Friday, November 21, 2008

ECO BRIEFS - 12.11.2008

Rush for special deposit schemes (BL 12.11.08)
As home loan borrowers, traders, SMEs and corporates await with some eagerness the announcement of a cut in lending rates, senior citizens and those averse to investing in stock market are now seen rushing to banks to beat the low rate regime. Anticipating a cut in deposit rates any time now, they are seen parking their funds in bank deposits, particularly in the 400 days/ one to three year tenure as the rates in that time bucket seem attractive. The average interest rate on such deposits is in the region of 10.50 per cent to 11 per cent. An extra 0.5 per cent is given for senior citizens.

Deposit funds with public sector banks, PSUs told (BL 12.11.08)
The Finance Minister, Mr P. Chidambaram, is understood to have once again told cash rich central public sector enterprises (CPSEs) to stop inviting bids from banks for parking their surplus funds. Some of them have been seeking higher than card rates.

Govt to pay interest on unpaid amount of debt waiver scheme (BL, FE 12.11.08)
The RBI on Tuesday said the Government will pay interest to banks at 364 days treasury bill rate on the unpaid amount towards Farm Debt Waiver Scheme. "The Government of India has since decided to pay interest on the 2nd, 3rd and 4th instalments, payable by July 2009, July 2010, and July 2011 respectively," RBI said.

'Need to cut reverse repo rate' (BL, BS 12.11.08)
The Prime Minister's Economic Advisory Council Chairman, Dr Suresh D Tendulkar, has said there is a need to cut the reverse repo rate to discourage banks from parking excess funds with the RBI. "There is an irrational unwillingness among banks to lend," he said. There is also some scope for further cutting repo rate in the current financial year ending March, the head of the Prime Minister's panel said.

‘Offshore loan deals down 46% by value’ (BL, BS 12.11.08)
The resources raised by India Inc via foreign currency syndicated loans have declined by a steep 46 per cent to around $13 billion in the first nine months of this calendar year as against $24 billion in the corresponding period last year, a senior Bank of America (BoA) official said. Mr Asit Bhatia, Managing Director (Global Corporate and Investment Banking Group), BoA, said the loan market would continue to weaken as priorities shift to preserving capital. He emphasised that India could not remain immune to the financial turmoil in the US. The average syndicated loan deal size in India has come down to around $300 million in first nine months of the calendar year as against around $375 million in FY 2007. Further, the average tenor of syndicated loans is now three to five years as against eight to 10 years earlier.

Monetarism: Into the dustbin of history? (BL 12.11.08)
Central banks the world over are pulling out all stops to enable financial institutions and markets to come out of the current crisis. Their support comprises credit lines against non-gilt collateral (which normally don’t qualify), relaxed reserve requirements (the RBI and People’s Bank of China have been active here), capital infusions, and, lately, directly financing businesses through investments in their commercial paper. Meanwhile, the bailout bill continues to balloon. AIG, the failed insurer, looks as though it will need almost double the original amount of $85 bill. Fannie Mae is asking for $100 bill, to salvage its balance sheet and keep buying mortgages. In the process, the bugbear and fear of inflation has been thrown to the winds. True, oil and commodity prices have plunged in recent weeks, clearly signalling much lower inflation down the road. India, though, still has a problem with price rises in double digits. But it says much of the changing times that, barring the lone voice of Mr S.S. Tarapore, practically every economist and the former RBI Governor favour easy money.

Fed approves full bank status for American Express (BL, BS 12.11.08)
US Federal Reserve has approved the application of credit card major American Express to become a bank holding company, which will allow it access government funds. The Fed's approval for American Express is similar to transformation of two biggest investment banks, Goldman Sachs Group and Morgan Stanley into bank-holding companies in September.

Reinsurance treaty terms likely to stiffen (BL 12.11.08)
The global financial turmoil has cast its shadow on treaty renewal negotiations between domestic insurance companies and international reinsurers. Top-level insurance officials said that with the asset write-downs and losses by global reinsurers, treaty terms were likely to stiffen. At least two of the large global reinsurers have reported third quarter losses. Swiss Re reported a loss of Swiss Francs 304 million ($271 million). Hannover Re reported a loss of €142 million ($198 million) for the third quarter of this year. Only Munich Re reported a small net profit of €7 million ($9 million).

Oct excise revenues fall 8.7% as slowdown bites (BL, BS, ET, FE 12.11.08)
The Centre’s excise duty revenues declined 8.7 per cent in October 2008 to Rs 9,399 crore compared with Rs 10,293 crore recorded in the same month last year. The sluggish growth in industrial output could be an important factor behind the drop in excise duty collection. However, excise duty collections are not usually buoyant in the first half of the financial year. This performance is in sharp contrast to the 14 per cent year-on-year growth registered in October last year. Also, excise duty collections in September 2008 had declined on a year-on-year basis. However, collections for the first seven months of the current fiscal (April-October 2008) registered 0.6 per cent increase at Rs 65,322 crore (Rs 64,948 crore). The Centre’s service tax collections during April-September 2008 stood at Rs 29,867 crore, which represents 28.7 per cent increase over collections of Rs 23,204 crore in the same period last year.

Rupee breaches 48-mark (BL 12.11.08)
The rupee was very volatile against the dollar on Tuesday and closed above the 48 mark on oil and defence related dollar buying. The huge losses in the stock market also added to the negative sentiment in the spot rupee market, said a forex dealer with a private bank. The currency opened lower at 47.68 and closed at 48.10, about 73 paise lower from the previous close of 47.37/39.

Sensex sheds 700 points on economic worries (BL, ET 12.11.08)
Heavy profit booking after a two-day gain of more than 800 points hammered the benchmark index–the Sensex-down by almost 700 points on Tuesday. Indian stocks also tracked the global markets, which could not sustain their gains of Monday; China’s massive $586-billion stimulus package of Monday appeared to have brought only temporary respite. India’s 15 per cent decline in exports in October – the highest decline in several years – also dampened investor sentiment. The FIIs were net sellers to the tune of Rs 370 crore, while domestic institutions were net buyers by Rs 229 crore. While the Sensex fell by 6.61 per cent to end below the psychological 10000-mark, at 9839.69, the broader Nifty fell by 6.66 per cent to end at 2938.65.

The agriculture-rural paradox (BL 12.11.08)
If farming is to be reasonably remunerative in future, a great deal depends on moving people away from farms, to ensure viability of holdings. That calls for creating more non-farm jobs in the countryside and further de-linking rural livelihoods from agriculture.

Core projects hit funding hurdle (BS 12.11.08)
Banks put tough conditions to finance infrastructure despite RBI measures. In spite of the recent measures of the Reserve Bank of India (RBI) to ease liquidity, infrastructure companies are finding it tough to access bank credit for completing ongoing projects. Bankers are seeking higher equity participation, conservative estimates on breakeven and higher interest rates to finance infrastructure projects. Many public private partnership (PPP) infrastructure projects are likely to be delayed by nearly six months. In spite of RBI relaxing norms for external commercial borrowing (ECB) for the infrastructure sector, high cost of funds is a deterrent. “There was a short-term problem in liquidity in the month of September. However, with RBI measures, the situation has improved. There are a few industries where banks are cautious to lend. However, we have not changed our debt-equity ratio for assessing the projects. At the moment, certain sectors like steel, cement and textiles are showing signs of sluggishness. So, banks might be cautious in lending to them,” said a public sector bank official.

No CD, CP issues as funds stay off (BS 12.11.08)
There were no issuances of certificates of deposit (CDs) and commercial papers on Tuesday as fund managers remained cautious on liquidity despite some inflows trickling into their schemes, dealers said. Most mutual funds preferred to invest only in non-convertible debentures having daily put/call options, as liquidity outlook is highly uncertain.

No decision on EPF money in SDS (BS 12.11.08)
The Employees Provident Fund (EPF) money invested in the Reserve Bank of India’s Special Deposit Scheme (SDS) is likely to remain where it is for the time being. The Union labour ministry has decided that it is not the right time to touch the funds. Fernandes had written a letter to the finance ministry asking for an increase in the SDS interest rates, from the current 8 per cent, as money deposited elsewhere was fetching more. Finance Minister P Chidambaram has been urging public sector undertakings, as well as those ministries with deposits in public sector banks, not to seek competitive rates of interest.

Deutsche Bank arm buys 26% in Pegasus (BS 12.11.08)
Singapore-based Deutsche Asia Pacific Holdings (DAPH), a subsidiary of Deutsche Bank AG, is all set to pick up a 26 per cent stake in Pegasus Assets Reconstruction, a company co-promoted by stock broker Rakesh Jhunjhunwala.

Citigroup will halt foreclosures, rework mortgages (BS 12.11.08)
Citigroup Inc, the fourth-biggest US bank by market value, plans to stem foreclosures as the firm modifies about $20 billion in mortgages, following similar moves by its largest rivals. Citigroup will reach out to 500,000 homeowners in the next six months who may be at risk of falling behind on mortgage payments.

Aviva Life premium income dips on partners' losses (BS 12.11.08)
Loss of two major bancassurance partners during April-September has pulled down premium income of Aviva India Life Insurance - a company which collects more than half of its first-year premium income through banks. While Aviva’s contract with Canara Bank was terminated after the bank started its own life insurance business, its deal with Centurion Bank of Punjab ended when the bank got merged with HDFC Bank. Both Canara and HDFC Bank sell insurance products of their respective brands.

Govt’s aid to PSBs to cost PSUs Rs 3k cr (ET 12.11.08)
Major government-owned companies may lose between Rs 3,000 crore and Rs 4,000 crore in interest income following the finance ministry’s decision that such companies should park 60% of their surplus cash (over and above their cash reserves) only with public sector banks (PSBs). Chiefs of almost major PSUs have raised concerns on the issue and asked the finance ministry to provide a relaxation in the investment norms. The finance ministry is unlikely to do away with the norm or provide any breather to these companies. The PSUs, which have over Rs 2 lakh crore as surplus funds (according to estimates available with the Department of Public Enterprises and various ministries), have expressed reservations against this move as the companies fear that they would incur substantial losses on this count.

Fancy interest rates for bulk deposits set to go (ET 12.11.08)
The fizz might soon disappear from the bulk deposits turf. Following the finance ministry’s dictation, public sector banks (PSBs) have taken a unanimous decision that no bank will henceforth offer fancy interest rates on bulk deposits. As a result, corporates placing bulk deposits with PSBs may only get card rates that are offered to retail depositors. The high deposit rates - on bulk as well as retail deposits - was one of the prohibiting factors for banks not reducing their lending rates. Banks were offering 11.5-12% on one-year bulk deposits. The interest rate had peaked to 12.7% in October during the height of the liquidity crunch. Bulk deposits are typically those where the minimum amount is Rs 1 crore. In a communication dated November 10 to all PSB heads, the Indian Banks’ Association has said: “The unanimous decision was that for bulk deposits, all PSBs would henceforth quote card rates.” PSBs are slated to reduce retail deposit rates from next month.

DBS hikes deposit rates by 1.25% (ET 12.11.08)
At a time when analysts are expecting the deposit rates to weaken further because of declining interest rates for loans and advances, Development Bank of Singapore (DBS) has hiked its deposit rates by 1.25%.

Core NBFCs may be allowed to tap global debt (ET 12.11.08)
Finance companies that provide funds for infrastructure projects may be allowed to raise funds overseas under a proposal being considered by the government to ease their liquidity troubles. The finance ministry is considering allowing infrastructure-focussed nonbank finance companies (NBFCs) to raise long-term funds via so called external commercial borrowings (ECB) and has sought the RBI's views on whether they can do so without prior approval.

MetLife on a hiring spree; plans to infuse Rs 100 cr for expansion (ET 12.11.08)
Bucking global slowdown, US-headquartered MetLife Insurance is planning to recruit about 30,000 agents and 3,000 managers over the next two months to expand its operations in India. Metlife is also planning to double its branch network in India to 191 to take advantage of falling real estate prices and rentals. The company now has presence in 87 cities and it plans to take it to 131 cities by March 2009.

Job losers may miss gratuity & leave encashment (ET 12.11.08)
There could be more bad news in store for employees getting the pink slip as companies cut jobs to fight the economic downturn. They face the grim possibility of not getting their gratuity as many domestic companies do not keep money under a separate trust to meet the obligation. The law requires money to be kept aside only to meet provident fund payments and not for other long-term benefits.

BoM, Indian Bank reduce BPLR (FE 12.11.08)
State-owned banks like Bank of Maharashtra and Indian Bank have reduced their benchmark prime lending rate (BPLR) by 75 basis points with effect from November 10, 2008. The new BPLR is 13.25 %.

‘Profitability of banks likely to fall’ (FE 12.11.08)
A study on the emerging trends in the financial sector by credit rating agency Icra has revealed that the banking sector’s net profitability is likely to dip by 10-15 basis points in the current fiscal year. The report suggests tough times ahead for the Indian banking sector over the short term driven by pressures on key parameters like asset quality, capital mobilisation and the net profitability. Karthik Srinivasan, co-head – financial sector ratings, Icra Limited said, “Over the next three years, to grow their balance sheet by 20% on y-o-y basis, the banking sector would need fresh capital of over Rs 90,000 crore to meet the rising corporate demand. Raising the requisite capital would be a major challenge for the banking sector in absence of overseas funds’ influx in the prevailing times, where liquidity crunch is a major cause of concern.”

Sebi drafting new norms for fixed-maturity plans (FE 12.11.08)
Markets regulator Sebi has decided to put on hold clearances of new fund offers by closed-end debt funds, popularly known as fixed-maturity plans (FMPs). The market regulator is working with the mutual fund industry to come up with new guidelines for FMPs. The new regulations would include a lock-in period to correct any asset-liability mismatch. Sebi is also expected to direct funds to use the secondary market to raise resources for these funds. Under normal circumstances, FMPs compete with bank fixed deposits to provide higher returns and a better tax deal. While on FDs, investors had to pay tax at the applicable marginal rate it’s a flat 10% on FMPs for investments over a year.

RBI cancels licence of UCB (FE 12.11.08)
In view of the fact that The Achalpur Urban Co-operative Bank Ltd, Amravati, (Maharashtra) had ceased to be solvent, all efforts to revive it in close consultation with the government of Maharashtra had failed and the depositors of the bank were being inconvenienced by continued uncertainty, the RBI delivered the order, canceling its licence to the bank after the close of business on November 4, 2008.

Indian banks face counter party & bank risks: Bank of America (FE 12.11.08)
Bank of America (BoA), the largest US bank has cautioned that the ongoing global financial crisis is impacting the Indian banking system in many critical ways. “There have been a major concerns about counter party and bank risks,” said Rajeev Bhargava, head, global products solutions (India), BoA. “Most banks are now preferring old and traditional ways of doing trade financing as credit tightening is impacting global trade. Traditional trade finance instruments such as letter of credit and conformation requests are back in vogue,” explained Bhargava. Besides India, Australia and Hong Kong also witnessed the maximum decline in syndicated loan volumes during the nine months-ended September 30, said, Asit Bhatia, managing director, global corporate and investment, BoA.

‘Libor falls to lowest since 2004’ (FE 12.11.08)
The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars dropped to the lowest level since October 2004. The rate slid 6 basis points to 2.18% on Tuesday, the lowest level since October 29, 2004.

Kotak Life clocks growth of 114% in first half (FE 12.11.08)
Kotak Mahindra Old Mutual Life Insurance (Kotak Life Insurance), has announced a growth rate of 114% in the first year premium (FYP) income in the half year ending September 30. The adjusted premium equivalent (APE), a standard measure in the industry that takes single premium at 10% grew to Rs 566 crore during the period, a growth of 119%. The firm also saw its total received premium income jump to Rs 925 crore.

Major rates & parameters as on 11.11.08 (BL, RBI)
Call Rates
Auction under RBI’s LAF
Govt. Securities (Yield)

Reverse Repo
8.24% 10-Yr 2018
8.28% 24 Yr- 2032
Rs 2,750 Cr
Rs 5,835 Cr
Rs 15 Cr

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

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