the world's largest investment bank and earlier this year it had expected to add jobs, but that was before it was hit by the impact of the global financial crisis.
Goldman Sachs reportedly employed 32,569 people worldwide as of Aug. 29 and analysts say the company might announce its first quarterly losses in December.
Earlier this year it had layed off 1,500 under performing employees, citing poor job reviews, but it had also said at the time that it expected to hire more people.
BoE slashes interest rates to 3 percent
The Bank of England slashed its benchmark interest rate by 1.5 percentage points on Thursday, a bold cut that far exceeded economists' expectations and reflected fears that Britain is headed for a prolonged, deep recession.
The cut to a 3 percent base rate — the biggest trim in 27 years — took markets by surprise, with analysts expecting a 1 percentage point trim at the outside.
The bank's monetary policy committee said that there "has been a very marked deterioration in the outlook for economic activity at home and abroad."
It added that the threat of inflation, which has prevented it from making big cuts in recent months to spur the economy, had reduced as retail energy and food prices are expected to fall in the coming months.
The cut comes as Britain teeters on the edge of a recession — house prices are falling at rates not seen in the last market crash in the early 1990s recession, manufacturing has posted its longest stretch of decline in almost 30 years and unemployment is expected to rise significantly.
"With recent economic data so poor, the market was already expecting a big move from the MPC but a cut of this size shows we've entered uncharted territory," said Royal London Asset Management economist Ian Kernohan. "Small cuts are not appropriate when the economy is slowing so fast and the MPC was right to be bold."
However, other economists said that huge cut was proof that the British central bank has been too slow to respond to the burgeoning economic crisis over recent months.
"There is a growing feeling that the MPC has misjudged the severity of the recession and is therefore behind the curve," said Charles Stanley chief economist Edward Menashy.
Clem Chambers, CEO of financial website ADVFN said the cut "underlines the incompetence of the Bank of England."
"With over a year to see the crash coming this should have been a gentle process achieved months ago," Chambers said.
David Kern, economic adviser to the British Chambers of Commerce, said that the group supported the overall decision to cut rates.
"But we believe the MPC should move much more steadily and deliberately and avoid too many lurches towards emergency measures," he added.
The cut was the biggest trim to rates since March 1981 when the central bank, then under the control of the government, reduced borrowing costs by two percentage points.
It follows a half a percentage point trim last month when the Bank of England took coordinated action with six other central banks around the world.
Britain's rate had been the highest among the G-7 countries, with the U.S. Federal Reserve's rate far below at 1 percent.
Economists and consumers will now be watching closely to see if the official cut is passed on by mortgage lenders and retail banks.
A reluctance by the banks to do so, because of the tightness in the interbank lending market, has become a key political issue since the government used taxpayers' money last month to bail out several of Britain's major banks.
Prime Minister Gordon Brown on Wednesday called on banks to pass on any cuts
Lloyds TSB said it would pass on the full cut to its variable rate mortgage customers but other lenders were slower to respond, with all of the major groups, including Britain's biggest lender Halifax, saying their rates were under review.
Britain's economy is likely to be the worst performer in the G-7 next year, with the European Commission forecasting a contraction of 1 percent. It also predicts the euro region will grow 0.1 percent, the U.S. will contract 0.5 percent and Japan will shrink 0.4 percent.

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