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Saturday, November 12, 2011

J&K Bank signs MoU with ONICRA for MSME rating

Jammu, Nov 12: J&K Bank on Saturday signed a memorandum of understanding with ONICRA Credit Rating Agency for rating of micro, small and medium enterprises (MSME) which are either prospective or existing customers of the bank.

With a purpose to support the MSME sector, the pact was signed by Mr O P Sharma, President and Zonal Head, Jammu on behalf of J&K Bank and Mr Rajiv Soni, Business Group Head (SME) on behalf of ONICRA.

After signing the pact Mr O P Sharma said, “Rating through the credit agency will act as an additional input for the bank in evaluating and swift sanctioning of credit needs of the units.”

It can further provide an opportunity to units to enhance their organisational strength in terms of finance, marketing, production, corporate governance and operations by becoming aware about their strengths and weaknesses, he added.
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Small savings rates hiked; PPF limit raised to Rs 1 lakh

Interest rates on small savings have been hiked in the range of 4 per cent up to 8.6 per cent. The investment limit for Public Provident Fund (PPF) has also been increased by Rs 30,000 to Rs 1 lakh, as also the interest rate at 8.6 per cent from 8 per cent at present.

Announcing the new norms on Friday, the Finance Ministry said the new rates will be applicable from the date of notification which will be announced soon. From next year, the rates would be notified before April 1, it added.

The small saving schemes have been restructured on the basis of the recommendations of the Shyamala Gopinath Committee, which submitted its report in June.

The rate of interest on small savings schemes will be aligned with Government Securities rates of similar maturity, with a spread of 25 basis points with two exceptions. The spread on 10-year National Savings Certificates (new instrument) will be 50 basis points and on Senior Citizens Savings Scheme 100 basis points.

The maturity period for the post office Monthly Income Scheme (MIS) and National Savings Certificate (NSC) has been reduced to five years from six years at present.


Although this is good news for small savers, collection agents are disappointed. According to an office memorandum issued by the Finance Ministry, payment of commission on PPF at the rate of 1 per cent and Senior Citizens Savings Scheme at the rate of 0.5 per cent will be discontinued.

Agency commission under all other schemes (except Mahila Pradhan Kshetriya Bachat Yojana) will be reduced by half, from the existing 1 per cent.
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RBI cancels Solapur Nagari co-op bank licence, fines 4 others

The Reserve Bank on Friday cancelled the licence of Solapur-based Nagari Audyogik Sahakari Bank Niyamit due to financial insolvency.

“In view of the fact that Solapur Nagari Audyogik Sahakari Bank Niyamit had ceased to be solvent, all efforts to revive it in close consultation with the government of Maharashtra had failed and the depositors were being inconvenienced by continued uncertainty, RBI delivered the order cancelling its licence to the bank,” the apex bank said in a statement.

It said that the Registrar of Cooperative Societies, Maharashtra, has also been requested to issue an order for winding up the bank and appoint a liquidator for the bank.

“It may be highlighted that on liquidation, every depositor is entitled to repayment of his/her deposits up to a monetary ceiling of Rs 1 lakh from the Deposit Insurance and Credit Guarantee Corporation under usual terms and conditions,” the RBI said.

Meanwhile, the central bank has imposed penalties between Rs 1 lakh and Rs 5 lakh on four Gujarat-based cooperative sector lenders for violation of various guideline including anti-money laundering norms and customer identification rules.

The four banks are — Municipal Cooperative Bank Ahmedabad, Ahmedabad Mercantile Cooperative Bank, Surat People’s Cooperative Bank and Shreenath Cooperative Bank, the RBI said in separate statements.
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SKS Microfinance likely to write off Rs 300 cr more

SKS Microfinance Ltd is likely to write off about Rs 300 crore in the next two quarters due to the Andhra Pradesh Microfinance Act.

“The residual exposure at risk on Andhra Pradesh works out to Rs 337 crore after adjusting deferred tax assets and accounting for tax-breaks at future write-offs,” the company informed investors on Wednesday.

The Hyderabad-based microfinance institution had already written off Rs 326 crore during the second quarter ended September 30, 2011.

“We expect SKS to write off this exposure at risk either in one go or in a phased manner before the end of current financial year,” said an analyst with a broking firm.

From October last year to end of September this year, the only-listed microfinance company had written off Rs 485 crore.

In less than six months after its over-subscribed initial public offer, SKS was hit by the AP Microfinance (Regulation of Moneylending) Act put in place by the State Government in October last year after a row over the alleged harassment of borrowers by field staff.

Act effect

The Act prohibited multiple lending and also made Government approval mandatory for sanctioning of fresh loans.

This led to an almost complete halt of recoveries and fresh disbursals of loans since the last one year in the State.

The collection of loans in Andhra Pradesh is at 10.7 per cent compared to over 90 per cent in other States.

The key indicators in financial and operational aspects of the company show the adverse impact on the only listed microfinance institution.

The gross loan portfolio and number of loans disbursed declined by over a half while the number of employees and branches were also brought down significantly during the 12 months.

The company's scrip declined 8.64 per cent to end at Rs 175.55 on the Bombay Stock Exchange on Wednesday.
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HDFC to enter education sector

Housing finance major, HDFC Ltd, is planning to set up schools and provide allied services like vocational training or teachers' training programmes.

The company, which already offers educational loans through its subsidiary Credila Financial Services Private Ltd, will now provide financial support for setting up educational institutions or improving existing institutions.

A press release issued on Wednesday, quoted Mr Deepak Parekh, Chairman, HDFC, as saying, “To support such an initiative, we will start with some baby steps and envisage building an education organisation on the principles of efficiency, effectiveness, integrity and transparency which have been so successfully applied and institutionalised within HDFC.”

HDFC's strategy is to enter India's vast education sector by way of participating in the segment of schools. The long-term objective is to create a visible impact on school systems across the country by providing school management and other allied services, apart from setting up initial flagship schools, the release said.
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Now, send money from ATM to mobile

In a bid to encourage the use of mobiles for banking transactions, the Reserve Bank of India has allowed the National Payments Corporation of India to facilitate money transfer by a bank customer from an ATM/Internet to a beneficiary's mobile phone.

The RBI's permission to expand the scope of the money transfer mechanism through the NPCI-promoted Interbank Mobile Payment Service comes at a time when mobile banking transactions are growing at a slow pace.

Slow growth

Ever since IMPS was launched in August 2010, the number of mobile banking transactions nudged up from 430 mobile banking transactions aggregating Rs 5,142 in August 2010 to 12,511 transactions aggregating Rs 3.80 crore in October 2011. The number of banks which are members of IMPS has increased from four in August 2010 to 28 in October 2011.

“The IMPS has so far facilitated instant inter-bank funds transfer between the sender and the receiver using the mobile. Now, following the RBI's permission, the IMPS will also facilitate funds transfer from ATM to mobile and the Internet to mobile,” said Mr A. P. Hota, Managing Director and CEO, NPCI.

NPCI, which was set up in late 2009 as an umbrella institution for operating various retail payment systems in the country, is working with a few banks so that they can launch the facility to transfer funds from ATM to mobile and Internet to mobile.

Once the IMPS picks up, long queues outside bank branches to make remittances will become a thing of the past.

For example, auto-drivers and cabbies, who otherwise lose a part of their day's earnings as they have to queue up outside a bank branch during business hours for sending money home, could remit funds to their kin on the move any time of the day.

Neither bank holiday nor a bank strike will be a hindrance when it comes to remitting funds through IMPS using mobile, ATM or Internet, emphasised Mr Hota.

IMPS enables bank customers to use the mobile instrument as a channel for accessing their banks accounts and remit funds. Payments, including merchant and financial inclusion-related, can be made with just the mobile number of the beneficiary. 

The mechanics

For using mobile banking facility through IMPS, a remitter has to register with his bank and get seven-digit Mobile Money Identifier (MMID) number and Mobile Personal Identification Number (MPIN). The beneficiary has to link his mobile number to his bank account and get MMID from the bank.

A remitter can initiate an IMPS transaction in four simple steps by keying the beneficiary/payee's mobile number, MMID, amount and MPIN. Both the remitter and the sender get SMS confirmation once the transaction is put through.

Limit per day

The RBI has set a daily cap of Rs 50,000 per customer, per day for both funds transfer and transactions involving purchase of goods and services under IMPS when the communication from the mobile handset to the bank's server or the server of the mobile payments service provider is encrypted. In case the communication is not encrypted then the transaction limit if Rs 5,000.

Transferring funds from an ATM or Internet will be simpler as only the Mobile Money Identifier number of the beneficiary will be required.

To improve the usage of mobile for banking transactions, Mr Hota said, banks have to create awareness among customers about the safety, simplicity, time and cost saving, and instant funds transfer features of mobile banking using IMPS.
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Thursday, November 10, 2011

CARE, Fitch maintain 'stable' view on banking sector; ICRA says it is concerned over asset quality

KOLKATA: Global ratings firm Moody's Investors Service on Wednesday downgraded its outlook for the Indian banking system to "negative" from "stable" on concerns over asset quality, capitalisation and profitability.

Fitch Ratings, another rater, will release its next 2012 banking system report next month while its current outlook for the sector remains stable.

Moody's said a "negative" outlook is characterised by volatility and uncertain conditions. The outlook applies for the next 12 to 18 months.

Meanwhile, the finance ministry has questioned the Moody's move.

"We are concerned about NPAs, but the situation is not as bad as it has been shown. We are committed to re-capitalise our banks by March 2011," financial services secretary DK Mittal said. He added that bad loans in the agriculture sector will become standard once the crop season starts. On power sector loans, he said that the distribution companies are already revising tariffs and banks have prudentially restructured those accounts proactively where there were concerns.

"We don't read much into Moody's outlook. The market has already factored in a lot of the concerns mentioned by the agency," said Vaibhav Agrawal, a banking analyst with Angel Broking.

Fitch Ratings senior director Ananda Bhoumik told ET, "Our outlook remains stable for the local banking system since 2008. We will release the 2012 outlook in December."

Care Ratings chief economist Madan Sabnavis said, "The banking system has shown resilience and its ex-posure to the sensitive sector is low."

Icra, in which Moody's holds a 29% stake, has expressed concerns over asset quality. "The overall operating environment has weakened. A few sectors are likely to face stresses while a section of SMEs are exposed to international market. So, the slowdown in domestic or global economy is going to impact banks' asset quality," said MD & CEO Naresh Takkar.

Though on the positive side, the global ratings firm has recognised that Indian banks' stable customer deposit base and their high level of government securities holdings.

Source: EconomicTimes
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Souring bank loans, car sales fuel India's economic gloom

India's economic gloom deepened on Wednesday as worsening loan quality at SBI rattled investors, Moody's downgraded its outlook for banks, and October car sales skidded 24%, their worst drop in over a decade.

The RBI has raised interest rates 13 times since early 2010 but has failed to rein in inflation, which remains above 9%. Instead, asset quality at banks is eroding and growth in India is slowing.

"More softening in demand indicators is likely, so to that extent the light at the end of tunnel is not in sight yet," said Radhika Rao, an economist with Forecast Pte in Singapore.

Global weakness is exacerbating the slowdown for an economy that grew at 8.5% in the last fiscal but is on track to expand by as little as 7.2% in the current fiscal, according to some forecasts.

Monetary policy in India can take several quarters to have an impact, and Rao said she expected the effect of the prolonged bout of tightening to persist into the middle of the fiscal that will start in April.

"The bottom is likely to be reached only around mid or third quarter of next year," she said.

On Friday, India is expected to report that industrial output growth slowed to an annual rate of 3.5% in September, a Reuters poll found, from 4.1% growth in August.

On Tuesday, data showed that growth in merchandise exports, once a bright spot that had seen 82% annual growth during July, had slowed to just 10.8% for October.

Turbulence in the country's biggest export markets, the United States and Europe, prompted officials to predict an export slowdown and a worsening trade deficit in the second half of the fiscal ending March 2012.

"You are finally seeing the slowdown in exports that we have been talking about for a long time," Trade Secretary Rahul Kullar said on Tuesday.

Banks bludgeoned

State Bank of India, which has a 25% market share, disappointed investors on Tuesday - despite beating profit forecasts - by posting a rise in non performing assets and a 35% increase from a year earlier in its provisions against bad loans.

Shares in SBI ended 6.77% lower, their biggest percentage drop since mid-May, as investors grow increasingly wary about declining asset quality in India.

Several banks have stopped lending to state power distributors as well as to property developers and road projects on worries over asset quality.

"With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY2012 and FY2013," Vineet Gupta, a Moody's vice president and senior analyst said in a note.

The Bombay Stock Exchange banks index fell 2.62%, and lenders dragged the broader market index down by 1.18%.

Sales of cars, which are sensitive to rising interest rates and the rising cost of fuel, fell nearly 24% in October from a year earlier, their biggest such drop since December 2000, dragged down in part by labour unrest at leading carmaker Maruti Suzuki.

"The macroeconomic scenario is very weak, and that's obviously impacting the numbers," said Joseph George, auto analyst at Mumbai-based brokerage India Infoline.

Demand for cars in India fell for the fourth month in a row after surging 30% in the previous fiscal.

India's sluggishness is expected to persist in the near term.

"The outlook on growth is negative; we may see more disappointing data sets on macroeconomic parameters in the coming months," said Nitesh Ranjan, economist with Union Bank of India.

Source: Business Standard
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Wednesday, November 9, 2011

Home loan subsidy effective from April

Mumbai: The liberalised scheme for one per cent interest subsidy by government on home loans up to Rs 15 lakh will be available for the borrowers whose requests were sanctioned and disbursed from April this year.

The new housing scheme under which the loan limit for interest subvention was raised to Rs 15 lakh, subject to the total housing cost of Rs 25 lakh, will remain valid up to March 2012, the Reserve Bank said today.

"Loans sanctioned and disbursed between October 1, 2009, and March 31, 2011, are outside the ambit of the new liberalised scheme...," the RBI said in a communication to all scheduled commercial banks.

The interest subvention scheme had started from October 2009 and was originally available on loans up to Rs 10 lakh, subject to a total housing cost of Rs 20 lakh.

However, as proposed in the union Budget for the current fiscal, the Cabinet had raised the limit on October 25 to Rs 15 lakh and Rs 25 lakh, respectively.

With the increase in housing loan ceiling, the limit of subsidy for an individual borrower would go up to Rs 14,865 per year for a loan of Rs 15 lakh from the earlier limit of Rs 9,910 for a loan of Rs 10 lakh.

A budgetary provision of Rs 500 crore has been made for the fiscal 2011-12 for implementing the scheme.

The government has designated the National Housing Bank as the nodal agency for implementing the scheme both for scheduled commercial banks and housing finance companies.

Source: Financial Express
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Post office savings rate to be hiked to 4%

New Delhi: In a development that will benefit millions of small savers, the government has decided to increase the interest rates on post office savings deposits to 4 per cent, from 3.5 per cent at present.

"We have taken a decision. We will be issuing a release on that soon," Economic Affairs Secretary R Gopalan said, when asked whether the government is proposing to raise interest rates on post office savings bank account to 4 per cent.

Small savings schemes run by post-office, which are a major source of government's borrowings, are losing sheen as interest rates offered on bank deposits are more attractive.

Most of the banks are giving 4 per cent interest on savings bank deposits, though some lenders, following freeing of this rate by RBI, are giving a return of 6 per cent.

Shyamala Gopinath Committee, which was constituted by the government last year to review the national Small savings scheme, had suggested linking of interest rates on small savings with that of the market.

Reforms in the small savings schemes is long due as the government has not acted on similar recommendations of Y V Reddy Committee report submitted in 2001.

Besides other recommendations, the Gopinath Committee had suggested that interest rate for one-year small deposit scheme should go up to 6.8 per cent from 6.25 per cent and introduction of 10-year National Saving Certificate scheme.

The government had to increase its market borrowing programme to make up for the shortfall in collections from the National Small Saving Fund (NSSF).

The Centre had initially estimated that NSSF would yield around Rs 24,000 crore, but there was net outflow of Rs 35,000 crore from the corpus during April-September.

Source: Financial Express
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Ensure customer identification even while using 'Aadhaar': RBI

Mumbai : The RBI today directed urban cooperative banks (UCBs) to ensure customer identification proof while opening accounts on the basis of details provided by the unique national identity number 'Aadhaar'.

"... it is advised that while opening accounts based on Aadhaar also, banks must satisfy themselves about the current address of the customer by obtaining required proof of the same as per extant instructions," the Reserve Bank said in a circular to UCBs.

RBI had in September directed banks to accept the Aadhaar card, issued by the Unique Identification Authority of India (UIDAI), letter as a valid document for opening bank accounts. Although the Aadhaar cards contains details like name and address, the banks will be required to satisfy themselves about the current address of the customer under the KYC norms, it had said.

Source: Financial Express
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Moody's downgrades banks' outlook

Mumbai, Nov 9: Global credit rating agency Moody's Investors Service has revised its outlook for India's banking system to negative from stable.

It also warned that bank ratings may come under downward pressure.

This change in outlook is due to concerns that an increasingly challenging operating environment will adversely affect asset quality, capitalisation, and profitability of Indian banks.

“India's economic momentum is slowing because of high inflation, monetary tightening, and rapidly rising interest rates,” said Mr Vineet Gupta, Vice-President and Senior Analyst, Moody's.

At the same time, Mr Gupta said, concerns have emerged over the sustainability of the recovery in the US and Europe, and the rise in the borrowing programme of the Indian Government, which could drain funds away from the private credit market.

According to Mr Pratip Chaudhuri, Chairman, State Bank of India, the agency's earlier experience in overseas markets may have prompted it to believe the worst.

Emphasising that the Indian banking system was stable, Mr Chaudhuri averred that unlike their counterparts in the West, Indian banks did not have any hidden assets, did not deal in exotic products and were conservatively leveraged.

Mr Hemant Contractor, Managing Director, SBI, said the change in outlook by Moody's will not come in the way of his bank raising funds at competitive interest rates from overseas markets.

Given the tightening environment, Moody's is anticipating that banks' asset quality will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs in 2012 and 2013.

The rating agency expects loan growth to be a strain on the banks' capital over the next 12-18 months. As monetary conditions tighten and economic activities slow, it sees bank loan growth falling to 16-18 per cent in 2012 and 2013, from 21 per cent in 2011.

Asset quality to deteriorate

When it comes to profitability, Moody's expects it to come under pressure due to lower interest margins as deposit rates re-price and get a further push from the latest liberalisation on savings deposit rates.

For those banks with weaker capital ratios and higher asset quality pressures, their standalone ratings are likely to come under pressure as underscored by Moody's downgrade of SBI's banking financial strength rating on October 4.

Positive side

But, on the positive side, Moody's recognised Indian banks' stable customer deposit base and high level of government securities holdings, which provide them with a resilient funding and liquidity profile that buffer them against destabilising shocks.

Moody's also expects the Government to remain committed towards providing support to both public and ‘private' banks. Such potential support translates to an average one-notch uplift to the banks' debt and deposit ratings to ‘Baa2', compared with their standalone base line credit assessment of ‘Baa3'.
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SBI: Asset quality continues to slip

Even as the profit growth of State Bank of India (SBI) beat street estimates, asset quality worries continued to exert pressure on the bank's operating performance. In spite of showing a 12.3 per cent year-on-year growth in September quarter's net profit, higher slippages in non-performing assets (NPA) led to the SBI stock losing 6.76 per cent in Wednesday's trade.
NPA woes continue

SBI's gross NPA grew 22 per cent between June 2011 and September 2011 as against 19 per cent by other public sector banks (PSBs). This even as SBI already has higher levels of stressed assets.

Slippages have been witnessed predominantly in the agriculture, corporate (export oriented, iron and steel and hospitality segments) and SME portfolios.

Adding to concerns were slippages on assets already restructured earlier which contributed to 29 per cent of the net slippages between June and September. Consequently, SBI's gross NPA ratio rose from 3.28 per cent as of March 2011 to 4.19 per cent during the September 2011 quarter.

Markets also seem concerned about expected moderation in economic growth exerting further pressure on the asset quality of banks, including SBI.
Core operations improve

The asset quality slippages overshadowed what was otherwise an encouraging performance as the bank increased its focus on profitability rather than volumes. While this led to loss of market share in loans, the bank's net interest income growth during the September quarter was at an impressive 28.6 per cent year-on-year compared to the 11 per cent registered by other PSBs and 18 per cent by private banks.

SBI's net interest margin (NIM) improved from 3.43 per cent in the September 2010 quarter to 3.8 per cent in the latest reported quarter. The improvement in NIM is far better than that of other PSBs, thanks to re-pricing of high cost deposits raised in 2008 and retirement of bulk deposits.

The significant proportion (47.6 per cent) of low-cost deposits also aided margins. Additionally, much of the hike in the bank's lending rates have been effected during the first half of this fiscal. Consequently, margins have also improved over the last two quarters. With the latest base rate hike coming in the second half of the September quarter, benefits should be fully reflected in the December quarter.

One more positive aspect of September quarter results was, despite the rise in NPAs, the bank managed to limit the rise of restructured assets (4.36 per cent of the total advances) which is among the lowest in the public sector bank space.
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SBI standalone profits up 12% in Q2

Mumbai, Nov 9: State Bank of India has reported a 12 per cent increase in net profit at Rs 2,810 crore in the July-September 2011 quarter, against Rs 2,501 crore in the corresponding period last year.

Shares of SBI were trading lower at Rs 1,907 at 1300 hours on the BSE, against the previous close of Rs 1,997.55.

The financial performance of India’s largest bank has relatively improved in the second quarter. In the first quarter-ended June 2011, its net profit was down 46 per cent at Rs 1,584 crore, against Rs 2,914 crore recorded in the same period last year.

In the six months ended September 30, 2011, the bank’s net was down 19 per cent to Rs 4,394 crore, against Rs 5,416 crore in the same period last year.

Following the amalgamation of State Bank of India Commercial & International Bank Ltd (a wholly owned subsidiary of State Bank) with SBI, the undertaking of SBICI has been transferred to and vests in SBI with effect from July 29, 2011.

Hence, the results for the quarter and six months ended September 30, 2011 include the results of operations of the erstwhile SBICI for the period from July 29, 2011 to September 30, 2011 and the results of the bank are not comparable to that extent, the bank said in its statutory filing with the stock exchange.

PTI reports: SBI has reported a 48.60 per cent jump in consolidated net profit to Rs 3,470.43 crore for the July-September quarter of the 2011-12 financial year.

The bank’s consolidated net profit stood at Rs 2,363.95 crore in the second quarter last fiscal. Total income of the group increased to Rs 41,249.08 crore during the period under review from Rs 37,925.44 crore in the same period last fiscal.
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ING Vysya, LIC pact for ePayment

Bangalore, Nov. 9: ING Vysya Bank signed an MoU with Life Insurance Corporation of India on Wednesday for ePayment services at all LIC branches across the country. 

The bank will now offer its Payments platform, ING P@y, to LIC, said a press release from the bank. The initiative was taken on the back of a regulatory directive to LIC to use ePayments as a mode for making payments to policyholders. 
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Indian Bank opens Hubli zonal office

Bangalore, Nov. 9:Indian Bank opened its Hubli zonal office to cater to its customers in northern and coastal Karnataka. This will be the bank's second zonal office in Karnataka. Hubli zone has 33 branches across 19 districts in Karnataka and six branches in Goa. 

“The formation of Hubli Zone will enable Indian Bank to increase its participation in the developmental and economic activities of this part of Karnataka and also in the Government-sponsored schemes of Central and State Governments in a big way,” said Mr T.M. Bhasin, Chairman and Managing Director, Indian Bank, in a press release. The total business of Indian Bank in Karnataka as on October 31 stood at Rs 8,033.40 crore, which includes Rs 1,288.11 crore from Hubli zone.
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Allahabad Bank freezes lending loans to power sector on increasing financial stress

MUMBAI: Financial stress to banks caused by the power industry increased with Bank of India set to restructure a quarter of its power loans and Allahabad Bank freezing lending to the sector whipsawed by losses at state distributors and hurdles to new plants.

Loans to Tamil Nadu Electricity Board and Rajasthan Electricity Board will be restructured - the tenor of the loans and interest payable will be changed - to avoid an imminent default and firewall banks from rising bad loans, senior bank officials said.

"We have received requests from one or two state electricity boards and we are looking into it," said Bank of India Executive Director BA Prabhakar. BoI has lent Rs 8,000 crore to various state boards. "We have yet not restructured. No one has defaulted yet."

The country's financial system is under stress because of mounting losses at state distribution companies and thwarted project clearances. Some projects, such as East Coast Energy - in which Goldman Sachs and General Atlantic are stakeholders, are stuck half way because of local protests.

Subsidised tariffs have pushed power distribution companies to the brink of collapse with losses soaring last fiscal by 45% to an estimated Rs 40,000 crore.

Allahabad Bank, which has lent more than Rs 13,600 crore to utilities and distributors, has stopped lending to the sector.

"In the past six months, we have not sanctioned a single fresh loan. Till things are clearer ... we don't want to go into this area," Allahabad Bank CMD JP Dua said.

Dena Bank and Indian Overseas Bank are also considering to restructure loans to the power sector. Punjab National Bank restructured Rs 2,500 crore of loans to power companies last quarter.

Source: EconomicTimes
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SBI captial infusion: Govt may opt for warrants due to price lock and deferred payment

NEW DELHI: The government may opt for warrants issue to infuse capital into the State Bank of India, helping it lock into the current low stock price and leverage its existing resources.

The finance ministry aims to provide Rs 10,000 crore to the bank this year, of which Rs 2,900 crore could be given immediately from the resources set aside in the budget.

"Differential voting rights is out of question and rights issue will require immediate allotment of funds which the government is not in a position to allocate," a finance ministry official told ET, indicating preference for warrants.

SBI has demanded urgent decision on its plan to raise capital after its tier-I capital dropped to 7.6%, below the mandatory 8%.

The SBI had earlier indicated it will require Rs 20,000 crore over the next two fiscal years and proposed a rights issue that would have required the government to infuse about Rs 12,000 crore if it needed to retain its stake in the bank at 59%. The cash-strapped government has found it difficult to spare such funds.

Warrants are derivatives in the nature of options that give the buyer the right to purchase shares in a company at a pre-decided price within a certain period, 18 months in the case of listed companies in India.

According to Sebi rules, shares have to be priced at higher of the average of the weekly high and low of the closing prices during the six months preceding the issue date or the same average during the two weeks preceding the issue date.

SBI's share price has been in the range of Rs 1,715 to Rs 2,675 in the last six months.

Only 25% of the price at which underlying shares are priced in the warrants issue has to be paid, allowing the buyer to benefit from a possible rise in share price.

The warrant proceeds are considered as equity as they are adjusted against the final price if the buy option is exercised.

"If the acquisition price is finalised by the government now, it will allow the government to infuse around 30% now and the rest later at a lower cost if the share price of SBI rises," said Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities.

Issuing warrants will allow the government to lock into the lower prices, but the actual capital infusion is likely to happen over the next 18 months.

Depending upon the success with SBI, the same model may be followed in case of other state-run banks.

The Planning Commission has already approved the Rs 14,000-crore demand of the finance ministry for capital infusion in 21 state-run banks. The government is expected to finalise the amount for each bank by the end of this month.

"We have already approved Rs 2,900 crore for SBI from last budget. The rest will be given during this financial year to fully capitalize SBI," the official said.

Another finance ministry official confirmed that the government is also exploring the option of a World Bank loan but negotiations have not started yet.

"We were allocated $3.2 billion last year, but had taken only $ 2billion. So, there is a scope but it's too early to say," he said.

The government expects the capital adequacy concern of SBI to be mitigated this quarter because of the extra provisioning by the bank in the earlier two quarters.

Source: EconomicTimes
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Banks start waiving prepayment penalty

Initially reluctant to waive the prepayment penalty on floating rate retail loans, banks have now started to fall in line with the regulator’s advice. The Reserve Bank of India (RBI) had questioned the necessity of levying charges that penalise borrowers repaying their loans before the maturity period.

State Bank of India (SBI), which earlier waived the prepayment penalty for new customers, has now extended the benefit to existing customers. Bank of India, Indian Bank and United Bank of India have also waived the prepayment penalty, and a few other public sector banks may follow suit.

“If the regulator ultimately wants it, we need to fall in line. The prepayment penalty is not an avenue for bankers to make money, but a mechanism to recover costs due to mismatch in assets and liabilities. If RBI feels we have to do away with that, as bankers we will have to find a way to recover the cost,” said K R Kamath, chairman and managing director, Punjab National Bank.

Prepayment penalty on home loans
Penalty (%)
State Bank of India Nil
ICICI Bank 2-4
Punjab National Bank 2
Bank of Baroda 2
Bank of India Nil
Axis Bank Nil
Union Bank of India 2
Standard Chartered Bank 2.5
United Bank of India Nil
Source: Banks

Bankers said when long-term loans were offered to borrowers, lenders raised long-term deposits to match their assets and liabilities. So, when the loans are pre-paid, banks continue to have long-term deposits on their books, leading to a mismatch.

“Banks have already agreed, but they are not issuing the guideline (to their branches) that you cannot charge prepayment penalty. We are not clear why banks charge the prepayment penalty,” said K C Chakrabarty, deputy governor, RBI.

RBI has asked for the views of IBA (Indian Banks’ Association) on this. We are working on it...It will happen in the next couple of weeks,” said M D Mallya, chairman and managing director, Bank of Baroda, and chairman, IBA.

“We have waived the prepayment charges on floating rate loans, ahead of the industry. For fixed rate loans, there is still a prepayment charge,” said Pratip Chaudhuri, chairman, SBI. Bank of India has also stopped charging the prepayment penalty on floating rate retail loans, while Indian Bank has waived these charges for both fixed, as well as floating rate advances. “Our view is our interest rates should be so competitive that the customer should always stay with us,” said T M Bhasin, chairman and managing director, Indian Bank.

M Narendra, chairman and managing director, Indian Overseas Bank, said the lender did not levy prepayment charges on small-ticket loans. It would also waive such charges on big-ticket loans if the regulator wishes so. “I don’t think it is a very big issue. In fact, it may benefit public sector banks, since our pricing is competitive, transparent and there are no hidden charges,” said M G Sanghvi, executive director, Bank of Maharashtra.

Source: Business Standard
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Tuesday, November 8, 2011

Franklin Templeton unveils Corporate Bond Fund

Mumbai: Franklin Templeton Investments has launched a NFO 'Templeton India Corporate Bond Opportunities Fund' aiming to help investors take advantage of the current high yields and to build a strong presence in pure fixed income space.

The new fund offer (NFO), opens for subscription on November 15 and closes on November 29.

The fund also aims at allowing capitalisation on opportunities by active interplay on credit, liquidity and interest rate opportunities, Franklin Templeton said in a release.

"We believe that the corporate bond market provides good opportunities in India for multiple reasons, including a fast growing economy, strong corporate balance sheets and expected increase in issuances. However, when compared to other similar markets, the corporate bond market in India is still at a nascent stage and is growing," Franklin Templeton India President Harshendu Bindal said.

The fund helps investors to take advantage of the current high yields and also potentially benefit from the capital gains once the interest cycle turns.

"The interest in corporate bonds is likely to grow, both from domestic and foreign investors. In the current environment, we expect corporate bonds in the 1-3 year segment to outperform, due to relatively higher spreads and the fund will benefit from higher accruals in the coming quarters," the asset management firm's Chief Investment Officer for fixed income Santosh Kamath said.

The minimum investment in the scheme is Rs 5,000, and a three percent interest will be charged if the investor exits within a year, 2 percent after a year but before two years and 1 percent after two years but before two-and-a-half years.

At the end of September quarter, Franklin Templeton managed average assets worth Rs 34,410.37 crore.

Source: Financial Express
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HCBL Co-operative Bank Ltd adopts village for financial inclusion

LUCKNOW: HCBL Co-operative Bank Ltd, as a part of its financial inclusion policy, has adopted a village Chota Bharwara in Chinhat on the outskirts of Lucknow. It would be offering a multitude of modern banking services to the residents of the village as well as surrounding areas.

These services include opening of bank accounts, providing loans and provision of various other social responsibility measures, especially to the weaker section and women. A camp was also organised in the village on Tuesday which was inaugurated by Ex-Regional Director, RBI, DPS Rathore.

Last year, HCBL Bank adopted the Khatwara village in Bakshi ka Talab, as its initial step towards financial inclusion.

CEO, HCBL Co-operative Bank, Pawan Kapoor said, "adoption of Bharwara village an initiative taken by HCBL Bank in implementing the policies pertaining to financial inclusion for the residents of this region who have been deprived of banking services since long. HCBL Bank would take care of the overall development of the village by not only providing state-of-the-art banking services but also by giving vocational training to villagers. This would make them financially independent and some can start their own business and earn money through self help groups".

HCBL Co-operative Bank Limited is a new generation profit making co-operative bank, providing all kinds of banking services.

Source: EconomicTimes
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IRDA, SEBI finalise IPO norms for life insurers, to be notified soon

Hyderabad, Nov 8:The much-awaited norms for the initial public offerings of life insurance companies are finally ready.

"The guidelines framed by us are also approved by the Securities and Exchange Board of India. They will be notified in the Gazette by the Government within days,’’ Mr J. Hari Narayan, Chairman, Insurance Regulatory and Development Authority, told newspersons here on Tuesday.

The insurance regulator has finalised the norms last year which were sent to the market regulator for its approval.

On the proposed changes in the Motor Third Party pool in the general insurance segment, Mr Hari Narayan said a decision would be taken on the nature and size of pool in view of the balance between demand and supply.

The concept of motor pool was originally conceived when there was demand-supply mismatch.
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ex-Citi mgr embazzled $5 mn, court told

Jakarta: A former Citibank relationship manager was charged with embezzling more than $5 million of her clients' money, a Jakarta court heard on Tuesday, in a sports-car fuelled case that has shaken up the wealth management business in Indonesia.

Inong Malinda Dee, 49, ordered 117 transfers each worth up to 2 billion rupiah ($223,000) from her Citigold clients' accounts to her or acquaintances' accounts between 2007 and 2011 for purchases including Ferrari, Porsche, Mercedes and Hummer cars, as well as apartments and houses, prosecutors said.

Dee, who was charged with giving false banking transaction data and money laundering, faces a maximum penalty of 15 years in jail, said prosecutor Tatang Surtana.

Citi, hit by a year-long ban in May on its wealth management business in Indonesia over the alleged embezzlement, has said a former employee committed fraud. It appointed a new country head for Indonesia in June after a central bank investigation.

The defendant transferred 130 million rupiah to Bank Central Asia and in the message field she put Mercy. She then used the funds to (make) ... a downpayment for a white Mercedes-Benz, said one of the prosecutors.

A teary-eyed Dee, who wore a black headscarf and pink stiletto heels, drew a large crowd trying to take pictures in the packed courtroom.

Her case has gripped a country that is creating millionaires faster than any other Asian nation, according to Julius Baer . Pictures of her surgery-enhanced figure, luxury cars and a young actor partner have been splashed across media.

Citi, the third-largest U.S. bank by assets, ordered an internal investigation after one of its wealthy clients noticed unauthorized transfers and reported them. Dee was arrested by police in March.

The case led the central bank to launch an investigation into banks' risk management systems and suspend some of the privileges that relationship managers can give wealthy clients, in a signal authorities wanted to get tough on fraud in the banking system of southeast Asia's biggest economy.

The central bank, also the banking regulator, said last week it would tighten regulations for the issuance of credit cards.

The trial continues next week. ($1 = 8955 Rupiah)

Source: Financial Express
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Savings rate hike on deposits flight: SBI

Country's largest lender State Bank of India (SBI) today said it will take a call on increasing interest rate on savings accounts if there is a flight of deposit to other banks.

"There had been accretion (to savings bank deposits)," SBI Chairman Pratip Chaudhuri said when asked whether the bank was planning to raise interest rate as was done by some private sector lenders.

"If we see there is flight or shift of deposits, then we will take a call," he said, explaining bank's stand on saving rate.

Last month the Reserve Bank deregulated interest rates on savings deposit accounts. Earlier, banks were mandated to give four per cent interest rates on such deposits, but with the freeing of rates, several private sector lenders, like Yes Bank and Kotak Mahindra Bank, have hiked rates to 6 per cent.

Even RBI Deputy Governor Subir Gokarn today said that the deregulation would increase competition amongst banks ks for retaining customers.

Speaking about extending banking facilities in villages with population of over 5,000 people by September 2012, Chaudhuri said "we have to open bank branches."

Besides, Finance Minister Pranab Mukherjee after his meeting with the bankers and SBI chief on financial inclusion here today said that the target of extending Rs 4.75 lakh crore short term crop loan for the current fiscal would be surpassed.

On covering 10,721 villages with banking service in West Bengal and eight north eastern states, Mukherjee said so far 4,969 villages had been covered and rest would be done within March 2012.

Source: Financial Express
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Bank of India doesn't have slippages on power sector loans

MUMBAI: State-run lender Bank of India does not have slippages on power sector loans and has total exposure of about 80 billion rupees to the sector, its executive director said on Tuesday.

Certain state electricity boards have requested the bank to restructure accounts and the bank would take action in due course, B. A. Prabhakar, told reporters.

Source: EconomicTimes
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IDBI Gold ETF NFO collects over Rs 110 cr

Mumbai: IDBI Gold Exchange Traded Fund, the new fund offer (NFO) launched by IDBI Asset Management, has collected over Rs 110 crore, predominantly from around 11,000 retail investors, including HNIs.

The NFO was open for subscription between October 19 and November 2 and the units will be allotted on November 9.

"In the current scenario of inflation and economic uncertainties, investment in gold could be viewed as a good hedge and prudent asset allocation strategy. We have collected over Rs 110 crore, predominantly from around 11,000 retail investors, including HNIs," IDBI Asset Management Managing Director and Chief Executive Officer, Debasish Mallick said in a statement here.

IDBI Gold ETF is designed with the purpose to invest in 'physical gold' with an objective to replicate the performance of gold in domestic prices. The Fund will adopt a passive investment strategy and seek to achieve investment objectives of scheme by minimising the tracking error between the fund and the underlying asset.

The NFO will be listed on NSE and BSE with effect from November 17, the release added.

Source: Financial Express
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SBH launches double deposit scheme

In sync with the popular Hyderabadi sweet dish – Double Ka Meetha, State Bank of Hyderabad has launched a new product which will give double benefit to customers. A customer who deposits, say Rs 1,000, in this scheme will see it double in just 87 days.

The SBH Double deposit scheme is aimed to double the deposit for customers in the shortest period, the bank said. At current rates applicable to the scheme the deposit will double in even less time of 83 days in the case of a senior citizen.

The yields achieved are 13.84 per cent (general customers) and 14.56 per cent (senior citizens) respectively. There will be no premature penalty if the customer withdraws the deposit after 60 months, in addition to the higher rate of interest.

The customers can avail loan facility as well. The product would be available to all resident and non-resident individuals. The minimum deposit required is Rs 10,000 and multiples of Rs 1,000 and can be opened at any of the SBH branches.

With the recent deregulation of savings bank accounts, banks are looking at innovative methods to lure new deposits as well as retain existing ones.
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Central Bank to reduce high-cost deposits, push retail lending

In the current scenario of rising interest rates and slowing economic growth, banks are facing a slowdown in the inflow of new corporate-loan proposals, increasing cost of resources and asset quality deterioration.

Mr M.V. Tanksale, Chairman and Managing Director, Central Bank of India, tells Business Line how his bank is coping. The public-sector bank is consciously bringing down the proportion of high-cost bulk deposits in total deposits, focusing on lending to retail, the priority sector and mid-corporate segments, and holding recovery camps for small-ticket loans which have turned bad. Excerpts:

On credit growth

More or less, we are growing in line with the industry. Credit growth is around 14-15 per cent on year-on-year basis. The story is similar on the deposits front. There is definitely a slowdown in credit offtake on year-to-date basis. While retail and priority sector segments are still better off, slowdown is seen on the corporate side.

Credit disbursement on the corporate side is happening mostly from the already existing sanctions pipeline. The existing sanctions pipeline is still good with us but new proposals are not really pouring in.

If at all proposals are coming in then we have reservations, particularly if there is a power project proposal. Firstly, we have to contend with the sectoral cap issue. So if the room is not there then we have to be very selective. Secondly, unless there are proper tie-ups (environmental clearances, raw material linkages, power project agreement, etc) we will not jump into the relationship. Thirdly, unlike in earlier times, if there is a proposal where we could commit to an exposure of Rs 300-400 crore, now we are committing to Rs 100-150 crore. This is for the simple reason that the room available is less and we would like to accommodate more number of players. There is no blanket ‘no' to anything. Even if it is a real-estate-development project, if it is in the affordable housing space then will look at it. But when it comes to commercial real-estate projects, I don't think we are looking at proposals from this segment at all.



We are sincerely working towards realigning our balance sheet by reducing the corporate loan component and increasing the retail and priority sector loan components. So, hopefully, some improvement will be there in the coming few quarters. The results will probably be seen by March 2012. We are very clear that our bank needs to focus on the bottom line rather than the top line.

I am moving across the country, talking to a cross-section of employees to impress upon them the fact that we are a bank with 3,800 branches, we have the requisite technology at our disposal now, and we have the complete range of products and services to compete in the market. We must work for a return on assets (ROA) of 1 per cent. If our ROA is required to be at this level then we will have to look at balance-sheet management properly — where are we loosing out on the income, where can we reduce the cost.

So, it is our constant endeavour to control costs. Obviously, when the high-cost bulk deposit component is reduced the cost of deposits gets reduced. We may not at the same time match this with the same proportion of growth in CASA (current account and savings bank deposits) or core term deposits but we can definitely reduce the high-cost deposit composition.

Reducing high-cost deposits and stepping up mid-corporate exposure.

We can definitely reduce the component of high-cost deposits in our total deposits to 30 per cent from about 33 per cent. Given a chance, we would really like to bring it down to 25 per cent or so by March 2012. It all depends on how exactly the scenario (liquidity and credit offtake) emerges. But we would like to keep it below 30 per cent. We would definitely like to maintain CASA deposits at around 32-33 per cent, which was the position as at March-end 2011, and probably cannot be improved in the current scenario.

But this can be improved by tweaking high cost deposits. If we are able to cap high-cost deposits then CASA deposits will go up, maybe, from 33 to 34 per cent. We are redeeming high-cost, bulk deposits. We will not be maintaining high liquidity just in order to show the balance-sheet size. We will not be worried about the balance-sheet size. We will be worried about the balance-sheet size only through retail liabilities and retail assets.

If we have to improve our yields (on advances) then we will have to selectively go for mid-corporate exposure rather than bulk exposure (large corporates) where the yields are really less. So, we will look to increase our mid-corporate exposure. We are not bullish on taking a Rs 500 crore exposure at the Base Rate. Our corporate-loans exposure is around 63 per cent, which we would like to bring it down to around 58 per cent. For retail customers, whatever rates we are offering are sustainable but for bulk customers who want something extra we cannot offer them that.

Non-interest income

Another avenue on which we are working on is non-interest income. We are developing the marketing team which will push third-party products. The importance of syndication and processing fee is being emphasised. For example, if we do one syndication proposal of Rs 500 crore for a public-sector undertaking, we don't get any processing fee. But if we do five syndication proposals of Rs 100 crore each in the private sector then we earn a good processing fee. So, we are very clear what we want to do. The results will be visible, maybe, after a couple of quarters.

Asset quality

We put our entire bank on the core-banking platform only in December 2010. So, we will be doing a part of the asset recognition through system as of September-end 2011 and remaining part we will be able to do in the next two quarters. This needs lot of data-cleansing. This is one reason impacting the asset quality (of banks). If there is stress on borrower accounts due to market scenario, restructuring has to be done under corporate-debt restructuring. For small-ticket loans, the best way to improve asset quality is to hold recovery camps and have very objective one-time settlement scheme. So, we recently revisited out one-time settlement scheme, particularly for the small-ticket borrowers (those with a loan outstanding of up to Rs 10 lakhs), look objectively at their repayment capacity and get into settlements fast. So, we don't hang on to the cases for years on end. If we can really improve the mechanism for recovery through recovery camps and have a proactive approach to the borrowers through settlements, the recovery improves. Borrowers also get enthused as they close the old loan and become eligible for fresh loans in the future. Some of the borrowers may have fallen on bad days due to circumstances as they could not generate sufficient cash flows to repay. So, the right approach is to proactively reach out to them rather than through the process of recovery mechanism through notices and court.

Capital raising

In April, we went in for a rights issue and raised almost Rs 2,400 crore. So, with that we are adequately capitalised. Unless credit growth goes beyond 20 per cent, I don't think we need any capital, at least till December. Up to 20 per cent credit growth is sustainable with the current level of capital. If at all some small capital dose is required, we will go through the qualified-institutional-placement route. Neither the current market scenario is conducive for capital-raising nor do we have compulsion. At least in 2011-12 we don't need any capital. In 2012-13 also we should be able to support ourselves because we have enough headroom available in tier 2 capital. If the credit growth is substantially good then I think the capital demand will really come up only in 2013-14.

Rising Interest rates Hurting growth

It is hurting growth in a way that probably people are not going in for investment credit. What is most important for the economy is that investment credit should happen on an ongoing basis and it is the consumption credit which should get calibrated which determines inflation. So somewhere if the consumption credit gets regulated and calibrated and the investment credit happens on a normal basis, I think, it will be good for the economy. Investment credit is definitely determined based on the interest cost because you have to decide for 15 years the internal rate of return based on certain assumptions. We all started with a base rate of 8 per cent a year-and-a-half back, today we are 10.75 per cent. So, for corporates who had factored in 8 per cent interest cost and maybe an interest rate sensitivity of 1-1.5 per cent, unless they are also able to transmit the cost, it becomes very difficult for them to manage.
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