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Wednesday, June 23, 2010

PMO rejects FinMin proposal on bank chief appointments

The Prime Minister’s Office (PMO) has turned down a finance ministry proposal to allow bankers with less than two years of residual service to be appointed as public sector bank chiefs.

The move will affect several candidates in race for top posts of banks
Sources close to the development said PMO was against dilution of appointment norms, which have been in place for several years and have coincided with the re-emergence of public sector banks as strong players in the banking space.

The sources said a term of less than two years did not give individuals time to implement their decisions properly.

Following the feedback from South Block, the finance ministry has prepared a fresh set of names and sent them to the Appointments Committee of Cabinet (ACC).

PMO’s objections come at a time when some lawmakers have written to Finance Minister Pranab Mukherjee expressing concerns over the proposal to allow executive directors with 18 months of residual service to be considered for appointment as bank chiefs. The members of Parliament said the decision was taken unilaterally by the finance ministry and ACC’s approval was not taken.

They said since 2007, the government had followed ad-hocism in appointment of bank chiefs and not followed a uniform set of rules. For the interviews conducted in February, the government kept changing norms, so much so that some candidates from State Bank of India, who were called for the meeting, were dropped at the last moment.

Interestingly, because of this intervention by PMO, a long tradition of appointment of chairmen of government banks has been broken. Traditionally, appointments at large banks are done through lateral movement, that is, the chairman of a smaller bank takes charge of a big bank. However, for Canara Bank’s top job, the government has decided to promote an existing executive director because present chairmen of smaller banks do not meet the two criterions, that is, two years of residual service and one-year experience as chairman of a smaller bank.

Union Bank’s S Raman is scheduled to take charge of Canara Bank when the present chief, A C Mahajan, retires in July. For six large banks, Punjab National, Bank of Baroda, Canara Bank, Bank of India, Union Bank of India and Central Bank of India, the system of lateral movement has been followed.

The sources said the finance ministry sought consent from eight candidates for appointment in as many number of banks where top positions would be vacant till February next year.

Apart from Canara Bank, the government has sought consent from candidates for appointment as chiefs of Corporation Bank, Andhra Bank, Indian Overseas Bank, Uco Bank, Oriental Bank of Commerce, Bank of Maharashtra and Vijaya Bank. Except for Vijaya Bank, where the post will be vacant in February, the top posts in seven other banks will be vacated in 2010.

The government has also sought consent from 11 general managers for the position of executive directors in nine banks
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PSBs to get new chiefs soon, plan set into motion

The government is set to appoint a slew of public sector bank chiefs and in the fray are executive directors (ED) of various state-owned banks. A communication to this effect was sent by the Centre late on Tuesday evening.

A number of EDs have given their consents to the government for their promotions to the top posts of few PSBs RM Malla, who is currently serving as chairman and managing director (CMD) of SIDBI, will succeed IDBI Bank CMD Yogesh Agarwal, who has been appointed as the chairman of PFRDA from next month.

Similarly, Uco Bank CMD SK Goel is likely to head India Infrastructure Finance Company and Corporation Bank CMD JM Garg is likely to get berth in chief vigilance commission(CVC). Meanwhile, Union Bank executive director S Raman has given his consent to take charge as the CMD of Canara Bank. Normally, the CMD of top six PSBs are chosen from among the CMDs of comparatively smaller PSBs on the basis of lateral transfer.

Some of the other executive directors that have given their consent for chairman and managing director’s post include Ramnath Pradeep of Central Bank of India for Corporation Bank, M Narendra of Bank of India for Indian Overseas Bank, Arun Kaul of Central Bank of India for Uco Bank, AS Bhattacharya of Indian Bank for Andhra Bank, R Ramachandra of Syndicate Bank for Bank of Maharashtra, Nagesh Pydah of Punjab National Bank for Oriental Bank of Commerce and HSU Kamath of Canara Bank for Vijaya Bank.

However, the ministry of finance is to yet to find out a person who would be replacing GS Vedi, CMD of Punjab Sind Bank who will be retiring in June.

On a similar footing, quite a few general managers serving at various PSBs have also given their consent for becoming the executive directors of the public sector banks. The list of general manager include Archana Bhargav of PNB for Canara Bank, VR Iyyer of Union Bank for Central Bank of India and N Badrinarayan of Bank of Baroda for Uco Bank. Anil Bansal of Union Bank is the only candidate whose clearance from RBI for is still being awaited to promote him as executive director.
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Licensing regulations relaxed: banks gear for expansion

RBI has allowed banks to set up branches in Tier III to VI cities without prior approval from the apex bank. With this relaxation hitting the banking platform, banks have doubled their plans of expansion.

RBI had permitted scheduled commercial banks in December 2009 that they can open up branches in Tier III to VI cities without prior permission. This has resulted in doubling of number of branches opened by banks this year in comparison to last year.

PNB plans to come up with 550 branches in the country. According to CMD, K.R. Kamath, the bank does not require license for 440 branches as they are located in areas having population less than 50,000.

SBI is also on expansion spree. The bank has spent about Rs. 100 crore to open 286 branches and 2,521 ATMs in the country in the last quarter of the fiscal that ended on March 2010.

According to an executive, IDBI Bank has been planning to open around 300 branches in the country this year which is a great rise against what the bank had done last year.

UCO Bank has plans to open 140 branches this year. The bank would however need licenses for only 89 branches. According to CMD, SK Goel, the bank has plans to increase its market share to atleast 3% as compared to the current figure of 2.6%.
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PSU banks target personal loans to boost margins

Banks such as Allahabad Bank, Uco Bank, Union Bank of India and United Bank of India have prepared plans on how to sell personal loan products to the retail client.

The retail loan portion of these banks is far below the industry average and so they have to catch up. The retail loan share of these banks is mere 12-14% as against the industry average of 20-22%. These banks along with others had halted their personal loan segment due to fright of default after the financial slowdown.

JP Dua, chairman and MD of Allahabad Bank said, “Personal loan gives a better spread as well as it helps in building relationship”. The present retail loan share of the bank is 13.92% which it plans to raise to 22% over the next 3 years.

United Bank of India chief Bhaskar Sen said the home and car loan share would increase due to the rising purchasing power of the middle class customer.

He said, “The housing segment will continue to give banks businesses many more years. In the car loan segment, demand is seen especially in the small car category”.

Uco Bank chairman and MD SK Goel said: “We have identified 200 branches across the country to push retail loan products as our share of retail loan business is comparatively low.”

Bank of Baroda executive director RK Bakshi said “A higher share of retail loan is important for credit diversification. It’s a stable business and it improves relationship with customers”.
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UCO follow-on offer likely by mid-June'

Public sector lender UCO Bank is hoping to come out with its follow-on
offer (FPO) by the middle of next month. The bank hopes to raise around
Rs 500 crore by issuing six crore equity shares.

“We hope to come out with the FPO by mid-June,” said Chairman and
Managing Director SK Goel.

The FPO is expected to bring down the government shareholding from
63.59 per cent to 58.60 per cent. Earlier, the bank was also mulling to
raise funds through qualified institutional placement (QIP), but
ultimately shelved the proposal.
“In general, the government prefers FPO, as the shareholding is
broadbased. In QIP, the shares are concentrated in few hands. However,
the cost is much less in QIP,” Goel had earlier said.

As part of capital restructuring in March 2009, the bank had received
Rs 450 crore, out of the proposed Rs 1,200 crore.

In December 2008, the bank restructured its equity capital by
converting Rs 250 crore out of the total equity capital of Rs 799.36
crore into perpetual non-cumulative preference shares.

The capital restructuring led to the government stake coming down from
74.98 per cent to 63.59 per cent.

Also, it has sought Rs 1,500 crore from the government in the current
financial year. The capital adequacy ratio of the bank stood at 13.21
per cent in the last quarter, against 11.93 per cent in the same period
last year.

The bank has set a credit growth target of 20 per cent this financial
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Issue of Rs.20/- denomination banknotes with `R' Inset letter

Issue of Rs.20/- denomination banknotes with `R' Inset letter in both
numbering panels in Mahatma Gandhi Series – 2005 bearing the signature of
Dr. D. Subbarao, Governor
The Reserve Bank of India will shortly issue Rs.20/- denomination
banknotes with `R' inset letter in both numbering panels in Mahatma
Gandhi Series – 2005 bearing the signature of Dr. D. Subbarao, Governor.
Except for the change in the inset letter, the design of these notes to
be issued now is similar in all respects to the banknotes in Mahatma
Gandhi Series – 2005, with additional / new security features issued on
August 16, 2006. All banknotes in the denomination of Rs.20/- issued by
the Bank in the past will continue to be legal tender.
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Public Provident Fund (PPF) A PPF account can be opened at anytime during the year in a Post Office, or in SBI & its associates or in other selected nationalized banks. It is safe to invest in the instrument, as it is government-backed. It can be held by single, joint, minor with parent/guardian and HUF Min Amount : Rs. 500/- per annum, and thereafter in multiples of Rs 5/-

Max Amount :Rs. 70,000/-

The PPF account matures after 15 years. Tax benefit: Rebate under section 80C for the amount invested. Interest accrued is Tax-free. Interest 8.0% p.a. (compounded annually) is credited to the PPF account at the end of each financial year.
Nomination is allowed at the time of opening the account or even later on during the tenor of the account.

Loan facility is also available, but the first loan canbe taken in the third financial year from the date of opening of the account, and only up to 25% of the amount at credit at the end of the first financial year.

Withdrawals are permitted every year from the seventh financial year of the date of opening of the account, of an amount not exceeding 50% of the balance at the end of the 4th proceeding year or the year immediately proceeding the year of the withdrawal, whichever is lower, less the amount of loan if any.

This is one of the most popular schemes of tax savings as the interest received is tax free.

National Savings Certificate (NSC) NSCs can be purchased through out the year by individuals either in single, joint, minor with parent/guardian, HUFs. from Post offices.
Tax benefit: Rebate under section 80C. Interest accrued for any year is taxable but can be treated as fresh investment in NSC for that year and tax benefits can be claimed

The NSCs have a maturity period of 6 years. Interest rate - 8%
Min Amount Rs. 100/- and additional investment in multiples of Rs. 100/-

Max Amount : No Limit

One can avail of a loan against the certificates by pledging it to the bank. The certificate can be encashed from the issuing post office on the due date by simply discharging the certificates at the back. It is safe to invest in this instrument, as it is government-backed. It is useful for people who invest to save tax.
If encashed prematurely, within a year of issue, then only the face value is given. If encashed after a year but before 3 years, then simple interest on the face value, at the rate applicable from time to time, will be paid. The discount rate (The difference between the accrued interest and the simple interest is the discount rate) will be specified by the government from time to time.

Kisan Vikas Patra (KVP) Kisan Vikas Patra (KVP) doubles money in eight years and seven months. This Scheme is available all through the year. This scheme it open to single, joint, minor with parent/guardian. Nomination facility is available at the time of opening the account or anytime during the tenure of the investment. No Tax benefits available Interest rate - 8% Min Amount : Rs. 100/- and additional investment in multiples of Rs. 100/-.
Max Amount : No Limit

This is a good investment instrument for retired persons and for those who do not have taxable income. The certifiates can be encahsed by discharging on certificates and providing proper identity If the certificate is lost due to theft, fire or the certificate is mutilated, a duplicate certificate is issued after proper verification. No Tax benefits are available for investments in this scheme under theIncome Tax Act

Infrastructure bonds Infrastructure bonds can be purchased only when the same have been floated by the specified financial institutions. These Bonds provide tax-saving benefits under Section 80C of the Income Tax Act, 1961, up to an investment of Rs.1,00,000.
Safety: Purely depends on the credit rating of the bank or financial institution issuing the bond

Interest rate usually ranges between : 5.50% to 6%
The Maximum investment limit is Rs 100000

Liquidity: Lock-in for three years
Tax benefit: Rebate under section 80C.

However, with low rate of interest and flexibility of investing in any type of instruments since 2005-06, these Bonds are no longer popular.

Equity-Linked Saving Schemes (ELSS) Equity linked savings scheme (ELSS) are equity funds floated by mutual funds. This scheme is suited for young people as they have the ability to take on higher risk. The ELSS funds should invest more than 80 per cent of their money in equity and related instruments. It is ideal to invest in them when the markets are down. These funds are now open all the year round. The other way of investing in these funds could be a systematic investment, which essentially means investing a small sum regularly (monthly or quarterly). It is a market-linked security and therefore there will be risks accordingly. The Maximum investment limit is Rs 10000.
Liquidity: Lock-in for three years

Tax benefit: Rebate under section 80C
Long-term capital gains tax are exempt from tax.

Insurance policies There are a range of life insurance products to choose from, such as term life insurance, whole life insurance, variable life insurance, universal life insurance, and variable universal life insurance. Annuities are tax-deferred investments that guarantee you regular payments at some future time, usually retirement. It is a market-linked security. Interest rate: Depends on returns of the funds
The Maximum investment limit is Rs 70000

Liquidity - Minimum lock-in of 2 years for participatory policies and 5 years for unit-linked

Tax benefit: Rebate under section 80C
Interest or returns are not taxable

Pension policies Pension plans apart from playing a significant role in retirement planning, also offer tax benefits under a dedicated section i.e. Section 80C. Premiums paid for the same are eligible for deduction. It is a market-linked security. Interest rate - Depends on returns of the funds.
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Some Help About Section 80C of IT ACT

What to Check before investing for Section 80C
How to Make Best Use of Section 80C

Most of the Income Tax payee try to save tax by saving under Section
80C of the Income Tax Act. However, it is important to know the
Section in toto so that one can make best use of the options available
for exemption under income tax Act. One important point to note here
is that one can not only save tax by undertaking the specified
investments, but some expenditure which you normally incur can also
give you the tax exemptions. Here are some tips for you : -


(A) Home Loan :

There is a provision that the payment made for repayment of the
principal amount (not interest payment) of the Home Loan is eligible
for a deduction under Section 80C if you have taken a home loan and you
fulfill certain conditions.

(B) Payment towards Education Fee of the children :

Most of the young couples and middle aged income tax payee incur quite
high payments towards the education fees of their children. The
expenditure incurred on education fees is also eligible for a
deduction under Income Tax Act, Thus, if you are incurring
expnediture towards educatin fee of your children, please check whether
these are eligible for deduction under the IT Act.

(C) Payment towards Provident Fund :

Salaried income tax payee are usually have a forced saving which are
eligible for deduction under section 80C. A fixed percentage of
basic salary (ranges from 8.33% 12%) is deducted by your employer
towards the Employees Provident Fund (EPF). Some employers allow
higher deduction towards EPF. Thus, you should first of all check the
total amount that is expected to be deducted towards EPF during the
financial year. The total amount deducted from your salary will be
eligible for investments under Section 80C.

(D) Interest on National Saving Certificates :

In case you have purchased NSCs during some earlier years, then the
accrued interest as per the tables released by authorities is eligible
for deductions under Section 80C.

(2) Always Check the Lock-In Period of the Investments

Tax saving investments have a minimum lock-in period i.e. the period
during which withdrawals are usually not allowed. If the same are
withdrawn, these will be taxable in the year of withdrawal. For
example, National Savings Certificates (NSC) have a lock-in period of
six years, Public Provident Fund (PPF) has a lock-in of 15 years,
Equity Linked Saving Schemes (ELSS) have a lock-in period of three
years. Insurance policies have even greater period of lock in.

(3) Always Check Whether the investment you intend to make will meet
your goals :

You are saving every year and while saving you normally have some goal
in mind, e.g. to meet the expenditure on education of children,
purchase of a vehicle or house or marriage of your children.
Therefore, you should always look at the investments from the angle
whether it will meet your specific requirements on maturity. You should
also try to diversify your savings in different instruments.

For instance, if you have already invested a fair portion of your money
in equity (shares and mutual funds that invest in shares), avoid an
ELSS. Opting for an ELSS means a huge portion of your investments will
be in equity and that may not be what you want.
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PSBs score over pvt peers in interest income growth

Public sector banks' (PSBs) growth in net interest income (NII) vis-à-vis private banks has been higher during the fourth quarter ending March 2010 as compared with the corresponding period of the previous year, according to a study of 24 PSBs and 12 private banks.Despite higher NII, net profit of the PSBs declined 4.8% during the quarter. However, the fee-based income growth of PSBs, at 14.2%, was marginally higher than that of their private peers, at 14%.The fee-based income of the PSBs increased to Rs 46,460 crore from Rs 40,690 crore.When compared to January-March 2009, NII of the PSBs rose 37.8%, where as private banks registered a 20% increase in their NII. An analyst from the market said, "Healthy credit offtake in non-food credit helped the PSBs to increase the net interest income significantly during the fourth quarter."Among the PSBs, Oriental Bank of Commerce has seen significant increase in NII to Rs 989 crore against Rs 460 crore. "The bank's profit has come out of core operation," said the bank's chairman TY Prabhu. While interest income of the bank rose 14.4% during January-March 2010, total interest expended dropped 10.2% during the same period.However, the highest NII margin was recorded by SBI, at Rs 6,721 crore, among the PSBs, followed by PNB (Rs 2,498 crore) and Bank of Baroda (Rs 1,745 crore), Uco Bank's (Rs 744 crore), Andhra Bank (Rs 656 crore).The rise in NII of private sector banks was comparatively lower during the same period. Among the 12 private sector banks, four banks-IndusInd Bank, Dhanlaxmi Bank, ING Vysya Bank and YES Bank-showed more than 50% increase in NII during the fourth quarter.HDFC Bank had the highest NII of Rs 2,351 crore during the period, followed by ICICI Bank and Axis Bank (Rs 1,460 crore). However, NII of ICICI Bank fell marginally by 4.9% from Rs 2,139 crore to Rs 2,035 crore.
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4 banks to get Rs 1,500-cr fund infusion soon

Four state-run banks -Vijaya Bank, Central Bank of India, UCO Bank and United Bank of India- are likely to get Rs 1,500 crore as part of their recapitalisation package soon, according to sources. The fund infusion will enable these banks to maintain comfortable level of capital to risk-weighted asset ratio for supporting credit requirement of the productive sectors. Of the total, Vijaya Bank will get Rs 700 crore, UCO Bank Rs 300 crore, Central Bank and United Bank of India Rs 250 crore each, sources said, adding the government has already made a provision for subscription to tier-I instrument for capitalisation of these bank in the budget. During the past fiscal, the government had provided Rs 1,200-crore capital support to Central Bank of India, UCO Bank and United Bank of India to meet their capital requirement. UCO Bank and Central Bank of India got Rs 450 crore each while United Bank of India, which recently got listed, received a financial assistance of Rs 300 crore. The government plans to provide financial support of Rs 15,000 crore to the public sector banks during the current fiscal. The Cabinet has already approved capital infusion plan that will increase the lending capacity of the banks by Rs 1.85 lakh crore. The exact amount, the mode of capitalisation and other terms would be decided in consultation with the banks at the time of infusion. The Rs 15,000-crore fund infusion for tier I capital instruments of PSBs would enable them to expand their credit growth by about Rs 1,85,000 crore. This additional availability of credit is likely to benefit employment oriented sectors, especially agriculture, micro and small enterprises and entrepreneurs.
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RBI to decide 'Indian-ness' of banks now

The Reserve Bank of India will decide on the ‘Indian-ness’ of the country’s leading private sector banks as the government deliberates a solution for them without relaxing the provisions of the new foreign direct invesment policy. After over a year of discussions, the government has finally asked the central bank to suggest a framework for deciding on the ownership and control of such banks. The new norms will be based on parameters such as voting rights and the power to appoint directors, a senior government official said. “We need to recognize that the structure of each bank is different and accordingly redefine the concept of ownership and control for the banking sector,” he said. The move will give reprieve to seven private sector lenders including ICICI Bank, HDFC Bank, ING Vysya, Development Credit Bank, Federal Bank, IndusInd Bank and YES Bank that have been branded as foreign banks under the current norms. The long-standing issue, with its roots in Press Note 2 of 2009, was discussed at a recent meeting of the finance ministry, department of industrial policy and promotion and the RBI. Press Note 2 provides for a framework for calculation of total foreign investment in Indian companies, which is based on ownership and control of such firms. It has stated that all types of overseas ownership will be counted as foreign investment. Further, any company with over 50% overseas investment would be considered foreign owned. It defines control as the power to appoint majority of directors on the board of a company. More importantly, all downstream investments by a foreign-owned company would be considered as foreign investment and be subject to sectoral caps and restrictions. After these norms had come out, the banks had taken up the issue with the RBI and had sought clarifications on their exact status and investments. The central bank too had written to the finance ministry and pointed out that ownership and control may not be limited to just equity holding and power to appoint directors. Analysts welcomed the move but have cautioned that it would have to be carefully thought out. There is no straight jacketed approach. The formula would have to be based after a careful review of the interplay of voting rights and economic ownership of banks,” said Nimai Vijay, associate director, PricewaterhouseCoopers.
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