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Saturday, May 7, 2011

RBI to interview all 7 EDs for Dy Guv job

Deputy Governor Shyamala Gopinath retires on June 20.

The government has started the process to identify a replacement for Shyamala Gopinath, deputy governor of the Reserve Bank of India (RBI) who retires on June 20. A search committee headed by Governor D Subbarao has called all seven executive directors of the central bank for interviews on May 13. To be eligible, a candidate should have two years of residual service.

mong the seven executive directors, V K Sharma is the seniormost, followed by V S Das. The other executive directors are G Gopalakrishna, H R Khan, D K Mohanty, S Karuppasamy and R Gandhi.

The central bank, which has created two more ED posts, will also conduct the interview for the selection of EDs on May 13.

With Gopinath retiring, there will be three vacancies for the ED’s job. Among the eligible candidates, Chief General Manager P Vijay Bhaskar, currently the regional director of Bangalore, is the seniormost. Bhaskar is followed by B Mahapatra and G Padmanavan in terms of seniority. In the last couple of years, RBI followed the seniority criteria to appoint an ED.

While the appointment of deputy governor is made by the government, RBI takes care of the ED appointment.

Traditionally, of the four deputy governors of RBI, one is a commercial banker, one an economist and two are promoted from within the central bank.

Shyamala Gopinath and Anand Sinha were promoted to the deputy governor’s post from the ranks of RBI. Deputy Governor K C Chakrabarty represents the commercial banking fraternity, while the other deputy governor, Subir Gokarn, is an economist.

Gopinath, who holds charge of nine departments, including foreign exchange, was appointed deputy governor in September 2004 for five years. A deputy governor in RBI can be appointed for a maximum of five years or till the age of 62, whichever is earlier.

In September 2009, Gopinath was reappointed by the government for a little less than two years. The government made an exception during the reappointment and relaxed the two-year residual service criterion. The retirement age for RBI deputy governor is 62, while for all other RBI employees, it is 60.

Source: Business Standard
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Friday, May 6, 2011

Kotak Bank March qtr PAT up 17% at Rs 491 cr

Private lender Kotak Mahindra Bank today posted a 17% rise in consolidated profit after tax (PAT) at Rs 491 crore for the three months ended March 31, 2011.

The bank had a PAT of Rs 419 crore in the same period an year-ago, Kotak Mahindra Bank said in a release.

Total income rose to Rs 3,027.78 crore in the latest quarter as compared to Rs 2,945.31 crore in the same period last year.
The consolidated PAT for 2010-11 of the bank stood at Rs 1,567 crore, up 20% from 2009-10.

The bank has declared a dividend of Rs 0.50 per share with a face value Rs 5 for the year ended March 31.

The standalone PAT of the bank for the three months ended March 2011 stood at Rs 249 crore as compared to Rs 203 crore in the same period a year ago.

Besides Kotak Mahindra Bank, the other entities of the group include Kotak Mahindra Capital, Kotak Securities, Kotak Mahindra AMC & Trustee Co, Kotak Mahindra Oil Mutual Life Insurance.

Source: Business Standard
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Andhra Bank hints at increasing lending rates

HYDERABAD: Public sector lender Andhra Bank on Thursday hinted that it would increase lending rates after the Reserve Bank's move to up its key policy rates.

R Ramachandran, Chairman & Managing Director, Andhra Bank said there will be some pressure on net interest margins (NIM) with the RBI's decision going forward.

NIM is the difference between interest earned and interest paid by the bank.

Andhra Bank has registered a net profit of Rs 1,267 crore for the fiscal ended March 2011 as against Rs 1,046 crore in the previous fiscal. The total business of the bank for the financial year 2011 stood at Rs 1,64,310 crore, at a year on year growth of 22.44 per cent.

"We see a marginal hit in the NIM going forward. While we would follow growth trends in a sustained manner, there has been a significant increase in the cost of deposits between January and March, the lag effect of which will be seen in coming quarters. There is a case for revision of rates and we may increase our benchmark prime lending rate," Ramachandran told media persons after announcing the annual results.

According to him, a decision on interest rates will be taken next week.

NIM of the bank stood at 3.69 per cent for the last quarter of FY 11 and 3.80 per cent for the entire FY11. However, the bank does not expect much impact with the central bank's initiative to increase savings bank deposit rates. The impact to cost will be around Rs 100 crore overall, Ramachandran said.

Talking about the bank's growth plans, Ramachandran said the bank is aiming to cross Rs two lakh crore business mark with 18-20 per cent growth in deposits and 20-25 per cent growth in advances in the current fiscal.


Source: EconomicTimes
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BoB, Dena Bank, BoI raise base rates, BPLRs by 0.5% each

MUMBAI: Lending rate hikes by banks, which began after the Reserve Bank raised repo rate by 0.5 per cent to 7.25 per cent on Tuesday, continued on Thursday with three leading public lenders upping both their base rates and BPLRs.

Bank of Baroda , Bank of India and Dena Bank upped their base and benchmark prime lending rates (BPLRs) by 0.5 per cent each with effect from tomorrow, they said in separate statements here today. Accordingly, BoB's base and BPLR will stand at 10 per cent and 14.25 per cent, respectively.

Dena Bank's base rate has been increased to 9.95 per cent, while its BPLR goes up to 15 per cent with effect from tomorrow.

BoI's base and BPLR will stand at 10 per cent and 14.25 per cent, respectively.

Indian Bank also hiked its rates today, while Canara Bank , Yes Bank , Bank of Maharashtra and Punjab National Bank (PNB) increased their lending rates yesterday.

On Tuesday, IDBI Bank had announced an increase in its lending rates.

The RBI on Tuesday upped short-term lending rate (repo) to combat inflation. It had also raised interest on savings account deposits by 0.5 per cent to 4 per cent.

The moves are expected to push up the cost of funds of banks and hence they have resorted to increasing their lending rates. More lenders are expected to follow suit.

Source: EconomicTimes
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Banks report fall in biz; loan amount down by Rs 37.407 crore, deposits by Rs 5521 crore

MUMBAI: The window dressing effect on bank balance sheets has started to wear off, with banks showing an across-the-board dip in business. According to the latest RBI release , loans extended by commercial banks in the country dipped Rs 37,407.0 crore during the fortnight ended April 22 to Rs 3,919,000.5 crore. This is the first fortnight which captures all the days in the current fiscal . Total deposits dipped by Rs 5,521.2 crore to Rs 5,319,431.5 crore.

Term deposits went up by Rs 36,240.9 crore while demand deposits dipped by Rs 41,762.1 crore. As a result, investments also dipped Rs 15,217.3 crore. This trend is not very surprising because normally in the period immediately after the year end, banks started returning the funds used for window dressing for shoring up their business figures. As a result, the first fortnight ends up showing a dip in business figures .

Moreover, banks on their part are busy either closing their accounts for the previous year or chalking out plans for the current year. Hence, big-ticket loans or deposit mobilisation are seldom seen during this time of the year, said a public sector banker, requesting anonymity . Traditionally, this period is termed as slack season for credit off-take .

On a year-on-year basis, the deposit growth works out to 18.93% while RBI has projected a 17% growth in deposits for the year. The annual growth in loans works out to 21.9% while the central bank's comfort level for the year is 19% growth in credit for FY12.

The Reserve Bank of India has reduced its loan growth target as it has forecasted a lower GDP growth of 8% for the year on account of its prime concern to curtail high inflation. In addition, it has hiked its key policy rates by 50 basis points - one basis point is 0.01 percentage point. As result, the central bank expects banks to raise their lending rates, which may in turn impact the credit growth.


Source: EconomicTimes
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Thursday, May 5, 2011

PNB Q4 profit up 5.8% to Rs 1,201 cr

New Delhi: Country's second largest public sector lender Punjab National Bank posted a 5.8 per cent increase in net profit at Rs 1,201 crore for the three months ended March 2011.

The bank had a net profit of Rs 1,135 crore in the same period a year-ago, PNB said in a statement.

Total income rose 31.2 per cent to Rs 8,586 crore in the latest quarter compared to Rs 6,460.7 crore in the same period last year.

For the full year ended March, the lender reported a net profit of Rs 4,433 crore, representing an increase of 13.5 per cent, as against Rs 3,905 crore in the 2009-10 fiscal.

During the same period, total income jumped to Rs 30,599 crore from Rs 24,834 crore in the corresponding period.

In a filing to the Bombay Stock Exchange, PNB said it has increased the base rate to 10 per cent from 9.5 per cent and Benchmark Prime Lending Rate (BPLR) to 13.5 per cent from 13 per cent. These changes would be effective from May 5.

Base rate is the rate below which banks cannot lend to customers.

Source: Financial Express
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Bank of Maharashtra raises interest rates by 50 bps

State-run lender Bank of Maharashtra said on Wednesday it has raised its base rate and benchmark prime lending rate by 50 basis points each to 10% and 14.25% respectively, effective May 5.

On Tuesday, the Reserve Bank of India raised interest rates by a sharper-than-expected 50 basis points, and said fighting inflation was top priority, even at the expense of short-term growth.

Source: Business Standard
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RBI raises m-wallet limit to Rs 50,000

New Delhi: Relaxing the norms for making payments using mobile phones, known as m-wallet, the Reserve Bank today decided to increase the limit of money-loading to Rs 50,000 from the existing limit of Rs 5,000.

"The maximum value of such prepaid semi-closed m-wallet shall not exceed Rs 50,000," a RBI notification said.

Leading mobile operators Bharti Airtel and Vodafone had tied up with SBI and ICICI Bank respectively to offer such facilities to their subscribers.

The central bank has also decided to treat semi-closed mobile wallet on par with the other semi-closed prepaid instruments.

In the semi-closed mobile wallet, money can be loaded into your cell phone from a licensed company which can be used to make payments. But it can't be used to withdraw money.

The Semi-Closed System Payment Instruments are redeemable at a group of clearly identified merchant locations or establishments. These instruments do not permit cash withdrawal or redemption by the holder.

"Keeping in view the need to facilitate the larger acceptance of mobile phone based prepaid instruments as a mode of payment, it has now been decided to bring semi-closed mobile wallet on par with the other semi-closed prepaid instrument," it said.

Those using other Semi-Closed System Payment Instruments, were already enjoying the upper limit of money value of Rs 50,000.

M-wallet can be used for various services like payment of utility bill including electricity, water telephone or mobile phone, insurance premium, cooking gas payments, ISP for internet or broadband connections, cable or direct to home (DTH) subscriptions and citizen services by government.


Source: Financial Express
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Oriental Bank raises base rate, BPLR by 50 bps each

MUMBAI: State-run lender Oriental Bank of Commerce said on Wednesday it has raised its base rate and benchmark prime lending rate by 50 basis points each to 10 percent and 14.25 percent, respectively, effective May 5.

On Tuesday, the Reserve Bank of India raised interest rates by a sharper-than-expected 50 basis points, and said fighting inflation was top priority, even at the expense of short-term growth.


Source: EconomicTimes
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Lenders begin to hike rates; PNB, YES Bank raise base rate & PLR by 50 bps

MUMBAI: Taking a cue from the Reserve Bank of India, commercial banks and housing finance companies have started raising lending rates. Just a day after the central bank raised key policy rates and the savings bank account rate , Punjab National Bank and YES Bank increased lending rates for existing and new customers while LIC Housing Finance hiked rates for new customers.

PNB and YES Bank raised their base rate and prime lending rate by 50 basis points. One basis point is 0.01 percentage point. With the latest rate revision, PNB's base rate would stand at 10% while that of Yes Bank's would be at 9.50%. The prime lending rate of PNB and YES Bank stands at 13.5% and 19%, respectively. LIC Housing Finance increased the fixed rate of interest for new customers. It has also introduced a floating rate loan scheme and has also linked the fixed rate of interest to borrowers to their prime lending rate.

LIC Housing finance CEO VK Sharma said the company has not revised rates since they were last revised in April and the next review is due in June. "The floating and fixed rates of LIC Housing Finance are now linked to its PLR which was not the case earlier," he added. Under the new scheme, a borrower can avail of floating rate at 9.90% for a loan up to Rs 30 lakh while it is 10.15% for a loan amount between . 30 lakh and . 75 lakh and 10.30% for loans above . 75 lakh.

The housing finance company also offered a fixed rate loan for the first five years with a one-time option to move to the floating rate system. The fixed rate is pegged at 10.50% for loans up to Rs 30 lakh, 10.75% for loans between Rs 30 lakh and Rs 75 lakh and 11% for loan above . 75 lakh. Reacting to the RBI policy on Tuesday, CEOs of large commercial banks such as ICICI Bank and HDFC Bank had said they expected lending rates to increase by 50 to 100 basis points. SBI chairman Pratip Chaudhari, however, felt that rates would move up by 25 bps.

Most banks' base rate is around 9.50% and the PLR is in the range of 13.50-13 .75%. Indian Overseas Bank chairman and managing director M Narendra also said the asset liability committee of the bank will be meeting on Thursday to review interest rates. He expects lending rates to go up by 50 basis points in the near future. Bank of Maharashtra also revised its base rates by 50 basis points while raising it prime lending rate by 75 basis points to 14.25%.


Source: EconomicTimes
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NBFCs will need 150-cr net-owned funds for PD entry

MUMBAI: The Reserve Bank of India has said non-banking finance companies (NBFCs), who intend to get into primary dealership business, should have minimum net-owned funds, or NOF, of Rs 150 crore. Banks who intend to expand to primary dealership business should have a minimum net worth of Rs 1,000 crore. Primary dealers, or PDs, are specialised traders in government bonds who have the market making mandate for government bonds and offer two-way quotes on bond trading.

The revised guidelines, put up on RBI's website, have also said, in case a primary dealer intends to diversify into other permissible activities, such as brokerage and merchant banking , the minimum NOF shall be . 250 crore. The guidelines stipulate that banks should also have ratio of capital to risk-weighted assets, or CRAR, of 9% and net nonperforming assets or net of less than 3%, in addition to a profitmaking record for the last three years.

The objective of the proposed review of existing guidelines, according to the central bank, is to make the policy more transparent and ensure that the new primary dealers have sound capital, adequate experience and expertise in the government securities market. The guidelines propose that subsidiaries of commercial banks with no track record in government securities or financial institutions and companies registered under the Companies Act, 1956, can also be allowed to become primary dealers, but they may need to have experience in the business before applying for primary dealership.

The proposed guidelines cite examples of the selection criteria for primary dealers in other countries and emphasise the importance of sound financials and the ability to add value to the government securities market and participate actively in the government borrowing programme, for any entity to be allowed a licence for the business.


Source: EconomicTimes
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Wednesday, May 4, 2011

RBI tightens provisioning norms

The Reserve Bank of India (RBI) on Tuesday increased the provisioning requirements on certain categories of non-performing assets and restructured loans. Bankers, however, said the additional provisioning was unlikely to stress their earnings in coming quarters.

“In April 2011, banks were advised to segregate the surplus of provisions under the provision coverage ratio (PCR) vis-à-vis what was required as per prudential norms as on September 30, 2010, into an account styled as counter-cyclical buffer,” RBI said in its monetary policy statement for 2011-12.

“While the counter-cyclical buffer so created would be available to banks for making specific provisions during economic downturns, there is a need for banks to make higher specific provisions also as part of the prudential provisioning framework,” the central bank said.

Under the new guidelines, loans classified as sub-standard will attract a provision of 15 per cent as against the existing 10 per cent requirement.

For unsecured loans that are classified as sub-standard assets an additional 10 per cent provision has to be made over the 15 per cent. So, the total provisioning for sub-standard unsecured loans will now be 25 per cent instead of 20 per cent as mandated earlier.

The central bank also raised the provision required for the secured portion of advances, which have remained in the doubtful category for up to one year, to 25 per cent from the present 20 per cent. The secured advances in this category for more than one year but up to three years will now attract a provision of 40 per cent instead of 30 per cent.

The restructured loans classified under the standard category will need a provision of two per cent in the first two years from the date of restructuring. In case of moratorium on payment of interest and principal after restructuring, two per cent provision has to be maintained for the period covering the moratorium and two years thereafter, RBI said.

If restructured loans, which are classified as non-performing advances, are upgraded to the standard category, banks have to make a provision of two per cent in the first year from the date of upgrade. The existing provision on these loans was 0.25-1.00 per cent depending on the category of advances.

RBI said it would issue detailed guidelines on new provisioning norms separately.

The new guidelines come within days of RBI saying banks would not be required to set aside additional capital for incremental non-performing assets after September 2010.

Banks are required to maintain a provision coverage ratio of 70 per cent on non-performing loans as on September 30, 2010.

“It is not going to change the provisioning substantially but whatever you provide for overall will now be backed up by a regulatory prescription. If you have more than 70 per cent provision coverage ratio, there will be no immediate impact,” said K R Kamath, chairman and managing director of Punjab National Bank.

His views were echoed by Chanda Kochhar, managing director and chief executive officer of ICICI Bank.

“This is not going to be a major issue for a bank that already has provision coverage ratio in excess of 70 per cent. The higher provisioning criteria for certain categories of assets continues RBI’s moves towards a general increase in provisioning levels for banks to improve the resilience in their balance sheets through the cycle,” she said.

The country’s largest lender, State Bank of India, which is one of the few banks to have less than 70 per cent provision coverage ratio, also dismissed concerns that the burden of excess provisions would deteriorate its earnings.

“We are falling short of the overall provision coverage. But I believe, we will get some relief because we were doing well in respect of prudential provisioning,” Chairman Pratip Chaudhuri said.

Some analysts and bankers said while additional provisioning for non-performing loans would not hit the banks’ earnings; some concerns remain over higher provision requirements for restructured assets.

“The stress from (higher provisioning in) restructured assets could increase,” said M D Mallya, chairman and managing director, Bank of Baroda.


Source: Business Standard
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RBI to extend short sale period of G-sec to 3-months

Mumbai: The Reserve Bank of India said that it has proposed to extend the period of short sale in the Central Government securities from the present five days to the maximum of three-months.

The move will provide a fillip to the interest rate futures market and the term repo market, the Reserve Bank said in its monetary policy statement for FY 12.

Intra-day short selling in Central G-sec was permitted in February 2006 based on the recommendations of the Technical Group on the Central Government Securities Market.

In January 2007, based on the feedback received, the period of short sale was extended to five days. The apex bank now proposed to extend the period of short sale to a maximum period of three months.

The RBI also said that FIIs would now be allowed to cancel and rebook up to 10 per cent of the market value of the porfolio as at the beginning of the financial year.

Presently, FIIs are permitted to cancel and rebook two per cent of the market value of the portfolio as at the beginning of the financial year.

The move is in response to the large positions held by the FIIs and considering the increased depth of the Indian forex market to absorb the impact on the exchange rate, the RBI said.

Detailed guidelines on this would be issued separately, the policy statement said. In another move to prevent systemic risk in times of stress/liquidity crunch, the RBI said that investment by banks in liquid schemes of debt-oriented mutual funds will be subject to a prudential cap of 10 per cent of their net worth as on March 31 of the previous year.

Stating that it felt it prudent to place certain limits on banks' investments in debt-oriented mutual funds, the RBI said that "Investment in liquid schemes of DoMFs (debt oriented mutual funds) by banks will be subject to a prudential cap of 10 per cent of their net worth as on March 31 of the previous year."

However, with a view to ensuring a smooth transition, banks with investments in DoMFs in excess of the 10 per cent limit, will be allowed to comply with this requirement in six months' time, it said.

According to the RBI, banks' investments in liquid schemes of DoMFs have grown manifold and liquid schemes continue to rely heavily on institutional investors such as commercial banks whose redemption requirements are likely to be large and simultaneous.

DoMFs, on the other hand, are large lenders in the overnight markets such as collateralised borrowing and lending obligation (CBLO) and market repo, where banks are large borrowers. DoMFs invest heavily in CDs of banks.

"Such circular flow of funds between banks and DomFs could lead to systemic risk in times of stress/liquidity crunch," the RBI said, adding hence the prudential cap of 10 per cent is being imposed.


Source: Financial Express
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RBI abandons 'baby steps' to tackle inflation

From ‘baby steps’ to a significantly ‘large step’ was the Reserve Bank of India’s (RBI) answer to inflation. The rise in policy rates (repo rate) by 50 basis points to 7.25 per cent signalled aggression to tackle inflation, which the apex bank has projected at six per cent with an upward bias for March 2012.

Thus, there is a readiness to sacrifice growth to tame elevated inflation pressure, especially for the next two quarters.
RBI Governor D Subbarao, elaborating the stance of the Monetary Policy for 2011-12, said, “RBI will work to control demand to check inflation and navigate a soft landing for the economy.” That is, it wants to minimise harsh effects of factors like high commodity prices.


PROJECTIONS
Then and
now
Finance minister
RBI
governor
FY12 GDP growth (%)98
Inflation56
Fiscal deficit4.6  Difficultto be met


The domestic demand-supply balance, the global trend in commodity prices, and the likely demand scenario will weigh on inflation, RBI said. Inflation is expected to remain at an elevated level in the first half of the year, before gradually moderating towards March 2012.

Spelling out the policy stance, RBI said there were three prime objectives. One, it is the apex bank’s endeavour to maintain an interest rate environment that moderates inflation and anchors inflation expectations. In March 2010, RBI shifted its focus from expansionary to a tighter monetary regime. This was the ninth interest rate rise since then, and the biggest one. The earlier eight increases were of 25 basis points each.

Two, the policy expects to foster an environment of price stability that is conducive to sustaining growth in the medium term, coupled with financial stability. Third, it will manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission, nor a large deficit choking off fund flows.

Giving a rationale for giving preference to fighting inflation at the altar of growth, the RBI governor said over the long run, high inflation was inimical to sustained growth, as it harmed investment by creating uncertainty.

The current elevated rates of inflation pose significant risks to future growth. Bringing these down, therefore, even at the cost of some growth in the short run, should take precedence.

High oil and other commodity prices and the impact of the anti-inflationary monetary stance will moderate growth. The apex bank, in this growth and inflation calculation, has assumed a normal monsoon, and crude oil prices averaging $110 a barrel over the full year 2011-12.

RBI pegged the economic growth for 2011-12 at 8 per cent, lower that the estimated 8.6 per cent for the year gone by (2010-11).

The factor that shaped the outlook and monetary strategy for 2011-12 was that higher inflation may persist, and indeed get worse, since headline and core inflation have significantly overshot even the most pessimistic projections over the past few months. This raises concerns about inflation expectations becoming unhinged. On the positive side, the likely moderation in demand should help reduce pricing power and the extent of pass-through of commodity prices.

Source: Business Standard
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Banks told to set aside more funds for bad, restructured loans

MUMBAI: The Reserve Bank of India (RBI) has asked banks to set aside more money for bad and restructured loans , a move which will impact their overall cost and has come as a surprise to most bankers. Higher provisions for bad loans comes within a week of the central bank doing away with mandated 70% provision coverage ratio (PCR) norm. SBI chairman Pratip Chaudhuri said, "This comes as a relief. Overall this is a more prudential provisioning requirement and more aligned to international practices."

Among the major changes, banks will now have to set aside 15% as provision for substandard loans -- loans where interest or principal is not paid for 90 days against 10% earlier --and set aside 25% (20% earlier) for unsecured substandard loans. According to S Raman, CMD of Canara Bank , "The impact on the bottomline will depend on the extent to which a bank is able to pass on the high cost of provisions to borrowers." RN Pradeep, CMD of Corporation Bank , said: "It has been rationalised and it is better than 70% PCR that banks were earlier required to maintain on an ongoing basis." B Prabhakar, executive director of Bank of India, said that provisions for incremental NPA will go up by 10% for the banking sector.

Also, provisions on restructured accounts classified as standard advances will be 2% in the first two years from the date of restructuring (0.25-1 %) and on restructured accounts classified as NPA, when upgraded to standard category, provisioning will be 2% in the first year from the date of upgradation (0.25-1 %). Provision for secured loans in doubtful category for one year will be 25% (20%) and secured between one to over three years loan in doubtful category will attract 40% (30%) provisioning.


Source: EconomicTimes
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Tuesday, May 3, 2011

Now, banks can invest 10% of networth in MFs

To stop the circular movement of funds between banks and debt-oriented mutual funds (DoMF), the Reserve Bank today limited bank investment in liquid schemes of such funds at 10% of their net worth.

"The investment in liquid schemes of DoMFs by banks will be subject to a prudential cap of 10% of their net worth as on March 31 of the previous year," the Reserve Bank said in its 'Monetary Policy Statement for 2011-12'.

The RBI said that same money was circularly moving between the banks and the DoMFs, which could potentially lead to systemic risk.
It said the liquid schemes continue to rely heavily on institutional investors such as commercial banks for investment. In turn, DoMFs invest heavily in certificates of deposit (CDs) of banks.

"Such circular flow of funds between banks and DoMFs could lead to systemic risk in times of stress/liquidity crunch. Thus, banks could potentially face a large liquidity risk. It is, therefore, felt prudent to place certain limits on banks investments in DoMFs," the RBI said.

Currently, debt oriented MFs manage assets worth about Rs 3.70 lakh crore, of which 40% comes mostly from commercial banks.

"It is likely that debt MF market will become smaller and some PSU banks will have to unwind their position in DoMFs," SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.

The central bank has given a six months time to the commercial banks, whose investments exceed the 10% limit, to comply with the requirement.

Experts said the RBI move could put some pressure on the assets under management of the debt-oriented MFs as banks would now limit inflow into their schemes.

Thunuguntla said majority of investment in debt-oriented MF schemes are done by the PSU banks and private sector banks have only limited exposure.

The aim of DoMFs is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.

Source: Business Standard
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Savings bank deposits to fetch more

Mumbai: Interest rate on the money lying in savings bank accounts will go up by half a percentage point, with the Reserve Bank deciding to hike it to 4 per cent.

The deposit-holders in the savings bank (SB) were receiving the rate fixed eight years ago.

However, the move will raise the cost of borrowing for the banks which leverage high on the 'Current Account, Savings Account'(CASA) funds. The CASA deposits are much cheaper than the time deposits, where the going rate for six-months and above is about 8 per cent.

Unlike the time deposits, the SB account interest rates are still regulated even as the central bank has put out a discussion paper for freeing the same. Interest rates on fixed deposit schemes were deregulated in 1997.

"Pending a final decision on that, we have decided to increase the savings bank deposit interest rates from the present 3.5 per cent to four per cent with immediate effect," RBI Governor Duvvuri Subbarao said while unveiling the annual credit policy for 2011-12.

On the freeing up of SB rates, he said "A week ago, the Reserve Bank put out a discussion paper debating the pros and cons of this proposal..we will review the policy on deregulating the saving bank deposit rates, based on the feedback that we get".

The RBI had said in the discussion paper that the deregulation of these rates would allow banks to introduce product innovations which could benefit the depositors.

Chairman of the Prime Minister's Economic Advisory Council (PMEAC) and former RBI Governor C Rangarajan said: "I would personally opt for deregulation of savings rate at some point".

Source: Financial Express
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RBI hike: Home buyers to pay 'penalty'

New Delhi: Housing prices could go up, as the borrowing cost for developers is set to increase following the hike in short-term lending rates by the RBI, industry body CREDAI said today.

The RBI's decision to hike key rates - lending (repo) and borrowing (reverse repo) rates by 50 basis points to 7.25 per cent and 6.25 per cent respectively - will raise the cost of home, auto and other loans.

It was reacting to the news that the reserve Bank of India (RBI) in its credit policy meet had hiked key rates by 50 bps to

India's largest realty firm DLF said that banks should not increase the interest rates and felt that prices, whether of food or housing, can only be controlled by improving supplies.

Reacting to the RBI's decision to raise the repo and reverse repo rates, Confederation of Real Estate Developers Association of India (CREDAI) Chairman Pradeep Jain said: "This is going to increase the cost of funds for both developers and home buyers."

"Property prices would go up since the input cost will increase because of the increase in borrowing cost to developers," Jain, who is also Chairman of Parsvnath Developers, added.

JLL India Country Head and Chairman Anuj Puri said the RBI's decision was expected, considering high inflation.

Asked about impact on real estate, Puri said: "It will start to have an impact on housing demand because of the increase in interest costs."

He pointed out that housing demand in bigger cities is already sluggish and the hike in short-term rates would further affect the demand. He said, however, the demand in smaller cities might not be affected as the prices are reasonable there.

Jain, however, said there would be no adverse impact on demand, as people need homes.

DLF Group Executive Director Rajeev Talwar said: "Home loan is the safest category of loan. Banks should not increase the interest rates on home loans. They have enough cover to absorb the hike in repo and reverse repo rates."

Talwar hoped the latest hike in repo and reverse repo rates would be the last, as he felt there was no futher scope to raise the short-term lending rates.

On housing demand, he said it would not be affected, as the country's economic growth is robust.

However, real estate consultant Jones Lang LaSalle (JLL) said that developers are unlikely to increase housing prices as demand in bigger cities would be hit due to the RBI's monetary policy.

On the impact on housing prices, Puri of JLL India said, "Developers would absorb the possible increase in their interest cost by lowering their profit margins."


Source: Financial Express
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IDBI Bank hikes rates by up to 50 bps

New Delhi: State-owned IDBI Bank today raised lending and deposit rates by up to 50 basis points soon after the Reserve Bank's monetary policy action, a move likely to be followed by other lenders in the coming days.

In response to increase in cost of funds and keeping in view the market conditions, the bank has decided to increase both base rate and Benchmark Prime Lending Rate (BPLR) by 50 basis points each, IDBI Bank said in a statement.

With the increase, base rate or the minimum lending rate will be 10 per cent and BPLR would be 14.50 per cent, it said.

Both new and existing housing, auto and other loans will become costlier by at least 50 basis points.

At the same time, depositors will earn higher interest for the fixed deposits.

The ALCO (asset liability Committee) of IDBI Bank reviewed the interest rates on retail term deposits and keeping in view the measures announced by RBI, inflation and liquidity scenario, the bank has decided to increase the retail term deposit rates by 25-50 basis points in different maturity buckets, it said.

The revised rates will be effective from May 5, it said.

Earlier in the day, the RBI hiked key short-term lending and borrowing rates by 50 basis points (0.5 per cent) each with immediate effect to tackle inflation. The short-term lending (repo) rate now stands at 7.25 per cent and the borrowing (reverse repo) rate at 6.25 per cent.

Fixed deposit for 46-90 days of IDBI Bank will earn higher interest rate of 6.50 per cent from the existing 6 per cent while 91 days-6 months term deposit rates would go up by 25 basis points to 7.75.

At the same time 270 days-1 year fixed deposit rate will go up by 50 basis points to 8.50 per cent and term deposit with 500 days maturity will earn 9.50 per cent, up 25 basis points from existing rate.

Source: Financial Express
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RBI caps bank investments in MFs

Mumbai: To stop the circular movement of funds between banks and debt-oriented mutual funds (DoMF), the Reserve Bank today limited bank investment in liquid schemes of such funds at 10 per cent of their net worth.

"The investment in liquid schemes of DoMFs by banks will be subject to a prudential cap of 10 per cent of their net worth as on March 31 of the previous year," the Reserve Bank said in its 'Monetary Policy Statement for 2011-12'.

The RBI said that same money was circularly moving between the banks and the DoMFs, which could potentially lead to systemic risk.

It said the liquid schemes continue to rely heavily on institutional investors such as commercial banks for investment. In turn, DoMFs invest heavily in certificates of deposit (CDs) of banks.

"Such circular flow of funds between banks and DoMFs could lead to systemic risk in times of stress/liquidity crunch. Thus, banks could potentially face a large liquidity risk. It is, therefore, felt prudent to place certain limits on banks investments in DoMFs," the RBI said.

Currently, debt oriented MFs manage assets worth about Rs 3.70 lakh crore, of which 40 per cent comes mostly from commercial banks.

"It is likely that debt MF market will become smaller and some PSU banks will have to unwind their position in DoMFs," SMC Global Securities Strategist & Head of Research Jagannadham Thunuguntla said.

The central bank has given a six months time to the commercial banks, whose investments exceed the 10 per cent limit, to comply with the requirement.

Experts said the RBI move could put some pressure on the assets under management of the debt-oriented MFs as banks would now limit inflow into their schemes.

Thunuguntla said majority of investment in debt-oriented MF schemes are done by the PSU banks and private sector banks have only limited exposure.

The aim of DoMFs is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.


Source: Financial Express
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igh savings account rates may hit net interest margins for banks: Crisil Research

MUMBAI: Higher savings account interest rates may pull down net interest margins for banks by around 10 basis points but the impact on net profit will be partly offset by higher fee income, Crisil Research said in a note on Tuesday.

"The impact would be higher for banks with a higher proportion of savings accounts in their deposit mix," Ajay Srinivasan, head of Crisil Research, said.

For large banks such as State Bank of India , Punjab National Bank , HDFC Bank ,and ICICI Bank savings accounts constitute 30-35 percent of their total deposits. For relatively smaller banks it is lower at 15-20 percent.

The pressure on net interest margins is likely to further increase if the RBI deregulates savings account deposit rates, Crisil said.

To compensate for this rise in cost of deposits, banks may impose additional charges for providing various facilities on the savings account such as charges for non-maintenance of minimum balance requirement, additional cheque issue charges, and a limit on the number of free transactions, it said.

As a result, the impact on net profit due to higher costs will be partly offset by the increase in fee income, it said.



Source: EconomicTimes
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Uncertainty continues over licences to new private banks

MUMBAI: The Reserve Bank on Tuesday said the uncertainty over issuing guidelines for new bank licences is likely to continue for some more time as it is in consultation with the government over the draft norms.

"There is some uncertainty about the time-frame for issuing new bank guidelines. We are discussing (the issue) with the Government," RBI Governor D Subbarao told reporters here today.

"We must see where we agree and if there is any difference of opinion, we must resolve that so the legislation for amendment to the Banking Regulation Act, which is a pre-condition for the new bank licence framework (is passed)," he said.

The RBI was hoping that the legislation would go through in the Budget session but it got curtailed. There is some uncertainty about the timeframe as some loose ends are still to be tied-up, he said. "I am hoping that sooner than later the guidelines will be ready," Subbarao said.

In the Budget 2011-12, Finance Minister Pranab Mukherjee had said the RBI plans to issue guidelines for the grant of new banking licences before the close of 2010-11. However, that deadline was missed.

The Reserve Bank had released the discussion paper on licensing of new banks in August 2010, seeking views of banks, NBFCs, industrial houses, other institutions, and the public.

The discussion paper reviewed the international and Indian experience on various issues and also indicated possible approaches with the pros and cons of each of the approaches.

Thereafter, detailed discussions were held with various associations of stakeholders from the industry, banks, NBFCs, and MFIs and some consultants in October, 2010.

Last month, the Finance Ministry said it is holding consultations with RBI and will approve the draft guidelines for granting new banking licences within 15 to 20 days. However, the guidelines have not been issued yet.

Various entities like Reliance Capital , India Bulls, Religare, IFCI and Aditya Birla Financial Services are said to be mulling an entry into the banking space.

India at present 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.

Talking about allowing more foreign banks in the country, the RBI in its policy statement said that the comprehensive guidelines on the mode of presence of foreign banks in India are being formulated, keeping in view the suggestions and comments on the discussion paper, received from all concerned.

A discussion paper on presence of foreign banks in India was released by the central bank in January 2011, inviting comments from stakeholders and public on the mode of presence of foreign banks through branch or wholly-owned subsidiary.

Source: EconomicTimes
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