ECONOMIC BRIEFS – 28.11.08
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Corporation Bank to focus on retail, agri, SME sectors (BL 28.11.08)
Looking at the future expansion and untapped potential, the public sector Corporation Bank has set a target of achieving a business of Rs 1.50 lakh crore in the next two years. Mr J.M. Garg, the Chairman and Managing Director, said that bank would be focusing on retail business, agriculture and SME sectors. The endeavour will be to improve the CASA (current and savings deposits) portfolio by adopting clientele expansion programme. The recently concluded ‘100 days Savings Bank campaign’ was a success with a total of around 7.6 lakh new customers acquired during the campaign period, he said. He pointed out that the bank had recently surpassed a milestone of Rs one lakh crore of business and had joined the league of mid-sized banks. Traditionally, the bank has grown by 30 per cent and it is expected that the business would touch Rs 1.15 lakh crore by the end of the current fiscal. Besides, the bank has chalked out plans to expand its network to acquire a pan-India status and would open at least 100 branches a year to take the tally to about 1,400. The bank, with 1,032 branches, has licences for 62 outlets, which will be opened shortly. The thrust of expansion will be primarily in the North and Eastern parts, particularly in the States of Madhya Pradesh, Uttar Pradesh, Haryana, Punjab and West Bengal. To man these branches, the bank has drawn up short-term manpower plan and for the current year, the process is on to recruit over 1,000 staff at various levels, he said.
Financial markets closed; banks operate with skeleton staff (BL 28.11.08)
The financial capital of the country had a virtual holiday on Thursday, following the terror attacks in Mumbai. The equity, currency, bond and money markets were officially closed. However, the Reserve Bank of India, the SEBI and commercial banks were functioning, although the staff turnout and customer turnout was very low. Due to this, many of the bank branches in the South Mumbai area were closed earlier than normal. Clearing operations functioned normally as banks catered to the requirements of their clients in other centres. The RBI carried out transactions under Liquidity Adjustment Facility in order to help banks maintain their liquidity requirements. A press release issued by RBI said, “Settlement of all outstanding transactions will, accordingly, get postponed to the next working day, November 28, 2008. Transactions under Liquidity Adjustment Facility (LAF) conducted on November 26, 2008 will accordingly be reversed on November 28, 2008.” Bank branches in the suburbs functioned normally. In fact, branches in suburbs saw more customers as those who could not go to South Mumbai carried out transactions in suburban branches. Andhra Bank, which was supposed to hold its board of directors meeting at the Taj Hotel, deferred the meeting. Four of the directors were learnt to be within the hotel premises.
Investor sentiment may take a knock (BL 28.11.08)
Wednesday’s terrorist attack that rocked the financial capital of the country could further dampen investor sentiment already shattered by the credit crisis, say analysts and marketmen. However, most of them do not expect a sharp fall in key indices. “There might be a knee-jerk reaction in the market when it opens”, said Mr Manish Sonthalia, Vice-President, Equity Strategy, Motilal Oswal Financial Services Ltd. Bombay Stock Exchange and National Stock Exchange were closed on Thursday following the terror attack. Both BSE and NSE said that expiry in futures and options, and settlement due on Thursday, were postponed to Friday.
18-hour ordeal for Andhra Bank top brass (BL, ET 28.11.08)
Two Directors and two General Managers of Andhra Bank were trapped in their rooms for nearly 18 hours as terrorists ran amok in the South Mumbai five-star Hotel Trident at Nariman Point late Wednesday evening. The Directors – Mr V.H. Ramakrishnan and Mr Madhusudan Prasad – and the General Managers – Mr S Suryanarayana and Mr. S Prabhakar Reddy – had checked into the hotel late Wednesday evening to attend meetings of the Audit Committee of the Board (ACB) and the Management Committee Meeting (MCM) scheduled for next day morning (the meeting was later cancelled).
SBI launches micro insurance scheme for SHG members (BL 28.11.08)
State Bank of India has launched ‘Grameen Shakti’ – a micro insurance scheme for its Self Help Group (SHG) members. The product was launched at the Tamil Nadu Agricultural University. The bank is hoping to cover at least five lakh SHG members by December 31. The scheme essentially aims to cover the economically weaker sections, focusing on SHG women members. Around 77,430 proposal forms were received from the SHG members soon after unveiling it. It is a life cover for an assured sum of Rs 50,000. The premium payable on this five-year policy is Rs 601 a year. The Chennai circle of the bank, comprising Tamil Nadu and Pondicherry, has credit linked 84,500 SHGs with a total membership of about 14 lakh.
Multilateral institutions may be approached for banks’ recapitalisation (BL 28.11.08)
The Finance Ministry may approach multilateral institutions like the World Bank to part finance the planned recapitalisation of seven public sector banks to help them reach a capital adequacy ratio of 12 per cent. Currently, the banks, in which fresh capital is proposed to be injected, have capital to risk asset ratio (CRAR) of 10-12 per cent. The current thinking within the Ministry was that the capital infusion would have to happen by cash and not through bonds or other securities. “The paper is likely to be ready by this weekend. We may even look at approaching multilateral institutions for their support,” a Finance Ministry official said. Banks that had low CRAR at the end of March 2008 were UCO Bank (10.09), Bank of Maharashtra (10.26), Central Bank of India (10.42), Dena Bank (11.09), Vijaya Bank (11.22), Andhra Bank (11.61) and Indian Overseas Bank (11.96). Other PSU banks that had CRAR of below 12 per cent include Punjab & Sind Bank (11.57), State Bank of Hyderabad (11.97), State Bank of Indore (11.29), State Bank of Mysore (11.29), Syndicate Bank (11.22), IDBI Bank (11.95) and United Bank (11.88).
DBS Bank appointment (BL 28.11.08)
DBS Bank has announced Mr Rahul Johri as the new head for its consumer banking division in India. Mr Rahul would also be a member of the Group Consumer Banking Executive Committee at DBS Bank. Mr Rahul brings with him extensive experience of consumer banking, having spent seventeen years of his career between ANZ Grindlays, Standard Chartered Bank and Barclays Bank.
A health card for NRIs’ kin (BL 28.11.08)
Transglobal Beneficial Inc rolled out its prepaid India Health Card in Bangalore on Wednesday. The card works like a debit card and is meant to cover the medical expenses of families of NRIs back home. The card aims to replace the slower procedure of wiring money and ensures timely, assured payment towards treatment at over 2,000 hospitals and dental services across the country. Currently, 5 per cent of the $29-billion NRI remittances — or around Rs 7,000 crore — accounts for healthcare-related spends.
High lapse rate seen in term insurance (BL 28.11.08)
With the ‘term insurance’ portfolio suffering from a relatively higher lapse rate, experts have called for a fresh look at the incentive structure for agents. Term policies are low-priced insurance policies that offer protection but do not generate returns on the premiums paid. A recent study by the Insurance Regulatory and Development Authority on ‘Lapsation and its impact on life insurance industry (2002-07)’ has shown that term plans had the highest lapse rates during the period, both in terms of premium (19 per cent) and number of policies (28 per cent). The problem is continuing, particularly because IRDA dropped the solvency margins for term policies. With the drop in such set-asides, insurers have been able to bring down the premium on term policies. Consequently, the commission paid to agents, which is a percentage of the premium, has also come down. “The agents have no financial initiative to follow up and remind customers to pay premiums regularly,” says Mr Rahul Aggarwal, CEO, Optima Insurance Brokers.
Pricing norms eased for ADR/GDR issues by listed Indian cos (BL, BS, FE 28.11.08)
The Finance Ministry has revised the pricing norms for Indian listed companies issuing American depository receipts (ADRs)/Global Depository Receipts (GDRs)/foreign currency convertible bonds (FCCBs). The latest revision would bring the revised guidelines in alignment with the SEBI position on this matter. Two main changes have now been brought about to the pricing norms. The first change related to the timeline for determining the pricing. The Government has now specified that the pricing should not be less than the average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the “relevant date”. Hitherto, the pricing was linked to two averages. The other change related to the “relevant date”. Now the “relevant date” means date of the meeting in which the board of the company or the committee of directors, duly authorised by the board of the company, decides to open the proposed issue. Earlier, the “relevant date” meant the date 30 days prior to the date on which the meeting of the general body of shareholders was held, in terms of section 81 (1A) of the Companies Act, 1956, to consider the proposed issue.
Terror attacks may affect rupee in short term (BL 28.11.08)
The terror attacks on Mumbai may have an indirect impact on the value of rupee, albeit in the short term. According to analysts, the rupee could open a tad lower on Friday. However, there will be no long-term impact on the Indian currency, said dealers. If the equity market falls on account of sales by foreign institutional investors, then the rupee will come under pressure, said the chief forex dealer with a public sector bank. Since the beginning of the current calendar year, the rupee has depreciated by around 26 per cent to 49.50. “The rupee could open weaker by 10 to 20 paise against the greenback on Friday due to the prevalence of negative sentiments in the market. However, support by the Reserve Bank of India will ensure that the rupee trades in the 49.60-49.80 range,” said Mr Moses Harding, Executive Vice-President, Head Global Markets Group, IndusInd Bank.
Inflation rate drops to 8.84% on cheaper fuel, metals (BL, BS, ET, FE 28.11.08)
The annual Wholesale Price Index-based inflation rose 8.84 per cent for the week ended November 15, marginally down from the previous week’s yearly rise of 8.90 per cent. The latest WPI inflation rate was the lowest reading since May 17 and well below early August’s peak of 12.91 per cent. The official WPI for ‘All Commodities’ for the latest reported week rose by 0.04 per cent to 235.1 points, up from 235 points for the previous week. The annual rate of inflation, calculated on point-to-point basis, stood at 3.35 per cent during the corresponding week of the previous year.
Budget to share sub-10 L home loan burden (ET 28.11.08)
The government is working on a proposal to subsidise housing loans below Rs 10 lakh by asking banks to give loans to individuals and builders at a lower interest rate for five years. Builders will get the loan only for housing projects that are under construction. The government will compensate the banks by providing money from the Union Budget. “As much as 73% of total housing in the country is valued at Rs 7.5 lakh and below,” a government official said. The official said the committee of secretaries (CoS) had proposed to provide housing loans at 8% interest, a subsidy of 1-3%. Today, public sector banks give home loans at 9-11% interest rates.
Prioritise loans, FM to tell regional banks (BL 28.11.08)
Finance minister P Chidambaram would be meeting regional heads of public sector banks to push lending to industry. He is likely to travel to all zonal headquarters in cities including Mumbai, Kolkata and Chennai between December 5-8. The move comes in the backdrop of industry complaining of unavailability of credit despite RBI’s measures to ease liquidity. “If you were taking loans from private banks earlier and now want the government banks to support you, because private banks are not honouring their commitment, it could not be possible in all the cases,” an official said. The ministry had earlier directed all the public sector banks to submit fortnightly data on credit offtake to monitor the lending pattern and better understand the problem at ground level.
SBI to increase lending to SMEs in North (FE 28.11.08)
State Bank of India (SBI) has decided to increase lending to small and medium enterprises (SME) in the northern region, which face tough time in raising money due to global economic slowdown. The bank, which has one-lakh borrowers in its portfolio from SME sector from the northern region, has set an ambitious target of disbursing loan of Rs 3,000 crore in the financial year 2008-09. The bank has already taken several steps to mitigate the hardships of SME sector like relaxation of norms for margin, extending the cover period for inventories, additional need-based finance and rescheduling of installments. However, the NPA in SME category stands at 2.5% in this region.
ICICI Prudential braves financial turmoil, in expansion mode (FE 28.11.08)
ICICI Prudential Asset Management Company plans to go ahead its expansion in the northern urban areas as well as tier II and tier III cities despite the slowdown. The company has already opened 24 new branches since April this year in the north zone, which includes Punjab, Haryana, Delhi, Uttar Pradesh, Rajasthan and Himachal Pradesh. Till October, the company had Assets Under Management worth Rs 57,289 crore with 1.9 million investors.
Bankers to talk liquidity and SME finance with RBI today (FE 28.11.08)
Liquidity and liberalising the norms for financing to the small and medium enterprises (SMEs) are likely to be discussed when a delegation comprising heads of some of the large commercial banks meet the Reserve Bank of India governor, D Subbarao, in Mumbai on Friday. While the bankers feel that the liquidity was comfortable in the system after a host of initiatives taken by the central bank a well as the government in past couple of months, they are ready to extend a helping hand to the export-oriented SME sector that are faced with severe problems thanks to contraction in demand. Quite a few representatives of the affected SMEs-which includes leather, garment, textile, heavy machinery and others-have already met the IBA chairman and Bank of India CMD, TS Narayanasami, in Mumbai on Wednesday. On the topic of SME finance, the bankers are of the view that things like liberalization of margin norms, restructuring of loans and providing additional funds to the sector as the need arises are within their purview and they will have no problem in being considerate towards addressing these issues. As regards remaining issues like revision of NPA norms and interest rate subvention of their loans can be tackled at the level of central bank and the government only.
Rate cut on cards as inflation stays below 8% for the third week (FE 28.11.08)
Inflation fell by 6 basis points to 8.84% for the week ended November 15 for the third time in a row, raising expectations of easing of the monetary policy in the wake of slowing growth. Finance minister P Chidambaram has said this week that the tilt was now clearly in favour of growth. Market participants are expecting at least 50 basis point reductions in the Reserve Bank of India’s repo and reverse repo rates. The fall in inflation is expected to be sharper after December when the base effect kicks in. Bankers ruled out any immediate cut in lending rates, arguing that there was a need for the RBI to cut rates further.
HDFC to cut rates once cost of funds comes down: Parekh (FE 28.11.08)
Leading private housing finance lender HDFC on Thursday ruled out cut in interest rates unless cost of funds declines, even as most public sector banks have already reduced benchmark lending rates by 0.75%. “Cost of funds is still high, so once it comes down, we will reduce interest rates,” HDFC Chairman Deepak Parekh said. However, deposit rates are set to come down as most of the public sector banks are planning to cut the peak rate by 100 basis points in December. Peak deposit rates of most of the banks would come down to 9.5 per cent. Taking the lead, the country’s second largest public sector lender Punjab National Bank on Wednesday announced cutting fixed deposit rates by 25-100 basis points, besides slashing lending rates by 100 basis points to 12.50%, a move that will make auto, home and other commercial loans cheaper.
Major rates & parameters as on 27.11.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 735 Cr
Rs 2,000 Cr
Rs 2,350 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express