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Saturday, October 1, 2011

Kerala becomes first total banking state

Thiruvananthapuram: Kerala has been declared as the first 'total banking state' in India successfully completing the campaign for total finanical inclusion plan (FIP) ensuring banking facility to all families.

The declaration was made as every household in all the 14 districts in the state having at least one bank account and the facility for need-based credit.

The "State Level Bankers' Committee" ,a joint forum of major banks operating in the state, with the support of state government had been working for the last four years to bring banking services to all quarters of the state.

Addressing a meeting of bankers here yesterday, Chief Minister Oommen Chandy said the achievement was yet another feather in the cap of state's financial scenario.

"The banks have a lot more things to do for the state and its people. They should shed their conservative approach and contribute more to the expedite development process in the state," he said.

The lending to farming sector should be enhanced from the present 22 per cent of the total lending to the priority sector. The support of banks to education, infrastructure, tourism abd healthcare should also be accelerated, he said.

Chandy also distributed certificates to the banks which had participated in the 'total banking state' project drive.

Palakkad district in the state had already become the first district in the country to achive total financial inclusion four years ago, bank sources said.

Source: Financial Express
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ICICI asked to pay Rs 4,000 compensation to credit card holder

Thane: The Thane District Consumer Disputes Redressal Forum (TDCDRF) has come down heavily on ICICI for its failure to cooperate with it in a case and gave an ex-parte order asking the bank to pay a compensation of Rs 4,000 to the aggrieved credit card holder.

In its order the Forum President M G Rahatgaonkar and member Jyoti Iyer observed that the bank had returned the notice sent by the forum to it. In view of this, it ordered a payment of Rs 2,000 for mental torture to the complainant and a sum of Rs 2000 as legal expenses.

The case relates to Vijay A Kusale, who in November 2006 procured a credit card from ICICI Bank with a spending limit of Rs. 37,000.

According to the complainant he made regular repayments on the card except during March 2010 on account of his father's illness.

He further said that following this he started receiving calls from collection agents of the Bank, namely Vaishnavi Associates for payment of money and settlement of the account.

Accordingly it was decided that a sum of Rs 11,000 would be paid in two installments and the agent will make available a settlement letter from the Bank.

The complainant said he wanted the letter in advance and was told that he should make the payment of the first installment following which it will be issued. Accordingly he made the payment of Rs 8000 and sought the letter from the bank which was denied.

Kusale reminded the agent for the letter but he was asked to for the balance money which was paid up.

Instead of receiving the letter of settlement he once again began getting calls from the bank for the payment of the balance amount.

Source: Financial Express
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SBI's server crash leaves customers in a spot

KOLKATA: State Bank of India said it will remain open on Sunday to help customers in West Bengal withdraw money before the Durga Puja. SBI's central server crashed on Saturday leaving thousands of its customers in Kolkata in a fix before the Durga Puja.

There was massive rush at all its major branches and ATM counters in Kolkata as customers queued up for withdrawing money on Saturday, the last day of branch banking before Puja holiday begins. Banks in Bengal will remain closed the next five days till Thursday on account of the festival.

Durga Puja, which celebrates worship of the Hindu Goddess Durga, is the biggest festival for Bengalis.

SBI chief general manager Suriender Kumar said that instruction has given to branches to make offline payments up to Rs 15,000. "We are issuing tokens to customers who have visited our branches so that they can withdraw money today itself after the problem gets solved," Kumar Told ET.

SBI, the country's largest bank, has over 1,000 branches and similar number of ATMs in West Bengal.

Source: Economic Times
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Friday, September 30, 2011

RBI OK's Reliance Cap's RL stake sale

Mumbai: The Anil Dhirubhai Ambani Group's (ADAG) financial services arm Reliance Capital today said it has received approval from the Reserve Bank of India (RBI) for its proposed 26 per cent stake sale in Reliance Life Insurance to Japan's Nippon Life.

The company had signed a definitive agreement to sell a 26 per cent stake in Reliance Life Insurance to Nippon Life Insurance for Rs 3,062 crore earlier this year. The deal was subject to regulatory approvals.

The Insurance Regulatory Development Authority (IRDA) has already granted in-principle approval for the proposed stake sale. Following RBI clearance for the deal, IRDA will now grant final approval for completion of the transaction, Reliance Capital said in a filing to the Bombay Stock Exchange.

Commenting on the development, Reliance Capital CEO Sam Ghosh said, "We are delighted to receive the RBI approval, bringing us closer to concluding this transaction very shortly."

"This is great news as we move closer to completing the transaction," Nippon Life Insurance President Yoshinobu Tsutsui said.

This transaction pegs the total valuation of Reliance Life Insurance at around Rs 11,500 crore.

Nippon Life is a 122-year-old Global Fortune 100 company and the seventh largest life insurer in the world. It is a leading private life insurer in Asia and Japan.

R-Cap figures among the country's top-four private sector financial services and banking groups in terms of net worth.

Source: Financial Express
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ING Vysya Bank raises lending rates by 25 bps

NEW DELHI: Private sector ING Vysya Bank on Friday increased its lending rates by 25 basis points, making all kinds of its loans expensive.

The bank raised base rate or the minimum lending rate by 25 basis points to 10.45 per cent from existing 10.20 per cent, ING Vysya Bank said in a statement.

At the same time, the benchmark prime lending rate of the bank has also been raised by 25 basis points to 19 per cent from 18.75 per cent, it said.

Home loan reference rate has also been increased by 25 basis points to 19.50 per cent.

The new rates will be effective from October 1, it said. It is expected that other banks would follow suit since the Reserve Bank on September 16 raised policy rate by 25 basis points. RBI has raised repo and reverse repo rates 12 times in last 18 months in order to contain inflation which is hovering around 10 per cent.

As a result of these rate hikes, banks have increased their key lending rates in order to pass on the increased borrowing costs to end-users.

Following mid-quarterly policy review, State Bank of Travancore and Dhanalaxmi Bank increased their base rates by 25 basis points and 50 basis points, respectively.

Source: Economic Times
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Hitachi ties up with SBI, Axis Bank for cash deposit ATMs

NEW DELHI: Hitachi-Omron Terminal Solutions Corp (HOTS) of Japan on Thursday said it has tied up with two leading banks, State Bank of India ( SBI) and Axis Bank, to install cash deposit ATMs across the country.

The two-in-one ATM's are revolutionary in nature as it eliminates the need to visit bank branches for simple tasks like making cash deposits which get directly credited to your account, printing your passbook and numerous other banking services without compromising on time, HOTS said in a statement.

These simple self-service functions will help increase branch efficiency tremendously as it frees the branch officials to attend to other works while at the same time it eliminates the need for customers to wait in long queues at their bank branches, it said.

Hitachi plans to tie up with eight more banks by the next fiscal-end, with total revenues of 1 billion yen from the new HOTS ATM's.

Source: Economic Times
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Axis Bank rolls out lifetime fixed rate home loan

MUMBAI: Axis Bank, a late entrant to home loans, has launched a lifetime fixed rate home loan at an interest rate of 11.75% for a 20-year tenure. This is the cheapest fixed rate loan available in the market and is 250 basis points lower than the fixed rate product being offered by the bank till now. Most banks charge 13-13.5% interest for fixed rate home loans.

Axis Bank is aiming to woo customers uneasy over rising interest rates. The Reserve Bank of India (RBI) has raised policy rates 12 times since March 2010. The repo rate, or the rate at which banks borrow from the central bank, has since gone up by 350 basis points.

"This is a pure fixed rate loan with no fine print. Customers would have the option of migrating to a floating rate product. However, it would come at a fee of up to 2%," said Jairam Sridharan, senior vice-president and head (consumer lending and payments) at Axis Bank. The bank runs a home loan portfolio of 20,000 crore of which a major proportion is floating rate loans.

Should borrowers bite Axis Bank's 11.75% fixed rate offer?

"I wouldn't recommend this product to any customer as we seem to have reached the peak of the high interest rate cycle," said Kartik Jhaveri, founder & director, Transcend India Private Limited. "It would be advisable for customers to pay half a per cent more and opt for a floating rate home loan product," Jhaveri added.

"Interest rates have to come down with the slowdown in global economya¦(which is) also looming over India. Locking into a fixed rate at this point is a no-no," says Suresh Sadagopan, certified financial planner, Ladder 7 Financial Advisories.


Most customers prepay loans within 10 years. This loan comes with a 2% prepayment penalty. If a customer prepays the loan, she will end up on the losing side. Even if she locks into such a loan, she will be paying a higher interest cost," Sadagopan adds.

Banks do not charge a prepayment penalty on floating rate housing loans, especially if the borrowers pay off the dues from their own savings. Under 'Nishchint', Axis Bank will offer loans up to 85% for properties valued at up to 20 lakh and 80% for properties costing above 20 lakh, the lender said in a statement.

"The bank will charge a prepayment penalty of 2% on the outstanding amount," the statement added. Analysts are wary of the product as they are concerned about how the bank would raise resources for 20 years. Currently, no bank is marketing fixed rate home loan products aggressively.

Source: Economic Times
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Citigroup's CEO Vikram Pandit sees no repeat of 2008 crisis, confident on euro zone: Report

SINGAPORE: Citigroup CEO Vikram Pandit said the current turmoil in the global financial markets will not be a repeat of the 2008 downturn, Singapore newspapers reported on Friday.

Pandit told local media in an interview on the sideline of the bank's board meeting in the city-state that there is enough capital and liquidity in the global banking system to withstand the market volatility.

"The world's banking system is in a very different place than it was in 2008," he was quoted by the Straits Times as saying.

"Capital levels are high in the Asian banking system, they are well-positioned, there's a lot of liquidity...if you go to the Latin American banking system, that's the case as well."

Citi, the most international among U.S. banks, was on the brink of collapse during the financial crisis three years ago.

Pandit also said in an interview he is confident that the European Union will find ways to solve the current crisis in the euro zone.

"I'm fully confident that the Europeans will figure it that happens I don't think we need to worry about a financial crisis," the Business Times quoted him as saying.

Source: Economic Times
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Banks acquire 60% stake in Trident microfin

Various banks have taken control of Hyderabad-based microfinance firm Trident Microfin by acquiring a majority stake in the firm, leaving promoter and chief executive Kishore Kumar Puli with a stake of only 4.2 per cent.

As many as 20 banks, including ICICI Bank, HDFC Bank, Axis Bank, Indian Overseas Bank, Bank of India and Union Bank of India, have together acquired over 60 per cent stake in the microfinance company by converting a part of its debts into equity shares.

The remaining stake in the company is held by institutional investors Bellwether Microfinance Fund and India Financial Inclusion Fund. Among the five microfinance firms that opted for a debt recast, Trident is the only micro-lender in which banks have acquired equity stake.

The banks converted around Rs 32-crore debts into equity shares, at a price of Rs 10 per share, even though the book value of the company is estimated at around Rs 18.60 per share. The move is part of Trident's plan to restructure Rs 125.5-crore bank debts.

“The banks were not interested in converting the debts into equity shares at a premium. They were willing to convert it only at face value. The primary objective is to revive the company. It does not matter who owns the company, what matters is how we can take Trident back to its old glory,” Puli said.

A representative from Indian Overseas Bank, which, with a stake of 14.13 per cent, accounts for the largest stake among banks, would be appointed as Trident's non-executive chairman and would be present in all board meetings of the company. Puli would continue to be the company's chief executive officer.

Besides converting 25 per cent of existing debts into equity shares, the banks also converted an additional 25 per cent of their loans to Trident into optionally-convertible preference shares.

If Trident fails to repay the remaining debts, or does not comply with the conditions mentioned in the debt-restructuring programme, the preference shares would also be converted into equity shares, giving the banks almost absolute control in the microfinance firm.

The conversion of loans into equity and preference shares did not require the prior approval of the Reserve Bank of India, since these debts were being restructured, Puli said.

According to the terms agreed between the banks and Trident, the microfinance company would repay around Rs 62 crore of debts over the next eight years, including two years of moratorium at an interest of 12 per cent.

The banks, however, would not cut Puli's remuneration, estimated at around Rs 24 lakh per annum, though the corporate debt restructuring (CDR) cell has decided to screen the salaries of top officials of microfinance firms that chose to recast their debts. The clause demanding a personal guarantee from the promoter has also been waived for Trident.

Trident started operations in 2007, and its net worth is Rs 18 crore.

Source: Business Standard
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Thursday, September 29, 2011

Axis offers fixed home loan @11.75% - 'NISHCHINT'

Mumbai: Private sector Axis Bank today launched a new home loan product, that offers fixed interest rate of 11.75 per cent, to cash in on the busy festival season demand.

The bank launched 'NISHCHINT' lifetime fixed interest home loan scheme which offers home buyers loans at a fixed rate of 11.75 per cent for the entire duration of the loan that is up to 20 years, Axis Bank said in a statement.

Under the scheme, the bank will offer home loan to eligible buyers up to 85 per cent of loan-to-value for debt up to 20 lakh and 80 per cent loan-to-value for borrowings above Rs 20 lakh, with a pre-payment charge of 2 per cent of the outstanding amount, it said.

It is to be noted that the bank offers home loan up to Rs 25 lakh under floating rate at 10.75 per cent.

So customers opting for the 'NISHCHINT' plan will have to shell out a premium of one per cent over the floating rate of interest.

At the moment, the base rate of the bank stands at 10 per cent.

Customers today are facing uncertainty about EMIs on their home loans, due to interest rate increases in the market, Axis Bank ED (retail banking) R K Bammi said.

"At Axis Bank, we want to offer the customer certainty about the EMI they need to pay for the entire life of the loan. 'NISHCHINT' offers that option to the customer at a very attractive rate," he said.

Since rates are almost at their peak, banks have no problem in offering loans at fixed rate, analysts said.

Earlier this month, mortgage firm HDFC, LIC Housing Finance launched teaser product following ICICI Bank.

ICICI Bank was the first to introduce a fixed home loan scheme last month, after SBI discontinued with it in April.

Clarifying whether such products are teaser or not, the RBI said loans that are fixed in the initial years and become floating later would be considered as teaser loans, and banks must make provisions as mandated by the regulator.

Source: Financial Express
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Deutsche Bank to boost mortgage book

Deutsche Bank plans to nearly double its mortgage book in India to Rs 3,000 crore by the end of next year. The move is in line with the bank's strategy to maintain its focus on secured assets, following the sale of its credit cards business earlier this year.

The mortgage book, which is currently estimated at Rs 1,800 crore, comprises Rs 1,450 crore of home loans and Rs 350 crore of loans against property. Deutsche Bank currently lends Rs 80 crore of these loans every month. The average size of the loans is in the range of Rs 70-75 lakh.

“We have started setting up more distribution points and adding capacity in our sales force. We expect our mortgage book to nearly double by the end of the next year,” said Prashant Joshi, managing director and head (private and business clients), Deutsche Bank, India.

The foreign lender currently employs 18 sales managers and around 100 agents. Besides ramping up its sales force, the bank plans to offer value-added services like life insurance cover, along with housing loans, to draw customers. It also plans to reduce the processing time for sanctioning these loans to three days, from the current one-week period.

The expansion of the bank's mortgage book would also allow it to cross-sale its banking products to home loan customers.

Senior officials at Deutsche Bank said the lender was exploring options like securitising a part of its mortgage book and availing refinancing from the National Housing Bank to ensure there was no mismatch between its assets and liabilities. However, the bank has no plans to launch a dual-rate housing loan product, re-introduced by many of its domestic rivals last month.

“We don't have plans to launch a dual rate housing loan product as of now. I think there is a need for fixed-rate products, but people would prefer that only if the tenure is longer,” Joshi said.

Source: Business Standard
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Fiscal consolidation crucial for 9% growth: RBI

The Reserve Bank of India (RBI) has said the growth target of nine per cent envisaged for the 12th Five-Year Plan can be achieved only if inflation is brought down, and supply-side issues in agriculture are resolved.

"Without bringing inflation down from the current level, it would be difficult to sustain a high level of growth. This would require greater monetary-fiscal coordination and the alleviation of supply constraints, particularly in agriculture," said RBI executive director Deepak Mohanty.

Mohanty said achieving nine per cent growth between 2012 and 2017 would be a challenging task, since local factors would also play a key role in deciding GDP (gross domestic product) growth. "Hence, growth would have to be raised by an additional percentage point per annum, which is challenging because it would require a conducive global environment and policy reforms at home," he said.

Aiming to bring inflation down, the central bank has raised the repo rate by 350 basis points in the last one and a half years, and this has led to moderation in growth. Inflation has remained much above the central bank’s comfort zone. The wholesale price index rose 9.7 per cent in August on an annual basis, compared with 9.22 per cent in July. "Empirical evidence suggests the threshold level of inflation is in the range of 4-6 per cent," Mohanty said in Boston.

Emphasising on increasing agricultural productivity, Mohanty said there was a need to beef up rural infrastructure to remove bottlenecks in the supply chain. "There is, therefore, a need for another technological breakthrough to give fresh impetus to agriculture. At the same time, greater emphasis would have to be placed on the management of the supply chain, with investment in rural infrastructure," he said.

The central bank also called for an increase in agricultural growth to four per cent, compared with the current three per cent right. The regulator also said workforce needed to be removed from agriculture, and absorbed by the manufacturing sector. "A substantial part of this labour force would have to be ejected from agriculture not only to improve productivity in agriculture, but also in the overall economy," Mohanty said. It is inconceivable that they can all be absorbed in the services sector. Hence, industrial employment would have to expand, as also the relative contribution of industry, Mohanty said.

Source: Business Standard
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Bank of Maharashtra ups lending rates by up to 25 bps

State-owned Bank of Maharashtra (BoM) today increased its lending rates by up to 25 basis points (bps), making all kinds of loans expensive.

The bank raised base rate or the minimum lending rate by 20 bps to 10.70% from existing 10.50%, BoM said in a filing to the Bombay Stock Exchange (BSE).

At the same time, the benchmark prime lending rate of the bank has also been raised by 25 bps to 15% from 14.75%, it said.

The new rates will be effective from October 1, it said.

It is expected that other banks would follow suit since the Reserve Bank of India (RBI) on September 16 raised policy rate by 25 bps. The RBI has raised repo and reverse repo rates 12 times in last 18 months in order to contain inflation which is hovering around 10%.

As a result of these rate hikes, banks have increased their key lending rates in order to pass on the increased borrowing costs to end-users.

Following mid-quarterly policy review, State Bank of Travancore (SBT) and Dhanalaxmi Bank increased their base rates by 25 bps and 50 bps, respectively.

Source: Business Standard
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Wednesday, September 28, 2011

Bad loans to hit banks' Q2 nos

MUMBAI A fully-automated system of bad loan calculation may reflect a spike in non-performing assets (NPAs) of banks and weigh on profitability in the second quarter, industry experts said. The finance ministry has asked all state-run banks to fully computerise calculation of stressed loans by September 2011.

Until now, lenders calculated bad loans manually. This may result in higher bad loans and force the lenders, already pressured by poor credit demand and rising yields on treasury portfolio, to set aside a greater portion of profits as provisions. Banking analysts said, in the second quarter, banks will either show higher slippages when an account moves from standard category to sub-standard category or report reversal of interest income due to automation.

Banks, such as the State Bank of India and Bank of Baroda, have already incorporated this system for all their accounts as on June 2011. Other banks, including Bank of India and Union Bank, have adopted it only for those accounts where the customer has borrowed above Rs 5 lakh, while Central Bank of India had not started this process by the end of the first quarter. "All efforts are being made by the bank to move towards a fully-automated system of arriving at NPA numbers on automated basis.

We have set up a full-fledged team for the same," said Central Bank of India executive director RV Iyer. Among others, Canara Bank has shifted accounts of more than Rs 2 lakh and Punjab National Bank has shifted accounts above Rs 10 lakh to the automated system.

"By the end of second quarter, we will be calculating bad loans on a fully-automated basis without any human intervention. To negate the impact of possible increase in NPAs, we are focusing aggressively on recovery of bad loans, especially smaller ones, by holding recovery camps which have yielded good results," said Punjab National Bank chairman and managing director KR Kamath.

In the first quarter, several lenders had to reverse interest income on adopting automated system of loan calculation. This means that in the past, banks had booked income which they had not actually received and the same was reversed.

For instance, Canara Bank reversed Rs 210 crore of interest income, while Bank of India reversed Rs 175 crore in the quarter ended June 2011. Both banks had computerised only a part of their accounts in the first quarter and thus the pain would be felt in the second quarter as well when all accounts are computerised.

Source: Economic Times
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Banks smell profit by borrowing from Reserve Bank of India's repo window

MUMBAI: Banks are seeing an arbitraging opportunity by borrowing from the Reserve Bank of India and investing in higher yielding short-term instruments like one-month certificate of deposits and one-month commercial papers. In the current market, one month certificate of deposits are now traded at 9.20% while onemonth commercial papers are being traded at 9.50%.

On the other hands, banks can borrow from RBI's repo window at 8.25% on an overnight basis against government securities. The traded volumes in the CD market also jumped to Rs 12,434 crore on September 23 from Rs 6,480 crore on September 13. In the last few days, banks on an average have borrowed Rs 67,000 crore from the Reserve Bank of India's repo window.

This is despite the fact that the banking system is flush with incremental deposits worth Rs 3,14,000 crore (6%) so far this year, compared with a fresh loan disbursal of Rs 1,32,000 crore (3.4%). "Banks which hold surplus SLR of 2-3% can avail funds from the repo facility(8.25%) and utilise the funds for short-term investment in commercial paper or certificate of deposits and earn a clean spread of above 1%," said Roy Paul, DGM, Federal Bank.

The excess SLR, or statutory liquidity ratio - the portion of deposits that needs to be parked in government bonds, in the system is about 7%. The entire banking sector has invested about 31% of its deposits in bonds against the stipulated 24%.

"As the quarter end approaches, money market instruments such as certificate of deposits factor in the quarter end in a premium because credit demand picks up and banks need to shore up their interest income," said a senior treasury official with a private bank, requesting anonymity. The amount borrowed by banks from RBI's repo window, indicates the liquidity situation in the banking system.

The repo borrowing has risen steadily in the past one week, in spite of robust deposit mobilisation. Banks borrowed Rs 78,565 crore on Tuesday from the central bank. This is partly because it is the beginning of the reporting fortnight. Another reason, traders point out is that banks, with excess holding of government securities, are using funds borrowed from RBI to invest in high-yielding certificate of deposits and commercial papers.

Source: Economic Times
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Double-dip recession: Rescue is is cbanks' job, says RBI

New York: Reserve Bank Governor D Subbarao has said that fears of double-dip recession have resurfaced and monetary authorities will have to deal with the global economic problems.

The burden of combating recession through monetary stimulus will fall on central banks, Subbarao said while addressing the Stern School of Business, New York University here.

"Over the last few months, fears of double-dip recession have resurfaced, and governments in advanced countries are locked in a policy logjam over the balance between short-term fiscal stimulus and long-term fiscal consolidation."

"This has willy-nilly pushed central banks to the fore once again as monetary stimulus is having to bear the burden of being the first, and in some cases, possibly the only line of defence against recession," he said.

Pointing out that the crisis has been an intellectual challenge in many ways, Subbarao said, "My own experience has been the real world problems are too complex to fit template solution of text books."

Earlier speaking at the IMF meeting, Subbarao had said that "we are rapidly running out of time, and may therefore be running out of solutions".

Fears of renewed economic crisis has been haunting the US, while in the eurozone the sovereign debt seems to be deepening, sending shock waves across the world economy.

He said that both were a big risk by themselves. If both the crises developed simultaneously, it could have a considerable impact through trade, finance and confidence channels.

Subbarao is in the US to attend meetings World Bank and International Monetary Fund (IMF) meetings.

Source: Financial Express
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IBA may submit comments on pre-payment by Sept-end: RBI

The Reserve Bank (RBI) today said the Indian Banks' Association (IBA) is expected to submit comments by the end of this month on the proposal to do away with pre-payment charges on home loans.

"IBA is expected to submit comments on pre-payment by the end of this month," RBI Chief General Manager and Banking Ombudsman (New Delhi) M Rajeshwar Rao said here.

After receiving the comments, the RBI will go through it and take a final call on the pre-payment charges on loans taken under floating rates by customers, he said.

Earlier this month, the Banking Ombudsmen Conference suggested banks should not impose pre-payment charges on loans with floating rate of interest.

It had said banks may also offer long-term fixed rate housing loans to customers.

The conference said lenders may address their asset liability mismatch (ALM) issues by taking 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 Ombudsmen had noted.

The banks will, however, be free to recover or charge appropriate pre-payment penalties in the case of fixed rate loans, it had suggested.

Meanwhile, Rao pointed out that the maximum complaints received from customers were card related.

He said as much as 41% of total complaints by customers are against the public sector banks in the New Delhi region which includes Jammu and Kashmir besides Haryana.

In the region, he said the Ombudsman received maximum complaints against State Bank of India followed by ICICI Bank and HDFC Bank.

The total complaints received during 2010-11 stood at 10,508 which is 13% less than in the previous fiscal (12,613).

Most complaints are received from Delhi followed by Haryana.

Banking Ombudsman Scheme of the RBI deals with any deficiency in the services by the bank and as many as 27 services are part of the scheme.

Source: Business Standard
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L&T on banking licence: 25% rural branches may not be viable

L&T group, a serious contender for a new banking licence, today expressed doubts over the viability of new banks having 25% of their branches in rural areas as prescribed in the RBI draft guidelines.

L&T Finance Holdings also asserted that the company would consider definitely the prospect of entering the banking space.

"It is not easy to say that rural branches are viable or not. Is there any other mode of servicing the rural clients without the normal brick and mortar banks? These are areas that we really need to work on," L&T Finance Holdings President and Whole-Time Director N Sivaraman said.

He was replying to a question whether the 25% stipulation for rural branches would deter the aspiring entrants.

"All those evaluations will have to be completed. We definitely need to do a thorough evaluation on whether it will be worthwhile at this point of time," he added.

However, Sivaraman quickly added, "I will not say that we are not interested. Definitely, as a financial services player, that is of great interest to us, and we will actively consider the prospect.

"I think, it is an opportunity that is important for a financial services player. So we can not ignore it. We will have to wait for the final guidelines to come out. Once RBI announces its final guidelines we will definitely work on it," he said replying to a query on whether the group will pursue entering the banking space given the strict entry norms.

The Reserve Bank last month had issued the draft guidelines on new bank licences, pegging the minimum required capital for the holding company at Rs 500 crore, and limits the foreign shareholding at 49%.

The draft guidelines also said new banks should open at least 25% of its branches in unbanked rural centres.

Source: Business Standard
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FirstRand to open India retail bank

South Africa's FirstRand plans to start a retail banking business in India in December, the Business Day newspaper said on Tuesday.

FirstRand, South Africa's second-largest bank, already has a full commercial banking licence in India, and a presence in Mumbai. It will become the first African lender to start retail banking in the Asian country, the newspaper said.

"India's gross domestic product grew 7.5% in the second quarter of this year and is expected to maintain growth at similar levels for decades to come. Compared with South Africa's long-run economic growth rate of about 3.5%, it is apparent why India is a really attractive market for us," Michael Jordaan, chief executive of FirstRand's retail arm, was quoted as saying.

Source: Business Standard
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Monday, September 26, 2011

Mobile payments market expected to touch $245 bn by 2014: E&Y

New York: Billed as the future of banking, the value of financial transactions carried out through mobile phones has been pegged at USD 245 billion worldwide by 2014 in a new report by global consultancy firm Ernst & Young.

"Overall, mobile payment services are expected to reach USD 245 billion in value worldwide by 2014," according to the report by Ernst and Young (E&Y).

At the same time, the number of users carrying out transactions using mobile money is expected to total 340 million by 2014, equivalent to 5 per cent of existing mobile subscribers across the globe, the report said.

There were 81.3 million people worldwide that used their mobile devices to make payments in 2009 and the value of m-payments stood at USD 69 billion during the period, according to an estimate.

The mobile payments market has gained traction in recent years, owing to factors such as higher penetration of handsets in comparison to coverage of population with banking services and benign regulatory environments.

"The acceleration of mobile remittance services alongside new mobile payment scenarios highlights the range of opportunities for the mobile phone to redefine the movement of money by lowering costs, increasing convenience and reducing fraud," the report said.

The increasing use of the mobile payment concept by consumers across the globe, especially in heavily populous countries in the Asia-Pacific region, may inflate the market for mobile payments in the coming years.

The report said that mobile money is being seen as the key for many operators in Asia to provide value-added services to customers and operators in emerging markets, such as the Philippines and Bangladesh, as well as a catalyst for bringing banking services to the large unbanked population of these countries.

It further said that operators in developed markets are targeting e-wallets at smartphone users.

In terms of the mobile payment technologies being used, SMS mobile payments are the most prevalent worldwide mobile, while Near Field Communications (NFC) and internet transactions over mobiles are among the other fast-growing technologies.

Earlier, a KPMG survey indicated that most executives worldwide believe the use of cellphones for financial transactions will gain widespread acceptance within four years.

Source: Financial Express
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StanChart slashes Indian rupee rating

Mumbai: Standard Chartered (StanChart) Bank said on Monday it had lowered the short-term rating on Indian rupee to neutral from overweight as a massive deterioration in global sentiment has outweighed signs of stability in domestic inflation.

The possibility of a difficult transition for the Reserve Bank of India (RBI) from inflation to growth risks if economic sentiment worsens in advanced economies meant more pressure on rupee, the bank said in a research note.

In the mid-quarter review on Sept. 16, the RBI said it was too soon to ease back from its anti-inflationary bias. The central bank has already raised rates 12 times in 18 months.

The local currency rupee has lost over 11 percent from its 2011 high hit late July and remains the worst performer amongst major Asian peers.

The unit has also shed 4.4 percent of its value last week, its biggest fall since the week ended July 12, 1996.

These sharp increases in rupee volatility over the past few days have added to the risks of significant intervention (by the RBI) and is an important swing factor for the rupee, the bank said.

However, Subir Gokarn, a deputy governor of the central bank, last week said the RBI would maintain its stance of intervening in the foreign exchange market only to reduce volatility.

The bank has forecast the rupee at 51 to a dollar in end-December. But it expects the local unit to gain subsequently and trade at 45 to a dollar by end of March 2013. It has retained its overweight rating in the medium term.

The rupee was at 49.55 to a dollar in recent trades, weaker from its close 49.42/43 on Friday when it had touched 49.90, a level last seen May 14, 2009.

Source: Financial Express
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Man sentenced to jail, fined for bounced cheque

Bijnor: A man was sentenced to two years imprisonment and a fine of Rs one lakh was imposed on him by a local court here in a dishonoured cheque case.

Additional Chief Judicial Magistrate Manisha held Rishi Pal guilty on Saturday after a case was filed by Pitambar Singh, Managing Director of Pantjan Sadbhavna Finance and Investment Company Private Limited, prosecution sources said here.

Singh had filed the suit against Pal, who had taken a loan of Rs 62,000 from his company to purchase a jeep for his son, they said.

The cheque of the amount of Rs 91,635 which Pal later issued to the company was dishonoured by the bank on account of insufficient funds, they said.

Pal was asked by the court that the fine of Rs 1 lakh be paid to the plaintiff as compensation, failing which the accused would have to serve an additional term of two months in jail.

Source: Financial Express
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Exim Bank to raise at least Rs 2.5 bn via bonds

MUMBAI: Export Import Bank of India ( Exim Bank) plans to raise at least Rs 2.5 billion through 10-year bonds at 9.38 percent, three sources with knowledge of the matter told Reuters on Monday.

Axis Bank, ICICI Securities Primary Dealership and Nomura are some of investors in the deal, the sources said.

The pay-in date for the issue is Thursday, the sources said.

Source: Economic Times
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Worsening financial crisis: Global financial firms like Bank of America Merrill Lynch, Nomura, UBS, HSBC cutting jobs in India

MUMBAI: Global financial companies have begun cutting jobs in India as the worsening financial crisis in the West dims business outlook, forcing companies to scrap fund-raising and M&A plans. Bank of America Merrill Lynch, Nomura, UBS and HSBC are among the companies sacking employees in the third wave of financial market job cuts since the Asian crisis of 1997.

More than 200 have been laid off in investment banking in the past few weeks in corporate banking and retail divisions as the banks strive to remain meaningful amidst a general slowdown. "We are seeing selective cost rationalisation, as a reaction to market outlook," said Sonal Agrawal, head of executive search firm Accord India. "Some firms that were building out businesses have a diminished appetite for further investment at the moment, due to global woes."

For the Indian financial services industry, this is the third time that global banks are rolling back investments after making optimistic statements about the growth opportunities. The Asian crisis of 1997 led many, including Dresdner and Societe Generale, to close their Indian subsidiaries leaving scores jobless. A decade later came the subprime crisis that forced many, such as Merrill Lynch and Credit Suisse, to cut headcount.

The European financial crisis may have just begun to impact India, in terms of financial services jobs. Hong Kong and Shanghai Bank Corp, which plans to eliminate more than 30,000 jobs worldwide, told over 120 employees engaged in the recovery of sticky loans in India to find new jobs.

Barclays India, meanwhile, has sacked 12 executives from its small and medium enterprises business. "For our group, we have seen 30,000 rolls which will disappear," says Stuart Davis, HSBC India chief executive.

"If you translate that into Asia-Pacific, we would be reviewing the level of bureaucracy and efficiency. We will be doing in India as we would do in other parts of the world." Credit Suisse AG, the second-biggest Swiss financial services company, laid off more than 14 people in its India wealth management team some weeks ago.

BofA-Merrill Lynch recently fired five members of its investment banking team, and two from its prop trading and global market division, people with direct knowledge of the matter said. The bank's India operations employ about 1,000. Some more layoffs are expected in the bank's investment banking division.

Swiss financial firm UBS, whose global CEO Oswald Gruebel resigned on Saturday over rogue trading loss, recently handed pink slips to six India staffers. The firm has a sword hanging over its global investment banking division and more job cuts are expected to be announced soon, people familiar with the development said.

Japanese firm Nomura, too, is not immune and has asked three members from its investment banking division and an analyst to go. Fears of a worsening European sovereign debt crisis have shaken the global financial services industry. The expected spurt in regulatory measures to deal with the problem could crimp profits and keep growth muted.

JPMorgan Chief Executive Jamie Dimon recently suggested that the US should reject the so-called Basel III, the newest set of bank regulations. "The current scenario is a function of what is happening globally. Most multinational companies have become more cautious and slow with their investment and expenditure decisions," said Deepak Gupta, country head and managing director at executive search firm Korn/Ferry International.

Source: Economic Times
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Sunday, September 25, 2011

Taxing the rich: How to impose taxes on the wealthy

Soak the rich" is a popular tax policy theme. However, let's get the first principles of taxation sorted out. Here's a short guide, and an assessment of India's record.

Why Do We Have Taxes

There are only three valid reasons. The rest are subterfuges. One, we want governments to provide, or fund, some goods and services. Tax fatigue, or reluctance to pay taxes, is largely because these services aren't satisfactorily provided. If you leave national security aside, most of these services are supposed to be provided by state or local governments. Note, however, that a gargantuan share of tax revenue is collected by the Centre, and all this goes into a black hole known as the Consolidated Fund. Therefore, in many cases, it makes sense to charge a fee for a public service, rather than use tax revenue. The quid pro quo is clear for fee-based services.

The second valid reason for taxation is the better-off must contribute more. "Taxing the rich" debates are part of this principle of progressive taxation. Thirdly, we want taxes to discourage things like smoking, or incentivise certain other things - green technology, for example.

Silly Taxes on the Rich

There have been hundreds of wrong or plain silly taxes, many of them imposed on the wealthy. The list of the silliest taxes imposed on everyone, not just the wealthy, would include Vespasian's tax on urine used for tanning, salt taxes and the tax on blueberries imposed by Maine in the US. Silly taxes on the rich have usually focused on items of perceived luxury consumption. They have all failed. England had a tax on printed wallpaper.

So, builders and people used plain wallpaper and painted them later. England also had a house tax that was a function of the number of windows. The idea being that houses of the rich would presumably have more windows. People responded by building fewer windows. In some European countries, taxes on houses became a function of width of staircases. People responded with narrow staircases and wider windows, so that furniture could be moved in and out through windows.

Silly Indian Taxes on the Rich

Pre-reform India's tax rules never understood this: if you tax so-called elitist consumption items more, you (a) make some items pricier and take them beyond the reach of the non-rich and (b) encourage unlawful behaviour because those with money will find a way to get around the law. Post-reforms tax policy is smarter, but not wholly smarter.

Take service tax proposals for the 2011-12 budget. The assumption is that hotels, irrespective of where they are located, that charge more than Rs 1,000 per day must be only for the rich. And hospitals that have 25 or more beds and air-conditioning must also be catering only to the rich. Or maybe the assumption was that the middle class can be made to cough up as well, to fill the exchequer. The point is, high indirect taxes - taxes on goods and services - are a terrible way to tax the wealthy.

Source: Economic Times
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