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Saturday, July 16, 2011

Eight banks fail Europe stress test


London: Eight European banks have failed a test of their ability to withstand a long recession and will have to raise just 2.5 billion euros ($3.5 billion) of capital, significantly less than expected.

The European Banking Authority said five banks in Spain, two in Greece and one in Austria flunked the "stress test", which made 90 lenders reveal for the first time their profit forecasts, a breakdown of their sovereign bond holdings and funding costs.

Expectations were for five to 15 banks to fall short and need to raise 10 billion euros or more in capital, prompting analysts to question how credible the test was.

It did not build in the impact of a sovereign Greek default, which most economists say will happen in some form.

"With only eight banks failing and the requirement for these banks to raise 2.5 billion in capital, it wasn't the solution to restore confidence. What was needed was for more banks to fail and for more capital to ultimately be raised," said Michael Symonds, credit analyst at Daiwa Capital Markets in London.

The euro hit a session high versus the dollar and safe-haven U.S. Treasury bonds pared gains in response to the report.

What the report does provide is a much greater level of detail on banks' exposures than previously, which may allow investors to take a sharper judgment next week.

The EBA said maximum transparency would allow analysts to run their own tests and remove some uncertainty.

The banks had serious reservations.

"It was not politically palatable for the tests to consider an inevitable Greek default," said Jason Karaian, economist with The Economist Intelligence Unit.

"Analysts have no such qualms, and will be poring through the report and running their own tests over the weekend. These will be much tougher, and as a result there will be more failures and a larger capital shortfall."

Banks were deemed to have failed if they slid below a 5 percent core capital pass mark in the face of a theoretical slide in stock, bond and property prices during a two-year recession.

A further 16 banks passed the 5 percent mark by a small margin and will also have to take action.

Failed banks must now plug capital shortfalls by the year-end, with their home government ready to step in with taxpayers' money if needed. Lenders that scrape through the test will also be expected to shore up their capital buffers.

The "nearly faileds" have until April 2012.

"Under a more realistic test, the actual capital shortfall is likely to be at least ten times the official estimate of 2.5 billion euros," Karaian said.

The International Monetary Fund has warned Europe it is taking too long to rebuild its banking system and has lagged repair work done in the United States since the financial crisis, while the threat of the Greek debt crisis spreading to bigger countries such as Spain and Italy has rattled investors and dragged European bank shares to a two-year low.

WHAT ABOUT GREECE?

Critics say the health check failed to reflect market expectations that Greece will default on its debt in some form, which would pile up losses for German and French banks that hold large amounts of the country's debt.

Under the test, banks would take an approximately 15 percent "haircut" on Greek bond holdings, while most market experts expect to see up to half the value of those bonds wiped out at some point.

"The stress scenario isn't adverse enough to make the stress test really worthwhile," said Fredrik Nerbrand, global head of asset allocation at HSBC in London. "It wasn't going to show that very many people had failed."

The EBA said that of the Greek sovereign debt held by the banks tested, 67 percent was in the hands of Greek banks, German banks held 9 percent and French banks 8 percent.

Greece's ATEbank and Eurobank EFG failed the stress test. Eurobank said it had no need to raise capital as measures had already been taken. It has been in talks to sell a majority stake in its Turkish unit Eurobank Tekfen.

The Spanish banks that failed were UNNIM, CAM, Catalunya Caixa, Banco Pastor and Caja 3. The Bank of Spain said no Spanish bank would need to raise capital.

Austria's Volksbanken also failed, but said it would have passed the test if the sale of its VBI arm and additional capital raising measures had been taken into account.

This third test of lenders in the European Union since the global financial crisis, which began four years ago, was billed as the toughest -- last year's gave Irish banks a clean bill of health shortly before they collapsed into state control.


Source: Financial Express
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Muthoot Finance to offer loans against gold ETF units

Muthoot Finance Ltd, the largest gold financing NBFC in India, has launched a scheme to offer loans against the security of gold Exchange Traded Funds (ETFs).

Launching the service, George Alexander Muthoot , managing director, Muthoot Finance Ltd said that through loan against gold ETF Muthoot Finance plans to service the financial requirements of newer customer segments.

The new scheme that would be available to the customers by the end of July 2011 would enable them to avail finance against their gold ETF units to the extent of 85% of the net asset value of ETFs.

ETFs are mutual fund units issued by asset management companies against physical gold deposited with a SEBI registered custodian. Gold ETFs are listed and traded on stock exchanges. It can be bought and sold like stocks on a real-time basis. By enabling investors to invest in gold without holding it in physical form, gold ETFs offer an important investment opportunity to investors.

Gold ETF has seen a major growth in the country over the past two to three years. The total investments under the scheme is Rs 5000 crore, as on June 2011, while the number of investors is around 3,20,000 investors.


Source: EconomicTimes
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Friday, July 15, 2011

RBI tells unlicenced foreign entities to get a clearance from it

KOLKATA: Reserve Bank of India has told foreign agencies operating in India without its consent to approach it for a formal clearance.

The central bank found that liaison offices or branches established by overseas NGOs, news agencies and other foreign entities are continuing to function in India without prior approval.

Under the Foreign Exchange Management Act (FEMA), 1999, foreign entities can open offices only after receiving permission from RBI. This norm has come into effect since June 1, 2000. RBI consults with the government about such request of it feels necessary.

So, RBI has advised such foreign entities to seek clearance in the next three months from now. It further said that foreign entities who have established offices with the permission from the government should also approach the bank with a copy of the said approval.


Source: EconomicTimes
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Banks' Q1 seen mixed; private sector to outperform

MUMBAI: Top lender State Bank of India will likely be alone among major Indian banks to post a fall in profit for the June quarter, on slower credit growth and higher provisions, but margins for most banks may shrink on higher deposit rates.

Private banks led by No. 2 ICICI are forecast to outperform their state peers in the June quarter and analysts, who have mostly neutral or underweight ratings on the sector, said they may consider lifting their view if June quarter results meet or beat expectations.

"Next one or two quarters are going to be challenging," said Ravi Gopalakrishnan, chief investment officer at Pramerica Asset Management , which holds stakes in all the major private lenders.

"I'm not going to be too pessimistic. We will be carefully watching this quarter (to see) if net interest margins are holding up and whether there is any pressure on lending growth."

Strong economic growth, rising consumer confidence and the launch of attractive products have helped lift demand for loans in India, where a growing middle-class uses bank credit to buy homes and cars and pay for education.

However, a series of interest rate hikes to tame stubborn inflation is slowing loan growth and hurting asset quality, especially at state banks with heavy exposure to smaller commercial borrowers.

Credit at Indian banks grew at 3.7 percent in the three months ended June compared with 5 percent in the same period a year ago, while deposits grew faster, at 5.5 percent.

Net interest margins could slip 15-20 basis points after banks raised term deposit rates in the past two quarters, prompting customers to shift from savings account, said brokerage Sharekhan, which has a neutral view on the sector.

PAIN FOR PUBLIC BANKS

State banks have lost 10-20 percent of their value so far this year while shares in private lenders HDFC Bank , Yes Bank and IndusInd Bank rose 4-8 percent. The BSE index is down about a tenth this year.

Bank of India , UCO Bank , Corporation Bank and Andhra Bank may post falls in profits in the June quarter while private lenders HDFC Bank, Axis and Yes could see increases of 20-30 percent, a Reuters poll showed.

ICICI Bank , expected to post nearly 40 percent profit growth in the June quarter, was the top pick of most brokerages.

Amongst public sector banks, "some could see further asset quality deterioration and higher-than-expected margin pressure," Nomura wrote in a pre-earnings note.

"The issue with public sector banks is largely with NPAs which will take about a quarter or more to get sorted," said Pramerica's Gopalakrishnan.

Public sector banks face higher provisioning costs and deteriorating asset quality under new rules that require them to be more stringent in recognising non-performing assets (NPAs).

The central bank has made it mandatory for Indian banks to gradually reach a provision cover ratio of 70 percent, eroding profitability of those with lower coverage levels.

Last quarter, SBI posted an unexpected plunge in profit after its total provisions jumped 82 percent, while taxes nearly doubled and staff-related expenses such as wages and pension liability also rose.

In the June quarter, SBI is widely expected to post a nearly 40 percent drop in net profit.

"By the middle of this year, we would have said goodbye to the asset quality issues, at least for the period pertaining to 2008/09," said Arun Khurana , equity fund manager at UTI Banking Sector Fund, which owns stakes in India's four biggest banks.

"Oil prices have also come off so these are good signs. I'm extremely positive on banks for the long-term. There's a robust opportunity to make phenomenal amount of money," he said.


Source: EconomicTimes
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United Bank hikes lending rate by 25 bps

Public sector lender United Bank of India today hiked its lending rate by 25 basis points (bps), a move set to make auto, home and corporate loans more expensive.

"...The bank has increased its base rate and prime lending rate by 25 bps to 10.25% and 14.50% respectively," United Bank said in a filing on the Bombay Stock Exchange (BSE).

The hike in both rates is effective from July 13, 2011.
Rate hikes by banks come in response to the interest rate hike by the Reserve Bank last month in its mid-quarterly review of credit policy 2011-12.

The RBI had on June 16 hiked its key short-term lending and borrowing rates by 25 bps (0.25%) each with immediate effect to tackle inflation. The short-term lending (repo) rate now stands at 7.5% and the borrowing (reverse repo) rate at 6.5%.

Following the RBI's decision, a number of banks have hiked interest rates in past few weeks.

United Bank's shares ended flat today on the BSE at Rs 96.25.


Source: Business Standard
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SBI open to FPO, private placements

The country’s largest lender, State Bank of India (SBI), on Thursday said it would examine options like private institutional placements and a follow-on public offer (FPO), if the government did not subscribe to its rights issue fully.

To fund growth, the bank plans to raise Rs 20,000 crore through a combination of rights issue and other instruments by March 2012. It expects a final decision on the matter by the second or the third quarter of this financial year, said Chairman Pratip Chaudhuri on the sidelines of the Federation of Indian Chambers of Commerce and Industry Banking Conclave on Thursday .

“We are in talks with the government for a rights issue of Rs 20,000 crore and the government seems supportive of it. If the government does not mind bringing its equity down to, say 55 per cent, we have options like combination of a rights issue, a follow-on public offer (FPO) or a private placement with institutional investors,” he said. The government’s stake in SBI stands at 59 per cent.
“The finance minister has personally been supportive of our rights issue proposal. In fact, he would be addressing the SBI board on August 6,” Chaudhuri said.

Higher provisioning had dragged SBI's net profit for the quarter ended March 31 by 99 per cent to Rs 20.88 crore, 2011. The bank had to provide nearly Rs 8,000 crore from capital reserves towards provisioning for pension liabilities in the last quarter of the previous financial year, which resulted in a decline in the bank's Tier-I capital from nine per cent to 7.72 per cent. “We would raise the capital adequacy, partly through profits and partly through the proposed rights issue,” Chaudhuri said.

Profit subject to provisioning
The bank on Thursday said its first and second quarter profits would be subject to provisioning towards building the ‘countercyclical buffer’, stipulated by the Reserve Bank of India (RBI). However, it expects the impact to be offset by higher net interest margin (NIM). The bank would need to keep aside close to Rs 1,000 crore for the countercyclical buffer over the next two quarters. SBI also expects NIM to stand at 3.6 per cent in the last quarter, against the projected 3.5 per cent, said Chaudhuri.

The bank had created a countercyclical provisioning buffer of Rs 2,330 crore as of March 31, against the total requirement of Rs 3,430 crore. The shortfall is expected to be met by September.

RBI has asked banks to create special buffers for making specific provisions for bad loans during system-wide downturns.


Source: Business Standard
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Thursday, July 14, 2011

EPFO appoints 4 fund managers for its Rs 3.5 lakh cr corpus

New Delhi: Retirement fund manager EPFO today decided to appoint four fund managers -- SBI, HSBC AMC, Reliance Capital and ICICI Securities Primary Dealership – for managing its huge corpus of Rs 3.5 lakh crore for three years beginning September 1, 2011.

The decision was taken here by EPFO's apex decision making body Central Board of Trustees (CBT), headed by the Labour Minister.

"The CBT has approved appointment of four fund managers -- SBI, HSBC AMC, Reliance Capital and ICICI Securities Primary Dealership for managing EPFO funds for three years from September 1, 2011," Labour Minister Mallikarjun Kharge told reporters here after the trustees' meeting.

Employees' Provident Fund Organisation (EPFO) has put a rider that it could cancel the appointment on failure of the fund managers to provide adequate returns in the first year.

"We have taken a decision that for one year we will see their performance. After completion of one year, based on their performance they will be asked to continue," Kharge explained.

Asked about the reason for dropping ICICI Pru as EPFOs fund managers this time, Kharge said, "Whatever criteria fixed by the expert committee, in that ICICI securities has come (selected), not ICICI Pru".

When asked again why the best performer was not appointed this time, the minister said, "May be....but if you ask more money then...".

ICICI Pru has quoted a service fee of 48 paise for managing Rs 10,000 as compared to 3 paise by the the ICICI Securities Primary Dealership.

Earlier, during the two-and-half-year tenure from September 17, 2008 to March 31, 2011, ICICI Pru had provided highest yield of 8.72 per cent followed by HSBC AMC (8.64 per cent), SBI (61 per cent) and Reliance Capital (8.57 per cent) against the benchmark yield of 8.52 per cent.

In the latest round of bidding, Reliance Capital quoted a fee of 4 paise per annum for managing Rs 10,000, and was the second lowest bidder after ICICI Securities Primary Dealership.

SBI has quoted a price of Re 1 per Rs 10,000 whereas HSBC AMC's rate was 36 paise.

Among the four managers, SBI would manage biggest chunk of EPFO fund with 35 per cent of corpus followed by ICICI Securities Primary Dealership at 25 per cent, an official said. HSBC AMC and Reliance Capital will manage 20 per cent each.

As many as 10 companies had shown interest in managing the corpus of the EPFO, but only five were shortlisted – SBI, HSBC AMC, Reliance Capital, ICICI Securities Primary Dealership and ICICI Pru.

The other companies which were in the race for managing the EPFO funds were Kotak Mahindra AMC, Securities Trading Corporation of India, UTI AMC, Birla Sun Life AMC and Franklin Templeton AMC.

The EPFO had appointed multiple fund managers for the first time in July, 2008, for earning better rate of return on deposits for its 4.72 crore subscribers.

Before that, SBI was the sole fund manager for the retirement fund body since its inception in 1952.


Source: Financial Express
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UCO Bank waives charges to get low-cost deposits

UCO Bank has decided to waive all the charges to attract more customers to the bank and boost its low-cost deposit. Low-cost deposits, or the current and savings account deposits—only 24 per cent of the bank’s total deposits—are lower than those of its peers. The Kolkata-based lender aims to increase its Casa share to 35 per cent by the end of December.

UCO bank today launched a scheme, 'Total Freedom', which offers services like issuance of cheque books, demand drafts, fund transfers and balance statements to its customers for free. The bank has also raised the minimum balance requirement for customers availing of the scheme. Customers are required to maintain a minimum average balance of Rs 2,500 and Rs 10,000 for savings and current accounts, respectively.

“We aim to bring 2.5 million new customers on board through this scheme and increase our Casa deposits to 35 per cent by December this year,” R K Agrawal, field general manager of UCO bank said.

High-cost deposits, including certificate of deposits, constitute 51 per cent of the bank's total deposits, according to a latest study by Fitch ratings. Besides increasing its customer base, the bank also plans to increase the number of its automated teller machines from 681 to 3,000 by 2013 and 5,000 by 2016.


Source: Business Standard
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SBI against savings rate deregulation

Country's largest commercial bank State Bank of India (SBI) has said it was against deregulation of savings bank interest rates.

"We are not in favour of savings interest rate deregulation," SBI Chairman Pratip Chaudhuri said.

He said there was an impression that the banks were sitting on a huge pool of savings deposits.

It is to be noted that RBI in its draft discussion paper floated in April favoured deregulation of the interest rate on savings banks accounts.

Chaudhuri said the margins on interest rates were required to finance delinquencies and deregulation would create an upward pressure on the savings rates.

This, he said, would lead to higher cost of credit which would be detrimental to industry.

Contrary to SBI's views, many private bankers like YES Bank were in favour of savings rates deregulation.

To this, Chaudhuri said that unlike nationalised banks, the private banks' presence in the rural areas were almost negligent.

"They are not opening no-frills accounts unlike us and offering other benefits for which the bank has to take a substantial financial drag," he said.

Source: Business Standard
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RBI wants all PSBs to have uniform pension provision

After coming down heavily on banks for not making adequate provision for increased pension liabilities arising out of wage revision, the Reserve Bank of India (RBI) now wants all public sector banks to have uniform pension liabilities.

According to sources in the banking industry, the central bank sees no reason why each public sector bank should have different pension liabilities, since the inputs which go into calculation of pension provision are nearly the same.

RBI says the salary structure is same, the mortality rate is similar and the attrition rate is almost the same for all government-owned banks—at around 0.5 per cent. There is no reason for different actuarial estimates for banks. It feels all public sector banks should have similar actuarial estimates,” said a banker after discussing the matter with RBI officials. The basic pension of retirees from all government banks is 50 per cent of the last salary drawn.

Bankers said actuaries of different banks have different estimates, particularly on parameters like the discount rate and the attrition rate for calculating pension liability, which has led to a variation in the burden. As far as the mortality rate is concerned, most banks follow Life Insurance Corporation of India's estimates.

The pension provision issue cropped up in the last quarter of the previous financial year, when State Bank of India (SBI) had sought the regulator's approval for pension provision from the bank's capital reserve for wage increases. As a prudential practice, banks make provision out of their profit and loss account. To use capital reserves for provision, banks need RBI's approval. After RBI’s approval, SBI charged nearly Rs 8,000 crore from its reserves to provide for pension liabilities. As a result, SBI’s capital eroded, with Tier-I capital falling below eight per cent.

Though RBI had allowed SBI to make provisions from reserves for pension liabilities, the regulator had made it clear that such requests would not be entertained in the future. The central bank had come down heavily on the bank’s chairman and managing directors at an interaction. The regulator had also made it clear such practices were non-compliant with International Financial Reporting Standards.

In 2010-11, provisioning had increased sharply because of the pay revisions agreed during the ninth bipartite settlement. Wages were raised 17.5 per cent and a second pension option was given to both current and retired employees. Gratuity limits were also increased from Rs 3.5 lakh to Rs 10 lakh. According to RBI's financial stability report, the expected additional liability for 24 public sector banks was Rs 30,366 crore, which constituted 81.9 per cent of their net profit for 2009-10. Indian Banks' Association has been mandated by RBI to prepare a pension scheme to facilitate the assessment by banks and help provide adequate provisions for such liabilities.



Source: Business Standard
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Allahabad Bank to take MTN route to raise $500 million for hong kong business

KOLKATA: Allahabad Bank has decided to engage four arrangers, including JP Morgan , to raise $500 million in medium-term notes overseas to fund its burgeoning Hong Kong business. The bank will issue dollar-denominated MTN for a tenure of five-and-a-half years and list it.

According to executive director MR Nayak, the other arrangers to manage it are HSBC Holdings , Royal Bank of Scotland and Standard Chartered .

"We would like to raise the fund in the next 6-8 weeks," bank chairman and managing director JP Dua told ET.

It needs to get a credit rating before the issue enters the market. Mr Dua said the fund will be used for business expansion in foreign locations, mainly in Hong Kong, which has some 45,000 ethnic population.

It is looking to launch its second branch at Kowloon in the northern part of Hong Kong to seize the opportunity. Its maiden overseas branch in Hong Kong central business region has an outstanding loan portfolio of Rs 3,300 crore, reflecting a 200% growth during 2010-11. The bank is planning to open branches in Singapore and Dhaka.

It wants to upgrade its representative office in Shenzhen in southern China region to a branch too. The Kolkata-based bank has also announced a 25 basis points rise in lending rates on Wednesday. Its executive director MR Nayak told ET that the bank has decided to hike the benchmark base rate by 25 bps to 10.25% from July 15.

Accordingly, its fresh and existing housing and car loans will be dearer by this extent, as these are mostly linked to banks' base rate. Interest rates on loans and advances are linked to the base rate since July 1, 2010. It has raised the benchmark prime lending rate (BPLR) by 25 bps to 14.50% a year.

BPLR is linked to loans and advances sanctioned up to June 30, 2010. Borrowers who opted for fixed rate loans will not be impacted by the latest decision as their contracted rates will remain unchanged.

Source: EconomicTimes
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Bank of Maharashtra ups lending rates by 25 bps

MUMBAI: The state-run Bank of Maharashtra on Thursday revised upwards its base and lending rates by 0.25 percent each to 10.25 and to 14.50 per cent respectively.

"The new rates will be effective from Saturday," the bank said in a release here.

The MahaBank's base rate or the minimum rate below which it cannot lend to anyone, was 10 per cent prior to the revision, while its prime lending rate was hovering at 14.25 per cent, the statement noted.

Following the Reserve Bank's tight monetary policy to tame inflation, the key policy rates have gone by a record 10 times since March 2010 to 7.5 and 6.5 per cent as of June 16.

With the provisional core inflation number further rising to 9.44 per cent for June, up from 9.06 per cent in May, driven by higher prices of fuel and manufactured goods, analysts are expecting another round of rate hike by the central bank on July 26 at the first quarter monetary policy review.


Source: EconomicTimes
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Wednesday, July 13, 2011

Banks offer higher rates for deposits of longer tenures

Banks have finally started correcting their liabilities, profile and are now offering higher rates for long-term deposits.

Banks' deposit profiles had tilted more towards the shorter end and 60-70 per cent of deposits in the one-year maturity period had resulted in widening of the asset-liability gap, as credit off-take was mostly seen in term loans, which have a tenure of five-seven years.

State Bank of India (SBI), the country's largest lender, now offers 9.25 per cent for deposits with a maturity period of one-10 years. Bank of Baroda, which launched a revised deposit rate scheme on Tuesday, offers 8.5 per cent for deposits maturing between three and 10 years and nine per cent for one-three years, except for 444 days, for which it offers 9.35 per cent. Union Bank of India offers 9.4 per cent for five-year retail deposits, while for one-five year maturities, it offers 9.25 per cent.

The special deposit schemes of banks, which offered higher rates on tenures like 555 days or 1111 days, was also responsible for the accretion of deposits on select maturities, according to bankers. “We found deposits were mostly flowing into 555-1,000 day segments, which offer the peak interest rate of 9.25 per cent. Deposits in higher maturities were negligible. This could create problems of maturity, since the bank would have to bear redemption pressure,” said a senior SBI official, explaining the reason for tweaking the deposit scheme and adding the bank was experimenting with this new deposit mobilisation model.

A senior Union Bank of India official said the bank's move to keep long-term deposits attractive was aimed at correcting the asset-liability profile.

The high interest rate of long-tenure deposits may also come with the cost of interest rate cycle changes, caution analysts. “High cost and long-tenor deposits may impact a bank's profitability if interest rates come down in the long run and credit growth slows,” said Abizer Diwanji, head (financial services), KPMG.

For short-term deposits, banks have now realigned the maturity profile to attract deposits, which are parked in mutual fund schemes from corporate clients. SBI has clubbed three maturities into one of 7-90 days, which offers seven per cent. “Cash-rich companies normally invest in mutual funds for short-term benefits, so we increased the interest rate and clubbed the maturities in the shorter end to attract funds from them,” the SBI official said.


Source: Business Standard
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Cabinet may clear SBI, associates merger tomorrow

The government is likely to consider merger of State Bank of India Commercial and International Bank (SBICI) with the country's largest lender SBI at the meeting of Union Cabinet tomorrow.

SBICI is a wholly-owned subsidiary of SBI and functions as a private sector bank offering the an array of financial products and services.

Cabinet is likely to take-up acquisition of SBICI by its parent SBI, sources said.

The board of SBI had cleared amalgamation of SBICI with itself in 2008.

As of March 2011, the paid-up capital of subsidiary of SBI stood at Rs 100 crore while it earned a net profit of Rs 4.21 crore.

SBICI's capital adequacy ratio (CAR) stood at 28.16% at the end of March 2011.

SBI has already merged two of its associates namely State Bank of Saurashtra and State Bank of Indore since 2008.

SBI's first ever amalgamation with its associate State Bank of Saurashtra took place in 2008 followed by State Bank of Indore in August last year.

SBI plans the consolidation of remaining five associate banks. SBI has five associate banks -- State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.

Among these, the State Banks of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed companies.


Source: Business Standard
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Credit is likely to rise at a faster with growth in economy:RBI

Mumbai: Credit offtake from banks grew by 20.1 per cent to over Rs 42 lakh crore during the one-year period ended July 1,2011,indicating an upswing in industrial activity.

According to data from the Reserve Bank, credit offtake during the period stood at Rs 42.09 lakh crore against Rs 35.04 lakh crore in the same period of the previous year.

Meanwhile, deposits went up to over Rs 56.40 lakh crore till beginning of July this year against Rs 47.81 lakh crore as on July 2, 2010. This is a rise of almost 18 per cent on an annual basis.

In the annual monetary policy 2011-12 announced in May,the RBI had said that credit is likely to rise at a faster

pace because of the economy's growth momentum.” Sustained growth momentum could continue to exert pressure on interest rates through high demand for credit,”it had said.

The RBI had projected credit growth to be 19 per cent this fiscal, while deposit growth has been pegged at 17 per cent.

During 2010-11,bank credit had increased by 21.5 per cent, while deposits grew by only 15.5 per cent.

In December last year, the apex bank had expressed concern over the widening ratio between the credit and deposit rates of banks. Toward the end of the last fiscal, however,the gap in the credit-deposit ratio stood reduced.


Source: Financial Express
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4 PSU banks raise interest rates up by 50 bps

New Delhi: As many as three state-owned banks including Oriental Bank of Commerce (OBC) and Indian Bank hiked interest rates by up to 50 basis points While Indian Bank and Allahabad Bank raised base rate, or minimum lending rate by 25 basis points, OBC and IDBI Bank raised deposit rates by up to 50 basis points across select maturities.

Chennai-based Indian Bank increased base rate to 10.25 per cent from earlier level of 10 per cent.

With the hike, new housing, auto and other loans will become expensive by atleast 25 basis points.Besides, the bank has raised its Benchmark Prime Lending Rate (BPLR) by 25 basis points as well to 14.50 per cent,

Indian Bank said in a statement.

The rate of interest on term deposits from 3-5 years of OBC has been revised to 9.25 per cent from 9 per cent while 5-10 years fixed deposits rate has been raised by 50 basis points to 9.25 per cent.

Even IDBI Bank hiked deposit rates by up to 50 basis points. Fixed deposit rate for maturity in between 46-90 days has been raised by 50 basis points to 7 per cent while deposits for 7-10 years will earn 25 basis point higher interest at 9.25 per cent.

Kolkata-based Allahabad Bank also raised base rate by 25 basis points to 10.25 per cent and BPLR from existing 14.25 per cent to 14.5 per cent effective from July 15. Increase in BPLR would make existing loans costlier.

Rate hikes by banks comes in response to interest rate increase by the Reserve Bank last month in its mid-quarterly review of credit policy 2011-12.

The RBI had on June 16 hiked its key short-term lending and borrowing rates by 25 basis points (0.25 per cent) each with immediate effect to tackle inflation. The short-term lending (repo) rate now stands at 7.5 per cent and the borrowing (reverse repo) rate at 6.5 per cent.



Source: Financial Express
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Loan agency fined for naming man defaulter

Be careful while paying back a loan. Any wrong entry by the loan agency can put you in the bad books of the Credit Information Bureau India Limited (CIBIL), leading to considerable harassment whenever you apply for a loan.

This is what happened in the case of Devi Singh, a resident of Dariya village in the Union Territory. For a wrong “outstanding” amount of Rs 200, Singh’s name was listed among the defaulters of CIBIL, and he was later denied a vehicle loan. Aggrieved by the humiliation, Singh filed and won a case against Bajaj Auto Finance Ltd, from whom he had taken a vehicle loan.

The Chandigarh Consumer Disputes Redressal Forum-II has directed the firm to refund Rs 200 to Singh, issue him the required ‘No Dues Certificate’, and pay him Rs 5,000 for the harassment caused to him. The president of the Forum, Lakshman Sharma, members Ashok Raj Bhandari and Madhu Mutneja also directed the firm to take steps to ensure that Singh’s name is removed from the defaulters list of CIBIL.

In his complaint, Singh stated that he had purchased a computer from a dealer in Sector 35 for Rs 36,010. Singh made a down payment of Rs 10,311. The remaining amount of Rs 25,699 was financed by the loan agency in 18 equal monthly instalments of Rs 1,795 each.

Singh told the court that he paid the first five instalments through cheque, and the remaining 13 instalments by cash. After the entire loan amount was repaid, Singh requested the loan agency that the remaining cheques should not be presented. He also instructed his bankers not to make payment on presentation of the cheques.

However, the loan agency continued to present the cheques, which were dishonoured by the bank, and a penalty of Rs 50 imposed per cheque for dishonour.

Later when Singh approached his bank for a vehicle loan, he was refused since his name figured in the list of defaulters of CIBIL. Singh said this was done because according to the loan agency, the entire loan had not been repaid.

Though the penalty imposed by the bank was Rs 200 only, he sued the firm for the harassment and humiliation caused to him.

The firm denied the charges. But after considering the case, the forum observed that the records maintained by the firm were in such a bad shape that it did not know how much of the loan amount had been charged, and how much was overdue.

This, said the forum, led to “total confusion” as to what was due and what had been paid.

The forum also observed that the firm had wrongly shown an overdue balance against Singh, making him a defaulter in CIBIL’s records. The forum agreed that the amount of Rs 200 was small, but directed the firm to compensate Singh for the harassment and humiliation caused to him.


Source: Financial Express
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Tuesday, July 12, 2011

BoB, Kotak Mahindra Bank hike lending rate by 25 bps

Bank of Baroda (BoB) and Kotak Mahindra Bank today announced hiking of lending rates by 25 basis points.

Post hike, the base rate, or the minimum lending rate, of BoB would be 10.25% with effect from today, the lender said in a filing to the Bombay Stock Exchange.

Also the bank's benchmark prime lending rate (BPLR) stands increased to 14.50%, from 14.25%.

Further, BoB also raised rates for short term fixed deposits by 25 basis points. Now deposits up to 270 days will earn an interest of 7.25%.

Kotak Bank has also hiked its base rate by 25 basis points to 9.50% with effect from tomorrow.

The rate hike comes a day after HDFC Bank announced a similar move, while others including country's top two lenders -- State Bank of India and ICICI Bank -- have already raised their lending rates.


Source: Business Standard
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IOB to raise around Rs 1200 cr this fiscal: Bank CMD

Chennai: Public sector Indian Overseas Bank proposes to raise around Rs 1,200 crore this financial year as a part of augmenting its growth plans, the bank Chairman and Managing Director M Narendra said.

A resolution to raise the required capital through Qualified Institutional Placements (QIP), rights issue or through Follow-On Public Offer(FPO) was passed at the Chennai headquartered Bank's 11th Annual General Meeting held in Chennai.

“We have planned for a 25 per cent growth in our business. It may be through rights issue, or through preferential shares or QIPs,” he told reporters after the AGM.

On their overseas expansion plans, he said the Bank has got the approval from the Reserve Bank of India to open branches in China, Dubai, and an additional branch in Bangkok, Thailand.

“The license have come for opening these branches. Yesterday, we got the Board's approval for converting our representative office in Vietnam into full-fledged bank which again we will be taking to RBI,” Narendra said.

He added that the Bank also plans to open up its subsidiary in overseas market and is evaluating 15 countries to examine the present market conditions.

“We are looking at having a presence in USA, Europe, Africa, Australia and recently we have got request from Nigeria also... We will be sending our person soon,” he said.

Expecting to improve its credit card business, the Bank recently entered into an association with American Express Bank for the launch of co-branded credit cards.

“We already have about 40,000 to 50,000 cards. We are planning to give cards with a prescribed amount to small and medium enterprises (SMEs) and also under Educational loan... This is just an idea we need to formalise it... We want to improve our credit card business,” Narendra said.

On their proposal for an IT subsidiary, he said the Bank is yet to complete the process in this regard.

Earlier addressing the shareholders, he said the bank's focus was on marketing of insurance products, sale of gold coins and IT enabled products, and conducting of periodic campaigns.

“More thrust area for the current financial year are to improve the CASA (Current Account, Savings Account) ratio and recovery of Non-Performing Assets(NPA),” he added.

Indian Overseas Bank currently has 2,184 branches in the country and six overseas branches. It also has four representative offices in China, Malaysia, Vietnam and Dubai.

Source: Financial Express
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HDFC Bank launches credit card for uber rich

New Delhi: Eyeing the growing number of rich people in the country, HDFC Bank has launched a new credit card -- INFINIA -- which would be initially issued only to 5,000 individuals.The ultra premium credit card comes with virtually “no limits” -- not just in terms of spend, but also the luxuries such customers are accustomed to, HDFC Bank said in a statement.

“What prompted us to conceive INFINIA was the need our clients felt for such a product. We are confident INFINIA will soon be the card of choice for India's rich,” HDFC Bank Managing Director Aditya Puri said.

INFINIA would be available on both VISA and MasterCard platforms, the statement added.

HDFC Bank, which launched its first credit card in 2003, had a credit card base of 50.5 lakh at the end of March 31, 2011.

HDFC Bank already enjoys the highest mind and wallet share in credit cards. With INFINIA, we will redefine the lifestyle experience of the elite,” HDFC Bank Country Head (Retail Assets and Credit Cards) Pralay Mondal said. According to a report by Merrill Lynch Global Wealth Management and Capgemini, India's High Networth Individual (HNI) population in 2010 grew 20.8 per cent to 1.53 lakh. As on March 31, 2011, HDFC Bank had a distribution network with 1,86 branches and 5,471 ATMs in 996 cities.


Source: Financial Express
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RBI penalises two Gujarat-based cooperative banks

MUMBAI: The Reserve Bank has imposed a penalty of up to Rs 1 lakh each on two Gujarat-based cooperative sector lenders -- Dahod Urban Co-operative Bank Limited and Pragati Sahakari Bank Limited -- for violation of its guidelines.

In case of Dagod Urban Co-operative Bank, the RBI has imposed the fine for giving donations beyond the permissible limit. It was also found violating the Know Your Customer (KYC) and Anti-Money Laundering guidelines.

In case of the Pragati Sahakari Bank Limited, the RBI imposed the fine on the cooperative bank for violation of cash transactions reporting norms.


Source: EconomicTimes
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