ECONOMIC BRIEFS – 09.12.08
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Union Bank, HDFC Bank cut lending rates (BL, BS 09.12.08)
The 100 basis points cut in short-term rates announced by the Reserve Bank of India, as part of its ‘Growth stimulus’ package, last week is beginning to have the desired ‘transmission’ effect. Banks have started cutting lending rates. The public sector Union Bank of India on Monday slashed its Benchmark Prime Lending Rate (BPLR) by 75 basis points to 12.50 per cent. The private sector HDFC Bank too announced a two tranche cut of 25 basis points each (the first from December 15 and the second from January 1, 2009) in its BPLR to 16 per cent. Among others, banks such as State Bank of India, Bank of India, Bank of Baroda, are expected to announce cuts in their BPLR over the next few days. On the liabilities side, it’s a case of who bites the bullet first by cutting the interest rates on deposits. Banks are seen holding on to the current interest rates a tad longer as retail deposits constitute ‘bread-and-butter’ for banks and they wouldn’t want to divert the deposits to rivals. YES Bank had cut its PLR by 50 basis points on Saturday, post the RBI announcement, to 16.5 per cent with effect from Monday.
IOB to take a call on lending rates next week (BL, BS 09.12.08)
On the sidelines of a press conference to announce IOB entering into a distribution agreement with Universal Sompo General Insurance Co, Mr S. A. Bhat, Chairman and Managing Director, IOB, said, “We will take a decision on lending rates after our asset-liability committee meeting next week. We have already cut our deposit rate.” IOB is a minor partner in Universal Sampo, with a 19-per cent stake in the company, which began its operations early this year. With the agreement signed on Monday, IOB will also distribute Universal Sampo’s products. Earlier, IOB was selling the products of the public sector United India Insurance. Last year, IOB earned Rs 9 crore from selling insurance policies of United India and LIC. Mr Bhat sees a fall in income from this source in the current year. He expects the bank will earn Rs 6 crore from selling insurance. Universal Sompo is capitalised at Rs 235 crore. The company is a joint venture of Allahabad Bank, IOB, Karnataka Bank, Dabur Investments and Sompo Japan Insurance and started operations in February 2008. However, the insurer started selling the products only last month. The delay was in getting due approvals for the products from the insurance regulator.
New SBI Managing Director (BL, BS 09.12.08)
SBI on Monday said that Mr R Sridharan has taken over as Managing Director and Group Executive (Associates & Subsidiaries) of the bank. His appointment comes into effect from December 5. Prior to this, he was the Deputy Managing Director of the bank looking after its non-banking subsidiaries.
Retail deposits continue to pour into banks (BL 09.12.08)
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. Last year, CASA ranged between 25 and 30 per cent. This is prompting some to cut back on bulk deposits intake. 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 months. Besides, the deposit inflows and bulk fund flows were largely from investors exiting from the equity markets and mutual funds to safe havens.
Life insurance October premium drops 38% (BL 09.12.08)
After growing at breakneck speed for several years, the Indian life insurance sector has hit the speed breaker with the industry witnessing a premium fall of nearly 38 per cent in October over the September figures this year.
LIC to invest Rs 31,000 cr in equities, corporate bonds (BL, ET 09.12.08)
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. 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. 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 already invested in the first 8 months of the current financial year.
New LIC plan offers guaranteed returns (BL 09.12.08)
Life Insurance Corporation of India is planning to garner Rs 25,000 crore through its new ‘single premium’ endowment product offering ‘Jeevan Aastha’. The plan would offer guaranteed benefits on maturity and death. The plan offers a guaranteed return of 10 per cent of the maturity sum assured for a 10-year term and a 9 per cent return for a five-year period. Beginning Monday, the close-ended plan is open for subscription for 45 days. “The launch of Jeevan Aastha is part of our strategy to prop up our premium collections,” said Mr T.S. Vijayan, Chairman, LIC.
SBI Life, Bajaj Capital tie-up (BL 09.12.08)
SBI Life Insurance has entered into a broking tie-up with Bajaj Capital Insurance Broking Ltd. This alliance would help SBI Life to distribute its products through Bajaj Capital’s pan India network of investment centres. “The tie-up with Bajaj Capital Group is a part of our strategy to strengthen our alliance with institutional distributors. This, along with our retail agency distribution channel, is expected to significantly broad base our reach amongst non-State Bank customers,” Mr U.S. Roy, Managing Director & CEO, SBI Life Insurance, said.
AEGON Religare unveils new plan (BL, BS 09.12.08)
AEGON Religare Life Insurance has launched a single premium guaranteed return plan with the benefit of life cover. The plan gives a fixed annual compounded return of 7.2 per cent and is available for a limited period starting December 1. The minimum single premium payable is Rs 50,000 and the maximum is Rs 4,00,000. The plan, available in two maturities of 7 and 10 years, has a minimum entry age 90 days and a maximum of 45 years.
Toyota Kirloskar plans vehicle financing arm (BL 09.12.08)
Toyota Kirloskar Motor Pvt Ltd plans to set up a vehicle finance arm to boost sagging sales as banks cut down on lending. “The difficulty in accessing bank loans too has contributed to the slowdown in vehicles sales during the last six months. This is why we are conducting a feasibility study for setting up own financing unit,” Mr Hiroshi Nakagawa, Managing Director, Toyota Kirloskar Motor, told.
ICICI Securities online trading platform adds new feature (BL 09.12.08)
ICICI Securities has added a new feature to its online trading platform to aid traders in the stock market operating through a laptop or phone while on the move. The new feature in the online trading platform ICICIdirect.com announced on Monday will facilitate high-speed trading by customers who access the Internet using new generation technology such as GPRS and data cards. ICICI Securities operates the country’s largest online trading platform having 1.7 million customers.
Govt may restrict home loan rates to 7-8% (BS, FE 09.12.08)
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. 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. 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. 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 and the reverse repo rate. The average cost of funds for banks is 6 per cent now.
CARE gives AAA rating for Axis Bank (BS 09.12.08)
Rating agency CARA has assigned an AAA rating to Axis Bank's lower tier-II bonds worth Rs 2,000 crore.
HFCs to set small-ticket loans at lower rates (BS 09.12.08)
The National Housing Bank’s (NHB’s) mandate on risk weights linked to the loan-to-value ratio is likely to prompt housing finance companies (HFCs) to introduce interest rate differentiation. This will be based on the sanctioned amount, with smaller-ticket loans available at cheaper rates. Also, the Reserve Bank of India’s (RBI’s) decision to allow banks to treat advances to HFCs for on-lending to individuals in the form of home loans of up to Rs 20 lakh will make it more attractive for these firms to price a majority of their loans at a cheaper rate.
Economists see RBI stance softening further (BS 09.12.08)
Economists expect a further monetary easing by the Reserve Bank of India (RBI) in the coming weeks as inflation falls and credit demand moderates in the country. But they are not too bullish on the impact of the RBI-government stimulus on GDP growth. While Citi India and HDFC Bank did not talk of the extent of further rate cuts, Goldman Sachs said it expected a further 150-basis point reduction in the repo rate and the reverse repo rate to fall by another 100 basis points to bring the corridor to 4-5 per cent. Citi India said it will maintain its GDP estimate for 2008-09 at 6.8 per cent and saw it falling to 5.5 per cent next year. Similarly, Goldman Sachs expects GDP to grow 6.7 per cent during the current financial year, followed by 5.8 per cent in 2009-10.
'We will ensure that banks pass on benefits to borrowers' (BS 09.12.08)
With the Rs 7,000-crore refinance window, micro, small and medium enterprises (MSMEs) will not face any fund crunch, said Sidbi Chairman and Manging Director R M Malla.
IIFCL promises to fund more infra projects (BS 09.12.08)
Infrastructure financial company IIFCL, currently funding core sector projects worth Rs 1,30,000, is gearing to further shore up its operations from an additional Rs 10,000 crore it will receive as part of the central stimulus package.
LIC to recruit 10,000 employees this year (BS 09.12.08)
Life Insurance Corporation of India (LIC), has drawn up plans to hire over 10,000 employees and around 250,000 insurance agents across the country. “We are hiring 4,800 class-II employees, around 5,000 class-III employees and 400-500 class-I officers. We have already hired about 100,000 agents and plan to strengthen our agency distribution channel by about 250,000 by March 2009,” a senior LIC executive said. LIC, which has among the widest network of offices in the country, has had to recruit as it is falling short of hands to man its new offices and branches that are planned mainly in tier-II and tier-III towns.
Life insurers see 7% dip in new premium (BS 09.12.08)
First-year premium collection of life insurance companies in India has witnessed a fall of 6.7 per cent in October, led by 11 per cent decline in new premium income of the country’s largest insurer, Life Insurance Corporation of India. According to the latest data released by the Insurance Regulatory and Development Authority, LIC collected Rs 2,782 crore in October, compared with Rs 3,139 crore a year ago. Private sector insurers saw a 0.44 per cent fall in first year premium collection, at Rs 2,300 crore.
SBI Life Insurance eyes Rs 8,500-cr business (BS 09.12.08)
SBI Life Insurance hopes to garner Rs 8,500 crore of new business and sees premium income surging by 80 per cent in 2008-09, Chief Executive Officer U S Roy said.
Sebi opens window for new hybrid product (BS 09.12.08)
The Securities and Exchange Board of India (Sebi) has put in place a framework for a new hybrid product, whereby companies can raise low-cost debt and at the same time, allow investors to detach the equity component from the instrument and trade in it. Sebi has amended its DIP (Disclosure and Investor protection (DIP) guidelines to provide for a combined offering of Non-Convertible Debentures (NCDs) with warrants, through the Qualified Institutional Placement (QIP) mechanism. While NCDs and warrants would be offered together, they can be listed and traded separately.
Deutsche Bank lays off Indian staff (ET 09.12.08)
Even after receiving a fresh dose of capital for business expansion, Deutsche Bank India is learnt to have started laying off employees following the general industry trend.
Major rates & parameters as on 08.12.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 1,070 Cr
Rs 26,330 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express