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Saturday, March 5, 2011

Infra debt funds set to get tax sops

The proposed debt funds for infrastructure would be in the form of venture capital (VC) or private equity (PE) funds and would qualify for special tax incentives. These funds, to which foreign investors are expected to subscribe to, would also be given exemptions from Sebi regulations for foreign VC funds and also the RBI rules on external commercial borrowings (ECBs), official sources said.

When contacted, department of economic affairs secretary, R Gopalan, said the detailed criteria for these funds, which are expected to play a major role in bridging the country’s infrastructure deficit, would be notified within a month. He, however, refused to give further details.

In normal course, creation of such debt funds are required to meet the relevant Sebi norms for foreign venture funds, RBI rules on external commercial borrowings. The special dispensation is being mulled with a view to providing regulatory leeway to the proposed funds, the sources added.

Finance minister Pranab Mukherjee proposed setting up of dedicated infra debt funds in order to catalyse the flow of foreign funds to India’s infrastructure sectors, which need long-term, low-cost funds. The country faces a 30% gap in its infrastructure funding requirement—set at R41 lakh crore in the twelfth five year plan (2012-17).

As for the tax incentives, the government has already incorporated the changes that will be needed to float these funds in the Finance Bill, 2011 itself. According to budget papers, Section 10 of the Income Tax Act is being amended to provide enabling power to the Central government to notify an infrastructure debt fund. The income of such fund would be exempt from tax, but it would require to file a return of income.

Section 115A will also be amended to provide that any interest received by non-resident from such a fund is taxed only at 5%. These amendments are proposed to take effect from June 1, 2011. The lower withholding tax of 5% is aimed at attracting overseas investors.

Sources added that a policy decision has been taken to give the special regulatory benefits to the proposed infrastructure debt funds without having to amend existing rules. “When Planning Commission came out with the idea of such a Fund, they said certain exemptions should be given to it from the Sebi regulations as a special dispensation. We thought it would look odd if exemption is given to one particular fund. So a general framework is being worked out so that all such funds can enjoy these benefits,” the sources said.

Planning Commission had originally proposed a $11 billion India Infrastructure Debt Fund.

Source: Financial Express
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Oriental Bank raises FD rates on two maturities

PSU lender Oriental Bank of Commerce (OBC) raised fixed deposit rates up to 50 basis points on two select maturities.

Fixed deposit rates for maturity between one year to 499 days and that of 501 days to two years have been raised from 8.50 per cent to 9 per cent.

The 9 per cent interest rate will be applicable to both, term deposits of less than Rs. 15 lakh and that between Rs. 15 lakh to Rs. 1 crore, OBC said in a statement.

However, the rates on term deposits above Rs. 1 crore for the same period have been kept same, it added.

The new rates would be effective from March 7, 2011.

Source: Financial Express
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Canara Bank raises $350 mn via bonds

Public-sector lender Canara Bank said it has raised USD 350 million (about Rs. 1,575 crore) through issuance of bonds.

"The Bank has raised USD 350 million through issue of senior unsecured bonds under medium-term note (MTN) programme through its London Branch," Canara Bank said in a filing to the Bombay Stock Exchange (BSE).

The interest rate for the bond is 5.125 per cent per annum and is for a period of 5.5 years, it said.

It further said the bonds are listed on the Singapore Stock Exchange.

Shares of Canara Bank ended at Rs. 610.30 on the BSE, down 1.36 per cent from its previous close.

Source: Financial Express
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Indian Bank to add 100 branches, come with IPO

Press Trust of India / Kochi March 4, 2011, 17:56 IST

Public-sector lender Indian Bank today said it aims to expand its branch strength by adding 100 branches across the country by next financial year.

Of this 25-30 branches would be in Kerala, bank's Executive Director Rajeev Rishi told reporters here.

Currently, Indian Bank has over 1,800 branches in India and three overseas -- Singapore, Colombo and Jaffna. Within the three years, it plans to increase its branch strength to 2,500, total employees to 25,000, business to Rs 5 lakh crore and net profit to Rs 2,500 crore, he said.
The bank also plans to enter the capital market through IPO route by next fiscal, he said, adding they have already written to the government and the RBI.

The bank's focus would be on the rural population, particularly those in remote villages and unbanked areas, he said.

Under the Financial Inclusion project, the bank would be covering about 20,000 villages within the next two years, he said, adding in Kerala, it has already brought Kollam district under complete financial inclusion.

Kerala has been bifurcated into two zones Ernakulam and Thiruvananthapuram. Ernakulam zone has 50 branches and 30 ATMs. The bank will be opening two more branches at Manjeri and Koyilandy before this fiscal-end, he added.

Source: Business Standard
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Banks' borrowing from RBI to soar in mid-March

Reuters / Mumbai March 04, 2011, 16:37 IST

Banks' woes over tight liquidity conditions will mount in the middle of March during advance tax outflows, which could push up the call rate and also borrowing from the central bank's daily repo window.

Dealers expect banks to borrow more than Rs 1.25 lakh crore a day from the central bank compared with an average daily borrowing of Rs 74,000 crore daily so far this month.

"Borrowing from the Reserve Bank of India (RBI) could touch a peak of Rs 1.5 lakh crore during mid-March and the inter-bank cash rate will be around 7.5%," said Manish Wadhawan, director and head of rates trading at HSBC India.
The call money rate, which is the overnight borrowing and lending rate of banks, may not breach 7.5%, which should be a comfort to the central bank given that banks can meet their funds requirement from the RBI's repo window.

Cash tightness in the banking system has been acute since November following inadequate government spending after the windfall collection from telecom spectrum, and public withdrawal of money from banks.

From November through January, banks borrowed an average around Rs 85,000 crore a day from the RBI's repo window, touching over Rs 1 lakh crore even in February.

Dealers estimate the advance tax outflows to be around Rs 50,000-60,000 crore, which could take the average liquidity deficit to around Rs 1.5 lakh crore.

Liquidity-driven short-term rates have been edging up with the three-month CD rates at 10.10% while the one-year was at 10.20% on Thursday.

Short-end rates on certificates of deposits are expected to inch up faster compared with the long-end in March, leading to an inversion in the CD curve, a phenomenon not seen since October 2008, when the global recession was at its height.

Expectations of at least a 25-basis-point rate hike at the March 17 central bank policy review, to contain inflation pressure, is also adding to upward pressure on short-term rates, bankers added.

Besides the existing cash crunch, a pick-up in credit growth for banks will also keep the demand for funds high.

Banks' loan growth has been a robust 23.9% on year to February compared to the RBI's projection of 20% for FY11.

"Repo borrowings should go up also because we expect that the credit growth will pick up. There has been good incremental credit growth. So going forward if it becomes stronger as expected, the repo borrowing will also go up," an official from a state-run bank said.

However, dealers expect the cash crunch to ease by March-end and liquidity deficit to come down to around Rs 40,000 crore on government spending.

The RBI has said it aims to maintain liquidity in the range of positive Rs 50,000 crore to negative Rs 50,000 crore and therefore should be comfortable with cash conditions March-end.

"Post the advance tax, for a short while the call rates may go up to 7% but that will be only a temporary aberration for about a week's time," said RVS Sridhar, president and head of markets of treasury at Axis Bank.


While many banks may be genuinely borrowing from RBI to meet liquidity mismatches, some may try to make hay while the sun shines.

These banks usually during such cash crunch conditions, use their excess government bond holdings, otherwise known as statutory liquidity ratio or SLR, to borrow funds from RBI at the repo rate which is 6.5% now, and lend in the uncollateralised call market at 7.25-7.50%, thereby making a plum arbitrage gain.

"This is nothing new and always happens with mostly public sector banks who run high SLR during advance tax payments," said a foreign bank dealer.

Some dealers also expect cash rate to remain near 7.50% on March 31 despite improved liquidity, as typically banks prefer to stay away from lending on the last day of a quarter as they would otherwise need to set aside capital for such lending, which would reduce their capital adequacy ratio.

Source: Business Standard
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'Progress on banks' compensation, more needed'

Reuters / New Delhi March 4, 2011, 11:45 IST

Progress has been made on setting policies for compensation in the financial industry but more needs to be done, Deutsche Bank Chief Executive Josef Ackermann, who chairs an industry trade group, said on Friday.

Ackermann also said more "consistency and clarity" is needed in implementing regulatory proposals for the financial industry, which faces tighter capital controls and other rules in the wake of the financial crisis.

The Deutsche Bank chief also said that the United States economic recovery "appears to be stabilising," while "sustaining strong output growth under inflationary pressure is the biggest challenge," for emerging markets.
Many global banks have restructured investment bankers' pay packets with a large portion of overall compensation now being in deferred form, in response to political outrage and regulatory scrutiny.

"Significant progress has been made in improving compensation policies and practices, although more efforts will be needed," Ackermann said in a speech to a meeting of the Institute of International Finance (IIF), of which he is chairman.

Bonuses now account for just about 20% of overall compensation for bankers, compared with the pre-crisis days when up to 80% of total pay was in cash and stock bonuses.

Bonus curbs took effect in the 27-country European Union bloc last month, and go further than the G20 principles by setting in law-specific limits for cash elements and periods for deferral.

The United States has been slower to impose new standards, while major Asian financial centers such as Singapore and Hong Kong have moved to be in line with the G20's benchmark standards but gone no further.

In order to head off a repeat of the financial crisis that battered the global economy, banks will be subjected to tougher capital and liquidity standards under the Basel III rules set to be implemented from 2013.

The Group of 20 leading economies, meanwhile, aims to reach an agreement on extra safeguards for systemically important financial institutions (SIFIs) when they meet in November.

The world's biggest banks must have higher capital safeguards and supervisors will widen their net across the sector, finance ministers from the G20 leading economies said late last month.

Source: Business Standard
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Returns on Ulip pension plans to rise to 6% in FY12

MUMBAI: Returns on Unit-linked pension products are set to rise to 6% next fiscal after the central bank raised benchmark policy rates in 2010-11 to combat inflation.

The Insurance Regulatory and Development Authority , or Irda, the insurance watchdog had benchmarked that returns on these products should be 0.5%, or 50 basis points, over the reverse repo rate, the rate at which the Reserve Bank of India absorbs funds from banks.

The re-verse repo rate is now 5.75% after a series of rate increases. The Irda had mandated a 4.5% return on unit-linked pension plans last year and had also said that rates would be reviewed annually and vary between 3-6%.

Insurance companies are unhappy with the mandated returns saying that offering a guarantee will hurt their profitability. The share of unit-linked pension products in the overall product mix of insurers has fallen sharply. For insurers such as HDFC Life , the share of pension products which contributed over 30% to overall premium income has dropped to less than 1% after September.

“The structure of the product is such that it is a debt product. Why would anyone buy a product which is offering a return of 4.5% or 6% when inflation is at 9-10 % and the economy is growing at 9%? It is not a good proposition both from the insurer and the customer’s point of view,” said Amitabh Chaudhary MD and CEO of HDFC Life.

Compulsory life cover with pension product and an annuity of two-third of the accumulated sum are also discouraging sales for such products ac-cording to insurance firms. In the revised structure, new offerings by private insurance companies have been restricted to only single-premium, Ulips LIC is the only insurer to have a regular premium pension product guaranteeing a 4.5% return on an annual basis.

Source: EconomicTimes
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Friday, March 4, 2011

Bangladesh govt tells Yunus to quit as Grameen Bank MD

Bangladesh’s government ordered Nobel laureate Muhammad Yunus from his post as head of his microfinance bank on Wednesday — a humiliating blow for an activist whose revolutionary idea of giving out small loans lifted many out of poverty. But the Grameen Bank said he remained in charge and that it would fight the decision.
The demand for Yunus’ removal as Grameen’s managing director capped a string of problems that faced the outspoken government critic, including an apparently politically motivated defamation trial and accusations of an unauthorised bank transfer 15 years ago.

Bangladesh’s central bank ordered him out, arguing that he violated the country’s retirement laws, AFM Asaduzzaman, an official at Bangladesh Bank, said. Grameen Bank has been notified by letter, Asaduzzaman said, providing no further details. The government owns a 25% stake in Grameen, while the remainder of the bank is owned by its borrowers.

In a statement, however, Grameen said Yunus was still holding his post.

Yunus is “continuing his work as the managing director of the bank,” said the brief statement signed by Jannat-E-Quanine, general manager of the bank. “Since it’s a legal issue, we will fight it legally.”

Yunus founded the bank three decades ago, pioneering the concept of reducing poverty by making tiny loans to the poor. His work, which spurred a boom in such lending across the developing world, earned him and the bank the 2006 Nobel Peace Prize.

Recently, Yunus has been under pressure at home. In addition to his legal troubles, Prime Minister Sheikh Hasina has accused Grameen Bank and other microfinance institutions of charging high interest rates and “sucking blood from the poor borrowers.”

But he remains a hero to the poor. Shefali Akter, 25, who has taken out two loans totaling $1,000 from Grameen since 2002, called Yunus’ removal “bad news.” “The bank is all about him,” she said.

Efforts to remove Yunus from Grameen intensified in recent weeks, with the central bank claiming that the 70-year-old Yunus violated the country’s retirement laws by staying on as the bank’s head well past the mandatory retirement age of 60.

Grameen Bank says the normal retirement rule does not apply to it because the bank is run under a special 1983 law. Yunus was appointed managing director of the bank for an indefinite period in 2000, when he reached 60, the bank says. Yunus could not be immediately reached for comment on Wednesday. On Tuesday, finance minister Abul Mal Abdul Muhith told reporters he had received a letter from the central bank accusing Yunus of flouting the retirement rules.

Khondoker Muzammel Huq, chairman of Grameen, received a copy of the letter and presented it Monday to the bank’s board, but adjourned the meeting without making a decision on it.

Controversy swirled around Yunus after a Norwegian television documentary that screened in December accused him of transferring Norwegian development funds from Grameen Bank to another venture without prior approval in 1996. Pressure by the Norwegian Embassy in Dhaka resulted in the funds being transferred back in 1998, and the Norwegian government has said there was no indication Grameen was engaged in corruption or embezzlement.

Still, the Bangladesh government set up a committee in January to look into the allegations. Yunus is also facing a defamation trial in connection with a 2007 interview in which he was quoted as saying, “They (politicians) are only after money. Their politics has nothing to do with ideology.”

His lawyers have argued that since his comments were not directed at any specific person, they do not constitute defamation.

At the time of the remarks, Bangladesh was under a state of emergency and many politicians, including Hasina, the current prime minister, were behind bars on charges of corruption. An interim government backed by the country’s influential military eventually handed over power to the elected government of Hasina in January 2009.

Tracking Yunus

1976: Muhammad Yunus approached banks to seek micro-credit for rural poor. Banks turned him away because the intended recipients were not credit worthy (as per banks’ definition) and had no collateral to offer

1976: Grameen Bank originated from a small action research project undertaken in 1976. 75% of its paid-up capital is now owned by the bank’s shareholders its borrowersand 25% by the government

Jan 1977 : Formation of Grameen Bank I; Experimental Branch of Agricultural Bank; Yunus started giving micro-credit to poor rural women

Oct 1, 1983: The pilot project began operations as a full-fledged bank and was renamed the Grameen Bank to make loans to hapless Bangladeshis. Yunus and his colleagues encountered everything from violent radical leftists to the traditional clergy who told women that they would be denied an Islamic burial if they borrowed money from the bank

Oct 2: Mal Abdul Muhith unexpectedly named the new finance minister and managed to make Grameen Bank its own financial institution, with the government owning 60% of it Yunus had wanted Grameen to be owned entirely by the borrowers, but he is still waiting for this. In the meantime, Grameen grew at over a hundred branches a year

Dec 31, 1996: A Norwegian documentary alleged that the bank had misused money donated by the Norwegian government, improperly transferring it from the bank to another Grameen non-profit business, Grameen Kalyan. A government investigation in Norway confirmed that the money had been improperly moved but said no money had been stolen or misused. The letter said the bank accounts did “not reflect that any revolving fund for housing loan is in operation in Grameen bank”. The Norwegian Embassy expressed its concern about how it was “not informed” about the deal between the two organisations, while further adding that it “was contrary to the quoted clause of the agreement between the governments”

Mar 26, 1997: Grameen Phone launched service in urban Dhaka on March 26, 1997. It makes its profits by serving wealthier urban customers. But from the point of view of the Grameen family and its strong anti-poverty mission, the for-profit, urban-only Grameen Phone exists for only one reason: To fund, with its profits, the extension of cell phones into rural Bangladesh in order to provide entrepreneurial opportunity to Grameen Bank members through Grameen Phone

Jan 8, 1998 : Grameen Kalyan had other and far wider purposes and lacked a licence to engage in lending activities. A letter from Grameen Bank, dated January 8, 1998, points out that money that was loaned back to the bank was used for the same purpose as was the original intent of the agreement. Grameen Kalyan could require repayment of the loan

Oct 13, 2006 : Muhammad Yunus and Grameen Bank were jointly awarded the Nobel Peace Prize. Yunus, an economist, thought that giving loans to the poorest of the poor would not only help them, but could be a successful business too

Jan 20, 2010 : Nurjahan Begum was appointed to the board on January 20, 2010. She is currently serving as deputy MD of Grameen Bank, and also as honorary MD of Grameen Shikkha (education), a non-profit organisation in the Grameen family.

Source: Financial Express
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Higher capital to help Nabard access financial market better

Sanjay Jog

The state-run National Bank for Agriculture & Rural Development (Nabard), which is currently undergoing a repositioning exercise, has received a major boost following a slew of proposals by the finance minister (FM) in the Union Budget 2011-12. The FM has increased allocation to Rs 10,000 crore from Rs 5,000 crore for supporting crop loan refinance to cooperatives and regional rural banks (RRBs), and increasing Nabard’s capital base. Besides, a dedicated fund of Rs 2,000 crore has been set up in Nabard for the creation of warehousing facilities.

The proposals come at a time when Nabard will soon launch direct risk-based lending to two cooperative banks, provide long-term financing to Karnataka and Rajasthan for rural infrastructure projects as well as finance and support producer organisations. Besides, Nabard has started preliminary work on centralised accounting and loan management.

Nabard Executive Director Prakash Bakshi told Business Standard that the Budget is building on the expansion in agricultural credit disbursements during the current year. By December last year, banks had already provided agricultural credit of over Rs 2,91,000 crore, which is Rs 42,000 crore higher than what banks had provided for the same period last year. Cooperatives and RRBs, who primarily provide credit to small and marginal farmers, disbursed over Rs 78,000 crore out of this amount. The rabi lending is also showing good disbursements across the country, and the agricultural credit target of Rs 3,75,000 crore for the current financial year is expected to be far exceeded.

“It is in this background that the FM has placed the agricultural credit target for the next year at Rs 4,75,000 crore. Provision of Rs 10,000 crore, as compared with Rs 5,000 crore provided last year, for supporting crop loan refinance to cooperatives and RRBs as well as increasing the capital base of Nabard and will help Nabard access financial market in a larger way. It will also enable Nabard to support the banking system achieve this increased agricultural credit target,” Bakshi said.

According to Bakshi, such agricultural credit flow together with other steps mentioned in the Budget will help farmers adopt good agricultural practices across the country and boost production. Increased production as a requirement to move foodgrains from producer states to consumer states will also need increased storage and warehousing space.

Further, Bakshi said setting-up of a dedicated fund of Rs 2,000 crore in Nabard for creation of warehousing facilities was a step in this direction. “This will enable Nabard to create required warehousing space both for managing central stocks and managing distribution of foodgrains in the next two years. Nabard has recently sanctioned a project to Karnataka Warehousing Corporation for creation of a warehousing space of 1.06 lakh metric ton, and is already in talks with some other states for financing similar projects,” he noted.

Source: Business Standard
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Fin inclusion plan to be a criteria for new bank licences: RBI

The Reserve Bank of India (RBI) Governor D Subbarao today said the central bank will look at business plan for financial inclusion, in addition to other things, before granting banking licence under the new policy.

"One of the criteria for evaluating application (for new bank licence) that we will get in due course of time, will indeed be their business plan for financial inclusion," Subbarao said at an IIF event here.

The RBI is scheduled to announce the guidelines for grant of new bank licences by month-end.
The central bank, in August 2010, brought out a discussion paper on giving out new banking licences to business houses and non-banking finance companies, besides regulations for the same to foster greater competition.

The RBI also sought to know "whether industrial and business houses could be allowed to promote banks". Furthermore, it sought stakeholders' views on whether NBFCs should be allowed to convert into or promote banks.

The RBI has received comments on its discussion paper from all stakeholders.

Various entities such as Reliance Capital, IndiaBulls, Religare, IL&FS, IDFC, IFCI and Aditya Birla Financial Services are reported to be mulling entering the banking space.

At present, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Source: Business Standard
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ICICI Bank expects over 20 pc credit growth in 2011-12

NEW DELHI: Country's largest private sector lender ICICI Bank today said it expects over 20 per cent growth in loans in the next fiscal against 18 per cent in 2010-11.

" (credit growth) would be upward of 20 per cent," ICICI Bank Managing Director Chanda Kochhar told reporters on the sidelines of an interactive session organised by industry body CII here.

She also said that the overall credit offtake in the country is likely to be over 20 per cent in the next financial year.

"We are seeing a strong credit growth which is universal across the segment so it would be upward of 20 per cent," she said.

Credit offtake from public and private sector banks in the country grew by over 24 per cent to Rs 38.98 lakh crore for the one-year period ended February 11, 2011, as against Rs 31.43 lakh crore in the corresponding period a year ago.

RBI, in its annual monetary policy at the beginning of the current fiscal, had estimated credit offtake to grow by 20 per cent in 2010-11.

Loan offtake has been higher this fiscal on account of large borrowings by telecom firms to pay for 3G spectrum licences.

Participating in the interactive session, also attended by Lael Brainard, Under Secretary in US Department of Treasury, Kochhar said India and the US should increase bilateral economic cooperation.

Sharing his wish list from the US, she said, "find ways of working together...because even in the given set of policies other countries have more investments in infrastructure (in India) as compared to the US".

She also asked the US authorities to allow more Indian banks in America so that they could play "larger role" there.

"Ability of Indian banks to grow in the US is very strong," she said.

Brainard said the US is an open market and welcomes participation of foreign financial institutions.

Talking about capital cushion to be raised for financial institutions in the US, the visiting official said her country is very supportive of BASEL III capital requirements.

"Banks will get thicker capital cushion...we are in track to implement BASEL III," she said.

Source: EconomicTimes
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RBI reminder to banks: increase deposit rates, cut lending rates

The Reserve Bank on day again prodded banks to raise deposit rates to encourage people to save more and put the Indian economy on sustained double-digit growth and lower lending rates by cutting on salaries, wages and transactions costs.

At a meeting of the Institute of International Finance (IIF), a global association of financial institutions, RBI Governor D Subbarao also said that the central bank will come out with its views on the Malegam Committee report on micro financial institutions (MFIs) that favours a 24 per cent cap on interest rates charged by these entities, by April-end.
The central bank governor further said that the RBI will see business plans on financial inclusion of those interested in banking license.

“For double-digit growth that we aspire to, we need to save so that we can invest more and for that to happen, we need to encourage savings, which means that banks will have to increase the interest rates that they offer to depositors and they have to reduce the interest rates that they charge to borrowers,” Subbarao said.

In technical terms, he said banks have to bring down their net interest margin (NIM).

This is not the first time that the RBI is asking banks to increase deposit rates. It has been asking banks to do so to retain their depositors, since rising inflation sees net earnings from deposits going into the negative zone.

Subbarao said to cut lending rates, banks have to reduce non-interest expenses like wages and salaries, transaction costs, provision costs, NPAs and enhance productivity by leveraging on technology.

He said Indian banks need to do lots of catching up with their counterparts in peer group countries.

Average (deregulated) savings rates offered by banks in various categories range from 7-8 per cent, while their base rates (floor rate set for the purpose of lending rates) range between 7.60-8.5 per cent.

Generally, whenever banks face pressure on deposit rates, they also raise lending rates to keep their net interest margin intact. Currently, banks have net interest margin in the range of 2.5 per cent to 3 per cent.

On the MFI sector, Subbarao said these entities have offered added value in financial markets, but have drawn flak for charging very high interest rates which can be termed as usurious. They are also charged with following loose credit policies with instances of even benami lending, he said.

He, however, added that regulations should be such that they do not choke the MFI sector.

The RBI governor said banks consider financial inclusion as obligation and there is need for making them realise that it is a business opportunity. The central bank will see business plans of entities on financial inclusion while evaluating their application for entering into the banking space.

RBI is slated to come out with guidelines on entry of new banks some time this month.

Currently, banks pay up to 9.5 per cent interest on fixed deposits. Indian banks, Subbarao stressed, need to improve efficiency to catch up with their counterparts in the other nations.

RBI is scheduled to announce the guidelines for grant of new bank licences by month-end. The central bank, in August 2010, brought out a discussion paper on giving out new banking licences to business houses and non-banking finance companies, besides regulations for the same to foster greater competition.

The RBI also sought to know “whether industrial and business houses could be allowed to promote banks.” Furthermore, it sought stakeholders’ views on whether NBFCs should be allowed to convert into or promote banks. The RBI has received comments on its discussion paper from all stakeholders. Various entities such as Reliance Capital, IndiaBulls, Religare, IL&FS, IDFC, IFCI and Aditya Birla Financial Services are reported to be mulling entering the banking space.

At present, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Source: Business Standard
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PNB shortlists 10 firms for life insurance JV

State-owned Punjab National Bank (PNB) today said it proposes to buy stake in an existing life insurance company and has shortlisted 10 companies, including Reliance Life and Bharti AXA, for the strategic partnership.

The bank had invited expression of interest from intending insurance companies for strategic partnership in insurance business with the bank in December last year.

PNB said it has decided to participate in the life insurance venture through "a corporate agency tie-up along with equity participation in an existing Indian life insurance company".
In a statement, the public sector lender said, "RFPs (request for proposals) have been issued to ten insurance companies...."

The companies which had expressed interest in the proposal include Reliance Life and Bharti AXA, Birla Sun Life, HDFC Life, Max New York Life and Met Life, the bank said.

These companies had filed various models of business with the lender.

"The bank will finalise the partner for life insurance business based on the evaluation of the proposals submitted by these insurance companies," PNB said.

Last year, the bank decided to part ways with two of its partners in a planned life insurance joint venture. PNB bought the entire 26% stake held by Principal Financial Group and the 32% participating interest of domestic firm UK (Berger) Paints in Principal PNB Life Insurance Company Ltd.

PNB's stake in the proposed joint venture was 30%, while that of Vijaya Bank was 12%.

Source: Business Standard
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Interest rates have peaked or near peak: OP Bhatt

MUMBAI: Interest rates in India have peaked or are near a peak, O.P. Bhatt, chairman of State Bank of India , the country's largest lender said on Thursday.

The central bank has raised rates seven times in the past 12 months but headline inflation has remained high partly due to high food prices caused by a sudden shortage of fruits and vegetables.

The Reserve Bank of India is widely expected to raise rates by 25 basis points at its policy review on March 17

Source: EconomicTimes
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Bank licence seekers must commit to govt's financial inclusion agenda: Subbarao

NEW DELHI: Prospective bank licence seekers, be it industrial houses or finance companies, will have to prove their commitment to the government’s social agenda of ‘financial inclusion’ if they are to stand any chance of getting one, Reserve Bank of India Governor Duvvuri Subbarao said.

Foreign banks that want to expand in India may have to mandatory set up subsidiaries if they are serious about reaping the fruits of Indian growth, although the new rules are yet to be finalised, Subbarao signalled.

The central bank, which will be issuing an undisclosed number of licences in the next few months, is expected to lean towards taking banking to the poor rather than let a few be housed in cities and become trading power houses instead of aiding real economy.

“One of the criteria for evaluating the applications that we get in due course of time will indeed be their business plan for financial inclusion,” Subbarao told a bankers’ conference in the national capital. “Banks consider this as an obligation and not an opportunity.”

Prime Minister Manmohan Singh’s government and RBI plan to have more banks bring in more people under banking services, which include no-frill accounts. More bank accounts could also help the government reduce pilferage of its social spending. But more than four decades after nationalisation of banks, just 30,000 of 6 lakh habitations have access to banks.

Forty per cent of the population doesn’t have accounts and less than 10% has life insurance cover. Although nationalisation has led to more branches being opened in rural areas, the reach has lagged behind. Private banks, which were given licences in the early 90s, and foreign banks concentrate in metro regions where wealth has been growing since the beginning of economic reforms in 1991.

Many industrial houses such as Anil Dhirubhai Ambani Group’s Reliance Capital , and finance companies such as Shriram Transport Finance and Religare Enterprises are expected to seek licences to benefit from the rise in middle-class income. But the financial inclusion condition may deter some as it could be a drag on profitability.

“We have shown interest when RBI came out with the announcement, and in terms of financial inclusion, we as a group have always followed it. But now we are waiting for RBI guidelines to see if we are eligible or not,” says R Sridhar, MD, Sriram Finance.

Saurabh Tripathi, partner and director of Boston Consulting Group, said technology had made financial inclusion viable. “This has been the stance of RBI from the very beginning and is hardly surprising. Today technology, regulation and market structure have evolved sufficiently that a concrete business plan for financial inclusion can indeed be made,” he said.

In his Budget speech, Finance Minister Pranab Mukherjee said RBI would come out with the final guidelines on bank licences before the “close of this financial year” or by March 31.

Those wishing to set up new banks are not the only ones eager for RBI to show its hand. Global banks are also keen to hear from the regulator about their future role in the world’s second fastest-growing economy after China.

The near-20% loan growth, rising takeovers by Indian companies, and scope for wealth management have prompted many global banks such as HSBC Holdings and Standard Chartered to expand in India. The strategy is also seen as a buffer against an uncertain future for banks in the West with no clear sign of recovery.

“If you said choose one country in the world that you could expand into, that would be India,” Douglas Flint, chairman, HSBC Holdings, told ET in an interview on Wednesday. “You can have one pick and you can do whatever you like, it would be India. I think the scale of opportunities is huge.” But the expansion of these banks will also depend on their willingness to convert their operations into subsidiaries. These banks are now branches of their overseas companies.

“There will be incentives to encourage foreign banks to come as subsidiaries by way of almost national treatment,” Subbarao told the conference presided by Josef Ackermann, chief executive at Deutsche Bank, which operates in India. “There will be opportunities and obligations on a par with domestic banks. “

RBI had circulated draft norms on increasing the role of foreign banks in India that allow them to set up branches at their will in smaller cities, barring some security-sensitive regions, and list on stock exchanges with at least a 25% Indian holding. They will have a minimum capital adequacy ratio of 10% and a lower priority sector lending target than domestic private peers. The thrust on a domestic subsidiary model comes after the 2008 credit crisis forced many global banks to cut operations in developing countries. There will be checks too on them.

“There is a risk that the foreign banking system will dominate the system of the country which is amplified during times of stress which we have seen before and during crisis,” the RBI governor said. “Foreign banks in emerging economies vigorously built business in good times, but were equally vigorous to retrench during the crisis. The question is, are foreign banks going to be fair weather friends?”

On the strength of Indian banks, Subbarao said they are quite comfortable in meeting the capital norms, but may have to raise capital because of their strong loan growth.

Source: EconomicTimes
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Banks can meet Basel III standards: RBI

Reuters / New Delhi March 3, 2011, 17:00 IST

Indian banks overall have sufficient capital to meet the new Basel III standard but a few may need to augment their capital to get there, Reserve Bank of India Governor Duvvuri Subbarao said on Thursday.

"Indian banks meet Basel III standard for capital, that is at the aggregate level. It is quite possible that a few individual banks may have to augment capital," he said at a conference.

According to Basel III norms, banks must shore up their capital adequacy ratios and maintain top quality capital at 7% of risk-weighted assets. Top quality capital includes equity capital.
Though Indian banks have much higher capital adequacy ratios than the minimum total capital requirement under Basel III of 8%, their so-called Tier I, or equity capital, needs to be shored up to meet the top-level capital requirement, analysts have said.

Basel III also proposes building countercyclical and additional capital buffers.

Building capital buffers called for by new international standards will involve additional costs for Indian banks, Subbarao said.

Still, Indian banks have time to meet the new standards, the central bank chief said during a conference of the Institute of International Finance.

The proposed changes are to be phased in gradually, starting in January 2013 to January 2015, while the creation of a conservation buffer could be set up by banks during the period January 2016 to 2019.

Source: Business Standard
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Govt okays Banking Laws Amendment Bill

Press Trust of India / New Delhi March 3, 2011, 15:38 IST

The government today gave green signal to the Banking Laws Amendment Bill that seeks to align the voting rights in banks in proportion with the equity holding.

Currently, the voting rights of a shareholder is limited to 1% in state-owned banks and 10% in private banks irrespective of the equity holding.

The Amendment Bill, which was cleared by the Union Cabinet, will now be tabled in Parliament for approval, sources said.
The amendments, once approved by Parliament, will enhance the voting power of shareholders in line with the portion of equity held by them.

Finance Minister Pranab Mukherjee in his Budget speech has listed banking laws amendment legislation as one of the seven bills that government proposed to take up to pursue financial sector reforms.

"The financial sector reforms initiated during the early 1990s have borne good results for the Indian economy. The UPA government is committed to take this process further," Mukherjee had said in his Budget speech.

Besides the Banking Laws Amendment Bill, the other important financial sector bills that Mukherjee proposed to pursue include Insurance Laws (Amendment) Bill, 2008, Life Insurance Corporation (Amendment) Bill, 2009 and revised Pension Fund Regulatory and Development Authority Bill, 2005.

Source: Business Standard
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Thursday, March 3, 2011

Bonds issue: SBI bats for retail investors

State Bank of India (SBI) said it plans to retain a portion of the retail over-subscription of its tax-saving bonds issue, which will take the total amount raised through the mega issue up to Rs. 5,500 crore.
"We will retain up to may be Rs. 5,500 crore... The rest we will return," SBI Chairman O P Bhatt told reporters on the sidelines of an IBA conference here today.

As against an allocated Rs. 1,000 crore, subscription by retail investors stood at Rs. 4,500 crore, while an additional subscription of nearly Rs. 4,000 crore came from other investors, including high net-worth individuals.

"Our terms of issue are such that in the retail segment, we could take as much as we want up to Rs. 10,000 crore, while from other investors we can take up to Rs. 1,000 crore," Bhatt explained.

The issue, which had opened on February 21, closed yesterday. Investors were attracted to the issue because of its competitive coupon rate and the timing, as the end of the fiscal is usually when individuals do tax-saving investments.

This issue is part of the Rs. 10,000 crore retail bond programme SBI has planned for FY'11 through FY'12. The bank had raised Rs. 1,000 crore through in the first tranche of the issue last October, which was oversubscribed 19 times. That was the first retail bond offering in the country by a corporate entity.

The bank is offering a 9.75 per cent coupon rate to retail investors on the 10-year bonds and 9.3 per cent for non-retail applicants. These bonds carry a call option in the fifth year.

For the 15-year bonds, the coupon is 9.95 per cent for retail investors and 9.45 per cent for non-retail investors.

These bonds have a call option in the tenth year.

Source: Financial Express
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