Repo rate, reverse repo rate hiked: No immediate plans by HDFC, Canara Bank & Central Bank of India to pass hike to consumers

Though the Reserve Bank of India increased its policy lending rate for the 12th time in 18 months in its ongoing fight against inflation, most large lenders do not have immediate plans to toe the lines of the central bank in hiking their lending and deposit rates.

This is the first time in the past one year that top Indian lenders appear to be adopting a different stance and hold rates steady, despite the central bank's continued hawkishness.

Between July 2010 and August 2011, RBI raised repo rate by 250 basis points to 8%. During the same period, the State Bank of India, the country's largest lender, raised its base rate or the minimum lending rate by the same quantum to 10% from 7.50%.

"We do not see a possibility of rate hike based on this policy. But going forward, we cannot rule out another hike in rates. But, that probably will be the last hike," HDFC MD and CEO Keki Mistry told ET.

On Friday, RBI raised its key lending rate, or repo rate, by 25 basis points to 8.25%. The reverse repo rate, which is linked to the repo and 100 bps lower, is up at 7.25%.

"We do not think the banking sector will look at transmission of policy rates immediately. There is ample liquidity in the system, preventing banks from hiking deposit rates, and if we are not raising deposit rates, there is no justification to raise lending rates. Also, whatever little demand exists for loans will get affected if banks raise rates now," said Central Bank of India CMD MV Tanksale.

Canara Bank CMD S Raman said: "The trigger to raise lending rates will depend on accretion of deposits. Since credit growth has not been great, there is no pressure to raise rates. So, the rate hike may not be swift. I think we are almost at the peak."

Source: Economic Times

Read more »

RBI policy: Home, auto loan EMIs to go up

All loans are set to become costlier, with the Reserve Bank today hiking the key interest rate for the 12th time since March, 2010, by 25 basis points to rein in high inflation.

With today's decision, the short-term lending (or repo) rate at which banks borrow from the RBI stands increased to 8.25% and the short-term borrowing (reverse repo) rate at which banks park their funds with the RBI to 7.25%.

Headline inflation rose to 9.8% in the month of August from 9.2% in July this year.

Despite the RBI hiking rates several times since March, headline and food inflation are close to double digits.

"As such, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance," the RBI said in its mid-quarter review of the monetary policy.

Going forward, the RBI's stance will be influenced by signs of downward movement in the inflation trajectory, to which a moderation in demand is expected to contribute, besides the implications of global developments, it said.

"The step is consistent with the RBI monetary stance for the first half of 2011-12 and overall concerns on growth sustainability in the medium term.

"I am hopeful that measures taken would get us back a more comfortable inflation situation earlier rather than later, while having scope for growth to pick up in the second half of the year," Finance Minister Pranab Mukherjee said.

Commenting on the rate hike, Indian Overseas Bank Chairman and Managing Director M Narendra said banks need to pass on the hike to customers as the cost of funds has gone up.

"I believe banks would wait till the month-end before taking a call on an interest rate hike," he said.

"The rate hike is on expected lines and would result in interest rates, both deposit and lending, going up," Oriental Bank of Commerce Executive Director S C Sinha said.

Echoing similar views, Corporation Bank Chairman and Managing Director Ramnath Pradeep said, "Banks will have to raise rates, but when and how will be decided by individual banks, depending on their asset liability conditions."

According to Punjab and Sind Bank Executive Director P K Anand, the impact of the policy rate hike will take effect with a time lag.

The banks, he said, will maintain the current rates at least for the next 15 days and take a call on revising them after ascertaining credit demand.

Earlier this week, State Bank of India Chairman Pratip Chaudhuri had said if the RBI raised interest rates, banks would have to pass on the increase to customers.

"It has to be financial transmission," Chaudhuri had said.

Source: Business Standard

Read more »

RBI rate hike correct as inflation high: Rangarajan

New Delhi: Defending the Reserve Bank's decision to hike key rates by 25 basis points, the Prime Minister's Economic Advisory Council (PMEAC) today said the central bank had no other option, as inflation remains at elevated levels.

"The RBI has taken the correct decision. In the context of rising inflation, RBI had no other option but to raise interest rates," PMEAC Chairman C Rangarajan said.

Concerned over high inflation, the Reserve Bank today raised key interest rates by 25 basis points, its 12th such hike since March, 2010.

Following the increase, the short-term lending (repo) rate stands at 8.25 per cent and the short-term borrowing rate (reverse repo) is 7.25 per cent.

The RBI, while announcing its mid-term review of the monetary policy, kept all other rates and ratios unchanged.

Inflation has been above the 9 per cent-mark since December, 2010, and touched a 13-month high of 9.78 per cent in August this year.

Rangarajan, however, said that pressure on the price front is likely to remain in the short-term before moderating to around 7 per cent by March, 2012.

"Inflation will continue to remain high in the next three months. However, in the last quarter of the current fiscal (January-March, 2012), I see definite signs of decline. It will come down to 7 per cent by March, 2012," he said.

In its mid-quarterly policy review, RBI said the monetary stance will be "influenced by signs of downward movement in the inflation trajectory..."

Economists said the RBI has decided to stick to its hawkish monetary policy, as inflationary pressure persists across all segments.

"The increase in the repo rate by 25 basis points is largely in line with the market expectations. The RBI has chosen inflation control as its main focus... Inflation remains generalised across food, non-food manufacturing and imported inflation," Kotak Mahindra Old Mutual Life Insurance Chief Investment Officer Sudhakar Shanbhag said.

The RBI said there is still an element of suppressed inflation in the Indian economy, as there is a substantial gap between global oil prices and the highly subsidised domestic rates.

According to the central bank, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions.

"If you see the tone of the RBI, this rate hike was expected. Going ahead, another rate hike is also likely on the back of current inflation numbers," Crisil Chief Economist D K Joshi said.

Joshi said the economy is likely to grow at a lower rate than the 8 per cent projection made by the RBI earlier due to domestic and international factors.

Other economists concurred with Joshi's view regarding further monetary tightening.

"Against the backdrop of the recent increase in petrol prices... It looks like headline inflation would not come down in the next few months. Therefore, it looks that there is a chance that the RBI may hike the rate again in the next meeting," SMC Investments and Advisors Chairman and Managing Director D K Aggarwal said.

Mape Securities Senior Director Kislay Kanth said the impact of the 12th rate hike since March, 2010, would be felt on the country's economic growth.

"A continuing large dose of rate increases can only hurt the costs of businesses even more and also affect demand for property, consumer discretionary such as automobiles and electronics making the financing costs in the system much higher," he said.

"Hence, the upside in the markets will stay capped, which are also vulnerable to global market volatility staying high," Kanth said.

India Inc has blamed the repeated rate hikes for hindering fresh investment and the slowdown in the economy, as there has been a sharp jump in the cost of borrowing.

The economic growth of the country moderated to 7.7 per cent in April-June, the lowest in six quarters. Industrial production also plunged to a 21-month low of 3.3 per cent in July.

Source: Financial Express

Read more »

RBI raises key rates by 25 bps

Mumbai: All loans are set to become costlier, with the Reserve Bank of India (RBI) today raising key interest rate for the 12th time since March, 2010, by 25 basis points to rein in high inflation.

With today's rate hike, the short-term lending (or repo) rate at which banks borrow from the RBI stands increased to 8.25 per cent and the short-term borrowing (reverse repo) rate at which banks park their funds with the RBI to 7.25 per cent.

Headline inflation rose to 9.8 per cent in the month of August from 9.2 per cent in July this year.

Despite the RBI hiking rates several times since March, headline and food inflation are close to double digits.

"As such, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance," the RBI said in its mid-quarter review of the monetary policy.

Going forward, the RBI's stance will be influenced by signs of downward movement in the inflation trajectory, to which a moderation in demand is expected to contribute, besides the implications of global developments, it said.

"The step is consistent with the RBI monetary stance for the first half of 2011-12 and overall concerns on growth sustainability in the medium term.

"I am hopeful that measures taken would get us back a more comfortable inflation situation earlier rather than later, while having scope for growth to pick up in the second half of the year," Finance Minister Pranab Mukherjee said.

Commenting on the rate hike, Indian Overseas Bank Chairman and Managing Director M Narendra said banks need to pass on the hike to customers as the cost of funds has gone up.

"I believe banks would wait till the month-end before taking a call on an interest rate hike," he said.

Going forward, RBI said the monetary stance will be "influenced by signs of downward movement in the inflation trajectory..."

GDP growth during the first quarter (April-June) of the 2011-12 financial year moderated to an 18-month low of 7.7 per cent from 8.8 per cent in the corresponding period year ago.

The slowdown was also reflected in industrial output growth rate which dipped in July to 3.3 per cent, the lowest in 21 months.

The Reserve Bank said food inflation is near double digits, despite the normal monsoon, underlining the fact that it is driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon.

It further said that hike in petrol prices by Rs 3.14 per litre, with effect from September 16, 2011, will have a direct impact of 7 basis points on WPI inflation, in addition to an indirect impact with a lag.

RBI's decision, though praised by Planning Commission Deputy Chairman Montek Singh Ahluwalia and PMEAC chairman C Rangarajan, evoked sharp reaction from the industry chambers.

Ficci Secretary General Rajiv Kumar said, "This rate hike will only exacerbate the current fears of impending slowdown."

However, PMEAC chief Rangarajan said, "The RBI has taken the correct decision. In the context of rising inflation, RBI had no other option but to raise interest rates."

Expressing similar opinion, Ahluwalia said, "The rate hike is within a range that is not unreasonable" as inflation has continued to remain high.

Source: Financial Express

Read more »

UBS $2 bn rogue trade suspect held in London

Swiss bank UBS said it had lost around $2 billion due to rogue dealing by a London-based trader at the Swiss bank and police said they had arrested a man on suspicion of fraud.

Sources close to the situation named the suspect as 31-year-old Kweku Adoboli, who was working as UBS director of exchange traded funds and so-called Delta 1 trading, according to his profile on LinkedIn.

Adoboli was arrested during the night at UBS's London office, the sources told Reuters.

UBS said it discovered the problem on Wednesday afternoon, but gave no details of the alleged trades involved. Police said they had arrested a man on Thursday after being contacted by the bank and he was in custody.

Adoboli, a University of Nottingham computer science and management graduate, was described by a former landlord as a good tenant of a 1,000 pound ($1,600) per week apartment close to UBS in London's East End, where he lived until recently.

His father, John Adoboli, a retired United Nations employee from Ghana, said he knew the financial sector was a high risk area but he had no doubts about his son's competence and integrity.

"From what the reports are saying, it could be that he made a mistake or wrongful judgment," he told Reuters by phone from the Ghanaian port city of Tema, saying he had to speak to his son before drawing any conclusions.

"I've been calling his phone since and I am hoping he'd be granted bail soon so I can hear his side of the story," he said.

UBS stock ended the day down 10.8%, its lowest close since March 2009, after the bank said it might post a third-quarter loss due to the trading, a huge blow as it struggles to rebuild credibility after years of crises.

Late in the day, Moody's said it had placed the bank's long-term debt and deposit ratings on review for a possible downgrade, a further blow to the bank.

The loss effectively cancels out the 2 billion Swiss franc ($2.3 billion) saving UBS hoped to make in a cost-cutting drive detailed last month involving 3,500 job cuts.

It also threatens the future of UBS's investment bank, which is being reviewed by chief executive Oswald Gruebel as part of a wide-ranging restructuring after heavy losses during the credit crisis and a damaging scandal over bankers helping rich US clients dodge taxes.

And it undermines claims by the Swiss bank and the industry that such events are a thing of the past.

UBS, which said no client positions were affected, is scheduled to hold an investor day on Nov. 17 at which it was expected to announce a major overhaul of the investment bank.

"The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion," the bank said in a statement.

UBS employed almost 18,000 people in its investment bank at the end of June, most of them outside Switzerland, particularly in London and the United States.

"(This) is a staggering demonstration that all the clever systems that the banks now have, especially after the financial crisis, still cannot stop a determined individual getting round them if they want to," said Chris Roebuck, Visiting Professor at Cass Business School in London.

"It will yet again confirm to the majority of shareholders who are Swiss that investment banking is not 'proper' banking, as private banking is."

UBS had started to see client confidence return this year after it had to be rescued by the Swiss state in 2008 following massive losses on toxic assets held by its investment bank. The bank has had a history of major risk management glitches followed by repeated pledges to fix risk systems.

KERVIEL

Any losses in UBS's investment bank risk scaring rich clients and prompting a further flight from its huge private bank, the core of its business that used to be the world's biggest wealth manager but has slipped to third place.

"This loss has the scope to have a material impact on the perception of UBS's private bank, impacting its future operating trends," Goldman Sachs analysts Jernei Omahen and Peter Skoog said in a note.

"Today's announcement therefore adds to the long list of arguments (and pressure) for a substantially smaller investment bank."

UBS's news caused disbelief among market operators.

The last similar case was when Jerome Kerviel, then a trader at Societe Generale, racked up a $6.7 billion loss in unauthorised deals revealed in 2008. Kerviel was sentenced to three years in prison in October 2010.

Both Kerviel and Adoboli were the same age when the scandal broke and both worked with so-called Delta 1 products, derivatives which closely track the underlying securities and give the holder an easy way to gain exposure to several asset classes. Examples include equity swaps, forwards, futures and exchange-traded funds.

"It is amazing that this is still possible," said ZKB trading analyst Claude Zehnder. "They obviously have a problem with risk management. Even when the amount isn't so high, it is once more a loss of confidence that casts UBS in a poor light."

Switzerland's financial markets regulator FINMA said it had been informed of the case and was in close contact with UBS, while a regulatory source said Britain's Financial Services Authority was in close contact with Swiss authorities.

HEADS TO ROLL?

The bank has in the past two years tried to rebuild the investment bank that nearly felled it during the financial crisis. It needed a state bailout after heavy losses on US subprime mortgage-related securities.

Under Gruebel and investment bank boss Carsten Kengeter -- themselves both once traders -- it hired hundreds of traders in a bid to boost its bond business.

Several analysts said the incident made it more likely Kengeter would be in the firing line, while Gruebel could step down sooner rather than later.

"Gruebel saved the bank from destruction, so his main job is done. It is only a matter of time before he steps down. If it means he leaves a little sooner, it does not change a lot. But the investment bank is a bit of a disaster, and the knives will be out for Kengeter," said Peter Thorne, analyst at Helvea.

Former Bundesbank head Axel Weber is due to join the UBS board in May and take over as chairman in 2013.

The weak performance of the investment bank and tough capital rules in Switzerland had already attracted intense scrutiny over how UBS will cope. Analysts have called for a retrenchment, while Swiss politicians are debating how to make sure big banks can weather future crises without having to be bailed out by the state.

© Thomson Reuters 2011,Click for Restrictions.

Source: Business Standard

Read more »

Axis Bank approves Enam deal; to get $57 million from unit

India's No.3 private lender Axis Bank said on Friday its board has approved the transfer of Enam Securities' investment banking and equities businesses to self, which will be eventually sold to the bank's wholly owned unit for 2.74 billion rupees ($57.6 million).

Late last year, Axis Bank had said it will buy the two units for $456 million in an all-stock transaction, but regulatory hurdles prevented the acquisition to take effect.

The structure, announced on Friday, broadly retains the original deal contours, but now involves a cash payout to Axis Bank from its own unit for transferring Enam's businesses.

"It's an accounting treatment mainly to comply with the regulations," a senior official at Enam Securities, who did not want to be named, said.

"There is no structural changes to the deal, which we had announced earlier," he added.

The Reserve Bank of India, in April, had given an in-principle approval to the deal but had asked the bank to revise its scheme of accounting and eventual structure for the new business.

It had also stipulated that no shareholder of Enam Securities acquiring shares of Axis Bank under the scheme of arrangement would be eligible for being a director on the board of the lender.

Axis had since been reviewing the deal and had in July sought some modifications to the approval granted by the central bank.

Enam shareholders will be issued 13.7 million shares on the basis of the agreed swap ratio of 5.7 shares of the bank for every one share held, Axis said in a statement.

The Enam businesses that Axis is absorbing generated pre-tax profit of 920 million rupees ($20.3 million) on operating income of 2.42 billion rupees in the fiscal year that ended in March 2010.

Axis Bank said the deal structure outlined on Friday was in accordance with the conditions prescribed by the central bank. It will again go back to the regulators for clearance.

Its shares, valued at nearly $10 billion, ended up 1.58 per cent at 1,133.35 rupees in a firm Mumbai market. ($1 = 47.560 Indian Rupees)

Source: Economic Times

Read more »

Bank of America to pay fired whistleblower $930,000

Bank of America Corp must reinstate a Countrywide whistle-blower fired shortly after the two companies merged in 2008 and pay the employee $930,000, the Labour Department said on Wednesday.

The employee, whose name was not given, led internal investigations that found widespread fraud involving Countrywide employees. Reporting fraud to Countrywide's Employee Relations Department led to retaliation, the employee told the Labor Department.

"It's clear from our investigation that Bank of America used illegal retaliatory tactics against this employee," Occupational Safety and Health Administration Assistant Secretary David Michaels said in a statement.

Bank of America disagreed. "We are disappointed with the ruling and plan to exercise our option to challenge the order," spokeswoman Shirley Norton said by email.

"The bank's actions to dismiss were solely based on issues with the employee's management style and in no way related to the employee's complaints and the allegations made in the complaint," she said.

Bank of America has had a rash of problems related to its 2008 purchase of Countrywide Financial Corp, a major subprime lender accused of churning out loans to high-risk borrowers with little effort to check their incomes or ability to repay.

The Charlotte, North Carolina-based bank paid $2.5 billion to buy Countrywide, but writedowns and legal costs have pushed the estimated cost of that purchase to more than $30 billion.

The $930,000 payment to the dismissed employee includes back wages, compensatory damages and attorney fees, the Labour Department said.

Source: Business Standard

Read more »

Government may allow PSBs to tap equity market, may help SBI

NEW DELHI: The government may soon allow state-run banks to tap the equity market, as it may not be able to fund their expansion plans. This would pave the way for a follow-on offer from the State Bank of India (SBI). Banks, however, will not be allowed to let the government's stake fall below 51%, a finance ministry official said. The government at present holds 58% stake in six banks and less than 58% in three.

It was a one-time provision (to bring government's stake to 58%) with the idea to let banks tap the markets when needed, the official said, adding, "This, however, does not mean that we won't infuse funds if their Tier-I capital adequacy ratio falls below 8%."

SBI, the country's largest public-sector lender, needs about Rs 20,000 crore for its expansion plans. Bank of India, too, has indicated that it will need Rs 4,500 crore over the next two years. "All options are open. We will not ask banks to go on credit contraction only because there are not sufficient funds available for expansion ," the official said. While credit growth is expected to taper significantly , banks' capital needs will increase as they expand under lending targets towards priority sectors and financial inclusion schemes.

Credit growth has slowed in the last six months to 20.6% as on August 26, compared with 23.6% in January. Last fiscal, the government infused Rs 20,157 crore in state-run banks and helped them achieve a Tier-I capital adequacy ratio at 8%. This year, it has provided for Rs 6,000 crore, of which it plans to allocate about Rs 3,000 crore for SBI. "We may also give around Rs 1,000 crore to Bank of India.

Significant disbursals are being approved for Nabard and other banks," the official added. Experts say the government will be forced to allow banks to take this route, as the capital adequacy requirement under the Basel III regime, or rules framed to fortify the banking system after the global financial crisis, is huge.

Rating agencies say Indian banks would need Rs 6-8 lakh crore over a period of nine to ten years.

Source: Economic Times

Read more »

Bankers see RBI hiking rates by 25 bps

New Delhi: With inflation moving closer to the double-digit mark, bankers expect the Reserve Bank to increase its key policy rates by 25 basis points in the upcoming policy review on Friday.

As long as inflation does not decline to a significant level, the Reserve Bank of India (RBI) would continue its tight monetary stance. The general view is that RBI would go in for another rate hike as inflation is hovering around the double-digit mark, Indian Overseas Bank Chairman and Managing Director M Narendra said.

"I think there would be some rate hike this week and could be some more in October policy if inflationary expectations are not anchored," he said.

RBI, which is scheduled to review interest rate policy again on September 16, faces a dilemma of sorts as the Indian economy is confronted with high inflation and sliding growth.

It raised interest rates 11 times in last 18 months to tame inflation.

Inflation climbed to 13-month high of 9.78 per cent in August suggesting that frequent interest hikes by RBI since March 2010 has proved ineffective to contain price rise.

Inflation, based on the Wholesale Price Index, went up from 9.22 per cent in July. The near double-digit inflation in August is highest since July 2010, when it was 9.98 per cent

Corporation Bank Chairman and Managing Director Ramnath Pradeep said it is expected that the RBI will further hike interest rates.

"If policy rates go up it will put pressure on banks to raise interest rates, both lending and deposit rates," he said.

Echoing similar views, Oriental Bank of Commerce Executive Director S C Sinha said, "The current rate of inflation would put pressure on RBI to further tighten monetary policy.

"There could be a hike of 25 basis points in key rates by RBI," Sinha said, adding, this would result in loans becoming more expensive in coming days.

It may noted RBI in the last policy review in July raised the short-term lending (repo) rate by a surprise 50 basis points to 8 per cent and the short-term borrowing (reverse repo) rate by a same margin to 7 per cent.

Source: Financial Express

Read more »

StanChart, SBI vie for Barclays' card biz

Mumbai: Standard Chartered and SBI Card are competing to buy Barclays' India credit cards business, sources with direct knowledge of the matter said, as the British bank looks to reduce its exposure to unsecured lending in the country.

Barclays has about 200,000 card holders in India and the book value of the business is roughly 2 billion rupees ($42 million), the sources said on Tuesday, declining to be named as the information is not yet public.

Final bids for the Barclays credit cards business in India are expected early next month and the deal is likely to be closed in a month, they said, adding the deal value could be at a small premium to the book value.

Barclays put its India cards unit up for sale earlier this year as part of a restructuring of its business in the country.

We are reviewing options for cards, a business which requires scale and we may be able to achieve that scale under new ownership, a Barclays India spokesman told Reuters, without giving details.

UK-based rival Standard Chartered, which has about 1.2 million card holders in India, and SBI Card, a joint venture between the country's top lender State Bank of India and GE Capital, declined to comment.

Barclays, which is set to cut about 3,000 jobs globally this year to reduce costs, said in July it had cut headcount in India as a result of merging the client relationship teams of its commercial and investment banking units.

Barclays Capital, the investment banking unit of the bank, and the company's commercial banking division, are combining the teams that will focus on servicing large corporate clients in India.

As part of the restructuring, the bank has also decided to focus only on affluent clients for retail banking and exit the credit card business, which is termed as unsecured business as the lending is not backed by any collateral.

Barclays neither have the distribution network nor the volume for cards business in India because of which the appraisal and servicing becomes very difficult, said one of the sources.

Fewer than 18 million of India's 1.2 billion people use credit cards. In China, a country with a slightly higher population, more than 200 million credit cards were in use as of a year ago.

Indian consumers, on the whole, have not fully embraced the idea of using credit cards, preferring debit cards instead, with roughly 230 million in circulation.

In April, mid-sized IndusInd Bank bought the local card business of Deutsche Bank and said it expects the acquisition to boost net interest margin and profits.

Foreign banks lack the branch networks of local lenders like ICICI Bank and HDFC Bank , India's biggest card issuers, but tend to attract the most well-heeled customers in a country where incomes are rising fast as the economy grows.

London-based Standard Chartered, one of the biggest foreign banks in India, expects growth of 30-35 percent in new customers this year, Shyamal Saxena, head of retail banking products, had said in July. ($1=47.6 rupees).

Source: Financial Express

Read more »

BNP Paribas follows SocGen with asset sales plan

France's top bank BNP Paribas announced a plan to sell 70 billion euros ($95.7 billion) of risk-weighted assets to help ease mounting investor fears about French bank leverage and funding as its main rivals were hit by ratings downgrades.

BNP escaped Moody's Investors Service's review of French banks without a cut, but the ratings agency said it would extend its review for a possible downgrade of BNP's long-term debt and deposit ratings.

"Surely it can only be a matter of time before BNP Paribas follows in their wake as the bank announces a restructuring plan to increase capital, probably in order to head off a downgrade at the pass," said Michael Hewson, market analyst at CMC Markets, referring to the Moody's downgrades of Societe Generale and Credit Agricole.

BNP shares were down 2.9% in early trading on the Frankfurt exchange, while Credit Agricole was 4.5% lower and SocGen lost 4.1%.

French banks are fighting to restore confidence after suffering a sharp summertime sell-off on the stock market, driven by concerns they are too dependent on wholesale market funding and ill-equipped to cope with the fallout from a Greek debt default.

BNP announced the move two days after smaller rival Societe Generale unveiled a similar plan.

Balance Sheet

In a presentation posted on BNP's website on Wednesday, the bank said the asset sales would reduce its balance sheet by around 10%. The bank will also reduce its US dollar funding needs by $60 billion by the end of 2012, it said.

US dollar funding costs have ramped up recently as European banks are forced to diversify their sources following jitters on the US money markets about the euro debt crisis.

US money market funds slashed their holdings of securities issued by French banks on worries over their high exposure to peripheral European debt, JP Morgan analysts said on Friday.

By selling assets and freeing up capital, BNP will be in shape to reach a core Tier 1 ratio of 9% on January 1, 2013 under the new Basel III regime of tougher capital requirements, the bank said.

Addressing concerns over its exposure to Greek sovereign debt, which is the highest among France's banks, BNP said that a hypothetical 55% additional write-down of its portfolio would lead to a "manageable" loss before tax of 1.7 billion euros.

Its first-half pre-tax profit was 7.4 billion euros.

The bank said there would be a potential hit in the third quarter from its Greek debt exposure.

BNP Chief Executive Baudouin Prot, who is due to move up to the chairman role later this year, will present the plan at a Barclays investor conference in New York later on Wednesday. SocGen CEO Frederic Oudea presented his own bank's plan on Tuesday.

Analysts estimate SocGen will have to sell around 40 billion euros in risk-weighted assets to meet its own targets.

© Thomson Reuters 2011,Click for Restrictions.

Source: Business Standard

Read more »

OBC, Allahabad Bank raise fixed deposit rates

Two public sector lenders Oriental Bank of Commerce (OBC) and Allahabad Bank today raised fixed deposits rates by up to 30 basis points (bps) on select maturities.

The move come two day ahead of the mid-quarterly review of the monetary policy.

Term deposit rate for maturities between 1-2 years has been raised from 9.60% to 9.75%, OBC said.

At the same time, another public sector lender Allahabad Bank increased interest rate on term deposits of between 91 and 179 days by 30 basis points to 7.30%.

Interest rates on other maturities would remain unchanged.

The Reserve Bank of India (RBI) is scheduled to announce mid-quarterly review of monetary policy on September 16. It is expected that the central bank will raise key policy rate further to tame inflation.

Banks are of the view that if RBI raises rates, they will pass on to customers.

In July, the RBI raised the short-term lending (repo) rate by 50 basis points to 8% and the short-term borrowing (reverse repo) rate by a same margin to 7% in a bid to tame inflation.

Subsequently, the interest rate under the Marginal Standing Facility, an additional borrowing window, has gone up to 9% from the earlier level of 8.5%.

Source: Business Standard

Read more »

SBI, others to get Rs 650cr from Harshad Mehta asset liquidation

New Delhi: State Bank of India (SBI), the Income Tax Department, SBI Caps and Standard Chartered will get Rs 650 crore from the liquidated assets Harshad Mehta entities.

The Special Court, Mumbai, has ordered the Custodian, appointed by the government to deal withthe securities scam of 1992, to release Rs 650 crore.

Of the total amount of Rs 650 crore, Rs 259.65 crore would be given to State Bank of India, Rs 28.34 crore would be given to the I-T department and Rs 16.25 crore to SBI Caps, a finance ministry statement said.

Further, the Court has ordered the release of Rs 345.76 crore to the Standard Chartered bank, subject to certain conditions.

The assets, liquidated by the Custodian, and made available for distribution, comprise shares and immovable properties, apart from cash and fixed deposits.

Earlier in March, Satish Loomba, Custodian (Trial of Offences Relating to Transactions in Securities) had distributed about Rs 2,200 crore to the income tax authorities and State Bank of India.

Mehta, a stock broker, was the mastermind of the stock market scam of 1992 that dupes lakhs of investors across the country. The scam exposed a strong nexus among the sharemarket, banks and financial institutions.

Source: Financial Express

Read more »

Banks announce 100,000 job cuts

New York: Banks are shedding jobs worldwide as stricter regulations and a tough second quarter for trading income take their toll on investment banking units in particular.

Bank of America on Monday said it would cut 30,000 jobs and slash annual expenses by $5 billion.

The layoff plan brings staff cuts announced this year or reported to be in the works at US and European banks to just under 100,000, some of them to be lost over three- or four-year programmes.

Many, including Royal Bank of Scotland, Lloyds Banking Group, Citigroup and Bank of America, had already cut thousands of jobs after the financial crisis.

This year's job cut estimates are also likely to be conservative figures, as not all banks trimming teams have publicly announced lay-offs, and the number does not take into account smaller investment banks, boutiques and brokers.

Following is a summary of cuts announced by major banks:

Jobs to be cut Total staff*

HSBC 30,000 295,995

BofA ML 30,000 287,839

LLOYDS 15,000 103,859

UBS 3,500 65,707

BARCLAYS 3,000 146,100

INTESA SANPAOLO 3,000 101,169

ABN AMRO 2,350 26,161

MONTE DEI PASCHI Di 2,200 31,201

SIENA NORDEA 2,000 34,169

RBS 2,000 148,300

CREDIT SUISSE 2,000 50,700

BANK OF NEW YORK MELLON 1,500 48,900

RABOBANK 1,200 59,000

BANCO POPOLARE 1,120 19,209

GOLDMAN SACHS 1,000 35,500

* According to latest available figure, usually end 2010 or mid-year reports

Source: Financial Express

Read more »

New bank licences after amending Banking Bill

New Delhi: The Reserve Bank is likely to issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011.

The final guidelines on new banking licences would be released only after the necessary amendments to the Banking Laws (Amendment) Bill, which seeks to give more power to the regulatory powers of the RBI, sources said.

The central bank had last month issued the draft guidelines which pegged the minimum capital needed to set up a commercial bank by a corporate house having successful track record of 10 years at Rs 500 crore.

It is to be noted that the Banking Laws (Amendment) Bill was introduced in Parliament in March this year. Sources added that empowering the RBI is essential for obtaining information about the other businesses of the corporate houses seeking banking licences in order to protect depositors' interests.

Banking companies are engaged in multifarious activities through the medium of associate enterprises. It has, therefore, become necessary for the Reserve Bank, as the regulator of the banking companies, to be aware of the financial impact of the business of such enterprises on the financial position of the banking companies, sources said.

It is, therefore, proposed to confer power upon the RBI to call for information and returns from the associate enterprises of banking companies also and to inspect the same, sources added.

The amendment seeks to allow the RBI to supersede the board of a banking company for a total period not exceeding 12 months.

The proposed amendment moved by the government also exempts mergers and acquisitions in the banking sector from the scrutiny of the Competition Commission of India.

According to the draft guidelines, companies which are primarily engaged in the real estate or stock broking will not be eligible for promoting bank.

"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," the draft said.

On foreign holding, it said the aggregate non-resident 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.

Source: Financial Express

Read more »

RBI should think out of the box: Basu

New Delhi: India's central bank, which reviews monetary policy on Friday, should think outside the box, the chief economic adviser to the finance ministry said on Tuesday.

We live in a very unusual world where some countries have very, very low interest rates whereas other countries have high interest rates so we must think outside the box in terms of monetary policy and that is what I would stress to the Reserve Bank of India, Kaushik Basu said.

Despite industrial output growth slumping to a near two-year low in July, inflation data for August to be released on Wednesday is expected to sway the central bank to raise rates this week for a 12th time since March 2010.

The wholesale price index in August probably was rose 9.6 per cent, a Reuters poll showed, well above the central bank's comfort zone of 4 to 4.5 per cent.

Source: Financial Express

Read more »

Banking Ombudsman Conference : Ten Action Points to improve Customer Service of Banks

1. Indian Banks’ Association (IBA) will standardise most important terms and conditions (MITC) for at least ten important banking transactions and circulate among banks for adaptation.

2. Banks would initiate the process of providing one view of all bank accounts of a customer including deposits, loans, etc., with the help of available technology, such as, core banking solution. Banks would be complete the process within one year.

3. Banks would convey to the Reserve Bank, a consensus view on the recommendations of the Damodaran Committee Report on Customer Service in Banks that could be immediately implemented.

4. To create awareness about the Banking Ombudsman Scheme, the Banking Ombudsmen will annually share with local media, information regarding complaints received and resolved, including important cases and awards given.

5. A series of town-hall events will be organised by banks to generate awareness about customer service in banks. Bank customers, bank officials and Banking Ombudsmen will participate in these events.

6. The Reserve Bank/IBA would examine the issues pertaining to monetary compensation for mental harassment suffered by bank customers. Issues that may receive attention in the analysis would be:

Whether only actual loss should be considered for compensation Whether mental harassment issues can be codified for compensation and whether compensation should be capped Whether the policies of the banks’ boards on compensation should include mental harassment as a ground for compensation.

7. Banks should issue tax deduction at source (TDS) certificates duly completed in all respects to the account holders and despatch it to their mailing address.

8. In case of ATM/Internet based banking transactions, in the event of any monetary dispute involving the customer and the bank, the onus should be on the bank to prove the customer’s negligence or mistake. Customer must be compensated for the losses arising out of customers’ non-authorised transactions.

9. Banks’ should initiate steps to incorporate in their code of ‘Fair Practices to the Customers’ the following items -

Insurance of some reasonable amount on their customers’ credit and debit card transactions Providing periodical loan statements to small borrowers Borrowers should be conveyed information on the annualised all-in cost (Annual Effective Rate) on their loan accounts.

10. Banks must not recover pre-payment charges in floating rate loans. Banks may also offer long-term fixed rate housing loans to their customers and address their asset liability mismatch (ALM) issues by recourse to the Interest Rate Swaps (IRS) market. Floating rate loans pass on the interest rate risk from banks which are much better placed to manage it to borrowers and, thus, banks only substitute interest rate risk with potential credit risk. The bank will, however, be free to recover / charge appropriate pre-payment penalties in the case of fixed rate loans.

These decisions were taken at the Annual Conference of Banking Ombudsmen held in the Reserve Bank of India, Mumbai on September 5, 2011. The Conference was inaugurated by Dr. D Subbarao, Governor, Reserve Bank of India. In his inaugural remarks, he stated that, often, prevention was better than cure. In customer service area too, rendering good customer service was like ‘prevention’ and was better than the ‘cure’ which was the various grievances redressal mechanisms. He flagged various issues relating to banks’ customer service for the consideration of the participants. He asked whether customer service was a criterion in evaluating the performance of a branch level official or did levying of penalty on a bank reflected in any manner on the staff which caused the levy of penalty; do all banks have customer grievances redressal officer and at what level; were the most important terms and conditions (MITC) explained to the bank customers before they signed the documents; and whether the deviation from most important terms and conditions of a banking product transparent. He urged bankers to identify ten action points to further improve their customer service.

Dr. K.C. Chakrabarty, Deputy Governor, chaired the Conference. All fifteen Banking Ombudsmen, Shri M.D. Mallya, Chairman, Indian Banks’ Association and Chairman and Managing Director, Bank of Baroda, Shri Pratip Chaudhuri, Chairman, State Bank of India, Dr. K. Ramakrishnan, Chief Executive Officer, Indian Banks’ Association, Smt. K.J. Udeshi, Chairperson and Shri N. Raja, Chief Executive Officer, Banking Codes and Standards Board of India (BCSBI) and senior officials of the Reserve Bank of India participated in the Conference. Shri V.K. Sharma, Executive Director, welcomed the participants and Shri Rajesh Verma, Chief General Manager in charge of Customer Service Department proposed a vote of thanks.

Background

The Reserve Bank notified the Banking Ombudsman Scheme in 1995. The Scheme provides for a system of quick and inexpensive redressal of customer grievances against banks. The Banking Ombudsman Scheme covers a wide range of complaints concerning deficiency in banking service. The Scheme also allows appeals from complainants and banks in respect of decisions made by the Banking Ombudsman. The Scheme was revised twice - in 2002 and 2006 to expand its scope and coverage. The Scheme, as last amended in 2009, includes complaints for deficiencies arising out of internet banking, non-adherence to the provisions of the Fair Practices Code for lenders or the Code of Bank's Commitment to Customers issued by the Banking Codes and Standards Board of India (BCSBI) and non-observance of the Reserve Bank guidelines on engagement of recovery agents by banks. In addition, the Reserve Bank has also simplified the format for lodging complaint to the Banking Ombudsman.

The Reserve Bank organises a conference of all the Banking Ombudsmen every year. Senior officials from the Banking Codes and Standards Board of India, Indian Banks’ Association, Credit Information Bureau of India Limited (CIBIL) and some leading banks are also invited to the Conference for meaningful interaction. Various issues relating to customer service and regulatory measures for improving customer service in the banking sector are discussed in the conference.

Alpana Killawala

Chief General Manager

Press Release : 2011-2012/359

Read more »

No hedging support to IDFs from forex reserves: RBI

The Reserve Bank has indicated to the government that it will not provide any hedging support to the infrastructure development funds (IDFs) from the country's foreign exchange reserves.

"The Reserve Bank as a policy will not provide any kind of foreign exchange hedging or support from the country's foreign exchange reserve for the forex risk of the IDFs," according to a note prepared by the central bank.

India's forex reserves stood at $285 billion as on September 2, 2011.

To facilitate investment in the infrastructure sector, the government had proposed to set up IDFs which could be in the form of a mutual fund or non-banking financial company (NBFC).

While the IDF-Mutual Fund would be regulated by the Securities and Exchange Board of India (Sebi), the RBI will be in-charge of the IDF-NBFC.

The requirement for funding of infrastructure during the 12th Plan (2012-17) has been pegged at $1 trillion, up from $500 million in the current plan.

The issues concerning setting up of IDFs were recently discussed at the high-level meeting of the Financial Stability and Development Council (FSDC).

To make the IDFs more effective, the Reserve Bank agreed to reduce the risk weights for such institutions to 50% from the earlier proposed 100%. It would mean that the IDFs would have to set aside less capital towards meeting the solvency norms.

"This [decision] would enable IDFs to lend twice as much to infrastructure without impacting intermediation costs," said the RBI's note.

RBI, however, insisted on a minimum entry capital for IDF-NBFC at Rs 300 crore, three times over Rs 100 crore proposed by the government initially.

Higher entry capital would ensure that the IDFs remained well capitalised.

Although the market regulator Sebi had notified the norms for IDF-Mutual Fund, RBI is yet to come out with the guidelines for IDF-NBFC.

The decision to set up IDFs follows an announcement by Finance Minister Pranab Mukherjee for 2011-12, with a view to accelerating and enhancing flow of long-term debt for funding the ambitious programme of infrastructure development in the country.

Source: Business Standard

Read more »