StanChart hikes lending rate by 25 bps

Standard Chartered has increased its minimum rate of lending by 25 basis points to 9.75% to become the second foreign bank to do so since Reserve Bank of India (RBI) raised its key policy rates in July.

The rate hike is effective from September 1.

"The base rate has been arrived at considering the 6-9 month term-deposit rate blended with current and savings account (CASA) cost, and other elements that are common across all categories of borrowers," the bank said.

With an eye on inflation numbers, the RBI has hiked its key rates a record 11 times since March 2010, the last being on July 26. Inflation stood at an uncomfortable 9.22% for July.

Hongkong and Shanghai Banking Corporation (HSBC) was the first foreign lender to hike its base rate by 50 basis points to 9.75% on August 3.

HSBC had also hiked its deposit rates. It was immediately not known if Standard Chartered has also hiked its deposit rates.

Source: Business Standard

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Indian Bank revises foreign currency rates

Public sector Indian Bank today said it has revised upwards interest rates for the Foreign Currency Non-Resident (FCNR) and Non-Resident (External) accounts with immediate effect.

For the FCNR (B) deposits, the revised interest rate has been increased to 1.80% from 1.76% for deposits of one year and above but less than two years, the Chennai-headquartered bank said in a statement.

Interest rates for deposits of two years and above but less than three years has been fixed at 1.51% against 1.64% previously.

For deposits of three years and above but less than four years, the interest rates has been revised to 1.67% from 1.94%.

For deposits of four years and above but less than five years, the revised rate will 1.95% from 2.32%.

Interest rates for deposits of up to five years has been revised to 2.28% from 2.72%, the statement said.

For Non-Resident (External) deposits, the interest rate has been revised to 2.55% from 2.51% for deposits of one year and above but less than two years.

For deposits of two years and above but less than three years it has been revised to 2.26% from 2.39%.

For deposits of three years and Upton five years the interest rate has been revised to 2.42% from 2.69%, the statement added.

Source: Business Standard

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Bank of America job cuts could reach 30,000

Bank of America Corp executives are discussing plans to potentially shed 25,000 to 30,000 jobs over the next several years, the Charlotte Observer said.

Bank of America executives are still working on the final plans regarding the workforce reduction, which could reach much more than 10,000 jobs, the Charlotte Observer reported, citing sources familiar with the matter.

Jobcuts at the biggest US bank, which the Wall Street Journal had reported could rise to 10,000 in the coming months, come on the heels of the bank's stock plunging over 40% since the beginning of this year.

The bank, part of a growing list of large banks that have been slashing their workforce, is expected to cut 3,500 jobs in the next few weeks as it continues to cope with its $1 trillion pile of problem home mortgages.

Bank of America, which recently received a $5 billion investment from Warren Buffett, has suffered a series of quarterly losses over the past two years, including a record $8.8 billion loss in its latest quarter.

In the first phase of the program, the bank's executives are examining the consumer side of the bank, the mortgage business and staff functions.

In the fourth quarter of this year and the first quarter of next year, they will tackle capital markets, wealth management and commercial banking operations, the Charlotte Observer said.

On a conference call with investors last month, Bank of America Chief Executive Brian Moynihan said the bank could cut as much as $1.5 billion in quarterly expenses.

Source: Business Standard

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LIC eyes 5% sales from bancassurance

Life Insurance Corporation of India (LIC) is looking at a huge jump in premium collected through bancassurance, amid increasing competition from private players.

Life Insurance Corporation collected Rs 1,281 crore in premium through bancassurance, which involves using bank branches for selling policies and collecting premia, FY11. This accounted for a little over 0.60% of the total premium collection of Rs 2,03,358 crore.

The corporation sold 7 lakh new policies through this channel during 2010-11.

"Target for the current year is that we want to get 5% of our total premium from bancassurance. And 5% of LIC's premium is huge, you have to realise that," LIC Executive Director (Corporate Communications) Vipin Anand said.

However, he said leveraging the channel was not easy.

"Definitely the scope is much more. Only thing is - for banks which do not own an insurance company, insurance is not very high on priorities. That is the reality, we have to understand that," Anand said.

"If the insurance company is owned by a bank, there is an entirely different kind of a stake...Their mainstay [of distribution] is going to be the bank," he added.

LIC has tie-ups with various banks, including Corporation Bank, United Bank of India, Bank of Maharashtra and UCO Bank.

Anand further said that LIC's 1.337 million agents are its mainstay and it should not be compared with the private sector insurers which count banks as promoters.

Source: Business Standard

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SBI group's efficiency falls, other banks on a high

India’s largest lender, State Bank of India and its associates, fell behind other banks operating in India in efficiency in 2010-11, with a fall in both profit per employee and return on assets, compared to the previous year.

“Profitability in terms of return on assets of all scheduled commercial banks at the aggregate level improved during 2010-11. All bank groups witnessed an increase in return on assets during 2010-11, except State Bank of India and its associates, which witnessed a decline in return on assets,”The Reserve Bank of India (RBI) said on Friday.

SBI, which had recorded a 99 per cent per cent dip in net profit in the fourth quarter ending March 31, saw its profitability per employee down to Rs 3,85,000 in 2010-2011, against Rs 4,46,000 in 2009-2010. According to RBI, the return on assets also fell on a standalone basis to 0.71 per cent in FY11 from 0.88 per cent in the year before.

For the SBI group, profit per employee and return on assets fell for the bank and its associates. Profit per employee fell from Rs 4,70,000 to Rs 4,20,000 and return on assets was down to 0.79 per cent from 0.91 per cent.

SBI’s profits had been marred in the previous financial year on account of higher provisioning for both non-performing assets and staff related issues. The bank also has to provide nearly Rs 8,000 crore from its capital reserve for pension, which led to a fall in the bank’s capital adequacy ratio.

BANKS’ PERFORMANCE IN 2010-11
Bank	Business per employee (in Rs lakh)	Profit per employee (in Rs lakh)	Return on assets (%)	Capital adequacy (%)	Net NPA ratio (%)
SBI	704.00	3.85	0.71	11.98	1.63
PNB	1018.00	8.35	1.34	12.42	0.85
Bank of Baroda	1333.00	11.00	1.33	14.52	0.35
ICICI Bank	735.00	10.00	1.35	19.54	1.11
HDFC Bank	653.00	7.37	1.58	16.22	0.19
Source: Reserve Bank of India

The burden on account of provisions has continued in the current financial year. The public sector bank had to make a provision for loan loss and investment depreciation in the first quarter ending June, which led to a fall of 46 per cent in its net profits in the first quarter of FY12.

On a comparative basis, profit per employee for ICICI Bank, the largest private sector lender in India, increased to Rs 10,00,000 for 2010-2011, against Rs 9,00,000 in the previous year. Its return on assets rose to 1.35 per cent from 1.13 per cent. Punjab National Bank, the second largest lender in the public sector space, has also seen an increase in its profit per employee to Rs 8,30,000 from Rs 7,30,000 during the reporting period. The data also shows the capital adequacy ratio of all banks declined during FY11.

Source: Business Standard

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Allahabad Bank raises interest rate on term deposits

MUMBAI: State-run Allahabad Bank today hiked interest rates on deposits for less than Rs 5 crore with term ranging from one year to less than two years by 50 basis points to 9.5 per cent.

The increased rates will come into effect from September 5.

"...the Bank has decided to revise the interest rate upward by 0.50 per cent per annum on domestic term deposits scheme for the period from one year to less than two years of below Rs 5 crore...," the bank said in a filing to the Bombay Stock Exchange (BSE).

The bank's shares closed at Rs 175.80, down 1.62 per cent from its previous close on the BSE.

Source: Economic Times

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ICBC, two more foreign lenders get banking permission

New Delhi: Reserve Bank has given permission to Industrial and Commercial Bank of China (ICBC) to start operations in India in 2011, the Lok Sabha was informed today.

Besides, two other banks Rabobank International (The Netherlands) and Woori Bank (South Korea) have also been given approval to expand their presence in India.

In the last calender year, eight foreign banks, including DBS Bank, Credit Suisse AG and Barclays Bank, were given approval by RBI to open branches or expand the existing ones.

As of now, 38 foreign banks are functioning in India through 321 branches.

This information was given by Minister of State for Finance Namo Narain Meena in the Lok Sabha in a written reply.

Replying to another query, the Minister said State Bank of India (SBI) proposes to open additional branches/offices in Bahrain, Bangladesh, China, Germany, Hong Kong, United Kingdom, South Africa and Sri Lanka.

“While giving approvals for opening offices, RBI/ Government of India desires that only banks, which have the capacity to survive in a competitive global market are allowed (to mark their) presence abroad,” Meena added.

Source: Financial Express

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Rights issue is on track, says SBI chief

State Bank India (SBI) today said its Rs 20,000 crore rights issue proposal was on track and the bank was not looking at any other options to raise capital.

"Government of India, Department of Financial Services is very much looking into it (rights issue proposal). As of now, there is no interim response (from the government) but it is receiving attention," SBI Chairman Pratip Chaudhuri said.

"There is no question of looking at any other option but rights issue is very much on the track," he said, adding, "The amount will be finalised after we hear from the government".

The country's largest bank submitted proposal for capital infusion a few weeks ago.

"We have made our proposal to the government giving different scenarios and different levels of capital adequacy which requires different levels of capital," he said.

As per the proposal, SBI requires Rs 20,000 crore to fund its growth plans over the next two fiscals.

It is also function of percentage of government's holding in the bank, he said.

Currently, the government has a 59.4% stake in the bank. In case a rights issue is approved and the government wants to retain its holding at the current level, it would need to subscribe to 59.4% of the total rights being issued.

Source: Business Standard

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StanChart sees commodity trading revenue up 30%

Standard Chartered Plc expects to post a 30 per cent year-on-year growth in its commodity trading revenue in 2011 on strong demand from its clients in Asia, Africa and West Asia, a senior company official said on Thursday.

The bank is also looking to expand physical trading in various commodities such as coal, iron ore, palm oil and base metals, Ashish Mittal, the bank’s global head of commodities sales said.

“The commodity business is a huge focus area for the bank,” said Mittal, who noted the bank’s commodity clients had doubled in the past two years.

“Over the past few years, we’ve consistently done an average growth of 30-40 per cent,” he said, adding the business started in 2006.

Standard Chartered, which currently provides hedging services to its clients in precious and base metals, energy and agricultural products, could expand its physical trading to act as a link between its clients — both producers and consumers, he said. “If we finance a mine, we might get an offtake that we may offer to our existing clients,” Mittal said, without giving any timeline for the start of physical trade. “We’re closely looking at iron ore, coal and palm. Base metals are an opportunity, too.”

Source: Business Standard

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Bank of Maharashtra to offload Rs 9,000 crore bulk deposits by March 2012

KOLKATA: Bank of Maharashtra (BoM) is planning to offload its entire chunk of bulk deposits of Rs 9,000 crore by March next year to control cost and preserve margin, bank chairman and managing director Anup Sankar Bhattacharya told ET.

Banks are facing rising cost of deposit as Reserve Bank of India following a tight monetary policy by raising interest rate to tame inflation.

BoM's cost of deposit stands at 5.88% while its net interest margin being at 3.18%. "We would lime to maintain NIM at 3.15-3.18% level," Bhattacharya said.

Having decided to offload bulk deposit, the Pune-based bank's deposit growth will be moderate this year at 15%. It aims to grow its advances by 18% in 2011-12.

Mr Bhattacharya said his bank has requested the government for an equity infusion of Rs 800 crore to keep tier 1 capital above 8%. "This would take care of our growth till March 2012," the CMD said. BoM has its capital adequacy ratio at 13.35%.

Source: Economic Times

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A 10 per cent safeguard

The RBI has issued draft guidelines for private bank licences. These emphasise dispersed shareholding. Proposed rules on entry into banking require that, for a company to get a bank licence, no one entity hold above 10 per cent shares in a company. These rules are similar to those proposed by the Bimal Jalan committee that, for the ownership of an exchange, no one entity hold above 5 per cent shareholding. These rules are on the right track. However, as recent experience in telecom and stock exchanges has shown, enforcing such rules is going to be a challenge. The RBI will need strong investigative capabilities, such as in SEBI, in carefully sifting through the bank licence applications that it will receive.

The business of banking is different from other businesses. What is special about a bank? As an illustration, consider a person who puts up Rs 51 to start a bank with an equity capital of Rs 100. With 51 per cent shareholding, he has full control of the bank. On average, Indian banks have total assets which are 20 times the equity capital, so the bank will borrow Rs 1,900 from depositors and give out loans of Rs 2,000. Retail depositors are rarely informed enough to understand unethical practices by banks. This problem is made worse by the political reluctance to let a bank fail. The belief that the government would bail out a bank reduces any incentives of depositors to worry about risks being taken by banks. Data and analysis of who the bank is lending to is not made public. Even if it were, in a complicated structure of company ownership, it is hard for depositors to know if promoters are lending to related parties. This puts the onus on the bank supervisor. The proposed ownership structure for bank licences is intended to address this issue.

A promoter who puts in Rs 51 crore to control a bank gets to control bank assets of Rs 2,000 crore. The world over, promoter-controlled banks have got into trouble because there is the temptation for the promoter to give out dubious loans and thus siphon out more than that Rs 51 crore. If promoter-led banks come about, what will ensue is a continual warfare between promoters and bank supervisors. Given the governance problems of India, prevention is better than cure. The best way out for Indian banking is to open up only to dispersed shareholding banks.

In all countries, at an early stage of development, firms start out family-dominated. In India today, most companies have at least 51 per cent shares with the promoter. From a policy viewpoint, the main concern with this arrangement has been that of corporate governance: where a promoter with 51 per cent of the shares grabs more than 51 per cent of the cash flow of the company by siphoning off cash through underhand means.

In certain fields, the concerns about promoter-led companies go beyond the corporate governance problem. Banking is an example. A promoter-run bank features concentration of decision-making in a few hands. The promoter can give out loans to accomplices adding up to Rs 102 crore. If these loans are not repaid, the promoter has converted Rs 51 crore of investment in setting up the bank into winnings of Rs 102 crore, that is, a 100 per cent return on investment.

What is the alternative to a promoter-run company? All over the world, capitalism grows up, from family-dominated companies to dispersed shareholding companies with a professional management team. A key feature of professional management is the dispersion of information and decision-making among many people. It is harder to execute a scam, when many people, and checks and balances of internal processes, are in the fray. The CEO of a dispersed shareholding company is a professional. If a scandal erupts, it destroys his reputation and thus his lifetime income. Dispersed shareholding with professional management is usually less likely to indulge in corrupt practices. We see this phenomenon with the new private banks that came into operation in India after 1993. By and large, the promoter-led banks got into trouble (other than Kotak Bank). By and large, the dispersed-shareholding banks did well.

The debate in India has been primarily about whether industrial houses should promote banks or not. This is because it is expected that the promoter may use the licence to lend to his industries. But the real issue is about whether a promoter should control a bank or not. We have seen examples of private banks in India where the promoter constructed side businesses to give bad loans to, or gave loans to cronies, even when the promoter was not an industrial house. The real issue is that of incentives and information; not about whether the promoter controls an industrial empire on the side.

Given the difficulties in obtaining information, understanding complex ownership structures and in supervising and prosecuting fraud of the kind described above, the RBI has proposed to address this issue by emphasising dispersed shareholding banks, where there is no promoter.

Dispersed shareholding corporations, with a professional management team, are in any case the destination for Indian capitalism. All over the world, the shareholding of promoters inevitably gets fragmented among many children. The imperatives of growth require bringing in external equity capital which dilutes the shareholding of the promoter. Thus, worldwide, promoter-led companies transition into dispersed shareholding companies. In India, we should accelerate this process, so as to avoid the difficulties of the first stage. We would be getting to the same end-destination — a landscape dominated by private banks all of which lack a promoter — but we would be avoiding many a scandal and some macroeconomic crises along the way. Perhaps one question worth pondering is: what would have happened in Indian telecom if, in 1993, when telecom first opened up, private telecom companies were constrained to have dispersed shareholding?

The writer is a professor at the National Institute of Public Finance and Policy, Delhi express@expressindia.com

Source: Financial Express

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Sidbi revamps loan schemes for MSMEs

The Small Industries Development Bank of India (Sidbi) is to provide equity and quasi-equity assistance to micro, small and medium enterprises in the form of subordinated debt.

The financial institution will also float a Flexible Assistance for Capital Expenditure (FACE) scheme, with multiple repayment schedules. These are to be linked to the economic cycle and cash flow of each component.

Many small and medium enterprises often fail to get adequate working capital, due to lack of adequate owners’ capital and all assets to be offered as security. Subordinated debt is a quasi-equity instrument, with minimal complexity and simpler documentation and, hence, quicker to deliver, Sidbi said on Wednesday.

This assistance is to be extended on the strength of cash flows, rather than asset coverage or security. The initial longer moratorium (three to five years) on principal installments will ensure greater chances of success of the ventures.

Sidbi said FACE would provide funding to MSMEs for capital expenditure to modernise, upgrade, diversify and meet global standards. The scheme provides flexibility for repayment to match with the nature, economic life and cash flow associated with each component of an investment. The tenure of each component is linked with its economic life and cash flow and could be in the range of three to seven years for movable fixed assets and as long as 10 years for land and building. It offers flexibility to plan capital expenditure for immovable and other fixed assets jointly or separately.

Source: Business Standard

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Bank of America looks to exit correspondent mortgage biz

Bank of America Corp is looking to sell its correspondent mortgage business and the unit's employees could be notified as soon as Wednesday, the Wall Street Journal said, citing people familiar with the matter.

The bank had decided to exit the correspondent channel, which employs more than 1,000 people, because it no longer fits with the long-term strategy for its mortgage unit, the Journal said.

Correspondents fund loans and sell them to larger lenders.

The bank has used the correspondent channel to build origination volume and make money by re-selling the loans to other parties and then servicing them, the newspaper said.

Loans purchased from correspondents accounted for 47% of Bank of America's mortgage originations, or $27.4 billion, in the first quarter of 2011, the Journal said citing Inside Mortgage Finance.

Bank of America could not immediately be reached by Reuters for comment outside regular US business hours.

The biggest US bank plans to cut 3,500 jobs in the next few weeks, its Chief Executive Brian Moynihan had said in a memo to staff on Aug. 18, as it tries to come to grips with $1 trillion of problem home mortgages.

Source: Business Standard

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Central Bank of India offers special deposit scheme

MUMBAI: State-run lender Central Bank of India today launched a special scheme offering to double depositors' money in seven-and-a-half years.

The scheme, christened 'Cent Double', will give an annualised yield of 13.33 per cent and is valid between September 1 and December 31, a statement issued here by the bank said.

For senior citizens, the annualised yield stands at a higher 14.93 per cent and the money will double in seven years and three months, it added.

For the metros and urban centres, a minimum deposit to be made under the scheme is Rs 10,000, while for semi-urban and rural centres it is Rs 5,000, it said, adding that the maximum sum which can be invested is less than Rs 1 crore.

Source: Economic Times

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Rajya Sabha passes SBI Bill

New Delhi: Rajya Sabha on Tuesday passed a bill which seeks to transfer powers to the Central Government from the Reserve Bank of India with regard to SBI subsidiary State Bank of Hyderabad with an amendment moved by a BJP member.

The transfer of powers to the Centre has been necessitated after the ownership of the SBI was transfered from the RBI to the Government. The Bill was passed amid din even as the debate on it remained inconclusive. The Upper House saw repeated adjournments after noon following protests by BJP over appointment of Lokayukta by the Governor in Gujarat.

The Government agreed to an amendment by Piyush Goyal (BJP), who detected a technical flaw in the Bill. He had pointed out that the State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009, which was before the House, was not the same that was sent to the Standing Committee. As soon as the House reassembled, the BJP members continued their protest trooping into the well.

Even as they were shouting slogans against Gujarat Governor, Minister of State for Finance Namo Narain Meena moved the Bill for consideration of the House. Before P J Kurien, who was in the Chair, adjourned the House for the day, he asked for a voice vote and approved the Bill.

Source: Financial Express

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Religare forms panel to apply for banking licence

Financial services provider Religare Enterprises on Tuesday said it had set up an advisory panel that would support management's effort in seeking banking licence under guidelines issued by the Reserve Bank of India.

Suman Bery, a former special consultant to the RBI, and Kiran Karnik, former president of India's software services association Nasscom, have joined the panel and more would follow, the company said.

Religare said it was confident that it would qualify on the all the key norms laid out for new banking licence.

Source: Business Standard

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SBI NPA provisioning up 3-fold from 2008-09 and 2010-11

The government today said provisioning against the non-performing assets (NPAs) of State Bank of India (SBI) increased more than three-fold to Rs 8,792 crore in 2010-11 from Rs 2,474 crore in 2008-09 due to a rise in bad debt.

This provision in 2010-11 includes a countercyclical buffer of Rs 2,330 crore toward achieving the 70% Provision Coverage Ratio prescribed by the Reserve Bank of India over-and-above the prudential provision, Finance Minister Pranab Mukherjee said in a written reply to a question in the Rajya Sabha.

The NPAs have gone up substantially in agriculture, small scale industries and corporates, he said.

During 2010-11, outstanding loans of Rs 210.34 crore given by SBI to Shah Alloys Ltd turned into NPAs. At the same time, an outstanding loan of Rs 193.99 crore to Indorama Synthetics became a NPA, he said.

Meanwhile, in a separate written reply, Minister of State for Finance Namo Narain Meena said the government has received a proposal from SBI for raising capital through various instruments -- Qualified Institutional Placement (QIP), Preferential Allotment, a Follow-On Public Offer and a rights issue. The proposal is under examination, Meena added.

In response to another question, Meena said in line with the principles of preserving the long-term value of the country's foreign exchange reserve in terms of purchasing power, minimising risk and volatility in returns and maintaining liquidity, the RBI holds foreign currency assets (FCAs) in major convertible currencies' instruments.

These include deposits of other countries' central banks, the Bank for International Settlements (BIS) and top-rated foreign commercial banks, besides securities representing the debt of sovereigns and supranational institutions with a residual maturity not exceeding 10 years, Meena said.

At the end of March, 2011, Meena said out of the total foreign currency assets of $274.3 billion, $142.1 billion was invested in securities, $126.9 billion was deposited with other central banks, the BIS and IMF and $5.3 billion was placed with External Asset Managers.

Source: Business Standard

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New generation banks build 14 per cent market share in deposits & loans

MUMBAI: Since RBI last licensed private banks over 10 years ago, new generation private lenders have built a market share of 14% in deposits and also loans, which is much higher than the combined share of close to 12% of foreign banks, old generation private banks and regional rural banks.

That is a reflection of the impact created by these banks, which forced state-run banks to shake off their slothful way of functioning and focus on customers and better service standards and product offerings. In 1993-94, RBI granted in-principle approvals for 10 entities to promote private banks.

They included two finance companies - 20th Century Finance and CRB Finance - the Times Group and Hindujas, financial sector professionals Ramesh Gelli; Darshanjit Singh and Harpreet Singh, besides the ones promoted by HDFC, erstwhile UTI and IDBI and later the development financial institution ICICI, which reverse merged with ICICI Bank.

Just before the licences were issued, CRB was caught in the centre of a scam and the in-principle approval was cancelled. Only five entities have survived since then - HDFC Bank, the UTI-promoted Axis Bank, IDBI Bank and the Hinduja-promoted IndusInd Bank.

During this period, Times Bank and Bank of Punjab were acquired by HDFC Bank while GTB, promoted by Ramesh Gelli, was acquired by Oriental Bank of Commerce.

Later in 2002, RBI licensed two more banks, Kotak Mahindra Bank and YES Bank, promoted by Rana Kapoor and others.

Over the past 15 years, new generation private banks have given government-run banks, which even now control 70% of the market in terms of deposits and advances, a run for their money by leveraging on technology.

Earlier in terms of product offerings and premium service, foreign banks were at the forefront. New generation private banks bridged that gap by providing efficient services at competitive rates, forcing foreign banks to change tack and PSU banks to embrace technology.

However, unlike last time, the challenge for new banks will be greater, given intense competition and focus on rural inclusion.

Source: EconomicTimes

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Corporates welcome RBI's draft norms on banking licences

Mumbai: Welcoming the Reserve Bank's draft guidelines on granting new bank linceces, corporates and analysts on Monday said the norms would pave the way for entry of business houses into the banking space.

"We welcome the draft banking guidelines. Clearly, based on eligibility criteria, Aditya Birla Nuvo, which enjoys a significant presence across several key financial services businesses, would fit into the criteria," Aditya Birla Nuvo Chief Financial Officer Sushil Agarwal said.

Terming the paper as a well-thought out piece, analysts said the draft incorporates a lot from the consultative process held after the the discussion paper floated by the RBI in August, 2010.

"Overall, this is a good set of guidelines. They give a clear set of directions about the entry of corporates which is welcome," consultancy firm Ernst and Young's Director Viren Mehta said.

"The draft guidelines are definitely in line with the discussion paper and views expressed subsequently also have been taken into consideration," G S Sundararajan, Managing Director of finance company Shriram Capital, said.

He said the group will be analysing the details and looking if it can come up with a profitable model. The company's interest in banking continues, Sundararajan added.

"The draft guidelines contain a strong focus on greater financial inclusion, efficient corporate governance, adequate controls on exposure to group companies, and time-bound milestones for listing. We now look forward to the release of the final guidelines over the next few months," Sam Ghosh, CEO, Reliance Capital, said.

"Our group will be keen to explore a banking licence. Our long experience of two decades provides us with the necessary understanding and strength in the financial services domain," diversified conglomerate Mahindra and Mahindra's President (Finance, Legal and Financial Services) Uday Phadke said.

"What is important is that they have chosen to create a level-playing field, there is nothing there which will offend an existing player," consultancy firm PricewaterhouseCoopers' Associate Director Robin Roy said.

Source: Financial Express

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Rs 500 cr min capital to set up new bank

Mumbai: The Reserve Bank of India (RBI) today unveiled the draft guidelines on new banking licences, pegging the minimum required capital to set up a bank by a corporate at Rs 500 crore while limiting the foreign shareholding at 49 per cent.

"The minimum capital requirement will be Rs 500 crore. Subject to this, the actual capital to be brought in will depend on the business plan of promoters," the Reserve Bank of India (RBI) said in its draft guidelines on new banking licences.

At present, the minimum capital requirement for the banking sector is Rs 300 crore.

The draft norms said the aggregate foreign shareholding in the new bank should not exceed 49 per cent for the first five years.

At present, the foreign shareholding in private sector banks is allowed up to 74 per cent of the paid-up capital.

On the corporate structure, it said the new banks will be set up only through a wholly-owned non-operative holding company (NOHC) to be registered with the Reserve Bank as a non-banking finance company (NBFC) which will hold the bank as well as all the other financial companies in the promoter group.

Private sector entities or groups owned and controlled by Indian promoters, with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years will be eligible to promote banks, it said.

However, entities or groups having significant (10 per cent or more) income or assets or both from real estate, construction and broking activities individually or taken together in the last three years will not be eligible to set up new banks.

At least half the number of directors of non-operating holding company (NOHC) should be independent directors. The corporate structure should be such that it does not impede effective supervision of the bank and the NOHC on a consolidated basis by the Reserve Bank, the draft guidelines by the central bank said.

On the business model, the draft said that it should be realistic and viable and should address the issue of how the bank proposes to achieve the financial inclusion.

The new bank should open at least 25 per cent of its branches in unbanked rural centres, it said.

Also, the new banks should get their shares listed on stock exchanges within two years of licensing.

RBI has invited comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large and the last date for submission of comments is October 30, 2011.

RBI ha come out with a discussion paper on 'Entry of New Banks in the Private Sector' in August 2010 after an following announcement by the Finance Minister Pranab Mukherjee in his Budget speech in the last year.

At present, India has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1721 urban cooperative banks, 31 state cooperative banks, and 371 district central co-operative banks.

Highlights:

* RBI draft norms for new banking licences pegs minimum capital requirement at Rs 500 crore.

* New banks will be set up only through a wholly owned Non-Operative Holding Company, say RBI draft norms.

* The aggregate foreign shareholding in new banks shall not exceed 49 per cent for the first 5 years, say RBI draft norms.

* Private sector entities or groups owned and controlled by Indian promoters, with diversified ownership and having a successful track record of at least 10 years, will be eligible to promote banks:

* The new bank should open at least 25 per cent of its branches in unbanked rural centres, say RBI draft norms.

* New bank needs to get its shares listed on the stock exchanges within two years of licencing, say RBI draft guidelines.

Source: Financial Express

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Government committed on SBI rights issue: Pratip Chaudhuri

MUMBAI: State Bank of India Chairman Pratip Chaudhuri today said Government is "quite committed" to infuse funds through the bank's proposed Rs 20,000 crore rights issue.

"The Government is quite committed on the rights issue and it is not right for the bank to put a finger on the quantum," Chaudhuri told reporters on the sidelines of an event here.

The Government had last week indicated that the rights issue will happen this fiscal itself. According to official sources, the infusion will come through as the Government wants to push the tier-I capital to over 8 per cent.

SBI, the country's largest lender, had a total capital adequacy of 11.6 per cent as on June 30 while the core tier-I component stood at 7.6 per cent.

The bank's Chief Financial Officer Diwakar Gupta had last week said that it can see through this fiscal considering its credit growth targets but will definitely need to augment it in next fiscal.

Presently, Government has a 59.4 per cent stake in the bank. In case a rights issue is approved and the Government wants to retain its holding at the current level, it would need to subscribe to 59.4 per cent of the total rights being issued.

The SBI chairman added that the bank is sufficiently capitalised on tier-II and will not be looking at any bond sale in the near term.

SBI will be adding 600 to 800 branches to its present network of over 13,000 branches, he said.

Chaudhuri was speaking to reporters at a civic body run school in south Mumbai's Colaba area after announcing help for the school as a part of the bank's corporate social responsibility activities.

He said the bank will be spending Rs 80 crore this fiscal on CSR initiatives which will involve donation of ten fans each to a school in the vicinity of all the 13,000 branches.

Source: EconomicTimes

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