During 2011-12, it invested Rs 1.15 lakh crore, of which Rs 25,000 crore was in equities, said LIC chairman-in-charge D K Mehrotra. “Of around Rs 90,000 crore debt investments, a large part of it has gone to government securities, whereas 25-30 per cent went in corporate instruments. Our total investment would remain close to last year’s figures,” Mehrotra added on the sidelines of a press conference.

 In 2010-11, LIC invested Rs 1.95 lakh crore, of which Rs 43,000 crore was in equities.

Equity investments by life insurers has slowed in the current financial year, largely because of the drop in sales of unit-linked insurance products, which accounted for nearly 80 per cent of the industry sales. For LIC, too, the product mix between traditional and unit-linked insurance plans (Ulips) has come to 70:30 from 55:45 earlier.

In Ulips, 90 to 95 per cent of the funds are deployed in equity, whereas for traditional plans only 10 per cent goes into equities.

During the April-November period, LIC’s premium collection dropped 18 per cent to Rs 45,759 crore. In the same period, the life insurance industry premium collection was down 19 per cent to Rs 62,429 crore largely on account of the new regulations by Irda, which had impacted the sales of unit-linked policies across the industry.

Housing Finance to raise Rs 500 cr 
LIC Housing Finance (LICHF), the mortgage financing arm of LIC, is going to raise Rs 500 crore via its maiden venture capital fund, an urban development one. LICHF has already mopped up Rs 200 crore in the first tranche and would be looking to achieve the final closure in the next seven-eight months.

“We have already raised Rs 200 crore and will start deploying soon. The fund aims to make investment in companies involved in development of mid-income affordable housing, income yielding to micro infrastructure assets including industrial and IT parks, SEZ and other allied segments through equity and equity related instruments,” said V K Sharma director and chief executive, LICHF. Both LIC and LICHF has invested Rs 50 crore each in the fund, he said.

(BS)

YES Bank was the first bank in the country to raise the savings deposit rate, after it was deregulated in late October. The bank had increased the interest rate by 200 basis points to six per cent. The lender said for deposits below Rs 100,000, it would continue to pay six per cent interest.

According to Rana Kapoor, founder, managing director and chief executive of YES Bank, the lender recorded a 30 per cent rise in savings deposit balances in the last two months, after it increased the savings deposit rate. “We will build on this momentum and accelerate further. It is critical to our strategy,” he said.

YES Bank’s savings deposits accounted for only two per cent of its total deposit base as of September-end. Low-cost current account and savings account deposits accounted for 11 per cent of total deposits. At the end of the July-September quarter, the bank’s deposit base stood at Rs 44,076 crore.

In October, the Reserve Bank of India had deregulated the savings deposit rate, the last bastion of administered rate regime. All banks were paying a uniform rate of four per cent on savings deposits till then.

Earlier this week, Karnataka Bank had raised its savings deposit rate by 100 basis points to five per cent. Three other private sector banks, Kotak Mahindra Bank, IndusInd Bank and Ratnakar Bank, along with Saraswat Bank, had raised their savings deposit rates.

Public sector banks, including the country’s largest lender, State Bank of India, and large private lenders like ICICI Bank, HDFC Bank and Axis Bank have not raised their savings deposit rate, as these said savings deposit accounts were typically used for transactional purposes.

Even banks that have raised the rates are not in a hurry to revise their savings deposit rate anytime soon. “We are pretty comfortable with our current rate. We have seen significant traction in our new account acquisitions after we raised the savings rate in November. Beyond a point, rates have to be seen along with other features and services being offered, as savings accounts are predominantly transaction accounts. At this point, we don’t see a real need to react,” said Rajeev Ahuja, head of strategy and financial markets, Ratnakar Bank. The bank offers 5.5 per cent interest on its savings deposits.

Kotak Mahindra Bank said it had no immediate plans to raise its savings deposit rate further. The bank pays six per cent interest on deposits above Rs 100,000 and 5.5 per cent for deposits up to Rs 100,000. “We have not decided on a further hike in our savings deposit rate,” said K V S Manian, group head of consumer banking, Kotak Mahindra Bank.

IndusInd Bank said the balances in its savings accounts had shown good growth after it raised the rate and there was no immediate plan to raise the interest rate on these accounts.

(BS)

]]> http://www.indianbanks.org/banking-news/bank-ups-savings-deposit-interest-intensifies-rate-war/feed/ 0 http://www.indianbanks.org/banking-news/steps-ensure-liquidity-subbarao/ http://www.indianbanks.org/banking-news/steps-ensure-liquidity-subbarao/#comments Mon, 12 Dec 2011 12:04:57 +0000 admin http://www.indianbanks.org/?p=4640 The Reserve Bank of India has been buying back government securities to ease liquidity.

The Reserve Bank of India (RBI) on Thursday said it would take all the necessary steps to ease liquidity constraints in the money market.

RBI has been buying back government securities to ease the liquidity situation, after having raised key policy rates 13 times since March 2010. So far, RBI has bought back securities worth about Rs 25,000 through open market operations (OMOs). Also, upcoming advance tax payments by companies are likely to add to the liquidity constraint in the market, given companies have to pay advance taxes for the third quarter by December 15.

“In order to ease the situation, so far, we have carried out open market operations for Rs 25,000 crore. We would take all necessary steps to see that liquidity is eased. We are aware of the advance tax payment situation. We will take that into account while assessing the liquidity situation,” said RBI Governor, D Subbarao, at a press conference after its central board meeting in Kolkata.

According to RBI’s guidance, liquidity should remain remain between plus/minus one per cent of net demand and time liabilities, which translates into about Rs 60,000 crore. “In the last few weeks, it has gone beyond that, which means there is liquidity constraint across the system, or for certain banks,” Subbarao said.

In its last policy statement, RBI had hinted at a pause in its hawkish policy stance.

“Further rate action, whether it would be paused, depends upon any unanticipated development. Certa-inly, supporting growth remains our objective,” Subbarao said.

Since November 24, banks have been drawing an average of Rs 1 lakh crore daily from RBI, at a repo rate of 8.5 per cent under the liquidity adjustment facility (LAF). “Whatever instruments we have, OMO and LAF are there…If anything else is required, we would do that for liquidity management,” he added.

There has been a debate over the use of the cash reserve ratio (CRR) as a tool to manage liquidity. The CRR, currently at six per cent, is the proportion of deposits banks need to set aside with the central bank as cash.

“The consideration that goes into a CRR cut, or CRR action, has to be kept in mind. The consideration fundamentally is CRR is not just a liquidity tool, but also a monetary policy signal. And, we are, as of now, still in a situation in which inflationary pressures are high. For the moment, while we want to address the liquidity situation, we don’t want to do it in a way that compromises our monetary stance. So, the use of these tactical measures like OMOs is clearly the way we are going to go,” Subir Gokarn, deputy governor, RBI had said at the bankers’ meeting yesterday.

On the possibility of a cut in CRR in the next RBI policy statement, Subbarao was cautious, saying, “I cannot really react to what the market is expecting outside the context of the policy. Whatever we might decide, on the CRR or otherwise, you would have to wait for our mid-quarter statement.” RBI would meet on December 16 to review its monetary policy. To ease inflation, RBI has been raising key policy rates over the last one year.

(BS)

“We can confirm the Reserve Bank of India is agreeable to the transfer of our retail and commercial businesses in India to HSBC. We continue to work closely with HSBC and the regulators to complete the transfer in a manner that is in the best interest of our clients and employees,” RBS said in an e-mailed statement.

The deal, announced in July, 2010, was part of RBS’ plan to retreat from some of its business in foreign markets. HSBC had agreed to pay premium of up to $95 million over the tangible net asset value of the businesses, once the deal was completed. The actual price, however, would depend on the quality of assets. The transaction was scheduled to be completed by September 30.

RBI, however, has not approved the deal yet. According to sources, the banking regulator was not comfortable with RBS selling its branches to HSBC, though the lender would continue its wholesale banking operations in India. Sources said the banks were re-working the structure of the deal.

Currently, HSBC has 50 branches in India, the second-most among foreign banks in the country. RBS has 31 branches.

HSBC has maintained the bank continues to “engage positively with the regulator” for this transaction. In an interview with Business Standard, Naina Lal Kidwai, country head for HSBC in India, said the regulatory approval was taking time due to the unprecedented nature of the deal.

RBS said India would continue to remain the third-largest employment centre for the group globally. “India remains one of the top three priority markets in the Asia-Pacific region for the RBS Group…Our commitment to India remains focused. We have been, and will continue to, invest strategically in India across our ‘go forward’ businesses,” it said.

(BS)

Mumbai-based Bank of Baroda (BoB) posted an increase of 14.4 per cent in net profit at Rs 1,166 crore in the quarter ended September, provisioning for bad loans more than doubled to Rs 298 crore as compared to same quarter, last year. “Increase in NPAs was seen from all sectors and geographies,” said M D Mallya, chairman and managing director. He said Rs 663 crore worth of assets were restructured quarter and 10-11 per cent of the total restructured portfolio slipped into NPAs in July-September.

All government banks were mandated to shift to an automatic NPA recognition system by the end of September. Also, adding to the pressure on banks’ asset quality was the monetary tightening by Reserve Bank of India as it raised policy rates 13 times since March, 2010.

Higher provisioning dragged Bangalore-based Canara Bank’s net profit 15.4 per cent, to Rs 852.2 crore during the reporting period. The higher provisioning was because the bank has migrated all accounts to the automated NPA recognition system. “We have taken a hit on our net profit mainly because of higher provisions towards NPAs to the tune of Rs 553 crore, higher by 3.5 times over the corresponding quarter,” S Raman, chairman and managing director, said.

New Delhi-based Oriental Bank of Commerce which has seen provisioning for bad loans and writeoffs more than double to Rs 485 crore in July-September this year, reported 58 per cent decline in net profit to Rs 167 crore.

An increase in bad loans also weighed on Corporation Bank which reported 14 per cent rise in net profit at Rs 401.11 crore. The gross NPAs of the bank rose 1.32 per cent at end-September from 1.05 per cent in the same period of the previous year. According to the management, the major source of addition to bad loans were small and medium enterprises and the agriculture sector.

Led by a higher yield on advances and lower provisioning, Kolkata-based UCO Bank posted a 94 per cent rise in net profit to Rs 231 crore for the quarter ended September 30, against Rs 119 crore in the same period last year.

Dena Bank reported 20.8 per cent rise in net profit at Rs 193.58 crore for the quarter ended September 2011. Its net interest income was up 16.43 per cent at Rs 514.9 crore.

United Bank of India posted a 13.7 per cent rise in net profit to Rs 124.77 crore for the quarter ended September against Rs 109.7 crore in the same period last year. The bank’s slippages more than doubled at Rs 623 crore in the last quarter, against Rs 203 crore in the same period last year. “More than 50 per cent of the slippages are on account of mid-corporate accounts; the rest is contributed by small ticket advances,” said Bhaskar Sen, MD and chairman.

(BS)

ICICI Prudential Life Insurance Co reported profit after tax of Rs 350 crore during the quarter, compared with Rs 15 crore a year earlier. The higher profit was primarily due to the change in accounting for non-participating policyholders’ funds.

On a standalone basis, the bank’s net profit stood at Rs 1,503 crore during the three-month period, up 22 per cent from Rs 1,236 crore a year earlier. The growth in standalone profit was driven by lower provisions and higher interest income from advances.

Net interest income, or the difference between interest income and interest expenditure, rose 14 per cent year-on-year to Rs 2,506 crore. Fee income rose seven per cent to Rs 1,700 crore. The bank’s net interest margin was 2.6 per cent, unchanged from a year ago.

“We had a very healthy growth in profit, clearly keeping in line with our strategy of resuming growth from this year. Our aim would be to keep the net interest margin stable. The lending rates may rise if there is any increase in the cost of funds,” Chanda Kochhar, managing director and chief executive officer, ICICI Bank, said in her post-earnings comments.

Asset quality
The bank cut its provisions by 50 per cent, compared to a year ago, to Rs 319 crore during the quarter, due to improvement in the quality of its assets. The lender closed the quarter with a provision coverage ratio of 78.2 per cent. Net non-performing advances narrowed to Rs 2,184 crore from Rs 3,145 crore a year ago, leading to a 69-basis point rise in net bad loan ratio at 0.93 per cent. The gross non-performing loan ratio also rose by 89 basis points to 4.14 per cent as of September 30.

Net restructured assets stood at Rs 2,501 crore. The bank restructured Rs 743 crore of loans during the quarter, a significant share of which was accounted for by the microfinance sector.

Kochhar said the bank’s asset quality appeared to be stable and dismissed fears of the deteriorating quality of loans to the power sector. Advances to power companies accounted for about seven per cent of the bank’s loan portfolio.

Balance sheet
The bank’s advances increased 20 per cent year-on-year to Rs 233,952 crore, driven mainly by growth in corporate loans. “There has been some moderation in the growth of retail loans. While we are seeing growth in both corporate and retail advances, the growth is clearly higher on the corporate side,” Kochhar said. ICICI Bank aims to increase its advances by 18 per cent this financial year. The bank’s deposits rose about 10 per cent year-on-year to Rs 245,092 crore as of September 30.

The share of low-cost current account and savings account deposits to the total deposits improved sequentially to 42.1 per cent. Savings account deposits stood at Rs 70,149 crore, while current account deposits were Rs 32,997 crore.

The bank’s capital adequacy ratio was 18.99 per cent, while its Tier-I adequacy ratio was 13.14 per cent.

(BS)

For instance, iCreate Software, a Bangalore-based information technology firm, has already secured contracts from HDFC Bank, IndusInd Bank and Dhanlaxmi Bank within three months of launching their automated data flow solution Biz$core ADF. IndusInd Bank has decided to use iCreate’s enterprise business intelligence solution along with the automated data flow software. While the latter will help the bank in meeting compliance needs, the business intelligence solution will aid in managing information effectively for business requirements.

Vivek Subramanyam, chief executive officer of iCreate, stressed the need for a technology solution to remove manual intervention in regulatory reporting. “Automated reporting increases the level of confidence on data, and decision-making becomes more accurate,” he told Business Standard. “There are 150 to 250 types of regulatory reports that banks have submit to RBI at periodic intervals. We are completely focussed on this opportunity and are engaging with the entire banking fraternity to position our Biz$core ADF solution.”

He said the company’s automated data flow solution cost “single to early double digits” crore of rupees.

In August, Ramco Systems, a software firm in Chennai, launched an automated data flow solution to help banks adhere to RBI guidelines on submission of regulatory reports without manual intervention. “Our ADF solution,” says Kamesh Ramamoorthy, chief operating officer of the Chennai-bases software firm, “can be deployed on any database management system. It can go live within weeks.”

However, some banks are likely to rely on their in-house teams to develop this software instead of outsourcing it to a technology firm. According to a senior official of a Mumbai-based private sector bank, if the in-house technology team of a bank is strong, then developing the software makes more sense as the lender can customise the solution according to its requirements. Another option is that the bank will build the software on its own, but will seek assistance of a technology firm for integrating it with the main system.

But most banks are expected to use third-party software as they have to comply with RBI’s guidelines within a specified time period. “It is not their core operations,” says an industry expert. “Hence, they will choose products of software companies to meet the guidelines.”

The new guidelines on automated regulatory report filing were released after the central bank was alarmed by the trend of eroding profitability of state-run banks soon after the retirement of the chairman. The move is aimed at minimising the scope of errors and manipulation in reports that are submitted to RBI at periodic intervals by banks.

(BS)

Telecommunications represents the biggest spending category, and expenditure on this is estimated to touch $566 million in 2012, up from $512 million in 2011. However, spending on IT services is expected to grow the fastest in 2012, with the expenditure standing at $447 million in 2012, a rise of 15.8 per cent compared with $386 million in 2011, according to the study.

Indian insurers are faced with an opportunity to transform significant aspects of their operations through technology, across the entire insurance business value chain.

“Indian insurers have shown they are particularly forward, with regard to considering alternative delivery models such as business process outsourcing,” said Derry Finkeldey, principal analyst, Gartner. “External factors, such as regulatory change, uncertain economic conditions and the increasing frequency of catastrophic events, are forcing insurers to reassess their approaches to business processes and the IT applications that enable them to derive greater efficiency and achieve more with less.”

“Insurers are looking for ways to streamline their processes, from the front office to the back office, and are investing in the next generation of core solutions to help them do that,” said Finkeldey. “These solutions often integrate business process management and analytics capabilities, or are offered in an ‘as a service’ model,” he said.

(BS)

Bankers also sought that the regulator allow the restructuring of accounts for a second time. “We have made a suggestion to consider the need for second-time restructuring for companies or units whose debt was reworked once, after the financial crisis in 2008,” said a senior banker who attended the meeting.

RBI has raised key policy rates 12 times since March 2010 to tame the persistently high inflation. It is scheduled to announce the half-yearly review of monetary and credit policy on October 25.

“Overall, there is pressure as far as asset quality is concerned,” said M D Mallya, chairman and managing director of state-owned Bank of Baroda. The repo rate, at which banks borrow from RBI, has been raised by 150 basis points, including two 50-basis point rises, since the start of the current financial year. Most banks have passed on the increase in cost to customers, leading to concern that high lending rates may result in more defaults.

An increase in non-performing assets (NPAs) would also translate into a higher need for provisioning, according to RBI norms. “The problem of NPAs and slippages is equally worrisome in case of corporates, in addition to small and medium units,” said Mallya. Pointing to the sectors under pressure, Mallya said, “One is the textile sector, which has gone into trouble because cotton prices have come down substantially. The other is the steel industry.”

The demand for credit has declined, since interest rates continued to rise. “Credit growth is muted, capex is virtually at a standstill and investment is not really happening,” K Ramakrishnan, chief executive of the Indian Banks Association, told reporters after attending the meeting.

According to RBI data, credit growth slowed from 20.6 per cent in March to 19.8 per cent in August. Ramakrishnan said banks were only disbursing past sanctions.

(BS)

IDF SET UP AS MF
Banks acting as sponsors of infrastructure debt funds as MFs have been subjected to existing limits, including limits on investments in financial services companies and on capital market exposure. A bank’s capital market exposure has been capped at 40 per cent of its net worth, both through direct and indirect routes.In case of NBFCs, it should have a minimum net owned funds (NOF) of Rs 300 crore to act as a sponsor, and should be able to maintain the same level of NOF even after investing in the fund. Also, the NBFC should maintain a capital adequacy ratio of 15 per cent after investment. The entity should also have good track record for five year and been profitable for the last three years.

IDF SET UP AS NBFC
Banks and NBFCs keen on sponsoring an IDF-NBFC must contribute at least 30 per cent and a maximum of 49 per cent of the total capital of the fund, besides meeting the other requirements prescribed for floating an IDF-MF. “The guidelines will be big boost for the infrastructure sector which needs long term funds. NBFCs taking part in it would be able to diversify their borrowing portfolio. We have other fund like gold fund. Hence we would be keen to launch an infrastructure debt fund,” said G S Sundararajan, managing director of Shriram Capital.

RBI further said an infrastructure debt fund set up as an NBFC should have a minimum net worth of Rs 300 crore and at the least should have a credit rating of ‘A’ or its equivalent by CARE, Fitch, Icra and Crisil. The NBFC’s Tier-II capital should not exceed Tier-I capital, while the minimum capital adequacy ratio should be 15 per cent.

“For the purpose of computing capital adequacy of the IDF, bonds covering PPP and post commercial operation date projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent,” said RBI.The fund can have an exposure of up to 50 per cent towards a borrower or a group of borrowers. The limit can be increased by up to 60 per cent if the board of the IDF-NBFC agrees. Limited additional extension beyond 60 per cent can be granted only after RBI approval.

(BS)

While the obvious gainers are export-led sectors like information technology and the biggest losers are oil marketing companies, most companies are putting up a brave face.However, they expect the splinters of the currency turmoil to hit them at a later stage.Business Standard spoke to a number of finance chiefs. Though most put up a brave front, very few wanted to talk on record, claiming it was premature to draw a conclusion.

R Shankar Raman, chief financial officer (CFO), L&T, said. “This is a time of unprecedented fluctuations. So, it’s wise to mitigate your financial risks, rather than use currency risks as an opportunity. L&T has a billion dollars of foreign currency debt.

So, we try to carefully hedge ourselves, swapping some of it into the rupee or buying forward. But the splinters would catch us. Fortunately, most of our operations are in India. So, our business model allows us to remain relatively insulated.”Most are betting on the fact that this is temporary. “While RBI (Reserve Bank of India) is continuously buying dollars, there is no corresponding supply coming in, from foreign direct investment, external commercial borrowings or foreign institutional inflows. For exporters, the incentive to forward-sell dollars has gone down significantly. But this is not a long-term scenario. The US economy is not that strong to prop up the dollar like this.

As a corporate, I don’t think we would take any steps on our foreign currency exposures at this volatile juncture, as the rupee has already depreciated,” said Prabal Banerjee, CFO, Adani Power.Many companies have foreign currency loans on their books, either as working capital for foreign operations, or acquisition-related debt. But CFOs at most large business groups feel despite a depreciating rupee, keeping the benign interest rates in developed markets like the US in mind, it would be better to hold on to foreign currency debt. “You get 0-2 per cent interest on dollar debt, compared with 12-14 per cent on rupee debt. The rupee has only depreciated 10 per cent. But in this volatile environment, I don’t know for how long the advantage would sustain,” said an executive director of a leading private sector airline.Sectorally, a falling rupee is bad news for importers and oil marketing companies, which import their main raw material, crude oil. For nationalised oil marketing companies, the under-recovery in price-controlled products like diesel, kerosene (public distribution system) and domestic liquefied petroleum gas would go up further. With every fall in the rupee, the under-recovery goes up by Rs 9,500 crore per year on these controlled products.Large metal companies like Tata Steel, Hindalco and Vedanta have foreign currency debt on their books. However, as Sunirmal Talukdar, CFO, Hindalco, points out, “A depreciating rupee is beneficial for us, as the domestic price of aluminum or copper rises. Hindalco has repaid a billion dollars of its foreign currency loans taken for the Novelis acquisition. The only foreign currency exposure we have is about Rs 3,000 crore of buyers’ credit for the import of copper concentrates. But the exports offer a natural hedge for us.

”Tata Motors, like Tata Steel, also has foreign currency exposure. But analysts don’t see much of an impact for the company, as 60 per cent of revenues for Jaguar Land Rover are dollar-denominated and are converted to pounds. The dollar-pound movement is likely to hit the company more.The biggest gainers are information technology companies. A weak rupee means a positive impact of at least three per cent on revenues from India for the top four Indian information technology firms. Every one per cent change in the rupee-dollar exchange rate has a 40-basis point impact on the margins, and an impact of at least two-3.5 per cent on the net profits of these firms. Rostow Ravanan, CFO, MindTree, believes the real benefit of the depreciating rupee would only be seen if it remains at this level in the third quarter.

(BS)

“Your investment or return calculations have to take that (volatility) into account and you have to decide how you are going to hedge that risk,” he said.RBI had not intervened in the foreign exchange market for nine months in succession, till July. However, it had stepped in to stem the rupee depreciation on three occasions over the past week.Gokarn reiterated RBI’s stance, on intervention only to smoothen excessive volatility in the exchange rate. “We, at this point, do not see any intervention from a rate-targeting viewpoint. That would reflect a change in policy stance, which we are not doing at this point. If we do intervene at all, it will be with a very narrow objective, of smoothening what might be a very volatile market situation; nothing beyond that,” he said.Adding: “There is larger logic and context to our exchange rate policy and we have, over the last few years, allowed the rupee to float within the broader structural boundaries of debt limitations or debt restrictions. That policy remains.”Traders said the rupee would not be able to stay strong. Growing concern on the impact of a possible Greek default on the banking sector would negate any move by India’s central bank to support the rupee.According to Kotak Mahindra Bank’s chief economist, Indranil Pan, the rupee could witness further depreciation. “The sudden weakness has been led by the recent risk aversion globally. The Indian currency could be poised for more near-term depreciation with the absence of any intervention from the RBI,” he said.In the near term, there appears a risk of the rupee breaching the 50-mark, but from a more medium-term perspective, we should see the rupee settle in a range of 46-49, unless there is an absolute meltdown in the global markets, Pan added.

(BS)

According to recent data released by RBI, credit growth during the period was Rs 29,433.37 crore, a growth of 0.7 per cent over the previous fortnight. On a year-on-year basis, loans grew 20.4 per cent till September 9.

On the other hand, deposits saw a growth of only Rs 12,935 crore, a rise of 0.2 per cent over the previous fortnight. On a year-on-year basis, deposits grew 17.5 per cent.

“We expect the growth in advances to sustain in the remaining part of this financial year. For instance, we are focusing on sectors like agriculture and mid-corporates. For the farm sector, bank credit is still the cheapest funding option available at this moment,” said Bank of Maharashtra Chairman & Managing Director, A S Bhattacharya.

RBI had, last week, raised interest rates for the 12th time in 18 months to fight high inflation. It had also signalled more rises may follow, confounding expectations of the tightening cycle coming to an end and putting it at odds with global peers, which are focused on reviving weak demand.

“We have certainly started seeing an increase in demand for credit now, although it is a gradual pick-up,” said a senior official with a large state-run bank, on the condition of anonymity. “We are hopeful it would gather pace, as the festive season progresses.”

Typically, credit growth sees an increase during the festive season starting August and extending till November, since people require more funds to buy new cars, consumer durables and houses.

Amid the series of rate rises, the central bank has also scaled down its credit growth projections for the current financial year from 19 per cent to 18 per cent. Banks have also lowered their credit growth projections.

“There is still a fair amount of consumption demand in the Indian economy and this would drive loan growth on a year-on-year basis. High interest rates may affect demand in rate-sensitive sectors like real estate or large-ticket loans. There may be some impact on the small and medium enterprise segment,” said Pralay Mondal, country head (retail assets & credit cards), HDFC Bank.

Bankers said the borrowing decisions of mid-sized companies were not guided by interest rates alone. “They want funds at the right time and are willing to pay interest on these loans. These factors would ensure we maintain the growth in our advances. In retail, especially in housing loans, there is a slowdown in demand. This is because home buyers are expecting a fall in property prices, and delaying their purchase decisions,” Bhattacharya said.

(BS)

The 25-bps discount on home loan card rates is applicable to all amounts and is valid till December 31, according to the bank’s website. With this concession, the rate of interest on home loans up to Rs 30 lakh is now 10.50 per cent, while for loans between Rs 30 lakh and Rs 70 lakh, the interest rate would be 10.75 per cent. For loans above Rs 75 lakh, the interest rate would now be 11 per cent.

HDFC offers two fixed-floating home loan products: One with fixed interest rates for the first three years, and the other with fixed rates for the first five years. ICICI Bank, too, offers two such products, with fixed rates for one and two years.

SBI also indicated it may raise the base rate in two-three weeks. The floating rates could then rise again. However, the bank may further increase the concession to benefit from the rise in the demand for home loans during the festive season, which is spread over the next two-three months.

Owing to high interest rates, the demand for loans has remained slack this year, and this has prompted lenders to offer discounts on retail loans to attract customers in the festive season.

(BS)

RBI, which has raised rates 11 times in the last 18 months, is scheduled to present its mid-quarterly review of the monetary policy on September 16.

Though senior bank officials are hawkish, RBI Governor Duvvuri Subbarao would not take a final decision before the release of inflation data for August on September 14, the sources said.

“We still have high food and non-food manufacturing inflation, good credit growth to industry, and growth is also quite good,” said an official with direct knowledge of the matter. “So, domestic factors would continue to be the key driver for policy framing,” he said.

RBI officials have maintained the hawkish talk in recent weeks, even as fears mount that western economies are slipping back into recession, although the central bank is widely believed to be nearing the end of its tightening cycle, as its earlier actions exact a toll on demand in the country.

The finance ministry is exerting pressure on Subbarao not to continue tightening for long. Finance minister Pranab Mukherjee was quoted as saying this week he hoped RBI would not raise rates further. Senior finance ministry officials said continued steady rate increases may not have the desired effect of cooling inflation without overly disrupting growth. “Yes, inflation still remains a big concern, but I see peaking off at the end of the year. But growth would also come into sharp focus,” said one of the officials.

Last week’s jump in food inflation, high non-food manufacturing inflation, the knock-on impact of a June fuel price increase and resilient credit growth point to a need for continued vigilance, several RBI officials said, declining to be identified.

“Inflation has not yet peaked. To some extent, global developments would have some impact on the external sector. We are cautiously hawkish,” an RBI official said.

While advanced economies are struggling to ward off stagnation, central banks in emerging markets are confronted with high inflation and cooling growth. Brazil recently announced a rate cut despite the still-high inflation, and market speculation that China may ease lending conditions for some small and medium sized companies has added to expectations of the tightening cycle in emerging markets ending soon.

“Brazil cut rates after raising them sharply, so they had room to cut. We are anyway behind the curve,” said another senior RBI official. “So where is the room to even pause, unless global recovery concerns bring down commodity prices drastically,” the official asked.

Gross domestic product growth slipped to 7.7 per cent in the three months through June, and with high inflation persisting, many economists are scaling down their growth forecasts.

Source:http://businessstandard.com/india/news/rbi/s-hawkish-stance-intact-despite-global-uncertainty/448435/

They have agreed to jointly buy out up to 40 per cent of infrastructure loan portfolios of banks, each having 20 per cent exposure.

“IIFCL will take all the initiatives with the banks regarding the portfolios. We have earmarked a total of Rs 10,000 crore, each investing Rs 5,000 crore, for the current financial year,” S K Goel, chairman IIFCL told Business Standard.

 Under the scheme, IIFCL is allowed to take up to 75 per cent of bank loans for an infrastructure project on to its books, thereby freeing banks’ capital and enabling them to lend in new projects.

Since IIFCL has inherent expertise in infrastructure financing, it will carry out all the due diligence of the projects, Goel added.

A senior LIC official said there are some issues that need to be addressed.

“The main issue is the sharing of the liabilities. We are yet to take a call on the extent of liability which LIC can bear in case an asset becomes non-performing. We need to understand the risk carefully before entering into a particular project. Then we also need to understand to what extent we can invest under the sector investment norms,” the official added.

According to the Insurance Regulatory and Development Authority (Irda) guidelines, LIC’s exposure in a single project is capped at 10 per cent of the total investiable fund. The insurance regulator also mandates life insurers to invest at least 15 per cent of their controlled funds in infrastructure and social sectors.

According to sources, the idea of roping in LIC to partner IIFCL in the take-out financing scheme was mooted by the finance ministry in the wake of the lukewarm response of the take-out financing scheme floated by the infrastructure financier. So far, IIFCL has been able to disburse only Rs 90 crore of the total sanctioned amount of Rs 3,000 crore under the take-out financing scheme.

(BS)

According to market participants, banks have already issued around Rs 10,000-15,000 crore of CDs in the first two working days of the month. The deadline for paying advance taxes is September 15.

“The liquidity deficit can go up to Rs 1 lakh crore, when companies would withdraw to make advance tax payments this month,” said a treasury official of a Chennai-based public sector bank. Banks have been borrowing around Rs 38,000-56,000 crore from the Reserve Bank of India (RBI) under the liquidity adjustment facility. The advance tax outflows are expected to be about Rs 60,000 crore this month.

Central Bank of India, Punjab National Bank, Corporation Bank, Canara Bank and Oriental Bank of Commerce were among the banks that issued CDs today. Three-month CDs were priced around nine per cent, six-month CDs around 9.3 per cent, and one-year CDs were issued at around 9.6 per cent.

Banks with adequate liquidity are also investing in other bank CDs, though mutual funds remain the primary investors. “We are investing in other bank CDs, since they still offer a spread of 100 basis points over the repo rate,” said a treasury manager of a Mumbai-based large public sector bank. Currently, the repo rate is eight per cent.

To comply with RBI’s mandate, banks are reducing their investments in liquid schemes of mutual funds. From January 2012, banks would not be allowed to hold more than 10 per cent of their net worth in liquid schemes of mutual funds. RBI had said investments by banks varied immensely as they were parked to take advantage of the higher yields and withdrawn during a of liquidity deficit situation. These liquid schemes would, in turn, invest in bank CDs, which could lead to systemic risks.

“Currently, our investments are around 12 per cent. But this would be brought down to 10 per cent by January, as we have invested in plans that would mature by December,” said the treasury official.

CD issuances are expected to rise this month, since it is the end of the second quarter and banks would also resort to window dressing of balance sheets. Banks would also raise funds through CDs ahead of the rate rise expected on September 16—at RBI’s mid-quarterly review of monetary and credit policy. According to RBI data, CD issuances had dropped to Rs 11,667 crore in the fortnight ended July 29.

(BS)

]]> http://www.indianbanks.org/banking-news/banks-step-cd-issuances-tide-advance-tax-outflow-2/feed/ 0 http://www.indianbanks.org/banking-news/mfis-propose-unique-merger-plan/ http://www.indianbanks.org/banking-news/mfis-propose-unique-merger-plan/#comments Tue, 06 Sep 2011 10:51:55 +0000 admin http://www.indianbanks.org/?p=4454 The microfinance trio—Spandana Sphoorty Financial, SHARE Microfin and Asmitha Microfin—have proposed to merge their operations. This includes the setting up of three corporate entities, the waiver of capital adequacy ratio in one of the new entities and entry into new businesses, according to sources familiar with the development.

According to the plan for the biggest merger in the Indian microfinance space, after amalgamating their current businesses, the three Andhra Pradesh-based micro-lenders would jointly set up three companies. The first would manage the microfinance loans of Spandana, SHARE and Asmitha outside Andhra Pradesh. The majority of these loans are classified as performing assets and the recovery in this portfolio had not been affected by the recent crisis in the microfinance sector.

The second company would be responsible for microfinance loans disbursed in Andhra Pradesh. These are mostly bad loans, as recovery in this portfolio has been dwindling since the Andhra Pradesh government came out with stringent norms for the microfinance sector. The third company would manage new businesses like gold loans and tractor financing—key areas that the merged entities have recently started focusing on or are planning to foray into.

“Since October 2010, microfinance companies in Andhra Pradesh are facing problems in raising funds, even for those businesses that have not been affected by the crisis. This structure would ensure bank funding, at least for those businesses that are out of the crisis zone,” said an official of one of the microfinance firms involved in the merger. The official requested anonymity, since the deal structure was not yet approved by the companies’ shareholders and creditors.

The three microfinance firms also plan to approach the Reserve Bank of India (RBI), seeking the waiver of capital adequacy requirements for the company that would manage the bad micro loans in Andhra Pradesh. “Most of the microfinance loans in Andhra Pradesh have become non-performing. There is no expectation of cash flow from these businesses. Hence, we will request RBI to waive the minimum capital adequacy requirements for this company,” said another official.

The official added floating a company to manage microfinance loans in Andhra Pradesh has been suggested, since some recovery in this portfolio would take place once the situation in the state improved. “This will also help banks get their money back,” the official said. The Malegam committee had suggested microfinance firms should maintain a capital adequacy ratio of 15 per cent. For non-banking financial companies, the minimum capital adequacy ratio is 12 per cent.

Members of the senior management of both Spandana Sphoorty Financial and SHARE Microfin declined to comment, since regulatory approvals on the deal structure were awaited.

Sources said the merger was proposed to reduce multiple lending to the same borrowers and an overlap in businesses of the three microfinance firms. Bankers said there was no guarantee that the merger would sail through, especially because of the complex nature of the deal. The multiplicity of private investors in all the three microfinance firms have also raised doubts whether the shareholders would be unanimous in approving the merger.

“First, the shareholders of these three companies have to agree. Then, banks have to be convinced that such a merger would improve their earnings and help in the repayment of their existing bank loans. Then, you need regulatory approvals. Banks have only said they would review the proposal,” said a banker familiar with the development.

Sources said the three microfinance companies would be independently valued, to decide the shareholding in the merged entities. The names of the new entities have not been decided yet.

(BS)

Domestic banks and corporate entities are increasingly raising money through syndicated loans abroad to meet funding requirements. A relatively good investors’ appetite for these small-ticket loans and their cheaper cost have made these contracts popular among Indian companies, bankers say.

“Typically, you get your investors from Taiwan and Singapore (for syndicated loans), with decent cost differentials as compared to a bond. Though one does compromise on size in a loan market, it is adequately compensated by way of cheaper cost of funding and diversifying the investor base. This trend has definitely caught up,” said Sunil Agarwal, managing director and head, institutional client group, at Deutsche Bank in India and Sri Lanka.

The average size of a fund raised via a syndicated loan is $100-250 million, while the tenure is for one to three years. Through foreign currency bonds, issuers can raise more money with longer maturity.

SHIFTS
The uncertain global macro-economic environment has shifted investors’ preference towards short-term debt. “The euro zone debt crisis and downgrading of the US sovereign rating may lead to a decline in overseas bond issuance in the short term, but the long-term outlook remains positive,” said Vedika Bhandarkar, vice-chairman and head of investment banking at Credit Suisse in India.

“(But) there is demand for Indian paper. Companies are also looking at syndicated loans as an option to raise funds in the international markets. While investors have become more selective, they still have enough appetite for these fund-raising programmes,” she added.

Bankers said with the lack of investors’ appetite for large-ticket issuances, companies are also looking to raise money in small tranches through multiple loan syndications.

For instance, Rural Electrification Corporation (REC) raised $300 million from investors in Singapore and Hong Kong at 180 basis points above the six-month Libor (London inter-bank offer rate) in August. The company plans to raise another $250 mn by mid-October through this route at 195 basis points above the six-month Libor. The company has given State Bank of India a mandate to manage the issue.

“Inclusive of all costs, the rate of raising funds through loan syndication comes to 7.5 per cent currently. One also has an advantage of lesser witholding tax, as compared to dollar bonds,” said H D Khunteta, chairman and managing director of REC.

The witholding tax burden is 10 per cent for overseas loans, as compared to 20 per cent in the case of foreign currency bond issuances. The Bank of India also raised $200 mn through the same route recently.

“The rates on overseas loans have marginally worsened but it’s possibly lesser than the increase in coupon rates on dollar bonds. Given the way the swap curve has come off sharply for some companies here, it does provide an opportunity on a fully-hedged basis,” said Nirav Dalal, managing director, debt capital and financial markets, at YES Bank. Yesterday, the six-month US Libor was at 0.49 per cent, down from its peak of 0.76 per cent in June last year.

Source:http://businessstandard.com/india/news/india-inc-takes-to-foreign-loan-syndication/447787/

Following the mandate given by RBI in the annual monetary and credit policy 2011-12, banks had restricted lending to NBFCs, as doing so would no longer count as priority sector lending from April 1.

On lending towards commercial real estate, bankers say the regulator is not comfortable with banks having high exposure to rate-sensitive sectors.

“Banks will reduce exposure to these sectors but it will take some time. As repayments happen, banks will refrain from lending more,” said a senior official from a public sector bank. Data showed credit to NBFCs as on July 29 was Rs 1.73 lakh crore, as compared to Rs 1.11 lakh crore a year before.

However, the exposure has reduced as compared to March 2011.

Overall bank credit to industries in July slowed to 21 per cent from 27 per cent a year earlier. “The major reason is that companies have put their investment decisions on hold due to high interest rates. The situation should improve in the second half (of this financial year),” said a general manager of a Mumbai-based public sector bank.

Credit to industry includes loans given to infrastructure, metals and metal products, engineering, food processing, mining and quarrying and rubber, plastic and their products.

Credit to agriculture increased by 11.8 per cent in July, down from 19.9 per cent in the previous year, while advances towards the services sector grew 21.3 per cent as against 17.4 per cent in the same month last year.

RBI has projected a growth rate of 18 per cent in bank credit for 2011-12.

Source:http://businessstandard.com/india/news/bank-credit-to-nbfcs-commercial-realty-in-july-robust/447619/