Indian Banks

At a time when most banks have failed to convince the Reserve Bank of India (RBI) in allowing them to set up subsidiary companies, Federal Bank has revived its wholly-owned arm to expand its retail loan business.

The Kerala-based private sector lender’s arm, Fedbank Financial Services, has started a gold loan business and plans to offer car loans and loans against property, in addition to its distribution business. It would also enter the wealth management space at a later date, to provide services to high net worth clients.

While RBI has not issued any formal guidelines, in the recent past it has not allowed banks to form separate subsidiary companies for businesses that can be done through bank branches.

The banking regulator had nixed South Indian Bank’s plan to form a gold loan subsidiary, Bank of India’s proposal to set up a company to train its employees, and Lakshmi Vilas Bank’s application for a housing finance arm. Proposals from ICICI Bank and Axis Bank to float infrastructure finance subsidiaries also did not find favour.

“We are aware that RBI does not want banks to set up separate subsidiaries for businesses that they can do through their own bank branches. But it is different in our case. The subsidiary was formed sometime back. We are just adding new lines to the existing businesses. The regulator has not raised any objection,” a senior official of the bank told Business Standard, requesting anonymity because of the sensitivity of the issue.

Fedbank Financial Services was incorporated as a wholly-owned subsidiary of the bank in April, 1995. In 1998, it received a licence to operate as a non-banking finance company. But the license was surrendered and operations were suspended between 2001 and 2007.

In 2007, the company was revived and was acting only as a distributor of financial products on behalf of the parent bank. It applied for a fresh NBFC licence in 2009, which it received on August 24, 2010.

The company started offering gold loans from February, 2011 and plans to enter the secured assets business from next financial year.

“Unlike other banks, we did not apply for a new subsidiary,” said another official, adding the bank will continue to do businesses like gold loans and car loan despite entry of Fedbank Financial Services in this space.

Currently, Federal Bank’s gold loan portfolio is estimated around Rs 3,300 crore, while for Fedbank Financial Services it is close to Rs 300 crore. The bank has 938 branches, while its NBFC subsidiary has around 129 offices.

Source: http://www.business-standard.com/india/news/federal-bank-revives-arm-to-expand-retail-lending-business/467892/

Popularity: 1% [?]

Your wait for a reduction in lending rates may soon be over, if the country’s largest commercial bank has its way.

State Bank of India (SBI) is weighing options to pare interest rates on certain sector-specific loans, despite the Reserve Bank of India (RBI) keeping the repo rate unchanged at its mid-quarter policy review. The bank’s asset-liability committee (ALCO) is scheduled to meet tomorrow to review lending rates.

“I see some room for cutting lending rates following the cut in the cash reserve ratio (CRR) last week. It is not right for me to pre-decide on behalf of the ALCO. But when we had a 50 basis point CRR cut last time, we passed it to our customers with significant cut in rates of our educational loans. Similarly, we will definitely cut rates (again), but the segments and extent will need a more granular analysis. That will be done by our ALCO,” Pratip Chaudhuri, SBI chairman, said.

The lender, however, is not likely to reduce its base rate, or the benchmark lending rate to which all loan rates are linked. It’ll rather tweak card rates and sacrifice on margins. According to a senior SBI official, the bank would have already cut the rates, but the recent spike in short-term rates deferred the plan. Short-term rates like the three-month certificate of deposit rate are close to three-year high of 12 per cent due to tight liquidity conditions.

The state-run lender had cut interest rates on educational loans by 25-100 basis points at the end of February, a month after the central bank reduced CRR by 50 basis points. Earlier this month, the RBI slashed CRR by another 75 basis points to infuse liquidity in the system.

Though SBI hints at softer lending rates, other banks are still in a wait-and-watch mode. “I don’t foresee lending rates coming down immediately. For that to happen, the resource cost has to come down. Given the current tightness in liquidity conditions, I don’t think there’ll be any cut in rates as of now,” M D Mallya, chairman and managing director of Bank of Baroda, said.

Similar views were echoed by chief executives of several other public and private sector banks. They felt it was too early to reduce interest rates and prefer to keep a status quo on rates till the next monetary policy review on April 17.

“I don’t think it’s possible for us to cut rates immediately. While the CRR cut has definitely provided some relief on the liquidity front, we’ll still wait for some more time before reducing our rates,” said T M Bhasin, chairman and managing director of Indian Bank.

Since the RBI pressed the pause button on the rate hike spree in December, only three banks — Union Bank of India, Bank of Maharashtra and Federal Bank — have reduced their base rates or minimum lending rates. The rate cuts, however, were limited to only 10 basis points.

While most bankers said they were not likely to reduce rates in the near term, industry analysts said if SBI decided to cut its lending rates aggressively, other banks would have no option but to follow suit.

Even Chaudhuri appeared to corroborate this. “If some efficient banks start lowering their base rates, other banks will either have to fall in line or forego the good business,” he said.

However, like most other banks, SBI does not plan to slash its deposit rates anytime soon, as it may lead to flight of funds from the bank to other government savings schemes offering attractive interest rates.

“In India, for almost all banks, 80 per cent of their funding comes from deposits. So, I do not see much room for a deposit rate cut because the government’s savings schemes are offering 8.4 per cent rate and tax-free bonds are available at eight per cent. So, if the bank’s deposit rates go below that, we will lose deposits,” Chaudhuri said.

Source: http://www.business-standard.com/india/news/sbi-may-cut-ratesselect-loans-/467907/

Popularity: 1% [?]

Industry associations have welcomed the Reserve Bank’s cut in banks’ cash reserve ratio rule, but say they want more.

The central bank on Friday announced a 75-basis point cut in the CRR.

The Associated Chambers of Commerce and Industry of India (Assocham) sought another CRR cut, one of 100 basis points, before the monetary policy review next week, saying policy rates should also be slashed in the review on Thursday to stimulate fresh investment.

Assocham secretary-general D S Rawat said the focus should now be on growth momentum. “At least Rs 1 lakh crore is required in the banking system for industrial growth to bounce back to respectable levels.”

The Federation of Indian Chambers of Commerce and Industry (Ficci) said on Friday’s CRR cut was a positive surprise. It expressed hope of another CRR cut in the coming monetary policy review.

Chandrajit Banerjee, director-general, Confederation of Indian Industry, said, “RBI can qualify a policy rate cut by stating there would be no further cut in the next six months, and this which should take care of the speculative aspect associated with such cuts.”

The real estate sector, which has been facing a fund crunch, also welcomed the move and hoped the central bank would cut policy rates by 50 basis points on March 15. R R Singh, director-general, National Real Estate Development Council, said, “As banks will get more liquidity now, I hope this translates into more funds for the real estate sector. Liquidity in the real estate sector would complete held-up and delayed projects.”

Vikas Oberoi, chairman and managing director, Oberoi Realty, said, “Any increase in cash supply is welcome. If expenditure increases, home sales would rise. The government is injecting liquidity to boost growth in the economy.”

Stock market experts were surprised by the move. They were uncertain about whether RBI would cut policy rates next week. V K Sharma, head (private broking & wealth management), HDFC Securities, said, “Ahead of the credit policy next week, the CRR cut has come as a surprise. The stock market would react very positively because the quantum is more than the expected 50 basis points. However, to expect the central bank to cut the repo rate on March 15 would not be appropriate.”

Source:http://businessstandard.com/india/news/industry-seeks-more-cuts-in-crr/467261/

Popularity: 1% [?]

Banks operating in the state continue to struggle in achieving lending target in different key sectors as they have managed to achieve barely 55 per cent of the Annual Credit Plan (ACP) for 2011-12 by December-end.

Latest data released by State Level Bankers’ Committee (SLBC) says of the total ACP of Rs 21,448.42 crore, the overall achievement has been Rs 11,759.08 crore. Total lending to the agriculture sector, one of the key drivers of the state’s economy, has been especially lacklustre at 19 per cent of the target.

While crop loan has been healthy at 64 per cent, agriculture term loans and loans to allied sectors have been disappointing at 33 per cent and 19 per cent respectively. Banks were mandated to lend Rs 10,985.40 crore to the agriculture sector but the actual credit flow stood at Rs 5,710.82 crore by the end of December 2011.

In case of non-farm sectors (NFS), the banks’ achievement has been 62 per cent. Similarly, banks have achieved 57 per cent of the target for other priority sectors.

Scores of PSU lenders have been laggards in meeting total lending targets — Union Bank (23 per cent), Allahabad Bank (31 per cent), Andhra Bank (30 per cent), Central bank of India (10 per cent), Punjab & Sind Bank (15 per cent), State Bank of Bikaner & Jaipur (12 per cent), State Bank of Hyderabad (25 per cent), United Bank of India (33 per cent) and Syndicate Bank (36 per cent).

On the whole, PSU banks have met 57 per cent of the credit flow to all sectors till the end of December.

Among the private sector banks, ING Vysya Bank has been a poor performer, being able to meet only four per cent of the target.

District wise review of the performance of all banks reveals that Angul, Bhadrak, Cuttack, Dhenkanal, Gajapati, Malkangiri, Nayagarh, Nabarangpur, Nuapada, Rayagada, Sonepur and Sundergarh districts have achieved more than 50 per cent of the target. The performance under ACP has been the worse in Malkangiri district at 26 per cent followed by Gajapati at 37 per cent.

Agriculture advances stood at 27.46 per cent of the total advances. Likewise, MSME (micro, small and medium enterprises) advances at Rs 14,012.07 crore were at 20.17 per cent of the overall advances.

Banks have generated total business of Rs 2,04,012.45 crore including deposits of Rs 1,17,571.46 crore and advances worth Rs 86,440.99 crore. Priority sector advances at Rs 38,712.78 crore stood at 55.73 per cent of total advances.

Source: http://businessstandard.com/india/news/banks-faltercredit-flow-to-agri-sector/467473/

Popularity: 1% [?]

As concerns over slowdown in growth deepen and inflation numbers provide some relief, market analysts believe the time is ripe for the Reserve Bank of India (RBI) to reverse its stance from anti-inflationary to pro-growth, by starting to reduce interest rates from March 15, when the central bank announces its mid-quarter policy review.

High crude oil prices, which the central bank perceives as a risk to inflation, may limit the extent of rate cut to 25 basis points rather than 50 bps, economists said.

“We expect the RBI to announce a cut in the repo rate at its mid-quarter review, to accommodate for the impact of a rise in real effective lending rates on overall economic activity. This will help in providing a conducive environment for revival in capex sentiment and overall growth,” said Shubhada Rao, chief economist, YES Bank. The repo rate is presently at 8.5 per cent, while inflation numbers for January dropped to 6.55 per cent from 7.47 per cent in the previous month.

Headline inflation numbers for January came within the projected trajectory of the central bank for the first time in nearly two years, with core inflation showing substantial moderation, though mainly due to a high base. GDP growth, on the other hand, slipped to an 11-quarter low at 6.1 per cent for the third quarter, with investments registering a consecutive two quarters of declining growth.

YES Bank, earlier expecting a 50 bps cut in the March policy, now expects a 25 bps reduction following a sharp increase in oil prices since January, which will have the potential to stoke inflationary pressure. The February inflation numbers will be announced a day before the policy and would weigh on the central bank’s mind while making a decision, experts said.

“There is a chance that RBI will reduce the repo rate by 25 bps on March 15. In the inflation numbers for February, which will be announced on 14th, if core inflation moves in a favourable direction, then that increases the chance of a rate cut. Even if the headline numbers stay higher than the previous month, core inflation may come down,” said A Prasanna, chief economist, ICICI Securities Primary Dealership.

Analysts also said if the growth agenda needed to be pushed through a lower lending rate, then the repo rate becomes the more effective tool for monetary transmission in a falling interest scenario, unlike a rising interest rate scenario when the Cash Reserve Ratio (CRR, the proportion of deposits banks must keep with RBI) becomes more effective, as it sucks out liquidity from the system. Despite CRR being reduced by 125 bps since January, banks are yet to cut their lending rates significantly. Bankers said these would only come down if the central bank reversed its policy stance.

A cut in CRR releases funds for banks, which could be used to earn interest. Since banks do not earn any interest on CRR, a cut in the ratio is margin-accretive for banks but they may not pass the benefit on to the customers, as the cost of money is still high.

“RBI, in all likelihood, will try to make sure liquidity is available in the system, which will lead to rate cuts,” said Deven Choksey, managing director at KR Choksey Shares and Securities. Stock market participants are now expecting another 25 bps cut in the CRR and repo rate.

However, the issues that will weigh on the central bank’s mind are crude oil prices, which are trading around $125 per barrel (Brent crude) and increase in freight rates. Both have the potential to trigger inflation.

According to Samiran Chakraborty, chief economist with Standard Chartered Bank, the central bank may not cut the repo rate until inflation shows a sustained fall. In addition, with RBI perceiving oil prices as a risk, the first rate cut may have to wait till the April policy review.

“We expect no change in the repo rate, currently at 8.5 per cent, when RBI meets on March 15. Though inflation was 6.55 per cent in January 2012 from 7.47 per cent previously, the deputy governor recently flagged high oil prices as a risk. RBI is likely to wait for a sustained fall in inflation before it reduces the repo rate,” said a StanChart note.

There is a view that since the effect of monetary policy comes with a lag, and it is certain the rate reversal cycle would start soon enough, then there is no need to wait for April.

“We know monetary policy acts with a lag. So, if you want to cut rates in April, then why not in March? The delay could be averted,” said Prasanna of ICICI Securities.

Source:http://businessstandard.com/india/news/rate-cut-buzz-to-boost-growth-gains-momentum/467406/

Popularity: 1% [?]

Reserve Bank of India (RBI) governor D Subbarao on Friday said the minimum statutory liquidity ratio (SLR) requirement should be reduced, as it led to high government debt holdings by Indian banks.

According to an RBI mandate, all banks should maintain at least 24 per cent of net demand and time liabilities (NDTL) of government securities as SLR.

Subbarao said the 24 per cent level was considered “high” by some. “Going forward, it needs to be reduced,” he said, adding there were preconditions to be met with before reducing SLR. He, however, did not specify these.

Additional securities can be used by banks to borrow funds from RBI under the Liquidity Adjustment Facility. Banks can also tap the marginal standing facility to borrow funds up to one per cent of NDTL at a penal rate if bond holdings fall below 24 per cent. Keeping the tight liquidity conditions in mind, RBI had last month relaxed the norm and allowed banks to use the additional window to borrow funds in exchange of excess securities.

Subbarao said the SLR mandate was one of the two reasons why Indian banks’ government debt holding was high. The other was the country’s high fiscal deficit.

Government borrowing through the sale of dated securities was twice scaled up so far this financial year. The government is now expected to borrow Rs 5.1 lakh crore, against Rs 4.17 lakh crore budgeted for 2011-12.

The RBI governor said infrastructure lending and financial inclusion were the major challenges faced by the Indian banking sector.

Source: http://businessstandard.com/india/news/slr-should-be-reduced-inlong-term-subbarao/467260/

Popularity: 1% [?]

The lack of pension and unit-linked insurance products (Ulips) continues to take a toll on the life insurance industry, particularly on private players. The number of policies issued by these players has declined 29 per cent so far this financial year. Consequently, the busy season notwithstanding, premium collection by the life insurance industry declined in the April-January period.

During this period, the industry collected Rs 81,496.68 crore by writing new policies, down 14.21 per cent from Rs 95,000 crore collected in the same period a year earlier.

The number of policies issued by Life Insurance Corporation (LIC) of India, the largest life insurer, also fell five per cent in the same period. As a result, the company’s first-year premium collection declined nearly 12 per cent to Rs 59,145.36 crore, compared with Rs 67,135.31 crore in the corresponding period of the previous financial year.

According to data collected by the Insurance Regulatory and Development Authority (Irda), so far this financial year, the life insurance industry sold 31.15 million policies, a fall of 11.12 per cent from the 35.05 million policies sold in the year-ago period. For private players, the number of policies issued declined from 8.84 million to 6.27 million. “There is a dearth of new plans in the market, be it pension plans or Ulips. Hence, sales are down,” said an official of a life insurance company.

K Sahay, chief executive, Star Union Dai-ichi Life, one of the few companies to record premium growth, said, “With the commissions on unit-linked plans coming down, many agents have left the industry. This has impacted the sales of private life insurance companies.” This financial year, the company recorded a 52 per cent rise in first year-premium collection, which stood at Rs 674.17 crore.

During the April-January period, premium collection by private life insurance companies fell almost 20 per cent to Rs 22,351.32 crore.

General insurers grow 24%
The general insurance industry’s gross written premium grew 24.13 per cent so far this financial year, compared to the year-ago period.

According to data collected by insurers, the general insurance industry collected premiums worth Rs 47,215.29 crore by writing new policies during the April-January period, compared with Rs 38,036.26 crore in the corresponding period of the previous year.

While private insurers recorded growth of 25.74 per cent at Rs 19,839.39 crore, collection by the four state-owned general insurance companies rose 23 per cent to Rs 27,375.90 crore.

Source:http://businessstandard.com/india/news/pvt-life-insurers/-policy-issuances-dip-29-since-apr/466444/

Popularity: 1% [?]

 The Reserve Bank of India (RBI) on Thursday indicated it would prescribe higher capital adequacy norms than those proposed under the Basel III framework. This would help sustain the advantage of healthy financial profiles that Indian banks currently enjoy.

At the Risk and Compliance Summit on Thursday, Deepak Singhal, chief general manager, RBI, said, “A requirement of one per cent above the floor set under Basel III would not impact Indian banks. RBI would not like our banks to be seen as laggards.” The central bank, in its draft guidelines issued in December, had proposed that the common equity Tier-I capital should be at least 5.5 per cent of risk weighted assets (RWAs). Basel III norms prescribe minimum common equity of 4.5 per cent.

RBI has proposed Tier-I capital of at least seven per cent and said the total capital be kept at least nine per cent. It has also proposed a capital conservation buffer in the form of common equity of 2.5 per cent of RWAs.

According to RBI, Indian banks would not have a problem in adjusting to the new capital rules, both in terms of the quantum as well as the quality. Quick estimates suggest the capital adequacy of Indian banks under Basel III norms would be 11.7 per cent, compared with the required capital to risk (weighed) asset ratio of 10.5 per cent under the Basel III norms.

Singhal said many developed and emerging countries had stringent norms to maintain a higher capital base. In Sweden, banks have to maintain a capital adequacy ratio (CAR) of at least 15 per cent, while in Argentina, banks can pay dividend only when the CAR is 18 per cent or more.

Rating agency ICRA said public sector banks’ median capital adequacy levels declined from 13.4 per cent on March 31, 2011, to 12.1 per cent on December 31. Tier-I capital of these banks fell from 8.7 per cent to 8.3 per cent in the same period. The capital adequacy ratios of all large private banks remain comfortable. Their median capital adequacy stood at 16.3 per cent, while the Tier-I capital was 11.2 per cent in December.

Source:http://businessstandard.com/india/news/rbi-for-more-tier-i-capital-adequacy-than-basel-iii-norms/466455/

Popularity: 1% [?]