Obopay rolls out mobile payment service for Nokia users

With mobile banking steadily gaining pace, the service providers are gearing up to make the most out of it. Obopay, a mobile payment service provider, is all set to expand across the country on the back of a tie-up with handset manufacturer Nokia. The company had earlier joined hands with Union Bank of India and YES Bank.

The prepaid service is currently available in 130 cities in India and going ahead will be available at more than 200,000 Nokia Priority dealers, 2,300 branches of Union Bank of India and 214 branches of YES Bank. “Over the past two quarters there has been more than 50% growth on a monthly basis hence ensuring faster uptake of the service across the country,” said Deepak Chandnani, chief executive officer, Obopay. He said that the company is in talks with other banks and the service will be available across the country by end of this financial year.

An individual need not have a bank account to make use of this service. A prepaid mobile account can be opened with the help of a photo identification card and address proof. The service allows an individual to transfer money, make utility bill payments and recharge mobile phone accounts. Money can also be transferred from one bank to another with the help of National Payments Corporation of India.

In order to promote cashless transactions, Reserve Bank of India had raised the limit of mobile banking from Rs 1,000 to Rs 5,000 per transaction in May 2011. According to NPCI, the total amount transferred via mobile phones crossed Rs 3.17 crore while the issuance of Mobile Money Identifier (MMIDs) neared 15 million in September 2011.

Source: Business Standard

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IOB Q2 net up 0.63% at Rs 207.46 cr

Mumbai: Public sector lender Indian Overseas Bank (IOB) has posted a marginal jump of 0.63 per cent in net profit to Rs 207.46 crore for the second quarter ended September 30.

The bank had posted a net profit of Rs 206.15 crore in the July-September quarter of 2010.

The total income of the Chennai-based lender during the quarter rose to Rs 4,822.56 crore, from Rs 3,074.74 crore in the same quarter last fiscal, IOB said in a filing to the BSE.

Net interest income during the quarter rose by 32.43 per cent to Rs 1,266.39 crore from Rs 956.30 crore in the second quarter of FY'11, it said.

During the first six months of the current fiscal, IOB's net profit rose 1.6 per cent to Rs 413.04 crore from Rs 406.59 crore, it added.

The bank's total income rose to Rs 9,146.63 crore from Rs 5,957.12 crore in the same period of 2010-11.

Source: Financial Express

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RBI penalises two cooperative sector banks

Mumbai: The Reserve Bank has imposed a penalty of Rs 5 lakh each on two cooperative sector lenders – the Pravara Sahakari Bank and the Baroda Traders Co-operative Bank -- for violation of various norms.

"RBI has imposed a monetary penalty of Rs 5 lakh on Pravara Sahakari Bank Ltd, Ahmednagar, Maharashtra... for violation of directives/guidelines of the RBI on maximum limit on advances as modified from time to time, by sanctioning loans to trusts managing different colleges in excess of the single borrower norm," the apex bank said in a statement.

The Baroda Traders Co-operative Bank has been penalised for non-adherence to Know Your Customers (KYC)norms, it said in another statement.

RBI had issued separate show cause notices to these banks in response to which they had submitted written replies.

The central bank, after studying their replies, came to the conclusion that the violations were substantiated and warranted imposition of the penalty, the statements said.

Source: Financial Express

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Stop gradually use of cheques: RBI to NBFCs

As part of its green initiative, the Reserve Bank of India (RBI) today asked all non-banking financial companies (NBFCs) to gradually phase out use of cheques and shift to electronic payment system.

The government, in its green initiative efforts, has suggested several steps for entities in financial sector, including NBFCs, for better utilisation of resources and delivery of services.

"NBFCs are therefore, requested to take proactive steps in this regard by increasing the use of electronic payment systems, elimination of post-dated cheques and gradual phase-out of cheques in their day to day business transactions," the RBI said.

These will result in more cost-effective transactions and faster and accurate settlements, it added.

The Finance Ministry has also developed a e-payment system for disbursal of subsidies to consumers of fertilisers, LPG and kerosene. This system is likely to do away with the use of cheques and bank demand drafts to make payments.

Source: Business Standard

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SBI may raise saving deposit rate by up to 125 bps

State Bank of India (SBI) on Friday indicated that it could increase interest rate on savings bank accounts by up to 1.25 per cent in view of competition following freeing of such rates by RBI.

“On an average...we are expecting 100-125 basis points increase in the funding cost of savings bank,” said Mr Pratip Chaudhuri, Chairman, SBI. Earlier this week, the Reserve Bank had deregulated the savings bank deposit interest rate with immediate effect giving banks freedom to determine their own rates.

Immediately after the announcement, private sector Yes Bank, a relatively small player, had raised savings rate by 200 basis points to 6 per cent.

Banks now offers 4 per cent on savings bank accounts.

He, however, said, “We would not be the first mover,” adding that SBI will not be too worried as it has 34 per cent of its total deposits in saving bank accounts on account of is wide distribution network. “We will have to see how other banks play it out and then we will take appropriate policy action,” he added.

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IDBI Bank to repay bonds on Dec 16

IDBI Bank on Friday announced the book closure for repayment of the 2011 bonds, maturing on December 16, on November 16.

The principal amount of the 2011 bond series is repayable at par on December 16. Accordingly, interest on these bonds will accrue up to December 15. Book closure of the 61st series will be effective from November 16,” the lender said in a statement here.

Investors holding the bonds in the form of promissory notes may tender the same at their respective branch where they were last enfaced by November 21 to facilitate repayment in time, the bank said.

Those bondholders having investment in the form of entry—in—account with IDBI Bank should furnish a receipt for the principal amount along with the relevant certificate of holding to obtain repayment.

In case the bonds are held in demat form, bondholders need not furnish any document, the statement added.

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Oriental Bank of Commerce plans to open 79 branches thru restructuring exercise

The branch network re-structuring exercise, which Oriental Bank of Commerce started last year, has given it a scope to open 79 branches across India, according to a top official of the bank.

As part of the exercise, the bank had last year hoped to club a redundant branch with other branches.

“We use those licences to areas where we don't exist. By doing that, we have been able to get some business out of those areas, which we were not able to access through our earlier set-up,” Mr Nagesh Pydah, Chairman and Managing Director, Oriental Bank of Commerce, told Business Line.

One such branch was opened at Malleswaram in Bangalore. In an area where practically most banks have already located their branches, he hoped to “enjoy the last mover advantage”, and create a differentiation through customer service.

On a pan-India basis, the bank is looking at “opening about 79 branches only out of the re-jig process. It's a good opportunity for us. In some places, the results have been remarkable,” he said.

The bank targets a business of Rs 30 crore-35 crore a year from these branches.

“If they are able to record business of Rs 25 crore in the first year, it is good enough for us,” explained Mr Pydah.

This year, Oriental Bank of Commerce has about 96 pending licences, which he said would take the total branch network of the bank to over 1,800 branches. The RBI is very clear that average balance of Rs 1 lakh would be one rate, and above that should be non-discriminatory rates.

The idea is to encourage innovation and competition, and that savings bank deposit should also be a good source of liability management for banks and also reward the savings bank customers adequately.

I don't expect each to be significantly high.

Before savings bank rates touched the current levels, they were at about 6 per cent.

I have a feeling that they may again slowly crawl up to 6 per cent.

An exercise has to be done on the composition of savings bank account. We find that close to 25 per cent of our deposits are in the sub-Rs 1 lakh category and 75 per cent in the over Rs 1 lakh category.

The stickiness of the portfolio is about 65-70 per cent, which is very good.

Today people who are maintaining savings bank account would stand to gain.

For a bank of my size, we expect that additional cost would be about Rs 28 crore annually.

Today, quite a lot of services are offered free to customers.

There will be a system that will regulate the free services.

Earlier, the cost of the free services was capable of being absorbed because of the low interest rate that we were paying.

Now, we have to be selective in offering the services.

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Dhanlaxmi Bank shrugs off charges of misdemeanour

Dhanlaxmi Bank has dismissed accusations of financial irregularities as ‘motivated attempts' by one of the employee associations de-recognised by the bank.

The association had accused that the bank has borrowed high-cost funds in the form of Certificate of Deposits (CoD) of about Rs 2,500 crore, among others.

An official spokesman quoted the bank management as saying that in fact the most the bank is allowed to raise through the CoD route is Rs 1,500 crore.

‘WRONG ON FACTS'

There are multiple examples of such falsification of accounts by the association, the management said.

The Indian banking system in general and the private sector banks in particular, including Dhanlaxmi Bank, are subject to healthy supervision in the form of regulations from the Reserve Bank of India.

In fact, the apex bank in May 2011 had conducted and completed the annual financial inspection of the bank's overall performance.

EXTENSION TO MD

Moreover, the Central bank had only last week granted the Mr Amitabh Chaturvedi a second term of three years as Managing Director and Chief Executive Officer.

The re-appointment is an affirmation of the fact that the audits and inspection into the bank's books have found nothing amiss, the management claimed.

In the past three years, the bank has witnessed good growth and returned healthy financials.

CUSTOMER SUPPORT

This bears testimony to the support and the confidence the bank enjoys from its customers, regulators and other stakeholders.

The campaign therefore seems to be the handiwork of some misguided employees and some rank outsiders who have no stake in the well-being of the institution.

“This is an illegal and unscrupulous tactics to defame the franchise of the bank. We strongly take exception to the tactics of this association which has started an illegal agitation outside the bank headquarters,” the management said.

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Muthoot Finance Q2 net zooms 88%

Gold loan company Muthoot Finance Ltd has registered a growth of 88 per cent in its net profit to Rs 215 crore for the second quarter ended September 30 against Rs 115 crore in the corresponding period of the previous fiscal.

The figures for six months ended September 30 stood at Rs 406 crore against Rs 199 crore in the year-ago period.

The total income for Q2 FY12 stood at Rs 1,105 crore against Rs 529 crore in Q2 FY11, a growth of 109 per cent. The retail loan assets under management increased by Rs 2,991crore to Rs 20,940 crore.

Mr George Alexander Muthoot, Managing Director, Muthoot Finance Ltd, said that there has been increase in our cost of borrowings on account of inflation-driven hikes in interest rates and the impact of loss of priority sector funding status.

We were forced to pass on this increase to our borrowers. In spite of this we are witnessing good gold loan demand, as borrowers find this mode convenient, quick and transparent.

Muthoot Capital

Muthoot Capital Services Ltd has registered a 34.87 per cent growth in its net profit touching Rs 338.14 lakh in the second quarter, against Rs 250.71 lakh in the second quarter last year.

The total income increased to Rs 1,475.36 lakh from Rs 899.02 lakh, registering a growth of 64.11 per cent. Interest expenditure increased from Rs 257.35 lakh to Rs 453.32 lakh, an increase of 76.15 per cent.

Mr Thomas George Muthoot, Managing Director, Muthoot Capital Services Ltd, said the company has already established itself as one of the leading players in automobile financing in Kerala.

It has also established its presence in the other South Indian States and is in the process of expanding business there, he added.

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High savings deposit rate likely to dent banks' profits

Fears of banks’ earnings plummeting in a deregulated savings deposit rate regime appear to have gripped investors, with most analysts hinting that profitability may come under pressure due to higher cost of funds amid slowing growth in advances.

“The rise in the savings deposit rate will increase pressures on banks’ profitability,” Suman Chowdhury, head of Crisil Ratings, said.

The rating agency expects the lenders’ return on asset ratio to shrink by five basis points (bps) because of higher savings deposit rate, even if banks increase their transaction and service charges on such deposits.

The Reserve Bank of India yesterday allowed banks to decide on their own the interest rate on savings deposits. The central bank, however, asked banks to pay a uniform rate on savings deposits up to Rs 100,000 irrespective of the amount in the account.

Lenders may offer differential rates on deposits above Rs 100,000, but there should not be any discrimination between customers on interest rates for similar deposit amounts. Banks have been paying four per cent interest on savings deposits.

The move was not well received by investors, as bank shares plunged yesterday in an otherwise strong broader market. The 12-share Bank Nifty closed 1.41 per cent down, though the benchmark 50-share S&P CNX Nifty ended 1.83 per cent higher.

“We think this is a positive move for the economy, even though it is a negative for banks, as it will increase their funding costs,” Tushar Poddar and Prakriti Shukla, economists with Goldman Sachs, said in a note.

Economists and analysts fear in the short term, the deregulation may lead to a rate war, with small and medium-sized banks looking to strengthen their retail deposit bases will hike their savings deposit rates aggressively.

It took no time for YES Bank, the youngest lender in the country, to increase its savings deposit rate by 200 bps to six per cent. The private lender’s share of low-cost deposit was only 11 per cent at the end of September.

Other lenders such as IDBI Bank, Canara Bank, Bank of India, Federal Bank and Union Bank of India that have relatively lower share of the savings deposit base, are expected to raise rates soon.

“This change (deregulation of the savings deposit rate) is likely to result in an upward pressure on the deposit and interest rate trajectory in the near term, given the ongoing tightness in liquidity,” Siddhartha Sanyal, chief economist of Barclays Capital in India, said.

Industry experts said some bank stocks that were enjoying a premium over their peers because of strong retail deposit base, may be re-rated.

SMC Global Securities estimates if the savings deposit rate rises by 100 bps, banks profitability could be reduced by 12.9 per cent. “In the short term, it can be said the deregulation of interest rates on savings accounts is a real game-changer,” Jagannadham Thunuguntla, strategist and head of research at SMC, said.

Source: Business Standard

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A 'rational' look at bank pay soon as RBI readies guidelines on banking sector remuneration

MUMBAI: RBI is readying a set of guidelines on the banking sector remuneration to ensure that private and foreign lenders in India do not go overboard in their attempt to rope in high-profile bankers and denting their bottomlines.

The banking regulator, which has in the past expressed concerns about fancy compensation packages of private and foreign bank chiefs, is working on the guidelines of Financial Stability Board ( FSB) and Basel Committee on Banking Supervision (BCBS) to draft its principles for banking sector remuneration.

Compensation of bank chiefs has irked RBI for some time. In July this year, it warned that employees were too often rewarded for increasing short-term profits without adequate recognition of risks their activities posed to their organisations. "These perverse incentives amplified excessive risk taking that severely threatened the global financial system,' it said in its July policy review.

The central bank's views have received some broader support.

"Some rationality has to be brought in when it comes to compensation principles. The compensation of the chief executive officer of a bank and senior management should be commensurate to the size, scale aand complexity of their operations," said RH Patil, chairman, Clearing Corp of India and an independent director on the board of Axis Bank.

Earlier, RBI had turned down Kerala-based Federal Bank's proposal to offer a salary of 1 crore and stock options to recruit Bala Swaminathan, a top corporate banker with Standard Chartered Bank. Swaminathan subsequently joined Merrill Lynch.

In the past, the central bank had also raised concern on the compensation package offered to Axis Bank chief Shikha Sharma and bonuses Bank of America Merrill Lynch offered its India country head Kaku Nakhate.

"At times the compensation and bonuses given to treasury heads of foreign and private sector banks are higher than the salary of the banks' CEO," said a foreign bank chief.

Grow your own gnome

Source: EconomicTimes

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Banks need to be recapitalised to meet Basel III norms: RBI

The Reserve Bank of India (RBI) today said banks would have to be recapitalised to help them achieve Basel III capital adequacy norms and would issue a detailed guideline on the matter by December-end.

"While at present, at the system level, banks in India are adequately capitalised, and transition to Basel III is expected to be smooth, careful capital planning would be required by banks in view of substantially higher equity requirement in capital," the RBI said in its policy review.

The draft guidelines for banks for implementing the Basel III framework would be issued by December end.

Basel III is the new international regulatory framework designed to correct the deficiencies in regulation that led to the global financial crisis of 2008. It seeks higher capital adequacy ratio to meet any financial exigency.

As per the norms, banks are required to shore up their capital adequacy ratios and maintain equity capital at 7% of risk-weighted assets.

"The draft guidelines would form the basis of preliminary estimation of capital requirements over the implementation phase of Basel-III," the RBI said.

There are 26 public sector banks, including SBI and its subsidiaries, at present.

Implementation of the Basel III norms is scheduled to commence from January 1, 2013, and has to be completed by January 1, 2019.

Although banks in India have higher capital adequacy ratio than the minimum total capital requirement under Basel III, their Tier-I or equity capital needs to be shored up to meet the norm.

Source: Business Standard

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Lending, deposit rates unlikely to go up immediately, say bankers

Borrowers may get a respite from rising rates, but depositors may be in for some disappointment. Banks are unlikely to increase either lending or deposit rates immediately, despite the Reserve Bank of India raising key short-term rates by 25 basis points.

Even savings bank deposit holders hoping to see an increase in interest rates following the de-regulation in SB rates may have to wait a while, as bankers don't expect interest rates to go up immediately. However, transaction costs could go up as a result of the de-regulation, bankers added.

The slowdown in credit demand and the good inflow into retail deposits leading to a comfortable liquidity situation have taken the pressure off banks to offer higher deposit rates to attract more funds, said bankers, speaking to reporters after the meeting with the RBI governor, on Tuesday.

Lending, deposit rates

Mr Pratip Chaudhuri, Chairman, State Bank of India, said that banks are unlikely to raise lending rates immediately. “Our compulsion to raise the rates on the lending side would happen only if deposit costs go up. As of today, all banks are seeing good inflow of retail deposits and liquidity is plentiful. And credit demand is not very strong. So, if deposit costs don't go up, there is no immediate need to raise lending rates.''

The loan growth so far has been funded by the normal inflow in retail deposits, he added. “We will have to increase lending rates only if loan growth picks up in the busy season. In the current situation, most of the banks, at least SBI, have a lot of liquidity. In fact, we are thinking of reducing liquidity,” Mr Chaudhuri said.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said that with the rise in repo rates and the de-regulation in SB rates there is an indication of an upwards movement in interest rates. But since the RBI's stance also indicates that further hikes may not happen and a distinct possibility of inflation coming down to 7 per cent, banks will have to weigh all possibilities before hiking lending rates.

“The RBI's policy stance indicates that going forward pressure on inflation and consequently, on interest rate may come down. Therefore, the decision on hiking lending rates has to be taken after considering the pressure on margins that corporates face, especially the small and medium enterprises. So we need to debate this and take a view,” he said.

SB de-regulation

With regard to the SB rate de-regulation, Mr Chaudhuri said most banks are not in a hurry to hike the interest rates on S/B accounts as the liquidity is comfortable. So they would not be very keen or desperate to raise the rates and lose the cost advantage. In any case, depositors looking for higher yields have moved into fixed deposits or into liquid mutual funds.

“Large value SB depositors are moving into the sweep accounts. So we do not think customers are using SB only for the yield. They are using SB for convenience. Unless there are other competing pressures, as of now, the SB rate would continue where it is, at 4 per cent,'' he said.

SB accounts are used by depositors largely as a transaction vehicle and not to earn interest, said Mr Aditya Puri, Managing Director, HDFC Bank. Customers will also consider the advantage between higher return and the service the bank offers before switching from one bank to another for higher SB rates, he added.

“If SB rates go up one per cent, then the difference you (depositor) would gain in the SB account, which has, say, Rs 10,000, is Rs 100 for a year. It is Rs 8 per month. How much are you willing to sacrifice for the service,'' he said.

If SB rates do go up by 100 basis points or one per cent, then banks' margins would be impacted by 25 basis points at the most, as most banks have a 50 per cent share of current accounts in their CASA accounts (current account, savings accounts). The impact on net earnings of banks could be 10 basis points, Mr Puri added.

Banks with smaller savings deposits to benefit

Mr Uday Kotak, Vice-Chairman and Managing Director, Kotak Mahindra Bank, said the de-regulation in SB rates would lead to an increase in savings bank deposit rates. “Yes, it will lead to increase in savings deposit rates. I think better savings rate for customers. But it is too early to say by how much,” he said.

“It will benefit banks with smaller savings deposits. For us savings deposit is less than 10 per cent of our total liabilities, so we have greater flexibility,” he added.

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SB account rate deregulation to push up banks' interest cost: Vijaya Bank CMD

Bangalore, Oct 25: Mr H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank, told that the rate hike today was on expected lines, which the market has already factored in.

"It is too premature to say that whether we will transmit to customers and if at all, when as the RBI has asked banks to come out new product schemes on the savings bank front. Savings deregulation will result in some increase in interest cost to banks. So it is a different situation from the last RBI rate hike, and in my opinion, transmission might be required not unless interest cost on savings bank is compensated by pricing of transactions in the savings bank services like remittances etc."

Credit growth is already slowing down in the banking industry, and new sanctions also have substantially declined, he said. "However, many banks have announced festival offers which will ensure that the interest rate is low over the next two-three months. Because of festival rates, no slowdown is expected in the immediate future."

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State Bank of Mysore may hike base rate

Bangalore, Oct. 25: Mr Dilip Mavinkurve, Managing Director, State Bank of Mysore, says: “With cost of funds inching up now for State Bank of Mysore, we could look at increasing our base rate now. When the RBI increased the rates in September, we did not pass it on to the customer. But now, we could hike the interest rates, and our ALCO would meet after the Diwali holiday to decide on this. It would most likely be a 25 basis points hike, as we would look at transmitting the rate hike that the RBI is expecting us to do.

Though inflation has not really been curbed as expected, the base rate effect on inflation is expected to come into force in November or December, as base rates had started going up in November/December last year. We expect a marginal slowdown in inflation in November or December, and then it is expected to come down further by March 2012.’’

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RBI eases branch authorisation policy

Mumbai, Oct 25: The RBI has today relaxed the branch authorisation policy for banks planning to expand in Tier 2 centres. Tier 2 centes are those towns with a population of between 50,000 and 99,999 as per Census 2001.

The RBI feels that branch expansion in Tier 2 centres has not taken place at the desired pace. Therefore, to provide enhanced banking services in Tier 2 centres, the RBI proposes to permit domestic scheduled commercial banks (other than regional rural banks (RRBs) to open branches in Tier 2 centres without taking prior permission in each case, subject to reporting.

The opening of branches by banks (other than RRBs) in Tier 1 centres (centres with population of 1,00,000 and above as per Census 2001) will continue to require prior permission of the Reserve Bank. While issuing such authorisation, the RBI will continue to factor in, among others, whether at least 25 per cent of the total number of branches to be opened during a year are proposed to be opened in unbanked rural centres.

Detailed guidelines in this regard will be issued separately.

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RBI frees savings bank interest rate

Mumbai: Ending the era of controlled interest rate regime, the Reserve Bank of India (RBI) today freed savings bank deposit rates, a step which bankers said could fetch better returns for depositors as competition will intensify.

"...banks are free to determine their savings bank deposit interest rate," the Reserve Bank of India (RBI) said, adding the change will come into force with immediate effect.

While freeing interest rates on savings bank accounts, the RBI has said that banks will have to offer a uniform interest rate on deposits of up to Rs 1 lakh.

For savings bank deposits of over Rs 1 lakh, banks would be free to provide differential interest rates.

Till now, banks were mandated to give 4 per cent interest rates on such deposits.

"The deregulation will increase cost of funds for the banks in general. Most of the banks would be taking a call on increasing rate on savings bank deposit in the next few days," Oriental Bank of Commerce Executive Director S C Sinha said.

By freeing the savings bank deposit rates, RBI has demolished the last bastion of the regulated interest rate regime. As part of the economic reforms programme, RBI had earlier given freedom to banks to determine fixed deposit rates, depending on their asset-liability positions.

"There should not be any discrimination from customer to customer on interest rates for similar amount of deposit," RBI said further.

About 20-25 per cent of the total bank deposits are parked in savings bank accounts. The Reserve Bank would be separately issuing operational guidelines on interest rate on savings bank accounts.

Earlier in April, the RBI had floated a discussion paper on 'Deregulation of Savings Bank Deposit Interest Rate'.

The discussion paper had spelt out the pros and cons of deregulating interest rate on the savings bank deposit.

The discussion paper had evoked wide-ranging responses from a cross-section of stakeholders. There were suggestions for and against deregulation.

"On balance, it is felt that the time is appropriate to move forward and complete the process of deregulation ...." RBI said.

Source: Financial Express

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Kotak Mahindra Q2 net up 18.8%

Mumbai: Private sector lender Kotak Mahindra Bank has reported an 18.8 per cent jump in net profit to Rs 432.58 crore for the second quarter ended September 30, 2011.

The bank had posted a net profit of Rs 364.11 crore in the July-September quarter of 2010.

Total income of the bank during the quarter fell to Rs 2,740.84 crore from Rs 2,947.21 crore, Kotak Mahindra said in a filing to the BSE.

During the first six months of the current fiscal, the bank's net profit rose by 22.68 per cent to Rs 848.68 crore from Rs 691.80 crore in the same period last fiscal, it said.

The total income of the bank during the April-September period rose to Rs 5,450.48 crore from Rs 5,275.88 crore in the same period of 2010, it added.

Source: Financial Express

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RBI says prepayment penalty on home loans to go in a month

Mumbai: Borrowers wanting to prepay home loans can look forward to some relief as RBI today said it will hopefully scrap the prepayment penalty within a month.

"We will pursue with the banks to do this (ending prepayment penalties) as soon as possible. But should the system require some time to adjust to this, we are prepared to give them," RBI Governor Subbarao told reporters at the customary post-policy press conference here.

The quantum of prepayment penalty on floating rate home loans varies from 2 per cent to a high of 6 per cent. Public sector banks by and large do not levy any prepayment charges when the amount is paid by borrowers from their own sources.

The RBI policy document released earlier in the morning said, "It is proposed to implement the recommendations of the Damodaran Committee, on which a broad consensus has emerged, as also the action points which were identified by the IBA (Indian Banks' Association) and BCSBI (Banking Codes and Standards Board of India) in the last Banking Ombudsmen conference."

Ban on prepayment penalty on home loans with flexible interest rate is one among the 10 points decided during the conference held in August.

"We said we will not issue any instructions, but asked the IBA to implement the ten-point formula. The IBA is looking into it. (Deputy Governor K C) Chakrabarty will meet the IBA again, with the bank Chairmen, and hopefully in the next one month we will implement (it)," Subbarao said.

The National Housing Bank (NHB) has already directed all housing finance companies to desist from imposing a prepayment penalty on home loan borrowers.

Meanwhile, State Bank Chairman Pratip Chaudhuri said he has already done away with such penalty taking the Ombudsman's suggestions as a prudential practice.

Country the second biggest lender after SBI, ICICI Bank, sounded non-committal on the issue. Its Chief Executive and Managing Director Chanda Kochhar evaded a direct answer when asked if her bank will follow suit. She merely said, "It is not the end of the road."

Source: Financial Express

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Home loans of up to Rs 15 lakh may get 1% interest subsidy

To give a boost to the housing sector, the government may increase tomorrow the home loan cap for availing 1% interest subsidy to Rs 15 lakh from existing Rs 10 lakh.

The government may also raise the ceiling on cost of house to Rs 25 lakh from Rs 20 lakh to avail this benefit.

The Union Cabinet in its meeting tomorrow may take decision on the matter, sources said.

Under a scheme introduced in 2009, home loan borrowers now get 1% interest subsidy on bank loans of up to Rs 10 lakh, provided the cost of the house does not exceed Rs 20 lakh.

Finance Minister Pranab Mukherjee in his Budget Speech this year had announced liberalisation of the existing scheme of 1% interest subvention on housing loans of up to Rs 15 lakh, where housing cost is not exceeding Rs 25 lakh.

"To further stimulate the growth in housing sector, I am liberalising the existing scheme of interest subvention on 1% on housing loans by extending housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh, from the present limit of Rs 10 lakh and 20 lakh respectively," Mukherjee had said.

The Cabinet is also likely to approve increase in India's contribution to International Monetary Fund (IMF), that would provide higher voting rights to the country.

The increase in contribution is part of ongoing quota reforms aimed at providing greater say to the emerging economies.

Source: Business Standard

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RBI mulls relaxing bank branch expansion norms for opening branches in Tier 2 centres

MUMBAI: RBI on Tuesday proposed relaxing branch expansion rules allowing banks to open branches in Tier 2 centres without taking prior permission from the Reserve Bank.

Branch expansion in Tier 2 centres-with population between 50,000 to 99,999 as per Census 2001-have not taken place at the "desired pace", the RBI said in its second quarter monetary policy review.

The RBI raised interest rates for the 13th time since early 2010 but gave a strong signal it may be finished with its current tightening cycle as growth slows and it expects high inflation to ease starting in December.

Source: EconomicTimes

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SBI not in a hurry to raise rates now: Chairman Pratip Chaudhuri

MUMBAI: State Bank of India, the country's top lender, is not in a hurry to raise interest rates now, its Chairman Pratip Chaudhuri said on Tuesday.

"We don't see pressure now. Banks are comfortable with the liquidity now. Banks will not be desparate to raise rates," Chaudhuri said at a post policy bankers' meeting with media.

Earlier in the day, RBI raised interest rates for the 13th time since early 2010 to battle stubbornly high inflation but signalled it may end the tightening cycle that has put it at odds with peers more concerned about weak global growth.

Source: EconomicTimes

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RBI ups rates 25 bps, says no more hikes

Mumbai: The Reserve Bank of India (RBI) raised interest rates on Tuesday for the 13th time since early 2010 but gave a strong signal it may be finished with its current tightening cycle as India's economic growth slows and it expects high inflation to ease starting in December.

The RBI raised its policy lending rate, the repo rate, by 25 basis points to 8.5 percent.

It also revised down its growth forecast for the current fiscal year ending in March to 7.6 percent from 8 percent with a downward bias earlier, while sticking with its forecast that headline wholesale price index inflation (WPI) will ease to 7 percent at the end of the fiscal year.

In a major policy decision, RBI Governor Duvvuri Subbarao also deregulated savings bank deposit rates with immediate effect.

Earlier in May, RBI had raised the savings deposit rates to 4 per cent from 3.5 per cent.

Giving banks the freedom to fix the savings accounts interest rate, RBI said banks will have to offer uniform rate on deposits of up to Rs one lakh. On higher amounts, they can give differential rates to depositors.

The Reserve Bank has also proposed to notify banning prepayment penalty on floating rate home loans, as recommended by the Banking Ombudsman recently.

As regards the micro finance sector, RBI has given the go-ahead for creating a new category called NBFC-MFIs (NBFC-Micro finance Institutions).

"Changing the policy stance when inflation is still far above the tolerance level entails risks to the credibility of the Reserve Bank's commitment to low and stable inflation," the policy document said, even as it admits that growth momentum has slowed down.

The likelihood of a rate move at its December review is relatively low, the central bank said in a statement.

Beyond that, if the inflation trajectory conforms to projections, further rate hikes may not be warranted, it said.

Investors took comfort in the prospect that India's steady upward rise in interest rates may be at an end.

The benchmark 10-year bond yield fell as much as 7 basis points to 8.69 percent after the policy statement, while the 5-year swap rate fell 10 bps to 8.30 percent. The main BSE index extended gains to as much as 1.1 percent before dropping.

Clear direction from the RBI is now in place, that they are not looking at any more increase, Indranil Pan, chief economist at Kotak Mahindra Bank.

The RBI under Governor Duvvuri Subbarao has been one of the most aggressive central banks anywhere and has continued to take its fight to inflation even as its global counterparts have refocused monetary policy towards promoting growth.

Subbarao maintained his hawkish view on Tuesday.

While the impact of past monetary actions is still unfolding, it is necessary to persist with the anti-inflationary stance, he said in the policy statement.

The central bank warned that medium term inflationary risks in Asia's third-largest economy remain high due to structural imbalances in agriculture, infrastructure bottlenecks, and India's fiscal deficit.

In the absence of progress on these, over the medium term, the monetary policy stance will have to take into account the risks of inflation surging in response to even a moderate growth recovery, it said.

Despite continued policy tightening, inflation in India remains sticky, with the headline wholesale price index up 9.72 percent annually through September, its 10th straight month above 9 percent and highest among the BRIC grouping of economies that includes Brazil, Russia and China.

Inflation in India is driven in large part by high food and global commodity prices as well as fiscal policies that spur demand, all of which is beyond the scope of monetary policy, prompting some critics to urge the RBI to relent in its tightening.

Meanwhile, India's economy grew at 7.7 percent in the June quarter, its weakest in six quarters, while industrial output growth was below 5 percent in July and August.

In last week's poll, 17 economists had expected the central bank to raise rates on Tuesday but 13 had expected it to pause, with most respondents expecting rates to remain unchanged after Tuesday for the remainder of the fiscal year through March.

It has also permitted commercial banks to open branches in tier II cities without prior approval of RBI.

COMMENTARY:

ASHUTOSH DATAR, ECONOMIST, IIFL, MUMBAI:

It looks like we have now reached peak of the interest rate cycle and once inflation starts decelerating, we can expect the policy stance to shift towards addressing growth concerns.

If things pan out as detailed by the RBI, we can expect a rate cut somewhere in the June quarter.

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:

I think interest rates have peaked now. Transmission is not happening, credit demand has dried up. So by raising interest rates, they are not going to achieve anything.

If RBI had raised earlier in September by 50 basis points then it would have more effective in ensuring policy transmission.

ANUBHUTI SAHAY, ECONOMIST, STANDARD CHARTERED BANK, MUMBAI:

While the repo rate increase is in-line with expectation the statement is dovish as the central bank has put a relatively low probability to another rate action in December (provided inflation does not deviate from their expected trajectory).

Also the FY12 GDP growth projection has been revised downward from 8.0 percent to 7.6 percent. While RBI has still stated containing inflation and anchoring inflationary expectations as important, the focus is now shifting to stimulating investment/growth. Thus after a period of pause in interest rate, reversal in the interest rate cycle in 2012 will not surprise us.

SHAKTI SATAPATHY, ECONOMIST, A.K. CAPITAL, MUMBAI:

The current rate hike is justified on account of inflation risk still persistent in the economy, coupled with depreciating rupee and fiscal slippage. Further the savings bank deregulation may prompt a rise in deposit growth leading to a shift from consumption demand towards investment demand in the mid to long term.

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE:

Onshore financial markets are rejoicing clear indications by the RBI that the end to the rate tightening cycle is in sight, as base effects prod the WPI prints lower at the turn of the year. Prima facie, post-policy comments still carry hawkish hues in our opinion as the central bank cites risks to credibility on any change in policy trajectory when inflation is still high.

It is patently clear that RBI gives more weightage to domestic economic conditions and in light of today's comments, odds for a rate hike in December still exists, especially if rupee depreciates further -- which in effect could unwind RBI's anti-inflationary stance. Deregulating savings is a step in the right direction and should benefit end-consumers.

INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI:

Clear direction from the RBI is now in place, that they are not looking at any more increase.

A 25 basis points hike and a clear signal of a pause is a more certain policy, definitely more dovish with a clear direction on inflation. Unless inflation surprises for some reason or the other on the higher side and the dynamics on inflation changes, we are likely to see an extended pause for a minimum of 9 to 12 months.

ARUN SINGH, SENIOR ECONOMIST, DUN & BRADSTREET, MUMBAI:

Inflation has taken a bad shape for the economy. And if the central bank would have paused right now, there could have been a bubble formation somewhere in the economy.

The RBI knows this and, therefore, taming inflation will remain its top priority. Hence, another 25 basis point rate hike in December should not be a surprise.

MARKET REACTION

* India's 10-year benchmark bond yield fell 6 basis points to 8.70 percent immediately after the central bank's policy decision.

* The benchmark 5-year swap rate fell 7 basis points to 7.33 percent, while the 1-year swap rate dropped 2 bps to 8.17 percent.

* The main share index extended its rise to 1 percent, before turning negative.

* The partially convertible rupee was at 49.7000 per dollar from 49.6950.

BACKGROUND:

- Annual inflation barely budged in September, staying above 9 percent for the tenth straight month. The wholesale price index rose 9.72 percent, on the back of a jump in fuel and power prices.

- The food price index rose 10.60 percent and the fuel price index climbed 15.17 percent in the year to Oct. 8, compared with 9.32 percent and 15.10 percent, respectively, in the previous week.

- Industrial output grew 4.1 percent in August, over the previous year, lagging a poll forecast for 5 percent growth and was only a slight improvement on the revised 3.84 percent growth clocked in July.

- Manufacturing growth nearly stalled in September, turning in its weakest showing since March 2009 on slowing output and order growth. The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 from 52.6.

- The service sector contracted in September for the first time in more than two years, with the seasonally adjusted HSBC Markit Business Activity Index , based on a survey of around 400 firms, plunging to 49.8.

- An industry body cut its sales growth target for cars in this fiscal year to 2-4 percent, a sharp drop from the 30 percent growth clocked in the previous year.

- Gross domestic product slipped to 7.7 percent in the three months through June, its weakest pace in six quarters.

INDUSTRY VIEW

Following are views of industry officials to the review:

H.M. BHARUKA, MANAGING DIRECTOR, KANSAI NEROLAC

We are confident that no further rate hikes will take place but worries about growth remain. The industry has been expecting a slowdown in the economy but RBI was not acknowledging it. Finally they have acknowledged there is a slowdown by revising down the growth forecast.

For the paints industry, the constant rate increases have severely affected demand as they have impacted the auto and housing industry. So we are hoping, if the rate rise cycle comes to an end with this, then demand can show signs of revival in a minimum of 6-10 months.

ANIL GUPTA, CHAIRMAN AND MANAGING DIRECTOR, KEI INDUSTRIES

It's a difficult scenario, our margins are getting hurt because of higher interest costs. On the other hand, our consumers like real estate firms are in a tight spot too. This is hurting demand for our products. Also, containing inflation by raising interest rates seems to be having no impact as the inflation is largely because of supply side issues. 

D.S. KULKARNI, CMD, DS KULKARNI DEVELOPERS

Every industry runs on cashflows, and by raising rates, the RBI is curbing this flow. Thankfully, the spending power of Indians is not dead like that of the people in the U.S. and the banks are still strong. But this development will slow GDP growth ... and by no means curb the rising inflation.

VENU SRINIVASAN, CHAIRMAN, TVS MOTOR CO LTD

The positive side is the language used by the RBI, indicating they will look at moderating. I think the government and the Reserve Bank are getting concerned that we can get into a period of high inflation and low growth. Still, at this point in time they could have put off the increase in my view, because the economy is likely to grow just above 7 percent.

The two wheeler industry has grown by 19 percent in the first six months and will probably grow 12-14 percent in the next six months. We are likely to end up with a 15 percent growth this year.

--- (Earlier comments)

N. SHRIDHAR, GROUP DIRECTOR, BUSINESS STRATEGY & FINANCE, DB REALTY

The corporate margins would be under pressure given the increase in interest rates leading to a compression on spends in capex. For home buyers, this would result in an increase in outflow of EMI (equated monthly installments), which will lead to a compression in demand in new home purchases. 

SUNIL SIKKA, PRESIDENT, HAVELLS INDIA

So far, they have not been able to check inflation that remains unabated. They must look at some other means instead of just keep raising the repo rate. We all know it's a demand dampener. I hope it is the last one.

PABAN K KATAKY, DIRECTOR, EXIDE INDUSTRIES

The industry is already reeling under high interest rates. Things will get even worse after this. Funding costs will rise as interest rates will have a spiralling effect on everything. In such a situation, the demand becomes lower, so your production goes down and costs go up. There will be pressure on profitability. Things are very difficult for the industry.

The government seems to be thinking that only by increasing the rates they can bring down the inflation.

B. HARIHARAN, GROUP FINANCE DIRECTOR, BALLARPUR INDUSTRIES

This might be the last rate hike. But corporates are unlikely to take any new investment decisions at these levels. They would rather wait for the rates to soften.

PRAVIN MALKANI, MANAGING DIRECTOR, PATEL REALTY INDIA, A UNIT OF PATEL ENGINEERING

This is definitely going to impact the sector. They are choking out whatever breath is left in the market. We don't see the logic behind the hike. The direct impact of the hike would be on the EMI (equated monthly installments) of buyers, so new home buyers would hesitate to enter the market. This could likely lead to a dip in sales.

Source: Financial Express

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