Tuesday, December 2, 2008

BANKING NEWS - 29 & 30.11.2008

Banks to deploy gunmen, go for hi-tech gadgets

K. Ram Kumar, Priya Nair Business Line, Mumbai, Nov. 29
Gaining entry into the corporate headquarters of banks in Mumbai could prove to be a bit of a hassle soon. Following the terrorist assault on five-star hotels, major banks in the city have decided to tighten security.
From not allowing outside vehicles inside the building precincts to installing CCTV cameras to frisking, further security measures are in the works.
State Bank of India, which has its Head Office in the central business district of Nariman Point, has decided to step up security further. As part of the new security drill, all people entering the bank’s premises will have to get their identity verified at the outer gate itself, and not after they reach the reception. Outside vehicles, including cabs ferrying employees, will not be allowed entry.
“We will be meeting in a couple of days to review the security position. We may go for hi-tech electronic systems so that our security personnel can actively monitor the entry and exit points as well as movements on all floors,” said a senior official.
IDBI Bank, which has its Head Office in the World Trade Centre complex, plans to beef up its security further. “We intend to deploy well-trained gunmen to guard the premises. In the meanwhile, we have requested the Mumbai police to increase its presence in the WTC complex,” said Lt.Col (Retd) Rohit Shukla, Chief Security Officer, IDBI Bank.
Chander Mukhi building, Central Bank of India’s corporate office, already has CCTV within the building, guards on each floor in two shifts and adequate security at night. “Additional security measures being put in place include door metal frame detectors, introduction of under-vehicle checking and perimeter cameras for surveillance in the parking area. We will prevent our premises from being used by outsiders as a thoroughfare between two streets,” said Captain Subramanian, Chief Manager (Security).
Similarly, Union Bank of India is planning to install an X-ray baggage scanner for which the purchase process has already begun, said a senior official. The bank is also planning to deploy armed guards, at its corporate office in Nariman Point.

Multilateral institutions may be approached for banks’ recapitalisation
The Finance Ministry is in the process of preparing a paper that would go into the recapitalisation details and quantify the amount that may be required.
K.R. Srivats business line New Delhi, Nov. 27
The Finance Ministry may approach multilateral institutions like the World Bank to part finance the planned recapitalisation of seven public sector banks to help them reach a capital adequacy ratio of 12 per cent.
Currently, the banks, in which fresh capital is proposed to be injected, have capital to risk asset ratio (CRAR) of 10-12 per cent.
Official sources said that the Finance Ministry was in the process of preparing a paper that would go into the recapitalisation details and quantify the amount that may be required.
The current thinking within the Ministry was that the capital infusion would have to happen by cash and not through bonds or other securities.
“The paper is likely to be ready by this weekend. We may even look at approaching multilateral institutions for their support,” a Finance Ministry official said.
The Finance Minister, Mr P. Chidambaram, had in mid-October said that the Government had decided to provide the banks access to finance in order to raise CRAR that are now between 10 and 12 per cent to reach 12 per cent by a suitable date in future.
He had highlighted that the CRARs of Indian banks were well above the Basel norm of 8 per cent and RBI stipulated norm of 9 per cent. Banks that had low CRAR at the end of March 2008 were UCO Bank (10.09), Bank of Maharashtra (10.26), Central Bank of India (10.42), Dena Bank (11.09), Vijaya Bank (11.22), Andhra Bank (11.61) and Indian Overseas Bank (11.96), RBI data showed.
PSU banks
Other PSU banks that had CRAR of below 12 per cent include Punjab & Sind Bank (11.57), State Bank of Hyderabad (11.97), State Bank of Indore (11.29), State Bank of Mysore (11.29), Syndicate Bank (11.22), IDBI Bank (11.95) and United Bank (11.88).

Three-fold salary raise for judges
Legal Correspondent, New Delhi: The Hindu
The Union Cabinet on Thursday decided to increase the monthly salaries of judges of the Supreme Court and High Courts three-fold.
The revision has been necessitated by the increase in the salaries of Central government employees on acceptance of the Sixth Central Pay Commission recommendations.
Now the Chief Justice of India (CJI) will get Rs.1, 00,000 plus Dearness Allowance thereon. At present his salary is Rs. 33,000. The other judges of the Supreme Court and the Chief Justices of High Courts will draw Rs. 90,000 (now Rs. 30,000) plus DA. High Court judges will get Rs. 80,000 (Rs. 26,000) plus DA.
A committee, which went into the issue, recommended Rs. 1.10 lakh for the CJI; Rs. 1 lakh for a Supreme Court judge and the Chief Justices of High Courts and Rs. 90,000 for a High Court judge. However, the government decided to reduce the recommended hike by Rs. 10,000. The revised pay will be effective from January 1, 2006. Forty per cent of salary arrears will be given this financial year and 60 per cent in the next financial year.
Effective from September 1, 2008, the limit of both sumptuary and furnishing allowances has been doubled for all Supreme Court and High Court judges.
A government order to this effect will be issued after an amendment in the relevant legislation, says an official release.
YES Bank’s Ashok Kapur killed in terror attack
Our Bureau Mumbai, Nov. 28 business line
Mr Ashok Kapur, Non-Executive Chairman of YES Bank, fell to the bullets of terrorists who had laid siege to Hotel Oberoi in south Mumbai for over 40 hours beginning Wednesday evening.
A YES Bank spokesperson confirmed the death.
Mr Kapur and his wife were dining at the Kandahar restaurant in the hotel when the terrorists struck. His wife had a miraculous escape. “One terrorist was very close behind me, but some of us managed to get away and I found myself hiding somewhere with a Spanish couple,” said Ms Madhu Kapur. She moved around in the hotel, hiding here and there, till she was finally escorted out on Thursday morning. Since then, she had maintained vigil outside the hotel, anxious for a word on her husband’s safety.
US commits $800 billion more to bail out consumer credit and mortgage market
By Patrick O’Connor 27 November 2008
US Treasury Secretary Henry Paulson announced Tuesday another extension of the Bush administration’s bailout of the financial system, committing $800 billion towards lending programs aimed at preventing the collapse of the home mortgage and consumer credit market. This marks the first time that the Treasury and the Fed have ever intervened to finance consumer debt.
The latest programs push the total size of the direct and indirect financial obligations assumed by the federal government to more than $8 trillion. Paulson emphasized that the new lending measures were merely a “starting point” and could soon be extended to cover other debt, including commercial mortgage-backed securities, a move that would further increase the enormous public resources that have been diverted to protecting the interests of the financial oligarchy.
The new measures, announced a day after the $249 billion bailout of Citigroup, underscore both the depth of the crisis wracking the financial markets and the increasingly disoriented response by the authorities in Washington. Just last week, Paulson told Congress that the financial system had been stabilized by the massive capital injections into the markets engineered by the Bush administration. His actions this week belie such claims.
The Federal Reserve is to create a Term Asset-Backed Securities Loan Facility (TALF) that will lend up to $200 billion to holders of high-grade securities backed by assets including loans to small businesses, students, credit card holders, and car owners. The TALF is backed up by $20 billion from the Treasury’s $700 billion bailout fund that was authorized by Congress in September.
The other aspect of Paulson’s latest program is a $600 billion mortgage lending fund. The Fed is to buy up to $500 billion of mortgage bonds guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae, and will purchase another $100 billion of the mortgage finance companies’ debt securities—pools of mortgages bundled together and sold on the financial markets.
None of these measures address the root causes of the increasingly severe economic crisis. Even if the programs make credit more accessible and somewhat less expensive, the ability of millions of ordinary working people to cover their debts amid rising unemployment and declining real wages will remain in doubt.
The immediate impact of Paulson’s announcement was to trigger a wave of mortgage refinancing by indebted home owners. TheWall Street Journal reported that James Ramsey of Aurora, Illinois, locked in a 5.5 percent interest rate on his $180,000 mortgage. His previous rate of 5.625 percent was due to rise by up to 1 percent in January. Ramsey explained that the refinance arrangement “is going to let me pay off a couple of credit cards really quick.”
The Journal explained that the slightly lower mortgage rates are only available to borrowers who have the cash and credit rating to qualify for home loans under existing lending standards. Among those excluded are the roughly 11.8 million homeowners who are prevented from refinancing because their mortgage is now greater than the value of their property. The Paulson plan, in other words, will do nothing to alleviate the foreclosure crisis.
Home prices are continuing to decline. One gauge released by Standard & Poor’s on Tuesday, the Case-Shiller Home Price Index, found that prices declined on an annualized basis in the third quarter by a national average of 16.6 percent. This is the largest quarterly decline recorded since the survey began in 1988. Some cities were especially hard hit, including Phoenix and Las Vegas (down more than 30 percent) and Los Angeles, Miami, San Diego and San Francisco (more than 26 percent). Additional data released yesterday by the Commerce Department showed sales of family homes dropped to their lowest level last month since January 1991.
One housing analyst cited in the New York Times on Tuesday said that “it is unlikely that we are anywhere near a bottom in nationwide home prices”.
Meanwhile, concerns have been raised in the financial press about some of the implications of Paulson’s new initiatives.
“[The Fed’s] approach is similar to steps taken in Japan in the 1990s and earlier this decade, when the Bank of Japan pumped reserves into Japanese banks,” the Wall Street Journal explained. “The Fed is taking that process a step further. Not only is it pumping in reserves, it is deciding where that cash should go, through its own lending programs... There are many risks to this approach. Markets could become dependent on Fed financing, possibly slowing their own recovery. Fed officials are concerned about how they will exit from lending programs, but see that as a problem they’ll have to confront when the crisis subsides, something that is still seen as far off. There are other risks: that the new programs won’t work, that more money will be needed, and that the Fed could suffer losses on all of this lending, particularly with the economy so fragile.”
The Financial Times interviewed Tony Crezcenki, an analyst at trading firm Miller Tabak, who said: “We don’t know yet how it is that the Fed will finance its $600 billion of purchases. What we do know is that it can’t do it with its current Treasury holdings, which total a comparatively smaller $489 billion.” Tabak said he feared the Fed would undermine the greenback if the markets believed the central bank was pumping out an excessive supply of dollars. “Today’s action again begs the question: if the Fed and the Treasury are backing the US financial system, who is backing the US?”
US recession deepens
New economic data released in recent days again indicate that the unfolding recession is developing at a pace and scale unmatched since the 1930s.
On Tuesday, the Commerce Department revised its figures for economic activity in the third quarter. Gross domestic product, previously reported to have contracted by 0.3 percent, actually declined by 0.5 percent. Disposable personal income plummeted at an annual rate of 9.2 percent. Consumer spending declined by 3.7 percent on an annualized basis, significantly worse than the previously reported 3.1 percent.
More Commerce Department data was released yesterday. Consumer spending in October declined by 1 percent, the largest monthly fall since September 2001. October saw the fourth consecutive monthly drop in consumer spending; August recorded a 0.1 percent and September a 0.3 percent contraction. With consumer spending accounting for more than two-thirds of all economic activity, the accelerating downturn is an acute indicator of the mounting recessionary crisis.
Yesterday’s Commerce Department data added to deflation fears. Prices fell by 0.6 percent last month, compared to a 0.1 increase in September. The economic indicators suggested that to the extent that Americans have experienced slightly lower costs of living in some areas, such as the lower cost of gas, they are saving more to prepare for anticipated hardships. Savings as a percentage of disposable income was 2.4 percent in October, up from 1 percent a month earlier.
Business investment and capital spending also took a severe hit last month. Orders for durable goods, regarded as a key indicator of business spending, plummeted by 6.2 percent in October, more than twice the rate anticipated by economists, and sharply up from the 0.2 fall recorded in September.
National capital investment, excluding aircraft and military expenditure, was down 4 percent in October. According to High Frequency Economics, capital investment has plunged by more than 30 percent on an annualized basis in the last three months. The firm’s chief US economist, Ian Shepherdson, told theWashington Post that this figure was “terrifying”.
Last Friday, before the release of the latest economic data, Goldman Sachs economists revised their fourth quarter forecasts downwards, from negative 3.5 percent to negative 5 percent GDP growth. The firm said it expects the economy to contract in each quarter until mid-2009. The official unemployment rate is expected to reach 9 percent by the end of next year, and continue to rise in 2010. “This forecast, if correct, makes the current recession unequivocally the worst single downturn on record since World War II,” the economists concluded.
The stagnating “real economy” is in turn rebounding into the financial markets and banking system, undermining the limited impact of the Treasury and Federal Reserve’s bailout programs. On Tuesday the Federal Deposit Insurance Corporation (FDIC) released a report on the third quarter performance of the banking industry. It found that US banks’ net income in the three months from July to September was just $1.7 billion, down 94 percent from the $27 billion recorded over the same period in 2007.
Nine banks collapsed during the quarter, the most recorded since 1993. Among the failures was Washington Mutual Bank, which was the largest insured institution to fall in the FDIC’s 75-year history. More collapses are inevitable. The number of banks on the FDIC’s “Problem List” increased from 117 to 171, and the assets of “problem” institutions increased from $78 billion to $115 billion in the third quarter.

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