BANKING NEWS - AIBEA - 10.12.2008

Outsourcing to be sticky issue at wage talks
Business Line / K.Ram Kumar / Mumbai / Dec 5
Bankers want to reduce costs while trade unions want to save jobs. So, will the twain meet on the issue of outsourcing?
That depends on who blinks first. The 9th bipartite wage settlement talks between the nine unions and the Indian Banks’ Association’s Negotiating Committee, according to sources familiar with the negotiations, is likely to lead to a tug of war on the issue of outsourcing in public sector banks (PSBs).
According to the union representatives, the last bipartite wage settlement talks did not allow outsourcing other than in specialist IT jobs. The IBA’s Negotiating Committee, however, is of the view that “enlarging the scope of outsourcing is an agenda during the current negotiations.”
“To put it plainly, one man’s meat is another man’s poison. Bankers want to reduce costs while unions want to save jobs,” said a senior functionary with one of the leading employee unions. Besides, wage hike, one more option for pension, and improved service conditions for around seven lakh bank employees, the wage settlement talks will also tackle the issue of outsourcing issue head-on, he added.
A senior banker familiar with the negotiating committee’s stance said, “The banking regulator has clearly issued guidelines on managing risks and code of conduct in outsourcing financial services by banks. Our talks on outsourcing will be held within this framework. There will be no retrenchment on account of outsourcing.”
The key drivers for outsourcing, as identified by PSB managements, are cost reduction, value creation, and competitive advantage. The key drivers include increasing customer expectations, business growth, tapping new avenues of business, intensified competition, profitability, cost reduction, optimal utilisation of existing manpower, increased productivity, achieving economies of scale by covering more customers with existing infrastructure, providing door step services to customers such as collecting/ delivering cash, cheque books, etc.
Unions stand
Unions have taken the stand that outsourcing of jobs of permanent nature should not be done. Bank managements, however, are of the view that non-core functions such as those related to IT, marketing, maintenance and upkeep and security could be outsourced while core management functions such as internal auditing, management of investment portfolio, compliance and decision making functions such as determining compliance with ‘Know your customer’, and according sanction for loans would not be outsourced.
While unions have expressed concern that data pertaining to customers could be misused by a third party, the banker pointed out that banks will have a security policy in place, having regard to the guidelines issued by the regulator.
The banker sought to allay concerns regarding reduction in staff strength by stating that with financial inclusion, more and more people would be associated with the banking sector and this is unlikely to result in reduction in staff strength. The IBA, the apex body of 150 banks in India, is expected to resume the ninth bipartite negotiations with the United Forum of Bank Unions, the umbrella organisation of nine banks trade unions, in mid-December 2008.
The unions have sought around 35 per cent hike in wages in view of the fact that banks have posted healthy profits over the last few years. In the eighth bipartite wage settlement talks, the union pressed for a similar hike but settled for a 13.25 per cent hike.
Forex reserves jump $1.9 b
Business Line / Mumbai / Dec. 5
The foreign exchange reserves swelled by $1.88 billion in the week ended November 28, to $247.68 billion. If one reckons the position obtaining as of December-end 2007, the forex reserves have, in fact, got depleted by $27.63 billion.
The Reserve Bank of India’s data clearly indicate that in the April-September 2008 period foreign direct investments increased substantially by $19.295 billion (as against $7.250 billion in the corresponding period last year), portfolio investments saw an outflow of $5.480 billion (as against an inflow of $18.409 billion in the corresponding period last year).
According to the central bank, foreign currency assets expressed in dollar terms include the effect of appreciation and depreciation of non-US currencies (such as euro, sterling, yen) held in reserves. A forex dealer with a public sector bank said: “Forex reserves in the reporting week would have gone up on account of revaluation gains, i.e. other currencies appreciating against the dollar.”
Credit offtake
Credit extended by scheduled commercial banks, in the fortnight ended November 21, has declined by Rs 2,193 crore. “We reckon that the dip in bank credit is only temporary, reflecting the disruption on account of credit crunch in the reporting period. The situation is expected to get normalised in the next reporting fortnight. Overall, we expect credit to grow in the 20 to 23 per cent band in FY09,” said Dr Shubhada Rao, Chief Economist, YES Bank.
Leeladhar to step down as RBI Deputy Governor
Business Line / New Delhi / Dec. 5
The Deputy Governor of RBI, Mr V. Leeladhar, will relinquish office on Monday after serving in the post for a little over four years. The Government was yet to decide on a replacement, official sources said.
Prior to his appointment as RBI Deputy Governor in September 2004, Mr Leeladhar was the Chairman and Managing Director of Union Bank of India and also the Chairman of the Indian Banks’ Association.
As RBI Deputy Governor, Mr Leeladhar was overseeing the departments of information technology, administration and personnel management, human resources development, rural planning and credit department and urban banks.
The RBI Act, 1934, provides that the RBI management should have a full-time Governor and not more than four Deputy Governors.
The tradition of appointing a professional banker as one of the RBI Deputy Governor had come in for some debate in the country, with some bank unions even representing to the Finance Ministry that there was a conflict of interest issue in such a practice. Meanwhile, sources said that the Government had found a candidate for the Managing Director’s post of State Bank of India. But a Cabinet panel was yet to clear the appointment

ICICI Bank's new CEO to be decided in January
Business Standard / Mumbai / December 6, 2008
The board of ICICI Bank, the country’s second-largest lender, will take a final call on appointing a successor to K V Kamath, its present managing director and chief executive officer, next month. The bank’s joint managing director and CFO Chanda Kochhar and ICICI Prudential Life Insurance CEO Shikha Sharma are said to be the front runners.
In addition, ICICI Bank will also take a call on Kamath’s role at a time when the global credit crisis has impacted banks globally. Kamath’s term as MD and CEO is scheduled to end in April, 2009.
When contacted, an ICICI Bank spokesperson said he would not like to comment on speculation since the board has yet to take a decision on the matter. Sources familiar with the developments said Kamath could be appointed the non-executive chairman — a role being performed by his mentor Narayan Vaghul, who is scheduled to step down once his term ends in March. Vaghul has been with the ICICI group for 24 years.
The other option is to appoint Kamath executive chairman for a few years and then find a real successor. Kochhar is already managing the bank’s day-to-day affairs and is seen as the front runner to succeed Kamath, especially after Nachiket Mor, former deputy managing director, moved to ICICI Foundation.
Shikha Sharma could, however, be the dark horse. The other contenders for the job included executive directors V Vaidyanathan, Sonjoy Chatterjee and Madhabi Puri-Buch.
The bank has decided to adopt a detailed process to find Kamath’s successor, which included help from external consultants and feedback from ICICI Bank employees.
Kamath, who was picked by Vaghul to head ICICI Bank in 1996, has successfully transformed the project finance entity into a retail finance powerhouse. He has a degree in mechanical engineering and a master’s degree in business administration from the Indian Institute of Management, Ahmedabad. He started his career in 1971 at ICICI.
In recent months, ICICI Bank has gone slow on lending, especially in the retail segment, which until a few years ago was its mainstay. Its fund mobilisation strategy, too, has changed with a larger focus on low-cost retail deposits as opposed to an aggressive presence in the high-cost bulk deposit market.

After Layoffs, Workers Stay at a Factory in Protest
CHICAGO —
Scores of workers laid off from a factory here that makes windows and doors have refused to leave, deciding to stage a “peaceful occupation” of the plant around the clock this weekend as they demand pay they say is owed them.
Workers at Republic Windows and Doors, which laid off about 250 people, said they were notified Tuesday that the plant, more than four decades old, would close Friday. They said they were given insufficient notice and were never paid for vacation days or severance.
The workers, many of whom were sitting on fold-up chairs on the factory floor Saturday afternoon, said they would not leave.
“They’re staying because the fact is that these workers feel they have nothing to lose at this point,” said Leah Fried, an organizer for the United Electrical, Radio and Machine Workers of America Local 1110, who said groups of 30 were occupying the plant in shifts. “Telling them they have three days before they are out on the street, penniless, is outrageous.”
Officials from the company, which makes vinyl windows and patio doors, were not at the plant on Saturday and could not be reached by telephone.
Crain’s Chicago Business reported that the company’s leader had reported that sales had fallen drastically over the last month.
The Chicago police said they were monitoring the situation but had no reason to remove the workers. “We haven’t got any reports of a criminal nature at this time,” a police spokesman said.
Workers blamed Bank of America, which they said had served as an important lender to Republic Windows, for cutting off credit to the company and preventing workers from being paid. Some workers carried signs and stickers criticizing the bank: “You got bailed out, we got sold out.”
A spokeswoman for Bank of America, Julie Westermann, said in a written statement that “because of our client confidentiality obligations, we cannot comment on any individual clients’ situations.” But Ms. Westermann noted, “Neither Bank of America nor any other third party lender to the company has the right to control whether the company complies with applicable laws or honors its commitments to its employees.”
Representative Luis V. Gutierrez, Democrat of Illinois, said union leaders hoped to meet Monday afternoon with the company’s leaders and its lenders.
Meanwhile, workers said they were going nowhere.
“It came as a complete surprise,” said Lalo Muñoz, 54, who had worked at Republic for 34 years and who spent the night on the factory floor Friday and was still there Saturday afternoon. “We’re waiting for answers.”

First Georgia Community Bank fails
Washington

Regulators have shut down First Georgia Community Bank, the 23rd U.S. bank failure this year.
The Federal Deposit Insurance Corp. has been appointed receiver of the bank, located in Jackson, Ga. It had $237.5 million in assets and $197.4 million in deposits as of Nov. 7.
The FDIC says all the failed bank's deposits will be assumed by United Bank of Zebulon, Ga. Its four branches will reopen today as offices of United Bank. United Bank also will buy about $60.6 million of First Georgia Community Bank's assets. The agency says depositors of First Georgia Community will continue to have full access to their deposits.

Canada loses 71,000 jobs in November
Toronto

Canadian employers slashed nearly 71,000 jobs in November, the worst single-month drop in 26 years, in a clear indication the U.S. recession is beginning to wreak havoc on manufacturers and workers in Canada.
Statistics Canada said Friday that the Canadian jobless rate edged up to 6.3 percent in November from 6.2 percent in October despite the fact that 48,000 fewer Canadians were looking for work last month.

PSBs play it safe with nostro accounts in US
Business Line
Operations restricted to trade finance needs.
Bangalore, Dec. 5 Public sector banks have now begun restricting their correspondent account balances to a handful of US banks. Senior banking sources said that nostro account balances or correspondent accounts were maintained with 17 banks, including Wachovia, till about 3 months ago. A nostro balance is that one bank maintains with a foreign bank in foreign currency. Bankers said that the Reserve Bank of India has now sought details of the number of nostro account balances with the various US banks. Besides the RBI intervention, a series of US bank failures have made domestic bankers cautious.
Nostro accounts
At least 22 banks have failed in the US. In many of these institutions, domestic banks, both private and public sector, had maintained correspondent accounts.
Domestic bankers said that the RBI also advised them to hold their nostro balances only with large banks that have clearing operations. Accordingly, bankers said that most of them have now restricted their nostro accounts to such clearing banks in the US.
The bankers said nostro balances were parked are Citibank, Wells Fargo, JP Morgan Chase and Bank of America.
But even with these banks, nostro balances were restricted only to trade finance requirements. Consequently, the nostro balances of all the banks in the country were only about one per cent of the export receipts or about $1.6 billion.
Bankers said that most of the balances were either repatriated to India or held in US Government Treasuries at low yields.
Resisting temptation
This was despite the high interest offered on US dollar deposits. Six-month certificates of deposits in the US banks are currently as high as 4 per cent.
Yet given the uncertain financial conditions in the US, Indian banks are staying away from the high-yield offerings. Some banks preferred repatriating the resources and investing them in domestic treasury bills, where the yields were slightly better.
Besides, the bankers said that the failure of some of the US banks and the lack of the coverage under the Federal Deposit Insurance Scheme were likely to lead to provisioning of some of the balances.
Vostro accounts
Nostro balances are treated as assets though they are not risk weighted. This is because Indian banks also maintain a mirror account as a liability in the form of correspondent account of the foreign bank or as a vostro account. This obviated the need for risk weighting such accounts. Yet, there are fears that despite the mirror accounts, the prospects of nostro balances becoming sticky are high.Consequently, some Indian banks were also resorting to holding correspondent account balances in overseas branches and subsidiaries of other domestic banks as risk mitigation measures. Large domestic banks, like the State Bank of India, already have a large presence in the US.