Govt asks public sector banks to save money and grow at same time

MUMBAI: A cash-starved government is wielding a stick on public sector banks by asking them to conserve capital through cost-cutting while sticking to loan growth targets, throwing bank executives into a tizzy.

The government, which has admitted that it will fail in borrowing and fiscal deficit targets, has told banks to strengthen their tax departments to ensure there are no slippages in revenue to the exchequer.

State-run banks, which control three-fourths of bank lending, should take insurance cover on loans to exporters and small & medium companies, and cut costs to boost profitability, a bureaucrat in the finance ministry has written to banks recently listing half-a-dozen such items. These and other measures will improve the capital position, it said.

"While a bank can conserve capital by stumping growth, that is something they do not want," said a chairman of a bank who did not want to be identified.

"In the board meetings, Finance Secretary DK Mittal has said we should grow by 30-40% instead of the average 20%. He also told us to look at ways to generate capital to reduce reliance on government."

Prime Minister Manmohan Singh's government is dithering on investing capital into banks due to crippled fiscal position as slowing growth cuts revenues and welfare schemes eat up resources.

This letter comes amid uncertainty over whether the nation's biggest lender, State Bank of India, which has been demanding about Rs 20,000 crore of capital, will get it. The government doesn't want to reduce its holding in these banks either, preventing them from accessing capital from investors.

Source: EconomicTimes

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Citigroup's Samir Mathur puts in his papers

NEW YORK: Citigroup, the third-biggest US bank, is shrinking a team of traders who deal in "hybrid" products as Chief Executive Officer Vikram Pandit cuts Wall Street jobs, two people familiar with the matter said.

Samir Mathur, former head of hybrid trading, is leaving the New York-based firm and is in talks to join a hedge fund, according to one of the people, who asked to remain anonymous because the move hasn't been announced.

Other members of the desk who reported to him, including Yontcho Valtchev, Vivek Kapoor, Eric Kim, Sean Corrigan and Allison Niiya, also are leaving, the person said.

Mathur is among ex-members of the desk who are at the center of a dispute with Ghazi Abbar, a former customer from Jeddah, Saudi Arabia.

Abbar claims he lost $383 million of his family's fortune when Citigroup sold him products that later soured, even though the bank internally questioned his ability to properly manage some of them. Pandit, 54, is shrinking the desk as he cuts 4,500 jobs amid a revenue slump.

"It makes sense for Citigroup to reduce the size of its sales trading activities, particularly in developed markets," Richard Staite, an analyst at Atlantic Equities LLP, wrote in a December 7 note to clients.

"We believe a shift away from trading toward lowerrisk consumer and corporate banking may lead to a higher valuation multiple."

Mathur follows Erwin Parviz , the former Londonbased head of hybrid structuring who left Citigroup in June, according to UK Financial Services Authority records. Investment Banking Planned layoffs will include about 900 from the division that contains trading and investment banking, a person familiar with the matter said last month.

Danielle Romero-Apsilos , a Citigroup spokeswoman , declined to comment . Members of the hybrid team didn't respond to phone messages , said they couldn't comment or couldn't be located for comment. Citigroup , with 267,000 employees worldwide as of Sept. 30, is the third-biggest US bank by assets behind JPMorgan Chase & Co. and Bank of America Corp.

Mathur's team traded hybrid derivatives, financial instruments that derive their values from different underlying assets. Buyers seek to profit from the performance of assets, such as a stake in a hedge fund, without directly owning them. The desk often sold products to large investment firms including Man Group Plc and Tudor Investment Corp., people familiar with the matter said last month.

Mathur helped to create one of Abbar's transactions , according to an arbitration claim Abbar has filed with the Financial Industry Regulatory Authority. The bank denies the allegations and has sued Abbar to block the arbitration.

Source: EconomicTimes

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KFC bonds fully subscribed in five days

Kerala Financial Corporation’s (KFC) bond issue of Rs 100 crore has been fully subscribed within five working days from the date of opening of the issue.

The bonds were floated in the first week of December, said Mr Premnath Ravindranath, General Manager, KFC.

The corporation has since decided to exercise the green shoe option of retaining another Rs 100 crore to give an opportunity for even more investors to be a part of the State’s growth story.

The bonds are in the nature of debentures with unconditional, irrevocable guarantee of the State Government.

They are redeemable, non-convertible and taxable and is rated “A-(SO)” by Brickwork Rating Agency.

The face value of each bond will be Rs. 10 lakh with an annualised yield of 10.23 per cent. The maturity of the bond is 10 years.

However the investor will have the option to redeem the bond at the end of the fourth year at the rate of 25 per cent per year from fourth to seventh year.

The bonds will be listed on Bombay Stock Exchange (BSE). The issue closes on December 20.

The first such issue in six years, it has evoked good response from investors across the country,

Major investments have come in from Gujarat, Pune, Bangalore, Orissa, Jharkhand, Tamil Nadu and from within the home State.

It is one of the most healthy public sector enterprises of the State and the leading State Financial Corporation in the country.

The success of this issue is also an indicator of people’s faith in the improved fiscal performance of the Government, the professional management of KFC and its employees.

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KVG Bank prepares roadmap to reduce bad loans

Karnataka Vikas Grameena Bank (KVG Bank) has prepared a roadmap to reduce non performing assets (NPAs) and has set a target of achieving a level of 1 per cent (NPAs) to total advances by the end of this financial year.

According to Mr C. Sambasiva Reddy, Chairman, KVG Bank, “We plan to focus on bad debt management for reducing the NPAs.”

The bank has taken the initiative based on recommendations relating to reforms in banking sector made by the Boston Consulting Group (BCG), in a report ‘Being Five Star in Productivity: Roadmap to Excellence in Indian Banking'.

The bank, at its regional/senior managers' meet held at Dharwad on Thursday reviewed the important areas relating to business growth, customer services, bad debt management, and operational excellence.

Looking into the agricultural environment of the nine districts of its operational area, all the branch managers were advised to contact the farmers for repayment since the harvesting season is coming to an end.

Loan rescheduling

Mr Reddy also said that, farmers' loan account will be re-phased or re-scheduled in those taluks declared as drought affected.

While reviewing the function of recovery counselling centres started by the Bank, Mr Reddy said the centres have been successful in counselling the borrowers, especially defaulters. Teams consisting of 6 to 10 members in each cluster have already conducted camps at the villages of 180 branches.

“Such groups have contacted nearly 5,000 borrowers and were able to recover Rs 5 crore under NPAs. So far, we have settled 1,614 OTS (one-time settlement) cases involving an amount of Rs 9.35 crore,” Mr Reddy added.

anil.u@thehindu.co.in

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Kotak Life Insurance Launches Kotak Invest Maxima

Kotak Life Insurance has launched an investment oriented Unit Linked Insurance Plan (ULIP)- Kotak Invest Maxima.

The plan offers a zero premium allocation charge feature maximizes the investible component the choice of three different portfolio management strategies.

Customers can choose from a self managed strategy which offers a choice of 5 attractive funds options or systematic switching strategy which enables the customer to invest in the equity market in a systematic manner over a period of time or a customized combination of the two.

In the last policy year, consumers can choose to exit the policy in a secure and systematic manner, by selecting the systematic exit strategy option which gradually diverts all fund balances into a lower risk money market fund, to avoid volatility and safeguard returns on maturity.

Apart from regular premium payment option, the plan also offers limited and single premium payment options. Optional rider benefits can be bought to guard against unforeseen situations such as critical illness, accidental death and permanent disability.

The plan offers additional survival units of up to 2 per cent of fund value starting from 10th year and every 5th year thereafter.

The plan also allows the policyholder to pay top up premiums at zero percent allocation charge .The maturity benefit is higher of sum assured or fund value.

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LIC Housing Finance to launch fixed rate loans next month

LIC Housing Finance Ltd will roll out a completely fixed interest rate home loan product next month, according to Mr V. K. Sharma, the company's Director and Chief Executive.

“The product is ready. There is a possibility of interest rates going down. We plan to fix interest rate after the Reserve Bank of India's policy review on December 16,” Mr Sharma told newspersons after inaugurating a three-day property show here on Friday.

The product would be first of its kind in the home-loan market as all existing products are combination products with varying periods of fixed and floating rates.

“We strongly feel that there are customers who prefer fixed rate products,” Mr Sharma said. The proposed Rs 500-crore real estate venture capital fund would be launched in January with an initial fund size of Rs 200 crore.

“We have already tied-up for this amount and don't prefer to wait much longer for remaining amount. The first tranche will be launched next month,” he said.

On the market scenario, the official said demand for residential units in Tier-II and Tier-III cities was robust.

“In major cities there has been some stress, mostly driven by commercial property segment,” he added.

To coincide with the property show, a new product — New Freedom — was launched with a floating rate of interest at 10.40 per cent.

nagsridhu@thehindu.co.in

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No second round of debt restructuring for Kingfisher by banks

Banks have no plans to carry out a second round of debt restructuring of the ailing Kingfisher Airlines which has an outstanding loan of around Rs 6,419 crore, Parliament was informed on Friday.

“State Bank of India, leader of the consortium (of 11 lenders to Kingfisher), has stated that at present, there is no plan,” Minister of State for Finance, Mr Namo Narain Meena, said in a written reply in Lok Sabha.

He was replying to a question on whether lenders are planning to carry out a second round of restructuring of loans to help Kingfisher.

The Minister further said the airline has a total outstanding loan liability of Rs 6,419.60 crore, which include Rs 9,730.37 crore provided to Kingfisher for non fund based activities.

SBI, the minister said, has an exposure of Rs 1,457.78 crore, followed by IDBI Bank (Rs 727.63 crore), Punjab National Bank (Rs 710.33 crore), Bank of India (Rs 575.27 crore) and Bank of Baroda (Rs 537.51).

The other lenders which have provided funds to the airlines include ICICI Bank, Central Bank of India, United Bank of India, UCO Bank, and Corporation Bank.

SBI has already exceeded the exposure limit of Rs 1,436.1 crore in Kingfisher.

Of the total outstanding of Rs 6,419.60 crore, Rs 750.10 crore has been converted into cumulative redeemable preference shares and Rs 553.10 crore as non convertible cumulative redeemable preference shares to be redeemed after 12 years.

Mr Meena further said that Kingfisher is scheduled to start repaying loans to SBI from September 2012. “Servicing of interest is being done with some delay,” he added.

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Credit growth will start picking up next year, says Axis Bank MD

Credit growth, which has been moderating over the last two years, will start picking up next year, said Ms Shikha Sharma, Managing Director and Chief Executive Officer, Axis Bank.

“Credit growth is directly linked to what is happening in the economy. Our belief is in the long term growth of the economy so we expect credit to pick up,” Ms Sharma told newspersons on the sidelines of a CII leadership summit here on Friday.

The slowdown in credit offtake was primarily on account of a dip in demand from large corporates. “The industry was on a tightening mode, they were looking at leveraging their existing investments rather than pumping in fresh investments,” she said.

Growth in credit would be fuelled by a moderation in interest rates on the back of easing inflation. The annual wholesale price index-based inflation rate in October rose 9.73 per cent compared to 9.72 per cent in September.

“As interest rates begin to moderate, which should happen next year, on account of a moderation in inflation, we should see credit picking up,” Ms Sharma said.

Ms Sharma, however, said it would be difficult to predict the exact time when this (interest rate softening) would happen.

Talking about asset quality, Ms Sharma said that asset quality will follow the economic cycle. “Non-performing assets will follow the economic cycle. If the economy slows down then there could be a rise in NPAs. However, banks have become very cautious and are looking at diversifying risks,” she said.

Replying to a query on the possibility of restructuring of accounts, she said, “In the present economic scenario it is inevitable that companies will have a cash flow mismatch. Banks should take a call on which companies are fundamentally strong and are just facing a temporary cash flow mismatch before considering the possibility of restructuring.” There was some stress in the mining and textiles sectors, she added.

shobha@thehindu.co.in

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Will take necessary steps to ensure liquidity: Subbarao

The Reserve Bank of India (RBI) on Thursday said it would take all the necessary steps to ease liquidity constraints in the money market.

RBI has been buying back government securities to ease the liquidity situation, after having raised key policy rates 13 times since March 2010. So far, RBI has bought back securities worth about Rs 25,000 through open market operations (OMOs). Also, upcoming advance tax payments by companies are likely to add to the liquidity constraint in the market, given companies have to pay advance taxes for the third quarter by December 15.

“In order to ease the situation, so far, we have carried out open market operations for Rs 25,000 crore. We would take all necessary steps to see that liquidity is eased. We are aware of the advance tax payment situation. We will take that into account while assessing the liquidity situation,” said RBI Governor, D Subbarao, at a press conference after its central board meeting in Kolkata.

According to RBI’s guidance, liquidity should remain remain between plus/minus one per cent of net demand and time liabilities, which translates into about Rs 60,000 crore. “In the last few weeks, it has gone beyond that, which means there is liquidity constraint across the system, or for certain banks,” Subbarao said.

In its last policy statement, RBI had hinted at a pause in its hawkish policy stance.

“Further rate action, whether it would be paused, depends upon any unanticipated development. Certa-inly, supporting growth remains our objective,” Subbarao said.

Since November 24, banks have been drawing an average of Rs 1 lakh crore daily from RBI, at a repo rate of 8.5 per cent under the liquidity adjustment facility (LAF). “Whatever instruments we have, OMO and LAF are there...If anything else is required, we would do that for liquidity management,” he added.

There has been a debate over the use of the cash reserve ratio (CRR) as a tool to manage liquidity. The CRR, currently at six per cent, is the proportion of deposits banks need to set aside with the central bank as cash.

“The consideration that goes into a CRR cut, or CRR action, has to be kept in mind. The consideration fundamentally is CRR is not just a liquidity tool, but also a monetary policy signal. And, we are, as of now, still in a situation in which inflationary pressures are high. For the moment, while we want to address the liquidity situation, we don’t want to do it in a way that compromises our monetary stance. So, the use of these tactical measures like OMOs is clearly the way we are going to go,” Subir Gokarn, deputy governor, RBI had said at the bankers' meeting yesterday.

On the possibility of a cut in CRR in the next RBI policy statement, Subbarao was cautious, saying, “I cannot really react to what the market is expecting outside the context of the policy. Whatever we might decide, on the CRR or otherwise, you would have to wait for our mid-quarter statement.” RBI would meet on December 16 to review its monetary policy. To ease inflation, RBI has been raising key policy rates over the last one year.

Source: Business Standard

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Dhanlaxmi Bank officers call truce with management

The Dhanlaxmi Bank Officer's Organisation on Thursday called off its agitation, reaching a settlement with the management over various demands, including bonus, increments, pension and trade union rights.

Shares of the Kerala-based private sector bank rose sharply on the Bombay Stock Exchange, closing at Rs 59.30, 8.41 per cent over the previous close.

The officers' body, affiliated to the All India Bank Officers' Confederation (AIBOC), had alleged the management's mismanagement of affairs had led to asset-liability mismatches, pressure on profits and compromising trade union rights. It had launched the agitation in early October.

Denying the allegations, the management had said the profit in the first quarter stood at Rs 3 crore, and the decline was due to mark-to-market losses. It had also said asset-liability mismatches were inherent in the banking business.

The union had alleged the bank had recruited about 3,000 people on a cost-to-company (C-to-C) basis, with clear understanding that these employees would not be part of the trade union.

The talks between the representatives of the union and the bank in November and December were spread over 10 days at Thrissur, where the bank's headquarters are located.

Elaborating on the settlement AIBOC on Thursday said officers recruited on a C-to-C basis from Scale I-III could shift to the industry pattern. They would also enjoy trade union rights. The bonus and increment denied to 13 officers in 2010 would be paid, along with arrears. Officers who had joined the bank between 2004 and 2010 would get the option of pension.

The union also reached an understanding on issues like the performance management system, future recruitment on the lines of the Indian Banks’ Association, transfers and open-job postings.

Source: Business Standard

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Barclays India freezes retail biz

Mumbai: Barclays India, which has been rejigging its operations, today said it is freezing the retail business in the country, a move that comes a day after it sold nearly half of its credit card business to StanChart India.

"As part of our decision to consolidate and build a sustained profitable Indian business based on our competitive strengths globally, we have decided to not book new retail loans here. However, we will continue to maintain our deposit business, while focusing on wealth management, large corporates and investment banking services. All the existing loans will, of course, continue as normal," said Barclays India spokesperson through an email.

On Wednesday, StanChart India had said that the it bought 1.6 lakh of the 2-lakh standard credit card portfolio of Barclays for an undisclosed sum.

But the bank said it bought cards at a huge discount to the book value of Rs 175 crore. Barclays, which did not confirm the deal officially, has around 3 lakh customers under its credit card business.

The plan to quit the retail business will see at least 150 people getting the pink slip, according to a Barclays insider. This comes four months after Barclays, which is fighting to revive profitability, sacked 50 people here following its decision to merge the sales team of its commercial and investment banking units.

The latest job cuts will represent about 17 per cent of the bank's remaining 850 employees in the country, said the source.

It can be noted that Barclays, which will keep its branch network to satisfy the RBI requirement, is not alone in paring down its retail business. The Royal Bank of Scotland is awaiting RBI permission since July 2010 to sell its retail business to HSBC. RBS has 31 branches here.

The RBI is not ready to give the go-ahead to the deal in the current format as such a move will automatically give away 31 branches to HSBC. RBI has reportedly asked the bankers to rework the deal which would involve HSBC seeking fresh licence from the central bank for each of these 31 RBS branches.

It can be noted that as part of its business revamp plan, Barclays had discontinued its SME business in April. Again in September, the British lender had merged the sales team or the coverage team in Barclays parlance, of corporate banking and investment banking businesses, with the latter. However, the bank continues to run separate product and credit teams.

The according to industry analyst the move comes following the British lender's inability scale its retail and card business, which had not been able to make money so far.

After this rejig, Barclays' focus will be on three businesses: corporate banking which includes large local corporates, large domestic financial institutions, and multinationals, private banking or wealth management, and investment banking.

When asked for such a massive scale down, a Barclays official on condition of anonymity said, "globally we have never been a retail bank. We have been into corporate or wholesale banking along with investment banking and private wealth management."

Under the planned exit of the retail banking business, Barclays will not be taking any fresh clients on the housing, and auto loans as well as credit cards, as their current asset size in to large enough to make money.

Even though the bank officially claimed that it will continue with the deposit or liability business, this will be limited to only premium customers, said the official, "as the focus is not liabilities but assets that too large premium books."

Barclays employs around 11,000 under its three verticals in the country. Banking (1200), Barclays Shared Services, which is its in-house global off-shoring centre and Barclays Technology Centre, which is its tech outsourcing arm. Its retail banking arm, with an estimated asset size of Rs 3,200 crore, employs around 850, according to the source.

The downsizing will also see Barclays exiting Barclays Finance, the non-banking finance company launched in March 2008, apparently because the RBI is not happy with MNC banks expanding their presence through the NBFC route.

Barclays, which has nine branches and 50 distribution points under Barclays Finance in the country, had a loan book of Rs 8,311 crore as of March 2011.

The revamp is aimed at aligning the India operation with its global operations and service large domestic corporates and multinationals here for cross-border transactions, said the Barclays source, adding this is also a result of RBI not favouring foreign banks running NBFC business.

According to RBI data, Barclays' deposit base shrunk to Rs 6,740 crore last fiscal from Rs 7,075 crore the previous year.

Source: Financial Express

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Syndicate Bank shortlists 4 for life insurance venture

Public sector lender Syndicate Bank has shortlisted four firms, three domestic insurance companies — Aviva Life, Reliance Life and Birla Sun Life - and a foreign insurer, Avantha Ergo, for its proposed venture in the life insurance space.

The bank is seeking a 'brand premium' of Rs 300-350 crore and a minority stake in the life insurance company, according to three people familiar with the development. The deal is likely to be finalised in the next couple of months.

According to sources, the bank would prefer buying a stake of around five per cent with an existing domestic life insurance company, instead of partnering a new player to launch a greenfield insurance venture, owing to capital constraints. “Syndicate Bank is likely to go with an existing player. This format would require less capital. It makes more sense to pick up a small stake in an existing company and get up-front fees for allowing distribution of insurance products through its branch network,” said a source, requesting anonymity, since the bank has not yet finalised its insurance partner.

In June, the Manipal-based lender had invited bids from insurance players and shortlisted a dozen insurance companies — nine existing players and three new firms.

A senior Syndicate Bank official confirmed the development. “The process is on. We are evaluating both brownfield and greenfield options. What we want is an efficient partnership. We don't want to use our capital to acquire a majority stake,” he said, adding the bank would follow in the footsteps of its rival Punjab National Bank (PNB), which had recently acquired 30 per cent stake in MetLife. “We are looking to buy a minority stake at a discount. That deal (PNB-MetLife) secured the regulatory approval. Hence, it makes sense to structure our deal in those lines,” the official said.

This transaction would be the third instance of a bank acquiring stake in an existing life insurance company. Axis Bank had bought four per cent stake in Max New York Life, with the deal size estimated at around Rs 75 crore.

Industry sources said in both the deals, the insurers had sold their equity at significant discounts. PNB is believed to have got a discount of Rs 750 crore as MetLife, valued at Rs 12-13 per share, sold its stake at Rs 1 a share.

Sources said Syndicate Bank was seeking a brand premium, since under the bancassurance model, banks' branch networks serve as low-cost distribution channels for insurance companies to sell their products.

A committee set up by the Insurance Regulatory Development Authority had, last week, come out with the draft guidelines on the bancassurance model. It had said banks could partner one insurance company per state in each segment — life, non-life and standalone health insurance. Current norms allow banks to tie up with only one insurance company across all states.

Source: Business Standard

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RBI buys bonds worth Rs 9,000 cr under OMO

As part of its strategy to ease the liquidity crunch, the Reserve Bank of India (RBI) today bought bonds worth Rs 9,092.9 crore under its open market operations (OMO) against a target of Rs 10,000 crore.

Four securities were offered today as part of open market operations (OMO), the central bank said in a statement.

While the government security (G-Sec) maturing 2017 with a coupon rate of 8.07% garnered Rs 1,682.88 crore, 7.83% GS maturing on 2018 had garnered Rs 4,439.85 crore.

Similarly, the RBI purchased 8.13% GS of Rs 1,860.3 crore maturing at 2022 and 8.28% GS-2027 at Rs 1,109.83 crore.

The central bank had already infused liquidity worth Rs 15,218 crore in two tranches in the last 10 days. While it bought bonds worth Rs 9,435.48 crore under its open market operation on November 24, it infused Rs 5,782.95 crore on the first of December this year.

OMOs are the "first preference" of RBI while injecting liquidity and there is an opportunity to raise up to Rs 2.74 lakh crore through the window.

RBI Deputy Governor Subir Gokarn had last week said that liquidity is likely to be under pressure for some more time amid factors like advance tax payment.

Overnight drawings by banks from RBI's liquidity adjustment facility have exceeded Rs 1,20,000 crore and RBI had said in the past that deficit has exceeded its targeted 1% of net demand and time liabilities (NDTL).

Source: Business Standard

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Bank Indonesia sells SBI debt

JAKARTA: Indonesia's central bank sold its nine-month SBI debt on Thursday at a 5.03858 percent rate, lower than 5.22412 percent in last month's auction, absorbing liquidity more than expected.

Bank Indonesia (BI) also sold its nine-month sharia SBI debt at the same rate. It sold 27.29 trillion rupiah ($3.02 billion) of SBIs and 382 billion rupiah of sharia SBIs.

BI kept its benchmark overnight rate at a record low 6 percent on Thursday as anticipated, pausing because it expects recent rate cuts to help to stimulate the domestic economy next year as global growth slows.

The central bank has tried to discourage foreign investors from investing in SBIs as a reversal may hurt the rupiah currency. Foreigners have sold off their SBI holdings since BI required SBI buyers from May to hold the debt for at least six months or risk a penalty.

Foreign ownership in SBIs stood at 15.5 percent as of November, down from 38.9 percent in May, BI data

Source: EconomicTimes

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Bank of England holds interest rate at record-low 0.50%

LONDON: The Bank of England voted on Thursday to hold its key interest rate at a record low 0.50 percent amid turmoil for the British economy and neighbouring eurozone.

"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the BoE said in a statement after a two-day meeting.

"The Committee also voted to continue with its programme of asset purchases totalling £275 billion (323 billion euros, $432 billion) financed by the issuance of central bank reserves."

Later on Thursday, the European Central Bank is expected to cut its own interest rates as the eurozone teeters on recession, while markets are waiting to see what other action the bank takes to shore up the eurozone.

Investors are also eagerly awaiting the start of a crucial EU summit in Brussels, where European leaders will discuss how to resolve the eurozone debt crisis and prevent the breakup of the euro.

In Britain, the BoE's main interest rate has stood at 0.50 percent since March 2009, when the bank also began injecting £200 billion into the economy under the policy known as quantitative easing (QE).

The Bank of England decided in October to increase the amount by £75 billion, as Britain's economy struggles to recover from recession.

QE is a process whereby central banks create new cash that is used to purchase assets such as government and corporate bonds in the hope of giving a boost to lending and economic growth. It amounts to monetising debt.

However, some analysts argue that quantitative easing -- also widely known as printing money -- stokes inflationary pressures.

Economists said the bank would want to see inflation subside before pumping more cash into the economy.

Source: EconomicTimes

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Banking in South — A story of success

South India has had a long tradition of financial institutions. The region has been the birthplace of several banks, not to speak of non-banks and informal (but solid) financial services institutions. The latter includes institutions such as chit funds, nidhis and mutual benefit funds which, due to their peculiarity to South India, have acquired the sobriquet “dhoti-clad institutions”.

Some of these have been around for nearly a century-and-a-half. You wouldn't have heard of them, as they provide their services quietly, yet inclusively. A good example is the Sriman Madhwa Siddhanta Onnahini Nidhi in Chennai, which was started around the time of India's First War of Independence — and is still alive and well. Not surprising, therefore, that South India should have spawned many banks. Today, there is a good mix of both public and private sector banks — ten under each category. All but one or two are doing extremely well, and even those that are not, are on the way back to prosperity. All but two are listed on the stock exchanges and actively traded.

Secret of longevity

The point about these banks is that they have a long history. Take, for instance, the City Union Bank, which is today 107 years old. The public sector Indian Bank is 104, and by a remarkable coincidence, started functioning on August 15 — 40 years before the date would become epochal in Indian history. Indian Overseas Bank is celebrating its 75{+t}{+h} year right now.

Conservatism has been the defining characteristic feature of South Indians and it is not strange that that trait is amply reflected in southern banks. Conservatism, and an approach based more on personal bonds rather than paper bonds, have been the hallmark of south Indian banks, which has given them soundness even if not size.

Steadfast fidelity to trust is the golden thread that runs across all these banks. Promoters of banks have taken varied approach to business, but have never swerved on their fiduciary responsibilities. For instance, while some promoter-managements have been happy to be small and sound (City Union Bank, Lakshmi Vilas Bank, South Indian Bank), a few others have handed over the keys to a larger entity — such as Bank of Madura, which went into ICICI Bank's hands.)

Today, South India is among the best banked regions in the country. The region accounts for 28 per cent of branches, 21 per cent of deposits and 27 per cent of credit of all scheduled commercial banks in the country. It has more bank branches than any other region in the country — again, a reflection of the rich banking heritage. The South had 24,948 branches at the end of March 2011. Comparatively, North had 15,599, East 14,719, Central 17,714 and the West 13,809.

Credit-deposit ratio

What is noteworthy is the credit-deposit ratio, which is the highest among all the (six) regions. In South, 94 per cent of the deposits have been deployed for lending, compared with 78 per cent for the Western region, 47 per cent for the Central, 51 per cent for the Eastern and 82 per cent for the Northern. If you disaggregate the numbers a bit more, you get a clearer picture. South is the only region where the rural C-D ratio exceeds 100 per cent — which means rural people borrow more than they deposit. Comparatively, North is 60 per cent, West is 53, East 39 and Central 29. If you look at semi-urban centres, figures show the South enjoys the highest credit-deposit ratio — 74 per cent, compared with 56 per cent in the North, 29 per cent in the East, 44 per cent Central and 45 per cent of the West. High C-D ratios reflect a good credit culture. But surprisingly, the semi-urban areas of the southern region, which have 33 per cent of the branches, pick up less credit than they deposit.

The semi-urban centres are typically traders and small business-dominated economies. There are two implications of this. First, the semi-urban areas are prosperous — after all, they bring in a fifth of the total deposits of the region, the highest for any region. Second, there is a huge potential for further engagement. 

Source:Business Line

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PNB special savings account scheme

Aimed at disbursement of salary of Government school teachers, the Punjab National Bank has introduced a special savings account scheme — PNB Shikhak Saving Account scheme in Kerala.

The scheme will be a zero balance account with no charges. The teachers will be provided with free ATM/Debit cards and add-on-card, if required.

This will enable the teachers the benefit of multiple ATM card for use of their family members. Free personalised cheque books will also be issued.

For transfer of funds to other Bank accounts anywhere in the country, there will not be any charge for RTGS/NEFT, Mr K. V. Rajesh, Circle Head of the bank, said.

The bank will also provide Internet Banking, Mobile Banking and SMS alert facilities to the account holders. There will be concessions in interest rates for car/housing loans, locker rent and documentation/processing charges.

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Oriental expects Rs 6,500 crore business this fiscal

Oriental Insurance Company (OICL) is targeting Rs 6,500 crore business this fiscal, a top official said on Thursday.

In the next three years, it hopes to touch Rs 10,000 crore. “We are maintaining an annual growth rate of 16.5 per cent. Last year, we garnered business of approximately Rs 5,500 crore. Within the next 3 years we are hopeful of touching Rs 10,000 crore mark,” OICL CMD, Mr R K Kaul, told reporters here.

OICL has a product mix that comprises 10 per cent from fire insurance, 6 per cent marine, 35 per cent motor insurance and remaining in miscellaneous products.

He said the health insurance segment is poised for growth in the years to come.

To a question, Mr Kaul said the settlement ratio was 86 per cent. The pendency of 14 per cent was on account of non availability of requisite documents and procedural wrangles faced due to legal issues.

The company was hosting 930 operational branches and about 250 extension counters. Before the end of this fiscal, another 500 extension counters would be inaugurated.

The total head count was 16,000 and it was planned to recruit 400 officers this year. He said that the insurance products launched by the new entrants in the fray with foreign tie ups had not made a larger dent in the insurance business.

Earlier he opened an extension counter in the temple town of Srirangam, the 25th of its kind in Tamil Nadu.

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Federal Bank on recruitment drive

Kerala-based Federal Bank Ltd will recruit close to 1,500 probationary officers over the next one-two years to make good the retirements that are likely to take place and to create resource to meet its expansion targets.

Close to 1,000 employees of the bank are set to retire in the next two years, Mr Abraham Chacko, Executive Director, Federal Bank, said.

“The banking industry had witnessed massive recruitments during the post-nationalisation period. A majority of these employees are due for retirement over the next two-three years. This is a huge challenge for the industry,” Mr Chacko said at a banking event organised by the Calcutta Chamber of Commerce here on Wednesday.

Federal Bank has already recruited about 1,500 probationary officers over the last one-and-a-half years. Recruitments have to happen to create adequate resources and achieve the bank's ambitious growth target over the next few years, he pointed out.

Growth plans

“We are looking at scaling up our branch network from 825 at present to 1,000 by December 2012. We need manpower to man these branches,” Mr Chacko said.

Federal Bank aims to achieve 20 per cent growth in advances and deposits this fiscal. Large companies account for almost 40 per cent of the bank's total advances, while small and medium enterprises and retail account for about 28 per cent each.

The bank, which currently has one representative office in Abu Dhabi, has also applied for an offshore banking unit in Dubai. “We have applied to the RBI and we hope to receive its nod by early next year,” he said.

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Exim Bank: Bill to enhance authorised capital introduced in Lok Sabha

A Bill to enhance the authorised capital of Exim Bank from the existing Rs 2,000 crore to Rs 10,000 crore was introduced in the Lok Sabha on Thursday.

Also, it has been proposed to empower the Centre to raise the amount of authorised capital from time to time through executive orders. This would imply that Parliament's nod would not be required if the Centre decides to increase the authorised capital beyond Rs 10,000 crore.

The Bill — Export Import Bank of India (Amendment) Bill, 2011 — was introduced in the Lower House by Mr Namo Narain Meena, Minister of State for Finance.

The proposed amendments would enable Exim Bank, which provides financial assistance to exporters and importers, undertake fresh borrowing, borrow to fund commitments under export line of credits, strengthen the capital base, and enhance single/group borrowers' exposure limits.

The Bill also provides for appointment by the Central Government two whole-time directors in the bank .

krsrivats@thehindu.co.in

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Now, pay Rs 500 to close your HDFC Bank savings account

MUMBAI: HDFC Bank, the lender with the highest proportion of low-cost deposits to total, has raised charges on closure of savings bank accounts and other services as it attempts to ring fence customers from flocking to rivals who offer higher rates on these deposits.

It is the first lender to raise such charges probably to save its profitability after the Reserve Bank of India freed up the rates that banks pay their customers in their savings bank accounts, said two bankers who did not want to be identified.

For closure of savings account, an HDFC Bank customer, depending on the nature and tenure of the account, will have to pay a fee of Rs 500 and if the average monthly balance falls below Rs 20,000 in nonurban centres, it will charge Rs 500 a month, according to its website listing various charges effective January 2012.

Source: EconomicTimes

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NHB to raise Rs 4,500 cr in next 6 months

NEW DELHI: Housing finance regulator National Housing Bank (NHB) today said it will raise about Rs 4,500 crore this fiscal to fund housing activities.

"We have already raised Rs 4,500 crore and Rs 4,500 crore will be raised during the remaining period of the current fiscal," NHB Chairman and Managing Director R V Verma told PTI on the sidelines of a Royal Institution of Chartered Surveyors (RICS) event here.

The bank, which is wholly-owned by RBI and follows the July-June financial year, has fixed the refinancing disbursement target for 2011-12 at Rs 12,500 crore against Rs 11,723 crore in last fiscal.

The funds will be raised from different channels like bonds, LIC, banks and financial institutions and international financial institutions and utilised for refinancing housing loans of housing finance companies and commercial banks.

RICS today presented a concept of an affordable house, which uses ready-made materials and reduces the time of construction by up to 90 per cent, mainly for the Tier-II and -III cities. The prototype of the house is expected to be ready in the next one year.

With latest technology and materials, such affordable houses incur construction costs of Rs 900-1,200 per sq ft.

When asked if NHB will give spacial consideration to buyers of such projects, Verma said: "We may have a role in advocating such houses with fiscal benefits once we are convinced that these are economically viable... May be, we will involve in a dialogue with the government to promote this concept of housing."

Source: EconomicTimes

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SKS Microfinance plans to prune micro-lending exposure

HYDERABAD: SKS Microfinance, India's only listed microfinance lender, has announced a derisking strategy wherein it plans to significantly prune down exposure, over the years, to the microfinance sector that has plunged into crisis over the past year or so.

The micro lender has decided to reduce its exposure to microfinance in terms of assets, revenues and profits, said chief executive officer MR Rao and CFO Dilli Raj at a media conference in Hyderabad on Wednesday . The company will launch a wholly-owned subsidiary for its non-microfinance business.

It expects this business, which would largely focus on meeting the needs of existing microfinance borrowers, to help derisk operations from microfinance. "By March 2013, we expect to bring down our exposure to microfinance in terms of assets to 90% from nearly 100% now.

In terms of revenue, the exposure will come down to 80% and in profit terms, it will come down further to around 70%," said Dilli Raj.

Source: EconomicTimes

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IRDA slaps Rs 5 lakh penalty on NIC

The Insurance Regulatory and Development Authority has imposed Rs 5 lakh penalty on National Insurance Company Ltd for violation of certain norms.

Acting on a complaint from a policyholder, the Authority found that the public sector general insurer had violated norms pertaining to policy proposal and repudiation of claim.

There was also delay in informing the policyholder, who had a shop-keeper's policy, about the rejection of the claim, Mr J. Hari Narayan, Chairman, IRDA, said in an order issued on Wednesday.

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IDBI Bank enters into 2 CDS deals with ICICI Bank

IDBI Bank on Wednesday underwrote two credit default swap transactions in respect of REC and IRFC bonds held by ICICI Bank, thus becoming the first public sector bank to enter into such a transaction for managing credit risks associated with Indian corporate bonds.

The CDS transaction involved IDBI Bank selling protection (or insurance) to the private sector bank (protection buyer) in respect of a possible credit default on the latter's holding of REC and IRFC bonds for a notional amount of Rs 5 crore each.

Will boost funding

“The launch of the CDS market in India will encourage foreign institutional investors to invest in domestic corporate bonds. This will provide much needed funding for the projects, including infrastructure sector,” Mr Melwyn Rego, Executive Director, IDBI Bank, said

According to Mr N. S. Venkatesh, Chief General Manager, IDBI Bank, though the CDS transaction involves two ‘AAA' rated bonds, which carry the least risk in terms of probability of credit default, as the market develops it will warm up to transactions in lower-rated bonds.

Ms Shilpa Kumar, Senior General Manager, ICICI Bank, said this transaction marks the formal introduction of local currency CDS market in India and would facilitate the development of the corporate bond market.

The spread (or annual amount the protection buyer must pay the protection seller, expressed as a percentage of the notional amount, over the length of the contract: 1 year) on the transaction, as per the CCIL Web site was 90 basis points (or 0.9 cent).

RBI guidelines

The Reserve Bank of India had issued prudential guidelines on CDS transactions on corporate bonds on November 30, 2011. These guidelines refer to CDS transactions underwritten by the Indian operations of foreign banks, Indian banks and overseas branches/subsidiaries/joint ventures of Indian banks.

kram@thehindu.co.in

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SKS faces collection problems in West Bengal, Gujarat

SKS Microfinance Ltd, which has been hit by the Andhra Pradesh microfinance crisis, is now facing collection-related problems in parts of West Bengal and Gujarat.

“Due to local and process-related issues the collections in some districts in West Bengal and Gujarat have dropped to about 86 per cent,” Mr M. R. Rao, Managing Director and Chief Executive Officer of SKS, told newspersons here on Wednesday.

Earlier, these States had over 92 per cent collections.

West Bengal is the third largest market for the Hyderabad-based company which operates in 18 States.

On the exact reasons for the problem, he said issues involving commission agents were among them.

The problem is now seen in five districts of West Bengal and three in Gujarat.

“We have been dealing with these kinds of issues from time to time,” he said.

SKS has 8.71 lakh and 2 lakh clients in West Bengal and Gujarat, respectively, of a total client-base of about 62 lakh. Of this, 19.25 lakh clients are in Andhra Pradesh alone.

WRITE-OFFs in AP

The company is likely to adopt a phased-approach in writing off the Andhra Pradesh portfolio which has been classified as non-performing, in line with the Reserve Bank of India norms.

“We still have time to write-off the residual risk exposure of about Rs 337 crore. We will exercise flexibility,” Mr Dilli Raj, Chief Financial Officer, SKS said.

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

The only-listed MFI in the country, which posted a loss of Rs 385 crore in the second quarter ended September 30, 2011, is hoping to be profitable by the end of financial year 2013.

This would be done by expanding the non-Andhra Pradesh portfolio and increasing the revenue from non-microfinance business such as gold loan, funding to grocery stores, mobile-phone finance and sale of insurance, he added.

A separate subsidiary for gold loans is likely to be formed next financial year. It also plans to put an upper cap of 3 per cent on the return on assets after operations turn profitable.

SKS hopes to raise at least Rs 400-500 crore as part of its proposed Qualified Institutional Placement before end of March next year.

The company's scrip on Wednesday gained 4.97 per cent on Bombay Stock Exchange to end at Rs 112.95.

nagsridhu@thehindu.co.in

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