ECONOMIC BRIEFS – 11.11.08
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Vijaya Bank cuts PLR by 75 bps (BL, BS 11.11.08)
Mr Albert Tauro, Chairman and Managing Director, Vijaya Bank said that the bank has reduced BPLR from 14 per cent to 13.25 per cent with effect from November 10. Some of the banks had gone in for 12 per cent interest rates in bulk deposits. “But our bank did raise high rate bulk deposits,” he said. He said there may be a marginal increase in bad debts in the current scenario. The bank, which has capital adequacy ratio of 10.41 at the end of September, had submitted a proposal to the Government seeking capital to the tune of Rs 700-800 crore. The bank has achieved more than 96 per cent coverage of its business under the CBS platform and will be 100 per cent CBS by March 2009.
Punjab & Sind Bank net up (BL 11.11.08)
Punjab & Sind Bank has reported a net profit of Rs 89.87 crore on a total income of Rs 860.23 crore for the quarter ended September 30. The bank had recorded a net profit of Rs 78.79 crore on a total income of Rs 639.90 crore in the same quarter last year. For the six months ended September 30, the bank reported a 15.74 per cent increase in net profit to Rs 172.46 crore.
Some relief on commodity derivative hedging deals (BL, BS, FE 11.11.08)
The Reserve Bank of India (RBI) on Monday gave some relief to domestic entities having payment obligations arising out of commodity derivative hedging transactions entered into by them with overseas counter-parties. The central bank has allowed authorised dealer (AD) Category -I banks to issue guarantees/ stand-by letters of credit to cover their payment obligations towards margin money requirements in lieu of direct remittance. Importers of base metals and edible oils are expected to benefit the most from this relaxation. “Until now, domestic entities entering into derivatives transactions with overseas counter-parties were required to make a remittance towards margin money. Henceforth, they can rely on guarantees or stand-by letters of credit to take care of their margin money requirements,” said Mr J.S. Chiney, General Manager, Bank of India.
SMEs, services account for three-fourths of credit offtake (BL 11.11.08)
Small and medium enterprises (SMEs) and services accounted for nearly three-fourths of the incremental non-food credit provided between August 2007 and August 2008 even as companies in three other sectors - petroleum, real estate and steel - cumulatively accounted for nearly 15 per cent of the overall non-food credit of Rs 4,89,000 crore disbursed. For the period under review, the incremental credit flow to SMEs stood at about Rs 2,18,000 crore. For services, the incremental credit flow was Rs 1,48,295 crore. The year-on-year increase in credit as of end-August 2008 stood at 31 per cent and 35 per cent for SMEs and services respectively. The petroleum sector saw an incremental credit flow of Rs 29,891 crore, representing 91 per cent of the outstanding credit of Rs 32,567 crore as on end-August 2007. This suggests that there was no real problem with credit until end-August. Problems suddenly surfaced in September 2008. It would also explain the monetary stance that RBI took in July, when it increased interest rates.
Strapped for cash, NBFCs ask Govt for more (BL, BS, ET 11.11.08)
Non-banking finance companies are facing severe shortage of funds despite the Reserve Bank of India providing a special window to banks to help NBFCs. The situation is so severe that several NBFC are reportedly not sanctioning fresh loans. NBFCs have asked for more measures such as rolling over the sanctioned limits, reasonable interest rates and others. For banks, which are facing a liquidity shortage themselves, lending to an NBFC, which may be a competitor, does not make sense. Last month, the RBI allowed non-deposit taking NBFCs to issue perpetual debt instruments (PDI) to raise funds, in order to meet their fund requirements and maintain capital adequacy requirements. The RBI also allowed, as a temporary measure, to permit NBFCs to raise short- term foreign currency borrowings, under the approval route. According to an official from an NBFC, asset financing companies, which are into consumer durables financing, auto financing or office equipment financing, are not facing liquidity problems. Only those NBFCs which are lending to the stock market or real estate are in trouble. A report by Crisil, said that there has been a sharp decline in the disbursement levels of NBFCs over the past two months, as they have focused on repaying their maturing short-term obligations to mutual funds. “The decline in disbursements was as high as 70 per cent in one case, with the average at around 50 per cent for CRISIL-rated NBFCs,” Crisil said. More than 50 per cent of NBFCs’ borrowings have maturities of less than one year, while most of the assets have tenures of about three years. Further, the dependence on mutual funds for short-term funding has been high.
ICICI Home Finance offers 11.15% on fixed deposits (BL, FE 11.11.08)
ICICI Home Finance, the housing finance arm of the largest private sector bank in the country, on Monday announced a fixed deposit scheme offering 11.15 per cent interest a year, probably the highest deposit rate being offered by a housing finance company. The new rate, introduced for a limited period, will be for fixed deposits of 15, 20 and 30 months. HDFC, the country’s largest housing finance company, offers 10.9 per cent for deposits above Rs 1 lakh and 11 per cent for deposits above Rs 10 lakh for 15, 20 and 30-month tenor, under its premium deposit-annual income plan. The highest rate being offered by LIC Housing Finance, the other major housing finance company, is 9.50 per cent on its 3-year and 5-year term deposits. This special offer will be valid up to November 30. For senior citizens, the interest rate is 11.5 per cent.
Regulator to review TPAs’ performance (BL 11.11.08)
The Insurance Regulatory and Development Authority (IRDA) will soon set up a committee to review regulations on Third Party Administrator (TPA) companies. The regulator has started conducting inspections and ranking of TPAs on the basis of the overall performance and volume of business. TPAs are organisations that provide administrative services including cashless claims processing and underwriting to insurance companies. The initiative has been taken in view of repeated complaints from policyholders about the unsatisfactory service of some TPAs.
Rahul Sinha is Birla Sun's CMO (BL, FE 11.11.08)
The Aditya Birla group's life insurance arm, Birla Sun Life Insurance, said it has appointed Mr Rahul Sinha as Chief Marketing Officer.
RBI to repurchase Govt stocks (BL, BS 11.11.08)
The Reserve Bank of India (RBI) on Monday announced that it will repurchase the ‘6.65 % Government Stock 2009’ for Rs.5,000 crore (nominal) and ‘5.87% GS 2010’ for Rs.5,000 crore (nominal) via price-based auctions using the multiple price method on November 12, 2008. Simultaneously, the Government of India also announced the sale (re-issue) of ‘7.56 per cent Government Stock 2014’ and ‘7.95 per cent Government Stock 2032’ for a notified amounts of Rs 6,000 crore and Rs 4,000 crore respectively. The auctions will be conducted by the Reserve Bank of India on November 14.
US modifies AIG package (BL, FE 11.11.08)
The US Government early on Monday announced the restructuring of the Government's $85-billion financial aid package that was given to insurer American International Group in September. Under the restructuring, the US Treasury will purchase $40 billion of newly issued AIG preferred shares under the Troubled Asset Relief Programme.
Chinese stimulus package buoys markets (BL 11.11.08)
The equity market snapped its four-day losing streak on Monday as world markets surged after China announced a massive economic stimulus package. The Sensex surged 5.74 per cent or 572 points to close above the 10,000-mark at 10,536.16. The broader Nifty closed up 5.89 per cent at 3,148.25. FIIs and domestic institutions - which usually take contrarian positions with respect to net purchase or sale of equity - were both net buyers on Monday, though FIIs by a very small amount of Rs 92 crore; domestic institutions were net buyers for Rs 378 crore. “The positive trend floated in from the Asian region as the Chinese government announced a $586-billion infrastructure and public welfare spending package on Sunday to support the economy" said Mr Alex Mathew, Head of Research, Geojit Financial Services. Brokers, however, said Monday’s was just a relief rally as the market was still bearish. “We see a lot of selling at every rise.”
Syndicate Bank cuts housing loan rates by 75 bps (BS 11.11.08)
Syndicate Bank today reduced its floating interest rates on housing loans by 75 basis points, with effect from November 8, 2008. The revised rates for housing loans up to Rs 20 lakh for tenor up to 5 years shall be 9.25 per cent, up to 10 years 9.75 per cent, up to 20 years 10 per cent and for above 20 years 10.25 per cent. Similarly, housing loans above Rs 20 lakh and up to Rs 30 lakh for tenor up to 5, 10, 20 years and above 20 years shall be 10 per cent, 10.50 per cent, 10.75 per cent and 11 per cent, respectively. Housing loans above Rs 30 lakh for tenor up to 5, 10, 20 years and above 20 years shall be 10.50 per cent, 11 per cent, 11.25 per cent and 11.50 per cent, respectively. The rate of interest for vehicle loans reduced by 75 basis point from 14 to 13.25 per cent. The bank has also reduced rates of interest on other retail loans such as personal loans, consumer loans to 13.50 per cent, where salary is credited in the account. Similarly, new reduced rates for education loans up to Rs 7.50 lakh shall be 11.25 per cent and loans above 7.50 lakh shall be 10.75 per cent.
RBI unhappy over govt move to ease investment norms (BS 11.11.08)
The Reserve Bank of India (RBI) has raised concern over the government’s proposal to allow investments by foreign-owned Indian holding companies in downstream projects under the automatic route even if the foreign investment in the particular sector is capped or is under approval route.
Uncertainty over PF funds in spl deposits (BS 11.11.08)
There are conflicting views on whether the issue of withdrawing provident fund deposits from special deposit scheme (SDS) would be taken up at the Central Board of Trustees of the Employees Provident Fund Organisation (EPFO) tomorrow. This follows an appeal from Finance Minister P Chidambaram to Union ministries that in view of the ongoing economic crisis they should not ask for competitive interest rates for their bulk deposits. The labour ministry had written to its finance counterpart that deposits elsewhere were fetching much better returns than those with the SDS, which gave 8 per cent interest. It had demanded that interest rates be increased hinting that it would like to withdraw the deposits of Rs 53,000 crore out of a total corpus of 2,40,000 crore and invest them elsewhere.
Bengal co-op bank waives penal interest (BS 11.11.08)
In view of spurt in crop loan defaults for the year 2007-08, the West Bengal State Cooperative Bank (WBSCB) has decided to waive the penal interest of 4 per cent, over and above 7 per cent, on about 4.5 lakh crop loan defaulters. The total outstanding dues were Rs 440 crore.
SBI Life eyes Rs 11,000-cr business in FY09 (BS 11.11.08)
SBI Life Insurance, the second largest private life insurance company in India, has targeted a total business volume of Rs 11,000 crore during the current year. Of the Rs 11,000 crore, new business or new premium, both single and regular, will account for Rs 8,500 crore. The company, a 74:26 joint venture between State Bank of India (SBI) and BNP Paribas Assurance, expects to achieve the target despite a meltdown in the international market and a fall in Indian stock markets.
Credit card rates: SC admits appeal (BS 11.11.08)
The Supreme Court on Monday admitted an appeal against the order of the National Consumer Commission, which had imposed restrictions on charging interest at rates in excess of 30 per cent from credit card-holders. The Indian Banks’ Association, Standard Chartered Bank, HSBC and Citibank had appealed against the order. The banks said that they were following the guidelines of the Reserve Bank of India, which was the only authority to regulate interest rates, and, therefore, the commission had no jurisdiction. On the contrary, a consumer group, Awaz, argued before the court that the commission had failed to notice that the banks were charging more than 90 per cent if one took into account the interest on default combined with the hidden costs. The prevailing interest even for unsecured finance, fixed under the Money Lenders’ Act, was below 20 per cent, the petitioner had argued.
Citi, Goldman, too-big-to-fail, need new rules (BS 11.11.08)
Federal Reserve Chairman Ben Bernanke recently told the Economic Club of New York that the U.S. faces “a very serious too-big-to-fail problem.” As Bernanke described it, this means that the insolvency of one large company could threaten the global financial system.
Goldman sees high rise in NPAs (BS 11.11.08)
With the global slowdown reaching Indian shores, banks may see a rise in defaults from companies, small and medium-size firms and households. It may double the non-performing assets (NPAs), making banks more risk-averse and less willing to lend, according to Goldman Sachs. “We expect Indian banks to continue to face significant headwinds, given the origin of the current crisis lying in the financial sector. Access to short-term funds through inter-bank lending, the original cause of the liquidity squeeze, remains difficult,” the US banking firm said.
Liquid MFs find favour with banks (ET 11.11.08)
Confidence is slowly returning to the money market but bankers prefer to keep their fingers crossed. After a long time, banks have started investing in liquid schemes of mutual funds, though selectively. Since the collapse of Lehman, a number of banks and corporates had pulled out money from MF schemes. Treasury heads of a few public sector banks said they are again investing in liquid schemes of select MFs. Such investments have happened in small doses over the last few days. This has improved the liquidity position in some fund houses, most of whom faced heavy redemption pressures in October. In the last two trading sessions (Friday and Monday) none of the banks have borrowed money under the special 14-day window opened by RBI for onlending to MFs - an indication that MFs have not approached banks for loans.
HSBC sees better Q3 profit despite $4.3-b bad loan provisioning (ET, FE, BS 11.11.08)
HSBC Holdings, Europe’s biggest bank, said third-quarter profit rose even as it set aside a more-than-estimated $4.3 billion to cover bad loans in the US and forecast “further deterioration.”
Wanted: Compliance officers, CEOs can wait (ET 11.11.08)
It may not sound the most glamorous of designations. But in this season of layoffs in the financial services sector, when even chief executives are not certain about their jobs, the humble compliance officer is very much in demand.
Sept IIP may clock 7-7.5%: Experts (ET 11.11.08)
Industrial growth is expected to recover to 5-7% in September from the 13-year low of 1.3% in August 2008. Eminent economists, pegged the baseline industrial growth at 5% in September. The industrial growth data, as measured by the Index of Industrial Production (IIP), will be released on Wednesday.
Andhra Bank reduces BPLR (FE 11.11.08)
State-run Andhra Bank on Tuesday reduced its benchmark prime lending rate (BPLR) by 0.75% to 13.25% with immediate effect.
Risk-averse banks turn liquidity into G-secs (FE 11.11.08)
Commercial banks have used the Rs1.1 lakh crore in liquidity support from RBI in October to basically purchase government securities. Banks have parked over 70% in government paper instead of lending to companies. No wonder the credit crunch faced by corporate India has not eased despite the cash injection. What seems paradoxical is that banks’ portfolio of G-secs is expanding even as the legal requirement to hold them is being relaxed. As a result, despite call rates coming down to 7.5-7.75% and public sector bank sparing prime lending rates by 75 bps, the credit-deposit ratios of banks have declined by 15 bps to 75.01% in October 11-24, compared with the previous fortnight.
No takers for RBI’s dollar loans as banks say liquidity no issue (FE 11.11.08)
In the context of the global developments and in order to provide flexibility to Indian banks in managing their short-term funding requirements at their overseas offices, the RBI has decided to provide forex liquidity to Indian public and private sector banks having foreign branches or subsidiaries, through forex swaps of tenors upto three months. However both private and public sector banks have said that they don’t need the facility as they have sufficient liquidity to manage their overseas operations.
Major rates & parameters as on 10.11.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
8.28% 24 Yr- 2032
Rs 1,835 Cr
Rs 10,600 Cr
Rs 25 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express