RBI issues operational guidelines for financial inclusion

The Reserve Bank of India (RBI) on Friday issued operational guidelines for the implementation of a transfer system for servicing low-value accounts and extending banking infrastructure to under-served low income areas.

The regulator asked banks to follow the 'one district-many banks-one leader bank' model in villages in which the designated bank under the financial inclusion plan and the fund-transfer system varied.

According to guidelines, the state government shall designate the leader bank, in consultation with RBI's regional office and the state-level bankers' committee. The leader bank would secure funds from the state government and arrange to transfer funds through inter-bank transfer to other banks.

Source: Business Standard

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5 years on, MF SIPs hold their own

Mumbai: True, the stock markets have been battered and investor sentiments badly hit. But systematic investment plans (SIPs) of mutual funds still seem to be generating modest returns for retail investors who reposed their faith in the stock markets over the long term.

In the last five years or even over a three-year period, the Bombay Stock Exchange’s (BSE’s) benchmark index Sensex witnessed high volatility and saw the highs of 21,000 (in January 2008 and November 2010) and deep lows of 8,160 (in March 2009). But, the systematic investment style has held its own and retail individuals who continued with their monthly investments have got reasonable returns.

For example, if you had invested Rs 5,000 at the beginning of every month starting August 2006 till July 2011 in Sensex, then at a Sensex closing of 17,130 on Tuesday, your total investment of Rs 300,000 over the 5 year period would have grown to Rs 4,04,892 yielding an annualised return of around 12 per cent. Similarly, a Rs 5,000 monthly investment in Sensex over the last three years would have generated a return of around 10.25 per cent.

Against this, a lumpsum investment five years back in Sensex would have grown at a compounded annual growth rate (CAGR) of 9.8 per cent and that three years back would have grown at a CAGR of 5.3 per cent.

“Timing the market is tough and SIP takes away the human bias as investors rush to invest when the market is moving up and start pulling out when the market is down which is opposite of what they should be doing,” said Sundeep Sikka, CEO, Reliance Mutual Fund. “Every retail mutual fund investor should invest through SIPs and even the lumpsum investments should be broken down and invested in 4-5 parts.”

Having scaled the peak of 21,000 in January 2008, the markets are yet to reach the level, but SIP investors have seen good returns since it offers the advantage of rupee cost averaging when the chips are down.

During the same period, no fixed deposit generated a double digit return. Gold, however, has generated far superior returns compared with most investment products.

Gold prices have risen at a CAGR of over 28 per cent over the last three years and at a CAGR of 21 per cent over the last five years.

by: SANDEEP SINGH

Source: Financial Express

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HDFC Bank to raise rates from tomorrow

New Delhi: India's second largest private lender HDFC Bank has decided to raise its lending rates by 50 basis points in line with its peers making its home, auto and corporate loans more expensive.

The base rate, or the minimum lending rate, of HDFC Bank will become 10 per cent from the existing 9.50 per cent, sources said.

At the same time, the benchmark prime lending rate (BPLR) of the bank is expected to be increased by similar percentage points to 18.50 per cent.

The bank has also decided to raise fixed deposits rates by up to 75 basis points on the select maturities effective tomorrow, sources said.

HDFC Bank's fixed deposit rate in the 1 year 1 day to 1 year 15 days basket is likely to be 9 per cent per annum as against existing 8.25 per cent, an increase of 75 basis points.

Besides, interest rate for term deposits between 46-60 days will go up by 25 basis points to 7 per cent from the prevailing 6.75 per cent.

However, interest rates on other fixed deposits have been left unchanged.

Yesterday, country's top two lenders SBI and ICICI Bank announced hike in lending rates by 50 basis points each in response to tight monetary policy of the central bank.

Both SBI and ICICI have increased the base rate, or the minimum lending rate, to 10 per cent from the existing 9.50 per cent.

Following the Reserve Bank's decision to raise short-term key rates in its first quarter review of monetary policy last month, lenders have responded by increasing interest rates.

Major lenders, including Punjab National Bank, Bank of Baroda, Oriental Bank of Commerce, have raised interest rates. Almost all major banks have hiked their interest rates in the range of 25-100 basis points.

The RBI had hiked its key short-term lending rates by a higher-than-expected 50 basis points on July 26 to tame the uncomfortably high inflation number, which stood at 9.44 per cent in June.

This was the 11th hike by the central bank since March 2010, when it switched over from the monetary policy loosening stance adopted during the financial slowdown to one for curbing inflation.

Source: Financial Express

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Irda releases norms for stake transfer by insurance firms

The Insurance Regulatory Authority of India (Irda) today made it mandatory for insurers to seek prior approval in case of stake transfer to domestic entities or financial institutions and set guidelines for seeking approval.

As per an Irda circular, the regulator will carry out the requisite due diligence of the proposed transferee or shareholder prior to grant of approval for registration of transfer of shares under the provisions of section 6A(4) of the Insurance Act, 1938 and for issue of shares to the proposed transferee or shareholder.

The circular assume significance in the light of Bharti-AXA Reliance Industries deal and Punjab National Bank proposing to pick up 30% stake in the Metlife India.

The regulator would also examine various issues including the minimum lock-in period of the proposed stake stake holder before granting approval.

Besides, the Irda will also look into additional capital in proportion of its shareholding at periodic intervals to ensure that the insurance company is compliant with the regulatory solvency requirements.

"No registration of transfer of shares of the insurer as specified under the provisions of Section 6A(4) of the Insurance Act, 1938 and issue of capital which would result in change in the shareholding pattern of the insurance company, as indicated at clause A, shall be made except with the previous written approval of the Authority," the Irda circular said.

Source: Business Standard

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SBI scales down rights issue proposal

State Bank of India (SBI), the country’s largest lender, has scaled down the requirement of funds from the government for its proposed rights issue.

The government-owned bank, which had earlier requested for Rs 20,000 crore from the government, has now settled for Rs 5,000 crore-Rs 15,000 crore.

“We are working on the number and they (the government) are very supportive. It will be required for capital. A part of it would come from internal accruals. The details are being worked out,” said Chairman Pratip Chaudhuri. “The amount we have put on the table is between Rs 5,000 crore and 5,000 crore from the government,” he said.

Since the last financial year, the bank has been working towards getting its rights issue rolling, since it needs to ramp up its capital base to fuel growth. Chaudhuri, however, did not indicate any time frame by when the rights issue would happen.

SBI is looking for capital infusion from the government to support its growth, as its capital adequacy ratio has declined to 7.8 per cent. Importantly, the bank's Tier-I capital fell below eight per cent. Though regulatory requirement for Tier-I capital is six per cent, the government wants banks to maintain the capital at a minimum of eight per cent. SBI's capital fell primarily due to provisions of Rs 8,000 crore from its capital reserves towards pension liabilities.

SBI's request for lower capital follows the scaling down of the bank's growth projections. Compared to the 20-22 per cent loan growth for the current financial year, SBI is now looking at 16-19 per cent growth. The Reserve Bank of India had also lowered the banking sector's loan growth projection for 2011-12 to 18 per cent during the first quarterly review of the monetary policy in July, compared with 19 per cent during the annual policy review in May.

However, observers are unsure of whether the government would allow the issue this year, given the precarious position of government finances. The government owns a little over 59 per cent in SBI.

Source: Business Standard

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ICICI, HDFC banks battle for mkt share

The stage is set for the country's top two private banks to test their skills in pursuit of market share. After consolidating its balance sheet for 18 months, ICICI Bank now plans to be more aggressive, while HDFC Bank is in no mood to allow its bigger rival regain lost market share.

The current macro-economic situation is similar to the economic crisis of 2008. If it was the collapse of US' fourth-largest investment bank, Lehman Brothers, which triggered the biggest financial crisis of the decade three years back, Standard & Poor's decision to downgrade US' sovereign rating by a notch last week has intensified fears of another economic storm now.

Unlike the last time, the country's largest private lender, ICICI Bank, is now firm on growing its deposits and advances. While most Indian banks say their loan books narrowed sequentially for the quarter ended June 30, ICICI was one of the few lenders that reported growth in advances.

"We will continue to improve the quality of our earnings and balance sheet. While the industry is expected to face headwinds on margins, we expect to maintain our net interest margin at the current 2.6 per cent this year," Managing Director and Chief Executive Officer Chanda Kochhar said, while announcing the bank's earnings last month. For 2011-12, the bank has set a target of 18-20 per cent credit growth.

HDFC Bank, the second-largest private lender in the country, also has no plan to take its step off the gas in expanding its business. The bank, known for its consistent earnings performance, aims to grow its balance sheet at a higher rate than the industry.

"Fortunately, the bank is in a situation in which demand exceeds supply. If GDP (gross domestic product) grows at eight per cent and the credit multiplier is two and half times the GDP, credit growth for the system would be 19-20 per cent. We will gain a couple of hundred percentage points more than the system. We have been gaining market share continuously," Aditya Puri, managing director of HDFC Bank, told Business Standard in an interview in May.

There is, however, dissimilarity in the growth ambitions of the two banking giants. For ICICI Bank, balance sheet expansion would primarily be on the corporate segment, as the bank is still selective in offering unsecured loans to its retail clients. HDFC Bank, on the other hand, has chalked out its growth targets mostly around its retail customer base. The lender has been disbursing Rs 5,000 crore of retail loans every month in the April-June period, which it claims is the highest in the industry.

The bank has also moved away from its traditional practice of offering credit cards to its existing clients. Currently, HDFC Bank's first-time clients who have been offered credit cards, account for 25 per cent of the card base, compared with 10 per cent a year ago. The lender also aims to compete with American Express Card and has launched the 'Infinia' credit card for the ultra rich high networth community in India.

Despite their divergent focus, both banks are not willing to give each other space in other businesses. Kochhar, in a recent newspaper interview, had said ICICI Bank was not ceding its leadership position in retail. HDFC Bank, on its part, has strengthened its investment banking business and managed its first ever equity issuance as the co-book running lead manager for Muthoot Finance's Rs 900-crore initial public offer.

In the mobilisation of deposits, the duo has decided to bank on a similar strategy of opening more branches to increase the share of low-cost current account and savings account deposits. While none of the banks were willing to comment on the rival's business plan, both felt the market was big enough for both the banks to grow their businesses. "I wish ICICI Bank well, but they don't really affect our growth rate. There is enough business for everybody," Puri said in an interview with Business Standard.

Source: Business Standard

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SBI seeks between Rs 50 billion-Rs 150 billion capital infusion from government

MUMBAI: State Bank of India ( SBI) , the country's top lender, has sought a capital infusion of between 50 billion and 150 billion rupees ($1.1 billion-$3.3 billion) from the government, its chairman said.

The state-run lender needs funds to meet its future credit growth requirement.

"We have not zeroed in the number. The number that we have put on the table is between 50 to 150 billion rupees from the government...and simultaneously through internal accruals," Pratip Chaudhuri told reporters on Thursday.

"It may come in (tranches) ... It may come in one go. It will depend upon what government wants."

He said the bank will need 200 billion-230 billion rupees capital.

"It will be required for capital. Part of it will come from internal accruals. Those details are being worked on," he said.

State Bank of India also needs to pass on last month's 50 basis points hike in interest rates by the RBI to its depositors and borrowers, he added.

RBI stunned investors by raising interest rates by 50 basis points, showing unexpected resolve in fighting persistently high inflation despite slowing growth in Asia's third-largest economy and uncertain global demand.

Source: EconomicTimes

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Kotak Mahindra sees growth from semi-urban, rural biz

Kotak Mahindra Bank expects loan demand from semi-urban and rural areas to boost business in this fiscal year, while credit growth for the sector could be lower than the central bank's projection of 18%, a top official said.

"I think the next big challenge for Indian banks is really how well they manage the credit cycle," Managing Director Uday Kotak said.

"I do believe the credit demand in India, which has grown at about 20%-plus last year, ...coming to about 15 percent this year."

Kotak Mahindra is cautious about lending to sectors such as infrastructure, airlines, telecoms, as well as project finance business because of higher risks.

Source: Business Standard

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Global uncertainties not to impact overseas expansion: BoB

Bank of Baroda (BoB) today said it was expanding its overseas presence in Kenya, Uganda, Australia, New Zealand and Gulf countries with 15 more foreign branches by March 2012 despite economic uncertainty in the US and Europe.

"BoB's overseas business is growing at 35% annual rate even as developing counties are not doing too well and taking time to recover from the global economic stress in 2008," BoB Chairman MD Mallya said here today on the sidelines of a Ficci organised banking conclave.

"Our overall business model that we follow overseas is largely India-linked. And as the Indian economy is going strong, the impact of the latest global financial crisis will not be much," Mallya said when asked about the impact of the global economic uncertainty on the bank.

About 24% of its business comes from overseas operation.

Mallya said the bank's overseas portfolio would not get affected much even as there could be short-term liquidity mismatch.

Meanwhile, the bank has decided to hold 40% in its proposed Malaysian joint venture with Indian Overseas Bank and Andhra Bank.

He said the JV would be set up with an initial capital of Rs 380 crore.

Source: Business Standard

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SBI, ICICI Bank up lending rates by 50 bps

Mumbai: Country's top two lenders SBI and ICICI Bank on Thursday announced a hike in lending rates by 50 basis points each, making their home, auto and corporate loans dearer.

With this hike, borrowers will have to pay higher EMIs and the tenure of their home and auto loans could also be extended.

A large number of borrowers will be impacted by the hike as both the banks together enjoy over 30 per cent market share.

Both SBI and ICICI have increased the base rate, or the minimum lending rate, to 10 per cent from the existing 9.50 per cent, they said in separate statements.

SBI said its asset-liability committee, which met here on Thursday, also decided to hike rates on loans under the old BPLR (benchmark prime lending rate) system by a similar 50 basis points to 14.75 per cent, making loans for existing borrowers dearer by at least 50 basis points.

ICICI Bank too announced an increase of 50 basis points in its benchmark prime lending rate and in its floating reference rate for consumer loans (including home loans).

The revised rates of both lenders would be effective from August 13.Following the Reserve Bank's decision to raise short-term key rates in its first quarter review of monetary policy last month, lenders have responded by increasing interest rates. Major lenders including SBI, Punjab National Bank, Bank of Baroda, Oriental Bank of Commerce have raised interest rates.In the major bank category, HDFC Bank is the only bank which have not so far raised rates following July 26 policy.

Rate Hike.

ICICI Bank said, the fixed rate customers will not be impacted by the rate hike and their contracted rates will remain unchanged. Meanwhile, SBI increased its deposit rates in the 180-240 days basket to 7 per cent per annum as against 6.50 per cent earlier, the statement said.

However, interest rates on other fixed deposits have been left unchanged.

SBI has raised its lending rate by as much as 2.40 per cent during the year. The base rate was raised to 8 per cent from 7.40 per cent in January this year.

The rate hike announcement came within hours of bank Chairman Pratip Chaudhuri hinting at a hike.

“The RBI has increased the policy rates by 0.5 per cent. So I think we will have to transmit these rates both for our depositors as well for our borrowers," Chaudhuri said.

The RBI had hiked its key short-term lending rates by a higher-than-expected 50 basis points on July 26 to tame the uncomfortably high inflation number, which stood at 9.44 per cent in June. This was the 11th hike by the central bank since March 2010, when it switched over from the monetary policy loosening stance adopted during the financial slowdown to one for curbing inflation.

Following the RBI hike, almost all major banks have hiked their base rates in the range of 25-100 basis points. Though music to the ears of policymakers at the Mint Road, borrowers are a harried lot as loan servicing has become dearer.

Source: Financial Express

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Manappuram Finance to raise Rs 750 cr from bonds

Mumbai: Pure-play gold loan company Manappuram Finance on Thursday joined a growing breed of financiers opting to raise debt in a rising interest rate regime and increasing market volatility, and said it will raise Rs 750 crore through from bond issue.

The non-convertible debenture issue, opening on August 18 and closing on September 5, offers interest rate up to 12.20 percent annually on the two-year bond. The face value of each bond is Rs 1,000 with a minimum subscription of five bonds and will be listed on the Bombay Stock Exchange.

The fund raised will be used for various financing activities, including investments and lending, Manappuram Finance managing director I Unnikrishnan said. It will also be used for capital expenditure and working capital requirements, he said. The Kerala-based company, Unnikrishnan said, has enough capital to take its loan book to Rs 15,000 crore in one year and out of that Rs 2,000 crore will be raised from this bond issue.

As of June 30, the company's loan portfolio stood at Rs 9,000 crore and the capital adequacy at 29.3 percent, which is much above the Reserve Bank requirement of 15 per cent. Recently, many NBFCs, including Shriram Transport Finance, Muthoot Finance and India Infoline Financial Services among others have tapped the bond market to raise funds.

Source: Financial Express

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RBI issue draft guidelines on IRB approach

The Reserve Bank of India (RBI) today said it planned to allow banks to calculate at their own the capital requirement to handle credit risk if they meet certain criteria, like risk oversight norms and corporate governance.

The central bank has issued a draft guidelines for allowing banks to shift to Internal Rating Based (IRB) approach.

Under this scheme banks are allowed to use their own internal estimates for some or all of the credit risk components in determining the capital requirement for a given credit exposure.

"This [draft] guideline is meant for the banks which are willing and allowed by the RBI to adopt more sophisticated IRB approach," the central bank said.

The credit risk components include, Probability of Default (PD), Loss Given Default (LGD), Exposure at Default (EAD) and Effective Maturity (M).

The Basel-II framework provides two broad methodologies to banks to calculate capital requirements for credit risk, namely -- Standardised Approach (SA) and Internal Rating Based (IRB) Approach.

The SA measures credit risk based on external credit assessments.

The RBI has sought comments on the guidelines by September 9.

Source: Business Standard

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RBI panel for hassle-free remittance, investment

The Reserve Bank of India (RBI)-appointed panel today suggested significant liberalisation of forex regulation to allow hassle-free remittances and overseas investments.

"To enable hassle-free remittances by resident individuals, banks may be advised by the RBI not to insist on the submission of form 15 CA/15 CB for any remittances under the Liberalised Remittance Scheme (LRS)," the report of the panel headed by former RBI Deputy Governor KJ Udeshi said.

The report of the Committee to Review the Facilities for Individuals under Foreign Exchange Management Act (FEMA), 1999 said over a period of time, the FEMA rules now contain contradictory provisions and there is also a need to make definitions uniform and consistent across FEMA.

The committee is of the considered view that the procedural 'knots' in the system need to be untied to enable the present forex liberalisation to be effective and in the absence of untying of these knots, any further forex liberalisation will not be meaningful.

The report also noted that instead of an erstwhile single regulator (the RBI), we now have a multitude of regulators, each interpreting FEMA in his own way.

General permission, it said, may be granted to resident individuals to acquire shares of a foreign company in part or full consideration of professional services rendered to the foreign company or in lieu of Director's remuneration.

Besides, it suggested, general permission may be granted to resident individuals to acquire qualification shares of an overseas company for holding the post of a director without the existing limitations.

It is to be noted that the committee was set up, following the announcement in Annual Monetary Policy for 2011-12 in May.

"Recognising the need for facilitating genuine foreign exchange transactions by individuals – Residents/Non-resident Indians (NRIs) and Persons of Indian Origin (PIOs) – under the current regulatory framework of FEMA, Reserve Bank has constituted a Committee under the Chairmanship of KJ Udeshi," RBI Governor D Subbarao had said in the Annual Monetary Policy for 2011-12.

The objective of the review was to identify areas for streamlining and simplifying the procedure so as to remove the operational impediments and assess the level of efficiency in the functioning of authorised persons, including the infrastructure created by them.

Among other recommendations, Indian resident employees or directors may be permitted to accept shares offered through an ESOP Scheme globally.

It also suggested that the Portfolio Investment Scheme needs to be reviewed in its entirety and there is no need for continuation of the existing scheme.

Source: Business Standard

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Bank deposits plunge in Punjab

Chandigarh: Bank deposits seem to be losing attraction among people in Punjab despite alluring interest rates, with deposit mobilisation growth in the state shrinking to 7.5 per cent, compared with pan-India deposit growth of 18 per cent.

Most importantly, the deposit mobilisation has even turned negative in the urban sector (having over one-third share in total deposits) which means people living in industrialised cities like Ludhiana, Jalandhar are withdrawing their cash from banks and keeping it in other high margin investment options, bankers pointed out.

According to latest State Level Bankers Committee (SLBC) Report which was released today, the deposit accretion in the state went up by just 7.56 per cent to Rs 1.46 lakh crore for the period ending June 2011, against 10 per cent in the same period last year.

Significantly, the rate of deposit mobilisation by banks in the country is over 18 per cent and, moreover, in the neighbouring state of Haryana, the bank deposits grew by 22 per cent in the same period.

"The slow pace of deposit mobilisation indicates that people in Punjab prefer to invest in gold and real estate, which are offering much higher returns than that of bank deposits," a senior bank official said.

The real estate sector in potential areas of Punjab has given the returns to investors in the range of 30 to 40 per cent in last one year, while price of gold rose appreciably in the past one year and it is currently ruling over Rs 26,000 per 10 grams, experts said.

Bankers also attributed the lag in deposit mobilisation to slow down in the industrial segments, particularly textile.

"Trouble in textile sector caused by high rates of raw cotton is also one of the reasons of tight liquidity among the industry that resulted into low mobilisation of money," Punjab National Bank General Manager S S Bhatia said.

Though banks in urban areas saw deposits went down by over 6 per cent, the money supply from rural and semi urban centres shot up by 16.58 per cent and 17.38 per cent, respectively.

However, credit in the state expanded by 21.98 per cent to Rs 1.19 lakh crore as on June, 2011.

Punjab has banks branch network of 3,826 with maximum branches falling in rural areas.

Source: Financial Express

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Youth tries to debit Sachin Tendulkar's acct with 'dummy' card?

Mumbai: Mumbai police were taken aback when they found a leading bank's debit card with master-blaster Sachin Tendulkar's name on it in the possession of a college student.

The police arrested the youth, to find out later that it was a dummy card issued by the bank for "educational" purpose.

Shoyeb Doodhwala (21), a college-student, was arrested yesterday after he came out of an ATM centre in Lalbaug area.

He was found to have four debit cards of three banks – ING Vyasa, ICICI and Kotak Mahindra Banks -- police said.

Kotak Mahindra Bank's debit card had Tendulkar's name on it, and the youth could not tell the police wherefrom he got it. Further inquiry inquiry revealed it was a dummy card used by the bank for educational purposes, police said.

They said it was being probed if the other cards too were dummies.

"Around 3.00 am yesterday, policemen attached to Bhoiwada police station were patrolling Lalbaug area when they saw Doodhwala spending more than 15 minutes inside the HSBC ATM," said V B Patil, Senior Inspector.

He was stopped by police when he came out. "Doodhwala was frisked and he was found to have Rs 8,640 in cash, and four ATM cards, of ING Vysya, ICICI and Kotak Mahindra."

His driving licence was also found to be fake, with his photograph but someone else's details.

Patil said, "Kotak Mahindra bank debit card has Tendulkar's name on it. The bank's officials said it was a dummy card used for educational purpose at its ATM centres.

The dummy card can be seen on the ATM machine, for educating the customers on how to withdraw cash."

Doodhwala has been booked for cheating and forgery, and was produced before a local court today, which remanded him to police custody till August 12.

Source: Financial Express

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SBI opens first outlet for gold loans in north India

Chandigarh: State Bank of India (SBI) today opened an exclusive outlet for instant gold loans here. This is the first outlet of its kind at bank level where borrowers can obtain loan against their gold ornaments at attractive rate of interest, said a SBI release.

SBI also inaugurated Self Service Kiosk (SSK) Project at Punjab University.

This kiosk would de-congest the branch counters and increase the usage of Debit Cards.

Customers can make various financial and non-financial transactions on these kiosks using their ATM-cum-Debit Cards.

SSK is also expected to help in minimising the workload of Single Window Operators (SWOs) and reduce the waiting time of customers, said SBI CGM (Chandigarh Circle) S K Sehgal.

Source: Financial Express

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Subbarao starts another long haul

In 2008, within days of taking charge as the Reserve Bank of India’s (RBI) governor, Wall Street investment bank Lehman Brothers collapsed and the world went into a recession—the aftershocks of which were felt in India.

In a startling similarity, his re-appointed comes only a few days after the sovereign rating of United States was downgraded by Standard & Poor's, for the first time in financial history and the world stares at another economic slowdown, with India preparing for the after effects.

During his first term, Subbarao had to immediately react to the liquidity crunch that domestic banks and companies faced, by cutting cash requirement of banks and interest rates aggressively. This time, though, it is unclear if there would be another credit crunch, which economists think of as a low probability-high impact event, but the governor and his team have already taken fresh guard. It has said the central bank's priority is to maintain adequate liquidity in the rupee and the foreign exchange market to avoid any volatility.

The proactive response of RBI, in tandem with the government, is now widely seen as the reason for the country emerging from the 2008 crisis rather unscratched. "Indian banks have emerged out of the crisis as strong as ever. The non-performing assets are low, there is reasonable growth in credit and deposit. Subbarao deserves credit for ensuring this. He has always said RBI would ensure there is adequate liquidity in the system and credit demand would not suffer due to liquidity tightness," said Deepak Parekh, chairman, HDFC.

While RBI was aggressive in cutting rates in 2008, the same aggression was not visible in 2010 when inflation reached double digits. As a result, Subbarao's famous 'baby steps', that, is raising interest rates by a moderate magnitude, drew flak from several quarters, as inflation stayed stubbornly high for more than a year now. At the same time, policy commentators also say there were elements in inflation like supply-side constraints, which were beyond the control of the central bank.

One of Subbarao's significant achievements was to take RBI beyond market participants and policy makers to the common man, explaining the importance of central bank in everyday life. His outreach programme, covering nooks and corners of the country, and thrust for financial inclusion is set bring more individuals under the ambit of formal finance.

It was also during Subbarao tenure that RBI expressed its willingness to offer fresh banking licences to private sector players after nearly six years. More importantly, it was also open to offering licences to industrial houses. However, though the proposal was mooted last year, no major policy announcements have been made.

Source: Business Standard

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IDBI Bank to lend Rs 700 cr more to microfinance firms

IDBI Bank plans to lend Rs 700 crore more to microfinance companies by the end of this financial year, a top official said on Tuesday.

"We have exposure of about 800 crore, and we can take it to about 1,500 crore by the end of the fiscal," Executive Director RK Bansal said.

He said the Reserve Bank of India's (RBI) guidelines for the sector issued in May have brought about clarity and now "things are okay" in the sector.

The central bank had in May issued regulations for the microfinance sector and capped at 26% the interest rate that these firms can charge their customers.

The central government, which has been taking feedback from the RBI, banks and MFIs, is widely expected to table the draft MFI Bill in the monsoon session of parliament.

The country's MFI sector suffered a setback last year when Andhra Pradesh, the biggest market for MFIs in the country, approved legislation to regulate the industry following complaints about high interest rates, aggressive recovery practices and overextended borrowers.

Source: Business Standard

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Citi India ramps up markets team

Citibank India today said it had made key appointments in its markets team primarily to further strengthen its fixed income, currencies, commodities, credit trading and equities businesses.

"Citi has made several significant hires strengthening our credit markets trading, structuring and commodities businesses," Citi India Managing Director and Head of Markets Pankaj Vaish was quoted as saying in a statement issued here.

Fixed income, currencies, commodities, credit trading and equities products and services will be the areas which will get strengthened through the new hires, he added.

The key appointments include those of Rohit Dusad, who joins from JP Morgan as director of origination in credit markets trading; Aditya Bagree, who joins from Nomura as director of credit structuring; and Chintan Shah from Morgan Stanley, who joins as Vice-President for credit trading.

In the past three years, Citi has helped raise close to $60 billion from capital markets for its Indian clients and advised on nearly $25 billion of India-related mergers and acquisitions, the American banking giant said.

Source: Business Standard

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RBI Governor Subbarao gets 2-year extension

New Delhi: The government gave a two-year extension to Reserve Bank Governor D Subbarao to ensure continuity of India's monetary policy at a time when the whole world is reeling under the fallout of the downgrade of the sovereign rating of the US.

"It (extension) will be good because at this point of time, extension of the RBI Governor is needed. Though there was time till September, we decided (that) we should do it quickly to ensure that there is no uncertainty," Finance Minister Pranab Mukherjee told reporters after announcement of Subbarao's extension as head of the country's monetary authority.

Subbarao, who has played a key role in steering the country out of the global financial meltdown following the fall of America's iconic investment banker Lehman Brothers in September, 2008, will continue as RBI chief till September 5, 2013.

"He (Subbarao) is doing good job and he has already earned his reputation as central bank Governor in the various deliberations of the G-20, where Finance Ministers and central bank governors meet and take decisions," Mukherjee said.

Subbarao was to retire in September following the completion of a three-year term. "The Prime Minister approved the extension to D Subbarao, Governor of RBI, for two years," a PMO spokesman said.

The 61-year-old former IAS officer and veteran Finance Ministry official was appointed the 22nd Governor of the central bank in September, 2008.

The continuation of Subbarao at the helm of the RBI assumes significance as it comes at a time when the government and the central bank are gearing up to meet the challenge posed by the economic crisis in several eurozone nations and the downgrade of the US sovereign rating to AA+ from AAA by Standard and Poor's.

The downgrade triggered a steep fall in stock markets throughout the world, including the BSE and NSE in India.

Subbarao, who steered the country through the economic crisis of 2008, is credited with taking a tough monetary stance to check inflation.

It was under his leadership that the RBI increased key interest rates 11 times in the past 16 months to control the rate of price rise, despite stiff resistance from industry.

Under his governorship, the RBI had doubled the frequency of monetary policy reviews from every quarter to eight times a year with a view to decrease the need for off-cycle rate moves.

Subbarao had earlier served under Manmohan Singh in the Finance Ministry as a senior official in the early 1990s, when the latter was Finance Minister.

Prior to this appointment, he was the country's Finance Secretary.

Source: Financial Express

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PSU banks exposure in Noida realty projects at Rs 2,166cr

New Delhi: The public sector banks have sanctioned a total of Rs 2,166.2 crore as home loans and other construction loans in Noida realty projects, the government on Tuesday informed Parliament.

"RBI has reported that 'Noida Extension' does not appear as a 'banked centre' in the master office file on banks," Minister of State for Finance Namo Narain Meena said in a

written reply to the Rajya Sabha. He was replying to a query regarding the total quantum of housing loans extended/approved for home buyers by various public sector banks for housing projects in Noida Extension (a part of Greater Noida). Meena, however, said the total outstanding housing loans and other construction loans for 'Noida Centre' as on March 31, 2010, by public sector banks stood at Rs 2,166.2 crore. Of which, Rs 1,258.7 crore was sanctioned as home loans to 12,330 customers and Rs 907.5 crore as construction loans.

In two separate orders, the High Court has quashed the acquisition of about 750 hectares of land from farmers in Noida Extension, affecting more than 26,000 flat-owners and about 20 housing projects of developers, including Amrapali and Supertech.

The minister said that banks have done proper due diligence and followed regulatory guidelines while sanctioning housing and other related loans. "Indian Bank Association has reported that banks release such loans after processing and due diligence in accordance with credit policy and regulatory guidelines," the minister said.

Source: Financial Express

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RBI: Will ensure liquidity

Following Standard & Poor’s downgrading of the long-term US sovereign rating from AAA to AA+, with negative outlook, on Friday, government securities and foreign exchange markets saw volatile trade on Monday. While the rupee weakened to its lowest in five weeks during early trade, bond yields fell to a three-week trough, as investors sought safe-haven government securities.

Anticipating volatility in financial markets, the Reserve Bank of India (RBI) issued a statement before the start of trade on Monday to calm investors. It said it was the central bank’s priority in the immediate future to maintain rupee and forex liquidity to prevent volatility.

The rupee depreciated, tracking weakness in equity markets. It closed at a near-six-week low of 44.98 against the dollar, after trading in the range of 44.90-45.06. At the close on Friday, the rupee saw a weekly loss of 1.26 per cent—the biggest weekly loss in the last three months.

Yields on the 10-year benchmark government bond traded between 8.21-8.28 per cent before closing at 8.26 per cent on Monday, lower than Friday’s close of 8.31 per cent. Bond yields also fell, as a fall in crude oil prices softened the outlook on domestic inflation, weakening a case for further monetary tightening.

According to the central bank, though India is not insulated from global developments, during the worst phase of the recent global financial crisis, the growth was 6.8 per cent, showing high resilience to the crisis, owing to from domestic factors.

“While downside risks to growth may have increased in the wake of global developments, they are likely to have limited impact,” the central bank said. RBI said it was monitoring the global situation and would “respond quickly and appropriately to the evolving situation”. India’s foreign exchange reserves currently stand at more than $300 billion.

“As regards forex liquidity, in anticipation of financial market turbulence related to the US debt ceiling impasse, the Reserve Bank of India made an assessment of the ability of the forex reserve portfolio to meet potential forex requirements in the event of significant capital outflows. This exercise indicated there were sufficient liquid reserves to meet the demand for forex, even in stress scenarios,” it said. According to RBI, the banking system does not face any immediate liquidity stress and banks can borrow by pledging government bonds. They can also avail of the marginal standing facility.

“There has been substantial global risk aversion after the US downgrade. RBI, in on Monday’s statement, said it would respond if global uncertainty worsens, which means RBI is willing to change its stance. Still, it is too early to take a big call. The markets are assigning a probability that RBI may change its stance. The yields would be range bound and any uptick would be bought into. I expect yields to range between 8.20-8.35 per cent,” said Vivek Rajpal, India rates strategist, Nomura.

Source: Business Standard

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