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Saturday, September 24, 2011

SIDBI to launch Rs 300 cr VC fund for social ventures

The Small Industries Development Bank of India (SIDBI) plans to set up a venture capital fund with an initial corpus of Rs 300 crore dedicated for social ventures in the near future, a top bank official said today.

"We are in the process of raising Rs 300 crore for funding social ventures through this fund," SIDBI Venture Capital CEO Ananta P Sarma said on the sidelines a seminar here.

He said that fund raising was under process and was expected to be closed in next six months.

This will be third fund by the venture capital firm focusing on micro enterprises. Earlier, the bank has set a target to raise Rs 1,000 crore through a fund that will invest in small and medium enterprises.

"We have raised around Rs 540 crore out of the total target of Rs 1,000 crore as of now. Rest will be raised as and when there will be requirement of funds," Sarma said.

SIDBI, which usually raises fund from public sector banks and other financial institutions, is in talks with banks for raising this money, he added.

SIDBI Venture Capital, which is a subsidiary of SIDBI, has two funds since its inception. Its first fund was called the National Venture Fund for Software and IT Industry with a corpus of Rs 100 crore. The development bank's second fund named as SME Growth Fund has a corpus of Rs 500 crore and is presently under divestment phase.

The bank plans to grow its outstanding loans by 20 per cent to Rs 60,000 crore by March 2012 from Rs 50,000 crore in FY11. The bank has also announced to disburse around Rs 1,000 crore of loan to micro-finance sectors during the current financial year.

Source: Business Standard
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Banks, NBFCs allowed to sponsor infra debt funds

The Reserve Bank of India (RBI) has allowed banks and non-banking financial companies (NBFC) to sponsor infrastructure debt funds (IDF), which can be set up as mutual funds and NBFCs.

The move follows Finance Minister Pranab Mukherjee’s announcement in the 2011-12 budget of setting up of IDFs in order to accelerate and enhance the flow of long-term debt in infrastructure projects.

Infrastructure debt funds which can be set up as NBFCs should have a minimum net-owned fund of Rs 300 crore and a capital adequacy ratio of 15 per cent, the RBI said in a statement.

Banks acting as sponsors of infrastructure debt funds as MFs have been subjected to existing limits, including limits on investments in financial services companies and on capital market exposure. A bank’s capital market exposure has been capped at 40 per cent of its net worth, both through direct and indirect routes.

In case of NBFCs, it should have a minimum net owned funds (NOF) of Rs 300 crore to act as a sponsor, and should be able to maintain the same level of NOF even after investing in the fund. Also, the NBFC should maintain a capital adequacy ratio of 15 per cent after investment. The entity should also have good track record for five year and been profitable for the last three years.

Banks and NBFCs keen on sponsoring an IDF-NBFC must contribute at least 30 per cent and a maximum of 49 per cent of the total capital of the fund, besides meeting the other requirements prescribed for floating an IDF-MF. “The guidelines will be big boost for the infrastructure sector which needs long term funds. NBFCs taking part in it would be able to diversify their borrowing portfolio. We have other fund like gold fund. Hence we would be keen to launch an infrastructure debt fund,” said G S Sundararajan, managing director of Shriram Capital.

RBI further said an infrastructure debt fund set up as an NBFC should have a minimum net worth of Rs 300 crore and at the least should have a credit rating of ‘A’ or its equivalent by CARE, Fitch, Icra and Crisil. The NBFC’s Tier-II capital should not exceed Tier-I capital, while the minimum capital adequacy ratio should be 15 per cent.

“For the purpose of computing capital adequacy of the IDF, bonds covering PPP and post commercial operation date projects in existence over a year of commercial operation shall be assigned a risk weight of 50 per cent,” said RBI.

The fund can have an exposure of up to 50 per cent towards a borrower or a group of borrowers. The limit can be increased by up to 60 per cent if the board of the IDF-NBFC agrees. Limited additional extension beyond 60 per cent can be granted only after RBI approval.

Source: Business Standard
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Sebi notifies new takeover norms

Mumbai: Sebi today notified new takeover rule under which an entity buying 25 per cent stake in a listed firm will have to mandatorily make an open offer to buy an additional 26 per cent shares from public.

The new norms mark an increase in the open offer size for public shareholders from 20 per cent currently. Also the trigger for making such an offer has been raised from 15 per cent under the existing regulations.

"No acquirer shall acquire shares in a target company which taken together with shares or voting rights held by him... entitle them to exercise 25 per cent or more of the voting rights..., unless the acquirer makes a public announcement of an open offer," it said.

The new regulations, titled as 'The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011', will come into effect from the next month.

Under the new rules, there would be no separate provision for non-compete fees, which allows promoters to higher price than the public shareholders, and all shareholders should be given the exit option at the same price.

Partly accepting the recommendations of a Sebi-appointed panel on the matter, the regulator also decided to abolish the non-compete fees that acquirers generally pay to the sellers in merger and acquisition deals.

The notification follows the decision taken at Sebi's board meeting in July.

Last year, a Sebi panel on new takeover regulation had recommended an open offer for buying up to 100 per cent in the target company, while suggesting an increase in the trigger limit to 25 per cent.

While the recommendation on trigger was accepted, the suggestion for offer size has been kept lower due to intense opposition from industry and other market participants.

The panel had opined against non-compete fees for promoters which often worked out is as high as 25 per cent of deal value.

Sebi, as part of the new code, allowed voluntary offers subject to certain conditions.

Regarding control and offer size, Sebi said that the existing definition of control would be retained and the minimum offer size shall be increased to 26 per cent of the target company.

Source: Financial Express
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SBI signs up as Experian Credit Bureau member

MUMBAI: The domestic arm of the Irish credit information service provider Experian on Friday said the State Bank of India has signed up as its member.

Almost all the leading banks including SBI and financial institutions already subscribe to the credit data from other credit bureau called Cibil ( Credit Information Bureau of India), the first such organisation in the country.

"The State Bank is the largest lender and the addition of its credit data will further increase the Experian's data coverage and enhance the effectiveness of our range of products and services," Experian Credit Information Company of India said in a release here.

"We are pleased to be a member of Experian. We believe this membership will help better leverage the multi-bureau environment and enable us to better use data and analytics, and also manage credit risk and leverage our opportunities better," SBI Chief General Manager Pardeep K Khosla said.

The London Stock Exchange-listed Experian provides data and analytical tools to clients in over 80 countries and had a revenue of USD 4.2 billion for the year ended March 2011. It employs around 15,000 people in 41 countries and is headquartered in Dublin, Ireland.

Source: Economic Times
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Dena Bank launches 25-bps discount on home, auto loans till December 31

MUMBAI: On the heels of industry leaders launching special/discounted loans to tap festival sales, the mid-size state-run lender Dena Bank on Friday launched a loan mela of its own under which it offers a 25 basis points discount on new home and auto loans, besides halving the processing fee.

The benefit under festival offer will be effective from October 1 to December 31, 2011, the bank said in a release.

"Dena Bank has reduced the interest rates on new housing loans and car loans by 25 basis points on the card rate. To give further benefit to customers, we have also reduced the processing on new loans by 50 percent from the existing one percent," the bank said.

Currently Dena Bank's base rate stands at 10.70 percent. A bank official said the rebate depends on the quantum and tenure of the loan.

Its prevailing lending rate varies from 11.20 to 12.75 percent in case of floating home loans, while for the fixed rate loans it varies from 11.50 to 12.75 percent.

For auto loans up to three years, its interest rate is 13.25 percent and those above three years, it is 13.75 percent, the official said, adding the 25 bps discount will be applicable on these rates.

Source: Economic Times
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Financial transactions using debit cards overtook those using credit cards for the first time

NEW DELHI: Financial transactions using debit cards overtook those using credit cards for the first time in July this year, data released by the Reserve Bank of India has shown, signalling a crucial inflection point in the plastic money business.

The month of July saw the volumes of debit card transactions not just exceed those using credit cards, but achieve a gap of a more than a million. In value terms, however, credit card transactions remain comfortably higher than those using debit cards, largely because credit cards are used for more high value payments.

Bankers say the new trend has been helped by strong growth in debt card issuances as also rising comfort levels among Indians for debit cards. Banks typically issue one or more debit cards with every new account opened with them. Between July 2010 and July 2011, the number of credit cards issued increased by 24% while credit card issuances fell 7%. "Both banks and customers are more comfortable with debit cards as compared to credit cards," said Sohini Rajola, vice president and head of cards at Axis Bank.

"Higher growth in debit transactions was expected as the number of debit cardholders has been rising rapidly." In value terms, credit card transactions outpaced those using debit cards by Rs 360 crore during 2010-11. However, amounts transacted using debit cards is growing at a faster clip than credit cards - 46% against 22% during 2010-11.

Experts say better security in payment gateways and freebies such as cash and reward points bundled with transactions have also helped debit cards become more popular. "A combination of security features and incentives have created a comfort zone for debit card users," said Navtej Singh, who heads the direct payment products at HDFC Bank.

Bankers say the trend being seen in the debit cards sector would gain momentum in the months and years ahead. "In the future, debit card growth is expected to remain very strong and will surpass credit cards," said Rajola at Axis Bank, adding that the credit industry in India remained underdeveloped.

Economists agree. Rajesh Shukla, an economist with NCAER, said, "In the near future, debit cards will do much better than credit cards. Customers and bankers feel more comfortable as it is limited to their bank accounts."

Source: Economic Times
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Thursday, September 22, 2011

Implement safety measures for card usage: RBI to banks

In order to minimise fraud cases and ensure security of transactions, the Reserve Bank of India (RBI) today asked banks to implement various safety measures related to credit card and debit card usage over a period of next two years.

The central bank directed banks to strengthen the existing payment infrastructure and future proofing system along with adoption of fraud risk management practices within a period of next 12-24 months, the RBI said in a notification.

"The increased usage of credit/debit cards at various delivery channels also witnessed the increase of frauds taking place due to the cards being lost/stolen, data being compromised and cards skimmed/counterfeited. There is, therefore, an imperative need to secure such card based transactions...," it said.

It also emphasised on the need to migrate to Euro pay MasterCard Visa (EMV) chip and PIN based cards from the present magnetic strip cards as the later is vulnerable to skimming and cloning.

"The need for a complete migration to EMV chip and PIN based cards could be considered based on the progress of 'Aadhar' [Unique Identification Card] in about 18 months," it noted.

As per the circular, the central bank has directed banks to implement improved fraud risk management practices by September 30, 2012. The banks have also been directed to strengthen merchant sourcing and monitoring process by September 30, 2012.

The central bank also given a timeframe till September 30, 2013, to banks for securing the technology infrastructure.

To strengthen infrastructure for accepting these cards, RBI has said that commercial readiness of acquiring infrastructure to support PIN at POS (points of sale) should be ready by June 30, 2013.

Similarly, the enablement of all POS terminals to accept debit card transactions with PIN should be completed by June 30, 2013.

The apex bank also directed banks to be ready from technical perspective to issue EVM cards by June 30, 2013.

Source: Business Standard
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Moody's cuts BofA and Citigroup ratings

New York: Three of the top US banks are likely to start paying more to borrow money.

Moody's Investors Service on Wednesday lowered its debt ratings for Bank of America (BofA), Wells Fargo and also Indian expatriate Vikram Pandit-led Citigroup. The ratings agency said it has become less likely that the U.S. government would step in and prevent the three lenders from failing in a crisis.

"The probability of government support for the banks is less now than during the financial crisis,'' said David Fanger, senior vice president at Moody's.

The downgrades were widely expected after the ratings agency placed the three banks on review in June. The cuts also stem partly from new laws taking effect under the Dodd-Frank Wall Street Reform Act. The new law ended the possibility of the government bailing out a large financial firm and created a process that would allow a financially troubled bank to fail and liquidate its assets.

Bank of America Corp. was hit worst. Moody's downgraded its key long-term debt ratings two notches, to Baa1 from A2. Wells Fargo & Co.'s long-term debt rating fell one notch to A2 from A1, while Citigroup Inc.'s rating remained the same at A3. Moody's did downgrade Citi's short-term debt.

Bank of America's ratings are the lowest among the three. All three of the banks' debt is still rated investment grade.

A downgrade is a warning to buyers of debt that the chance that they won't get their money back has increased, however slightly. Downgrades usually lead to higher borrowing costs for the issuer because investors want more interest if they're taking a bigger risk. Long-term debt includes bonds that come due in more than one year.

The downgrades couldn't have come at a worse time for the banks, whose stocks have been pounded this year on uncertainty over how the European debt crisis will affect them. The KBW bank index, which serves as a benchmark of the banking sector and tracks the stock prices of 24 bank stocks, is down 30 percent this year.

Bank of America's stock tumbled most, 7.5 percent, to close at $6.38. The bank is already dealing with investors' concerns over whether it has enough capital to deal with its financial losses and over lawsuits related to poorly written mortgages of the past. In the first half of the year the bank paid out $12.7 billion to settle claims from investors that BofA sold them securities backed by faulty mortgages.

Moody's said although the nation's largest bank has ample resources to absorb additional losses, it was concerned that any deterioration in the economy or negative court rulings on the mortgage litigation could have a "significant impact on (the bank's) capital position.''

In a statement, Bank of America said: "While we disagree with their conclusions and we believe our ratings should be higher, to minimize any potential impact of this decision on our business, we have been managing our liquidity carefully and we have prefunded our planned borrowing needs for the year.''

Moody's also downgraded Bank of America's long-term deposit ratings to A2 from Aa3. The deposit ratings reflect the level of risk faced by customers whose deposits are not insured and the bank's ability to make them whole in the event of a crisis. Currently, the Federal Deposit Insurance Corporation insures deposits up to $250,000. So the rating downgrade affects deposits larger than that.

Citigroup's stock fell more than 5 percent to close Wednesday at $25.52. Moody's said Citigroup's ratings stability reflects its improved performance. That's quite a reversal of fortune for Citi, which was viewed as one of the weakest financial institutions immediately after the financial crisis and was partially owned by the government until last December.

"Citi has reduced the size of its problematic assets and improved its risk profile,'' said Sean Jones, senior vice president at Moody's.

Still, Citi was not happy at having its short-term ratings downgraded. The bank said in a statement that it disagreed with the Moody's decision.

"It does not accurately reflect the significant progress Citi has made since Moody's last rated Citi more than two-and-a-half years ago,'' the bank said.

Moody's downgraded the short-term rating of Citigroup to Prime-2 from Prime-1.

Moody's said its downgrade of Wells Fargo was driven solely by the reduced government support. Its stock fell 3.9 percent to close at $23.71. Besides its long-term debt, Moody's also downgraded Wells Fargo's bank deposit ratings to Aa3 from Aa2.

Source: Financial Express
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State Bank of India doubles MTN programme size to $10 billion

MUMBAI: State Bank of India on Thursday said it has doubled its Medium Term Note (MTN) programme to USD 10 billion to fund overseas business.

The (MTN) programme has been upsized from USD 5 billion to USD 10 billion, SBI informed the BSE.

The offering circular (OC) under the said MTN Programme has been updated on September 19, 2011, with the audited financial data of the Bank as on March 31, 2011, and filed with the Singapore Exchange, it said.

Meanwhile, SBI extended 25 basis point concessional home loan scheme till December.

Under the scheme, SBI offers 25 bps discount on interest rates on its card rate across the tenor of a floating home loan.

The scheme which was open till October 31, 2011, has now been extended till December 31, 2011.

Under the scheme, a borrower will now be charged an interest of 10.50 per cent as against the earlier 10.75 per cent on loans up to Rs 30 lakh. Similarly, a loan above Rs 30 lakh, but up to Rs 75 lakh, will attract an interest of 10.75 per cent, as per the new scheme.

In order to attract home loan customers, rivals like ICICI Bank, HDFC and LIC Housing Finance have recently launched dual interest rate products offering a fixed rate of interest to start with, which will be later aligned to the base rate as the loan progresses

Source: Economic Times
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SBI offers discount of 25 bps on home loans

State Bank of India (SBI), the country’s largest lender, on Wednesday said it would offer a discount of 25 basis points (bps) to prospective floating home loan customers during the festive season. The move follows leading home loan players like ICICI Bank and HDFC launching fixed-cum-floating home loans to attract customers during the festive season.

The 25-bps discount on home loan card rates is applicable to all amounts and is valid till December 31, according to the bank’s website. With this concession, the rate of interest on home loans up to Rs 30 lakh is now 10.50 per cent, while for loans between Rs 30 lakh and Rs 70 lakh, the interest rate would be 10.75 per cent. For loans above Rs 75 lakh, the interest rate would now be 11 per cent.

HDFC offers two fixed-floating home loan products: One with fixed interest rates for the first three years, and the other with fixed rates for the first five years. ICICI Bank, too, offers two such products, with fixed rates for one and two years.

SBI also indicated it may raise the base rate in two-three weeks. The floating rates could then rise again. However, the bank may further increase the concession to benefit from the rise in the demand for home loans during the festive season, which is spread over the next two-three months.

Owing to high interest rates, the demand for loans has remained slack this year, and this has prompted lenders to offer discounts on retail loans to attract customers in the festive season.

Source: Business Standard
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Festive season sees loans grow faster than deposits

Loans grew faster than deposits during the fortnight ended September 9, indicating an increase in credit demand during the festive season. The growth in loans has been slow so far this financial year, owing to steep rate rises by the Reserve Bank of India (RBI).

According to recent data released by RBI, credit growth during the period was Rs 29,433.37 crore, a growth of 0.7 per cent over the previous fortnight. On a year-on-year basis, loans grew 20.4 per cent till September 9.

On the other hand, deposits saw a growth of only Rs 12,935 crore, a rise of 0.2 per cent over the previous fortnight. On a year-on-year basis, deposits grew 17.5 per cent.

“We expect the growth in advances to sustain in the remaining part of this financial year. For instance, we are focusing on sectors like agriculture and mid-corporates. For the farm sector, bank credit is still the cheapest funding option available at this moment,” said Bank of Maharashtra Chairman & Managing Director, A S Bhattacharya.

RBI had, last week, raised interest rates for the 12th time in 18 months to fight high inflation. It had also signalled more rises may follow, confounding expectations of the tightening cycle coming to an end and putting it at odds with global peers, which are focused on reviving weak demand.

“We have certainly started seeing an increase in demand for credit now, although it is a gradual pick-up,” said a senior official with a large state-run bank, on the condition of anonymity. “We are hopeful it would gather pace, as the festive season progresses.”

Typically, credit growth sees an increase during the festive season starting August and extending till November, since people require more funds to buy new cars, consumer durables and houses.

Amid the series of rate rises, the central bank has also scaled down its credit growth projections for the current financial year from 19 per cent to 18 per cent. Banks have also lowered their credit growth projections.

“There is still a fair amount of consumption demand in the Indian economy and this would drive loan growth on a year-on-year basis. High interest rates may affect demand in rate-sensitive sectors like real estate or large-ticket loans. There may be some impact on the small and medium enterprise segment,” said Pralay Mondal, country head (retail assets & credit cards), HDFC Bank.

Bankers said the borrowing decisions of mid-sized companies were not guided by interest rates alone. “They want funds at the right time and are willing to pay interest on these loans. These factors would ensure we maintain the growth in our advances. In retail, especially in housing loans, there is a slowdown in demand. This is because home buyers are expecting a fall in property prices, and delaying their purchase decisions,” Bhattacharya said.

Source: Business Standard
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26 co-operative banks go belly up in 2010-11

New Delhi: As many as 26 co-operative banks failed in 2010-11 which resulted in credit insurance companies paying over Rs 268 crore to depositors.

26 co-operative banks, which include 10 from Maharashtra, six from Gujarat and five from Karnataka, have failed to repay deposits to customers during the last fiscal.

In 2009-10, 29 cooperative banks across the country had closed operations.

Under the Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the the Reserve Bank of India (RBI), insurance norms, a maximum of Rs one lakh is paid to a depositor in case the bank goes insolvent.

The Reserve Bank's credit insurance arm has paid over Rs 268 crore to depositors of 26 co-operative banks which went bankrupt in 2010-11.

The DICGC paid the maximum amount of Rs 45.43 crore to Ahmedabad Peoples Cooperative Bank of Gujarat. Other Gujarat-based lender Shri Sinnar Vyapari Sahakari Bank got Rs 40.66 crore, Surendranagar Peoples Cooperative Bank (Rs 30.74 crore) and Surat Mahila Sahakari Bank (Rs 26.44 crore).

Besides, the credit insurance company paid Rs 16.92 crore to depositors of Rahuri Peoples Cooperative Bank of Maharashtra and also Rs 15.24 crore to the account holders of Katkol Cooperative Bank of Karnataka, according to RBI.

At the same time, one each from Uttar Pradesh, Assam and Andhra Pradesh also closed operations.

Source: Financial Express
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DMICDC to be 'deemed company'; IL&FS,IDFC to exit

NEW DELHI: IL&FS and IDFC will completely exit from the DMIC Development Corporation, transferring their combined 51 per cent stake in favour of the government-owned financial firms, according to Industry Ministry sources.

The DMICDC will now be treated as a 'deemed company' as the majority shareholding would now be with the government and state-owned financial and infrastructure institutions.

Such companies are subject to audit by Comptroller and Auditor General (CAG).

DMIC Development Corporation (DMICDC) is a special purpose vehicle for implementing the ambitious USD 90 billion project for building industrial enclaves along the Delhi- Mumbai rail corridor, encompassing seven states - Delhi, Uttar Pradesh, Haryana, Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.

The project which envisages creation of not only industrial townships but also new cities, is being supported by Japan.

While the Union Cabinet cleared the equity DMICDC restructuring on September 15, details were not announced.

According to a senior official in the Department of Industrial Policy and Promotion (DIPP), which conceptualised the project, "They (private sector players) will quit. Now DMICDC would become a deemed company".

When contacted, Infrastructure Development Finance Company Limited (IDFC) said,"We don't have any formal proposal from the Government of India till date. Hence, we cannot give you any response as of now." IL&FS could not be reached despite repeated attempts.

Government-owned financial institutions, like LIC and HUDCO may buy stake in the corporation.

"The Finance Ministry would decide about the public financial institutions," the DIPP official said.

Presently, government has a 49 per cent stake in the Delhi-Mumbai Industrial Corridor Development Corporation (DMICDC), while 51 per cent is jointly held by IL&FS and IDFC.

The equity restructuring has been done to avoid any clash of interest between the project participants at a later stage, he said.

The DMICDC is setting up an industrial corridor along the Delhi-Mumbai rail corridor at an estimated cost of USD 90 billion.

Source: Economic Times
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ICICI Securities ties up with Oppenheimer to hawk domestic products in US

MUMBAI: ICICI Securities or I-Sec, the brokerage and investment arm of the largest private sector lender ICICI Bank, today sweded up an alliance with the US-based Oppenheimer's Asian arm to offer institutional broking and investment services.

The alliance between the two companies would include a wide range of equity trading as well as debt instruments, corporate investment advisory, private equity transactions and wealth management, the company said here.

Announcing the deal, I-Sec Managing Director and Chief Executive Anup Bagchi said, "this is non-exclusive alliance and involves no equity participation. In fact, we have been dealing with Oppenheimer for quite some time now and today's deal is a formalization of our growing ties with them."

Oppenheimer Investments Asia Chief Executive Steve Bernstein said, "with this tie-up, we save on cost and time in establishing ourselves in this fast growing market. Though this is not an exclusive tie-up, we would be the first partner of choice for I-Sec when it comes to sharing clients, funds and services and vice versa."

Bagchi attributed the rational for tie-up to growing demand from clients to access to the US markets and a broader range of products and services. "We believe this partnership will intensify our business in the US and create the synergy to grow our business here."

The non-exclusive alliance would also help domestic companies looking to enter the US securities market, distribute their offerings and placements in the US, cross-border advisory services and make equity and wealth management products available to the private clients of both Oppenheimer and ICICI in India and the US.

"The alliance will provide us with a wide range of opportunities in corporate advisory and plays to the strength of our existing businesses," Bernstein said.

ICICI Securities had recently tied up with Collins Stewart Hawkpoint of Britain in a similar strategic tie-up to serve the British and European markets.

Source: Economic Times
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Wednesday, September 21, 2011

BoI seeks Rs 4,000 cr from Centre

Bank of India (BoI) has sought capital infusion of Rs 4,000 crore from the government to fund its growth for the next two-three years. The government holds 65 per cent stake in Bank of India.

“We need Rs 4,000 crore over the next two-three years. Thus, we have requested the government for funds, so that the capital adequacy ratio remains above nine per cent,” said a senior Bank of India official. As on June 30, the bank’s capital adequacy ratio was 11.6 per cent, with Tier -I capital at 8.02 per cent. The government had said it wanted to ensure public sector banks remain well capitalised, with Tier-I capital of eight per cent. Banks have to maintain six per cent Tier-I capital and a minimum capital adequacy ratio of nine per cent.

“Although Tier-I capital has increased, we need more capital to sustain growth over the next few years,” the official said. “Bank of India has sought the government’s nod for a rights issue, fund raising through warrants or qualified institutional investors. We have given options to the government, in case the government is not able to provide the required amount,” he added. Six-seven banks had sought capital infusion from the finance ministry. While State Bank of India was in talks for a rights issue, the Centre has infused direct equity for others like IDBI Bank, Union Bank of India and Central Bank of India, among others.

Source: Business Standard
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Vijaya Bank sheds Rs 2,000 cr of bulk deposit in Apr-Aug period

New Delhi: Bangalore-based public sector lender Vijaya Bank said it has retired around Rs 2,000 crore of bulk deposits in the first five months of the current fiscal to protect its net interest margin.

"We have shed around Rs 2,000 crore of bulk deposits in the first five months to protect our margin. This is part of our conscious effort to see that cost is contained," Vijaya Bank Executive Director Subhalakshmi Panse said.

We expect our net interest margin to be above 3 per cent during this fiscal, she added.

Banks are increasingly facing cost pressure due to high deposit rates. As high deposit rates impact net interest margin, many banks are shedding their high cost bulk deposits to protect margin.

Earlier, Bank of Maharashtra had also announced offloading its entire chunk of bulk deposits of Rs 9,000 crore by March, 2012 to control cost of deposits. Usually, banks have to pay higher rate of interest on bulk deposits than retail deposits.

Referring to credit growth, Panse said that the bank was witnessing a credit growth of around 18 per cent as of now.

She, however, said that deposit growth was little subdued during this period.

Vijaya Bank is also hopeful that asset quality will be maintained despite a hardening interest rate regime.

"Though our NPAs had increased in the first quarter of FY12 due to system monitoring of loans, we hope that asset quality will be maintained in the current fiscal," she said.

About possible base rate hike, Panse said that the bank would take a call in the last week of September whether to raise base rate in the aftermath of 25 basis points policy rate hike by the Reserve Bank of India.

Vijaya Bank registered a 58% decline in its net profit to Rs 72 crore for the first quarter ended June 30, 2011 against Rs 173.5 crore reported in the same period last year.

Total income of the bank increased to Rs 1,953 during the April-June quarter, up by 28.5 per cent from Rs 1,520 crore in the same period previous year.

Source: Financial Express
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Monday, September 19, 2011

BoM may get Rs 800 cr capital infusion this fiscal

Pune-based public sector lender Bank of Maharashtra is hopeful of receiving Rs 800 crore from the government as part of the capital infusion plan in the current fiscal.

"We have approached the government for additional capital infusion of Rs 800 crore. This is under process and we expect to get it before March, 2012," Bank of Maharashtra CMD AS Bhattacharya told PTI here.

Post-capital infusion, the capital adequacy ratio (CAR) of the bank is likely to go up to 14% from the present level of 13.35%, he added.

The Reserve Bank of India prescribes banks to have a CAR of 12% as part of its prudent risk management measures. Bhattacharya, however, noted that the bank had no plans to raise money through either through equity or bonds in the current financial year.

In the meantime, government has said that a committee had been formed to look into the matter of recapitalisation of banks.

At present, 6-7 public sector banks, including nation's largest public sector lender State Bank of India, have approached the government for capital infusion in order to boost their capital adequacy ratio, which will help in further lending to customers.

Also, implementations of Basel-III norms, which will start from 2013, require recapitalisation from the government.

Secretary in the Financial Services Department DK Mittal had earlier said that though this year budget for bank recapitalisation was Rs 6,500 crore so far, there would be a second supplement in December to infuse further capital into selected public sector banks.

Bank of Maharashtra, which has a government holding of close to 79.5%, has a total branch strength of 1,546 across the country. It has registered a 3% increase in net profit to Rs 122 crore in the first quarter of the current fiscal. Its net interest income (NII) rose by 44% to Rs 591.4 crore during this period.

Source: Business Standard
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Dhanlaxmi Bank raises base rate, BPLR

Private lender Dhanlaxmi Bank today hiked base rate, or the minimum lending rate, by 25 basis points to 11%, while loans under the older benchmark prime lending rate will be dearer by 50 bps at 20.75%.

The south India-based bank is the first lender to make the move after RBI raised the key lending rate last week to tame inflation.

"The hike in our base rate and BPLR follows the recent interest rate hike by RBI and reflects the tight monetary conditions," Dhanlaxmi Bank's chief financial officer Bipin Kalra said in a statement.

The country's largest lender State Bank of India and its public sector peers Bank of Maharashtra and Indian Overseas Bank have said that they would pass on the latest hike in rates to borrowers in some time.

In its mid-quarter review of the monetary policy on Friday, the Reserve Bank hiked the short-term lending rate by 25 basis points to 8.25% to tame inflation, which stood at a 9.78% high in August.

The central bank has hiked rates 12 times in the last 18 months and also articulated that it is ready to compromise on growth prospects in the short term to achieve its objective to tame the rate of price rise.

Source: Business Standard
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BoM may raise base rate by 25 bps from Oct 1

Pune-based public sector lender Bank of Maharashtra (BoM) is likely to hike its base rate by 25 basis points (bps) from October 1, following the latest policy rate hike by the Reserve Bank of India (RBI) last week.

"We will take a decision on September 25 in our asset-liability committee meeting and it's likely that the base rate will be increased by 25 basis points from October 1," Bank of Maharashtra Chairman and Managing Director AS Bhattacharya said on the sidelines of the bank's Foundation Day celebrations here.

He said the bank had not increased its base rate after the previous RBI interest rate hike on July 26. The bank's base rate currently stands at 10.5%.

About credit growth expectations, he said the public sector lender aims to register credit growth of 18% in the current financial year on the back of hardening interest rates.

"Earlier, we aimed for credit growth of around 25% for this fiscal. However, that has been moderated to 18% due to the rise in interest rates and slow uptick in advances growth in the corporate and infrastructure sector," Bhattacharya said.

The bank is also likely to see deposit growth of around 15% this fiscal, he said, adding that there are surplus deposits from the previous last year, which will be deployed by the public sector lender in the current year.

Despite slow growth in advances, the bank expects to achieve a net interest margin of around 3% this year, Bhattacharya said.

The bank also does not see any fall in its asset quality despite interest rate hikes.

"Our asset quality will not fall as there is less concern for defaults due to hardening rate regime. We expect our gross net performing assets (NPA) to be around 2-2.25% and net NPA to be less than 1% by the end of this fiscal," Bhattacharya said.

Bank of Maharashtra, which has a total branch strength of 1,546 across the country, registered a 3% increase in net profit to Rs 122 crore in the first quarter of the current fiscal. Its net interest income (NII) rose by 44% to Rs 591.4 crore during this period.

Source: Business Standard
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RBI Governor DS Subbarao has earned more critics than admirers for his bold decisions

MUMBAI: When career bureaucrat Duvvuri Subbarao took the wheel at Mint Street in September 2008 at a time the financial world was crumbling, the popular belief was New Delhi would get a firm handle on monetary policy. The Lehman Brothers collapse and the 'synchronised' handling of the crisis between the government and central bank strengthened the belief.

Three years later and the next crisis possibly round the corner, the story is different. Subbarao has earned more critics in recent months for supposedly killing growth, but a few admirers too for his conviction. Events are unfolding to create a landscape similar to the one that confronted his predecessor Yaga Venugopal Reddy - heaps of criticism for supposedly stifling growth and innovation.

"It was unnecessary given the sharp deterioration in the global environment and a significant slowdown in domestic activity," said Tushar Poddar of Goldman Sachs after the governor raised policy rates 25 basis points last Friday amid slowing economic growth. A basis point is 0.01 percentage point.


"At a time economic policy should focus on the creation of jobs, it is unfortunate that the economy is being forced into a sluggish growth phase," said B Muthuraman, president, Confederation of Indian Industry.

Subbarao, who parroted the policy stance of global central bankers during much of his first term, is deviating significantly. Policymakers in developed nations are keeping rates near zero and Federal Reserve Chairman Ben Bernanke has promised to keep it low till the middle of 2013. Most Asian central bankers have left rates untouched this month and Turkey and Brazil have cut interest rates. Subbarao is the odd man out by promising to keep raising rates till prices cool.


"Subbarao is a pragmatic and astute central banker who has taken independent decisions based on his well-researched conviction," says Madan Sabnavis, chief economist at rating company Care.

"He has recognised inflation as being the single most important malaise afflicting the economy and pursued the goal of increasing rates, notwithstanding the pressures being exercised from different quarters, displaying a lot of character."

Industry has been seeking a halt to raising interest rates, which started with 'baby steps' in 2010 with the governor's public admission of confusion with reference to his position being similar to a warrior caught in 'padmavyuha', a battle formation that is easier to get in, but difficult to get out.

Source: Economic Times
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Inflation effect: Equal number of Rs 1000 and Rs 500 currency notes to be printed for the first time

NEW DELHI: Rising prices are eating away the value of money, literally. The government is phasing out or printing fewer low-denomination currency notes, and printing more notes of higher denomination such as the 1,000 note.

For the first time, India will print as many new Rs 1,000 denominated notes as Rs 500 ones in 2011-12. In value terms, this will be the first time Rs 1,000 notes will account for more money printed than Rs 500 notes, which were the mainstay of high-value cash transactions for some time.

Thanks to inflation, the Rs 500 note is losing its position of pre-eminence among the currency notes printed by the Reserve Bank of India.

Eleven years after the Rs 1,000 note was introduced in October 2000, the RBI has ordered 2,000 million new amber-red Rs 1,000 notes. This is double the number ordered last year. The order for olive-and-yellow Rs 500 notes, which came into circulation in 1987, has been halved to Rs 2,000 million from last year.

In value terms, the new Rs 1,000 notes will add up to Rs 2 lakh crore, and Rs 1 lakh crore of Rs 500 notes. "ATMs can now dispense up to Rs 40,000 in one go. The Rs 1,000 notes are more convenient to dispense, fueling greater demand," said a finance ministry official.

Even banks want more Rs 1,000 notes to stock their ATMs, cutting down on the number of trunks full of cash they need to move between banks and cash dispensers.

The Rs 100 note is still the most-printed one, its print order growing from 4,300 million to 6,100 million this year.

But most banks have minimised the volume of Rs 100 notes at automatic cash-dispensing machines. Printing of the Rs 50 note has been slashed to 1,200 million from 2,000 million last year. "Lower denomination banknotes run out sooner and increase both capital cost and operating costs (of ATMs)," the RBI said in its annual report for 2004-05, commenting on the rise in demand for Rs 500 notes.

The Rs 1,000 currency note is the biggest one printed in India, measuring 17.7 cm by 7.3 cm, a good 1 cm longer than the Rs 500 note.

The RBI did not respond to queries by ET.

Banknotes worth Rs 1,000 and Rs 10,000 each were in circulation before Independence, but were demonetised in January 1946 to curb unaccounted money. The Rs 1,000, Rs 5,000 and Rs 10,000 face-value notes were reintroduced in 1954, but were demonetised again in January 1978. The RBI is authorised to issue notes with a face value of up to Rs 10,000, and coins that are each worth Rs 1,000.

Source: Economic Times
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RBI allows residents to pay housing loans of NRI relatives

Mumbai: The Reserve Bank has allowed resident individuals to repay housing loans in rupee on behalf of their close relatives, who are non-resident Indians (NRIs) or People of Indian origin (PIO).

"..It has been decided that where an authorised dealer (bank) in India has granted loan to a non-resident Indian..., such loans may also be repaid by resident close relative of the non-resident Indian by crediting the borrower's loan account through the bank account of such relative," the apex bank said in a notification.

However, this repayment facility is restricted to housing loan only, it noted.

In another circular, the central bank allowed resident individuals to pay for medical expenses of their non-resident close relatives, who are on visit to India.

Presently, a resident individual can pay bills of their NRI kins for boarding, lodging, travel to and from and within India.

Source: Financial Express
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