ECO BRIEFS - 26.11.2008

ECONOMIC BRIEFS – 26.11.08
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Andhra Bank confident of crossing Rs 1 lakh-cr business this fiscal (BL 26.11.08)
Andhra Bank, currently doing business of Rs 87,000 crore, is confident of crossing the Rs 1,00,000 crore mark by the end of the fiscal, according to Mr R.S. Reddy, Chairman and Managing Director. The bank would open 50 branches, most of them outside the State, and implement core banking solutions in all branches by the end of March 2009. The bank was also planning to refurbish 150 branches and shift 100 in order to offer better services. Mr Reddy said Andhra Bank had signed a MoU with Bank of Baroda and Legal and General Group of the UK to form a joint venture life insurance company and was in the process of filing for approvals from the Insurance Regulatory Development Authority. The bank was also in the process of forming a joint venture in Malaysia with Bank of Baroda and Indian Overseas Bank for setting up a bank there. He said the bank would recruit 1,000 employees and impart training to them.

HDFC Bank unveils faster ATM facility (BL 26.11.08)
HDFC Bank will offer faster transactions and personalised messages through direct banking channels such as ATMs, Internet banking and phone banking. The bank will offer this facility using “Aptra eMarketing” software, powered by NCR Corporation. The software will help reduce the number of clicks for withdrawing money from ATMs by 40 per cent, said Mr Rahul Bhagat, Country Head for Retail Liabilities, Marketing and Direct Banking Channels, HDFC Bank. The bank has launched the new ATM feature as a pilot in Pune and will be extending it to other cities soon. Mr Bhagat said that for HDFC Bank, 84 per cent of the all banking transactions happen through ATMs, phone and net banking.

HDFC’s new office in Chennai (BL 26.11.08)
HDFC Ltd has opened a new office at Old Mahabalipuram Road, Sholinganallur marking its 7th office in Chennai city and 16th in Tamil Nadu.

IndusInd bullish on commercial vehicle loans (BL 26.11.08)
With interest rates firming up and other banks shying away from the commercial vehicle loan portfolio, the demand is increasing. Mr Paul Abraham, Chief Operating Officer of IndusInd Bank, pointed out that with commercial loan portfolio increasing from Rs 300 crore a month last year to Rs 400 crore a month this year, the bank should clock a 30 per cent growth in this segment this year. Remittances transactions conducted through the bank have also risen sharply in the recent past, with the month of October registering a three-fold increase over the same month last year, he said. The bank has Rs 7,000 crore as disbursement to the commercial loan segment on an 8 lakh client base.

TVS Motor, IndusInd Bank in pact (BL 26.11.08)
TVS Motor Company has entered in to an arrangement with IndusInd Bank through which the company’s dealers could avail themselves of structured inventory financing from the bank. The deal is also consistent with the bank’s desire to provide funding right down the supply chain.

Chidambaram opens J&K Bank’s new zonal complex (BL 26.11.08)
The Finance Minister, Mr P. Chidambaram, on Tuesday inaugurated J&K Bank’s new zonal complex for Northern India at Gurgaon in Haryana. Mr Chidambaram said that J&K Bank, a medium-sized but a strong bank, was poised for stupendous growth in the years ahead. Dr Haseeb A. Drabu, Chairman and CEO, J&K Bank said, “We are a regional bank in origin, national bank in reach and an international bank in the quality of operations and ownership. At present, the bank has six zones outside of J&K. North Zone, the new office for which was inaugurated today, and West Zone are large in terms of business.”

Market buzz on Citigroup offloading (BL 26.11.08)
Rumours over imminent sell offs and unchecked lists of local companies in which Citi group outfits and clients supposedly have investments have been doing rounds in the market circles. Some such lists were found to be partially correct. In a few cases, Citigroup has exited a few quarters ago. According to the Managing Director of an investment banker, in which Citigroup has over 1 per cent recorded stake through P-notes, said “There is no panic button for sale in Indian equities appeared to have been pressed either by Citi or by its clients.”

Bankrolling Citi (BL 26.11.08)
The US Government has stepped in, quite expectedly, to rescue the troubled banking giant, Citigroup. Apart from an immediate $20 billion direct cash injection, Washington is also providing a backstop against any default in the bank’s real estate related securities that are worth $300 billion. There is reason enough to believe that the ultimate fiscal burden to the US Government could be far in excess of the immediate cash outgo. The latest US action will only serve to sharpen the debate over whether, in the long run, national economic interests are better served by a nuanced application of the principles of free markets, that permits the State stepping in to alleviate the distress of financial entities that are ‘systemically’ important.

S&P keeps Citi on credit watch (BL, ET 26.11.08)
The long-term `AA-' counterparty credit rating assigned by Standard & Poor's Ratings Services to Citigroup Inc will continue to be on credit watch with negative implications and the same is unlikely to fall more than one notch by the year end, the rating agency said in its update on the US-based banking giant. The present rating to Citigroup was assigned by S&P on September 29. S&P said it will incorporate asset-quality issues into its stand-alone assessment of Citi, which excludes expectations of extraordinary government support. Thus, the stand-alone assessment of Citi will likely be lower than the final rating reflecting the government support. For regulatory capital calculation purposes, the $306 billion of assets will carry a risk weighting of 20 per cent (down from 100 per cent). This frees up an additional $16 billion of regulatory capital. As a result of these various actions, Citi's Tier-1 capital ratio will be very strong at 14.8 per cent.

Banks seek SLR securities status for subsidy bonds (BL 26.11.08)
Following a deluge of deposits from investors, public sector banks have approached the Reserve Bank of India for widening the category of bonds under the Statutory Liquidity Ratio (SLR). Among the securities that banks want as part of the SLR are subsidy bonds issued to refineries, fertiliser companies, Food Corporation of India and bonds issued to State Bank of India against the rights issue. Bankers said that since all these categories of bonds were also sovereign issues, there was little reason for distinguishing between sovereign-issued securities. Bankers said that deposit inflows were coming into the banking system at the rate of about Rs 3,500 crore per day. Although SLR was down to 24 per cent, bankers said that demand for the securities still continued. The chase for the securities was also partly because PSU banks currently have only a small portfolio of marked-to-market category of securities. The ICICI Bank’s Chief Economist, Dr Samiran Mukerjee, said, “Inclusion of the subsidy bonds would result in releasing at least about Rs 1.5 lakh crore of liquidity.” This was because the outstanding subsidy bonds are at present about Rs 1.5 lakh crore.

Banks to extend Rs 181-cr loan for khadi and village industries in AP (BL 26.11.08)
The Khadi and Village Industries Commission (KVIC), Andhra Pradesh, has set a target of Rs 181 crore disbursals under the Prime Minister’s Employment Generation Programme (PMEGP) during the current financial year. “The State Level Bankers Committee (SLBC) has approved to extend financial assistance to the tune of Rs 180.77 crore under PMEGP for khadi and village industries in the State before the end of March 2009,” Mr K Mohan Rao, Director, KVIC (Andhra Pradesh), told at the inaugural of an orientation programme on PMEGP.

DLF Pramerica Life to step up presence, awareness (BL 26.11.08)
DLF Pramerica Life Insurance Company Ltd (DPLI), a joint venture between realty major DLF and the US-based Prudential Financial, hopes to emerge as a full service player by end-2009, its Managing Director & CEO, Mr Kapil Mehta, has said. The joint venture started its business operations in September last. “Our biggest constraint now is bandwidth. We still do not have complete portfolio of products to offer. By the end of next year, we will have a complete portfolio, a pan-India presence and increased brand awareness through a media campaign,” Mr Mehta told. Plans are afoot to launch 2-3 unit linked insurance plan (ULIP) products in the next six months. The company already has a ULIP product. Also on the drawing board are standalone health and pension products, which are likely to hit the market sometime next year.

‘No change in average 11th Plan growth target’ (BL 26.11.08)
The Planning Commission has ruled out any immediate tinkering with the average 9 per cent gross domestic product growth target of the 11th Five-Year Plan, though the current year would see some slippage in growth with ‘some significant reduction in growth’ next year too due to the global financial meltdown. “Private investment will be affected and our strategy is to offset that by raising public investment in infrastructure. If we can do that, and that’s a big if, there is no need to revise 11th Plan target. This is an issue we must be discussing six months down the road,” Mr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, told the ongoing Economic Editors’ conference.

The WPI, PPI, CPI confusion (BL 26.11.08)
In India, the inflation picture is not so sanguine. While the Wholesale Price Index (WPI) is down from its peak of over 12 per cent to below 9 per cent in the latest reported week, it is still too high for comfort. But the fear of a demand and financial collapse has trumped inflation fear and prompted Government and the RBI to cut interest rates sharply (with possibly more on the way) and inject liquidity of hundreds of thousands of crores of rupees. The focus on WPI for policy-making is itself flawed. The right price level measure is the consumer price index (CPI), which can (and does) deviate from the WPI. India is probably alone among the world’s major economies in using the WPI as its inflation benchmark. In fact, the G-7 economies do not have a WPI measure at all. Coming to think of it, that makes sense. For, what is the point in reporting the prices of two identical baskets of goods at the wholesale and retail levels?

SBI gearing up for public offer next year: Bhatt (BS 26.11.08)
State Bank of India (SBI) has informed the government about its need for capital and the lender will look to tap the equity market with a share issue in 2009-2010 (April-March), Chairman O P Bhatt said. “We have a Bill pending in the Parliament... where our government shareholding is mandated by the Act at 55 per cent. We have suggested it to be reduced to 51 per cent in the bill,” Bhatt said. Government holding in the bank is at 59 per cent now. “At the present valuation, we won’t get much. But once the market improves, and if our government shareholding can go down to 51 per cent, then we can... next year,” Bhatt said. SBI’s capital adequacy ratio (CAR) fell below 12 per cent to 11.51 per cent at the end of September. The government has suggested it wants big banks to have 12 per cent CAR.

Suvarna Sahakari Bank may merge with IOB (BS 26.11.08)
The Reserve Bank of India (RBI) may approve the merger of Pune-based urban cooperative bank (UCB) Shri Suvarna Sahakari Bank with Indian Overseas Bank (IOB), the Chennai-based public sector lender. The proposal is not actually a merger, but only involves the takeover of assets and liabilities of the 37-year-old cooperative bank with deposits of more than Rs 722 crore. The bank’s accumulated losses are estimated at over Rs 350 crore. RBI had put the Pune-based cooperative bank under moratorium since September 2006, following huge non-performing assets (NPAs), non-recovery of loans and non-compliance with RBI guidelines in case of loan approvals worth Rs 436.74 crore. While the bank has deposits of over Rs 700 crore, NPAs account for more than Rs 300 crore, primarily due to connected lending. Shri Suvarna Sahakari Bank has 12 branches — nine in Pune, two in Mumbai and one in Shripur. The total employee strength is reportedly a little over 100.

Banks want easier NPA norms, special window for SMEs (BS 26.11.08)
Banks are pitching for a special window for lending to small and medium enterprises (SMEs), which will be akin to the refinance facility opened by the Reserve Bank of India for financing mutual funds and non-banking finance companies in dire need of funds. In addition, the lenders want changes in the norms related to non-performing assets (NPAs) to help them tide over the problem of rising defaults in the small scale sector. Indian Banks’ Association (IBA) will approach RBI with these proposals after its meeting with SME representatives on Wednesday. The cash flows of SMEs are under pressure as recessionary conditions in many countries are affecting exports and the slowdown in Indian manufacturing has hit local demand.

Finance firms seek easier ECB rules (BS 26.11.08)
After non-banking finance companies (NBFCs) that do not depend on deposits, finance companies that accept deposits have approached regulators for relaxation in the external commercial borrowing (ECB) norms. The move comes in the wake of the cap on the interest rate, which is affecting their fund-raising plans through this route. LIC Housing Finance has already received interest from certain institutions that are ready to extend loans worth Rs 1,000 crore through the ECB route, but at a market-determined interest rates. Existing Reserve Bank of India (RBI) guidelines allow deposit-taking NBFCs to raise resources up to 50 per cent of their net-owned funds for up to three years. However, the regulator has capped the interest rates on such loans at 200 basis points above the six-month Libor.

RBI says measures ad hoc, banks must plan for long term (BS, ET, FE 26.11.08)
The Reserve Bank of India (RBI) has reminded bankers that measures announced by it to tackle the impact of the credit crisis are ad hoc in nature and has advised them to ensure that they plan for the long term. “The banks would, therefore, be well advised to ensure that their business strategies and decisions are guided by the longer-term perspective of the systemic and macro-economic developments and are not unduly influenced by the current episode of the exceptional events,” RBI Deputy Governor V Leeladhar said at the Bankers’ Club in Kolkata.

Subbarao speaks his mind on 'negative press' (BS 26.11.08)
Reported as being a handmaiden to the finance ministry when the central bank announced a slew of measures in the wake of the global financial turmoil, a reflective Reserve Bank of India Governor D Subbarao placed his actions in perspective at an offsite of senior insiders last week. Some RBI officials who attended the meeting near Mumbai confirmed that the governor addressed the issue of the recent “negative press”. To place the situation in context, Subbarao had drawn parallels from the US and UK, where central bankers worked in co-ordination with governments. The weekend offsite meeting was about internal management aspects of RBI and it did not discuss any major policy steps. The meeting reviewed the performance of each department. Some external experts spoke on leadership and motivation.

Banks may get free access to open branches & ATMs (ET 26.11.08)
Banks operating in India - including foreign ones - may soon be able to open new branches and set up automated teller machines (ATM) without a licence from the Reserve Bank of India (RBI). The finance ministry, which favours such a relaxation, is likely to take up the matter with RBI soon. A large section in the finance ministry is of the view that India should treat foreign banks on a par with Indian banks as far as opening new branches is concerned. They think it will help the country meet its banking needs quickly. At present, there are only 76,000 branches in India for 110 crore people. “There are large regional banks that are keen to have a national footprint. For example, Punjab National Bank, which has comparatively fewer branches in the south, can expand there, while Canara Bank can expand in the north,” an official said.

IDBI to hire over 650 at managerial level (ET 26.11.08)
IDBI will recruit 652 people at managerial level, even as most of the financial institutions globally are handing out pink slips as part of their cost cutting measures. The bank is planning to hire as many as 256 managers for its retail banking business, while it plans to add another 220 managers in the SME financing division. Besides, it is also looking to recruit 176 assistant general managers for the SME financing business.

FED floats $800b rescue package (ET 26.11.08)
THE Federal Reserve announced two new efforts to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion. The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing finance companies. It will set up a $200-billion programme to support consumer and small-business loans. The Fed will purchase up to $100 billion in direct obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage backed securities backed by Fannie, Freddie and Ginnie Mae.

After Citi, is Bank of America next in bailout queue? (ET 26.11.08)
Bank of America, the No 3 US bank by assets, has loaded up on mortgages as the world’s largest economy wrestles with the worst housing market since the Great Depression. The bank further heightened its exposure to home loans by acquiring Countrywide Financial Corp, the largest US independent mortgage lender and agreeing to buy Merrill Lynch & Co, which owns the world’s largest retail brokerage. If losses on mortgages and other debt securities mount significantly, the bank may see the ratio of equity to risk-weighted assets, known as Tier-1 capital, dwindle to alarmingly low levels. Said Michael Farr, president of investment management company Farr, Miller & Washington in Washington, DC “The share price makes it look like Bank of America might be next in line.”

No slowdown seen in banks’ ATM network expansion plan (ET 26.11.08)
Reserve Bank of India’s (RBI) plan to make ATM usage free from April 2009 is well on track, if business at India’s largest ATM machine manufacturer is anything to go by. A senior official of NCR Corporation says that his firm has not seen any significant slowdown in sales compared with large banks recently. Last year, large banks had opposed RBI’s proposal to phase out all ATM fees by April 2009 saying that they had made huge investment to build the network, and the proposal would effectively hand over this platform for free to other banks. But banks slowly appear to be falling in line with RBI diktat and sticking on to their aggressive ATM penetration targets, at least, as of now.

LIC Housing plays saviour to fund-hit realty developers (ET 26.11.08)
LIC Housing Finance (LICHFL) has emerged as a reliable source of fund for several cash-starved developers, even as banks tighten credit. The financial institution has lent small-ticket loans ranging from Rs 100-150 crore each to, at least, four NCR-based realty firms in the past three months, while banks were refusing to disburse even sanctioned loans. NCR-based BPTP, Uppal Group and listed developer Vipul received funds from LIC Housing Finance in the past three months. Besides the availability of credit, it’s the lending rate which is attracting all developers. LICHFL has lent to developers at an interest rate of around 16%.

TimesofMoney ties up with Barclays for remittances (26.11.08)
TimesofMoney has announced a tie-up with Barclays to launch the bank’s remittance service -Barclays Online Money Transfer - for its customers in the UK. Barclays Online Money Transfer will enable the bank’s customers in the UK to transfer money online directly to any Barclays account anywhere in India. TimesofMoney specialises in the area of remittances with a host of services, including India Money Transfers, Global Money Transfers, NRI services and co-branded cards. With presence in over 23 countries (Remit2India) and serving lakhs of NRI customers, TimesofMoney is a leading player in the world of web-based money transfers.

ICICI’s debt gets highest ICRA rating (ET 26.11.08)
ICRA has said that debt programmes of ICICI Bank carry highest credit quality ratings, supported by its standing as the country’s second-largest bank and sound capitalisation position. In a statement, ICRA said that it has reaffirmed the ‘LAAA’ rating with a stable outlook on ICICI Bank’s subordinated debt programme and long-term bonds programme, which indicate highest credit quality and lowest credit risk for the two instruments.

Major rates & parameters as on 25.11.08 (BL, RBI)
Rupee/$
Call Rates
Auction under RBI’s LAF
Govt. Securities (Yield)


Repo
Reverse Repo
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
49.94/96
6.60-6.70%
Rs 1,600 Cr
Rs 805 Cr
7.21%
7.79%
Rs 2,175 Cr
Rs 3,690 Cr

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