Sharp rise in bank loan growth (BL 03.11.08)
GDP growth may be slowing down but, strangely, bank loans have grown at an explosive pace during the last quarter. Banks have lent about Rs 2 lakh crore just during the past six fortnights up to October 10. Comparatively, their lending in the first quarter was just a pale shadow of what they did recently - a paltry Rs 46,666 crore! One explanation offered for this kind of loan growth is that oil and airline companies may have been utilising a lot of bank credit. According to disaggregated RBI statistics available up to end-August, there has been strong growth in credit to oil, infrastructure, construction and iron & steel sectors. The macro numbers indicate that credit has grown by about 29 per cent year-on- year.
IOB offers support for biofuel projects (BL 03.11.08)
Indian Overseas Bank has offered to extend financial support to viable bio-fuel plant cultivation projects. Towards this, the bank conducted a workshop jointly with Nabard on ‘bio-fuel plant cultivation’.
Lending rates to come down, says IBA chief (BL 03.11.08)
The “conducive factors” obtaining today in the banking industry are likely to cause an immediate fall in lending rates by 50 basis points (half per cent), says Mr T.S. Narayanasami, Chairman, Indian Banks Association. However, further slashing of lending rates will happen in due course, after deposit rates come down. The flood of liquidity will help banks meet the demand for credit from proposals on hand and also make them less dependent on costly bulk deposits. As such, deposit rates will come down.
'Bail out mutual funds, NBFCs' (BL 03.11.08)
Warning that mutual funds and non-banking financial institutions with an exposure of Rs 630,000 crore could crumble under high interest costs, the CII President, Mr K V Kamath, on Sunday asked the Government to save the crucial financial sector to save the economy.
IBA facilitates bank credit flow to mutual funds (BL, BS, ET, FE 03.11.08)
Indian Banks Association (IBA) has opened a facilitation counter to enable mutual funds to borrow from banks under the Reserve Bank of India’s liquidity support scheme for MFs. It will help mutual funds to locate banks which have “headroom” under the RBI scheme, as each bank has a lending limit (depending on the size of its deposits), said Dr K. Ramakrishnan, Chief Executive of IBA. The IBA will collect data on the position of its members on a daily basis so that it will know which bank has funds to lend under the scheme. Banks will also be “considerate” on interest rates to be charged. Mr M.D. Mallya, Chairman, Bank of Baroda, said banks should be able to lend at 11-12 per cent interest. The IBA move follows representations made by the Association of Mutual Funds in India (AMFI) alleging that its members were finding it difficult to access funds. On October 14, the RBI had announced a Rs 20,000 crore short-term fund facility at 9 per cent interest for banks (increased to Rs 60,000 crore on Saturday) exclusively for non-lending to MFs. So far, banks have borrowed Rs 8,500 crore as the response from mutual funds was said to be “lukewarm ”.
Credit rating agencies – answerable to none? (BL 03.11.08)
When a Credit rating agency (CRA) commits serious errors of omission and alleged commission, the affected parties cannot hold it answerable. This was amply clear in the recent financial meltdown that had gripped the US and many western nations. In India, SEBI has recognised only four CRAs, namely Crisil, ICRA, CARE and Fitch, for rating a debenture issue with maturity over 18 months. There are two more CRAs in India, ONICRA and SMERA (a joint venture of SIDBI and banks), but these do not seem to have official recognition. In India, there are cases where CRAs had suddenly downgraded an issue from a high level to the lowest default category, indicating faulty assessment and/or sloppy monitoring.
Bonds rally on dip in oil prices, deluge of deposits (BL 03.11.08)
Bonds rallied during the week on the back of weakening oil prices and mounting deposit inflows into the banking system. At the two week-end LAF auctions, the recourse to the repurchase window was Rs 65,385 crore. Besides, towards the week-end, call rates topped 20 per cent. The cut-off yield on the 91-day T-bill yield was 7.44 per cent, up from the previous week’s level of 7.19 per cent. The weighted yield also rose to 7.26 per cent or 20 basis points over the previous week. The US Federal Reserve also instituted swap lines with several central banks across the world as a liquidity support measure. Some foreign banks took the opportunity to effect overnight swaps to take advantage of the high call rates. This effectively implied swapping dollar for rupees and reversing the same on the settlement day. The dollar inflows, as a result, pulled up spot rupee to Rs 49.25 per dollar from the previous weekend’s level of Rs 49.95. But traders believe that the rupee is unlikely to remain capped at Rs 50, with the possibility of an upside momentum. The trend was due to deposits flooding the banks, partly from non-resident Indians under Foreign Currency Non Resident (FCNR), in addition to domestic deposits.
Citigroup to rejig India biz (BL 03.11.08)
Citigroup, which recently reported a net loss of $2.8 billion for the quarter ended September 30, has said its business in India is being actively repositioned to cut the costs and offset the losses.
Micro insurance product launched (BL 03.11.08)
The Union Finance Minister, Mr P Chidambaram, on Sunday launched 'Janata Bima Yojana', a micro insurance product from IFFCO-TOKIO, a general insurance company jointly promoted by the Indian Farmers Fertilizer Cooperative Ltd (IFFCO) and Tokio Marine and Nichido Fire Group, an insurance company from Japan.
SBI to decide rate cut later this week (BS 03.11.08)
State Bank of India Chairman O P Bhatt said the lender will take a call on revising interest rates in the second half of the week. In addition, SBI, which has already extended loans worth Rs 5,000 crore to help cash-strapped mutual funds, will enhance lending to the sector and to non-banking finance companies (NBFCs). These moves follow the Reserve Bank of India’s Saturday decision to allow banks to raise additional resources through the repo window to meet the funding needs of NBFCs, which have been facing tight liquidity for the last 45 days.
SBI To launch PE fund for core sector (BS 03.11.08)
State Bank of India on Sunday said it intends to start a private equity fund of $1 billion to $1.5 billion for infrastructure financing with Australia’s Macquarie Group and World Bank’s private sector financing arm International Finance Corporation. Saying there was “no point keeping funds idle”, SBI chairman OP Bhatt said the bank was awaiting regulatory clearance. In recent weeks, players like Reliance Capital and LIC Housing Finance, which had planned PE funds, said that they would kick off operations with smaller funds because fund raising was not easy.
FM to ask banks to cut rates (BS, FE 03.11.08)
Hailing RBI’s latest policy package to infuse additional liquidity as a signal for a cut in interest rates, Finance Minister P Chidambaram said he would take the issue of interest rate cut “forward” during a meeting with the chairpersons of public sector banks in Delhi on Nov. 4.
IDBI Bank to sell home loan arm (BS 03.11.08)
Leading lender IDBI Bank has decided to sell its housing loan subsidiary, IDBI Home Finance (IHFL), unlike its earlier plan to merge the unit with itself, and may invite bids from potential buyers soon, a top bank executive has said. The move will be aimed at consolidating its home loan finance business, which is currently being rolled out through the bank’s own housing finance division and its wholly-owned subsidiary, IHFL, based in Pune. However, given the present market downturn, the unit is unlikely to get an expected market valuation.
Loans to get costlier for unrated cos (ET 03.11.08)
Bank loans for unrated corporate borrowers are set to get costlier by about 200 basis points. Many commercial banks have started charging higher interest rates from such borrowers as credit ratings are mandatory under Basel II norms. It is, however, up to the corporates to provide ratings to prove their creditworthiness. Most banks have asked their borrowers to provide ratings for credits of Rs 5 crore or more. But banks as well as corporates are finding it difficult to get credit ratings as there are only four authorised rating agencies in the country-Fitch, Icra, Crisil and CARE Ratings. Recently, SBI chairman OP Bhatt had also acknowledged that the bank was facing difficulty in getting its accounts rated because of the paucity of authorised agencies.
Fighting the squeeze (ET 03.11.08)
Although most bankers concede that the Reserve Bank of India’s (RBI) move to lower the cash reserve ratio, repo rate and statutory liquidity ratio has set the stage for an easing of interest rates, they are still cautious. This is because they feel that in the near term, the RBI may have to continue to defend the rupee, which would mean draining liquidity in the local market. Most bankers said that they would prefer to lower the deposit rate before cutting the PLR.
Credit card cos lose sleep over rise in transactions (ET 03.11.08)
Credit card transactions in the country went up by as much as 25% in September ’08 compared to the previous month. Usually, this brings cheers to credit card companies. But this time, it’s worrying them. Credit card companies fear that significant growth in plastic money usage may eventually result in higher defaults. "It is important to constantly monitor spends and take appropriate action to prevent defaults,” said Standard Chartered general manager & head (cards & personal loans) R L Prasad.
‘Market psyche needs to change for rate-fall’ (ET 03.11.08)
Having spent a large part of his career at Bank of India, SA Bhat now heads the largest South-based bank, Indian Overseas Bank. He said, "At the moment, all my overseas offices are funding themselves through inter-bank borrowings, customer deposits and through lines of credit. We have not provided them any funds by converting rupees into dollars other than the capital that is required to be provided to them to start with. As for demand from the client side, let me clarify that there is still sufficient demand for dollar loans from Indian companies overseas. However, we have been struggling to meet this demand…. in the second quarter, we consciously slowed down because of the liquidity crisis. For interest rates to come down, the market psyche has to change. Once bankers feel that easy liquidity is a certainty for some reasonable amount of time, deposit rates will start coming down."
Cash-strapped MFs woo big investors with ‘extra’ returns (ET 03.11.08)
Pushed to the wall, many fund houses have cut off-market deals with corporates and financial institutions to fight the cash crunch. As redemption pressures mounted, the mutual funds (MFs) gave ‘guaranteed’ returns to rope in these big investors who were willing to bail them out by parking money for a few weeks. Under the arrangement, even if the net asset value of the MF scheme dipped, these investors were allowed to exit at a higher pre-agreed NAV.
Tax-free gratuity cap may treble to Rs 10 lakh (ET 03.11.08)
In a move that would help the salaried to get tax-free gratuity of up to Rs 10 lakh, the labour ministry is considering a proposal to hike the ceiling on gratuity from the current level of Rs 3.5 lakh. The ministry has sought comments from employees as well as employers and a decision would be finalised after considering feedback from both sides.
Banks: cut, don’t run (FE 03.11.08)
The policy signals are clear: even if RBI is still behind the curve. Banks need not produce a situation where a de facto administered lowering of the price of credit seems inevitable. They didn’t need prodding to raise interest rates. Even worse are those coming from PLRs, ranging from 12.75% to 13.25% - among the highest in major economies. Small and medium enterprises are paying much more. Home loan burdens have increased sharply. And, importantly, deposit rates have risen consistently. Banks shouldn’t argue high deposit rates preclude lending rate rationalisation. They should rationalise rates across the board. A month after India recognised it is not immune to global shocks, it’s time bankers demonstrate they understand the danger from domestic shocks. Cut lending rates - now.
Govt considering SPV to buy bad loans of banks (FE 03.11.08)
The government is considering floating a special purpose vehicle (SPV) that would buy non-performing assets, or NPAs, of domestic banks. The proposal for creating an SPV is being debated by the finance ministry and the regulators as a pre-emptive step to protect the financial sector from widespread defaults. The subject is likely to figure in finance minister P Chidambaram’s meeting with heads of the public sector banks on Tuesday. The global financial crisis has choked liquidity around the world and raised across-the board defaults and delinquencies. As a result, banks in India have become risk-averse in lending. The structure on the SPV is expected to be on the lines of the Asset Reconstruction Company (India) Ltd, or Arcil, with government being a dominant stakeholder in it, it is understood.
Corporate defaults possible if rates keep high (FE 03.11.08)
Concerned over the interest rates in ‘high teens’ that could make India a high cost economy, the Confederation of Indian Industry president K V Kamath said that corporate defaults beginning with small and medium enterprises cannot be ruled out. “As of now, we are not seeing big corporates defaulting. But I cannot rule that out, particularly starting with SME sector.” While welcoming the RBI’s move yesterday to inject about additional Rs 85,000 crore liquidity, he said, “Although the decision was concrete and welcome, more is needed in case corporate India has to get funds from banks at 3-4 % lower rate of interest.”
RBI opens liquidity tap again; signal for rate cuts (BL, ET, FE 02.11.08)
The Reserve Bank of India on Saturday cut the Repo rate, Cash Reserve Ratio and Statutory Liquidity Ratio, besides announcing a host of other measures, unlocking more than Rs 1,80,000 crore in additional funds for banks. In cutting the key rate for the second time in less than a fortnight, RBI joins other apex banks across the world taking similar measurers to ease the liquidity crunch in their respective economies and improve the availability of credit. RBI reduced the repo rate (the short-term rate at which RBI lends money to banks) by half a percentage point to 7.5 per cent, CRR (the portion of deposits banks will have to keep with RBI) by one percentage point to 5.5 per cent and SLR (the portion of deposits banks have to invest in government securities) by one percentage point to 24 per cent. Mr T.S. Narayanasami, Chairman, Bank of India, who heads the Indian Banks’ Association, said there is a genuine case now for banks to reduce interest rates. Chairmen of some other banks also hinted at rate cut, but only after assessing their assets-liability balance. However, some other bankers felt they have to see a reduction in their cost of funds before cutting lending rates. To attract deposits, banks have been offering rates up to 10.5-11 per cent on three-year deposits. RBI is of the view that with inflation softening and falling below 11 per cent and with global commodity prices, including that of crude, easing, it is important to ensure that growth momentum is maintained. The revision in repo will come into effect from November 3. The cut in CRR will be effected in two stages: first, retrospectively from the fortnight beginning October 25 and the next from November 8. The one percentage point cut in CRR will release Rs 40,000 crore, which banks can use for lending. The one percentage point reduction in SLR will come into effect from November 8. This will provide additional liquidity to the extent of Rs 40,000 crore. In addition to these measures, RBI has decided to provide a special refinance facility under which banks can avail themselves of funds up to one per cent of their net time and demand liabilities. Bank can borrow funds up to a maximum period of 90 days at the repo rate, which has now been reduced to 7.5 per cent. This additional window is expected to provide another Rs 40,000 crore. To provide liquidity support to non-banking finance companies (NBFCs) and mutual funds, RBI has relaxed SLR requirements for banks to the extent of 1.5 per cent of their NDTL (net demand and time liabilities) on a temporary basis. This will enable banks to borrow Rs 60,000 crore additional funds from RBI exclusively for non-lending to NBFCs and MFs. This is in addition to the Rs 20,000 crore special facility allowed for MFs on October 15. In yet another step to provide additional liquidity facility, RBI has also decided to buy back market stabilisation bonds.
‘System requires money now’ (BL 02.11.08)
The Chairman and Chief Executive Officer of Karnataka Bank Ltd, Mr Ananthakrishna, said that the system requires money now. The call rate has gone up to 22 per cent, and the inter-bank money market is in a difficult position now. Mr Asit Pal, Executive Director of Corporation Bank, said that the liquidity will improve in the system with RBI’s move. Asked if Corporation Bank is planning to reduce rate of interest, he said: “We have to think about the impact of the availability of liquidity and how the market reacts.”
`Strong signals to banks' (BL 02.11.08)
The series of measures taken by the RBI are indeed very aggressive and sends strong signals to the banks and financial markets said Mr R.S. Reddy, CMD, Andhra Bank.
Rate cut: Banks have to ‘wait and watch’ (BL 02.11.08)
According to Mr S.K. Goel, Chairman and Managing Director, UCO Bank, interest rates will start moving southwards. “We will look at a one per cent cut on lending rates. Deposit rates will also come down thereby bringing down the cost of funds,” Mr Goel said. The Asset Liability Committee of the bank will meet on November 10 to take a call on interest rates, he said.
`Welcome measures' (BL 02.11.08)
The fundamentals in Indian economy and banking sector are strong and these measures will help banking sector to play its role of financial intermediation and will keep the economy on growth path amidst the challenging global condition, according to Ms Chanda Kochhar, Joint Managing Director, ICICI Bank.
‘Firmest signal for banks to act’ (BL 02.11.08)
The Reserve Bank’s multi-pronged strategy unravelled in the latest policy-rate setting initiative is the firmest signal yet for banks to cut lending rates, according to Dr D. K. Joshi, Director and Principal Economist, Crisil.
Apex chambers hail RBI move (BL 02.11.08)
The CII Director General, Mr Chandrajit Banerjee, said “these are timely steps coming on the back of a sharp increase in the overnight lending rates.” “We hope that the banks will now follow the signal from the RBI and lower lending rates,” he said. President of the Federation of Indian Chamber of Commerce and Industries (FICCI), Mr Rajeev Chandrasekhar, said that, “We believe these should have come at the same time as the first set of liquidity initiatives and could have saved some time and sent a much stronger signal.” The Associated Chamber of Commerce and Industries (Assocham) is also of the view that the RBI move to cut repo rates by 0.50 basic points and one per cent cut in CRR and SLR will infuse liquidity in the system and lead to reduction in interest rates.
IDBI Bank cuts retail lending rates (BL 02.11.08)
IDBI Bank has cut its retail lending rates on home and education loans. It has reduced the interest rates by 50 basis points across the board for all existing and new customers with effect from November 1, 2008. The revised home loan rates shall be 11 per cent per annum against earlier rate of 11.5 per cent per annum. Simultaneously, the margin on home loans has been enhanced from 15 per cent to 20 per cent for loans up to Rs 30 lakh and to 25 per cent for loans over Rs 30 lakh.
'SMEs to get affordable credit' (BL 02.11.08)
"Credit was getting costlier for SMEs as large companies were managing from their internals. From the cut, their problem has been addressed," the Prime Minister's Economic Advisory Council Chairman, Mr Suresh Tendulkar, said.
NBFCs hope banks will take RBI’s cue (BL 02.11.08)
By telling banks that they would relax their SLR requirements by 1.5 per cent of their net demand and time deposits provided the banks would use the funds released to give loans to NBFCs and mutual funds, the RBI has signalled a change in its attitude towards NBFCs. Companies such as Chola DBS, Sundaram Finance and Shriram Transport, that have long relationship with banks, may get benefited, but a whole lot of other NBFCs may not yet feel the banks’ warmth.
Allahabad Bank cuts NRE rates (BL 02.11.08)
Allahabad Bank has reduced interest rates on FCNR and NRE deposits effective November 1, 2008. For FCNR (B) deposits, the revised rates of interest on dollar deposits of various tenure are as follows: one to less than two years at 3.42 per cent (4.21 per cent), two to less than three years at 2.91 per cent (3.52 per cent), three to less than four years at 3.39 per cent (3.81 per cent), four to less than five years at 3.74 per cent (3.95 per cent) and for five years only at 4.01 per cent (4.14 per cent).
RBI plans buyback of market stabilisation scheme securities (BL 02.11.08)
The RBI announced the proposal as part of its package of additional measures for monetary and liquidity management. The RBI buyback scheme is yet to be notified, but bankers expect the schemes to be notified during next week.
You can lead a horse to water... (BL 02.11.08)
Can a business confidence issue be tackled by flooding the system with money? The Government and the Reserve Bank seem to think so. So in the last month or so, the two have decided to pump in upwards of something like Rs 3,00,000 crore into the banking system - not counting the money multiplier. The two hope that by putting in so much money, they can revive aggregate demand. If firms decide, for whatever reason, that investment is not profitable, they will not invest. It is this element of discretion that the Government and the RBI are not factoring in - and thus building up the mother of all inflationary potentials. The current dip in inflation is largely a statistical (base) effect. It is worth noting that faced with a similar deficiency in aggregate demand, Japan had dropped interest rates to zero in the mid-1990s, to no avail.
Markets may see easing of selling pressure (BL 02.11.08)
On Friday, the Sensex gained 8.22 per cent and the Nifty seven per cent. Though the rate cut might have been partly discounted by the market on Friday, it will open with a positive gap on Monday, said Mr P.K. Agarwal, President-Research, Bonanza Portfolio. The key to market movement would be the behaviour of foreign institutions who were net buyers of equity for Rs 1,237 crore on Friday. Market-men say FIIs are covering their short positions, which was what led to the buying.
S&P assigns BBB-rating to Indian Bank (ET, BS 02.11.08)
Standard and Poor's, the international rating agency, has assigned BBB-long-term and A-3 short-term counter party rating to Indian Bank. The rating assigned to the bank is the same as sovereign rating. This is an indicator of the bank's performance in the areas of capital adequacy, asset quality and risk management.
SLB mechanism changed, lending tenure extended (FE 02.11.08)
Stock market regulator Securities & Exchange Board of India (Sebi), as promised earlier, has reviewed the Securities Lending and Borrowing (SLB) framework and instructed the exchanges and depositories to extend the tenure from present seven days to 30 days. In a circular in October, Sebi had mentioned its disapproval to the foreign institutional investors (FIIs) lending shares for short sales purpose in the overseas markets. The lack of popularity to the SLB was due to various reasons. Prime amongst them was that the lending mechanism as only for seven days, hence somebody who wanted to go short on particular scrip, had to return the borrowed shares in seven days. Regulations do not allow for 'naked short sales' wherein speculators can sell shares that they don't own.
****Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express