BANKING NEWS - AIBEA - 11.12.2008

SBI appoints R Sridharan as MD
Business Standard
R Sridharan has taken over as the managing director (MD) and group executive (Associates and subsidiaries) of State Bank of India, from December 5, 2008.
He is a graduate from Madras University and joined as a probationary officer in 1972. Before taking over as MD, Sridharan was the deputy MD of the bank, looking after the non-banking subsidiaries. Earlier, he was the MD and CEO of SBI Capital Markets, a subsidiary of SBI.
Apart from these, Sridharan has held assignments in SBI's international division and has also served as advisor to the Ministry of Finance, government of India.
LIC to invest Rs 31,000 cr in equities, corporate bonds
Another Rs 18,000-cr investment in G-Secs planned.
Business Line, , Mumbai, Dec. 8
Life Insurance Corporation of India (LIC) would invest Rs 31,000 crore in equities and corporate bonds in the next four months.
The corporation would invest Rs 11,000 crore in stocks and Rs 20,000 crore in non-convertible debentures, said a top LIC official. The substantially large investments in the capital market by LIC comes at a time when FIIs are shying away from domestic equities and the Indian corporates are finding long-term funds hard to come by.
A number of corporates are now approaching LIC for funds as they are finding it difficult to raise resources from other sources, said Mr T.S. Vijayan, Chairman of LIC. The demand for funds from corporates is likely to continue, he said.
The largest insurer in the country would also be investing another Rs 18,000 crore in government securities. This would take LIC’s total investments in the remaining period of the current fiscal to around Rs 50,000 crore, over and above the Rs 1,02,476 crore it has already invested in the first eight months of the current financial year.
In the first eight months of the current fiscal, LIC has invested Rs 36,311 crore in G-Secs, Rs 29,000 crore in equities (secondary market) and Rs 23,190 crore in NCDs.
In addition to this, LIC has also invested Rs 12,372 crore in the infrastructure and social sectors, Rs 1,342 crore in project loans, and Rs 164 crore in IPOs, said Mr N. Mohan Raj, Executive Director, LIC. This is much higher than the total investment of Rs 97,738 crore made by the corporation in the first eight months of the last fiscal.
“Companies are taking the NCD route to raise resources. Highly rated, credit-worthy companies have raised resources by placing their NCDs with us. The coupon rate on the NCDs ranges between 11 and 13 per cent,” said Mr Mohan Raj, on the sidelines of a press meet to announce the launch of the corporation’s single premium endowment product – ‘Jeevan Aastha’.
Currently the corporation has an asset base of over Rs 8 lakh crore.
LIC is a major investor in stock markets and its actions even influence the price movements.
“We are long-term investors. We are trustees of our 23 crore policy holders’ money. We don’t get swayed by market movements,” said Mr Vijayan.
The prudence exercised by the corporation in making investments and loans, according to the Chairman, is underscored by the fact that the level of delinquencies was only 0.5 per cent.

RBI's economic stimulus: Highlights
The PTI & other News Agencies, Mumbai:
The Reserve Bank of India on Saturday cut repo rate by 100 basis points to 6.5 per cent and reverse repo by 100 basis points to 5 per cent. The primary liquidity made available to the system through these measures is worth over Rs 3,00,000 crore (Rs 3,000 billion), RBI Governor D Subbarao said in Mumbai.
Here are the highlights of the RBI measures, according to a central bank statement:
In view of the need to enhance credit delivery to the employment- intensive micro and small enterprises sector, it has been decided to provide refinance of an amount of Rs 7,000 crore (Rs 70 billion) to the Small Industries Development Bank of India under the provisions of Section 17(4H) of the Reserve Bank of India Act, 1934.
This refinance will be available against: (i) the Sidbi's incremental direct lending to MSE; and (ii) the Sidbi's loans to banks, NBFCs and State Financial Corporations against the latter's incremental loans and advances to MSEs. The incremental loans and advances will be computed with reference to outstandings as on September 30, 2008.
The facility will be available at the prevailing repo rate under the LAF for a period of 90 days.
During this 90-day period, the amount can be flexibly drawn and repaid. At the end of the 90-day period, the drawal can also be rolled over. This refinance facility will be available up to March 31, 2010.
The utilisation of funds will be governed by the policy approved by the Board of the Sidbi.
The RBI is working on a similar refinance facility for the National Housing Bank of an amount of Rs 4, 000 crore (Rs 40 billion). It will announce the details after consideration of the proposal by the Central Board of the Reserve Bank which is meeting next week.
On November 15, 2008, the Reserve Bank had announced that proposals by Indian companies for premature buyback of foreign currency convertible bonds would be considered under the approval route, provided that the buyback is financed by the company's foreign currency resources held in India or abroad and/or out of fresh external commercial borrowings raised in conformity with the current norms for ECBs.
Extension of FCCBs was also permitted at the current all-in cost for the relevant maturity.
On a review, it has now been decided to permit Authorized Dealers Category - I banks to consider applications for premature buyback of FCCBs from their customers, where the source of funds for the buyback is:
i) foreign currency resources held in India (including funds held in EEFC accounts) or abroad and/or
ii) fresh ECB raised in conformity with the current ECB norms, provided there is a minimum discount of 15 per cent on the book value of the FCCB.
In addition, the Reserve Bank will consider applications for buyback of FCCBs out of rupee resources provided that:
(i) there is a minimum discount of 25 per cent on the book value;
(ii) the amount of the buyback is limited to US $ 50 million of the redemption value per company; and
(iii) the resources for buyback are drawn out of internal accruals of the company as certified by the statutory auditor.
It has been decided that loans granted by banks to Housing Finance Companies for on-lending to individuals for purchase/construction of dwelling units may be classified under priority sector, provided the housing loans granted by HFCs do not exceed Rs 20 lakhs (Rs 2 million) per dwelling unit per family.
However, the eligibility under this measure will be restricted to five per cent of the individual bank's total priority sector lending. This special dispensation will apply to loans granted by banks to HFCs up to March 31, 2010.
Under the current guidelines, exposures to commercial real estate, capital market exposures and personal/ consumer loans are not eligible for the exceptional regulatory treatment of retaining the asset classification of the restructured standard accounts in standard category.
As the real estate sector is facing difficulties, it has been decided to extend exceptional/ concessional treatment to the commercial real estate exposures which are restructured up to June 30, 2009. In the face of the current economic downturn, there are likely to be more instances of even viable units facing temporary cash flow problems. To address this problem, it has been decided, as a one time measure, that the second restructuring done by banks of exposures (other than exposures to commercial real estate, capital market exposures and personal/ consumer loans) up to June 30, 2009, will also be eligible for exceptional regulatory treatment.
In view of the difficulties faced by exporters on account of the weakening of external demand, it was decided that the interest rate on Post-shipment Rupee Export Credit up to 180 days will not exceed BPLR minus 2.5 percentage points. In respect of overdue bills, banks have been permitted to charge the rates fixed for Export Credit Not Otherwise Specified for the period beyond the due date. It has now been decided that the prescribed interest rate as applicable to post shipment rupee export credit (not exceeding BPLR minus 2.5 percentage points) may also be extended to overdue bills up to 180 days from the date of advance.
Govt may restrict home loan rates to 7-8%
BUSINESS STANDARD
STIMULUS PACKAGE: THE DAY AFTER
The government is pushing state-owned banks to offer interest rates on housing loans up to Rs 20 lakh at pre-2004 levels.
This would mean consumers could get home loans at 7 to 8 per cent, 2 or 3 percentage points lower than the current market rate of 9.5 to 10.5 per cent.
Public sector bankers indicated that they have received signals to lower pricing of home loans up to Rs 20 lakh. “The price of such home loans may be capped at 10 per cent,” said a public sector bank chief.
Finance Secretary Arun Ramanathan is likely to meet some public sector bank chiefs for an action plan. The contours of the package are likely to be ready early next week. The government on Sunday had said state-owned banks would announce a package for home loans up to Rs 20 lakh.
Apart from taking a direct hit in the form of an interest subsidy, the government is looking at bridging the cost of this scheme — the difference between the rate at which the loan is offered and the market rate — through refinancing from the Reserve Bank of India (RBI).
The government may also bear the interest risk — the movement in the market rate against a fixed rate the lenders will charge borrowers of such loans.
“We are looking at various options like interest subvention and cheaper liquidity support to banks to provide home loans at the pre-2004 rate of interest,” said a finance ministry official familiar with the development.
Home loans up to Rs 5 lakh may attract interest of around 7 per cent and those above Rs 5 lakh and up to Rs 20 lakh around 8 per cent, sources said. With interest subvention, the actual interest realisation for banks may be around 10 per cent.
The officials said the cost of funds has started to fall and will see a further decline after the RBI on Saturday lowered the repo rate, the rate at which it lends to banks, to 6.5 per cent and the reverse repo rate, the rate at which banks lend to RBI, to 5 per cent.
State-owned banks have reduced interest rates from as high as 11 to 12 per cent to 9.5 to 10 per cent. Deposit rates may fall further after RBI’s recent rate cuts. The average cost of funds for banks is 6 per cent now.
Retail deposits continue to pour into banks
Business Line, Bangalore, Dec 8
Public sector banks have begun losing their appetite for bulk deposits as flow of retail deposits gain pace.
Bankers said that public sector banks are seeing accretions of close to Rs 4,000 crore per day by way of deposits. The flood of the deposits is likely to push up banks’ current and savings deposits accounts (CASA) component in the overall working fund mix to any where between 35 and 40 per cent, bankers said. Last year, CASA ranged between 25 and 30 per cent.
Falling CD rates
This is prompting some to cut back on bulk deposits intake. The declining interest in bulk deposits is evident from the falling certificates of deposits (CD) rates. CD rates for the first time this year dropped below the one year retail deposit rates. The rates on one year retail deposits currently range between 10 and 10.5 per cent. One year CDs are about 100-125 basis points lower than deposit rates.
Last week, there were at least 10 CD issuers for a total of about Rs 2,000 crore. The average rate on the CDs was about 9.10 per cent. Public sector Andhra Bank managed an even better bargain raising the funds at rates as low as 8.32 per cent, though for three month funds.
Till September, banks, including some SBI associates, were offering rates as high as 11.65 per cent. Among the banks that had raised such high-cost funds at that time included banks such as State Bank of Mysore and Canara Bank at rates as high as 11.68 per cent.
Besides, the deposit inflows and bulk fund flows were largely from investors exiting from the equity markets and mutual funds to safe havens such as public sector bank deposits. The exit from the equity markets was evident from the thin trade volumes. Last week, for instance, the average trade per day was about Rs 8,700 crore. During the same period, average trade volume in the debt markets, particularly government securities, was a record Rs 17,000 crore.
But bankers said, despite the deposit increase many banks were not in a position to absorb risk weighted assets in view of capital constraints. Some had already reached the threshold capital limit of 12 per cent. Consequently, the bankers said, additional expansion of risk weighted assets was possible only after Tier-I capital was increased. Under current guidelines, banks are expected to maintain a minimum of 6 per cent Tier-I capital (paid up equity plus reserves).
Banks are also permitted to raise a further Tier-I capital through perpetual bonds or preference shares up to 15 per cent of total Tier-I capital. However, the costs of such hybrid instruments tend to be high, upwards of 10 per cent. This was evident from the high pricing of Corporation Bank’s Tier-II bond issue, priced at 10.10 per cent. Bankers said that perpetual bonds would cost at least 25-50 basis points more in view of the higher risks attached to the instruments.

Wait and watch
Bankers, therefore said, they would prefer to wait for some more before tapping this alternative. Some public sector banks had expected the Government and Reserve Bank of India to address the undercapitalisation issue in the fiscal stimulus package announced, though their hopes were belied.

Principal Financial to cut 550 jobs

By DAVID PITT , 12.09.08, Associated Press
Insurance, banking, retirement and asset manager Principal Financial Group Inc. said Tuesday it is cutting 550 jobs, about 3.5 percent of its work force.
The Des Moines, Iowa-based company said the cuts are the result of continued deterioration of U.S. and global markets.
The cuts include 300 jobs at its Des Moines, Iowa, corporate headquarters and 250 in 45 other locations.
Most affected employees will leave Dec. 31, the company said in a statement. Those losing their jobs were told Tuesday morning and offered severance and job search assistance, said Ralph Eucher, a human resources executive vice president.
He said the steep stock market decline that began in October changed the company's revenue picture for 2009 and a review of expenses began. Other cost cuts were initiated first and included travel, corporate sponsorships, advertising and merit pay. In addition, vacant positions were left unfilled.
Bottom of Form
Spokeswoman Mary O'Keefe said the company went to each of its business segment managers and asked for cuts in expenses, but those cuts weren't sufficient, making the job cuts necessary.
"We've done everything else we could first to minimize the reduction in employees," she said. "The 3.5 percent of work force is very targeted to maintain customer service levels and minimize disruption to employees, as tough as it is for those affected employees."