ECONOMIC BRIEFS – 27.11.08
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PNB to cut deposit, lending rates by 100 bps (BL, BS, ET 27.11.08)
Punjab National Bank has decided to reduce its benchmark prime lending rate (BPLR) by 100 bps from 13.50 per cent to 12.50 per cent with effect from December 1. The revised BPLR would be applicable in respect of all existing and new accounts linked with BPLR where rates are charged at BPLR and above. PNB has also, at its board meeting on Wednesday, decided to reduce its peak deposit rate from 10.50 per cent to 9.50 per cent for deposits of 1 year to less than 3 years. Accordingly, interest rates in the time buckets having maturities of 180 days and above have also been reduced by 25 basis points to 100 basis points with effect from December 1. PNB said these measures are being taken in response to the recent moves by RBI. The BPLR was last revised downward by the bank on November 1.
RBI notification on core projects to help IOB reduce NPAs (BL 27.11.08)
Indian Overseas Bank’s NPAs would be reduced by Rs 150 crore due to the Reserve Bank of India’s recent re-classification on infrastructure projects. This is significant to the bank, whose bad debts surged by Rs 600 crore in the second quarter of 2008-09. Until recently, the RBI norms classified loans borrowed for infrastructure projects as NPAs if the projects were suffering delay in implementation - even if the borrowers were paying interests on time. The Indian Banks’ Association (IBA) had requested the RBI to reconsider this, saying that there are occasions when the completion of infrastructure projects gets delayed for legal and other extraneous reasons. Therefore, as a one-time measure, the RBI, in its recent circular, said with the current market developments if these projects are found eligible for restructuring then they could be categorised as ‘standard’. However, the project would have to be implemented within a period of six months from the RBI date of circular.
City Union Bank deposit scheme (BL 27.11.08)
City Union Bank has launched ‘CUB 1000’, a 1,000-days deposit scheme. The bank is offering 11.60 per cent for senior citizens investing in this scheme and 11.30 per cent for rest of the investors. Besides introducing the product, the bank has also strengthened its branch network by adding four branches at Rajaji Nagar in Bangalore, Kollam in Kerala, and Madurapuri and Sirkazhi in Tamil Nadu.
YES Bank, Mashreq tie up (BL 27.11.08)
The UAE-based private bank Mashreq has tied up with YES Bank to launch global Indian banking services across UAE. The partnership will allow Mashreq Gold customers in the UAE to open rupee savings accounts and fixed deposits
IFCI to decide on stake sale after capital rejig (BL 27.11.08)
Financial institution IFCI Ltd is waiting for clarity on capital restructuring before taking a final decision on selling 26 per cent stake to a strategic partner, said Mr Atul Kumar Rai, CEO and Managing Director. “We are ready, but it is a decision for which we have to discuss with other stakeholders as well,” he said. The Government is planning to sell 26 per cent in IFCI Ltd to a strategic partner. The company is likely to add about Rs 500 crore to its credit portfolio in the remaining part of the current fiscal. This is in addition to around Rs 2,000 crore of lending the company has done so far, said Mr Rai. For the quarter ended September 30, the company reported a net profit of Rs 259.06 crore, against Rs 497.29 crore in the corresponding quarter of the previous year.
SMEs seek easier lending, repayment norms (BL, BS 27.11.08)
Representatives from micro, small and medium-scale enterprises met officials of the Indian Banks’ Association on Wednesday. While IBA can ask its members to consider some of these demands, some proposals would need approval from the Government or the Reserve Bank of India, said Mr T.S. Narayanasami, Chairman, IBA. The representatives demanded an easing of margin requirements i.e., higher percentage of loans against the value of inventories. The IBA Chairman said the working capital loans could be assessed on a case by case basis. Another demand was that banks should not charge extra interest on delayed bill payments, as the companies were facing delay in getting their payments. The SMEs also requested the IBA to lower the rates of interest on loans. They sought interest rate subsidy similar to what was being given to farmers. SMEs also asked for moratoriums on term loans for a minimum period of one year. They also wanted the duration after which a loan is categorised as an NPA to be increased from the current 90 to 180 days. The total exposure of the banking system to SMEs as on September 30 is around Rs 1,50,000 crore, Mr Narayanasami said.
Citi bailout, big relief for banks (BL 27.11.08)
Public sector banks (PSBs) have reason to be relieved by the US-Government inspired bailout of Citibank. Most PSBs’ nostro balances are maintained with Citibank. A nostro balance is an account that one bank maintains with another foreign bank, in foreign currency. Citibank is currently the world’s largest clearing bank. This was the major reason for PSBs’ preference for maintenance of correspondent accounts with Citi. Nostro account balances, however, are not covered by the Federal Deposit Insurance Corporation (FDIC). Consequently, in the event of bank failures, nostro balances face the risk of becoming sub-standard assets for Indian banks. However, given the escalation in financial risks in the US, many banks are beginning to limit their exposures. Currently, PSBs nostro balances have been reduced to 1 per cent of the annual export receipts or about $1.5 billion (from 5 per cent of the annual export proceeds last year).
Banks must disclose info on processing fees: RBI (BL 27.11.08)
The Reserve Bank of India has asked all banks/ financial institutions to ensure that all information relating to charges/fees for processing are always disclosed in the loan application forms. Further, banks must inform ‘all-in-cost’ to the customer to enable him compare the rates charged with other sources of finance. Under its guidelines on ‘Fair Practices Code for Lenders - Disclosing all information relating to processing fees / charges,’ the RBI said, loan application forms should include information about the fees/charges, if any, payable for processing; the amount of such fees refundable in the case of non-acceptance of application; pre-payment options and any other matter which affects the interest of the borrower. The RBI’s directive comes in the wake of it coming across some banks levying, in addition to a processing fee, certain charges which are not initially disclosed to the borrower.
Challenges will remain: Leeladhar (BL 27.11.08)
Challenges to the Indian economy still remain as the global uncertainties continue to persist, though the impact of the global crisis on India is to a much lesser extent, said Mr V. Leeladhar, Deputy Governor, Reserve Bank of India. In his address at the Bankers’ Club, Kolkata recently, Mr Leeladhar said that the RBI will continue to closely monitor the developments in the global and domestic financial market and will take swift and effective action, as is appropriate.
India Post centres to market small size gold coins (BL 27.11.08)
The Department of Posts in partnership with Reliance Money Ltd., (an ADAG Group company) today announced their move to sell gold coins of 24-carat in tamper proof packs of 0.5, 1, 5 and 8 gms weight in select India Post outlets. RML in tie-up with Swiss Gold will supply gold coins and the network of India Posts centres will provide an ideal platform to market them. The Chief Postmaster General, Andhra Pradesh Circle, Ms. Yashodhara Menon, said “people in India do not need any excuse to buy gold, whose purchase is always seen as auspicious. This tie up will help people who come to India Post an option to buy gold in small coins.”
Assumes charge (BL 27.11.08)
Mr Rawat Rakesh Kumar has assumed charge as Chief Vigilance Officer of the State Bank of Hyderabad (SBH). He was Deputy General Manager, Zonal Office, Allahabad, prior to this.
Max NY Life’s premium collections (BL 27.11.08)
Max New York Life Insurance (MNLI) has announced that the company crossed Rs 3,000 crore in collected premium during January-October 2008. This represented a 61 per cent growth over the corresponding period last year. Of the collected premium of Rs 3,000 crore, first year premium contributed to Rs 1,653 crore, while earnings from renewal premium stood at Rs 1,375 crore. A MNLI release also said that the company has added 1 million policyholders till date through the multi-0channel distribution network. In January-October 2008 period, MNLI added more than 8,500 employees and now has over 15,000 employees.
Investors find gold, insurance policies ‘safe investments’: Survey (BL 27.11.08)
After gold, life insurance policies are the second most “safe” investment avenues to investors in the country in the present financial condition, according to a recent survey by AC Nielson and Max New York Life. Out of 1,000 respondents (unit-linked policy and other life insurance policyholders of various insurers) surveyed across six centres in the country between October 20 and 31, 59 per cent of ULIP holders said gold was a “safe bet” for investment, while 53 per cent said they considered life insurance products to be safe. Fixed deposits, mutual funds, National Savings Certificates and Public Provident Funds were the other safe investment areas, in order of preference.
Software exporters mull credit risk insurance (BL 27.11.08)
Anticipating an escalation of payment risks from troubled overseas customers, especially in the telecom sector, Indian software exporters are looking at credit risk insurance (CRI). This is one of rare occasions that the software exporters are planning to take CRI cover as the economic situation worsens in the US, the largest IT services market, from where they earn over half of their revenues. CRI provides insurance cover to suppliers against payment defaults from buyers. Sasken, which serves customers such as Nokia, Nortel and Motorola, is in talks with CRI providers such as the state-owned Export Credit Guarantee Corporation (ECGC) and private players such as ICICI Lombard General Insurance Company Ltd and Bajaj Allianz General Insurance Company Ltd. ECGC has a market share of over 90 per cent in CRI.
Short is sweet for FMP investors (BL 27.11.08)
Uncertainty over future cash flows seems to be pushing investors to park their money in short duration fixed maturity plans (FMPs), rather than in schemes of longer duration. Of the 366 FMP schemes launched since September, 140 carry a maturity of three months, according to Value Research data. Three-month FMPs constitute close to 40 per cent of the new schemes. While there has been a more than 50-per cent drop in the number of new schemes in November compared with October, those of three-month tenure are drawing high investor interest.
India to grow at 7-7.5% in 2008, says S&P report (BL 27.11.08)
Global credit rating agency Standard & Poor’s, in its latest outlook for the Asia-Pacific markets, has estimated that India’s real GDP growth will moderate to 6.5-7.0 per cent in 2009 even as consumer price based inflation will thaw to 5.0-5.5 per cent. The agency expects the easy monetary policy stance of the central bank to continue during 2009. In calendar year 2008, S&P expects India’s real GDP to grow by 7.0-7.5 per cent. It has pegged consumer price based inflation to be in the 7.2-7.6 per cent range. The rating agency holds the view that abatement of all three drivers – food, commodity and oil prices – of inflation has significantly impacted the inflation outlook for the Asia-Pacific region.
Cut prices, IBA chief tells industry (BS 27.11.08)
Joining the chorus for slashing prices to spur consumer demand, the Indian Banks’ Association (IBA) on Wednesday said manufacturing and services companies need to reduce prices of goods and services significantly. “Some manufacturing units are cutting down production and are holding on to prices. But they do not have the power to cling on to inventory. It is important to drop prices significantly to rekindle demand,” said IBA Chairman T S Narayanasami, who also heads Bank of India. Many manufacturing units have approached banks with requests for reduction in interest rates or for restructuring of loans, citing piling up of inventory. Narayanasami said banks have done their bit by reducing interest rates.
Reserve Bank likely to lose financial independence (BS 27.11.08)
The finance ministry is understood to have sounded out to the central bank over a proposal, according to which RBI will have to maintain its accounts and finances with the Consolidated Fund of India (CFI). It could be mentioned that the process of maintaining the entire accounts of regulators like the Insurance Regulatory and Development Authority (Irda) , the Telecom Regulatory Authority of India (Trai) and the Securities and Exchange Board of India (Sebi) with CFI is already under way. According to the proposal, RBI will come under the Subordination Act of the central government and it will have to seek the government’s permission whenever it needs funds. If the decision goes through, it will be a blow for RBI employees, who are already fighting tooth and nail against the government’s decision to withdraw the pension scheme.
Banks, funds line up for CDs (BS 27.11.08)
Issuance of certificates of deposit (CDs) having a maturity of one year rose today with banks and mutual funds purchasing these papers on view that rates may ease in the near future. Banks raised Rs 500 crore through one-year CDs, compared with just Rs 285 crore on Tuesday. The rates have remained unchanged so far this week amid low participation by mutual funds. Three-month CPs were quoted at 13-14 per cent, unchanged from Tuesday, while three-month CDs remained flat at 9.00-9.25 per cent. CDs maturing in December were dealt in the band of 7.50-8.00 per cent, compared with 8.00-8.50 per cent on Tuesday. March maturity papers were dealt in the range of 9.00-9.50 per cent, compared with 9.25-9.75 per cent.
Card companies cut clients' credit limit (BS 27.11.08)
Weighed down by rising defaults and liquidity problems, leading credit card companies have started reducing the borrowing limit of existing customers. Leading banks such as ICICI Bank, SBI Card, Citibank and HSBC said they will revise the credit limit selectively after assessing the customers’ credit history. Diwakar Gupta, CEO, SBI Card, said the credit card industry is facing huge delinquencies. This is because companies have given huge spending limits to card users without assessing their ability to repay. All banks seem to be making amends fast. An HSBC customer, for instance, saw his credit limit dropped from Rs 65,000 to just Rs 12,000 despite having a clean credit history. Banking sources said the revision in credit limits were inevitable at a time when defaults are going up sharply. The non-performing assets (NPAs) in the credit card portfolio has doubled in the first nine months of the current financial year from 7-8 per cent in the year-ago period. To save defaults, credit limits are being lowered specially for customers who hold multiple cards.
Defaults in Asia-Pacific may climb to double digits in '09, says S&P (BS 27.11.08)
Defaults could climb to double digits in 2009, barring a material improvement in market conditions in the second half of next year, according to an S&P report on Asia-Pacific markets. “We have already witnessed the region’s portfolio of ratings move from the positive bias it enjoyed for the past three years into a negative bias,” said regional chief credit officer, Ian Thompson. The ratings agency expects Indian banks’ property-related portfolios to experience stress in 2009 given the declining property prices. However, these banks are more at risk from the global economic slowdown and market turmoil than from direct exposure to distressed US financial institutions. In India, although the banking system’s indebtedness does not appear to be high, recent rapid growth is a cause of concern, says the report.
Q2 growth expected to further slump to 6.9% (ET 27.11.08)
The economy is expected to have grown at a slower pace of 6.9% in the second quarter (July-September) of 2008-2009, a drop of 2.4 percentage points from 9.3% growth recorded in the corresponding period last year. The economic growth, according to an ET poll, conducted on 12 economists, is likely to drop even further in the next couple of quarters. The GDP data for second quarter of this financial year will be released on Friday. Shubda Rao, chief economist at Yes Bank, pegged the GDP growth rate for the second quarter at 7.3%.
RBI says forex, bond markets closed Thurs (ET 27.11.08)
Reserve Bank of India said in a statement bond and foreign exchange markets would be closed on Thursday due to the overnight attacks in the financial capital, Mumbai. Settlement of all outstanding transactions will be postponed until November 28, it said in the statement. The central bank would however conduct liquidity adjustment facility transactions on Thursday as per schedule, it said.
RBI to ease warrant conversion norm (ET 27.11.08)
Companies looking to raise funds from foreign investors by way of convertible warrants may soon be allowed to issue shares against these instruments at any time up to 18 months, under a relaxation of rules being considered by the Reserve Bank of India (RBI). Convertible warrants are loans that are subsequently exchanged for shares on pre-agreed terms. Like an option, a warrant gives its holder or buyer the choice to purchase a fixed quantity of shares of the issuing company at an agreed price at or before a future date. The central bank had, last December, made it mandatory for companies to issue shares within 180 days of receiving money from foreign investors. Its move was aimed at plugging a loophole in foreign exchange regulations which was being misused mainly by real estate companies. RBI’s decision, however, created confusion for companies that planned to issue convertible warrants. This is because the stock market regulator Sebi’s guidelines allowed warrants to be converted into shares in 18 months. Some companies had requested the finance ministry to clarify the rules following the RBI order.
Bankers don’t expect more CRR cuts as liquidity problem eases (ET 27.11.08)
Banks are not looking forward to any cut in the cash reserve ratio (CRR) since there’s enough liquidity in the system and a visible slowdown in credit demand. TS Narayanasami, the chairman of Indian Banks’ Association (IBA), said, “A cut in CRR is too early right now because there is abundant liquidity. While inflation is coming down, the situation should not be aggregated by infusing more liquidity.” The IBA chairman pointed out RBI may consider a cut in CRR when inflation reaches a very comfortable level. Also, in a bid to reduce the interest cost, K Ramakrishnan, chief executive officer of IBA, said that PSU banks have decided to offer uniform rates on bulk deposits. All PSU banks will now offer 9.5% on bulk deposits, which, in turn, will reduce their cost by at least 100 bps.
Spandana gets $75 m credit line from ICICI (ET 27.11.08)
Spandana, the country’s second largest micro-finance institution (MFI) by assets, has secured a Rs 300 crore ($75 million) line of credit (LoC) from ICICI Bank in what is being touted as the largest securitisation deal in the microfinance space. It is also in talks with HDFC Bank for another such structured deal for around Rs 150 crore. The move is expected to help the MFI absorb the burden of rising interest costs, diversify its ability to raise more debt and make better use of capital. “Apart from the transaction with ICICI Bank, we have in-principle sanctions and commitments for securitisation on hand from different leading banks for over Rs 1,050 crore,” said YV Shiv Narain vice-president, finance, Spandana. Securitisation is the process of converting existing assets or future cash flows into marketable securities. In this case, the loans are written in the books of the MFI and sold as future receivables to ICICI Bank.
HDFC-HDFC Bank merger talk hots up again (ET 27.11.08)
The talk of a merger between HDFC-HDFC Bank has gathered momentum once again after broking house CLSA put out a research report speculating on such a possibility. The issue has arisen, as the environment now is more conducive for a possible merger between the two leading financial institutions (FIs) after the Reserve Bank of India (RBI) put in place lower reserve requirements for banks and imposed liquidity constraints for non-banking institutions. HDFC officials, however, dismissed the report, stating that it was mere conjecture by an analyst and there was nothing more to it. The merger will propel the resultant entity to the top of the domestic banking league tables. “With over $65 billion in assets, the merged entity will the third largest domestic bank and the largest bank by m-cap,” the report added.
Major rates & parameters as on 26.11.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 1,600 Cr
Rs 1,500 Cr
Rs 5,505 Cr
Rs 6,475 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express