ECO BRIEFS - 06.11.2008

More banks follow suit, cut lending rates (BL, BS 06.11.08)
Corporation Bank has decided to reduce its benchmark advance rate by 75 basis points with effect from November 10. Mr Asit Pal, Executive Director of the bank, said that the Corporation Bank Benchmark Advance Rate (COBAR) will be reduced to 13.25 per cent from the present 14 per cent with effect from November 10. Asked if the bank will reduce interest rates on deposits, Mr Pal said: “We will take a decision on this after November. No reduction as of now.” Canara Bank on Wednesday announced the reduction in its benchmark prime lending rate by 75 basis points from 14 to 13.25 per cent, with effect from November 10. The bank has also decided to scale down the loan rate by 25 basis points for housing loans up to Rs 30 lakh and auto loans. The bank has also brought down the term deposit rate by 50 basis points, in the slab of 500 days to two years, from 10.5 per cent to 10 per cent with effect from December 1. After cutting its prime lending rate by 25 basis points to 14 per cent on Monday, United Bank of India today announced another 50 basis points cut in its PLR to 13.5 per cent, according to Mr T.M. Bhasin, officiating Chairman of the bank.

BoI cuts lending rates by 75 bps (BL, BS FE 06.11.08)
Bank of India on Wednesday announced a 75 basis points cut in its benchmark prime lending rate to 13.25 per cent with effect from November 6. The bank has also decided to reduce deposit rates by 50 basis points with effect from December 1. “Almost 80 per cent of our advances are linked to the Benchmark Prime Lending Rate (BPLR). Hence, the 75 basis points cut in our BPLR will benefit our borrowers,” said Mr T.S. Narayanasami, CMD.

Steep discounts to lending rates unlikely (BL 06.11.08)
BPLRs are down to 13.25 per cent. However, bankers said that the return to steep discounted lending rates are unlikely to be revisited in the near future. In 2004-2005, the banking system had witnessed corporates borrowing at discounts as high as 500 basis points below the BPLR. During the same period, the spreads between sovereign and Triple “A” corporate borrowings were barely 75 basis points. Currently, the spreads are close to 600 basis points. The current situation is a complete reversal of what existed two years ago, when corporates had alternative avenues for funds in the form of external commercial borrowings. These funds are no longer available at present. Moreover, credit offtake also remains high. This fiscal year, credit expanded by 29 per cent on a year-on-year basis. Bankers said that among the first casualties were likely to be the special deposit schemes offering rates of interest as high as 11.5 per cent. “These rates will come down, since depositors are flooding public sector banks,” a PSU banker said.

Private sector, foreign banks to consider rate cut (BL, BS, ET, FE 06.11.08)
The private sector and foreign banks have assured the Government that they will consider its plea for a cut in interest rates. None of the banks, however, indicated by how much the rates will be cut. The Managing Director and Chief Executive Officer, Federal Bank, Mr M. Venugopalan, said his bank could cut interest rates by up to 50 basis points. But he added that a decision would be taken after the Asset Liability Committee meets. The bankers’ meeting was attended by Mr Aditya Puri, MD, HDFC Bank, Mr V. Leeladhar, Deputy Governor, RBI, and Mr Haseeb Drabu, CMD, J&K Bank, and Ms Kochchar.

Credit squeeze may hit agri-lending target (BL 06.11.08)
The ongoing liquidity squeeze could affect 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.

Cos keep away from ECB route as spreads remain high (BL 06.11.08)
Access to the international credit markets remained choked off for domestic corporates keeping the pressure on domestic liquidity high. Crisil’s Chief Economist, Dr D.K. Joshi, said, “There is risk aversion among international lenders. So flows from External Commercial Borrowings (ECB) will remain low.” For the month of September, the RBI’s approvals for raising ECB resources amounted to a little about $2.7 billion. But conversions this month or this year are expected to be less than 10 per cent. Even the public sector Syndicate Bank that had planned a Medium Term Note issue last year, has put it on hold.

October gold imports down 27% (BL 06.11.08)
Sharp fall in the value of the rupee against the dollar has taken a heavy toll on gold imports even as prices came down on eve of Diwali and Dhanteras - the two occasions when buying gold is considered auspicious. Gold imports fell 27 per cent to 44 tonnes in October against 60 tonnes registered in the same period last year. It was down 45 per cent compared to imports of 64 tonnes in September. The rupee depreciated 9 per cent against the dollar from 47.95 to 52.35 in October.

CMIE to collect data for IIP (BL 06.11.08)
The Centre for Monitoring Indian Economy (CMIE) has been authorised by the Department of Industrial Policy & Promotion (DIPP) to collect production data from industrial units on its behalf for compiling the new series of Index of Industrial Production (IIP).

Obama victory positive development: India Inc (BL 06.11.08)
Victory of Democratic candidate, Mr Barack Obama as the 44th President of the US is being viewed as a positive development for Indian trade and business. National President of Indo-American Chamber of Commerce, Mr S.K. Jain, said Indo-US relations can only go forward.

Curbs on currency derivatives in Asia likely (BL 06.11.08)
Asian regulators may limit currency derivatives after losses helped push the South Korean won to a decade low. South Korea will announce measures by December to restrict company purchases of the contracts to a percentage of overseas earnings, Mr Hyeon Jung Gun, head of Korea's Financial Supervisory Services derivatives market team, said.

SBI looks at 40% growth in second-half net profit (BS, FE 06.11.08)
State Bank of India, said that it expects 40 per cent growth in its net profit in the second half of the current financial year despite fears of an economic slowdown. “Net profit growth should be around 40 per cent (in the next two quarters),” SBI Chairman O P Bhatt said. The bank recorded a profit growth rate of over 40 per cent to Rs 2,260 crore for the quarter ended September 30, 2008. Its net profit in the first half was up by over 28 per cent to Rs 3,900 crore. On credit expansion, Bhatt said the bank is expecting a loan growth of 26 per cent in 2008-09 against the 23 per cent recorded last year.

Vijaya Bank's FY09 net likely to remain flat (BS 06.11.08)
Vijaya Bank’s net profit for the financial year 2008-09 is likely to remain flat or may even be lower, due to the muted performance in the first two quarters, a senior official of the bank said. For 2007-08, the net profit of the bank was Rs 361 crore. In April, the then Chairman and Managing Director, Prakash P Mallya, had said the bank estimated a net profit of Rs 500 crore for the current financial year.

Banks go slow on ATM expansion (BS 06.11.08)
Indian banks, especially small, private sector lenders, are curtailing their ATM expansion plans as the Reserve Bank of India (RBI) mandates every bank to withdraw all third-party ATM transaction charges from April 2009 onwards. The RBI norms will enable small banks to benefit from low-cost, switch-enabled ATM services without opting for expensive bilateral tie-ups. “The rationale for opening new ATMs has got neutralised as the transaction charges are made free, irrespective of the bank, whose ATM is used. Our priority is to increase our branch network now, rather than ATMs,” said Rana Kapoor, managing director and CEO, Yes Bank. The bank had about 56 ATMs at the end of the second quarter last year. The average, fixed cost of setting up an ATM is estimated at Rs 6-8 lakh. There are about 30,000 ATMs in India. Some banks offer free access to other ATMs, either through a bilateral tie-up or through a switch. A bank could provide its customers an access to other banks’ ATMs through its own switch or through a switch managed by a third party. Here the bank pays Rs 8-9 per switch-enabled transaction to the company managing the switch. Companies like Euronet and Cashnet provide and manage switches for ATMs. Bankers said although the costs involved in switch-enabled transactions vary, operations are more economical than setting up a new ATM. Moreover, banks may not have to opt for bilateral tie-ups if the central bank makes all ATM transactions free of charge. IndusInd Bank, which has over 220 own ATMs, said the bank offers its customers access to over 18,000 ATMs through multi-lateral tie-ups with other larger banks. Similarly, Bangalore-based ING Vysya Bank, which has largely confined its branches to the south so far and is currently focusing on expanding its north India operations, said the bank will re-evaluate its ATM expansion plans with the given RBI decision.

FM tells banks to accept all CDs (BS 06.11.08)
Finance Minister P Chidambaram asked banks to take certificates of deposit (CDs) of all banks as collateral from mutual funds. “Earlier, some banks were taking CDs issued by top-rated banks as collateral from mutual funds,” a bank chairman said. To alleviate the liquidity problem of mutual funds and non-bank finance companies (NBFCs), the Reserve Bank of India (RBI) has opened a separate window of Rs 20,000 crore.

Lenders wary of loans to NBFCs (BS 06.11.08)
State-owned banks fear Finance Minister P Chidambaram’s directive to lend to mutual funds and non-banking finance companies may result in a sharp increase in delinquencies. “The NBFCs are fishing in troubled waters. These NBFCs and MFs were panicking and, therefore, PSU banks will now have to bear the brunt,” a head of a state-owned bank gave vent to his feelings. RBI had said it will provide Rs 20,000 crore under the special repo window to banks for on-lending to MFs and NBFCs. However, most banks have not yet been aggressively using this facility to lend to MFs and NBFCs. After the meeting with bankers, Chidambaram said he had asked banks to use the special window for lending to MFs and NBFCs. “If they access it, they can get a spread of 350 bps. They will borrow at 7.50 per cent from RBI and can lend to MFs and NBFCs at 11-12 per cent,” Chidambaram had said.

Banks urged to look at SMEs (BS 06.11.08)
Banks should give more credit to small and medium enterprises in the present financial crisis, said experts at a seminar on banking industry, organised by the Confederation of Indian Industries (CII), in Kolkata on Wednesday. K C Chakrabarty, chairman and managing director, Punjab National Bank said the present crisis was the result of crisis of confidence, rather than crisis on liquidity. Industries should be prepared for a high interest regime, as the dependence on domestic banks by corporates have increased in the recent months. Renu Challu managing director of State Bank of Hyderabad (SBH), said banks have a critical role to play at the present time of financial crisis.

Syndicate Bank may raise up to Rs 500cr via bonds (BS 06.11.08)
The bank was planning to reduce the deposit rate by 50 basis points with effect from December, said George Joseph, chairman and managing director, Syndicate Bank. “The bank would raise Rs 300-500 crore, if required. At present, there is no liquidity problem and with a capital adequacy ratio of 11.55 per cent, the liquidity position of the bank is comfortable,” said Joseph. At present, the net non performing asset (NPA) of the bank is 0.95 per cent, against 1.02 per cent same period last year. The gross NPA of the bank is 2.55 per cent, against 3.02 per cent during the same period last year.

Direct tax mop-up slows to 28% (BS, ET 06.11.08)
Direct tax collections in the first seven months of the current fiscal grew 28 per cent, significantly slower than 43 per cent in the corresponding period last year, because of poor advance tax collections. However, this is still above the 26 per cent growth needed to achieve the revenue department’s internal target for the current financial year. “The growth in advance tax collections is likely to come down further in the quarter ending December 31,” said a senior Central Board of Direct Taxes official.

Stabilisation bond buyback unlikely to excite banks (ET 06.11.08)
Dealers feel that there will be limited takers for the Reserve Bank of India’s (RBI) buyback of market stabilisation scheme (MSS) bonds to be conducted on Thursday, unless RBI offers an attractive price for them. Treasury managers say that at most only private sector and foreign banks may sell their holdings in this category to RBI, as most public sector banks will be unwilling to do so at a discount. However, they add that there should be no problem in the buyback since it’s expected to sail through comfortably. “Public sector banks have already moved most of their MSS bonds to their Held-To-Maturity section. They would not like to sell these bonds at a price that is likely to be lesser than what they can get at redemption time,” says SS Raghavan, vice-president and head of treasury at IDBI Gilts. Currently, the outstanding MSS securities are about Rs 1.65-lakh crore.

Consumer spending hit: MasterCard (ET 06.11.08)
US consumers slashed spending in October, shunning purchases of items over $1,000, as a global financial crisis battered their savings accounts and their psyches, according to figures released on Wednesday by Spending-Pulse, the retail data service of MasterCard Advisors. SpendingPulse data is derived from aggregate sales in the MasterCard US payment network, coupled with estimates on all other payments including cash and checks. According to SpendingPulse, October specialty apparel sales fell 12.2% from a year earlier. Women’s apparel sales dropped 18.2%, while men’s apparel sales fell 8.3%. Footwear sales dropped 9.7%.

Euro banks spread gloom (ET 06.11.08)
A raft of European bank results did little to lift gloom around the sector on Wednesday, with a recurring trend of falling profits and rising bad debts stemming from the global financial crisis. France’s biggest bank BNP Paribas posted a 56% fall in third-quarter profits, Allied Irish Banks cut its earnings forecast, and Greece’s Emporiki Bank swung to a loss. Profits have tumbled across the sector, and several banks have warned of more writedowns and rising bad debts this year, though there is optimism that government rescue packages have left balance sheets strong enough to withstand more losses.

PNB’s deposit growth slides (FE 06.11.08)
There was a deceleration in the deposit mobilisation by the Mumbai circle of the state-run Punjab National Bank comprising Mumbai city, New Mumbai, Thane, Raigad and Goa during the past one year. Surendra S Bhandari, field-general manager of the bank, said that the total deposits of the circle decreased by 1.44% to Rs 10324.12 crore as on 30 September, 2008 on y-o-y basis. This happened as a conscious decision was taken to shed high cost bulk deposits which helped us bring down our cost of deposit to 6.92% from 7.94% a year ago, said Bhandari.

BoB reduce prime lending rates by 75 bps (FE, BS 06.11.08)
Bank of Baroda (BoB) has reduced its BPLR by 75 basis points with effect from November 10. After revision, the BoB's BPLR will be at 13.25%. BoB has not touched deposit rates as of now. MD Mallya, chairman, Bank of Baroda said that “We will wait and watch for some more time before taking a call on our deposit rates.” However, other private and foreign banks are yet to take any decision on rates.

Bank credit rises by 28% (FE 06.11.08)
The Reserve Bank of India (RBI) said that the total demand and time deposits from banks have risen from Rs 38,777 crore as on October 26, 2007 to Rs 44,912 crore as on October 24, 2008, indicating an increase of about 16%. Investments are up from Rs 10,15,870 crore to Rs 10, 86,959 crore, during the same period.

Kamath sees more RBI measures, India Inc under pressure (FE 06.11.08)
KV Kamath, managing director and CEO, ICICI Bank, has said that Reserve Bank of India (RBI) may take further monetary measures in a bid to control interest rate movements in the country. “My experience is that it takes around 7-15 days after the announcement of monetary measures to fully understand whether the system is truly surplus or short of liquidity,” he said. He said that ICICI Bank will adopt cautious approach before taking a final call on altering the interest rates. “Steps taken so far clearly indicate that interest rate drop would certainly happen,” he added. “As funding costs go down, the banks in the country would be in a position to pass-on the advantage to the borrowers. This adjustment process may take some time before we witness a decline in the interest rates,” he said.

HDFC-HDFC Bank merger possible: Parekh (FE 06.11.08)
Deepak Parekh, chairman, Housing Development Finance Corporation (HDFC) has indicated a possible merger of HDFC-HDFC Bank in near future. However, he did not elaborate his statement on such a proposed move. Parekh also said that inflation in India might settle down at 6-7% levels by March 2009. He expects the inflation to fall below the 10%-mark within a month and the country’s growth rate to remain at 7-7.5% in the current fiscal. “We will wait-and-watch for some time before taking a final call on the interest rates. The deposit rates in the system have to come down first before cutting the lending rates. And, I do not rule out the possibility of more monetary measures being implemented by the Reserve Bank of India,” Parekh added.

Major rates & parameters as on 05.11.08 (BL, RBI)
Rupee/$
Call Rates
Auction under RBI’s LAF
Govt. Securities (Yield)


Repo
Reverse Repo
8.24% 10-Yr 2018
7.94% 13 Yr- 2021
47.45
6.75-7.00%
Rs 1,850 Cr
Rs 800 Cr
7.76%
-
Rs 850 Cr
Rs 29,070 Cr

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