Indian Banks

The regulator has conveyed that intermediaries have to be employed by lenders, not borrowers.

With financial services firm Money Matters accused of being involved in the bribe-for-loan scam, sector regulator National Housing Bank (NHB) has asked housing finance companies (HFCs) not to encourage intermediaries and appraise companies and projects directly. NHB is also in the process of firming up guidelines for intermediaries.

Money Matters is accused of facilitating corporate loans by bribing officials.

“In a special meeting with HFCs, we advised them to discourage proposals through intermediaries and deal directly with the borrowers. We are in the process of firming up guidelines, including for intermediaries,” said NHB Chairman R V Verma.

In the meeting, NHB asked the chief executives of HFCs to reinforce guidelines, due diligence and corporate governance.

A source present at the meeting said the regulator looked into the individual portfolios of HFCs. “NHB was quite content with the exposure, as it was well within the prescribed guidelines. It is working on developing guidelines for collecting information from HFCs. This will help it monitor the portfolios better.”

NHB will look into the types of intermediaries employed by the lenders. It has also expressed concerns over intermediaries being employed by borrowers.

“The regulator conveyed that intermediaries have to be employed by the lenders, not borrowers,” the source added.

NHB guidelines say the ultimate responsibility for knowing the customer lies with HFCs. Also, in case of large accounts, HFCs are supposed to periodically review the risk categorisation and enhance due diligence measures.

NHB has capped the loan-to-value (LTV) ratio for loans above Rs 20 lakh at 80 per cent. For those below Rs 20 lakh, companies can finance up to 90 per cent of the loan value. This follows a similar measure by the Reserve Bank of India for banks.

NHB has also prescribed a general provisioning of 0.4 per cent of outstanding loans. In case of standard assets of teaser loans, it has mandated a two per cent provision. However, the provisioning can be reset a year after the rates shift to the floating system if the accounts remain standard.

As a result, all HFCs will have to put aside around Rs 700 crore — Rs 624 crore on teaser loans and Rs 80 crore on additional loans to individuals. Large players like HDFC and LICHF are likely to absorb the most of it.

According to Edelweiss, with respect to credit cost and competitive advantage, the impact on HFCs would be relatively higher compared to banks.

For HDFC, 27 per cent of its individual loan book is under the dual-rate scheme. Similarly, loans given at an LTV ratio of below 80 lakh are less than three per cent in case of LIC Housing Finance.

(BS)

Popularity: 1% [?]

Board meet on Dec 30 to decide base rate increase, teaser extension.

State Bank of India (SBI), set to review its base rate on December 30, will also decide on extending one of its most popular, albeit controversial, products — ‘teaser’ home loans.

According to a senior executive of the bank, the magnitude of increase in the base rate will be a key factor influencing the decision to extend the dual-rate home loan scheme, which expires on December 31. To deploy excess liquidity, SBI had pioneered the product in February 2009. The Reserve Bank of India (RBI), however, is uncomfortable with such a product and says higher payouts by the borrower in later years increase the chance of a default.

At present, SBI’s base rate stands at 7.6 per cent. The teaser scheme charges are eight per cent in the first year and nine per cent in the subsequent two years. According to the RBI guidelines, a bank cannot price any loan below its base rate. Therefore, if SBI’s base rate crosses the eight-per cent mark, either the product will have to be discontinued or the bank will have to offer a new rate — not less than the base rate — for the initial years.

Base rates of most public sector banks are 8.5-9 per cent, reflecting a sharp rise in the cost of funds in recent months.

However, with almost half its deposits being low-cost in nature, SBI has an advantage. As a result, an increase in the bank’s cost of funds is likely to be of lesser magnitude than other government-owned banks. Thus, when most public sector banks increased their base rate by 50 basis points (bps) in October, SBI raised it by 10 bps only.

SBI officials have indicated against a base rate increase of more than 20 basis points. In that case, the bank would be in a position to continue the teaser scheme.

This is also the first time the bank will review an extension of the scheme after RBI increased the provisioning requirement for such schemes. During its second quarter review of the monetary policy, RBI increased the provisioning requirement for teaser schemes to two per cent — a five-fold increase. Following the move, Corporation Bank withdrew the scheme. Punjab National Bank also announced a withdrawal from January 1.

According to estimates, SBI’s provisioning due to teaser products will go up by Rs 350 crore.

(BS)

Popularity: 1% [?]

Concerned over excessive flow of banking funds to the real estate sector, the Reserve Bank of India (RBI) today said lenders will provide loans only up to 80 per cent of the cost of property.

Following the RBI directive, a home buyer will necessarily have to arrange at least 20 per cent of the property value on his own before seeking loan from a bank.

In order to check speculation in the real estate sector, the central bank has made it tougher for banks to provide high value loans for properties costing more than Rs 75 lakh, besides raising the provision requirement for loans provided at ‘teaser rates’.

“In order to prevent excessive leveraging, the LTV (Loan to Value) ratio in respect of housing loan hereafter should not exceed 80 per cent,” the RBI said in a notification.

However, in case of small value housing loans up to Rs 20 lakh, banks can provide loans up to 90 per cent of the property value, the central banks said, adding such loans are part of priority sector advances.

In absence of any LTV norms, banks have been providing liberal loans for buying homes, going up to 90 per cent of the asset value.

In order to curb the practice of alluring home buyers by offering cheaper rates for limited period, RBI raised the provisioning requirement for banks for teaser rates from 0.4 per cent to 2 per cent with immediate effect.

Under the revised norms, the banks will have to set aside more capital as provision against home loans given at teaser rates.

Some banks including ICICI Bank, HDFC has already withdrawn their teaser rates scheme while SBI’s scheme would continue till this month.

The announcement follows the concerns expressed by RBI Governor D Subbarao in his half year review of the monetary policy in October.

The decision, the RBI said, is aimed at “preventing excessive speculation in the high value housing segment”.

The RBI measures, said a senior official of the Bank of India, would dissuade banks from providing advances that fuels speculative activity in the real estate sector.

As regards the high value properties, the central bank said, the risk weight for housing loans above Rs 75 lakh would be 125 per cent.

The risk weight refers to the capital which the banks have to set aside against outstanding loans to meet the capital adequacy norms. Currently, as per the Basel-II norms, banks have to maintain a capital adequacy of 9 per cent.

For high value home loans the banks will now be required to set high aside more capital to meet the capital adequacy norms prescribed by the central bank.

(BS)

Concerned over excessive flow of banking funds to the real estate sector, the Reserve Bank of India (RBI) today said lenders will provide loans only up to 80 per cent of the cost of property.

Following the RBI directive, a home buyer will necessarily have to arrange at least 20 per cent of the property value on his own before seeking loan from a bank.

In order to check speculation in the real estate sector, the central bank has made it tougher for banks to provide high value loans for properties costing more than Rs 75 lakh, besides raising the provision requirement for loans provided at ‘teaser rates’.

“In order to prevent excessive leveraging, the LTV (Loan to Value) ratio in respect of housing loan hereafter should not exceed 80 per cent,” the RBI said in a notification.

However, in case of small value housing loans up to Rs 20 lakh, banks can provide loans up to 90 per cent of the property value, the central banks said, adding such loans are part of priority sector advances.

In absence of any LTV norms, banks have been providing liberal loans for buying homes, going up to 90 per cent of the asset value.

In order to curb the practice of alluring home buyers by offering cheaper rates for limited period, RBI raised the provisioning requirement for banks for teaser rates from 0.4 per cent to 2 per cent with immediate effect.

Under the revised norms, the banks will have to set aside more capital as provision against home loans given at teaser rates.

Some banks including ICICI Bank, HDFC has already withdrawn their teaser rates scheme while SBI’s scheme would continue till this month.

The announcement follows the concerns expressed by RBI Governor D Subbarao in his half year review of the monetary policy in October.

The decision, the RBI said, is aimed at “preventing excessive speculation in the high value housing segment”.

The RBI measures, said a senior official of the Bank of India, would dissuade banks from providing advances that fuels speculative activity in the real estate sector.

As regards the high value properties, the central bank said, the risk weight for housing loans above Rs 75 lakh would be 125 per cent.

The risk weight refers to the capital which the banks have to set aside against outstanding loans to meet the capital adequacy norms. Currently, as per the Basel-II norms, banks have to maintain a capital adequacy of 9 per cent.

For high value home loans the banks will now be required to set high aside more capital to meet the capital adequacy norms prescribed by the central bank.

(BS)

Popularity: 1% [?]

To start with issues of GMR, GVK, Reliance Power and Lanco, aggregating Rs 5,000 crore.

State-run India Infrastructure Finance Company Ltd (IIFCL) would soon launch a product to improve the creditworthiness of infrastructure companies seeking to raise money through long-term bonds. The new offering would be in association with the Asian Development Bank.

“We are expecting government approval for launching a credit enhancement product within the next 10 days,” IIFCL Chairman and Managing Director S K Goel said here.

IIFCL would launch the pilot by guaranting the bond issues of GMR, GVK, Reliance Power and Lanco, aggregating Rs 5,000 crore, he said on the sidelines of a meet on the debt market organised by rating agency Care last evening.

“IIFCL will act as a guarantor to the bonds issued by infrastructure companies. The risk involved in being a guarantor is the same as that in being a lender,” Goel said, adding that credit enhancement would be of great help to greenfield special purpose vehicles, which normally got minimum ratings.

A credit enhancement product aims to enhance the quality of long-term bonds issued by infrastructure companies, making them an attractive investment option. The product will see ratings of these companies go up by two notches, making them viable for investment by insurers and pension funds.

The guarantee is expected to help these companies improve their rating so that they can raise more funds. For instance, a B- bond may get a B+ rating after the issuer ties up with the state-run lender for this facility. Just as in a loan document, IIFCL will take charge of the fixed assets of the companies it guarantees.

Generally, banks are not too keen on funding large infrastructure projects as it blocks their money for a long time. Banks have been asking the Reserve Bank of India to allow them to lend to infrastructure projects under relaxed prudential norms. This product may help, especially as the government plans a hefty $1 trillion investment in infrastructure in the 12th Plan period and has admitted that unless alternative funding mechanisms are identified, banks alone will not be able to finance this investment.

On take-out finance, Goel said IIFCL had already taken 20 proposals worth Rs 3,200 crore — Rs 200 crore more than the year’s target.

Take-out finance refers to a financial institution taking over the credit from the original lender, and is applicable to long-term infra funding. Under this, the credit facility extended to the borrower is on the books of the original lender till it is taken over. The institution agreeing to take over has to reflect this obligation as a contingent liability in its books till it actually takes over with partial/full credit risk as agreed.

On the proposed Rs 1,200-crore tax-free infrastructure bonds issue, he said IIFCL would hit the market with an advertisement within three days. By January, the first tranche of Rs 400 crore will hit the streets. It would raise the remaining Rs 800 crore in February and March, he added.

In the last Budget, the finance minister had announced Section 80CCF, entitling taxpayers to an exemption on investment to the tune of Rs 20,000 a year in infrastructure bonds.

(BS)

Popularity: 1% [?]

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Aallahabad Bank is a Government of India Undertaking. The Application invited for the post of Chief Manager (Taxation); Senior Manager (Treasury cum Forex); Manager (Research Analyst/Statistician); Manager (Taxation) in response to Bank’s Advertisement No .Advt.No. REC/ 03/2010-11 dated 20.08.2010; the selection process will be conducted through Interview only.

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All the concerned candidates are requested to bring original educational certificates/ testimonials alongwith self attested copies, coloured photographs, Fee Payment Challan (original), Experience certificates, N.O.C. etc. for verification at the time of interview.

For Further Information click here: http://www.allahabadbank.com/OpenUploadedDocument.asp?id=2&type=R

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Bank of India (BOI), a leading Public Sector Bank, having Head Office in Mumbai, invites applications from Indian Citizens forrecruitment to the posts. BOI recruitment project 2010-11 of General Banking Officers and Clerks for the post/vacancies in North Eastern States: Assam, Meghalaya, Arunachal Pradesh, Manipur, Nagaland, Mizoram, Sikkim, and Tripura.

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For Payment Challan and Online Application: http://www.bankofindia.com/career.aspx

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During an interactive session with the senior officials of the state government and bankers in the state capital on Tuesday, Reserve Bank of India (RBI) Governor D Subbarao said that RBI was considering the proposal of satellite banks and ATMs to provide banking facilities to the villagers in Jharkhand.

The governor said that the satellite banks would initially function on a weekly basis and it would be converted into full-fledged branches, if worked smoothly.

The state government officials informed the RBI governor that of the 4,423 panchayats in the state, 1,540 panchayats had no banking facilities.

Jharkhand chief minister Arjun Munda suggested that if establishment of branches of the bank was not commercially viable immediately, RBI might consider to set- up satellite banks and ATMs or involving business agents to ensure smooth banking services for villagers.

RBI governor has agreed to provide banks in every panchayat of Jharkhand by March 2012 and asked the convener of the State Level Bankers’ Conference, Allahabad Bank to prepare a plan in this regard within a month.

(BS)

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