Monday, December 15, 2008

ECO BRIEFS - 11.12.2008

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Corporation Bank bond issue (BL 11.12.08)
Corporation Bank on Wednesday informed the Bombay Stock Exchange that it proposes to raise Rs 300 crore through an issue of upper tier II bonds. The tenor of the bond will be for 15 years. The annual coupon will be 10.10 per cent for the first 10 years. It said that step-up coupon rate of 10.60 per cent will be for the last five years, if the call option is not exercised by the bank at the end of the 10th year from the deemed date of allotment.

United Bank cuts FCNR, NRE rates (BL 11.12.08)
United Bank of India has reduced the interest rates on FCNR and NRE deposits effective December 1. For FCNR (B) deposits, the revised rates of interest on dollar deposits of various tenure are as follows: one-to-less than two years at 3.77 per cent (4.17 per cent), two-to-less than three years at 3.12 per cent (3.66 per cent), three-to-less than four years at 3.39 per cent (4.14 per cent), four-to-less than five years at 3.64 per cent (4.49 per cent) and for five years only at 3.82 per cent (4.76 per cent).

Promotions at Dhanalakshmi Bank (BL 11.12.08)
The Thrissur-based Dhanalakshmi Bank has drawn up plans to put itself in the fast-track, pursuant to Mr Amitabh Chaturvedi taking over as Managing Director & CEO of the bank in October. The bank has resorted to a series of promotions to enthuse senior executives to take up higher responsibilities in a changing scenario. The bank has created 2 new posts of joint general managers. Mr P.S. Ravikumar, DGM (Inspection and Vigilance) and Mr Ravindran K. Warrier, Company Secretary and Secretary to the board, have been promoted to these posts.

Monitor clients’ forex exposure, RBI tells banks (BL 11.12.08)
The Reserve Bank of India on Wednesday directed all scheduled commercial banks having large foreign currency exposures to clients - about $25 million or its equivalent - to monitor and review on a monthly basis, through a suitable reporting system, the unhedged portion of their foreign currency exposures. The central bank said the review of unhedged exposure for SMEs should also be done on a monthly basis. In all other cases, banks are required to put in place a system to monitor and review such position on a quarterly basis. Banks were also advised that foreign currency loans above $10 million, or such lower limits as may be deemed appropriate vis-a-vis the banks’ portfolios of such exposures, can be extended only on the basis of a well-laid out policy of their boards with regard to hedging of such foreign currency loans.

Forex for travel: norms relaxed (BL 11.12.08)
The Reserve Bank of India has now made buying foreign exchange for travel overseas easier. Travellers can now buy foreign exchange from authorised dealers using their debit, credit and prepaid cards, according to a notification issued by the RBI. According to earlier guidelines, authorised dealers in category I & II and full fledged money changers could accept cash up to Rs 50,000 against the sale of foreign exchange. If the amount exceeded Rs 50,000, the dealers could only accept crossed cheques, banker’s cheques, pay orders and demand drafts. The authorised dealers can now accept payments through debit, credit and prepaid cards, irrespective of the amount. However, the RBI notification specifies that the dealers should comply with the KYC norms, the sale of foreign currency should be within permissible limits and the purchaser of foreign currency and the card holder should be the same person.

Affordable homes: Will builders match Govt’s moves? (BL, BS 11.12.08)
Top bankers from State-owned banks will be going into a huddle on Thursday in New Delhi to discuss the nitty-gritty of the “home loan package” which the Government wants them to announce. While banks are ready to do the Government’s bidding in this regard, bankers wonder what “sacrifice” the builders will make in terms of bringing down the prices of residential properties to make the package workable and housing affordable for the “common man”. The banker averred that there was barely any room for reducing home loan rates further. While they are presently earning around 10 to 10.25 per cent interest on floating rate home loans, they are paying out 9.5 per cent interest on term deposits. “Interest rate is but a small issue, the bigger issue is property prices,” said a banker with another public sector bank.

Market makes further gains as FIIs turn net buyers (BL, FE 11.12.08)
The stock market rose sharply on Wednesday on the back of heavy buying by foreign institutional investors. The Sensex surged 5.37 per cent, closing almost 500 points up, at 9654. The broader Nifty was up 5.18 per cent. FIIs have been net buyers of equity in December so far. Their net purchase of shares for Rs 950 crore on Wednesday gave rise to some debate on whether this indicated a reversal in their investment outlook on India.

Rs 10,000-cr fertiliser bonds issued (BL, BS, FE 11.12.08)
The Government of India has announced the issue of fertiliser bonds worth Rs 10,000 crore. The `7.00 per cent Fertiliser Companies Government of India Special Bonds, 2022' is being issued to 23 fertiliser companies as compensation towards fertiliser subsidy during the current financial year. The investment in the special bonds by the banks and insurance companies will not be reckoned as an eligible investment in Government securities for their statutory requirements.

Mumbai terror strike costs insurers Rs 1,400 cr (BL, ET 11.12.08)
Terrorist strikes on Mumbai’s Taj and Oberoi-Trident hotels have dented insurance companies’ balance sheets by Rs 1,400 crore. Oriental Insurance Company Ltd’s Chairman and Managing director, Mr M. Ramadoss, said, “The losses will be partly covered by the Terrorism Pool.” Each insurer’s claims liability would be at least Rs 200 crore. Mr Ramadoss said that OICL’s share was unlikely to exceed 18 per cent. The effective liability would be far less as all the insurers had further reinsured their liabilities, he added. Mr Ramadoss also said OICL targeted mean yield is 9.5 per cent, indicating improving returns on its investments. For the last financial year, the mean yield was only 8.57 per cent. This year, OICL was able to earn high returns on bulk deposits with the banks.

More pilgrims opting for insurance cover (BL 11.12.08)
Sabrimala pilgrims will now be able to buy medical cover at a premium of Rs 40 only. Dhanalakshmi Bank and Oriental Insurance Company Ltd have jointly introduced ‘The Dhanam Oriental Sabari Insurance Policy’ with special counters at Sannidhanam, Erumeli and Nilakkal and a branch at Pampa, in Kerala. The mediclaim policy provides for reimbursement of actual hospitalisation expenses of up to Rs 25,000 in case of an accident. A personal accident cover for mortality or permanent total disablement due to accident of up to Rs 1 lakh is also available. The Mediclaim Policy can also be sought at all Dhanalakshmi bank branches. The banks hope to find converts amongst the millions of devotees expected to undertake the pilgrimage before the January 20, next year. According to media reports, quoting the chairman of the Haj Committee of India, Mr Iqbal Ahmed Saradgi, Haj pilgrims would be provided a comprehensive insurance cover from next year.

Amas Bank acquires 40% stake in Chennai-based Paterson (BL, ET 11.12.08)
Amas Bank (Switzerland) Ltd, the international banking entity of the Hinduja Group, announced the acquisition of 40 per cent stake in the Chennai-based stock broking firm Paterson (PATCO Investments & Consultancy Services Private Ltd). The cost of the deal has not been announced. Paterson is involved in stock broking, derivatives trading, portfolio and wealth management, NRI services, Government securities, corporate advisory, investment banking and allied financial services. Currently, it is a member of National Stock Exchange and Bombay Stock Exchange for stock broking.

RBI may further lower growth forecast for FY09: Subbarao (ET, BL, BS, FE 11.12.08)
The country’s economic growth may fall short of the Reserve Bank of India’s projection of 7.5-8% for the current financial year ending March 2009 and more pain would be in store for the next fiscal 2009-10 in terms of growth. RBI governor D Subbarao on Wednesday indicated that the forecast might be revised downwards when RBI reviews the annual policy for 2008-09 in January 2009.

Home loan rates may be cut, RBI to ease risk norms (ET 11.12.08)
State-owned banks are planning to cut rates on small-ticket home loans by up to 300 basis points by Friday, as RBI separately considers ways to help the banking sector make small home loans available at cheaper rates and relaxed norms, bankers said. “We have decided to bring down interest rates for loans up to Rs 20 lakh by 200 basis points while loans up to Rs 5 lakh would be cheaper by 300 basis points,” UCO Bank chairman and managing director SK Goyal told. Oriental Bank of Commerce (OBC) and Bank of India are also considering rate cuts by the end of this week, although the extent could vary significantly. The planned cuts will bring down rates for home loans up to Rs 20 lakh to between 8% and 10%. Nearly 80% home loans are below this amount. Meanwhile, RBI is likely to lower risk weightages for home loans of up to Rs 20 lakh.

Oct industrial growth may fall to 3%: ET poll (ET 11.12.08)
The industrial growth in October is expected to moderate to 2.3%- 3% from 4.8% in September, according to an ET poll of 10 economists. They are, however, confident that the government stimulus would help the economy bounce back sooner than expected, by the second half of the next financial year. Economists argue that IIP is outdated and it tends to understate industrial growth. However, they concede that the underlying trend of growth is moderating.

Cos may tap bond market to beat credit squeeze (ET 11.12.08)
India's largest-private sector company Reliance Industries (RIL) is expected to raise over Rs 12,000 crore through bonds to meet its funding requirements. The fund-raising plans far exceed the company’s earlier estimates. This is the first time in the past few years that the company has attempted to raise such huge funds through the debt route. Reliance is one of the many marquee corporate houses that are expected to tap the local bond market in the wake of difficult global markets and restricted access to bank finance. Indian companies are expected to raise over Rs 25,000 crore in the next couple of months through bonds and loans. Grasim, Hindalco, Aditya Birla Novo, Sterlite Industries, Balco, ACC, Apollo Tyres, Adlabs, JK Cement, JSW and some Tata entities are planning to tap the bond markets, according to bankers.

Insurers dust off fixed-return endowments (ET 11.12.08)
Endowment plans with fixed guaranteed returns are back in the insurance sector after almost six years. These products aim to offer fixed returns in the range of 7-10% at a time when returns from most asset classes are looking unpredictable. LIC has launched an endowment product - Jeevan Aastha - with guaranteed returns which may be open for 45 days or even lesser, depending on the interest rate movement. This scheme offers a guaranteed return of 9% and 10% per annum on maturity for five and 10-year policies, respectively. If a person pays a single premium of Rs 50,000, the policyholder will get Rs 1 lakh at the end of 10 years, if he survives. In case of the policyholder’s death, the family will get a sum of Rs 1.5 lakh. The insurance major is looking at raising a massive Rs 25,000 crore in 45 days.

Bad loan sales hit rough patch (BS 11.12.08)
A liquidity crisis and a fall in real estate prices have slowed down sale of non-performing assets (NPAs) in the current financial year. The slowdown coincides with rising loan defaults by retail customers and small enterprises, which have been hit by a steep rise in lending rates. The resource scarcity has changed the priority of investors. They want to remain liquid and not commit their funds to the long term. “There is a decline in the amount of resources that will be committed for buying bad loans due to tight liquidity conditions in the financial system,” said P Rudran, chief managing director and chief executive, India SME Asset Reconstruction Company. Another factor that has hit the pace of NPA sales is a drop in land prices. The price of land for a house or an industrial unit has declined considerably in 2008. This reduces the chances of resolution of NPA accounts, adversely impacting activity, a senior State Bank of India executive said.

Banks' external loans dip by $8.46 bn (BS 11.12.08)
The country’s net international investment position declined by 6.45 per cent to $49.12 billion in June this year compared with $52.51 billion on March 31, 2008, indicating net claims of non-residents on India. The latest data of the Reserve Bank of India (RBI) showed a $8.46-billion decline in external loans extended through nostro accounts by the banking sector, resulted in a decline in the total external financial assets to the tune of $3.81 billion to $377.63 billion during the first quarter of 2008-09 over the figures in the previous quarter. However, during the same period, the reserve assets were higher by $2.37 billion compared with those on March 31, 2008, at $312.09 billion, thereby exceeding the entire external debt of $221.30 billion. The reserve assets account for 82.6 per cent of the total external financial assets. Likewise, direct investment abroad was up by $2.02 billion at $48.21 billion.

Kapol to buy 2 Gujarat banks (BS 11.12.08)
Kapol Co-operative Bank, a Mumbai-based multi-state scheduled bank is set to acquire two Gujarat-based cooperative banks by the end of the current financial year. “We have informed the Registrar of Cooperative Societies for the state about the proposal and after getting its clearance, we would apply to the Reserve Bank of India (RBI),” said KD Vora, Chairman, Kapol Co-operative Bank. Currently, the bank has a branch at Surat and post-acquisition it will add another six branches.

Crisil to sell 90 per cent stake in UK subsidiary (BS 11.12.08)
Rating agency Crisil has announced a sale of a 90 per cent stake in its United Kingdom-based subsidiary, Gas Strategies Group (GSG), to the company’s management team. GSG provides consulting, training and information services for international gas and LNG businesses. The sale of GSG follows a review of Crisil’s strategy in the infrastructure advisory business.

Centre clears tax-free bonds by IIFCL (BS 11.12.08)
In order to hasten the availability of funds for the infrastructure sector, the government today approved the issuance of tax-free bonds aggregating Rs 10,000 crore by India Infrastructure Finance Company Ltd (IIFCL). IIFCL will raise the funds through a combination of private placement and public issue. The coupon rate for the proposed tax-free bonds will be 7.5 per cent. IIFCL will lend the funds to banks for refinancing infrastructure projects, particularly in the road and port sectors, at 8.5 per cent. This would be equivalent to around 11 per cent pre-tax return.

'Client-friendly claim servicing need of the hour' (BS 11.12.08)
The international financial turmoil and the economic slowdown, which hit some large insurance giants like AIG, have also impacted the Indian insurance sector, which currently has 21 life and 20 general insurers. There has been a dip in the growth rate of the sector, though solvency is not a concern. The challenges in the country remain more basic - widening and deepening insurance penetration and making servicing of claims more efficient, J Hari Narayan, the chairman of the Insurance Regulatory and Development Authority (Irda), told.

Major rates & parameters as on 10.12.08 (BL, RBI)
Call Rates
Auction under RBI’s LAF
Govt. Securities (Yield)

Reverse Repo
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 11,970 Cr
Rs 15,400 Cr

Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express

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