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Saturday, June 25, 2011

RBI warns banks on real estate valuation frauds

Alarmed by inflated valuations of real estate properties for the purpose of loans, the Reserve Bank of India (RBI) has asked all banks to submit an action-taken report on the issue.

The matter was raised last week by RBI Governor D Subbarao during a meeting of the Board for Financial Supervision (BFS). After this, top RBI officials met representatives of the banking industry earlier this week. The regulator reminded bankers about the prudential norms on valuation of assets and asked them to follow these in both letter and spirit.

Sources close to the development said the sharp spurt in such cases pointed to a nexus between independent valuers appointed by banks and a section of real estate developers. “RBI has come across a high incidence of such frauds in recent times while reviewing the annual financial inspection reports of banks. As a result, the matter was taken up by BFS and the governor wanted the issue to be addressed on a priority basis,” said a banking industry official.
BFS was formed in 1994 in the wake of the Harshad Mehta scam. Its objective is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. BFS, which meets once a month and discusses annual financial inspection reports and various issues related to the sector.

The sources said banks were “reminded” that valuation agencies indulging in such practices could be blacklisted. They were advised to share the names of the blacklisted agencies with each other.

Such frauds affect banks when they have to liquidate a property due to a loan default. During liquidation, it is often found that the value of the property is far less than what was mentioned when the loan was sanctioned. RBI has noticed frequent occurrence of such incidents.

Confirming the development, Indian Banks’ Association (IBA) CEO K Ramakrishnan said RBI discussed the issue with them. “IBA has shared RBI’s concerns with the member-banks. We have assured RBI that banks will exercise caution while evaluating assets.”

According to a note by Macquarie India, non-performing loans in the commercial real estate segment have increased from 1.6 per cent to 2.3 per cent in the past one year. The absolute level of such loans rose 70 per cent last year, particularly for state-owned banks.

In October, RBI raised the risk weightage on residential housing loans of Rs 75 lakh and above, to 125 per cent and capped the loan to value ratio at 80 per cent.

Source: Business Standard
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Sidbi crosses Rs 2 lakh cr in cumulative disbursement

The Small Industries Development Bank of India (Sidbi) today said that it had crossed the milestone of cumulative disbursement of Rs 2 lakh crore as on March 31, 2011.

During 2010-11, Sidbi's outstanding credit to the MSME sector increased by 22% to Rs 46,331 crore. Its asset portfolio crossed Rs 50,000 crore as at March 31, 2011. The net profit after tax increased by 22% to Rs 514 crore from Rs 421 crore.

The net worth of the bank increased to Rs 5,979 crore and the Earnings per share (EPS) improved to Rs 11.42 from Rs 9.36.

Net NPA as percentage of the total outstanding stood at 0.28% as on March 31, 2011, reflecting strong monitoring, persistent follow-up and timely action by the bank, besides adequate provisioning.

Sidbi remains wholly-committed to the development of the MSME sector by way of meeting its various credit and non-credit needs, Sidbi's Chairman and Managing Director, Sushil Muhnot told shareholders at the 13th Annual General Meeting held at Lucknow today.

The bank has crossed the milestone of cumulative disbursement of Rs 2 lakh crore as on March 31, 2011 benefiting more than 325 lakh people, he said.

The bank, alongwith National Stock Exchange, Indian Private Equity and Venture Capital Association (IVCA) and leading angel networks in India, also set up an India Venture Board (IVB), an e-platform for taking the Venture Capital culture in the MSME sector.

Going further, the bank is setting up the SME Exchange with NSE to enable access to capital markets for SMEs, in addition to giving a boost to venture capital industry, Muhnot said.

Source: Business Standard
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IDBI wins NBCC mandate on low fee

IDBI Capital has won the mandate to manage the initial public offer (IPO) of National Building Construction Corp Ltd (NBCC). Most of the other bankers were not willing to match the low fee it quoted.

Last month, the department of disinvestment had called for bids to appoint two merchant bankers for the issue. The government selects bankers through a two stage-process of technical and financial bids. According to the rules, other bidders have to match the fee quoted by the lowest bidder (L1). Last week, 10 domestic banks applied for the mandate, of which 8 qualified in the technical round.

According to sources, IDBI quoted the lowest fee of around Rs 2 crore, including the expenses and therefore, was top in the financial bids. “Most of the banks which qualified in the technical bids had quoted around Rs 5 crore. IDBI’s bid caught them offguard. None of them were ready to match the bid, as that was not enough to even cover expenses,” said a banker involved in the process.

“At Rs 2 crore, you will not be able to meet even the issue expenses. Who wants to make losses in this kind of market on a small issue?” he added.

However, negotiations are on and the issue can be sorted out if Enam Securities agrees to match IDBI’s quotes, said another banker. “It appears that Enam may match the bid. They are likely to get the mandate,” he said. IDBI and Enam officials were not available for comments.

“Enam was second on the list of financial bids. If Enam had declined to match the price quoted by IDBI, then the mandate for the second banker would have been offered to the others on the list,” sources said.

The Bidders include Kotak Mahindra Capital Co, Intensive Fiscal, YES Bank, Avendus, Edelweiss capital, ICICI Securities, ENAM securities, IDBI Capital, SBI and JM Financial.

Foreign banks have stayed away from the issue, owing to its size, said bankers. “Banks take up PSU mandates primarily for league tables, as there is not much to expect on the fee side.

Here, the small size means it’s not going to affect league tables that’s why most foreign banks are not interested,” said a senior banker who applied for the issue.

The central government plans to raise Rs 250-300 crore through the IPO by divesting 10 per cent in the company.

Source: Business Standard
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Wednesday, June 22, 2011

Demat must for promoter holdings: SEBI

Mumbai: Market regulator SEBI today asked the promoters of listed companies to convert their entire equity holding in the dematerialized form by September 2011, failing which it will ban trading of such shares in the normal segment of the market.

"The securities of companies shall be traded in the normal segment of the exchange if and only if, the company has achieved 100 per cent of promoter's and promoter group's shareholding in dematerialized form latest by the quarter ended September 2011", Sebi said in a circular.

It further said trading of shares of those companies, which do not satisfy the criteria of 100 per cent dematerializing of equity of promoters, will be allowed for trading under the 'trade segment' instead of 'normal segment'.

According to Sebi, this was being done to promote dematerialization of securities, encourage orderly development of the securities market and improve transparency in the dealings of shares by promoters including pledge or usage as collateral.

Under the 'trade segment', it is mandatory to take delivery of shares and most companies prefer to get their equities traded under the 'normal segment'.

In September last year, Sebi had "mandated securities of companies to be traded in normal segment, if and only if, the company has achieved at least 50 per cent non-promoter shareholding in dematerialized form".

Source: Financial Express
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Tuesday, June 21, 2011

Banks' investments in mutual funds dip 23%

Banks have been withdrawing from mutual funds after the regulator mandated a cap on their investments in liquid schemes in May 2011. Bank investments have dropped by 23 per cent in a month since the announcement.

According to the data provided by the Reserve Bank of India (RBI), bank investments in mutual funds were down from Rs 1,20,854 crore on May 6 to Rs 93,334 crore on June 3.

In its annual monetary and credit policy for 2011-12, RBI said banks were permitted to invest in mutual funds only to the extent of 10 per cent of their net worth. “Most banks had investments much above 10 per cent and, hence, would have withdrawn in order to comply with the new limits,” said a bond dealer with a domestic brokerage.

The regulator said that bank investments in mutual funds varied significantly depending on liquidity conditions that posed systemic risk. Banks also took advantage of arbitrage opportunity by borrowing at repo rate from RBI and then investing in high-yielding liquid schemes of mutual funds. “With the new mandate in place, banks will not be able to do so anymore,” said the dealer.

Source: Business Standard
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Monday, June 20, 2011

RBI strengthens ties with DFSA

DUBAI: The Reserve Bank of India (RBI) signed a Memorandum of Understanding with the Dubai Financial Services Authority (DFSA) during the visit of a senior DFSA official to Mumbai this week, it has been announced.

The MoU was signed by the Chief Executive of the DFSA, Paul Koster, and RBI Executive Director G Gopalakrishna during a visit by Koster and senior DFSA executives to Mumbai, a statement released here said.

The ceremony at the central office of the RBI took place in the presence of RBI Deputy Governor K C Chakrabarty .

One of the DFSA board members, Apurv Bagri, also attended the meeting.

Koster said the DFSA is honoured to be the first regulator after the China Banking Regulatory Commission to sign an MoU with the Reserve Bank of India, a respected supervisor of one of the world's largest financial systems.

"Indian banks have a significant and growing presence in the Dubai International Financial Centre (DIFC), so this enhancement of information sharing and assistance between the RBI and the DFSA is a critical step to ensuring confidence in each of our regulatory regimes," he said.

"This initiative reflects each authority's commitment to cooperation in relation to prudential oversight and inspections.

"It adopts the model for information sharing developed by the Basel Committee on Banking Supervision and follows similar arrangements the DFSA has with other significant banking supervisors such as the UK Financial Services Authority , Germany's Bundesanstalt fur Finanzdienstleistungsaufsicht, Banque de France, China Banking Regulatory Commission and the United States Federal Reserve.

"The DFSA looks forward to working with RBI for the benefit of both India and the DIFC," he added.

Source: EconomicTimes
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Sunday, June 19, 2011

RBI reshuffles ED portfolios

The Reserve Bank of India (RBI) has re-allocated the portfolios of its executive directors (EDs) following the induction of two new ones. RBI has increased the number of executive directors to nine from seven earlier.

Among the two new ones, B Mahapatra has been given the charge of four departments, including the department of banking operations and development and department of government and bank accounts. P Vijaya Bhasker has taken charge of the department of banking supervision and the department of non-banking supervision, apart from the central security cell.

Before taking charge as ED, Mahapatra was a chief general manager in the department of banking operations and development, while Vijaya Bhasker was the regional director at Bangalore.

Earlier, R Gandhi was looking after the banking operations and development department, while both the department of banking supervision and the department of non-banking supervision were under G Gopalakrishna. Gopalakrishna has now been given charge of Deposit Insurance and Credit Guarantee Corporation.

Gopalakrishna is also a contender for the deputy governor’s post.

One of the deputy governors of RBI, Shyamala Gopinath, will retire on June 20 and seven executive directors has been interviewed for the post. Following the induction of a new deputy governor, the central bank may re-allocate deputy governor’s portfolios. Gopinath handles nine portfolios at present, including foreign exchange department and external investment and operations.

For the past few years, DICGC has been headed by an ED-rank officer. The chief executive officer’s post in DICGC — a wholly owned subsidiary of RBI – has been lying vacant since October 31 after H N Prasad’s retirement.

In the new scheme of things, Gandhi will take charge of the department of external investment and operations which was earlier with H R Khan.

Source: Business Standard
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