ECONOMIC BRIEFS – 03.12.08
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BoI looks to address SME issues (BL 03.12.08)
Bank of India is in the process of conducting SME Customer Meet across cities to get a feedback about their problems which centres around power disruptions and demand compression. SMEs, bankers say, are asking for a moratorium on term loans ranging from six months to a year, easing of margin requirements, lowering rate of interest and so on. After completing the first such meet at Madurai, the bank organised a meet for its SME customers in Coimbatore last week.
United Bank eyes 20% growth in biz (BL 03.12.08)
United Bank of India (UBI) targets 20 per cent growth in business in 2008-09 over Rs 75,000 crore achieved in 2007-08. Mr Satish C. Gupta, the new CMD of the bank, told that the thrust was being given on foreign exchange business, money market operations, SMEs and agriculture. “From foreign exchange business and money market operation, we hope to book Rs 100-crore profit in the current year,” Mr Gupta observed. A good deal of emphasis was also being given ton improvement of productivity. “By this, I mean improvement of profit per employee, not merely increased business per employee,” he said and indicated that the managers at the branch level were being encouraged to take risks while advancing loans. “There may be delinquencies, but there would be no undue fixing of responsibility if the borrowers are found to be honest and the projects viable,” he said. The target for incremental advances to SMEs had been set at Rs 2,000 crore in 2008-09 as compared to Rs 1,000 crore in 2007-08 and for agriculture sector at Rs 1,000 crore (Rs 300 crore). “We’ve launched savings mobilisation campaign and the presence of 65 per cent of our branches in rural and semi-urban areas is an opportunity for us,” he said. Precisely for the same reason, the bank was hopeful of raising the share of current account/savings account deposits to 40 per cent by March 2009 from the present 38.6 per cent.
Vijaya Bank seeks Rs 1,800 cr from Govt (BL, BS, FE 03.12.08)
Vijaya Bank has sought Rs 1,800 crore from the Government to increase its Capital to Risk Weighted Assets Ratio (CRAR) to over 12 per cent from the existing 10.41 per cent. The Bangalore-based public sector bank is expecting response from the Ministry of Finance in about a month and is “sure of receiving additional capital”, its Chairman and Managing Director, Mr Albert Tauro, told. “The additional capital will allow us to maintain 6 per cent tier-I capital up to 2011,” he said. “After the infusion of capital by the Government, the headroom for tier-I and II capital would be improved and we will consider raising tier–II capital,” he said. The bank’s net non-performing asset (NPA) ratio has gone up to 0.74 per cent in the second quarter of current fiscal compared with the year-ago period (0.44 per cent) due to defaults in the housing and consumer loans segment.
SBT counter at Sabarimala (BL 03.12.08)
State Bank of Travancore has opened an extension counter with core banking facilities at Malikappuram Buildings in Sabarimala. The counter offers facilities such as accepting deposits, withdrawals, remittances of funds to other banks and issue of demand drafts and office cheques, according to a release from the bank. The bank has also provided an ATM at Pampa to help the pilgrims withdraw cash.
TMB hikes deposit rates (BL 03.12.08)
Tamilnad Mercantile Bank has hiked the interest rates on its domestic term deposits for the maturity period of three years by 50 basis points, effective from December 1. The interest rate has been increased from 11 per cent to 11.50 per cent for the public and from 11.50 per cent to 11.75 per cent for senior citizens.
Bond data show banks are reluctant to lend (BL 03.12.08)
The 91-days Treasury Bill and the benchmark Government Security of 10-year residual maturity are both being quoted at the same, around 7 per cent, yield levels, making for an almost flat yield curve. Despite abundant liquidity in the banking system, banks are not lending. Instead, they are taking the easy way out by either investing in government securities or parking surplus funds with the Reserve Bank of India. Bond market wisdom has it that the yield curve, which plots the relationship between yield and time to maturity of bonds, normally slopes upwards from left to right i.e. yields rise as maturity lengthens. But the curve at present has become flat. A couple of months ago, the yield curve was inverted i.e. long-term yields fell below short-term yields, with overnight call money being dealt at 23 per cent levels, 91-days T-Bill being quoted at a yield of around 14 per cent and the benchmark Government Security of 10-year residual maturity being quoted at a yield of around 9 per cent. Inverted yield curve indicates that the economy will slow or even decline in the future. “Growth is stalling. The term structure of interest rates is indicating as much. In order to spur growth, signal rates -reverse repo and repo - should be cut further. The transmission effect of this action will ensure that the cost of funds for the productive sectors of the economy comes down. Also, the Government should start spending on infrastructure projects so that the fortunes of steel, cement, and allied sectors could be revived,” said Mr N.S. Venkatesh, MD & CEO, IDBI Gilts. Although the Statutory Liquidity Ratio requirement for banks is 24 per cent, it is effectively 21.5 per cent due to the leeway given to banks to borrow for on-lending to mutual funds and non-banking financial companies and the special refinance facility given to banks. Most banks are still maintaining around 26 per cent in SLR.
Forex reserves: Sinking feeling? (BL 03.12.08)
India’s assiduously built foreign exchange reserves of $320 billion have melted down to around $240 billion just a few months – a huge drop of $80 billion and still counting. It was always a bit of a mirage. The country had a trade deficit thanks to soaring oil prices and rapid non-oil import growth. This was offset by the phenomenal progress of software and service exports and remittances, which converted the trade deficit into a small current account surplus. But the icing on the cake was the massive inflows of foreign capital seeking the outsize returns on portfolio investments in the booming stock market, private equity and real estate. What do we say now that the very same group exits tens of billions of dollars in weeks? Compounding the present situation is the forex debt of Indian corporates maturing for repayment in the next few months. Thus, our much-vaunted reserves could easily sink another $100 billion to the region of $150 billion. The rupee? Perhaps on course to Rs 55 against the dollar.
Gold imports down 26% on weak rupee, high prices (BL, ET 03.12.08)
Gold imports continued to fall in November due to the sharp rise in prices and depreciation in value of rupee against the dollar. Imports fell 26 per cent to 40 tonnes in November against 54 tonnes recorded in the same period last year. In the London Metal Exchange, spot gold rose 13 per cent to $818 an ounce in November. In India, prices rose 10 per cent to Rs 13,250 for 10 grams from Rs 11,830 mainly due to uncertain economic growth. Mr Harish Galipalli, Head of Research, Karvy Commodities, said gold till recently which was considered as a safe heaven, seemed to be loosing its stature due to its volatility.
Currency derivatives daily turnover at $225 m (BL 03.12.08)
Exchange traded currency derivatives volumes are taking off. The National Stock Exchange has now been clocking a daily turnover of around $ 225 million in the past fortnight. NSE launched currency derivatives trading in October and got a headstart over the BSE and MCX, which have also received permission for hosting currency derivatives. The country’s active OTC market churns out a daily turnover of around $34 billion.
Mutual funds’ asset base drops 7% in Nov (BL, BS, ET, FE 03.12.08)
The mutual fund industry’s assets under management (AUM) fell seven per cent in November. The fall was led by a substantial decline in the asset bases of mid-sized mutual fund houses. The industry shed Rs 29,831 crore worth of assets in the past month. Their AUM now stands at Rs 4,02,029 crore against Rs 4,31,860 crore in October. Of the 35 mutual fund houses, which have declared their assets under management data, only Tata Mutual Fund and UTI Mutual Fund reported increase in their asset base.
SBI MF’s 90-day debt plan collects Rs 1,677 cr (BL 03.12.08)
SBI Mutual Fund has collected Rs 1,677 crore under its latest fixed maturity plan, which closed last week, indicating that short-term FMPs are still in favour. Significantly, this investor interest has come at a time when the total assets under management of mutual funds registering a drop. “The investor profile is still to be analysed, but we have seen higher retail participation this time,” said Mr Srinivas Jain Chief Marketing Officer, SBI Mutual fund.
Multi-sectoral stimulus package on the anvil (BL, ET, FE 03.12.08)
The Government is likely to announce a multi-sectoral package by early next week to give a booster dose to the economy, with key thrust on financial, export and housing sectors. In his first high-level meeting after taking charge of the Finance portfolio, the Prime Minister, Dr Manmohan Singh, presided over an apex panel that was set up to consider, among others, counter-cyclical measures to tackle the slowdown in economy. Measures that are under contemplation now by the PM’s apex panel include interest subvention for certain export sectors and propping up infrastructure financing using IIFCL. In the context of the slowdown, industry segments have been looking at a further cut in CRR and SLR. Proposals such as interest rate cuts for the small and medium enterprises and exporters were cleared by the Committee of Secretaries last week. The committee has already looked into sectors such as textiles and gems and jewellery. Merchandise exports declined 12 per cent in October on a year-to-year basis to touch $12.8 billion due to a severe demand slowdown in the US and Europe.
Oil cos allowed to sell bonds to RBI (BL, ET 03.12.08)
IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation have been allowed to sell their oil bonds to the Reserve Bank of India (as part of its special market operations) and meet their forex needs for crude and product purchases. Quite unlike the earlier practice, however, the three oil refiners will only get 50 per cent in dollars from RBI and the balance in rupees. They can then buy their forex from the market with these rupees and fund their monthly crude and product bills. According to top oil industry sources, the move will ensure that not too much forex moves out of the banking system. It could also be intended to prevent high volatility in the rupee. On an average, the three oil majors buy crude worth $3 billion a month (Rs 15,000 crore) of which IOC accounts for over half of this amount with HPCL and BPCL taking up the balance. The Government had, last month, issued Rs 22,000 crore oil bonds to the three companies which were intended to partially compensate them for losses incurred on sale of petrol, diesel, cooking gas and kerosene at subsidised prices. The balance Rs 43,000 crore is expected in two tranches by the end of February. The Government has already hinted that no more oil bonds will be issued for the rest of the year because the losses on sale of fuels have since fallen considerably.
Birla Sun Life CEO quits (BL, ET 03.12.08)
Mr Vikram Mehmi has resigned as the President and CEO of Birla Sun Life Insurance. He took charge of the company in December 2006. The company has not yet decided on his replacement.
Banks' foreign branches need RBI nod for exotic products (BS 03.12.08)
Foreign branches or subsidiaries of Indian banks proposing to deal in structured financial products will now require the prior approval of the Reserve Bank of India (RBI). RBI has also clarified that banks need not seek its prior approval if their branches are dealing in simple financial products. The central bank’s measure is intended to regulate the activities of foreign branches or subsidiaries of Indian banks, which to date were mostly regulated by the host country’s regulations. The move, known as cross-border supervision, will require foreign branches or subsidiaries to furnish full particulars of these products, including their regulatory treatment involving capital adequacy, valuation, pricing, exposure norms and the like as prescribed by the host country’s regulator. While ICICI Bank reportedly has an exposure of $1.5 billion to credit derivatives, other banks with exposure to such products include State Bank of India ($1 billion), Bank of India ($300 million) and Bank of Baroda ($150 million). While Bank of Baroda has provided around Rs 242 crore for exposure to structured products overseas, Bank of India has set aside Rs 161 crore. During the quarter (July-September 2008), ICICI Bank made a provision for around $78 million for the investment portfolio of its UK subsidiary, which resulted in the operations of the arm reporting a loss of $35 million.
SBI to recruit 4,280 for associate banks (BS 03.12.08)
State Bank of India said that it is looking to hire more than 4,200 employees for its associate banks. The recruitment drive for its associate banks follows SBI saying last month that it would hire 25,000 people in the current financial year, a move that comes at a time when banks across the world are mostly trimming their workforces in the backdrop of a global financial crisis. There are more than 1,000 vacancies each with State Bank of Hyderabad, Patiala and Travancore, 240- 440 would be recruited each for State Bank of Bikaner and Jaipur, Indore and Mysore.
IBA to work out plan for info sharing (BS 03.12.08)
The Indian Banks’ Association (IBA) has decided to set up a group to zero in on areas, where banks could increase information about borrowers, which have lines of credit from many banks. The move is aimed at improving the information flow of borrowers among banks. With availability of cheap credit and strong competition to grow loan assets on their books in a short span, banks were running after large companies and institutions to get business. This gave birth to the practice of multiple banking, a situation when one borrower is banking with many banks.
CD issues at a low (BS 03.12.08)
Primary issuance fell as mutual funds refrained from purchasing certificates of deposit (CDs) on Tuesday due to limited inflows in their fixed maturity plans. Banks placed just over Rs 850 crore on Tuesday compared with Rs 1,400 crore on Monday. Rates eased by 25 basis points Monday as most fund managers expected a reverse repo and repo rate cut by Reserve Bank of India. However, expectation of rate cuts were dashed and mutual funds restrained from further investment in short-term papers on Tuesday. Three-month CPs were quoted at 12-13 per cent, unchanged from Monday, while three-month CDs were at 8.10-8.30 per cent versus 8.30-8.75 per cent.
World Bank credit line may power PSB recapitalisation (ET 03.12.08)
The government is examining the possibility of channelising a part of the enhanced credit promised by the World Bank to infuse more capital into public sector banks. The government wants to raise the capital adequacy ratio (CAR) of these banks to 12% of the capital. Banks such as Dena Bank, Uco Bank and Andhra Bank have CAR at less than 12%, and the government ownership in these banks is close to 51%, making them ideal candidates for fresh capital infusion. The government cannot sell its stake and raise funds as it would lose control over the banks. A part of the additional borrowings are expected by March next year, and the rest by July. Another way of capital infusion could be to allow banks raise innovative perpetual debt instruments, which will not lead to government’s ownership falling further.
RBI no to opening shrinking forex chest to banks and FIs (ET 03.12.08)
The Reserve Bank India (RBI) has rejected a request to directly lend US dollars from the country’s foreign exchange reserves to financial institutions, as it is unwilling to further deplete reserves already down 20% from end-March levels. The RBI stance comes in the wake of a request from the Export-Import Bank of India (Exim Bank) for a direct dollar credit line to meet its lending commitments. Exim Bank has traditionally raised funds overseas, but this source of funding has become more difficult to tap amid the global credit crunch. Exim Bank had also sought an increase to its borrowing limit from other global banks and financial institutions.
Investors ditch small savings, hitch with FDs (ET 03.12.08)
The monthly net outflows from small savings schemes, especially postal deposits and certificates like National Savings Certificates and Kisan Vikas Patra, touched a three-year high of Rs 2,937 crore in October as investors took to bank deposits, where interest rates have been firming up from July. Figures from Controller General of Accounts show that the outflows in the current financial year till October has been more than Rs 6,000 crore. The only months that witnessed net inflow are May and June, when the differential between the interest rates offered by banks and that offered by post office was very small. Small savings carry an administered interest rate of 8% while the peak deposit rates for banks has moved up by almost 3 percentage points from June to November and was hovering around 11% till end of November.
Maximum hit for CitiFin, loss touches Rs 235 crore in H1 (ET 03.12.08)
CitiFinancial, one of the top consumer finance non-banking finance companies (NBFCs) in the country, has posted a loss of Rs 235 crore for the half year ended September 30. This is considered to be one of the biggest hits on the balance sheet of a local NBFC. Higher delinquencies on its loan portfolio, especially in the personal loan portfolio, coupled with excessive leveraging by borrowers during the past few years, have left a gaping hole on the balance sheet of the company. CitiFinancial is a part of Citi group’s Indian operations. The capital adequacy ratio of CitiFinancial has now slipped below the mandated level of 10%. Another NBFC within the group - Citicorp Maruti Finance, a joint venture with car maker Maruti - has also posted losses during the same period and has already stopped doing incremental business. CitiFinancial had posted an impressive profit of Rs 222 crore for FY07 - one of the highest by an NBFC. Since then, it has been a slide, with the net profit dropping to just Rs 19 crore for FY08. The CAR of the NBFC for the quarter ended September was 9.85% compared with 11.56% in March 2008. Citi now says it is engaged in remodelling the CitiFinancial business to build lower-cost, higher-touch, longer-term relationships with customers. It is also reworking the strategy for small-ticket personal loans.
Major rates & parameters as on 02.12.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
7.95% 24 Yr- 2032
Rs 28,625 Cr
Rs 24,355 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express