ECONOMIC BRIEFS – 18.11.08
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PSU banks aim for aggressive passenger vehicle loan growth (BL 18.11.08)
Despite the economic slowdown, the major public sector banks expect loans for purchase of cars and other passenger vehicles to grow 20-25 per cent in the current fiscal. However, their private sector rivals have become more conservative in lending to the auto sector and expect a much lower growth. The main reason is that PSU banks are charging lower interest rates on car finance than the private sector banks. While the lending rates of the public sector banks range from 11.75 to 13.75 per cent, private sector banks charge 15 per cent and above. SBI has recorded a robust 30 per cent year-on-year growth in its auto loan portfolio. The bank had an outstanding auto loan portfolio of Rs 8,029 crore as on September 30, 2008 as against Rs 6,153 crore as on September 30, 2007. Union Bank of India, another PSU bank, too has logged around 25 per cent year-on-year growth in its auto loan.
FCNR, NRE deposit rates hiked (BL, BS, FE 18.11.08)
State Bank of India, ICICI Bank and The State Bank of Travancore have hiked NRE and FCNR term deposit rates up to 75 basis points, with immediate effect. They are the first banks to announce a hike in interest rates on NRE term deposits after the RBI increased the ceiling on NRE and FCNR deposit rates, on November 15.
Banks preferring longer-dated papers (BL 18.11.08)
Faced with burgeoning deposits, banks are beginning to stretch their investment portfolio to longer-dated securities. These issues and additional purchases have now pushed the average tenure of the securities to a little over 2.5 years for the sector. Till last year, private sector banks’ average tenure was under one year. Public sector banks’ average maturity profile was about 1.5 years. Mr S. Srinivasa Raghavan, Vice-President & Head- Treasury, IDBI Gilts, attributed the recent shift to long-dated paper to the anticipation of a rate cut by the Reserve Bank of India. There was the possibility of making better capital gains in long-dated papers if that happened. An appreciation in values implied a softening of yield-to-maturity (YTM). Bankers said that they anticipated the current trend in yields to continue well into the next year. Consequently, holding securities in the AFS or in the HTM categories allowed banks to book profits from treasury operations. The chase for the long-dated securities was evident from the high bid-to-cover ratios.
‘RBI steps not enough’ (BL 18.11.08)
The monetary measures taken so far are not enough, said Mr N.S. Venkatesh, Managing Director, IDBI Gilts, a top primary dealer. He said that RBI needs to cut the cash reserve ratio (CRR) and repo rate more aggressively. Mr Venkatesh said CRR can be cut further from its current level of 5.5 per cent to the statutory floor of 3 per cent. Only this would help banks improve their margins and prevent them from taking high cost deposits. Further, repo rates should also be cut to 6 per cent, he said. Asked about fiscal steps, Mr Venkatesh said the Government may have to consider cutting taxes – especially for industries offering huge employment potential, so as to curb any labour unrest.
SBI’s cheque clearing facility (BL 18.11.08)
State Bank of India has inaugurated its 5th MICR (magnetic ink character recognition) cheque processing centre at Sripuram branch in Tirunelveli. The Rs 1.63-crore high-tech device has the capacity to electronically process 600 cheques a minute and will cater to the needs of 69 branches of various banks in the district. Mr F.R.Joseph, Regional Director of RBI, inaugurated the centre in the presence of Mr Anoop K. Prabhakar, General Manager, Network 2, SBI, Local Head Office, Chennai.
NBFCs expect banks to be more responsive (BL 18.11.08)
Non-banking finance companies expect banks to loosen their purse strings and lend more freely to them in the wake of the measures announced on Saturday by the Reserve Bank of India to enhance credit flow and liquidity management. On Saturday, the Reserve Bank of India had reduced the provisioning requirement for banks on standard advances in the commercial real estate sector, personal loans, and capital market exposure and non-deposit, taking NBFCs from 2 per cent to 0.40 per cent. It had assigned a uniform risk weight of 100 per cent to the claims on rated as well as unrated non-deposit taking systemically important non-banking financial companies. The RBI had also extended the special term repo facility that it had introduced to help mutual funds and NBFCs facing fund shortage till end-March 2009.
TMB raises deposit rates (BL, FE 18.11.08)
Tuticorin-based Tamilnad Mercantile Bank has hiked interest rates on domestic term deposits, effective from November 13. The interest rate for the maturity period of one year to five years has been revised upward by 50 basis points.
RBI sets loan rate cap for HFCs at Libor+ 200 bps (BL, FE 18.11.08)
Even as the Reserve Bank of India has allowed housing finance companies (HFCs) to raise short-term foreign currency borrowings, the interest rate ceiling set is too low, which would make it very difficult to borrow, said officials from HFCs. On Monday, RBI released detailed guidelines for HFCs to raise short-term foreign currency borrowings under the approval route. According to the guidelines, the all-in-cost ceiling should not exceed six months Libor plus 200 basis points and the borrowings should be fully swapped into rupees for the entire maturity.
StanChart hopes to grow consumer banking (BL 18.11.08)
Standard Chartered bank is looking to increase its field force and focus on relationships as a strategy to grow its consumer banking segment. The bank is planning to increase the number of relationship managers (RMs) by 10 per cent, from the current strength of over 1,000, during this fiscal, said Mr Shyam Srinivasan, Country Head (Consumer Banking), India. Currently, StanChart India has under $2 billion of assets under management, from around 2 lakh customers. Even in the home loan segment, the bank will continue to sell mortgage not as a product, but as a relationship, through its ‘Home Saver’ product. Under this scheme, the repayment is based on the balance in the borrower’s account and gives the borrower the flexibility to offset the balance. StanChart is also looking to extend services under the SME segment to professional services such as doctors, architects, chartered accountants, which are relatively all-weather segments.
Goldman Sachs top rung to forego bonuses (BL 18.11.08)
Seven top executives of Goldman Sachs, a top Wall Street investment banking firm, have decided to forego their bonuses, running into millions of dollars. The development could be a trend-setter among other top US executives on Wall Street, who in the midst of a deep financial crisis, are being accused of taking away hefty perks and bonuses.
Citigroup to eliminate more than 50,000 jobs (BL, FE 18.11.08)
Citigroup Inc, the fourth-biggest US bank by market value, plans to eliminate more than 50,000 jobs, or about 14 per cent of the workforce, and cut expenses by 20 per cent from their peak as the global economy contracts. The Chief Executive Officer, Mr Vikram Pandit, already reduced headcount this year by 23,000 through job cuts and the sale of business units, leaving the New York-based bank with 3.52 lakh employees as of September 30.
Japan enters recession: Official data (BL 18.11.08)
Japan's economy, the second largest in the world, slipped into recession in the third quarter as companies slashed investment to weather the financial crisis. Japan's economy contracted by 0.1 per cent in the three months to September, after shrinking 0.9 per cent in the second quarter of the year.
New CEO of MCX-SX (BL 18.11.08)
MCX-SX, the currency futures exchange promoted by the Financial Technologies and MCX, has appointed Mr U. Venkataraman as the Chief Executive Officer. Mr Venkataraman was earlier Vice-President and the head of treasury at IDBI Bank.
PNB launches mobile banking in Daringibadi (BS 18.11.08)
The Punjab National Bank (PNB) launched a pilot project on mobile or branchless banking service at Daringibadi in tribal dominated and backward Kandhamal district, which is in the news recently for prolonged ethnic and religious strife. The project aims to reach out to people in remote areas not yet covered by banking service and bring them into the fold by opening no frills account in their name. “It is a technology based financial inclusion (FI) project and aims to cover vast number of un-banked rural people", said chairman-cum-managing director of the PSU bank, K.C. Chakrabarty. "Initially the project will cover Dringibadi area, the biggest block of the state and gradually it will be extended to other parts of the district”, BP Sharma, the head of the bank, Orissa circle, said. The New Delhi headquartered bank aimed to extend the services to other backward districts of the state including Gajapati, he said. The bio-metric cards, thermal filter and near filed communication ((NFC) mobile handsets are required to operate this unique banking service in the rural areas where facilities of modern technology are not available.
Banks may not ease lending to real estate developers (BS 18.11.08)
Even though the Reserve Bank of India (RBI) has reduced the risk weightage on loans to commercial developers and cut general provisioning for commercial real estate, commercial banks may not start lending to the sector immediately. RBI had reduced the risk weightage on loans for the commercial real estate industry to 100 per cent from 150 per cent last Saturday and similarly, standard asset provisioning requirements too were reduced to 0.40 per cent. Lower risk weight implies that banks would now have larger capital at their disposal for advances. However, bankers still see real estate as a high risk sector and analysts say banks will only ease lending to developers after tackling the previous advances. “The sector is passing through stress, the risk has increased. We would like to wait and watch before taking a call, but as of now there is no question of passing on the benefits,” an executive of a public-sector bank said. However, property developers expect banks to ease lending and cut rates after the RBI’s move.
'Banks should lend more' (BS 18.11.08)
Kolkata-based public sector bank United Bank of India (UBI) hopes to initiate a capital restructuring plan by the end of this financial year, before going for an initial public offering (IPO). The bank is planning to sell non-performing assets (NPAs) worth about Rs 200 crore to an asset reconstruction company. S C Gupta, the newly appointed chairman and managing director of the bank, said rising NPAs are a cause for concern for the whole industry. Despite the slowdown in the economy, the banking industry has shown resilience and has done reasonably well. It is only the mark-to-market provisions, which has resulted in the reduction in profit for banks. The busy season has started, and with the Reserve Bank of India (RBI) relaxing provisioning norms for real estate lending, banks should lend more, he added.
Deutsche wants rate cut (BS 18.11.08)
Deutsche Bank India asked the Reserve Bank of India (RBI) to further cut reserve ratios as well as policy rates, and relax the overseas borrowing norms to infuse more liquidity into the system. “We need more liquidity, more CRR cuts, repo rate and SLR cuts ... The RBI needs to go through the second phase of rate cuts,” Deutsche Bank MD and CEO Gunit Chadha said, while addressing a session on the infrastructure sector at the India Economic Summit. Chadha also underlined the need for setting up a sovereign wealth fund to facilitate investment in infrastructure, adding that such investment should be recognised as priority lending, like for exports and small-scale industries.
Kotak Mahindra eyes global alliance with financial firms (BS, FE 18.11.08)
Kotak Mahindra Bank is planning to sign up new overseas alliances with financial firms as the global credit crisis forces local businesses to sell stakes overseas. “Indian promoters will sell out,” said Falguni Nayar, managing director, Kotak Mahindra Capital Company, in New Delhi on Sunday. They will realise “it is a struggle to continue running the company in a down-environment and there will be greater motivation to sell."
Federal bank increases interest rates by 0.75% (ET 18.11.08)
Federal Bank has hiked interest rates for NRE term deposits and FCNR deposits by 0.75%. Revised rate of interest for NRE term deposits for 1 year to 2 years is 4.92%, 2 years to 3 years is 4.41% and 3 years and above is 4.89%. For FCNR deposits also the Bank has hiked interest rates by 0.75% across all maturities. The revision will be effective from November 16, 2008.
NRIs trust desi banks, deposit $513 m in Sept (ET 18.11.08)
There is no crisis of confidence in Indian banking as far as the diaspora is concerned. At a time when many banks overseas are struggling to raise liquidity to stay afloat, overseas Indians are reposing their faith in Indian banks and betting on the rupee having bottomed out. Lured by higher returns, NRIs have poured in $513 million in NRI deposits in September this year - the highest since December 2006. Bulk of this has hit the NRE(RA) scheme, which reflects the attractiveness of rupee-denominated deposits to NRIs. This scheme became the flavour as with rupee depreciation against the dollar, NRIs get more value out of the dollar. The pattern of deposits indicates that depositors have preferred to park more in NRE(RA), where the currency risk is borne by the depositor.
Sebi looks to shield small MF investors (ET 18.11.08)
Securities market regulator Sebi is in the process of firming up a policy to push retail participation in mutual funds in an effort aimed at neutralising or lowering the impact of large outflows by corporate or institutional investors as happened recently. The regulator is now weighing the option of segregating the investments of corporate and retail investments so that retail investors are not impacted if corporate investors exit from schemes early. What this could mean is that fund houses would be told to float separate schemes targeting institutional and retail investors, a practice which is prevalent overseas.
Corporation Bank revises home loan rates (FE 18.11.08)
Corporation Bank has revised the interest rates on home loans and select schemes from November 17. Interest rates on home loans for up to Rs 30 lakh were brought down by 75 basis points whereas higher reductions were made on loans above Rs 30 lakh. The interest rates on Corp Mobile Scheme was also revised to 12.50% from 13%.
Bankers to benefit from RBI measures, rate-cut ruled out (FE 18.11.08)
The bankers have hailed the series of measures announced by the Reserve Bank of India (RBI) on last Saturday to boost liquidity and improve credit delivery system. The bankers, however, ruled out further rate-cuts immediately. MD Mallya, CMD, Bank of Baroda said that it would provide a sort of boost to the banks as it would reduce their capital requirements after their risk weights have been reduced. "Now the banks can look at extending finance to even those sectors, subject to their risk perception on individual basis. But for the lending rates to come down, the deposits' rates have to be reduced and it is difficult for me to tell when exactly will it happen," he said. Ashok Mukand, chief financial officer State Bank of India (SBI) said that the recent steps taken by the RBI would make available some amount of capital to those banks whose CAR was less than 12%. "But, it will be too early for me to comment when our rates will be reduced further," he said. Partho Mukherjee, treasury chief, Axis Bank said, "The reason why the Indian banking space is not yet witnessing the lower interest rate scenario is that the bankers are still not confident about the presence of medium to long term liquidity in the system. Once they are convinced on the liquidity factor, the rates will start falling in. I expect the credit off take to grow over 20% in this fiscal as inflation might come down at around 6% by March 2009."
BoB ups FCNR rates (FE 18.11.08)
Bank of Baroda has increased interest rate on FCNR (B) for maturity period of one year to two years in dollar terms to 4.17% from 3.42% effective from November 17, 2008.
New norms for RRBs (FE 18.11.08)
RBI has said the regional rural banks (RRBs) have to fulfill certain conditions to become eligible for opening of new branches. Accordingly, they should not have defaulted in maintenance of SLR and CRR during the last two years. Secondly, the RRBs should be making operational profits, its net worth should show improvement and its net NPA ratio should not exceed 8%.
BoA to up stake in Chinese bank (FE 18.11.08)
Bank of America (BoA) said it would boost its stake in China's third-largest bank, China Construction Bank, to 19.1% from 10.75%. BoA originally bought a 9% stake in the Chinese bank for $3 billion in June 2005, and earlier this year boosted its stake to the current level.
Major rates & parameters as on 17.11.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 4,400 Cr
Rs 1,650 Cr
Rs 7,525 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express