ECO BREIFS - 22.11.2008

ECONOMIC BRIEFS – 22.11.08
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Corp Bank wins SCOPE award (BL 22.11.08)
Corporation Bank has won the gold trophy of SCOPE meritorious award for best managed bank. The award is instituted by SCOPE (Standing Conference of Public Enterprises) – the apex body of the Government owned enterprises. Central public enterprises, State Government enterprises and nationalized banks are members of SCOPE. Mr J M Garg, CMD of the bank, received the award from the Union Heavy Industries and Public Enterprises Minister, Mr Sontosh Mohan Dev, in New Delhi on Friday.

SBI Adalats for loan recovery (BL 22.11.08)
State Bank of India, India’s biggest commercial bank, has hit the road, literally, to recover stressed retail loans not exceeding Rs 5 lakh. SBI is banking on “Bank Adalats” to recover retail loans – personal, auto, and education – that have become non-performing as on March 31, 2007. SBI is offering a win-win proposition to small borrowers, whereby they can settle their dues by sitting across the table instead of allowing litigations to drag on for years. The bank’s effort to recover stressed small loans comes in the wake of an accretion of Rs 1,144 crore in gross non-performing loans, Q2FY09 over Q1FY09. As on September 30, 2008, SBI had gross NPLs aggregating Rs 12,552 crore as against Rs 11,194 crore as on September 30, 2007. Retail loans account for 20 per cent of the bank’s total advances of Rs 4,99,347 crore.

'More scope for banks to cut rates' (BL 22.11.08)
With inflation falling and liquidity abundant, factors are conducive for banks to further reduce rates on deposits and in turn those onlending, said M V Nair, CMD, Union Bank of India. "If banks have surplus funds on a sustained basis, they will deploy in reverse repo at 6 per cent. Then does it make economic sense to mobilize deposit at 10 per cent?" Mr Nair said.

SME lending: ICICI Bank ‘cautious’ (BL 22.11.08)
ICICI Bank will be ‘cautious’ in its lending to small and medium enterprises in view of the likely impact of economic slowdown on their business growth. “We are seeing delays in global receivables and shrinking orders in some SMEs. We will be cautious in lending,” Mr Vijay Chandok, Head of SME Business, ICICI Bank, said. The bank, which has over three per cent of its total balance sheet size in the SME portfolio at present, would, however, focus on strengthening the existing relationship with over one million SME clients.

Banks prefer G-Secs parking with RBI to corporate lending (BL 22.11.08)
Banks have been quite lukewarm – lending just about Rs 27,000 crore during the last month. More pertinently, banks lent more to the Government! During the same period, banks have invested about Rs 90,000 crore in Government securities. The investment deposit ratio for the banking system is currently at 30.48 per cent compared to 28.27 per cent a month ago. And during this period the RBI has, in effect, reduced the statutory liquidity ratio to 24 per cent. The simple explanation for this behaviour is that banks were betting on further cuts in key policy rates and hoped to build up their treasury portfolio before that – so as to rake in some gains when rates were actually cut.

HDFC opens two new offices (BL 22.11.08)
Housing finance company HDFC Ltd today inaugurated two new offices at Sahakaranagar and Marathahalli. The new offices expand HDFC's network to 12 in Karnataka. Through the new offices, customers can avail themselves of housing loan services for buying their home located anywhere in India.

Credit Info cos can have 49% FDI (BL 22.11.08)
Foreign companies can invest up to 49 per cent in Credit Information Bureau under the Foreign Direct Investment (FDI) route, provided they fulfil certain conditions, said the Reserve Bank of India. In a notice, the RBI said the investor company should have an established track record of running a credit bureau in a well-regulated environment, no shareholder in the company should have more than 10 per cent voting rights in that company and it should preferably be a listed company on a recognised stock exchange.

Market yet to evolve for high-end health covers (BL 22.11.08)
With rising health care costs, are there takers for high-value health insurance plans? Life insurance players, such as ICICI Prudential and Tata AIG, offer a cover of up to Rs 20 lakh for a 20-year period. In contrast, the health insurance products offered by Indian non-life insurers are of lower sum assured and are typically for a much shorter period, usually one year. For example, the highest regular health cover offered by general insurer Cholamandalam MS is Rs 10 lakh. On the other hand, public sector companies cap it at Rs 5 lakh. People opting for health insurance largely go for a cover of less than Rs 3 lakh, said Mr Gopala Rathnam, Managing Director, Cholamandalam MS.

Shortcovering boosts Sensex and Nifty (BL, BS, FE 22.11.08)
The Sensex gained by 464 points or five per cent in the last hour of trading after a volatile session on Friday, as investors scrambled to cover their short positions, in expectation that the central bank might ease interest rates in the coming weeks. “With the inflation rate falling to 8.9 per cent, the markets felt the RBI could act very soon now to peg down rates,” said a broker. The market gain was despite FIIs recording net sale of equities for Rs 700 crore in the day. Domestic institutions were net buyers for only Rs 46 crore. The Sensex closed at 8,915 while the Nifty closed at 2,693, both gaining over 5 per cent.

Forex reserves fall by over $5 b (BL, BS, ET, FE 22.11.08)
The foreign currency reserves declined by $5.015 billion to touch $246.349 billion for the week ended November 14, 2008. This week the rupee crossed the psychologically important level of 50.60 against the dollar and ended the week at 50.02, despite intervention by the central bank.

'No Citi plan to sell Smith Barney brokerage' (BL, BS 22.11.08)
Citigroup Inc's board is to discuss the bank's options after its Chief Executive Officer, Mr Vikram Pandit's efforts to rebuild investor confidence failed to halt the stock's dscent to a 15-year low. Citigroup, once the biggest US bank, with a stock market value of $274 billion at the end of 2006, dropped on Thursday to about $26 billion, slipping to No.5 after Minneapolis-based US Ban-corp. Mr Pandit told employees Friday morning he has no plans to sell or spin off its Smith Barney brokerage.

'ABN, Fortis merger in Netherlands scrapped' (BL 22.11.08)
The banking merger between the Dutch retail operations of Forties and ABN Amro will no longer take place, the Dutch Finance Ministry has decided.

Banks scale up investments in MF (BS 22.11.08)
After slashing investments in mutual funds in September amid liquidity crunch, banks have begun to increase their exposure to MFs by parking surplus funds in their schemes, according to Reserve Bank of India data. Banks investments in instruments floated by mutual funds nosedived to Rs 9,124 crore at end of September 2008 from Rs 22,366 crore at end of August 29, 2008. These investments rose to Rs 13,630 crore on October 24 and went up further to Rs 16,659 crore as on November 07, 2008. Treasury manager with small private bank said during September 2008 banks were facing pressure on resources. They liquidated investments in the debt oriented schemes of mutual funds to free up resources for banking operations. Also there were concerns over safety of funds parked in liquid scheme as many MFs were facing asset liability mismatch and risk of defaults.

Indiabulls Financial wants to be a bank (BS 22.11.08)
Indiabulls Financial Services has said it may convert to a bank when rules permit, seeking to emulate role models HDFC Bank and Axis Bank. "Over a period of time, a bank as a franchise is exciting since one can offer a lot more services like cash management, forex and letters of credit,'' Gagan Banga, chief executive officer of Indiabulls Financial, said. "HDFC Bank and Axis have shown conservative and consistent growth and we like to run our business in the same style,'' he said. The Reserve Bank of India has said it will review the rules for opening up the banking sector in April, which may lead to more banking licences and a wider holding for foreign lenders.

Citi India may slash over 1,000 jobs: Report (BS, ET 22.11.08)
Days after Citi’s global CEO Vikram Pandit said the group planned to reduce head-count by 52,000, there are reports that the financial major will lay off over 1,000 employees in India. The financial services company has around 10,000 employees in India. The Wall Street Journal today reported that the majority job cuts in India will come from CitiFinancial India, the group’s non-banking finance company.

PSU banks mull interest rate cap on bulk deposits (ET 22.11.08)
Chief executives of a few public sector banks have come together to persuade their peers from other state-owned banks to cap interest rates on bulk deposits-wholesale deposits parked by companies where rates are usually negotiated. Heads of several PSU banks are under pressure to lower rates, which, however, is unlikely to happen without high-street banks making the first move. Moreover, it is unclear whether IBA will succeed in convincing banks to lower rates since many are faced with huge loan demands from big Indian corporates. The talks between IBA and banks aim to cap interest rates at 8% for six months, 9% for nine months and 9.5% for one year. There is stiff resistance from bankers since these rates are below the card rate or the rate offered to retail depositors. Over the past two months, when the credit market was facing a severe crunch, banks were bidding in the range of 12-13% for one-year bulk deposits-way more than the card rate. Several banks are currently offering a peak rate of 10.5% to retail depositors. While bankers agree it is in their interest to refrain from bidding wars for bulk deposits, most said it would be hard to regulate rates. “PSU, private and foreign banks must decide in unison. If PSU banks opt out of the race, private and foreign banks will gain an edge while bidding,” said the chairman of a bank. IBA, however, is trying to bring in some discipline.

RBI debt management role to go to autonomous body (ET 22.11.08)
The government has set out a detailed plan for taking away RBI’s responsibility to manage the cash and borrowings of central and state governments and vesting it with a newly created autonomous agency - National Treasury Management Agency. The move is aimed at removing the conflicts of interests involved in the central bank donning multiple roles as the government’s debt manager and as the regulator of banks, which empowers it to force banks to buy government securities. Besides, having a focused entity which represents the risk profile of the centre and states would help in reducing the cost of borrowing. Having a pool of captive buyers undermines the growth of a deep, and liquid market in government securities, and consequently the development of a vibrant corporate bond market.

Govt to monitor bank lending; large package next week to boost exports (FE 22.11.08)
The government has injected massive liquidity into the banking system in recent weeks, but credit delivery to business is yet to pick up. “Incentivising lending is the slogan that we are going to push now in the financial sector. We will try to see that maximum credit is made available,” commerce secretary GK Pillai said. He said. “Instructions will be given to all the bank chiefs to monitor the credit delivery of all their branches and make a comparative assessment on their current lending vis-à-vis the previous years. If there is a slowdown in the lending made, each branch manager will have to give a detailed account stating the reasons for the same. They will also find out areas where they can raise credit limits. They will also have to give statements on how many requests they have received for raising credit limits and what they did with each one of them,” the commerce secretary said.

PIS share in Andhra Bank dips (FE 22.11.08)
The Reserve Bank of India notified that the aggregate share holding in Andhra Bank by foreign institutional investors (FIIs)/Non-Resident Indians (NRIs)/Persons of Indian Origin (PIOs) under portfolio investment scheme (PIS) have gone below the trigger limit of 18% of their paid-up capital. It will therefore be in order to purchase equity shares of the Andhra Bank on behalf of FIIs/NRIs/PIOs, who have obtained permission to invest under the PIS.

RBI staff to go on two-day mass casual leave (FE 22.11.08)
The staffers of the Reserve Bank of India (RBI) will go on a mass casual leave for two days from December 1, 2008, to protest the huge cut in their pension. About 26,000 RBI employees are likely to take part in the mass casual leave. Prior to it, the RBI employees had gone on a mass casual leave on October 21, 2008.

DCB hikes deposit rate (FE 22.11.08)
Development Credit Bank (DCB) increased interest rates on fixed deposit to 11.25% and 11.75% in the case of senior citizens for fixed deposit of 1 year, said Praveen Kutty, EVP head of consumer banking, DCB.

Markets factor in RBI rate cut; PM talks 8% growth (FE 22.11.08)
The financial markets are clearly holding their breath in expectation of a rate cut by the Reserve bank of India (RBI) soon. Interest-rate swaps sank to their lowest rate since 2004, dropping 84 basis points this week by Friday. Interest-rate swaps compare a fixed rate of interest to a future stream of payments using a floating rate. Swap rates are seen as a good indicator of how rates will move and their recent fall indicates an anticipation of monetary policy easing by the central bank. Singh said his government is committed to using all the resources at its disposal to ensure the economy’s growth does not flag. “You have my assurance that despite (the) adverse international environment, we have the capacity and ability to sustain a growth rate of about 8%,’’ the PM said.

Central bankers wary of deflation (FE 22.11.08)
The Bank of Japan left its key interest rate at just 0.3 % and said there would be a long road to recovery. But the United States, Britain and Europe are expected to ease their rates further next month as the worst financial crisis in 80 years hastens recession across much of the globe. The Fed is expected to cut rates to 0.5% next month. Japan’s decade-long battle with steadily falling prices and economic stagnation looms large in officials’ memories. Reversing recession is doubly difficult if prices fall broadly and constantly as there is no incentive to spend now because consumers and firms know things can only get cheaper. With banks already reluctant to lend - after a US housing market collapse caused many to sustain huge losses and some to fail - deflation would represent a perfect economic storm. European Central Bank Governing Council member Yves Mersch said that euro zone prices could fall next year although he did not expect broad-based deflation.

Major rates & parameters as on 21.11.08 (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
50.03/05
6.25-6.50%
Rs 2,800 Cr
Rs 4,640 Cr
7.19%
-
Rs 4,000 Cr
Rs 11,375 Cr

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