ECO BREIFS - 19.11.2008

ECONOMIC INTELLIGENCE & CORPORATE PLANNING DEPARTMENT
Head Office, Mangalore
ECONOMIC BRIEFS – 19.11.08
* * * * *

Banks hike NRI deposit rates (BL, FE 19.11.08)
More banks are raising the rates on foreign currency deposits. Federal Bank and South Indian Bank have raised the interest rates for foreign currency and rupee deposits by non-residents. This would be effective from November 16. Corporation Bank has increased the rate of interest on NRE term deposits with effect from November 16. The interest rate on NRE term deposits has been increased to 4.92 per cent (4.17 per cent) for tenure of one year to less than two years, 4.41 per cent (3.66 per cent) for tenure of two years to less than three years, and 4.89 per cent (4.14 per cent) for three years to 10 years.

Public sector banks to face ‘huge’ skills gap post ’09 (BL 19.11.08)
“The skills gap in public sector banks is going to be ‘huge’ post 2009, when a good number of senior officers retire. Nothing has been done yet to address this issue,” the Executive Director of Indian Overseas Bank, Mr G. Narayanan, has said. The bank has recently recruited 1,000 candidates. It is looking to hire some more from B-schools with specialisation in treasury and risk management, investment banking and so on.

ICICI Bank halves loan growth target to 15% (BL, BS 19.11.08)
ICICI Bank Ltd. has halved its target for growth in lending to 15 per cent as global financial-market turmoil spills into Asia's third-largest economy. High borrowing costs and a slowing economy are denting demand for loans in India, the ICICI Chief Executive Officer, Mr K V Kamath, said. "The domestic growth cycle has slowed down and interest rates are high." The benchmark interest rate is at 7.5 per cent. Credit expansion is stalling even after the central bank cut borrowing costs twice in the past month to shield the economy from global recession. ICICI Bank's loan growth slumped to 16 per cent from a peak of 55 per cent in the year that ended March 2006. Lending rates must fall by another 3 percentage points to ignite a rebound in loan demand, said Mr Kamath.

‘RBI likely to take more monetary measures’ (BL 19.11.08)
If the decline in inflation continues, it will bring in stability and lend confidence to the banking system to reduce lending rates, the Managing Director, ICICI Bank and President Confederation of Indian Industry (CII), Mr K.V. Kamath, said. He expects the Reserve Bank of India to take more monetary measures to ease the liquidity situation. Mr Kamath said that private sector banks would like to see enough liquidity before re-pricing credit. He said despite the global slowdown, India was better off than many others around the globe. A growth rate of 7 per cent when the rest of the world is almost in recession is not so bad.

No fresh credit risk cover for vendors of US auto giants (BL 19.11.08)
The Export Credit Guarantee Corporation (ECGC) has frozen issue of fresh credit risk insurance (CRI) cover to Indian component vendors of US auto giants General Motors, Ford Motors and Chrysler. The caution stemmed from fears that the auto companies were expected to announce bankruptcy. Exporters in the past have often resorted to discounting of bills supported by bank guarantees, without ECGC cover for meeting their working capital requirements. This time, banks are increasingly reluctant to discount export bills not backed by ECGC cover.

Textile exporters to US face payment defaults (BL 19.11.08)
Nearly a dozen Indian exporters, mainly of textiles, are facing payment defaults to the tune of Rs 100 crore by US importers who have gone bankrupt. These exporters have now approached Export Credit Guarantee Corporation (ECGC) for insurance claims. Realising the situation, ECGC has stopped giving credit guarantee cover to new exporters who are seeking single buyer cover. However, existing customers will continue to get all types of cover.

Plan panel to identify projects to raise public expenditure (BL 19.11.08)
The Planning Commission is working on identifying existing public work programmes that could be stepped up during the course of the current fiscal, as part of the fiscal measure to increase expenditure to revive activity and demand in the economy, the Plan panel Deputy Chairman, Mr Montek Singh Ahluwalia, said.

Citi, HSBC not to cut jobs in India for now (BL 19.11.08)
Citibank, which announced that it is cutting 52,000 jobs worldwide, is unlikely to cut jobs in India for now. The headcount reductions announced globally will have limited impact in India following the sale of Citigroup Global Services Ltd (formerly e-Serve) to TCS, which is expected to be completed in the current quarter. Once the sale of CGSL has been completed, the staff strength of Citigroup in India will be effectively halved.

Gloom over Citigroup job cuts spreads; Sensex sheds 353 (BL, ET 19.11.08)
The gloom that swept across global markets following Citigroup’s announcement it would axe 50,000 employees took India in its sweep too, sending the benchmark indices plunging four per cent. The Sensex closed below the 9,000-mark at 8,937, falling 353 points. The Nifty closed at 2,683, falling 116 points. FIIs were yet again net sellers, their net sales amounting to Rs 411 crore. Domestic institutions were net buyers for Rs 458 crore, according to the combined data for BSE and NSE reported by the exchanges.

Rupee falls as equities keep declining (BL, ET 19.11.08)
The rupee was down in alignment with equities and depreciated by about 30 paise. It opened at 49.62 and closed at 49.67/68, against the previous close of 49.38/40. In the forward premia market, the 12-month closed higher at 1.84 (1.56 per cent), as importers bought forwards

Free markets: Integrity a necessary condition (BL 19.11.08)
Markets are self-correcting (and, in the modern belief, self-regulating) and will, left to themselves, reach an ‘equilibrium’. Economic theory takes individuals as the unit of decision-making and presumes they act in their best self interest. A wrong step, a mistake, has potentially damaging consequences, threatening personal financial well-being. But a trader working in a large financial institution exhibits a very different behavioural pattern, thanks to a distorted reward system in which he earns huge bonuses if his trades are right and only loses his job where he wipes out the balance. Economists forgot to add integrity to the list of assumptions for the well-being and functioning of free market economies.

Steep rate cuts likely next week (BS 19.11.08)
The Reserve Bank of India (RBI) is expected to announce another round of rate cuts in a week or so in an effort to ease liquidity and reduce borrowing costs to counter slowing economic growth. A meeting chaired by Prime Minister Manmohan Singh at his residence and attended by RBI Governor D Subbarao and Finance Minister P Chidambaram, among others, discussed a 50 to 100 basis point cut in the cash reserve ratio (CRR), the repo rate, the reverse repo rate and the statutory liquidity ratio (SLR). The rate cuts are expected to infuse Rs 80,000 crore into the banking system. RBI is also likely to create a special repo window to allow banks to borrow up to 100 basis points of SLR - the percentage of deposits invested in government securities - to make available Rs 40,000 crore for infrastructure like national highway projects.

RBI may extend period for banks to classify aviation sector assets (BS 19.11.08)
After mutual funds (MFs) and non-banking finance companies (NBFCs), now it is probably the turn of the aviation industry to get succour from the Reserve Bank of India (RBI). With banks apprehending large-scale defaults in the aviation sector, RBI is examining data from all lenders regarding their exposure to it. The study is aimed at providing some relaxation to banks in lending to the sector without worrying about defaults. Sources said that banks with considerable exposure to the aviation sector have met RBI officials and apprised them of the problem. It is observed that public sector banks are mostly exposed to the aviation sector, besides one or two major private sector lenders. The airline industry is reportedly facing high debt burden, which could turn bad as a consequence of a slowdown in air traffic and high oil prices. One of the options under consideration of the regulator is to extend the number of days for the banks to classify an asset as default. The regulator may ask banks to follow “account-wise classification” and treat aviation companies falling under a certain corporate group as separate entities. So, if the aviation company defaults, it won’t affect bank lending to other companies in the group.

NHB to get more to refinance smaller loans (ET 19.11.08)
In yet another move to provide more funds to cash-strapped housing finance companies (HFCs), the RBI is looking at augmenting the resources of the National Housing Bank (NHB). The NHB can use the funds to extend greater refinance to the HFCs, particularly in respect of low value housing projects financed by them. The apex bank is examining the option of tapping the market stabilisation fund as one of the sources for extending the required funds to NHB. With the stock market going down and real estate shares, in particular, taking a beating, funds available for housing has been drying up. Builders claim that while earlier HFCs would fund up to 90% of the total cost of a housing project, now they are not willing to finance more than two-third of the total cost.

Citi bad loans jump 74% in India, Mexico & Brazil (ET 19.11.08)
Citi, it seems, is losing sleep in India, Mexico and Brazil. The three countries have together accounted for a 74% rise in the bank’s bad loans in the third quarter ended September 30. For India, the net credit loss ratio in consumer loans and credit cards was 5.78%, according to a presentation by Citi CEO Vikram Pandit in New York on Monday. The Indian delinquency figure looks better when compared with the numbers for Brazil, Japan and Columbia, where the net credit loss ratios touched 14.21%, 12.2% and 7.35%, respectively.

RBI staff to go on two-day mass strike (FE 19.11.08)
All sections of the Reserve Bank of India’s staff will take mass casual leave on December 1 and 2 to protest against the “huge reduction in pension of RBI retirees” by the management of the apex bank. A statement issued by the United Forum of Reserve Bank Officers and Employees said that the RBI management should immediately restore the superannuation benefits to the retired employees.

IndusInd to open 30 branches (FE 19.11.08)
IndusInd Bank announced that it will be opening 30 new branches, 50 new offsite ATMs and 6 mobile ATMs in the next few months as per the authorisations recently received by them, from Reserve Bank of India.

Axis Bank’s remittance service (FE 19.11.08)
Axis Bank has tied up with Times of Money to launch AxisRemit, the bank’s own branded online remittance service. With AxisRemit, the bank will provide high-speed online money transfer services for NRIs in USA, UK, Euro Zone (Euro Currency Area), Canada, Australia, Singapore, Hong Kong and UAE.

Global banks’ profits tumble; jobs slashed, bonuses cut (FE 19.11.08)
Major world banks showed the unrelenting strain of economic crisis on Tuesday, with Britain's Barclays offering funds to quell shareholder anger and profits in Japan's largest bank tumbling 64 %. Japan's economy minister said recession in the world's second-biggest economy could last longer than feared and falling UK inflation, and the prospect of the same in the United States, paved the way for further interest rate cuts. In Britain, already officially in recession, inflation dropped to 4.5% in October from 5.2% the previous month. The larger than expected fall heightened expectations of a substantial cut in the UK's 3.0% interest rate next month to stimulate the economy and temper growing fears of deflation, following a dramatic 1.5 percentage point cut this month.

US govt buys $159 bn worth of shares in American banks (FE 19.11.08)
The US government, under its $ 700-billion bailout plan, has purchased shares in 30 American banks for a total of over $ 150 billion, half of which have gone into Citigroup, JP Morgan Chase and Wells Fargo. According to the latest transaction report of the Capital Purchase Program, the US treasury department has purchased preferred stocks worth $ 25 billion each in Citigroup, JP Morgan Chase and Wells Fargo – three of the biggest banks hit by the worsening financial turmoil. The government spent $ 158.56 billion for purchasing shares in the 30 banks, which included Bank of America getting $ 15 billion, while Goldman Sachs, Morgan Stanley and Merrill Lynch got $ 10 billion each.

Major rates & parameters as on 18.11.08 (BL, RBI)
Rupee/$
Call Rates
Auction under RBI’s LAF
Govt. Securities (Yield)


Repo
Reverse Repo
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
49.67/68
6.50-6.75%
Rs 2,000 Cr
Rs 2,500 Cr
7.45%
7.95%
Rs 2,700 Cr
Rs13,600 Cr

****
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express