Monday, November 24, 2008

ECO BREIFS - 23 & 24.11.2008

Corporation Bank looking to increase presence (BL 24.11.08)
Making Corporation Bank a pan-India bank by increasing its presence in the States where there is poor representation and taking the financial inclusion programme to the urban poor are on the agenda of Mr J.M. Garg, Chairman and Managing Director of the bank. Mr Garg told that the bank is planning to expand its network where its representation is low. “We have poor representation in Madhya Pradesh, Rajasthan, West Bengal, Bihar, Punjab, Haryana and Himachal Pradesh. We will give more focus on these areas,” he said. The bank has around 65 licences. They will be used this year, he said. The target is to take the number of branches from about 1,000 today to 1,400, within a gap of two to three years. About 150 probationary officers have been recruited. They will be asked to join by December. Mr Garg said he wants to extend financial inclusion to the urban poor also. The branchless banking model of financial inclusion, will be expanded further. The bank, which has around 200 branchless banking units, will increase the number to around 400 units.

SBI is official banker, IOC partner for Volvo Race (BL 24.11.08)
As Kochi Port is all set to receive the world’s fastest racing yachts, State Bank of India and Indian Oil Corporation have joined the Volvo Ocean Race India stopover team as official banker and partner respectively. The race yachts, which are traversing through a turbulent sea route from Cape Town, are 2,700 miles away from Kochi now. The Port Chairman, Mr N. Ramachandran, said that the race yachts are expected to reach Kochi by December 3 and a gala welcome ceremony will be held in the evening on that day. Mr Vayalar Ravi, Union Minister for Parliamentary Affairs, will be the Chief Guest and Mr Kodiyeri Balakrishnan, the State Minister for Home Affairs and Tourism, will be the guest of honour at the arrival ceremony.

SBH, Sundaram BNP ink pact (BL 24.11.08)
State Bank of Hyderabad has signed an agreement with Sundaram BNP Paribas Asset Management Company to sell the latter’s mutual fund products. The SBH branches already sell products of SBI Mutual Fund, UTI Mutual Fund and Tata Mutual Fund. Mr Joseph Philip, General Manager of SBH, and Mr Sunil Subramanyam, Executive Director (Sales and Marketing) of Sundaram BNP Paribas Asset Management Company, signed the agreement.

TMB launches e-banking service (BL 24.11.08)
Tuticorin-based Tamilnad Mercantile Bank (TMB) has launched its Internet banking service through ‘TMB E-connect’. According to Mr G. Narayana Moorthy, Managing Director and CEO of the bank, the facility provides services 24x7. There would be no extra charge for availing of the facility. Customers can secure all details from their homes, except visiting the branch for issue of demand drafts and opening of new accounts.

Reliance Money launches e-commerce Web portal (BL 24.11.08)
Reliance Money, part of the Reliance Anil Dhirubhai Ambani Group, has launched a new e-commerce Web portal for a range of financial products. Christened reliancemoneymall.com, the portal will enable customers to purchase financial products such as insurance, mutual funds and bullion and non-financial products such as apparel, accessories, books/ magazines, music CDs and DVDs, home appliances, gifts, flowers etc, according to Mr Sudip Bandyopadhyay, Director and CEO, Reliance Money. The portal will enable Reliance Money to strengthen its distribution network currently spread across over 10,000 physical outlets and more than 20,000 touch points by leveraging the online medium.

Smartcard solutions provider FINO on growth path (BL 24.11.08)
Mumbai-based, biometric-enabled smartcard solutions provider FINO (Financial Information Network and Operations Ltd) is on a rapid growth journey. “Market sentiments may be down, but we are growing exponentially,” its Chief Executive Mr Manish Khera told. While admitting that the Government was acting as a motivator in bringing convergence in the financial inclusion space, he said, “Our reach is phenomenal. About 10 banks, 20 micro financial institutions, three insurance companies and four Government entities have signed up with us. Our current enrolment (of unbanked customers) has crossed 22 lakhs and we are confident of surpassing our current year’s target of 40 lakhs, considering the pace at which these numbers seem to grow.” “We have very recently inked an agreement with State Bank of India and have started acquiring customers for them,” he said.

Microfinance institutions benefit from slowdown (BL 24.11.08)
While most corporates are reeling under the adverse impact of the global economic slowdown and domestic liquidity crunch, microfinance institutions (MFIs) seem to have a different story to tell. Global private equity players and domestic banks are now chasing MFIs to take a stake or to extend term loans if the industry trends are any indication to go by. “There is a realisation that MFIs are a better place to invest in, in the context of the economic slowdown in the US. Many venture capitalists are keen on investing in MFIs in India now,” Mr Udaia Kumar, Chairman and Managing Director, Share Microfin Ltd (SML), told. SML is in the process of finalising an equity investment of Rs 250 crore from a private equity player based out of India and is likely to announce the closure of the deal shortly. A large clientele of MFIs in the country is now being seen as a section of society which is largely insulated from the ripples of economic slowdown. “The small ticket loans, which are generally in the range of Rs 4,000 to Rs 12,000, have become a positive aspect of MFIs now. There is little scope for defaults as these people are not too directly linked with the crisis. Further, the returns on equity are between 27 per cent and 35 per cent which is attracting the private equity investors,” Mr Kumar said. The liquidity needs of big MFIs are also met by “aggressive” lending by banks.

The silence of the lambs (BL 24.11.08)
Financial sector experts are wondering if there been a change in the Reserve Bank’s communications policy. This is because its top officials – the Governor and the Deputy Governors – are now making fewer speeches. In 2008, so far they have made only 27 speeches, compared with 48 in 2007. Under Dr Y.V. Reddy’s stewardship, such speeches had emerged as a major channel of communication, especially with the markets.

Bonds rally on receding inflation, rise in bank deposits (BL 24.11.08)
Bonds rallied last week, propelled by receding inflation and investor flight to public sector bank deposits. But traders said that the rally was also driven by expectations of further policy interventions from the Reserve Bank of India to ensure a stable liquidity in the financial market. Last week, the RBI offered for repurchase the 7.55 per cent 2010 and the 5.87 per cent 2010 MSS securities. The offer resulted in at least 90 bids being accepted from banks, resulting in infusing about Rs 9,000 crore of liquidity. Bankers said that a large number of bids at the auction were from private sector and foreign banks. These banks have been strapped for liquidity for some time now, borrowing in call markets at high rates. But the repurchase securities were priced at yield to maturities of 6.71 per cent and 6.61 per cent respectively, implying a downward bias. The infusion notwithstanding, high credit off-take provided little respite from a tightening liquidity situation. The recourse to the repurchase window, the RBI’s purchase of securities, amounted to Rs 6,800 crore. Recourse to the reverse repurchase window was Rs 16,015 crore, mostly from successful bidders at the MSS auctions. Credit is currently expanding at about 30 per cent on a year-on-year basis, the highest level since 2006. Besides, the credit-deposit ratio remained high. Incremental CD ratio this year so far was 85 per cent. Coupled with oil demand, foreign institutional investors (FIIs) also remained massive sellers during the week selling about $602 million of equities. As a result, the rupee-dollar exchange rate breached the Rs 50 mark. However, exporters stepped in to lock into the current exchange rate, hedging up 12 months. However, domestic banks increased their investments in government securities. The preference had its impact at the weekly Treasury bill auctions. The cut-off yield on the 91-day T-bill retreated to 7.31 per cent, down from the previous week’s 7.35 per cent. But the bias favoured long-term securities, evident from the sharp drop in the 364-day T-bill yield to 7.09 per cent and a weighted yield of 7.06 per cent. This trend benefited the Rs 9,000 crore Government borrowings during the week, through reissue of the 7.56 per cent 2014 and the 7.94 per cent 2021 securities. The cut-off yields on these securities were 7.16 per cent and 7.42 per cent respectively. The bid-to-cover ratios for these securities were 7.11 and 7.39, clearly indicating that the bias in favour of long-dated securities, prompting a wry trader comment, “Shorts are out, longs are in.” The ten-year YTM reflecting this sentiment moved down to 7.24 per cent on a weighted average basis, down 38 basis points from the previous week’s level of 7.52 per cent.

Pune coop bank in Rs 436-cr scam (BS 24.11.08)
The Pune police today arrested 15 directors of the Shree Suvarna Sahakari Bank for their alleged involvement in a Rs 436.74-crore loan scam. Bank chairman and former president of the Maharashtra Cricket Association Dnyaneshwar Agashe, his son Ashutosh, wife Rekha and 12 others on the board of directors were taken into custody in the morning. The complaint filed by the government auditor clearly suggests loan defaults worth Rs 436.74 crore are by firms that are mostly owned by the bank’s directors.

Religare may rope in new partner for mutual fund (BS 24.11.08)
After parting ways with Dutch asset management firm Aegon, Religare Enterprises is considering proposals for a new joint venture partner for its mutual fund business. Last Thursday, Religare announced it was parting ways with Aegon in the AMC business, without explaining the reasons. Sources said the complete transition of Lotus India Mutual Fund’s acquisition, which was announced earlier this month, and the Aegon split may take about four months. Once the transition is complete, Religare may finalise a fresh tie-up. Aegon will take over Religare’s stake in the AMC, and acquire the mutual fund licence of Religare Aegon AMC in order to set up its separate funds business in India. Religare will run its AMC through Lotus India Mutual Fund’s licence.

NHB raises refinance rates to 12% (BS 24.11.08)
The National Housing Bank (NHB) has increased the refinance rate to 12 per cent from 9 per cent earlier. The move, initiated last month, will make it tougher for housing finance companies (HFCs), which are struggling to raise funds. “The cost of funds has increased due to the market conditions. Things have become difficult from September. The refinance rate has risen by 100-150 basis points on an average across different maturities,” NHB Chairman & Managing Director S Sridhar said.

BIFR to clear PPL package in December (BS 24.11.08)
The Board for Industrial and Financial Reconstruction ( BIFR) is all set to clear the revival package of Paradeep Phosphate Limited ( PPL) in the first week of December 2008. The operating agency State Bank of India ( SBI) has finalised the revival work and the notice period for clearance ends on November 30, 2008. The revival package may include proposals for restructuring the current equity from Rs 575 crore to Rs 715 crore with the fresh infusion of capital of Rs 140 crore by the promoters.

Ujjivan raises Rs 94 cr in 4th round funding (BS 24.11.08)
Ujjivan Financial Services, the Bangalore-based microfinance institution focusing on the urban and semi-urban poor, has completed the fourth round of equity infusion by raising Rs 94 crore. Originally planned for Rs 75 crore, the equity round was oversubscribed. This will increase Ujjivan’s paid up capital and reserves to over Rs 108 crore. Ujjivan will be the fourth highest capitalised microfinance institution in India.

Citi board to mull alliances, asset sale (BS 24.11.08)
Citigroup Inc Chief Executive Officer Vikram Pandit told employees he doesn’t plan to break up the company, aiming to reassure workers as the stock resumed a skid that has erased more than half its value in three days. Citigroup, once the biggest US bank, with a stock market value of $274 billion at the end of 2006, dropped yesterday to about $26 billion, slipping to number 5 after Minneapolis-based US Bancorp. A plan Pandit announced this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal did not assuage shareholders’ concern that bad loans and securities writedowns may extend a yearlong run of net losses totalling $20 billion.

Subbarao to meet bank CEOs (ET 24.11.08)
Reserve Bank of India governor D Subbarao will meet chiefs of a few large commercial banks next week to assess the liquidity condition in the financial markets. The meeting closely follows the easing of key policy rates to leave more money in the hands of lenders. The meeting with the RBI governor would be held in Mumbai on November 28. In a communiqué to the CEOs, the RBI has said the meeting has been convened to discuss issues related to “support to small and medium enterprises (SME), support to exporters and the liquidity position in the system.” Although, expectations of another rate cut by the central bank are high given the easing inflation, some bankers reckon that considering the ample liquidity in the system now, RBI can wait for a while before further reducing the cash reserve ratio (CRR). Thanks to the surplus liquidity, most banks have also decided to withdraw, from the beginning of next month, the special deposit schemes launched earlier. These deposits offered an interest rate of 10.5%.

Govt readies Rs 50k-cr war chest (ET 24.11.08)
The government is planning to set up a special dedicated fund to provide loans to infrastructure projects - roads, airports, power plants and ports - being developed by private companies as well as by government-private joint ventures. The proposed fund is expected to have a corpus of around Rs 50,000 crore. The idea is to ensure that large and crucial infrastructure projects are not held up due to want of funds. The proposed fund may be operated through either of the two infrastructure funding agencies - IDFC or the India Infrastructure Finance Company (IIFCL).

We’ll improve visibility, build on our vast network (ET 24.11.08)
In the past three-and-half years, United Bank of India has more than doubled its business from a mere Rs 36,800 crore as of March 2005 to around 75,000 crore now. Yet, the Kolkata-based bank could gain just one slot as of March 2008 in terms of business ranking to 18th among 21 public sector banks, during this period. United Bank chairman and managing director Satish Chander Gupta thinks the bank needs to catch up a bit in growth parameters.

Commercial paper’s back after Oct break (ET 24.11.08)
With more liquidity released into the system on account of lower cash reserves (CRR), banks’ treasury desks have become more active and investments have come into focus again. Besides buying government bonds, banks, for the first time, after the liquidity crunch in October, have invested over Rs 7,000 crore in commercial papers (CPs), mutual funds (MFs), bonds and stocks. Ever since the central bank has adopted an accommodative stance by reducing CRR in early-October, non-statutory liquidity ratio investments, which are generally guided by commercial consideration, have risen by over Rs 7,000 crore, from Rs 91,120 crore as on October 10 to Rs 98,170 crore a fortnight back. Since the beginning of 2008-09 until mid-July, banks were actually offloading CPs, corporate bonds, MF schemes and stocks to generate liquidity. Investments rose sharply only in the latest two fortnights, particularly in CPs and MF schemes. While they picked up CPs worth Rs 6,034 crore, their MF investments rose by Rs 7,535 crore in the latest fortnights. Though there is no clear cut explanation for this trend, a section of the market says that banks have promised to pick up CPs from cash-starved MFs in order to provide them an additional window of liquidity support.

GE Money to halve branch network as retail lending slows (ET 24.11.08)
GE Monety India, the consumer finance company of General Electric (GE), has decided to shut down close to 50% of around 170 branches here in the next few months. The firm is into financial services business with a loan portfolio of around Rs 5,000 crore, consisting of residential mortgages and home, personal and durable loans. The move to cut the number of branches comes in the wake of the economic slowdown, which has particularly hit retail lending business in the country. GE was earlier reportedly in talks with several finance companies in India and abroad for divesting a majority stake in GE Money. But the negotiations did not fructify into a transaction and thereafter, GE merged GE Money with GE Commercial Finance as part of an internal restructuring exercise.

Citi India staff face downsizing; severance offers made (BL 23.11.08)
Some of Citi India’s employees have been sounded out on severance; this comes close on the heels of the parent bank recently announcing it would cut 52,000 jobs in the US over the next year on the back of mounting loan losses. The bank’s Indian operations - with a staff strength of around 11,000 - would be downsizing too, said insiders. Offers of a severance package have been made not only to staff from the bank, but also to employees in Citi’s capital markets arm and Citifinancial, the group’s non-banking subsidiary in India. In the financial year ended March 31, 2008, Citibank India reported a 100 per cent jump in its net profit to Rs 1,804 crore, against Rs 900 crore in the previous year.

Federal Bank to hire 3,000 in 2-3 years (BL 23.11.08)
“We are looking to recruit 1,000 people every year for the next two to three years. This year we have already recruited 700 and 100 more will soon be joining us,” Mr M. Venugopalan, Managing Director & CEO, told. The bank, which is the fourth largest private bank by networth, aims to expand its network to 1,000 branches with a business of Rs 1 lakh crore by 2011. As of now, Federal Bank has a workforce of 7,300 people. “There is enough scope for us to grow. We have just over 600 branches now. This year we will add little over 70 branches. He also said the bank has no plans to raise more capital for the next two years and that the bank’s capital adequacy ratio stood at 20 per cent.

Smart domestic investors see value in falling market: Bhave (BL 23.11.08)
If you think that Indian investors don’t have money or are running away from the market (capital market), think again”, said the SEBI Chairman, Mr C.B. Bhave. Between September 1 and November 14, FIIs net sold Rs 22,000-crore worth of stocks, followed by proprietary trades of domestic brokers who net sold to the tune of Rs 700 crore. On the other hand, in the same period, mutual funds net bought Rs 1,000-crore value of stocks, domestic institutions net bought Rs 16,000 crore and domestic retail and high net worth investors cumulatively net bought stocks to the tune of about Rs 5,600 crore.

India-specific hedge funds fare the worst (BL 23.11.08)
It is no secret that the stock market decline in October was spurred by hedge funds selling to meet redemption pressures. Despite the mayhem that they caused, hedge funds in general have braved the storm pretty well and have outperformed the equity indices by a wide margin. Unfortunately, the same cannot be said of India-specific Hedge Funds (IHFs). These funds are at the bottom of the hedge fund performance table. Unlike mutual funds, which seek to deliver returns that are better than a specific index or benchmark, hedge funds seek absolute returns irrespective of how the markets behave. According to a report complied by Eurekahedge, a leading global hedge fund researcher, while the year-to-date losses of hedge funds across regions and strategies is only 12 per cent, India-specific funds have grossly underperformed, with a 53 per cent loss. The performance of India-specific hedge funds compares poorly with other hedge funds in the Asian region too whose returns range between 13 and 25 per cent. The weakness of the Indian currency could be a key reason behind the dismal returns of IHFs this year. The rupee has depreciated 27 per cent against the dollar this year, widening the losses suffered.

Pension fund managers shun market (BL 23.11.08)
The fund managers of the New Pension Scheme for government employees appear to be prudent as they invested only less than one per cent of their total corpus in the risky equity market, against up to five per cent allowed. The fund managers – SBI, LIC and UTI – together invested a small sum of Rs 5.63 crore in equities so far out of total Rs 1,602 crore under their management. The major chunk of the money has been invested in the more secure government securities, PSU bonds and other approved securities. The funds had been allotted to them on April 1, 2008 under a competitive bidding process based on the fees quoted by them. SBI has the largest share of Rs 842 crore followed by UTI with Rs 678 crore and LIC Rs 82 crore. The three fund managers had been appointed by the pension regulator to manage the pension funds of the Central and State Government employees joined the service from January 1, 2004. They are expected to report the funds’ performance to the New Pension Scheme (NPS) Trust.

Call for more credit to micro, small units (BL 23.11.08)
The micro, small and medium enterprises sector is peeved over what it sees as “step-motherly treatment” by the Government and the RBI. The complaint mainly relates to the authorities not making specific measures to facilitating flow of credit to them. According to Mr D.E. Ramakrishnan, President, Industrial and Financial Reconstruction Association for Small and Tiny Enterprises (IFRASTE), the micro and small enterprises “at the bottom of the pyramid” have not been getting credit and the authorities are not taking note of this. He wants the RBI to take two specific measures to help the small industries – exemption to banks from standard provisioning of 0.25 per cent on loans they give to these industries and changing the NPA norms for this sector to ‘180 days overdue’ from ‘90 days overdue’. Noting that similar measures have been taken by the RBI in respect of other sectors, such as housing, Mr Ramakrishnan said the small industries also need and deserve support to help them tide over the current slowdown.

Bond funds: Can single credit-class funds lower risk perception? (BL 23.11.08)
The Association of Mutual Funds of India (AMFI) has stated that bond funds, especially fixed-maturity plans, are invested in high-quality securities and that there is no cause for concern regarding their credit risk. But no amount of reassurance is likely to help when investors are nervous. Bond funds, which include income funds, liquid funds and gilt funds, constitute nearly 70 per cent of the total assets managed by the mutual fund industry. It is small wonder then that there is concern among investors regarding the credit-risk exposure of these funds.

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

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