Saturday, June 11, 2011
10:55 PM Blogger
Raghunathganj, West Bengal: Union Finance Minister Pranab Mukherjee today said 73,000 villages in the country would have banking facility by next year.
"By March 31, 2012, banking facility will be available in 73,000 villages across the country going by the current pace of work," Mukherjee said after inaugurating a Punjab National Bank (PNB) branch at Talai under Raghunathganj police station area in Murshidabad district.
Mukherjee said the government wants to enable every citizen of the country to avail banking facility in future.
He said Talai was among the 117 villages of the country to have been chosen by the PNB to mark its 117th year, where branches were being set up and local development projects undertaken.
Mukherjee also inaugurated an agri-training centre in the village and hoped it would help farmers acquire modern farming skills for better yield.
"Agriculture should prosper through modern technology," he said.
The training centre was set up jointly PNB and the ITC group.
Source: Financial Express
Friday, June 10, 2011
7:02 PM Blogger
Mumbai: Taking a strong note of State Bank of India's huge profit erosion for March quarter due to higher provisions, accounting regulator ICAI said it will send a letter asking the country's largest lender to explain the reasons for higher provisions for bad loans.
"We have decided to send a letter to SBI to enquire about the reasons which led to an increase in provisions, to explain a rise in provisions in the March quarter over that in December (2010) quarter," The Institute of Chartered Accountants of India's (ICAI) President, G Ramaswamy, said.
The letter seeking explanation from SBI will be sent within a week and further action on the issue will depend on SBI's response, Ramaswamy said.
The ICAI will also be writing to banking watchdog Reserve Bank and capital market regulator Sebi with regard to the issue, he added.
Such a move by ICAI will only compound the worries of the nation's largest lender as RBI Deputy Governor K C Chakrabarty had also recently questioned the practice of banks reporting fall in profits after a change of guard.
SBI's Q4 profits plunged by nearly 99 per cent to Rs 20.88-crore for the quarter ended March 31, 2011 versus Rs 1,866.60-crore it had posted for the same period last year.
One of the major denting factors was a 82 per cent jump in its total provisioning which increased to Rs 6,059-crore.
Source: Financial Express
7:00 PM Blogger
New Delhi: India's largest bank The State Bank of India (SBI) has breached RBI's credit exposure norms during three consecutive years with regard to its loans provided to Mukesh Ambani-led Reliance Industries (RIL).
The public sector lender, which also has significant exposures to troubled Air India besides certain telecom firms being probed in relation to the 2G scam, has now disclosed that its credit to RIL was in excess of the limits prescribed under the RBI's prudential credit norms.
Detailing the cases where it breached prudential limits for single-borrower exposure during the fiscal ended March 31, 2011, SBI has named RIL as also public sector majors Indian Oil and BHEL as three such borrowers in its annual report.
This is the third straight year when SBI has exceeded the single-borrower ceiling with regard to RIL, as per the bank's annual reports for the past three financial years.
However, the bank brought down its exposure to RIL within the limit on the last date of the previous fiscal, ie March 31, 2011, according to the SBI annual report.
The public sector lender had provided credit in excess of prudential norms to RIL during 2009-10 and 2008-09 also.
During the year 2009-10, the bank's credit exposure was in excess of prudential limits for Reliance Industries, Indian Oil Corp (IOC), BHEL and Tata Group.
Prior to that, SBI exceeded prudential credit limits during 2008-09 with regard to its exposure to RIL and IOC.
As per RBI guidelines, the exposure ceiling limits are 15 per cent of capital funds in case of a single borrower and 40 per cent of capital funds in the case of a borrower group.
However, the credit exposure to a single borrower can go up to 20 per cent, if the additional 5 per cent exposure is on account of extension of credit to infrastructure projects.
Similarly, the credit exposure to borrowers belonging to a group may go up to 50 per cent, if the additional 10 per cent exposure is for credit to infrastructure projects.
The bank's exposure to telecom companies recently came under criticism as some of these companies are facing probes in connection with the 2G scam involving alleged breach of regulations in allotment of licenses.
In an analyst conference after the bank's full-year results for 2010-11, SBI disclosed that its exposure to telecom companies was Rs 22,600 crore (3 per cent of its loan book), while exposure to telecom companies under investigation was Rs 1500 crore.
Besides, its exposure to airline companies, including troubled Air India was Rs 4,500 crore.
The bank also disclosed a total exposure of Rs 1,00,000 crore in the infrastructure sector, including Rs 30,000 crore to the power sector.
With regard to single-borrower exposure limit exceeded in 2010-11, SBI said in its annual report, that its credit to RIL breached the prudential ceiling on three occasions during the year -- between April and July 2010, from August to October 2010 and from November 2010 to February 2011.
Between April and July 2010, SBI's exposure to RIL was Rs 15,815.48 crore, as against a ceiling of Rs 13,646.26 crore, while the exposures exceeded the respective limits by well over Rs 1,000 crore on two other occasions also.
The outstanding exposure to RIL as on March 31, 2011 stood at Rs 5,645.44 crore, which was within the limits.
For IOC and BHEL also, the credit exposure exceeded the ceiling on three occasions during 2010-11.
During the year 2009-10, the credit exposure exceeded the prudential ceilings on three occasions each for IOC, RIL and BHEL, while the exposure was in excess of the limit for Tata Group on two occasions.
For 2008-09 also, the credit exposure was in excess of the permitted level on three occasions for both RIL and IOC.
Source: Financial Express
9:05 AM Blogger
MUMBAI: The State Bank of India, which shocked investors with a 99% plunge in quarterly earnings , will scrap the annual interest rate reset clause on all loans and move to uniform base rate-linked payments to smoothen out the fluctuations in its profitability.
"Most term loans have one-year reset clause, which I think is cumbersome both for the company as well as for the bank," SBI chairman Pratip Chaudhuri told ET. "So, from now on, we will give term loans which will be linked to our base rate," the floor rate below which it won't lend to anyone. Banks' profitability gets squeezed whenever there is a movement in interest rates as borrowers are charged with a lag effect, while deposit rates rise immediately.
Most term loans have a one-year reset clause where the borrower's rate rises, or falls, at a pre-specified date even if the benchmark rates change. This leads to banks losing out when deposit rates rise, and benefits when deposits fall. The net interest margin, a measure of profitability fluctuates because of this reset clause.
"Having a reset every year suppresses our returns... it leads to uncertainty for corporates," Mr Chaudhuri said.
The State Bank of India will give all loans linked to its base rate, now at 9.25%. The benefits of the move could not be quantified. Corporates looking at long-tenure loan often bargain for a term loan where interest rate is fixed for at least one year.
In the past, SBI burnt its fingers after the central bank raised interest rates since it had committed to give borrowers a fixed rate loan at lower rates. "So we will make the process simpler and I think that will have impact on our yield on advances," said Mr Chaudhuri.
Also, the country's largest lender has decided not to compromise on margins to retain clients. "If any company at any point thinks that our loan has become expensive, we will give them a prepayment option," he said. Even for retail home loans, SBI has decided not to charge its customers for prepayment of loan, even if the customer is switching over to another bank.
Mr Chaudhuri, who took charge after a five-year reign by Om Prakash Bhatt, says the bank will focus on long-tenure loans. "I am a strong advocate of longtenure loans. They fetch higher returns," he says.
SBI's net interest margin was 3.32% for 2010-11. In an interview with ET last month, Mr Chaudhuri said he was confident that the margins would improve in the coming quarters.
"The net interest margin (NIM) is the core of banking and I see it coming back. We have readjusted our lending rates on May 10, wherein we will get better compensation. It is a slightly upward moving interest rate cycle, in which loans gets impacted first and deposits get repriced with a lag," he said. SBI has raised lending rate by 100 basis points since February.
Thursday, June 9, 2011
11:04 PM Blogger
State Bank of India (SBI), India’s largest public sector lender, is likely to complete a proposed rights issue of Rs 20,000 crore by December.
A rights issue is a capital raising instrument in which shareholders are offered additional shares at a discount to the market price, without diluting the promoter’s holding in the company.
“Out of the proposed issue size of Rs 20,000 crore, government’s share would be Rs 12,000 crore. Currently, we are in talks with the government to get their share of the contribution. We have a very supportive stand from them,” SBI Chairman Pratip Chaudhuri said on the sidelines of a function organised by the State Bank of Mysore. He said the government would maintain the public sector nature of all nationalised banks. Currently, the government’s holding in SBI stands at 59 per cent. SBI’s proposed rights issue is expected to augment the bank’s lending operations by boosting its capital adequacy ratio.
On the merger of subsidiary banks, Chaudhuri said, “We had merged State Bank of Indore in 2010. It takes a minimum of two years to absorb a bank into the system. So, we would take a view on further mergers after 2012.”
Chaudhuri said financial reporting standards of banks were in compliance with Reserve Bank of India (RBI) guidelines. “Financial reporting standards prescribed by RBI are in compliance with old-world standards. All banks have recruited chartered accountant firms to comply with the reporting standards. I don’t think there is anything lacking in the reporting standards of banks,” he said.
RBI Deputy Governor K C Chakrabarty had, earlier this week, taken a dig at financial reporting standards of Indian banks after some banks saw their profits decline following a change in leadership. SBI, under new chairman Pratip Chaudhuri, had reported its lowest fourth quarter profit in a decade. The drop in profit was primarily attributed to high provisioning. SBI’s total provisions rose 82.1 per cent to Rs 6,059 crore, while provisioning for bad loans rose to Rs 3,264 crore during the fourth quarter of the last financial year.
The bank is, however, hopeful of recording good numbers in the first quarter of the current financial year. “We were slightly taken by surprise at the provisioning for pension in the fourth quarter. Now, provisioning has been carried out, and initial indications show earnings would be better in the first quarter,” Chaudhuri said. He added the bank’s net interest margin would be better, despite a rise in deposit rates, since the bank had recently raised its base rate. In May, the bank has increased its base rate by 75 basis points to 9.25 per cent after the policy rate increase by the central bank.
“We expect credit growth rate to be 16-19 per cent in the current financial year in rupee denomination. We are also seeing a strong demand for foreign currency loans,” he said. He ,however, added with rising interest rates, companies may opt for external commercial borrowings to raise money, and this would hurt credit growth.
SBI is also likely to raise funds through medium-term notes (MTN) in the second quarter. “We had a $5-billion MTN programme, which was raised to $10 billion. We will hit the market when there is a visibility of assets. Hopefully, we should do it in the second quarter of the current financial year,” he said. He added the bank would open a wholly-owned subsidiary in Australia next year with an investment of $75. The bank would also open branches in London and Singapore.
Source: Business Standard
11:02 PM Blogger
Banglaore: Computer hackers have breached Citigroup's computer network and have accessed data on hundreds of thousands of its card customers, the Financial Times said.
Citigroup said the breach, which affected about 1 per cent of its card customers, was discovered in early May through routine monitoring, the newspaper said.
According to the bank's annual report, Citi Cards has about 21 million customers in North America.
The breach occurred at Citi Account Online, which holds basic customer information such as names, account numbers and e-mail addresses.
Other information such as birth dates, social security numbers and card security codes are held elsewhere and were not compromised, Citi said.
"The bank said it had contacted law enforcement officials and tightened its fraud detection procedures, but declined to provide further details or to say whether customers had reported suspicious transactions," the FT reported.
Though Citigroup said the breach involved only credit card accounts, the FT said that several people have told it their debit card details were compromised.
Hacking into companies is increasingly becoming common. Lockheed Martin, PBS and Sony have all recently had their security systems violated.
Source: Financial Express
11:01 PM Blogger
New Delhi: India along with the US and UK accounted for 70 per cent of the brands targeted by phishing in April, says a global survey.
RSA, the security division of EMC, in its May Fraud Report said the US accounted for 42.5 per cent of brands targeted by phishing, followed by UK (19 per cent) and India (8 per cent).
Worldwide as many as 17,376 attacks were launched in April, a fall of barely 1 per cent as compared to March and the number of brands attacked also dropped by 12 per cent.
However, with nearly identical number of attacks and fall in number of brands attacked, means that even though fewer brands were attacked a larger portion of them suffered a higher number of attacks compared to March.
RSA said in April, 301 brands were targeted by phishing attacks worldwide, out of which eight endured their first phishing attack.
According to RSA, the most common way fraudsters operate is to use stolen credit cards to purchase airline tickets, an industry which has lost nearly USD 1.4 billion in 2010 due to online payment fraud.
Another way that is generally used is to secure access to consumers' loyalty and rewards program accounts and cash out available points in exchange for travel vouchers.
"RSA has witnessed multiple phishing attacks recently targeting airline customers with the goal of obtaining their login credentials in order to monetise their reward points," the report said.
Vast amount of personal and financial data of airline as well as hospitality industry customers are now being stored online and cyber criminals are taking advantage of this to exploit the industry and its customers, the report added.
The US, UK, Germany and Canada hosted over 80 per cent of all phishing attacks in April.
"Since March, 2010, the countries that have consistently hosted the highest portions of phishing attacks have been the US, UK, Canada, Germany, France, Russia, and South Korea," the report said, adding that over the past year, the US and UK have absorbed a combined average of 65 per cent of the attacks.
Phishing is a way to acquire sensitive information like usernames, passwords and credit card details by posing as a trustworthy entity in an e-communication.
Source: Financial Express
10:57 PM Blogger
New Delhi: Restaurant chain Barista Lavazza today said it has tied-up with Visa to launch a new facility at its outlets which will enable customers to withdraw money.
"As per Reserve Bank of India guidelines, Visa debit cardholders can withdraw an amount of up to Rs 1,000 in a day at any Barista Lavazza outlet," the company said in a statement.
This will enable all Visa debit cardholders to not only pay for their coffee and snacks but also withdraw cash at over 170 outlets located across the country, it added.
There will be no charges levied on the card-holder for the cash withdrawal transaction.
"Further, cardholders are not obliged to make a purchase to get cash. The service is currently rolled out in Delhi NCR and Mumbai. It will be extended to other parts of the country over the next few weeks," the statement said.
As part of this association, Barista Lavazza is also offering up to 30 per cent discounts on customised meal deals on all Visa Debit card transactions.
Source: Financial Express
10:55 PM Blogger
New Delhi: Bank fixed deposits would continue to remain more attractive for savers than long-term deposits under small savings schemes of post office despite the hike in interest rates proposed by the government panel.
At the current market condition, the term deposit rates are as much as 50 basis points higher than the returns offered by small savings scheme as recommended by the Committee headed by RBI Deputy Governor Shyamala Gopinath.
For instance, five-year fixed deposit rate under small savings scheme will fetch 8 per cent if the government accepts the suggestion of the panel.
However, interest rates offered by the banks for same maturity period is about 8.5 per cent, 50 basis points higher than what has been recommended by the panel recently.
Currently, five-year term deposits in the post offices earn 7.5 per cent.
At the same time, 10-year National Savings Certificate (NSC), a new category proposed by the panel, will provide a return of 8.4 per cent to the depositors, compared to 8.75 per cent offered by the country's largest lender State Bank of India (SBI) for the same maturity.
Interestingly, the difference of rates is wider when it comes to less than five-year fixed deposits.
SBI fixed deposit between three years and five years offers a card rate of 8.25 per cent as against 7.5 per cent to be offered by the product under the small savings scheme.
For two-year term deposits, banks are offering as much as 8.75 per cent as compared to 7.2 per cent proposed under the small savings scheme.
Lower returns provided by small savings scheme has resulted in the shift towards the bank fixed deposit schemes.
This is evident from the fact that rate of growth of bank deposits are higher than the small savings scheme.
For example, bank deposit rate registered a growth of 17.2 per cent and the outstanding deposit stood at Rs 44,92,826 crore in 2009-10 as against 8.8 per cent growth witnessed under the small savings scheme in the same year.
The outstanding deposit was 7,28,447 crore at the end of March 2010.
Source: Financial Express
Wednesday, June 8, 2011
8:43 PM Blogger
Reserve Bank of India (RBI) executive director H R Khan has emerged as the front runner for the post of deputy governor in the central bank. Khan would replace Shyamala Gopinath who retires on June 20, after a seven-year stint as deputy governor.
According to sources, the finance ministry has cleared Khan's appointment for the deputy governor’s post. The proposal would now be referred to the Appointments Committee of the Cabinet (ACC), which is headed by the prime minister. A search committee to select a new deputy governor, headed by RBI Governor D Subbarao, had suggested two candidates — H R Khan and G Gopalakrishna — for the deputy governor's post, after interviewing seven RBI executive directors last month.
If appointed a deputy governor, Khan would supersede three executive directors — V K Sharma, V S Das and G Gopalakrishna. An RBI deputy governor can be appointed for a maximum of five years and the retirement age for a deputy governor is 62. To be eligible for the deputy governor’s post, a candidate must have at least two years of service left.
As an executive director, Khan looks after four portfolios — the foreign exchange department, external investment and operations, government and bank accounts and internal debt management. Gopinath, who looks after the foreign exchange department, is also in charge of payments and settlement, non-banking supervision, the financial stability unit and external investment and operations.
The other RBI deputy governors are K C Chakrabarty, Subir Gokarn and Anand Sinha. RBI is also increasing the number of executive directors from seven to nine.
Source: Business Standard
8:33 PM Blogger
Citigroup has agreed to sell a portfolio of private equity assets to Axa Private Equity for $1.7 billion, the French insurer said on Wednesday.
The portfolio comprises 207 stakes in various buyout funds as well as some direct stakes in companies, Axa said, adding that Citi, which has been looking to focus on its core businesses, was financing the purchase.
Source: Business Standard
8:25 PM Blogger
MUMBAI: The Indian private banking arm of Royal Bank of Scotland (RBS) plans to raise its headcount by 50 percent to 120 by mid-2012, but fewer investment avenues for wealthy clients in India is a challenge for the sector, a top official said.
The unit, which plans to triple its assets under management to $3 billion in India over the next four-to-five years, sees strong long-term growth in wealth management business in the country, said Shiv Gupta, head of India private banking at RBS.
Asia, home to more than 3 million millionaires, has become a battleground for private banks as global and Asian players compete for market share in a region that is fast outpacing the United States and Europe in economic growth.
"Lot of people who are looking at India as a strategic growth market are looking at the potential of India rather than what it represents just right now," Gupta, who has been with RBS Group for 10 years, told Reuters in an interview.
"The scale in this opportunity exists in the longer term and what we might be seeing today are signs of life in the scope of the wealth spectrum today but what you are really gearing yourself to is longer term opportunity."
Asset under management in the sector are poised to rise to $1.2 trillion by 2014 on the back of a fast-growing economy and rising incomes, up from $780 billion last year and $330 billion in 2008, a report by consultancy firm Celent said.
Global banks such as RBS, Credit Suisse , Morgan Stanley and Standard Chartered and many local players are fast expanding their wealth management business in India, aiming to hire hundreds of bankers between them.
Barclays , which has about 130 employees in India's private banking business, plans to raise the headcount by 20 percent to 25 percent in 2011, its India wealth unit Chief Executive Satya Bansal said last week. [ID:nL3E7H306H]
Despite the strong growth prospects, limited investments opportunities for clients is a challenge, said Gupta of RBS private banking unit, which manages clients with at least $1 million in investible surplus.
"If you look at the alternative investment space for example, there are no hedge funds for all practical purposes. If you look at the fixed-income market on the whole, it's pretty shallow and pretty narrow," Gupta said.
"Those are the kinds of limitations that are born out of the regulatory environment that obviously do not allow you to widen and create greater depth and breadth off the investment offerings to clients in India."
Wealth in India and China will increase at a compounded annual growth rate of 18 percent and 14 percent, respectively from end-2010 through 2015, faster than the 5.9 percent growth in global wealth, a Boston Consulting Group report showed.
Private banks are hiring aggressively in India, which has 190,000 millionaire households, small compared to 5.2 million such households in the United States and 1.1 million in China, but it is one of the fastest growing markets in the world.
"The scope of the opportunity, both taking into account where we are and the way we are expected to grow, creates for a very large pie for people to address even if you incorporate all the people who are entering the industry now," Gupta said.
The market volatility, rising inflation and slowing growth are, however, making private bank clients cautious about their investments decisions in the short-term, Gupta, whose client base include non-resident Indians and entrepreneurs, said.
"But that doesn't mean that there aren't clients who are ready to make decisions from a longer term perspective as well," he said, adding investors were now preferring short-term fixed-income opportunities due to rising interest rates.
8:08 PM Blogger
MUMBAI: Indian banks will grow at a fast clip in the next 3-5 years, but their margins will remain under pressure this fiscal as lenders are unlikely to pass on all funding costs to borrowers in a high interest rate environment, Standard & Poor's said on Wednesday.
"There is a fairly high amount of pressure on the funding costs. There is a broad upward movement of the interest rates, which is putting an upward pressure on the funding rates," analyst Geeta Chugh told reporters in a teleconference.
Net interest margin -- that shows the difference between interest earned and interest paid out -- has been a major concern for Indian banks, as the government is left with no choice other than the blunt instrument of more aggressive interest rate increases even as growth momentum slows.
Bankers recently sounded cautious while fielding reporters' queries on margin outlook for FY12, with most giving out a conservative outlook of about 3 per cent.
"We are seeing that there is a migration happening from savings deposit to term deposit," Chugh said, citing that as another reason for a hike in funding costs.
Chugh, however, is positive about banks' asset quality improving, and sees credit growing 20 per cent in FY12, despite a series of interest rate hikes by the central bank, which has raised rates nine times since March 2010.
"India's economy is growing, the market is fairly under penetrated with private sector credit to GDP (gross domestic product) at just about a little over 50 per cent, the demographics for India are fairly favorable and the regulatory framework is prudent," she said.
"The key sector that will lead the growth in FY12 will be infrastructure, metals and mining, and over a medium term perspective we also see retail lending to provide an impetus to credit growth."
Tuesday, June 7, 2011
9:19 PM Blogger
New Delhi: ICICI Bank has emerged as the single Indian entity considered worth investing by Libyan dictator Muammar Gaddafi and the investment has given an impressive return of over 25 per cent in past one year alone.
As per the investment portfolio of Libyan Investment Authority, a sovereign fund controlled by Gaddafi, it had invested $29.6 million in the ICICI Bank ADRs (American Depository Receipts), the US-listed securities of India's largest private sector bank.
The portfolio has been made public by an independent campaign group Global Witness along with the financial details of Gaddafi-controlled fund as on June 2010. It could not be ascertained that when the investment was made and whether the fund is still invested in ICICI Bank.
When contacted, an ICICI spokesman declined to comment on the issue.
As per the portfolio, the value of the investment stood at about $32 million as on June 2010, since when the ICICI bank shares have appreciated by over 25 per cent.
Accordingly, the investment is estimated to be worth $40 million currently, marking an appreciation of about USD 10 million (about Rs 45 crore) or over 33 per cent since that period.
However, the investment is very small, compared to both the overall size of the fund as also the shareholding derived in ICICI Bank by virtue of this investment.
The investment would account for only about 0.1 per cent stake in ICICI Bank, and that too with securities without voting rights.
As per the document released by Global Witness, the total investment position of the fund stood at about $53 billion as on June 2010. This puts the investment made in ICICI Bank at just about 0.05 per cent of the fund size.
The fund has investments across the world, the most prominent being the US government treasury bonds, as also bonds and stocks of large financial and other corporations from across the world. A miniscule amount of investment has also been made in ICICI Bank, the single Indian entity to find a place in this portfolio.
Listed as a non-strategic equity investment, the fund purchased ICICI Bank ADRs worth $29.62 million (nearly Rs 135 crore), but the time of investment is not mentioned.
ICICI Bank's shares are listed in India on BSE and NSE, while its ADRs are listed at New York Stock Exchange (NYSE). Banking experts said any company would generally have no control over such small size investments and ADRs anyway do not carry any voting rights.
As per Global Witness, HSBC and Goldman Sachs were among the key western bankers for Gaddafi's regime. Other banks and financial firms listed in the document include Societe Generale, UniCredit and the Arab Banking Corporation.
Global Witness said the Gaddafi family had significant personal control over the state funds invested in the Libyan Investment Authority. It quoted the Prosecutor of the International Criminal Court as saying that "Gaddafi makes no distinction between his personal assets and the resources of the country".
The report also said the fund owned shares worth billions of dollars in household name companies such as General Electric, BP, Vivendi and Deutsche Telekom.
The fund had listed strategic equity investments worth over $3 billion in companies like Unicredit, ENI, Siemens, Pearson, BASF and Repsol. Besides it had made non-strategic investment worth over $6.8 billion in companies like GE, Bayer, BP, AT&T, Pfizer, Vodafone, Deutsche Telekom, France Telecom, Nokia, Lafarge, Tesco, Exxon Mobil, ICICI Bank, Sanofi Aventis, Stanchart, Nestle and Royal Dutch Shell.
Source: Financial Express
9:29 AM Blogger
MUMBAI: Violent swings in banks' earnings whenever there is a change of guard, known as the new broom syndrome, is not reflective of best practices, said a central banker in a veiled caution to local lenders to end accounting jugglery to dress up performance.
"Financial reporting should not be as per the minds of bank chairmen," said KC Chakrabarty, deputy governor at the Reserve Bank of India . "When bank chairmen change, profits tend to fall. Things should not turn topsy-turvy if bank chairmen change."
The regulator's comment comes less than a month after the nation's biggest lender, State Bank of India , shocked investors with a 99% plunge in net profit for the fourth quarter of fiscal 2011 as it boosted provisions for various loans, including standard ones. This, some believed, could have been avoided if chairman Pratip Chaudhuri's predecessor, OP Bhatt, had followed some standard practices, instead of getting into a dispute with the central bank over provisions.
"We could see it coming," Chaudhuri told ET in a recent interview. "There was deliberation at the end of the third quarter that a provision should be made. Our auditors were insistent that this provision be made, but the bank management persuaded them to believe that possibly it should be feasible to get a favourable dispensation from the RBI. It does not depend on the quality of the asset, but the view that the RBI takes."
That was not the first time it happened at a state-run bank. When AK Khandelwal took charge as Bank of Baroda chairman from PS Shenoy well over three years ago, profits tumbled. Similarly, Bank of India reported a fall in earnings after Alok Misra succeeded TS Narayanasamy as chairman of the Mumbai-based bank.
This has happened at SBI too in the past. When Janki Ballabh succeeded GG Vaidya in November 2000, net profit declined 45% in the immediate quarter and began improving thereafter. Bhatt, who presided over SBI for five years until March, followed the same script. The quarter after he took charge in June 2006 witnessed a 35% plunge in profits.
Unlike private banks where overall earnings of chief executives hinge a great deal on stock price movements, thanks to generous stock options, salary packages of state-run bank chiefs are linked to that of top civil servants and also to earnings and revenue growth advances of their banks. But even after accounting for incentives, their salaries are way below that of senior executives in private banks.
"It has become a trend for a new chairman to provide excess provision so that improved numbers can be shown during his time," said Cherian Verghese, former chairman of Union Bank of India . Continuity and reputation of the organisation should be the priority. Chairmen should place themselves on a higher pedestal and look beyond their tenure and care for the reputation of the institution on an ongoing basis," he said.
9:27 AM Blogger
Mumbai: India is poised to become the third largest domestic banking sector by 2050 after China and the US, a survey by a leading global accounting and consultancy firm, said.
China could overtake the US in terms of the size of their domestic banking sector around 2023, while India's rate of growth, by contrast is expected to overtake that of China's in the long run, as it has more catch-up potential and its working-age population growth will be much stronger in the long-term, the survey by PriceWaterHouse Coopers said.
The combined domestic banking assets of the 'E7' emerging economies of China, India, Brazil, Russia, Mexico, Indonesia and Turkey will exceed those in the G7 countries like USA, Japan, Germany, the UK, France, Italy and Canada, sooner than predicted before the financial crisis, the survey said.
These emerging economies' banking sectors are expected to outgrow those of the developed economies by an even greater margin than PwC had originally projected before the financial crisis. As per PwC's latest survey, by 2050, E7 countries could have domestic banking assets and profits exceeding those of G7 countries by around 50 per cent.
"China and India could have a combined share of around 35 per cent of global banking assets by 2050. The US, Japan and Western Europe are all projected to see large falls in their share of global banking assets in the coming decades," PwC's leader for banking industry, Harsh Bisht said.
India's share of global GDP in US dollar terms could increase from only two per cent in 2009 to around 13 per cent in 2050 after allowing also for potential real exchange rate increases. This makes it one of the most rapidly growing economies over this time period.
"A fundamental shift in the geography of the world economies will take place during the working lifetime of those at the start of their career with huge implications for job
creation, language learning an financial systems. The GDP of the E7 countries is currently well behind that of their G7 counterparts but we'll see them at level pegging within the next two decades and well ahead within the next four," PwC's chief economist, John Hawksworth, said.
"In the banking world, this shift is happening even faster than anticipated and appears to have been accelerated by the financial crisis as emerging market banks have been relatively shielded from the effects of declining asset values. We could now be talking about global banking assets quadrupling to around USD 300-trillion by 2050, with banks around the world fighting for a share," he said.
However, to sustain these high growth rates, India must continue to pursue growth-friendly policies like investing in infrastructure, opening up its markets to increased competition, reducing budget deficits, increasing rural education levels and reducing bureaucracy.
The report indicated that mergers and acquisitions options are available to both emerging and developed market banks. PwC expects to see a mix of consolidation, foreign banks entering emerging markets and banks from the E7 expanding overseas.
The E7 does not need the G7 for capital, decision making or consumers. So the established economies will have to make a strong case to convince new economy policy-makers of the benefits of inviting foreign competition, the survey said.
Source: Financial Express
9:26 AM Blogger
California-based SVB Financial, the parent of Silicon Valley Bank, is eyeing banking licences in China and India, Asia's No1 and No3 economies, as part of its international expansion, its chief executive said.
The bank, which focuses on lending to the technology, life sciences, venture capital and premium wine industries, has moved into Israel, China, India and Britain as it looks to take its venture capital business model overseas.
The bank, valued at close to $2.5 billion, has a joint venture, which is subject to regulatory approval, in China with Shanghai Pudong Development Bank Co Ltd and has invested in Chinese companies such as Zhejiang Uni-power Guaranty and Zero2IPO Group, and venture capital funds.
"In China, we've announced a joint venture, and our goal is to get a banking license there, and the same in India," Greg Becker said in a telephone interview.
Becker took over as CEO in January to allow previous-CEO Ken Wilcox to focus on developing the China joint venture.
SVB, operates a non-banking financial company in India, but has no joint venture partner there.
"In India, right now, our strategy is to go it alone," Becker said, adding the Indian subsidiary works with established venture capital players and lends to venture-backed companies.
The Indian venture capital market is growing fast and has been a target for the likes of private equity giants KKR & Co, Warburg Pincus and Carlyle Group.
Source: Business Standard
9:24 AM Blogger
The Reserve Bank of India (RBI) wants more and more banks to launch services on mobile, its Deputy Governor Shyamala Gopinath said here today.
Launching Canara Bank's CanMobile, a mobile banking product, she said RBI has already enabled mobile banking and issued guidelines in this regard.
"...And we do hope that more and more banks now join in the launch of this product," she said.
According to Canara Bank's Chairman and Managing Director S Raman, the product is user-friendly, safe, secure and swift.
It facilitates customers to conduct transactions on 24X7 basis from anywhere with the use of mobile handset.
Registered customers of "CanMobile" can now access Canara Bank's services for balance enquiry, viewing of last five transactions, transfer funds intra-bank and inter-bank through Inter Bank Mobile Payment System (IMPS) provided by National Payments Corporation of India (NPCI).
At present, the bank does not levy any service charge for funds transfer.
Customers can daily transfer up to a limit of Rs 50,000 through Java/GPRS enabled mobiles and up to Rs 5,000 through non-Java/non-GPRS enabled mobiles by using Unstructured Supplementary Services Data (USSD)/SMS.
Mobile banking services work on both Java-based and non-Java based applications, bank officials said.
Source: Business Standard
9:22 AM Blogger
Ahead of its mid-quarterly policy review, the Reserve Bank of India (RBI) today said it is monitoring the economic data and also the liquidity situation, and would take a forward-looking view while deciding on the policy action.
"We would monitor various data...and take a forward-looking view and take action," RBI Deputy Governor Shyamala Gopinath told reporters here when asked how the central bank plans to arrest the economic slowdown.
The central bank has raised key policy rates nine times since March 2010, to check inflation, which is hovering above 8%, much above the comfort level of 5-6%.
The RBI is scheduled to come out with mid-quarterly review of the policy on June 16.
The policy initiatives, however, will have to be taken with a view to containing inflation without sacrificing growth, which has started showing signs of a slowdown.
India's economic growth during January-March quarter of 2010-11 slowed down to 7.8% from 9.4% during the corresponding period the previous fiscal.
The GDP growth rate this fiscal is expected to moderate to about 8-8.5% as against the original estimate of 9%.
Referring to the issue of liquidity, Gopinath said there was no shortage of funds in the system.
"We are closely monitoring the liquidity situation. We are aware that the market is in repo mode, they are borrowing from us and that is something in line with our monetary stance," she said.
The Reserve Bank, Gopinath added, "does not see much of a stress in the call rates...The short term rates, but we are closely monitoring the situation. We are aware that advance tax payment will start a week later. We invariably monitor the situation".
On capital inflows, Gopinath said there was nothing that the central bank was "really concerned about", especially with regard to stability on the external front.
As a matter of policy, she said, Foreign Direct Investment (FDI) was welcome into the country.
Source: Business Standard
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