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Saturday, December 24, 2011

Allahabad bank to expand branches

COIMBATORE: Public Sector Allahabad Bank has set a target of adding 155 branches and 500 ATMs across the country this fiscal, besides a branch in Bangladesh, a top bank official said today.

Of this, three branches would be opened at Namakakal, Tirunelveli and Thanjavur in Tamil Nadu, which has 51 branches at present, Bank's Executive Director,M R Nayak told reporters after opening its 2,459th branch at Kalapatti in the city.

Having a branch in Hongkong and a representative office in China, the Bank is awaiting clearance for starting a branch in Bangladesh, he said, adding, there were also plans to strengthen Bank's presence in Chennai, Hyderabad, Punjab and Bangalore, to tap business potential by opening more branches.

Stating that the focus of business in Tamil Nadu would be on SME/ MSME, retail loans and agricultural loans, Nayak said the bank has a predominant presence in textile clusters, with over rs.250 crore business volume in Tirupur branch.

Source: EconomicTimes
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Kotak Bank to fund Ace traders

Ace Derivatives and Commodity Exchange today launched a facility, ComFin, to enable seamless financing of commodity deliveries in collaboration with Kotak Mahindra Bank.

“We are delighted to provide this facility to our members and clients. ComFin will address the latent need of funding requirement and will help market participants transact and take or deliver commodities on the exchange efficiently and seamlessly,” Ace Derivatives and Commodity Exchange Chief Executive Mr Dilip Bhatia told reporters here.

The Kotak Group is the majority stake holder in the exchange, which was earlier known as Ahmedabad Commodity Exchange. Ace has completed one year of operations.

The ComFin platform will bridge the gap of short-term funding offer availability. Under the tie-up, Kotak Bank will provide funding to eligible market participants for taking deliveries.

“This is a welcome move by Ace that will help grow the market. It will aid market participants to avail seamless financing and in the longer run help small traders and farmers trade and deliver on the exchange,” Forward Markets Commission Chairman Mr Ramesh Abhishek said.

Kotak Bank President (Commercial Banking) Mr Narayan S A said, “this tie-up is a sustainable model for closer integration of the exchange with its members and clients and is a proof of our commitment to offer high quality banking products and services.”
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SBT, KVB hike NRE term deposit rates

State Bank of Travancore (SBT) has announced a steep hike in interest rates on NRI term deposits.

The new rates are effective from Saturday (December 24) for fresh deposits as well as those being renewed on maturity, a spokesman said here.

As per the revision, interest rate for deposits for a period of one year to less than two years will be 8 per cent (existing rate 3.82 per cent), the highest in recent years.

The interest rate for deposits of a period of two years to less than three years will be 7.50 per cent (3.51 per cent) and for three years and above up to five years, 7 per cent (3.64 per cent), the spokesman added.

Karur Vysya Bank has proposed to effect a hike in its NRE deposit from December 24.

The yield on deposits of one--two-year tenure is being increased to 10 per cent from 3.82 at present, of 2-3-year time period to 9.75 per cent, and those beyond three years to 9.50 per cent.

The revised rates would be applicable on fresh deposits and those that come for renewal.
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Make moolah from Muthoot Finance NCD

As the interest rates are close to peak, many fixed-income investors are trying to lock-into instruments which offer high rates of interest.

To attract such investors, after a pause of four months, Muthoot Finance has come up with its second public issue of non-convertible debentures (NCD).

Muthoot Finance, the largest gold loan company in India, is offering 13-13.25 per cent interest rates on 2, 3 and 5 year tenors. It also has a product which doubles your money in 66 months offering a pre-tax yield of 13.46 per cent.

Investors can consider subscribing to Muthoot Finance's secured NCDs, in light of the very attractive interest rates. However, investors should avoid exposing too much of their debt portfolio to this bond, given the risks inherent to the business.

We think the company's reliance on a single lending product, namely gold loans, carries risks. The rates on the two year option are better than that on deposits from companies with similar credit ratings such as Shriram Transport (9.75 per cent), Dewan Housing Finance (10.5 per cent) and Mahindra Finance (10 per cent).

Given that only annual payout is offered it is a tough to calculate effective yields in the companies. In case of a two-year option, annual interest post-tax works out to 10.7 per cent, 9.5 per cent and 8.3 per cent respectively for an investor in the 10 per cent, 20 per cent and 30 per cent tax brackets (provided they pay tax, as there is no tax deductible at source).


Secured nature of the business with attractive net interest margins, low non-performing assets, credit rating of Crisil AA- (which implies high degree of safety regarding timely servicing of financial obligations and very low credit risk) are key positives.

These offset the risks from the company's heavy reliance on gold loan business and focus on South Indian market. The 63 per cent loan-to-value for the September quarter provides a margin of safety against gold price volatility.

Another advantage which Muthoot Finance enjoys is that the company's loan portfolio is of short-term nature, but the company is increasingly raising longer-term borrowings which reduce the refinancing risk for the company.

More than a 70 year track record in gold financing also gives confidence in the company, however, over the last few years the growth in the company has been very aggressive thanks to sharp rise in gold prices.

Capital adequacy ratio is also another concern as the capital is being consumed very fast by the company due to high rate of growth.

Muthoot Finance may have to raise equity next fiscal. The company's assets under management have grown at 81 per cent over the last four and a half years ended September 2011.

The issue carries a minimum investment amount of Rs 5,000.

The offer has already opened and closes on January 7 2012; with the company having an option to pre-close the issue. The allotment is on a first-come-first-served basis. The issue size is Rs 300 crore with an option to retain another Rs 300 crore oversubscription.

NCD holders can trade in these debentures in the secondary market (NSE and BSE) on listing.

However, investors are subject to liquidity risk given that volumes traded of such bonds are low.
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With cost control, ‘we are confident of making profits in 2011'

HDFC Life Insurance, the industry's third largest private player, expects to report profits this year. It will do this by controlling costs, said Executive Director and Chief Operating Officer, Mr Paresh Parasnis, in an interview with Business Line.

A fellow of the Institute of Chartered Accountants of India, Mr Parasnis' responsibilities include driving and spearheading several key initiatives of HDFC Life, such as setting up branches, driving sales and servicing strategy, leading recruitment, contributing to product launches and performance management system, overseeing new business and claims settlement. Excerpts:

The insurance regulator IRDA has released the final IPO guidelines. When do you plan to come out with an IPO?

We have certain business performance expectations internally and we are regularly reviewing all the parameters to achieve and maintain them. Keeping in mind the current industry scenario, we will wait for stability in our performance and the business parameters to be in line with our expectations before taking the company to the public.

On the other hand, we are also awaiting more clarity on the regulatory framework. Though the IPO guidelines have been finalized, the insurance Bill needs clarity on whether FDI can be increased up to 49 per cent.

IRDA has said that embedded value, and not profitability, will be the main criterion for an IPO. What will be the implications for the insurance industry?

Since the Indian life insurance industry is still in its initial stage, the concept of Embedded Value (EV) to arrive at the valuation of a life insurer is a welcome move and a step in the right direction. An internationally accepted norm, EV is the right measure of calculating a life insurer's valuation. It reflects the future revenue that a life insurer would earn, which is not the case with Indian GAAP profits.

When do you expect to break even?

If we see our performance in the first half of the financial year 2011-12, our total premium has grown by 16 per cent. Renewal premiums have grown by 38 per cent — a very good sign and which reflects our persistence. Conservation ratio (individual business) stood at a very healthy 81 per cent in H1, higher than our peers. The 13th Month persistency ratio was at 80 per cent.

Our expense ratio has come down to 11.9 per cent in H1, compared with 20.2 per cent during the same period last year. Continuous monitoring and focused efforts on controlling cost put in last year have helped reduce the operating expense ratio. Capital infusion has been scaled down over the last 3 financial years with no additions in the current fiscal. Generation of surplus on existing policies has reduced the need for capital draw-downs.

All these would start reflecting well on our profitability as we move forward. So we are not only confident of breaking even, but also of making profits this year.

What is your fund raising plan for this year?

Based on our business plan during the start of the financial year 2011-12, the total capital requirement was expected to be around Rs 100-120 crore. Based on our business performance during the first half of this year, and the fact that there has been no capital infusion during this year so far, we expect to manage the year without any capital infusion.

How much does bancassurance contribute to your overall portfolio? Do you see it changing?

Bancassurance's contribution to our overall portfolio has always been about 60 per cent. In the Indian life insurance industry, the bancassurance model has proved to be the most successful and profitable so far. So, we expect bancassurance to continue to contribute a majority share to our overall sales pie. At the same time, however, we are focusing on scaling up our other distribution models such as retail, direct, online, and broker channels.
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SBI to launch mediclaim facility soon

India’s largest lender State Bank of India (SBI) will soon launch mediclaim and accidental insurance facility for its savings bank account holders over nominal charges.

The scheme is likely to be launched in January or February 2012, SBI chairman Pratip Chaudhary said here on Tuesday.

“We are holding a meeting of SBI general managers in Lucknow, wherein the contours of the insurance scheme would be given a final shape before it is launched in New Year,” he told to reporters here this evening. He, however, said the scheme would be almost 50 per cent cheaper than the prevailing mediclaim and accidental insurance policies in the market. Earlier, SBI had submitted proposal to the Centre to raise Rs 20,000 crore through rights issue.

The bank requires funding for its growth plans in near future.

During his Lucknow visit, Chaudhary will formally launch the defence banking branch and unveil ‘Bank on Wheels’ under financial inclusion.

Source: Business Standard
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Friday, December 23, 2011

Bank not at fault if ATM card misused

New Delhi: A person cannot claim damages from bank if he fails to immediately block his lost ATM card and money is unauthorisedly withdrawn by using the card, a district consumer forum has said.

It said the bank would have been liable if the transaction of withdrawal of money took place after blockage of the card.

A bench of Central Delhi District Consumer forum passed the order while dismissing a complaint filed by a Faridabad resident Deepa Singh alleging that bank is liable for the compensation as it allowed illegal withdrawal of money from her account after she lost her ATM.

"Singh was having the PIN number and without that PIN number, the ATM card could not have been used. First the money was withdrawn and only thereafter the bank was informed to block the card.

"The bank complied the instructions of the complainant. The bank would have been liable if transaction of withdrawal of the amount would have taken after the blockage of the card by it," the forum said.

The forum presided by its president B B Chaudhary also refused to pass any order against the bank for its failure to provide her video footage of the person who had used her ATM.

"The bank cannot be held liable merely because it could not provide the CCTV footage of the relevant time of the withdrawal of money. The CCTV is a machine and it may not function at a particular time," it said.

The forum further said that the PIN number of the ATM card was only with Singh and without it money could not have been withdrawn and the bank was told to block the card only after the amount was withdrawn.

Singh had submitted that at the time of issuance of card, the bank had assured her that if somebody would withdraw money from her account without her knowledge, it would provide her video clipping but in July 2010, the bank informed her that the camera was not working at the relevant time and video clippings could not be provided.

But the forum was not satisfied and dismissed her plea saying, "only card holder can be held responsible if the ATM card/Debit card is misused fraudulently."

Source: Financial Express
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RBI slaps Rs 5-lakh fine on Gondal Nagrik Sahakari Bank

The Reserve Bank of India has imposed a penalty of Rs 5 lakh on cooperative sector lender Gondal Nagrik Sahakari Bank for its failure to adhere to the guidelines on disclosure of loans to directors.

“The RBI has imposed a monetary penalty of Rs 5 lakh on Gondal Nagrik Sahakari Bank Ltd... for granting loans to directors, not correctly reporting loans to directors to RBI in the statutory returns on advances to directors...,” the apex bank said in a statement.

Gondal Nagrik Sahakari Bank was also found guilty of not submitting cash transaction reports to the Financial Intelligence Unit-India (FIU—IND).

The RBI had earlier issued a show-cause notice to the bank in response to which the bank submitted a written reply.

“After considering the facts of the case and the bank’s reply as also personal submissions in the matter, the RBI came to the conclusion that the violation was substantiated and warranted imposition of the penalty,” the statement said.
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SBBJ's ‘Ready Money' deposit scheme

The State Bank of Bikaner and Jaipur on Friday launched a new-term deposit, Ready Money, which carries 8.50 per cent interest for any period between seven and 180 days.

The new deposit scheme is meant to attract high-value liquid funds from various segments including individuals and companies, Mr Shiva Kumar, Managing Director, State Bank of Bikaner and Jaipur, said in a release.

“Apart from providing high return for short period, it also gives high liquidity, since the penalty for prepayment has been waived for this product,” Mr Shiva Kumar said.

Minimum deposit

Under this product, the minimum deposit required is Rs 50 lakh.

The bank also increased its one-year deposit rate from 9.25 per cent to 9.50 per cent with effect from Friday.
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IRDA dismantles motor third party pool

The Insurance Regulatory and Development Authority has created a Motor Third Party Declined Risk Insurance Pool.

It provides mandatory third party cover for commercial vehicles.

The existing motor third party pool will be dismantled with effect from March 31, 2012. The motor third-party pool was created in 2007.

In an order issued on Friday, IRDA said the existing motor third party pool is eroding interest of the policyholders besides causing financial stress to the general insurance companies.

The newly-created declined pool would be applicable to all commercial vehicles for standalone third party insurance which is mandatory as per Motor Act.

No proposal for insurance cover from commercial vehicle owners should be rejected by any general insurer. The General Insurance Corporation would act as the pool administrator.


When contacted Mr J. Hari Narayan, Chairman, IRDA, told Business Line that in the medium term, the premium rates for commercial vehicle owners were expected to come down.

“I hope, with the action I have taken today, the claims in this segment will be managed better which facilitates lower premium rates,'' he said.

All general insurers would now have to be more responsible for the policies they underwrite as well as to the industry because of the new pool, he added.

For industry, the decision would mean an infusion of over Rs 7,493 crore which is the expected ultimate loss for Motor Third Party Pool during 2010-11 as per IRDA data.

“The insurance companies should take responsibility even for the losses and share them,'' Mr Hari Narayan said.

A method based on sound actuarial principles has been worked out by the regulator.

As for the provisional figures, the public and private general insurers may have to bring in Rs 4,000 crore each to dismantle the poll by honouring all commitment.

A senior official of ICICI Lombard said the industry has been preparing for providing for losses by maintaining reserves.
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NHAI to launch tax-free bonds

New Delhi: Unfazed by uncertainty in the capital markets, the National Highways Authority of India (NHAI) will launch its first ever tax-free bonds issue of Rs 10,000 crore on December 28.

The issue will close on December 30, a senior Road Transport Ministry official said.

The official further said the interest (coupon) rate of the bonds issue will be between 8 to 8.5 per cent, while refusing to disclose the exact number.

"A formal announcement will be made tomorrow by Road Transport Minister C P Joshi and you should wait for that," the official said, adding that the money raised from it will be used to partly finance various National Highways projects under different government schemes.

Some money will also be used for viability gap funding for BOT (build-operate-transfer) road contracts, the official added.

As per the prospectus filed by NHAI with the market regulator SEBI, the bonds will have two maturity periods of 10 and 15 years, and would get listed on the BSE and the National Stock Exchange.

In this year's Budget, the government had allowed NHAI to raise Rs 10,000 crore from the tax-free bonds, an instrument never used by it earlier. Till now, it used to raise funds through issue of 54EC bonds, under which subscribers can claim exemption of capital gains tax.

Citing the provisions of Income Tax rules, the NHAI prospectus has, however, clarified that only the interest earned on the new bonds will be tax-free, not the actual investments.

Moreover, investors will be liable to pay capital gains tax as applicable, it further said.

According to the NHAI prospectus, the bonds issue will worsen its debt to capital ratio from 0.11 to 0.29 if it raises Rs 10,000 crore from the markets. The debt to capital ratio reflects the financing strengths of a firm, higher the ratio, the more debt company has compared to its equity.

As on June 30, 2011, the NHAI's total debt (including secured loans) stood at Rs 6,636.21 crore.

The bond issue has got AAA (stable) rating from the three agencies -- Crisil, CARE and Fitch.

SBI Caps, ICICI Securities, Kotal Mahindra Capital and AK Capital Services have been appointed as the lead managers by the NHAI for the bonds issue.

Source: Financial Express
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RBI relaxes cap on transactions via mobiles

Mumbai: With a view to allowing customers to transfer bigger amounts and in line with growing popularity of the system, the RBI removed the Rs 50,000 transaction limit through mobile phones.

"On a review it has been decided to remove this cap (of Rs 50,000 per customer per day)," the Reserve Bank said in a notification.

The central bank, however, added that lenders may place per transaction limits based on their own risk perception with the approval of their boards.

It said banks are increasingly extending mobile banking facilities to their customers.

"Interbank Mobile Payment Service (IMPS) developed and operated by National Payment Corporation of India (NPCI) has also enabled real time transfer of funds through the medium of the mobile phone between accounts in different banks. The volume and value of mobile banking transactions is also showing an uptrend," the RBI said.

The cap of Rs 50,000 was fixed by the apex bank in 2009.

RBI's latest decision comes a few months after it doubled the transaction cap on small money transfers through conventional means to Rs 10,000 with a view to facilitating fund transfers to people, particularly migrants, who do not have bank accounts.

Source: Financial Express
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RBI raises alarm over corporate loans

Mumbai: The Reserve Bank of India (RBI) today said Indian companies may find it difficult to repay loans as rising input cost is putting pressure on their profit margins.

"The outlook of the firms shows signs of weakness which can be attributed to rise in input prices, interest rates, slackening demand and some infrastructural constraints.

Servicing of loans by them, therefore, may come under stress," said the RBI's Financial Stability Report (FSR).

It said the profit margin of the corporate sector has dipped, which indicates its reduced pricing power in the wake of rising raw material and input costs.

"The rising share of interest cost in sales as well as gross profits so far, implies that the impact of monetary tightening on the margins of corporates are now becoming visible," the RBI said.

The RBI has hiked rates 13 times since March, 2010, and industry believes the rising borrowing cost is putting pressure on margins as production is getting impacted.

It said restructured and impaired assets increased in telecom and power sectors. "The fact that incremental credit to these sectors was also high-- higher than the aggregate growth in banking sector credit-- called for careful monitoring of asset quality in these segments," RBI said.

The report further said that the bank's asset quality has come under pressure due to the adverse impact of inflation on growth and various other factors.

It said that higher interest expenses and higher provisioning requirements put some pressure on bank's profitability even as efficiency ratios continued to improve.

"Going forward, earnings may be further stressed due to the impact of high deposit rates, potential slowdown in credit growth and deterioration in asset quality," it said.

Further, India's external sector faces risks due to decreasing growth in world trade volumes and weakening global demand.

"Going forward, exports may moderate further if the slowdown in advanced economies persists," RBI said.

Source: Financial Express
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With restrictive regulations, banks do not have great ability to attract household savings: Vijaya Bank chief

From a bank's perspective, savings bank is an operative account, and banks need paraphernalia to manage the portfolio. If the savings bank portfolio is higher, the impact of the deregulated savings rate regime would be high, Mr H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank, told Business Line.

Excerpts from the interview:

How is Vijaya Bank gearing up for the deregulated savings rate regime?

We are waiting and watching. From the point of view of depositors, we are happy that today they are in a position to get improved returns on their hard-earned savings. But from the bank's point of view, we should not forget that savings bank is an operative account.

So banks need paraphernalia to manage portfolio. A crude estimate can put the operating cost between 1.5 and 2 per cent. We have to weigh options — should I continue with all freebies or should I give this benefit to those in certain segments? Should there be a geographical basis for higher interest rates?

I feel, whatever differential interest rate is to be given, to start with, it has to be given above the cut-off of Rs 1 lakh. A cursory analysis in Vijaya Bank has shown that about 70 per cent of my deposits are over Rs 1 lakh amounting to about Rs 9,500 crore.

On that, if I offer 2 per cent higher interest, then the per annum impact on that is Rs 190 crore. This is one quarter's profit for the bank. For smaller banks, it is not so simple. But irrespective of the size of the bank, if the savings bank portfolio is higher, then the impact will also be high.

How do you plan to augment your non-interest income?

Treasury has not been contributing much in the first and second quarters. The only way I can augment this is by marketing third-party products — life and non-life insurance. We are extending the marketing of life products to 20 major centres across the country by December 31. We are also beginning marketing of mutual funds.

The second thing is, we are canvassing more and more export advances as these bring both treasury and fee-based incomes.

The third area is, we are slowly but gradually moving towards working capital limits. Today we are all focusing on term loans — for infrastructure, housing, industries, etc. We are trying to get cash credit, overdraft, bank guarantee and LC (letter of credit) relationships. These will bring in some amount of fee-based income.

Fourth, we are broad-basing borrowing customers. What happens in public sector banks is that in the anxiety to grow the balance-sheet, rather than widening, you are deepening. You are not bringing new customers.

For one PSU or one AAA-rated company, if today, you have an exposure of Rs 200 crore, in 12 months' time it becomes Rs 1,200 crore. These large corporates don't give you any fee-based income. There are hardly any processing charges, hardly any upfront fee. So we are trying to rebalance that portfolio which, without any great effort, will bring in higher fee.

Also, we have moved our application for increasing the number of branches nominated for both direct and indirect tax collections. But we have not received approvals so far. I get some amount of fees per collection. These efforts are however small drops in the ocean. They can make a change only over a period of time.

What kind of opportunities do mid-corporates provide?

It is a known fact that mid-corporates and small borrowers offer better yield to the bank. Large corporates have greater bargaining power and their ability to get concessions from bank is really high.

This is because they lead to bulk advances and have the potential to help banks grow their balance-sheets. Whatever interest concessions the system makes available to well managed and better-rated corporates, have to be made good by capturing other allied businesses. Fee-based business such as treasury, forex, remittances, payroll accounts and offering third-party products will bring better yields.

That is not the case with mid-corporates. For mid-corporates and small and medium units, the interest spreads are better and the ability to capture all other businesses is also high. And, therefore, there tends to be a rebalancing of portfolio depending on what your priorities are.

At our bank, the growing emphasis is on retail, mid-corps and SMEs. This is provided in our business theme for the current year itself, which is the year of retail.

What is your next step on the technology front?

Business analytics is something which all of us are talking about. But we are currently in a situation where a lot of extra costs are to be met and so IT spend is optional. Core banking is something we have already achieved. MIS also, we are almost there.

Though analytics is important over the long term, it need not be brought in immediately. IT progression will happen. But, as of now, we will improve upon things in CBS. And, of course, increasing the ATM population is something we have committed to. I would like to achieve a branch versus ATM ratio of 1:1. So we will do that.

Do banks need to expand their product offerings to get more household savings into the banking sector?

With the deposit structure that is there today and the restrictions in yield enhancements, banks are not well placed to do that. But one thing that we can do is perhaps wealth management. That also is not discretionary.

With restrictive regulations, we do not have great ability to attract household savings. Hence, a portion of that will definitely go elsewhere. If we are permitted to launch gold deposit schemes, we perhaps can attract more savings.

This was tried once in the past, but did not pick up, because gold in the Indian household is not fully accounted for. So it will not come to the formal channels. Hence there are challenges.

Savings bank is an operative account. So banks need paraphernalia to manage the portfolio. A crude estimate can put the operating cost between 1.5 and 2 per cent.
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Thursday, December 22, 2011

Government may borrow $9.5 billion by pledging property & shares of ITC, L&T and Axis Bank

MUMBAI: Government plans to borrow up to Rs 50,000 crore ($9.5 billion) by pledging property and shares to bridge the budget deficit, Reuters quoted Bloomberg news agency on Thursday, citing unnamed government officials.

Shares in companies such as cigarette-to-hotels group ITC, engineering conglomerate Larsen & Toubro and Axis Bank held by a state-controlled fund could be offered as collateral to raise the cash, Bloomberg said.

The cash will be used by a newly-created fund manager to buy stock in state-run companies and help the government's Rs 40,000 crore divestment programme for the fiscal year that ends in March, it said.

Revenue deficit and gross fiscal deficit of the government in April-September this fiscal were higher than that in the same period last fiscal mainly due to large refunds under direct taxes.

Revenue deficit and gross fiscal deficit of the government in April-September this fiscal were higher than that in the same period last fiscal mainly due to large refunds under direct taxes.

Gross tax collections during the period were reported at 39.6 per cent of Budget Estimates. These were 43.4 per cent lower than that recorded in the year ago period.

In the direct taxes, corporation tax collections showed a moderate growth of 3.4 per cent due to large refunds while personal income tax increased by 17.3 per cent against budgeted growth rates of 21.5 per cent and 16.2 per cent, respectively, for FY-12.

Among the major indirect taxes, collections from customs duty and service tax showed growth rates of 22.5 per cent and 37.5 per cent, respectively, during April-September 2011 as against budgeted growth rates of 15.1 per cent and 18.2 per cent.

Global finance major Citigroup has said the Indian government's fiscal deficit could widen to 5.8 per cent of the GDP in 2011-12 on account of lower tax mop-up, slippage in its PSU divestment programme and the spiralling under-recoveries of oil companies.

The Centre also said it will not be easy to restrict the fiscal deficit to 4.6 per cent in 2011-12 on account of uncertainty on the disinvestment front and a likely increase in subsidies, but maintained that the slippage will be minimal.

Source: EconomicTimes
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EPFO may lower interest rate to 8.25%

New Delhi: The advisory panel of retirement fund body EPFO has recommended a lower rate of interest of 8.25 per cent for the current fiscal compared to 9.5 per cent last year, a move that will affect over 4.7 crore subscribers.

The unions' representative on EPFO's advisory body, Finance and Investment Committee (FIC), has demanded maintaining the rate of interest at 9.5 per cent for 2011-12.

"FIC opined that payment of 8.25 per cent rate of return to its 4.7 crore subscribers during this fiscal is feasible," a source privy to the development said after a meeting today.

"The unionists present in the meeting demanded maintaining 9.5 per cent rate of return as given in 2010-11 and pointed out inaccuracies in income projection for this fiscal by EPFO officials," the source added.

Now FIC's recommendations would be tabled before the Employees' Provident Fund Organisation's (EPFO) apex decision making body, the Central Board of Trustees' (CBT), headed by labour minister for taking a final call on the issue in its meeting scheduled tomorrow.

The source said the employees' representatives in the FIC meeting sought clarification about the income estimation error which was Rs 458.73 crore.

They pointed out that when rate of return on over 85 per cent of the investment made by the EPFO is fixed, how could they calculate this amount on entire possible income of the body.

EPFO has reduced 2.5 per cent (Rs 458.73) crore as estimation error from estimated income of Rs 18,349.20 crore and projected an income of Rs 17,890.47 crore. The unionists are of the view that if this estimation error is factored in properly, then EPFO can spare around Rs 400 crore which is sufficient to pay additional 0.25 per cent over projected 8.25 per cent rate of return this fiscal.

According to estimates worked out the by the EPFO, the payment of 8.25 per cent of interest rate during 2011-12, will result in a deficit of a mere Rs 24 lakh.

It further pointed out that payment of 8.5 per cent rate of return to its subscribers will leave a deficit of Rs 526.44 crore.

The unionists, on their part, also raised the issue of interest income on the inoperative accounts on which EPFO has stopped paying interest rate from April 1, 2011, to the subscribers.

Inoperative accounts are those account which have not received any contribution for 36 months or more. There is about Rs 15,000 crore lying in those account, which was also invested and was yielding some returns, it was pointed out.

However EPFO was not clear on the issue whether the income on these inoperative accounts would be distributed among live accounts or kept as reserves when unionist asked their stand on the issue.

Source: Financial Express
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YES Bank hikes savings bank rate by 100 bps

YES Bank has hiked interest rate by 100 basis points to 7 per cent on savings bank deposits with balances of over Rs 1 lakh.

The bank offers 6 per cent interest on savings bank deposits for balances below Rs 1 lakh.

This is the second time that YES Bank is hiking interest rate on savings bank deposits after the RBI deregulation.

For the non-resident savings accounts (NRE and NRO), the bank has raised the interest rates by 200 bps to 6 per cent for balance of up to Rs 1 lakh and by 300 bps to 7 per cent for over Rs 1 lakh balance, said a press release issued by the bank.

Further, the interest rates on NRE Fixed Deposits, which were earlier regulated and linked to LIBOR, has also been increased to mirror the resident term deposit rates of 1 year and above, with a peak rate of 9.6 per cent currently. This is in response to the recent development where the RBI deregulated the non-resident deposit rates, said the release.
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Karnataka Bank raises NRE deposit rates

Karnataka Bank Ltd has increased interest rates on NRE deposits with effect from December 19.

A bank release said here that the bank has increased the interest rates on NRE deposits from 3.82 per cent to 9.75 per cent for one year to less than two years; from 3.51 per cent to 9.50 per cent for two years to less than three years; and from 3.64 per cent to 9.50 per cent for three years to five years.

The above rates are applicable to all fresh NRE term deposits and renewals of maturing deposits from December 19.

The bank hopes to accelerate the flow of foreign funds with the enhanced interest rates, the release added.
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Lok Sabha approves Bill to raise capital of Exim Bank

The Lok Sabha has given its nod for a Bill to enhance the authorised capital of Exim Bank of India from the existing Rs 2,000 crore to Rs 10,000 crore.

This Bill — Export Import Bank of India (Amendment) Bill, 2011 — was passed after Mr Namo Narain Meena, Minister of State for Finance, assured the Lower House that supremacy of Parliament was not being diluted and that Members of Parliament would have a say in future capital enhancements of Exim Bank.

“Capital infusion is made through Budget provision. It will have to come to you for approval,” Mr Meena said, responding to opposition members' concern over an open-ended provision in the Bill.

The Bill seeks to empower the Centre to raise the amount of authorised capital of Exim Bank from time to time through executive orders. Opposition parties criticised the UPA Government for its increasing tendency to bypass Parliament for taking crucial economic decisions.

Recently, in the case of Life Insurance Corporation, the Centre had moved a similar provision whereby it would have the powers to increase capital from time to time through executive orders. However, with the Left parties opposing such a move, the Centre modified its proposal and agreed to LIC Act amendment every time its capital needed to be increased.
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Three South-based banks hike NRE deposit rates

Karnataka Bank Ltd has increased interest rates on NRE deposits with effect from December 19.

A bank release said here that the bank has increased the interest rates on NRE deposits from 3.82 per cent to 9.75 per cent for one year to less than two years; from 3.51 per cent to 9.50 per cent for two years to less than three years; and from 3.64 per cent to 9.50 per cent for three years to five years.

The above rates are applicable to all fresh NRE term deposits and renewals of maturing deposits from December 19.

The bank hopes to accelerate the flow of foreign funds with the enhanced interest rates, the release added.

South Indian Bank has also hiked its NRE term deposit rate for all maturities from 3.82 per cent to 6.75 per cent. This revision was effected from December 19.

The bank has in a circular stated that interest on NRE deposits are tax free and both — deposit and interest — freely repatriable.

Lakshmi Vilas Bank

Lakshmi Vilas Bank has also decided to hike the interest rate on NRE deposits bringing the rate closer to resident deposits.

The new rates would come into effect from December 22.

For deposits in the one-to-two-year maturity slab, the rate has been raised to 10 per cent and for the 2-3-year bucket to 8 per cent and those maturing beyond the three-year period to 7 per cent.
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United Bank plans Rs 100-cr bond issue

United Bank of India plans to raise about Rs 100 crore through non-convertible bonds to augment its lower Tier-II capital, according to a company notification to the BSE. The bank proposes to issue unsecured, subordinated, redeemable, non-convertible bonds in the form of promissory notes of Rs 10 lakh each, for Rs 100 crore. The issue has been rated AA+ by Care and AA+/Stable by Crisil.

The bond issue will have green-shoe options to raise additional Rs 100 crore on private placement basis. The bank will intimate the coupon rate and the date of opening of the issue in due course.
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Credit growth likely to be 15-16% this fiscal, says DCB Bank CEO

DCB Bank is likely to end the current financial year with a 15-16 per cent growth in loans and over 20 per cent growth in deposits. The bank is looking to lend more to the micro, small and medium enterprises and retail segments, said Mr Murali Natarajan, Managing Director and CEO.

SB rates

The private sector bank is not looking to increase savings bank deposit rates and will wait for bigger banks to take the lead, he said on the sidelines of a press conference to announce its pre-paid card, jointly with ItzCash and Visa.

The share of MSME and SME loans is 25 per cent and the target is to increase it to 40 per cent in three years. The segment has seen a year-on-year growth of 30 per cent.

Prepaid card

The card is a prepaid card in the open loop category, which means it can be used at 5 lakh Point of Sales (POS) terminals that are part of the Visa network. It will be accepted at over 10,000 ItzCash merchants for digital payments.

The initial load is Rs 1,000 and it can be reloaded with a minimum amount of Rs 250 and a maximum of Rs 50,000.

It comes with a five-year validity and can also be used to withdraw cash from over 65,000 ATMs and PoS.

Cardholders also have the option to open no-frills accounts with DCB Bank.

To begin, it will be available at all ItzCash franchisees and within three months it will be available at all DCB branches.

The issue charge for the card is Rs 50 in the initial phase of the launch and it would be later hiked to Rs 100. The annual fee is Rs 20.

DCB Bank will target to issue at least 10 lakh Freedom Prepaid Cards and open about one lakh no-frills savings bank accounts, Mr Natarajan said.

The bank currently has a CASA share (current and savings account) of 33 per cent.

“Our focus is on getting more CASA,” Mr Natarajan said.
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Dewan Housing eyeing over 30% loan growth this fiscal

Banking on strong demand from semi-urban and rural areas, housing finance company, Dewan Housing Finance Ltd (DHFL), is targeting disbursements aggregating Rs 8,800 crore by March 2012, an increase of around 33 per cent over last year.

In July-September 2011, the disbursements had increased by 28 per cent to Rs 2,139 crore. Total disbursement in 2010-11 was Rs 6,505 crore.

The company is seeing between 35 per cent to 50 per cent growth in Punjab, parts of Tamil Nadu, Kerala and Gujarat. This trend is likely to continue, said Mr Anil Sachidanand, CEO, DHFL.

The company, on Tuesday, launched DHFL Express - Home loan on wheels, in Mumbai.
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Wednesday, December 21, 2011

SBI's teaser home loans set to pinch borrowers more

Bank will charge floating rates of interest from January.

Home buyers who had taken loans from State Bank of India (SBI) under the so-called ‘teaser rate’ housing loan schemes three years ago, will now have to pay more. The bank will start charging interest on these loans on a floating rate basis from January 2012.

The housing loan schemes — SBI Easy Home Loan and SBI Advantage Home Loan — were launched by the bank’s previous chairman, O P Bhatt, in January 2009, with a fixed rate of interest for the initial three years. The bank, which first modified the schemes and finally discontinued these after Bhatt retired, has Rs 25,000 crore in these two schemes.

According to senior SBI officials, about Rs 3,000 crore of home loans under these schemes will be charged on a floating rate basis in the January-March quarter. The interest rate is expected to increase by 175-225 basis points.

“About Rs 1,000 crore (teaser rate home loans) will move into the floating rate regime every month from January 2012. The rate of interest will be 10.75-11.25 per cent, depending on the ticket size,” a senior SBI official said, requesting anonymity as he was not authorised to speak to the media.

Under the SBI Easy Home Loan scheme, where the bank was offering loans up to Rs 30 lakh, the interest rate was fixed at eight per cent in the first year and nine per cent for the next two years. For home loans above Rs 30 lakh, the SBI Advantage Home Loan scheme offered eight per cent fixed rate of interest for the first year and 9.5 per cent for the next two years. From the fourth year, the interest rates on these loans were linked to the bank’s benchmark prime lending rate.

However, interest rates on banks’ loan products are now linked with the base rate, or the minimum lending rate, introduced by the Reserve Bank of India (RBI) in July 2010.

SBI would now link the teaser-rate loans to their base rates. The lender currently offers home loans at rates 75-125 basis points higher than the base rate. The bank’s base rate is 10 per cent.

Both the housing loan schemes were modified with minor changes in the interest rate before they were discontinued earlier this year.

The bank’s officials, including present chairman Pratip Chaudhuri, however, dismissed fears that a higher interest rate burden for home loan borrowers would further stress the lender’s asset quality.

“It will not dramatically increase the risk of defaults,” Chaudhuri told Business Standard.

SBI’s asset quality has been deteriorating in the recent quarters, with the delinquency rate rising amidst an uncertain economic environment. In the fourth quarter of 2010-11, SBI’s net profit fell 99 per cent from a year earlier, as it had to make higher provisions due to a rise in bad loans. The bank’s net non-performing ratio was 2.04 per cent while the gross bad loan ratio was 4.19 per cent as of September.

SBI officials said the bank had done due diligence before offering loans under the teaser rate scheme and remained confident there would not be any significant slippage in the portfolio.

“The bank had done due diligence on the repayment capacity of these borrowers while sanctioning the loans. We had tested if they could repay the loans once the rates hardened. Our customers were fully aware of the terms and conditions and this increase will not come as a surprise for them. We don’t expect any significant deterioration in credit quality,” said another official of the bank.

Also, since the interest rate cycle appears to have peaked, the floating rate on these home loans may come down once SBI starts reducing its lending rate. That would ease the repayment burden of its borrowers, SBI officials said.

The teaser rate loans did not find favour with RBI, as the banking regulator felt they would stress the asset quality once the rates were changed from fixed to floating. RBI raised the provisioning requirement on these loans to two per cent from 0.4 per cent, prompting banks and housing finance companies to withdraw such schemes. The SBI official said the bank had already made adequate provisions on loans given under the schemes.

Source: Business Standard
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SKS Microfinance to raise FII investment limit to 74%

SKS Microfinance, India's only listed microlender fighting a cash crunch, said on Wednesday its shareholders approved raising the investment limit of foreign institutional investors in the company to 74 percent from 24 percent.

Battered down shares in SKS rose 5 percent to 98.40 rupees following the news.

Earlier this month, SKS said it plans to raise a maximum of 5 billion rupees ($97.25 million) through a share sale to institutional investors by March 2012.

Source: EconomicTimes
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RBI cuts currency open position for banks by up to 75%

MUMBAI: The Reserve Bank of India has cut banks' net open position limits in currency trading by as much as 75% for some, and at least by half for most of the top traders, in its attempt to end speculation on the rupee, said three people familiar with the matter.

After robbing bank boards off the powers to determine the overnight positions, it is monitoring day transactions where it is liberal in intra-day trading positions which banks are not keen, said those people who did not want to be identified.

"It is quite drastic," said one of the bankers who have been directed to reduce positions without disclosing how much his bank's position has been reduced to. "For some of us, it is almost as good as nothing at all," he said.

RBI on December 15 unleashed a series of measures to arrest the fall of the rupee, including taking powers from the board to determine the overnight position, the net overnight dollar position a bank can hold, to save the rupee from falling steeply. It also took off the flexibility to cancel or rebook the forward contracts.

Hedging based on past three-year average imports was cut to 25%, from 75% making them deliverable. The domestic currency which has fallen about 20% this year, recovered from its lows of 54.20 after these measures, but has since started sliding again. It ended at 52.87/88 on Tuesday.

While the central bank's move has halted the sharp slide in the currency value, it could dry up liquidity in the currency market and reduce the earnings of many banks that have been benefitting from rupee volatility.

"Opportunity has been curtailed," says Moses Harding, head of economic research and asset and liability committee at IndusInd Bank. "Banks running proprietary positions will obviously take a hit on their other income. To that extent, banks' trading income will come down. Also, inter bank-volumes will start thinning," he added.

But the hedging activities of the corporations may not be hurt since the central bank has said the overnight positions could be breached, if it is for a client. "We are trying to cope with the fresh restriction," said another banker. "The open positions for some large banks which was about Rs 100 crore has been slashed to about Rs 50 crore," said the treasury head of a private sector bank.

"But the central bank has clarified that a bank could exceed NOOPLs if it is on account of a particular customer transaction."

Source: EconomicTimes
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Muthoot Finance's Rs 600 cr NCD issue kicks off tomorrow

Jaipur: Gold finance company Muthoot Finance Limited today said it will raise up to Rs 600 crore through a public issue of Non-Convertible Debentures that kicks off tomorrow.

The public issue of secured, redeemable NCDs will open tomorrow with four investment options and closes on January 7, 2012.

“The company will utilise the funds raised through the issue for various financial activities, which include investments and lending,” Muthoot Finance Chief General Manager K R Bijimon said here today.

He said the company also plans to expand its operations in the state and increase its branches from the existing 97 branches.

Source: Financial Express
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