Sonia: protect the poor from impact of global meltdown
Neena Vyas NEW DELHI: The Hindu
Congress president Sonia Gandhi on Friday said steps taken in India to counter the effects of the global meltdown must protect the poor.
Speaking at the Hindustan Times Leadership Summit, Ms. Gandhi said the poor had played no role in the economic downturn being witnessed. But, unfortunately, they could be “grievously hurt” by the upheaval.
Referring to the meltdown triggered by the collapse of big investment banks in the U.S., she said the poor must be protected from becoming “victims of the greed of bankers.”
She added: “Whatever action we take, we must protect them. This is our firm commitment.”
Referring to the “much maligned” bank nationalisation by Indira Gandhi, she said public sector banks withstood the test, when many big banks the world over had to be helped from collapsing.
Yet, Ms. Gandhi said, it would not be correct to give up on economic liberalisation. “Liberalisation must be pursued within the framework of sensible but not heavy-handed regulation.”
She said policies should not ignore “the wellbeing of those who are trying to manage two square meals a day and a roof over their heads.” She reminded her audience, who included some top corporate honchos, that 93 per cent of India’s workforce was in the unorganised sector and small and medium enterprises contributed to creation of jobs and disbursing wellness. “These lakhs of small and medium enterprises must be sustained.”
She underlined the need for public spending in the critical areas of “physical and social infrastructure.” The welfare of all should be the key objective of the State.
R B I Staff stir on Dec 1,2
The Employees of Reserve Bank of India all over the country will go on a two –day strike on December 1 and 2, to protest against the cut in pension of retired employees.
The reduction is believed to have been effected at the behest of the Union Government and has cost a large number of retired employees dear, the loss in earnings ranging from Rs.1000 to Rs.5500 per month per person. “This is surprising at a time when the Central Government is systematically revising upward the pension of its own retired employees,” said Mr.Samir Ghosh, General Secretary, All India Reserve Bank Employees Association.
UNCLAIMED MONEY IN PUBLIC SECTOR BANKS
(As on December 31, 2006)
(Rupees in Crores)
Name of the Bank
No. of Savings Banks Accounts
Punjab and Sind Bank
Indian Overseas Bank
Central Bank of India
United Bank of India
Bank of Baroda
Bank of Maharashtra
Union Bank of India
Bank of India
Oriental Bank of Commerce
Punjab National Bank
Source: Lok Sabha Unstarred Question # 1111 (Ministry of Finance)
RBI has instructed banks to ensure that they segregate and maintain, in separate ledger(s), deposit accounts which have not been operated upon for two years. In case of accounts that have remained inoperative for one year, banks are required to advise their customers. In case the advise letter is returned undelivered, the branch is expected to enquire into the whereabouts of such customers, or about legal heirs.
Union Bank to hire 5000 more this fiscal
Over 500 branches to be opened in 5 months
Business Line, Mumbai, Nov. 14
At a time when banks globally are laying off people, Union Bank of India is planning to hire 5,000 more people for manning the over 500 additional branches the bank will be opening in the next five months.
Mr. M V Nair, Chairman and Managing Director of Union Bank of India, said the bank will recruit 4,000 officer and 1,000 clerical and other staff. The bank has just received an approval from the Reserve Bank of India for opening 539 branches, he said.
The bank currently has about 2552 outlets, which will go up to around 3000 by end of the current fiscal. “These physical outlets will be the key drivers to servicing customers,” Mr Nair said.
The bank will open 110 branches in districts where it has no presence. It will also look to increase its network in the North East region.
Under the Jawaharlal Nehru Urban Renewal Mission, it will open branches in 63 centres which have been taken up for faster growth and the rest will be in unbanked areas. “The aim is to open 50 per cent of branches in unbanked areas and the remaining in banked areas,” Mr Nair explained.
The bank is also looking to increase the number of ATMs to 2500 from around 1500 now and the debit card base to around 40 lakh from 31 lakh.
The cost of setting up a new branch will range from RS.40 lakh for a branch in metros to Rs.10 lakh in rural areas. The new branches are expected to break-even in 12-18 months.
Mr. Nair was speaking to reporters after launching the bank’s new mobile service.
Union Bank is the first bank to launch the mobile banking services after the RBI announced the guidelines for mobile banking, in September 2008.
The begin with, the service called U mobile – is available only on GSM mobiles, but across all service providers. The bank will not charge any fees for the first six months and will take a call on the pricing later, Mr Nair said. If more transactions happen through the mobile, the operational cost for the bank will eventually come down, he added.
The bank has tied up with the software services company FSS Ltd to offer the mobile banking service.
Currently, the service can be used only to transfer funds from one account of Union Bank to another account. Going ahead, the bank will also offer fund transfer to accounts of other banks and also utility payments, movie ticketing and travel payments.
“The biggest beneficiaries mobile payment will be parents sending money to students and utility payments Mobile based payments will also pay a big role in financial inclusion,” he said.
Asian countries’ employees unions come together to tackle meltdown
Financial Express 14.11.08
In the wake of global financial meltdown, employee unions from 15 Asian countries, including Pakistan, Bangladesh, Nepal, Singapore and Indonesia, are coming together to form a lobby to discuss the problems being faced by them and drive a mechanism to pitch for their demands.
The new union – Asian Region Banks & Financial Sector Union Organisation – will be launched here on November 15. It will launched here on November 15. It will have more than 20 financial sector employee unions as members.
“The financial sector in all Asian countries are going through the same problems, Hence, we thought of bringing all employees working in the financial sector in Asia under a single umbrella organisation,” All India Bank Employees’ Association (AIBEA) General Secretary C H Venkatachalam said.
He urged the government to shelve the plans of consolidation and reform in the banking sector considering the financial crisis in the United States and Europe. “The financial sector should be in the hands of the government because that is the only way that the public deposits could be used for real sectors like agriculture and manufacturing. The private sector, as has been experience in the west, divert the deposits for profits,” Venkatachalam said.
He said that the government should expand the public sector banks instead of thinking of privatising them. “We want stronger public sector banks but not privatisation,” he added.
AIBEA is organizing its 26th Conference from November 15 where more than 2500 employees and experts would discuss the key issues and future course of action. CPI leader Gurudas Dasgupta would inaugurate the four day conference.
Union Minister for Labour and Employment (Independent Charge) Oscar Fernandes and Delhi Chief Minister Shiela Dikshit would also be present.
On AIBEA’s demand for another option to join the pension scheme, Venkatachalam said the actuarial report has been received and the same will be discussed with Indian Bank Association (IBA) next month. “We have to discuss the modalities of another pension option,” Venkatachalam said.
U.S. Agrees to Rescue Struggling Citigroup
Plan Injects $20 Billion in Fresh Capital, Guarantees $ 306 Billion in Toxic Assets
By DAVID ENRICH, CARRICK MOLLENKAMP, MATTHIAS RIEKER,
DAMIAN PALETTA and JON HILSENRATH
The federal government agreed Sunday night to rescue Citigroup Inc. by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant.
The agreement marks a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions.
Citigroup is one of the world's best-known banking brands, with more than 200 million customer accounts in 106 countries. Its plunging stock price threatened to spook customers and imperil the bank.
If the government's rescue plan is a success, it could help bring stability to the entire financial system. If it doesn't, even deeper doubts about the industry's future could spread.
After a weekend of marathon talks between Citigroup executives and top federal officials, the parties late Sunday night nailed down a package in which the government will help protect the company from its riskiest assets.
Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies -- the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. -- will take on any additional losses, though Citigroup could have to share a small portion of additional losses.
The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet. That means taxpayers will be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
In exchange for that protection, Citigroup will give the government warrants to buy shares in the company.
In addition, the Treasury Department also will inject $20 billion of fresh capital into Citigroup. That comes on top of the $25 billion infusion that Citigroup recently received as part of the the broader U.S. banking-industry bailout.
The government and Citigroup had hoped to unveil the plan early Sunday evening, but negotiations dragged on longer than expected. Treasury Secretary Henry Paulson began briefing Congressional leaders about the plan later in the evening.
Asian markets were mostly lower in early Monday trading as news of the discussions surfaced. Japan's markets were closed for a holiday.
The sweeping rescue plan underscores how concerned the government had become about letting Citigroup's fortunes continue to deteriorate. The company has been pounded by mortgage-related losses and is on track to suffer further from the weakening economies in the U.S. and around the world.
Last week, with Wall Street rapidly losing confidence in the company, its shares tumbled 60% to a 16-year low. Still, Citigroup Chief Executive Vikram Pandit and other top executives insisted last week that the company remained on solid financial footing.
While Citigroup's recent woes don't appear to be as severe as the problems that ultimately felled Bear Stearns Cos. and Lehman Brothers Holdings Inc., the U.S. government seems to have decided it can't afford to gamble on whether Citigroup will weather the storm.
At the same time, the Treasury Department is already facing a political backlash over the use of taxpayer funds to stabilize the banking sector, and has nearly exhausted the $350 billion that Congress allotted to the first phase of the industry rescue.
The planned arrangement with Citigroup appears to be an attempt to thread that needle by giving the company some breathing room until markets calm.
In addition to $2 trillion in assets Citigroup has on its balance sheet, it has another $1.23 trillion in entities that aren't reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company's books.
The assets affected under the government plan are largely loans and securities backed by residential and commercial real estate. Such assets have been devastated by the meltdown of the housing markets and have started coming under even greater strain in recent weeks as the U.S. economy slows.
"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the Treasury Department, Fed and FDIC said in a joint statement issued late Sunday.
Even as they assured employees and investors last week that the company was on sound financial footing, Citigroup executives and directors knew they needed to do something fast to stabilize their company. By Friday, bank officials were hoping for a public expression of confidence from the government, believing that would help reassure clients and customers.
Top government officials, including the heads of the Treasury Department and the Fed, also started scrambling to draw up contingency plans in case Citigroup's troubles intensified.
On Sunday evening, government officials were locked in meetings to hammer out the final terms of an arrangement that will leave the government deeply enmeshed in the inner workings of one of the world's largest financial institutions.
The government didn't require Citigroup to make changes to its executive ranks or its board in return for government assistance. However, Citigroup agreed to "comply with enhanced executive compensation restrictions," the government said Sunday, and also will implement a government-backed plan to modify distressed mortgages that is designed to curb foreclosures.
Despite the unprecedented scope of the rescue plan, it's not clear whether it will be enough to stabilize Citigroup. The roughly $300 billion pool of assets that are included in the rescue plan represent only a sliver of the company's more than $3 trillion in assets, including its holdings in off-balance-sheet entities.
Jitters about such "hidden" assets helped trigger the nose-dive in Citigroup's stock last week. Among the off-balance-sheet assets are $667 billion in mortgage-related securities.
Citigroup has tried repeatedly to rid itself of its exposure to those assets -- and nearly hammered out a similar arrangement with the government nearly two months ago.
In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.
Citigroup described that arrangement as intended to insulate it from Wachovia's risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.
That deal unraveled in less than a week, after Wells Fargo & Co. emerged with a higher bid that didn't require direct government backing. That deprived Citigroup not only of a way to dump its risky assets but also of a deep pool of deposits, which would have substantially strengthened its access to stable low-cost funding.
Shortly after the Wachovia deal fell apart, Citigroup pitched the idea to the government of it helping to protect the company against some of its losses. Citigroup executives argued that the government should help the company after Wachovia slipped away, according to a person familiar with the matter. But federal officials balked at the idea.
As recently as one month ago, Citigroup had hoped to be able to unload some of those assets to the U.S. government through its Troubled Asset Relief Program, according to people familiar with the bank's plans. But when Treasury Secretary Paulson earlier this month shelved plans to use TARP to purchase banks' bad assets, that option vanished.
Last Monday, Mr. Pandit said in a meeting with employees that Citigroup was scrapping plans to try to sell about $80 billion in risky assets. Investors and analysts interpreted the move as a sign that Citigroup either was unable to sell the assets, or would have had to incur hefty losses in the process.
Two days later, Citigroup announced it was buying $17.4 billion in assets from its structured-investment vehicles -- complex entities whose holdings included risky mortgage-linked securities -- and faced a $1.1 billion loss due to their diminished values.
The back-to-back moves, coupled with existing fears about Citigroup's massive off-balance-sheet holdings, stoked investor fears that Citigroup could be swamped by toxic assets flooding back onto its books. That helped ignite the current panic, which was exacerbated by a drumbeat of bleak economic news.
Government officials could face requests from other banks for similar help shoring up their balance sheets. Banks, hedge funds, and private equity firms have urged Capitol Hill and government officials to restart the asset-purchase program in recent weeks.
"The problem is that other banks would want to get in line" for such government support, says Thomas B. Michaud, a vice chairman of investment bank Keefe, Bruyette & Woods Inc. "Is there enough money to do that?"
Quantitative easing has begun
By: John Kemp Reuters columnist. November 14th, 2008
Quietly, without fanfare, the Federal Reserve has turned on the printing presses. The central bank is flooding the market with enough excess liquidity to refloat the banking system — and hopes to generate an upturn in both economic activity and inflation in the next 12-18 months to prevent the economy falling into a prolonged slump.
Since the banking crisis intensified in September, the Fed has been rapidly expanding the credit side of its balance sheet, providing an ever-increasing array of facilities to support the financial system (repos, term auction credit, primary discount credit, broker-dealer credit, commercial paper funding, money market mutual fund liquidity and term securities lending).
Total credit extended by the central bank has surged from an average of $885 billion in the week ending August 27 to $2.198 trillion in the week ending November 12. Credit extensions surged another $142 billion last week alone — mostly in form of increased term auction credit (+$114 billion) and other miscellaneous credits the central bank does not break out (+$41 billion).
Until fairly recently, the expansion on the asset side of the Fed’s balance sheet was matched by increased non-bank liabilities, mostly in the form of higher balances deposited by the US Treasury into its regular and special supplementary financing accounts at the central bank.
Since the Treasury was borrowing this money in the open market by issuing cash management bills, the impact of the Fed’s balance sheet expansion was being fully sterilized.
The Fed was providing liquidity in the narrow sense (helping commercial banks cover short-term funding problems arising from illiquid assets on their books) but not in the broader sense of inflating the money supply (money in circulation plus vault cash plus reserve balances).
But in the last three weeks, something very significant has happened. The non-bank part of the Fed’s liabilities has stopped expanding: combined Treasury deposits with the Fed plus cash in circulation has actually fallen from $1.517 trillion in the week ending Oct 29 to $1.467 trillion in the week ending Nov 12.
Instead, the Fed’s increased lending to the financial system over the last two weeks (+$325 billion) has been matched by an increase in the volume of deposits the commercial banks are hold with the Fed (+$331 billion).
In other words, the Fed is now lending to the banks, which are now lending the funds back to the central bank. The Fed is no longer supplying just narrow liquidity needed to enable the market to function. It is now supplying excess funds (more than the banks need) which are being recycled back into the central bank.
The volume of reserve balances with the Fed, which had jumped from $8 billion at end Aug to $280 billion by mid Oct, has now surged again to a staggering $592 billion in the week ending Nov 12.
The Fed is now very deliberately supplying more liquidity than the banks need (or are willing to lend on to other banks, corporations or homeowners). By paying a low but positive interest rate on these reserve balances, it can ensure that the federal funds rate remains above zero (currently about 35 basis points) even as it floods the banking system with excess funds.
There are several startling implications:
(1) The central bank has successfully driven a wedge between interest rate policy (the target fed funds rate) and the quantity of money created (cash plus reserve balances). This was the explicit aim, foreshadowed a recent paper by the Federal Reserve Bank of New York (http://www.ny.frb.org/research/EPR/08v1 4n2/0809keis.pdf). The Fed is now free to expand bank reserves almost without limit while maintaining the fed funds target (at least very loosely).
(2) The Fed’s focus has now shifted from easing the interest rate to increasing the quantity of money, and the aim of supplying funds is no longer to ease concerns about narrow liquidity but to increase the overall money supply, thereby easing concern about the stability of the banks, while hoping to engineer an eventual upturn in lending, activity and (whisper it quietly) inflation.
This is precisely the radical strategy adopted by the Bank of Japan in the late 1990s and early part of the current decade, when it was described as “quantitative easing”. Fed Chairman Ben Bernanke, a keen student of liquidity traps during the Great Depression and Japan’s decade long banking and economic slump, threatened some time ago that the Fed could always increase the quantity of money by manipulating the size and composition of its balance sheet.
In a 2004 paper Bernanke noted: “nothing prevents a central bank from switching its focus from the price of reserves to the quantity or growth of reserves. When stated in terms of quantities, it becomes apparent that even if the price of reserves (the federal funds rate) becomes pinned at zero, the central bank can still expand the quantity of reserves. That is, reserves can be increased beyond the level required to hold the overnight rate at zero–a policy sometimes referred to as ‘quantitative easing.’ Some evidence exists that quantitative easing can stimulate the economy even when interest rates are near zero; see, for example, Christina Romer’s (1992) discussion of the effects of increases in the money supply during the Great Depression in the United States.”
Bernanke argues that quantitative easing may affect the economy through at least three channels:
(1) Large increases in the money supply will lead investors to rebalance portfolios, reducing yields on other non-money assets, stimulating investment,consumption and other economic activity.
(2) Setting a high level of reserves and committing to maintain it until certain (economic) conditions have been fulfilled is an alternative and perhaps more visible and credible way to stimulate growth and promising to maintain a low interest rate.
(3) By expanding its balance sheet and replacing public holdings of interest-bearing government debt with non-interest bearing (or very low interest) money and reserves, the central bank may attempt to hold down yields on a range of government securities, making borrowing cheaper, and cutting the costs of an expansionary fiscal policy. The strategy works if and only if the central bank can pre-commit not to reverse the quantitative easing policy for some considerable period and until certain conditions have been met.
Bernanke went on to note: “The forms of monetary stimulus described above can be used once the overnight rate has already been driven to zero or as a way of driving the overnight rate to zero.However, a central bank might choose to rely on these alternative policies while maintaining the overnight rate somewhat above zero.”
Moreover, alternative monetary policies such as quantitative easing could enable the central bank to avoid the problem that nominal interest rates cannot readily be cut below zero: “A quite different argument for engaging in alternative monetary policies before lowering the overnight rate all the way to zero is that the public might interpret a zero instrument rate as evidence that the central bank has “run out of ammunition.”
That is, low rates risk fostering the misimpression that monetary policy is ineffective. As we have stressed, that would indeed be a misimpression, as the central bank has means of providing monetary stimulus other than the conventional measure of lowering the overnight nominal interest rate”. Since the middle of October, the Federal Reserve has begun to put precisely this strategy into practice.
Quantitative easing has begun.
Bernanke once threatened to send in the monetary helicopters if that was necessary to avoid deflation and a renewed Great Depression. The massive surge in bank reserves in the past fortnight suggests the helicopters have now been scrambled and the strategy is being put to the test.
Pune coop bank in Rs 436-cr scam
Business Standard / Pune / November 23, 2008
Police arrest 15 directors, six others for defaulting loans. The Pune police today arrested 15 directors of the Shree Suvarna Sahakari Bank for their alleged involvement in a Rs 436.74-crore loan scam. Bank chairman and former president of the Maharashtra Cricket Association Dnyaneshwar Agashe, his son Ashutosh, wife Rekha and 12 others on the board of directors were taken into custody in the morning.
The police said that the 15 accused along with six others allegedly misused their rights and sanctioned loans mostly to firms owned by themselves and then defaulted the loans, thereby duping the depositors. The arrests were made after a complaint was filed by Rajesh Jadhavar, special auditor, cooperatives department, Maharashtra government. Speaking to reporters, Additional Commissioner of Police (Crime) Rajinder Singh said, “The complaint filed by the government auditor clearly suggests loan defaults worth Rs 436.74 crore are by firms that are mostly owned by the bank’s directors.
While approving the loans, the directors did not ask for sufficient securities or mortgages from the borrowers. The directors did not even comply with central bank’s guidelines when approving these 269 defaulted loan accounts. We have arrested 15 out of the 21 accused today. Further arrests will take place soon.”
* The Reserve Bank of India had put the Pune-based cooperative bank under moratorium since December 2007 following heavy NPA ratio, non-recovery of loans and non-compliance of RBI guidelines in case of loan approvals
* The Indian Overseas Bank and the Cosmos Cooperative Bank had sent proposals to RBI and the finance ministry to take over the debt-ridden bank
* Of the 89 per cent of the total loan amount disbursed by the bank, only 5 per cent went to other borrowers
Singh pointed out that 89 per cent of the total loan amount disbursed by the bank went to only 5 per cent of the borrowers.
Over the last three years, cooperative banks in Maharashtra have seen similar developments where members of board of directors of banks such as Ajit Cooperative Bank and the Rupee Cooperative Bank have been arrested for similar reasons.
The Reserve Bank of India (RBI) had put the Pune-based cooperative bank under moratorium since December 2007 following heavy non-performing assets (NPA) ratio, non-recovery of loans and non-compliance of RBI guidelines in case of loan approvals worth Rs 436.74 crore.
Recently, the Indian Overseas Bank and the Cosmos Cooperative Bank had sent proposals to RBI and the finance ministry to take over the debt-ridden bank.
Govt banks mull variable pay for staff
Business Standard / Mumbai / November 24, 2008
Public sector bank employees may see the introduction of a variable pay component in their salary structure. Bankers said preliminary talks on performance-linked pay, part of overall wage negotiations, have begun with the unions. The move is aimed at offering better compensation to mid-level employees in government-owned banks to not just retain talent but also attract specialists from outside. “We can hire specialists on contract, but there are a lot of issues with the compensation structure,” said a bank chief.
There are seven pay scales in public sector banks, but the difference between private and public sector compensation structure widens as employees move up the hierarchy. An assessment by some of the banks shows that the pay differential on a cost-to-company basis is not significant in the first two grades.
“There are many perks that are available to our employees such as free housing often in prime locations. But all this is not factored in as there is no concept of cost-to-company. At the senior level, in certain cases the difference is as much as over 20 times, which makes it attractive for public sector executives to move out,” said a banker.
In recent years, the chairmen and executive directors of state-owned banks, who are not part of the industry scales, have been paid incentives for achieving the targets set at the start of the year. Other employees are not eligible for any such scheme. If banks are able to convince the unions, the performance-linked incentives will be available to a majority of the employees.
Public sector banks had 714,793 employees at the end of March 2008, of which State Bank of India and its associates had around 250,000 employees. Indian Banks’ Association’s negotiating committee, headed by Union Bank of India Chairman and Managing Director M V Nair, is expected to resume talks with the United Forum of Bank Unions next month. While the unions are demanding over 35 per cent increase in wage hikes, a second pension option is also on the agenda.