ECONOMIC BRIEFS – 12.12.08
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PNB partners Infosys for Finacle (BL, ET 12.12.08)
Punjab National Bank (PNB) has chosen Infosys Technologies’ Financle software to power its core banking initiative in rural areas. Infosys would deploy a tailored version of Finacle core banking solution across PNB’s six regional banks (RRBs) covering 1,300 branches. “The key objective of this transformation initiative is to strengthen our RRBs and make them vibrant channels of financial service delivery for the rural sector,” Mr R.I.S. Sidhu, Chief General Manager, PNB, said.
Union Bank chalks out revamp package for SMEs (BL, ET 12.12.08)
Union Bank of India has drawn up a restructuring package for troubled MSMEs whereby they can avail themselves of ad hoc facilities to tide over temporary funding mismatches, enjoy longer holding period for inventories, convert working capital loans into working capital term loans, and get term loans re-phased. The bank, had an outstanding MSME portfolio of Rs 13,884 crore as of September 30, 2008 (16.24 per cent of the total advances of Rs 85,506 crore). "We cannot allow them to fail,” said Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, after making an announcement regarding the setting up of 100 specialised business banking branches, which will be dedicated to the MSME sector. The bank, according to Mr T.K. Sharma, General Manager, has identified 10 SME clusters, including Ludhiana (hosiery), Mandi Govindgarh (steel re-rolling), Jamshedpur and Pune (auto components), Tirupur (knitwear), Mumbai (diamond), Surat (textiles), Varanasi (carpet), etc., where units financed by the bank would be taken up for restructuring.
Bank of Rajasthan to distribute Edelweiss MF products (BL 12.12.08)
Bank of Rajasthan will distribute mutual fund products of Edelweiss Mutual Fund. For this purpose, Edelweiss Asset Management has entered into a tie up with Bank of Rajasthan. Under the arrangement, Bank of Rajasthan will distribute Edelweiss mutual fund products through 100 of its 463 branches spread across 286 cities in India.
PSU banks set to offer cheaper, easy home loans (BL 12.12.08)
The move to provide relief for home loan borrowers comes in the wake of the Government’s recent fiscal stimulus booster in which it promised that public sector banks (PSBs) would shortly announce a package for two categories – up to Rs 5 lakh, and between Rs 5 lakh and Rs 20 lakh. Borrowers are now expecting at least 200-300 basis point cut in interest rates as relief under the package. They want interest rates on fixed rate home loans to come down to between 7 and 9 per cent say for a 10-year term period. PSBs are also looking at making credit more accessible and cheaper for small and medium enterprises (SMEs). Indications are that some form of interest subvention would be provided. However, for the proposed interest concession on home loans up to Rs 20 lakh, Mr T.S. Narayanasami, Chairman, Indian Banks Association (IBA) made it clear that no interest subvention was contemplated or even necessary. The issue of cost of funds for banks was discussed, especially from the context of bulk deposits. Central public sector enterprises (CPSEs) were also instructed to strictly adhere to Finance Ministry guidelines and desist from inviting bids from banks for parking their surplus funds. The practice of inviting bids were leading to competition among PSBs and thereby raising their cost of deposits, which in turn led to increased lending rates.
Banks to fund large wind farm projects based on cash flows (BL 12.12.08)
With more multi-national companies looking at setting up large wind farms, banks are now prepared to fund these projects based on their cash flows rather than take recourse to the parent company’s balance sheet. Experts in the wind energy sector say this is good for the sector as it will result in project sizes increasing. Wind energy does not enjoy infrastructure sector status such as roads, power or ports projects do. Therefore, banks have been reluctant to go in for non-recourse funding for wind power projects. That is changing because of the attractive tariffs in some progressive States such as Karnataka, Maharashtra and Gujarat.
2 co-op banks’ licence cancelled (BL 12.12.08)
The Reserve Bank of India has cancelled the licences of two co-operative banks - Bhavnagar Mercantile Co-operative Bank Ltd. and Siddhpur Commercial Co-operative Bank Ltd. The banks had ceased to be solvent and all the efforts to revive it with the help of the Gujarat Government had failed. On liquidation, every depositor would be entitled to repayment of deposits up to a monetary ceiling of Rs 1,00,000 from the Deposit Insurance and Credit Guarantee Corporation.
RBI chief calls for ‘significant’ policy action to tackle crisis (BL, ET, BS, FE 12.12.08)
The government and the Reserve Bank of India need to take “significant” steps to counter the “significant crisis”, Dr D. Subbarao, Governor, Reserve Bank of India, said on Thursday. “The crisis has evolved and is evolving. Nobody around the world has the exact picture of how big the crisis is. It is a significant crisis and we need to take significant policy actions,” he told. Talking about the way forward, he said, “The situation is uncertain and it is not possible for us to calibrate a precise roadmap but we will continue to take appropriate measures at the appropriate time,” he added. The Reserve Bank, Dr Subbarao said, would review the inflation forecast in the next monetary policy scheduled for January 27, 2009. On being asked about further rate cuts, the RBI Governor said, “We are constantly reviewing the situation, we have already adjusted our CRR and policy rates and we will take appropriate measures at the right time.” Banks should take the cue from the rate cuts announced by the apex bank on Saturday and should revise their lending rates accordingly, he pointed out. The apex bank on Thursday announced Lines of Credit worth Rs 9,000 crore to the National Housing Bank and Exim Bank.
‘Growth lower than forecast but good’ (BL 12.12.08)
India’s growth continues to remain good though it might be lower than what had been forecast for the fiscal, Ms Usha Thorat, Deputy Governor, Reserve Bank of India, said. Talking about business confidence in India’s growth story, she said though there might be some slowdown in incremental growth this year still the growth rate would continue to remain good. Ms Thorat was speaking at an interactive session with industry experts organised by the Indian Chamber of Commerce. “In the interest of the banking system and borrowers, it will be good for banks and borrowers to sit together and discuss so that banks can lend without fear,” she said.
NHB in talks with insurance cos (BL, FE 12.12.08)
The National Housing Bank (NHB) is in talks with few insurance companies for tie-ups related to offering insurance-linked housing finance products. Mr S. Sridhar, NHB Chairman and Managing Director, said, “A proposal has been sent to them so that they can build the concept further. We are also in the process of framing outlines for this scheme.” With the increased life expectancy, most of the borrowers will outlive their term of reverse mortgage and end up giving up their property. “This will allow beneficiaries to use their property to generate income for life as against for only 20 years as provided under the present schemes,” Mr Sridhar said. So far, banks have disbursed around 2,000 loans worth Rs 550 crore, he said. Mr Sridhar said that he expects reverse mortgage to become more popular in India than in any other developing country as there was no “social security” or “old-age income security” available here.
Markets downturn hits insurance cos collections (BL 12.12.08)
The continuous downturn in equity markets and severe correction since October seems to have finally hit the collections mopped up by insurance companies. At the start of this year, the industry’s new premium collections were growing at an impressive 118 per cent. This growth rate was down to 11.4 per cent in October. A continuous slide in market leader LIC’s collection has dragged down overall growth. Last October, private insurers registered double-digit growth in new premium collected. This October, growth hovered in the single digits. The largest private player ICICI Prudential has seen a 29.1 per cent decline in new premium collections for October. Some private players who managed reasonable growth were MetLife, which registered a growth of 91 per cent followed by SBI Life (52 per cent) and Reliance Life (48.8 per cent).
Inflation rate drops to 8% on cheaper food items (BL, ET, BS, FE 12.12.08)
The annual Wholesale Price Index-based inflation rose 8 per cent during the week ended November 29, lower than the previous week’s annual rise of 8.40 per cent. The annual inflation rate was 3.89 per cent during the corresponding week of the previous year. Inflation dropped to a seven-month low during the latest reported week on account of a across-the-board drop in the price levels, with staples such as fruit, vegetables and barley showing a sharp decline. Inflation is expected to fall further once the data starts capturing cuts in fuel prices announced last week by the Government. During the latest reported week, the WPI for “All Commodities” declined by 0.04 per cent to 233.6 points, from 233.7 points for the previous week. For the week ended October 4, the final WPI for ‘All Commodities’ stood at 239.7 points as compared to the provisional estimate of 239.6 points, while annual rate of inflation based on final index, calculated on point to point basis, stood at 11.49 per cent as compared to the provisionally reported 11.44 per cent.
Infrastructure growth slows down to 3.4% in Oct (BL, ET, BS, FE 12.12.08)
The infrastructure sector slowed down further in October with the index for the six core sector industries posting a growth of 3.4 per cent against 4.6 per cent in the corresponding period last year. The coal sector posted an impressive performance with a growth of 10.9 per cent followed by a 6.2 per cent increase in cement production. The growth in coal and cement production in the corresponding period last year stood at 8.9 and 7.5, respectively. However, fall in crude oil output and production cuts by steel companies dampened the encouraging performance of the coal and cement sector and pulled down the index. The petroleum refinery sector grew by five per cent marking a sharp improvement over 2.7 per cent recorded in October last year. Similarly, electricity generation increased by 4.2 per cent, marginally up compared with 4.2 per cent a year ago. For the April-October seven-month period of the current fiscal, the core sector index grew by 3.9 per cent against 6.6 per cent in the corresponding period last year.
Foreign investment banks see a gloomy 2009 (BL 12.12.08)
The financial firms expect no upside in the market in the first half; this is also partly due to the forthcoming general elections. But the reports say the Sensex will scale higher levels after the elections should there be a clear verdict. Credit Suisse’s Asia strategy report says the Indian economy would grow between 5 and 6 per cent and that corporate earnings growth would be negative in FY09, and flat in FY10. Another foreign investment bank Merrill Lynch also holds a bearish view on the markets and expects GDP growth to slow to 5.8 per cent in FY10. It has forecast growth of 7.5 per cent for FY09. Morgan Stanley sees the Sensex moving in the range of 14,225 on the higher side and 6,355 on the lower side in the next 12-month period.
PE funds turn their back on new infrastructure projects (BL 12.12.08)
Debt funding for new infrastructure projects is facing bottlenecks with private equity (PE) funds exiting from investment commitments. Only the existing pipeline sanctions were being disbursed. However, banks are not prepared to release debt funds to some planned power projects, including ultra mega power projects. This is because promoters have relied substantially on PE funds. PE funds had committed equity funding in some projects up to 49 per cent. However, with global deleveraging now becoming the rule, PE funds are no longer prepared to commit equity in India. This is despite low operational and financial risks in power, highways and refineries. This is because the forward linkages in the form of a power purchase agreements with the electricity boards or with distribution companies have already been tied up, backed by bank guarantees and assignment of buyer’s revenues.
Reliance Money ties up with DBS Vickers (BL 12.12.08)
Reliance Money has signed an agreement with DBS Vickers Securities (Singapore) Pte Ltd, a subsidiary of DBS Bank, to facilitate trading in global commodity exchanges for Indian corporate and other appropriate participants. The tie-up will enable corporates to trade in global exchanges such as London Metal Exchange, Chicago Board of Trade, Tokyo Commodity Exchange and Malaysian commodity exchanges.
Kotak Securities new scheme to offer best buy/sell price on BSE, NSE (BL 12.12.08)
Kotak Securities, the stock broking arm of the Kotak Mahindra group has launched a service that will help clients to buy and sell stocks at the best possible rates available on the two major exchanges, BSE and NSE. This new scheme is called the ‘Smart Order’ service. “There are price differences available in the market. Smart Order exploits these differences to benefit the customer,” said Mr Prasanth Prabhakaran, senior Vice-President and All-India Head for Broking. Smart Order is available without any extra charge and will be provided to all online clients of Kotak Securities.
Second stimulus package on the cards (BL, BS, FE 12.12.08)
Even as the beleaguered domestic industry has not been satisfied with the fiscal stimulus package announced on Sunday, the Union Commerce and Industry Minister, Mr Kamal Nath, hinted at another batch of stimulus measures anytime next week to bolster the economy and boost sentiments among firms and markets. In the next package, he said, “we will look at engineering sector, greater refinance facility for exporters, textiles and farm sector”. In the first package announced on December 7, besides additional public expenditure of Rs 20,000 crore, the Government cut four per cent excise duty across the board and gave pre and post-shipment credit at an attractive rate through an interest subvention of 2 percentage up to end-March 2009 subject to minimum rate of interest of 7 per cent per annum, government back-up guarantee enlarged to the extent of Rs 350 crore to provide guarantees for exports to difficult markets/products, refund of service tax on foreign agent commissions of up to 10 per cent of f.o.b. value of exports, settlement of central sales tax and terminal excise duty dues for exporters. Officials said the second package might provide interest subvention and higher DEPB (duty entitlement pass book) rate and drawback rate to troubled and labour-intensive export segments such as gem and jewellery, textiles, marine product and leather.
Memory bank (BL 12.12.08)
They say still waters run deep. And the archives of the Reserve Bank of India (RBI) in Pune bear this out. Nothing duller, you’d think, could be found than the RBI. Monetary policy, after all, is not something that sets the normal person’s juices running. But a visit to the archives quickly dispels that notion. The truly gorgeous Peepul tree outside the main door bears a plaque that says a freedom fighter who had shot an oppressive British Collector in the 1850s took refuge under it. That sets the tone for the place because it is a veritable treasure-trove of documents dating back to more than 150 years.
PSBs may waive pre-payment penalty on home loans (ET 12.12.08)
Public sector banks (PSB) are considering a suggestion to waive pre-payment penalty for home loans up to Rs 20 lakh. At present, banks charge anywhere between 1% and 3% of outstanding loan amount as additional interest if a consumer wants to repay the loan amount before the initially agreed loan tenure. “We are considering a proposal to either completely waive the pre-payment penalty or reduce it significantly,” said the chairman of a PSB.The Indian Banks’ Association (IBA) is examining the possibility of bringing down or waiving the processing fee and lowering the requirement of margin money for small home loans. All these steps are part of a government plan to revive the moribund housing sector. A revival in this sector could have positive spin-offs across various industries, notably cement and steel.
Cos take FD route to raise funds (ET 12.12.08)
With liquidity in short supply, companies are increasingly resorting to the traditional practice of seeking deposits from the public. Recent company FDs have offered rates as competitive as or, in some cases, better than those offered by banks. Fifty-four companies have issued notices seeking deposits from the public. Against this, only 13 companies in 2006 and 11 in 2007 had invited public deposits. These debt market instruments are suddenly in the limelight as other avenues of financing have become unattractive or unfeasible for companies. Moreover, investors have now become apprehensive about fixed maturity plans or similar mutual fund products.
RBI cautions banks over realty loans (BS 12.12.08)
The Reserve Bank of India (RBI) may have relaxed norms for lending to commercial real estate by banks, but prudence in lending still tops the central bank’s agenda. RBI has asked banks to be cautious about the end use of funds lent to real estate companies to ensure that loans are for construction and not for refinancing the existing loans or paying back foreign shareholders or private equity shareholders who want to exit. A few weeks ago, RBI brought down the risk weight on commercial real estate loans from 125 per cent to 0.4 per cent.
'Our focus is on wealth assurance' (BS 12.12.08)
IDBI Fortis Life Insurance, a joint venture between IDBI Bank, Federal Bank and Fortis European Banking and Insurance Company, started operation in March 2008. The new participant in the insurance industry is upbeat on growth prospects.
Co-op banks seek easier NPA norms (BS 12.12.08)
Cooperative banks expect a rise in non-performing assets (NPA) in farm loans as many farmers have stopped repaying in the hope that the government will announce another loan waiver scheme. “Farmers are refusing to repay their loans, due after March 31, 2007, in anticipation of another waiver. But they fail to understand that they will not be eligible for fresh loans and, even if they repay, they will have to pay a higher interest rate of 11 per cent applicable for defaulters instead of 7 per cent normally. So, we have asked RBI to classify NPAs based on the 180-day delinquency norms instead of the existing norm of 90 days for short-term loans,” said a head of a state cooperative bank. According to an estimate of cooperative banks, in 2008-09, NPA levels could be as high as 25 per cent from the current average level of 10 per cent.
Future Generali to invest Rs 370 cr by March '09 (BS 12.12.08)
Future Generali, the insurance joint venture between Kishore Biyani-promoted Future Group and Italian insurance major Generali, will pump in Rs 370 crore this financial year to shore up equity capital to Rs 855 crore in general and life insurance businesses. The company, which started operations in April this year, would bring in additional Rs 300 crore in life insurance and Rs 70 crore in general insurance by March 31, 2009.
RBI tightens norms for outsourcing bank jobs abroad (FE 12.12.08)
With risks in many economies increasing due to severe slowdown, the Reserve Bank on Thursday tightened norms for Indian banks outsourcing services abroad, asking them to maintain all original records in India. Besides, it asked banks to ensure that if the offshore service provider is a regulated entity, the foreign regulator should not obstruct or object to RBI’s inspection of bank’s internal and external audits. RBI further said, “The regulatory authority of the offshore location will not have access to the data relating to Indian operations of the bank on the ground that the processing is being undertaken there.”
SBI chief says will review rates soon, ICICI steers clear (FE 12.12.08)
The country’s largest private sector lender ICICI Bank on Thursday said it was hopeful that the measures taken by the Reserve Bank of India would help sustain interest rates at a lower level while steering clear off making any direct comment about rate cuts. Biggest lender State Bank of India, however, said it would review interest rates soon following the monetary measures of RBI.
Union Bank merger with Bank of India unlikely (FE 12.12.08)
Union Bank of India chairman and managing director MV Nair has said that he does not foresee the much anticipated amalgamation between Bank of India (BoI) and Union Bank of India in future. Nair said that Union Bank of India has also communicated to its real estate developer clients to lower the property prices in a bid to create demand in the housing sector. He said, “At the moment, asking for an interest rate subvention from the government becomes inevitable, if we were to further lower our home loan interest rates.” The bank’s current exposure to housing finance companies is around Rs 6,000 crore. “We will also focus more on funding the housing finance companies post the recent guidelines released by the regulator,” said Nair.
Major rates & parameters as on 11.12.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 17,835 Cr
Rs 13,830 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express