Central Bank of India hikes short-term rates

Fund crunch in the banking system is beginning to show clearly. Banks are announcing a steep increase in short-term deposit rates to attract funds from depositors.

Central Bank of India has just flagged off a sharp hike in very short-term rates (in different tenors of 7-90 days).

In the shortest time bucket of 7-14 days, the bank has lifted interest rates by 270 per cent from 2.5 per cent to 9 per cent.

In the next bucket of 15-45 days, rates are up 80 per cent. This has gone up from 5 per cent to 9 per cent. And in the 46-90 days bucket, rates are up from 5.25 per cent to 9 per cent.

These rates come into effect from March 12, a bank press release said.

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Finance ministry intensifies efforts to merge regional rural banks in states

Despite heavy resistance from unions, the finance ministry has intensified its efforts to merge regional rural banks (RRBs) within a state. The ministry has sought consent from state government of Tamil Nadu to merge two RRBs sponsored by Indian Overseas Bank and Indian Bank.

Also, to expedite the matter, it has directed the sponsor-banks to pursue the case of obtaining the state government's approval.

Consent of the state is necessary as it owns 15% stake in RRBs, while 35% is owned by the sponsor-banks and 50% by the Centre. Industry sources said the ministry is seeing the TN exercise as a test case before merging RRBs. In this case, Indian Overseas Bank will acquire Indian Bank's stake in the RRB based in Tamil Nadu.

In a parallel development, the ministry has also asked sponsor-banks to transfer 20% of their staff to the RRBs and vice-versa.

Source: EconomicTimes

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Management changes expected at Deutsche Bank

Anshu Jain, the incoming co-chief executive of Deutsche Bank, is moving quickly to put in place his own management team in advance of his assuming joint control of the German banking giant on June 1.

The longtime head of Deutsche’s profit engine — its corporate and investment banking business — intends to appoint two investment bankers to replace him, according to a person with direct knowledge of the decision. They are Colin Fan, from the emerging-markets division of the bank, who will oversee sales and trading, and Robert Rankin, a former UBS executive who was the bank’s Asia head and now will lead the origination and advisory businesses.

The investment bank changes come as Deutsche takes steps to move from the Josef Ackermann era to one that will be led by Jain and his co-chief, Jürgen Fitschen. Ackermann, following a drawn-out process over who should replace him, will step down as chief executive and permanently leave the bank in June.

At a meeting of the bank’s supervisory board’s nominating committee on Tuesday, it was also decided that two members of Deutsche’s management board, Hugo Banziger and Hermann-Josef Lamberti, would leave, said this person who was not authorised to speak publicly.

Replacing them will be Stephan Leithner and two bankers with close ties to Jain — William Broeksmit and Henry Ritchotte. Broeksmit will become chief risk officer for the bank, focusing solely on the amount of risk that the bank takes and is exposed to. Ritchotte, currently chief operating officer of the investment bank, broadens his brief to become chief operating officer of Deutsche as a whole.

Both men are Jain acolytes, who go back 20 years to when Jain was a derivatives salesman at Merrill Lynch.

Their promotion to the bank’s powerful management board is a sign that, while Jain will be co-head of the bank in name, in practice significant power will rest with him.

Leithner, who is said to be close to Fitschen, will be chief executive of the bank’s European business and take on areas of the bank’s legal and human resources departments.

At the meeting in Frankfurt, Jain and Fitschen made clear that they were committed to the universal banking model at Deutsche, not an unimportant point in light of the calls by some analysts in the United States for large banks like JPMorgan Chase and Citigroup to separate their investment banking functions.

The co-heads also said they would establish a separate asset and wealth management unit, to be headed by Michele Faissola, an investment banker.

Deutsche has so far avoided some of the larger layoffs suffered by its peers even though its profit was dented by market turmoil last year. People inside the bank say that as of now there is no talk of another round of downsizing to come once the new team takes over.

Source: Financial Express

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Federal Bank set to open 13 branches in Kozhikode zone

Federal Bank will open 13 new branches in Kozhikode zone on Saturday.

This will take the total number of the bank's branches in the zone to 177, apart from 202 ATMs. The zone covers Thrissur, Irinjalakkuda, Palakkad, Malappuram, Kozhikode and Kannur regions.

Mr C.P. Mohandas, General Manager of the bank, said here on Friday that Kozhikode zone contributes nearly 12 per cent of the bank's total business with deposits of Rs 6,100 crore and advances of Rs 3,400 crore. The bank is targeting a total business of Rs 10,000 crore by March-end, he added.

Financial inclusion

Mr Mohandas, who met press persons in connection with the opening of 100 new branches of Federal Bank across the country , said the bank has chosen 29 villages in Kozhikode zone for financial inclusion, of which, the target has been achieved in 18 villages. The bank is implementing the financial inclusion programme using ICT model under the brand name of ‘Fedjyothi.'

Similarly, the bank has already started financial literacy and credit counselling centres called ‘Federal Ashwas' at Chittur, Sulthan Bathery and Vythiri in the zone. One more such a centre will be opened at Pilathara in Kannur on March 14.

Branch network

The bank's branch network across the country would reach 938 with the opening of the new branches and the aim is to take the figure to 1,000 by the end of June this year, Mr Mohandas said.

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RBI floods Rs 48,000-cr into system with 75 bps CRR cut

The Reserve Bank of India on Friday cut the cash reserve ratio by a ‘surprisingly aggressive' 75 basis points.

The move to cut the amount of cash that banks need to park with the RBI (or CRR) from 5.50 per cent to 4.75 per cent of deposits is aimed at easing the persistent liquidity crunch being faced by banks.

The latest round of CRR cut comes just five days ahead of the mid-quarter review of the Monetary Policy.

The RBI action, which came after market hours, will inject around Rs 48,000 crore of primary liquidity into the banking system.

In its third quarter review of monetary policy in late January, the central bank had reduced the CRR from 6 per cent to 5.50 per cent of deposits. However, this did not ease the liquidity pressure.

Liquidity crunch

The liquidity deficit is expected to increase significantly in mid-March due to advance tax outflows and the usual frontloading of cash balances by banks with the RBI.

Thus, the overall deficit in the system persists above the comfort level of the RBI, said a central bank statement.

“We were expecting a 50 basis points cut in Cash Reserve Ratio. But this 75 basis points cut is a pleasant surprise. It is a good initiative on the part of RBI. There was a lot of pressure on liquidity and with the impending advance tax outflow the liquidity situation would have become worse,” said Mr M.D. Mallya, Chairman, Indian Banks' Association and Chairman and Managing Director, Bank of Baroda.

The liquidity deficit in the banking system is underscored by the fact that net injection of liquidity by RBI rose to a peak of Rs 1,91,700 crore on March 1, but it declined to Rs 79,965 crore on March 9.

Pre-emptive step

Bankers say the reduction in CRR, which is effective from the fortnight beginning March 10, is a pre-emptive step.

Otherwise the credit crunch would have got accentuated in the coming few days.

Advances tax payments by corporates are estimated at Rs 50,000-Rs 60,000 crore, towards the middle of this month.

In a bind

This coupled with bulk deposit redemptions and loan demand in the last fortnight of the financial year would put banks in a bind, explained a banker.

Despite the liquidity injection, banks are unlikely to tinker with deposit and lending rates. Any cut in these rates will happen only if the RBI reduces the repo rate in the Monetary Policy for 2012-13, which is scheduled to be announced on April 17.

The mid-quarter review on March 15 may outline the RBI's intent to cut interest rates in the monetary policy for 2012-13, subject to the Centre coming out with a clear roadmap on fiscal consolidation, said Mr N.S. Venkatesh, CGM (Treasury), IDBI Bank.

The Certificate of Deposit rates, which touched 11.25 per cent for three months, are expected to soften by up to 100 basis points. This will bring down the cost of borrowing for banks.

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Citi’s Pandit gets $15-m pay package for 2011

Citigroup’s India-born CEO, Mr Vikram Pandit, has received nearly $5 million (about Rs 75 crore) as his compensation for 2011, as he got his first cash bonus in about four years at the global banking giant.

According to a regulatory filing by Citi, Mr Pandit’s pay package for 2011 included a salary of $1.67 million, a cash incentive of $5.33 million and stock options valued at $7.98 million, totalling to $14.98 million.

This is the first time Mr Pandit has got a bonus at Citi and had also got only a token salary of one dollar for 2010. Soon after taking charge in December 2007, Pandit had also decided to forego his cash bonus at the bank.

“The committee awarded annual incentive compensation, in addition to salary, to Pandit for the first time in four years in a manner commensurate with his responsibilities and the success of his implementation of Citi’s long-term strategies,” Citigroup said.

Mr Pandit had pledged in 2009 to receive an annual salary of one dollar until the struggling Citigroup returned to sustained profitability. Massive losses during the financial crisis had forced the bank to take $45 billion in US Government bailout funds.

Citigroup reported earnings of $11.1 billion in 2011, besides, the bank has posted eight consecutive quarters of profitability. In 2010, the bank’s net income was $10.6 billion in 2010 against a loss of $1.6 billion in the previous year.

“Pandit has led Citi’s return to profitability and has positioned the company for future growth. His numerous accomplishments are reflected in the company-wide achievements.

“... Pandit has championed in multiple forums Citi’s mission to serve clients and stakeholders through Responsible Finance — conduct that is transparent, prudent and dependable,” the company said

“He has led Citi as it has achieved well-managed risk and controlled growth. Citi reduced its exposure to European markets significantly throughout 2011.

“In the US mortgage business, risk controls were enhanced and the business executed innovative loss mitigation strategies to improve asset quality. The consumer businesses took action to tighten unsecured underwriting criteria in emerging markets,” it added.

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Banks expand safe deposit lockers to keep gold

A huge demand for safe deposit lockers for gold, prompted by a spate of thefts in south Indian cities, is driving banks to increase storage in their branches.

With gold consumption continuing unabated despite an escalation in price, pressure is on banks to arrange lockers. "Nobody wants small lockers. Everyone wants medium or large lockers. Earlier, only corporate houses sought large lockers," said Gopal Gusain, the Chennai circle head of PNB.

He said the bank was expanding strong rooms to accommodate more cabinets. "We are doubling the space from 100 sq ft wherever possible. We are bringing in innovation in cabinet sizes too. Instead of a standard size, the cabinets are getting cutomised," he said.

Safe deposit lockers have always been in short supply. But incidents of thefts in the past months in Tamil Nadu and Kerala are forcing more people to opt for safe deposit lockers in banks. "On an average, over 30% of investors are seeking large lockers," said Roopa, a senior manager with Andhra Bank in Hyderabad.

Locker rent has not been raised much as banks have not considered it as a means of revenue. The annual rent ranges from Rs 800 to Rs 2,000 or more depending on the size. Although the storage is used to store documents, title deeds and other precious metals, gold ornaments are the main items that are kept in lockers, bankers say.

Source: EconomicTimes

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BoB, Union Bank await policy review cues to decide on rate cut

Public sector lenders Bank of Baroda (BoB) and Union Bank of India today said they would take a call on slashing interest rates in specific segments once the RBI has announced its mid-term policy review.

"We will take a call after the RBI's policy review. At the moment, liquidity is tight and perhaps one will like to assess the overall situation before taking a decision [on slashing rates]," Chairman and Managing Director of Bank of Baroda MD Mallya said.

He was speaking on the sidelines of the fourth Annual Credit Information Conference organised by Credit Information Bureau (India) Ltd (CIBIL).

Mallya also said that unless the cost of raising resources came down, it would be difficult to pass on the benefits to end-users.

The chairman of Union Bank echoed similar sentiment.

"We will have a look at our Net Interest Margin [NIM]. If it improves substantially, we will look at [rate cut] in some of the products. Based on that, we will take a call," Chairman and Managing Director of Union Bank of India, MV Nair said.

Union Bank of India was the first bank to slash its base rate by 10 basis point to 10.65% after the policy review by the apex bank on December 16, 2011.

Referring to tight liquidity situation and expectation from upcoming mid-term review, Mallya said he was expecting some relaxation.

"Liquidity is by and large tight in the last few weeks. May be with the advance tax payout, liquidity will remain tight for sometime. Market expects a CRR [cash reserve ratio] cut..Let's see," Mallya said.

He, however, declined to speculate on the quantum of CRR cut likely to happen in the next policy review.

At present, banks are borrowing around Rs 1.5 lakh crore a day from the repo window, which is much above the comfort level of the central bank of around Rs 60,000 crore.

Source: Business Standard

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Loans to fisherwomen: Vijaya Bank forms 300 joint liability groups

Vijaya Bank's Mangalore region has formed 300 joint liability groups for disbursing loans to fisherwomen. Till now, around 2,800 fisherwomen in two districts of coastal Karnataka have taken loans under this scheme.

Mr Sudhakar Shetty M., Deputy General Manager, said that the bank has disbursed around Rs 14.9 crore to 2,804 members of 300 such groups in Dakshina Kannada and Udupi districts.

Asked about the recovery from these groups, he said as of now it is good because of peer pressure from the group members.

Each member of the group is given a loan of Rs 50,000 at 3 per cent. A group can have at most 10 members.

Ms Padmavathi, a member of Nandadeepa group from Mangalore, said that her group members are happy with this format, as earlier they used to take loans from private moneylenders.

Mr Ashok Amin, a trader in a local fish market who coordinated the formation of these groups with fisherwomen, said this facility has helped them in carrying out operations without difficulty.

Earlier, they were paying around Rs 200 as interest for a Rs 1,000 loan from private moneylenders.

Ms Vanajakshi, a member of Kousalya group, said that they are getting timely money for selling fish in the local market.

Since the price is good for fish, some of them could save for their families.

However, she demanded that the loan limit be increased to Rs 1 lakh a person.

However, the bankers say that to get loans at 3 per cent interest rate the upper limit is Rs 50,000.

vinayakaj@thehindu.co.in

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Karnataka Bank to open 20 financial inclusion branches

Karnataka Bank is likely to open 20 financial inclusion branches by March 2013. Of them, three branches will be opened by this month-end.

Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of the bank, told Business Line that the bank opened its first financial inclusion branch at Kairangala village in Dakshina Kannada district on Wednesday. Mr Ananthakrishna, Chairman of the bank, inaugurated it at Kairangala village.

The second such branch will be opened at Horanadu village in Chikmagalur district on March 12. Two more branches – one in West Bengal and another in Andhra Pradesh - will be opened by this month-end, he said.

The plan is to open around 20 brick-and-mortar financial inclusion branches in the country by March 2013. A majority of them will be opened in Karnataka, he said.

Financial inclusion branches will be opened in the villages, where the population is above 2,000. The branch will take care of the entire requirement of the village such as credit disbursement and opening of accounts, Mr Bhat said.

To a query on the implementation of financial inclusion programme by the bank till now, Mr Bhat said Karnataka Bank was allotted 80 villages in the country. Of them, 69 villages are in Karnataka.

The existing 15 rural branches are implementing the financial inclusion programme in some locations in these 69 villages. The remaining villages are being covered by business correspondent model.

Asked about the response to the financial inclusion programme, he said the bank has opened more than three lakh no-frill accounts under this programme.

vinayakaj@thehindu.co.in

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ICICI Lombard market share highest among private players in April-Dec 2011

ICICI Lombard General Insurance Company had the highest market share in the gross premium underwritten by private non-life insurers in India between April-December 2011.

According to segment-wise figures released by the Insurance Regulatory and Development Authority, ICICI Lombard had a market share of 9.07 per cent with a total gross premium underwritten across all segments at Rs 3,812 crore, compared with Rs 3,123 crore in the year-ago period.

In terms of market share, the company saw a marginal decline of about 15 basis points.

Bajaj Allianz came in second with a market share of 5.67 per cent and Rs 2,384 crore in the total gross premium underwritten.

The total gross premium underwritten by the private non-life insurers has increased to Rs 17,525 crore from Rs 13,825 crore, representing 41.70 per cent market share.

Among the public players, New India had the highest market share of 14.96 per cent with Rs 6,287 crore of total gross premium underwritten.

United India followed with 13.82 per cent market share and a premium of Rs 5,808 crore.

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Sidbi lends Rs 100 crore to SKS Microfinance with strings attached

Small Industries Development Bank of India, which has sanctioned a Rs 100-crore term loan to SKS Microfinance, has put a condition that the troubled MFI will have to use the resource for on-lending to the poor outside Andhra Pradesh, and especially in states which are under-served in terms of microfinance penetration.

SKS' collection efficiency dropped to 25% in Andhra Pradesh, while collection in the non-Andhra Pradesh portfolio remained at 95% on an average, it said in a report circulated among analysts. At present, Andhra Pradesh accounts for 30% of SKS' gross loan portfolio, followed by West Bengal (12.6%) and Karnataka (11.6%).

"We advise geographical diversification to mitigate credit risk. If an MFI is overexposed in one particular state, then it should explore new horizons for business," Sidbi managing director Sushil Muhnot said. All states except those in the southern region remained underserved in so far as microfinance goes, Sidbi said.

Sidbi's Rs 100-crore term loan has thrown a lifeline to SKS, which reported a Rs 428-crore loss in the third quarter to December 2011 as it was forced to write off loans of Rs 332 crore in Andhra Pradesh. Following this crisis, SKS' loan book shrunk to Rs 1,810 crore at the end of December 2011 from Rs 5,000 crore in September 2010.

This was the first major loan to an MFI in the southern state since October 2010. Banks have, however, started opening their purse strings slowly for other micro-lenders following Reserve Bank of India's move to impose operational regulations on MFIs and cap their lending rate at 26% a year, in step with the Malegam Committee's recommendations. However, banks are still shying away from Hyderabad-based MFIs, five of whom went for debt restructuring.

Sidbi has sanctioned loans of 490 crore to MFIs in January, of which Rs 200 crore has been disbursed. The state-run lender has assisted 128 MFIs so far. Its outstanding MFI portfolio stands at Rs 2,317 crore. "We are telling all MFIs that 70% of their loans should go to underserved areas," Sidbi's chief general manager PK Saha had said last week in Jamshedpur.

Source: EconomicTimes

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Coming soon: Up to 2 years' sabbatical for women bank staff

Come April, and women employees of public sector banks (PSBs) may be able to get sabbatical of up to two years during their career.

The Finance Ministry has asked PSBs to place this proposal before their respective boards for decision and its introduction with effect from April 1, official sources said.

This follows the Government agreeing to the Khandelwal Committee's recommendation to introduce sabbatical for women employees of PSBs. The sabbatical benefit will be available only to employees who have put in a minimum of five years of service. The leave will have to be taken for a period of at least three months at a time and it should not be taken more than once in a year.

But, the Government's decision has somewhat irked trade unions, as they contend that such a move would be unilateral and in violation of the service conditions provided in the bilateral settlement between the Indian Banks' Association (IBA) and the unions.

UNIONS CUT-UP

“We are not against sabbatical for female employees. But we are against unilateral changes in service conditions,” C.H. Venkatachalam, General Secretary of All-India Bank Employees' Association, said. The AIBEA has written to the Department of Financial Services in the Finance Ministry seeking a rethink on the issue and the need to abide by the provisions of law.

He pointed out that leave rules are part of service conditions of bank employees and governed under the bipartite settlement signed between IBA and the unions. Either side cannot change, amend or alter the service conditions, except through mutual discussions or through the due process of law.

As and when the proposal (sabbatical for women employees) is brought before the boards, the workman directors will mark their protest for such a unilateral change in service conditions, Venkatachalam said.

The Khandelwal Committee was set up in October 2009 to study human resource issues in public sector banks. The Committee had made 105 recommendations, of which the Centre has given its green signal for 56.

krsrivats@thehindu.co.in

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Diners Club International cards will be accepted at more ATMs, point-of-sale terminals

National Payments Corporation of India (NPCI) has tied up with Discover Financial Services (DFS), a US-based direct banking and payments services company. Under this tie-up, Discover and Diners Club International cards will be accepted at NPCI ATMs and point-of-sale terminals for purchases in India.

It also will allow RuPay (the national card payment network in India) cardholders to utilise the Discover, Diners Club International and PULSE networks for international purchases and cash access outside of India, said a press release issued by NPCI.

The arrangement will be implemented in a phased manner. To begin with, DFS and DCI cards will be accepted at RuPay ATMs in India, followed by acceptance at RuPay POS locations. The final phase will enable acceptance of RuPay Global Cards on Discover's global payment network outside of India.

Currently, there are about 120 million DFS and Diners Club cards worldwide, which can be accepted on the RuPay network.

Similarly, the DFS and DCI cards will be accepted at over 90,000 ATMs that are linked to the NPCI's National Financial Switch. Eventually they would also be accepted at over six lakh POS terminals that are linked to the NFS, said an official from NPCI.

“The network-to-network alliance between DFS and NPCI eventually will result in the issuance of RuPay Global cards once the domestic RuPay cards being launched later this month stabilise,” said Mr A. P. Hota, Chief Executive Officer and Managing Director of NPCI.

Mr Hota added that seven promoter banks have signed an MoU with NPCI to be part of the pilot launch of domestic RuPay cards.

NPCI has been promoted by State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC.

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OBC raises fixed deposit rates by 3.5%

State-owned Oriental Bank of Commerce today raised rates on high value fixed deposits by up to 3.5 per cent on select maturities amidst tight liquidity conditions.

Deposit of Rs 15 lakh and Rs 1 crore for 31-45 days maturity period will earn 8.5 per cent interest as against 5 per cent earlier, the bank said in a statement.

At the same time, interest rate on 46-90 days fixed deposits have been raised by 3.25 per cent to 9 per cent while those on 91-179 days term deposits have been increased from 8 per cent to 9 per cent.

The new rates are effective from March 1, it added.

Besides, rates on select maturities of fixed deposits beyond Rs 1 crore have been revised upwards by 1 per cent.

Banks are facing tight liquidity condition and have to borrow more than Rs 1.5 lakh crore from RBI on daily basis.

Tight liquidity conditions have also led to rise in rates of certificate of deposits and commercial paper issued by the banks.

Source: Financial Express

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Federal Bank to open 100 branches

Kerala based Federal Bank on Tuesday announced that it would open 100 new branches and hire 2,000 people.

All the 100 branches will be opened at one go on Saturday to take the total network size to 935, executive director of the bank, a Mr Abraham Chacko, told reporters here adding that majority of the branches will be opened outside Kerala.

The bank plans to raise the number of branches upto 1,000 by mid—2012, he said, adding that it will also hire 2,000 professionals next fiscal in view of the expansion and to fill the vacancies created by retirement.

Mr Chacko, however, stated that the expansion programme has been long planned and it would not put any stress on its cost to income ratio.

The bank will maintain the cost to income ratio, which stands at over 38 now, under 40 even after the current phase of expansion, he said, when asked about the troubles surrounding Dhanlaxmi Bank.

Just like Federal Bank, Dhanlaxmi is also an old age lender having its roots in Kerala. The latter posted a loss for the third quarter and also had its rating downgraded.

Ratings agency Fitch, which downgraded Dhanlaxmi Bank, had pointed out revenue pressures from a rapid expansion of network as one of the reasons for the downgrade in rating.

The recent spate of troubles at Dhanlaxmi Bank has also seen as its top management, including the chief executive and managing director, Mr Amitabh Chaturvedi, resign.

Mr Chacko said Federal Bank’s strategy largely focuses on growing organically and acquiring a large bank is not under the radar.

Mr Chacko also said that the bank will slow down its expansion after it reaches the mark of 1,000 branches.

The bank, today, also announced that it wants to open three branches internationally, including one at Dubai which will act as an offshore banking unit fulfilling the overseas fund raising needs of corporate clients.

Within the domestic business, Mr Chacko said funding small and medium businesses having a turnover of upto Rs 1,000 crore is a focus area for the bank.

A senior bank official said the bank would maintain its current NPA ratio level due to higher recoveries even though it has seen stress on assets in various sectors like aviation.

Its exposure of Rs 300 crore to national carrier Air India got restructured recently while the non servicing of debt by Vijay Mallya—promoted Kingfisher Airlines, to which it has an exposure of Rs 82 crore, has turned sub standard as of February, Mr Chacko said.

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Citibank launches new package for the emerging affluent

Citibank India on Monday launched a new proposition for the emerging affluent segment, which include salaried professionals and self-employed individuals with an annual income between Rs 3 lakh and Rs 15 lakh.

Some of the facilities offered under the ‘Citibanking' proposition include zero charges for cash withdrawal at any ATM in India and overseas; no fees on services such as draft issuance, duplicate statement, funds transfer, stop payment and assistance for account opening for customers relocating overseas.

To be eligible for the ‘Citibanking' proposition, customers have to maintain a relationship value of minimum Rs 2 lakh with the bank.

The emerging affluent segment is growing at a compounded annual rate of 9 per cent. Citibank hopes to increase its market share in this segment from 10 per cent to 15 per cent over the next 2-3 years.

The revenue growth in this segment is likely to be around 18-20 per cent, said Mr Anand Selva, Country Business Manager, Global Consumer Group, Citi India.

Citibank is in the process of rebuilding and growing its unsecured business, which includes credit cards and unsecured personal loans.

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HDFC Bank launches gold loan scheme

HDFC Bank on Tuesday announced the launch of ‘Bharosa Gold Loan', a product tailored to provide viable finance to the millions of rural customers in India.

Speaking on the occasion, Mr Biju Pillai, Senior Executive Vice-President and Business Head, said that the product would offer a loan amount up to 140 per cent of the gold value. The minimum loan amount will be Rs 10,000 for rural customers and Rs 25,000 in other areas. The rate of interest will be 11-14.5 per cent depending on the segment.

The bank is looking at targeting women borrowers with a differential rate of interest, which will be 1-1.5 percentage points below the rates charged for other customers. The idea is to cover one lakh women customers within a year.

He said that the bank will introduce the product in 1,300 branches in over 950 locations across the country over the next six months. The objective is to cater to five lakh customers in 10,000 villages.

Rising demand

With the entry of organised sector into the sector, consumers have begun to seek gold loans from banks and NBFCs rather than from traditional moneylenders. As this shift gathers momentum, the gold loan market is set for strong growth, he added.

Mr Dhiraj Relli, Branch Banking Head South-2, said that the bank has a board approved plan to bring 10 million families into the banking fold in five years.

sajeevkumar@thehindu.co.in

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Kingfisher account turns substandard for Federal Bank

The Kingfisher Airlines account turned into a substandard asset for Federal Bank in mid-February, according to a top official of the old generation private sector bank.

The Kerala-based bank has an exposure of around Rs 90 crore to the struggling airline. According to Mr Abraham Chacko, Executive Director, Federal Bank, the guarantee issued to the airline for procurement of aviation turbine fuel (ATF) has devolved.

The Kingfisher account has become a non-performing loan with majority of the public sector banks such as State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and IDBI Bank in the December 2011 quarter.

However, it is still a performing asset in the books of other banks, including Oriental Bank of Commerce, Indian Overseas Bank, ICICI Bank, Axis Bank, and IndusInd Bank, said an official with one of the consortium banks.

Federal Bank has an exposure of Rs 300 crore to Air India, whose debt was recently restructured.

Mr Chacko said the impact of the Air India restructuring would be minimal for banks.

Cuts base rate

The bank has cut its base rate from 10.75 per cent to 10.65 per cent with effect from March 5. With interest rates expected to thaw in the next few months, the bank is positioning itself to expand its loan portfolio through the cut in base rate, explained the official.

The bank will step up lending to the agriculture segment by recruiting more specialist agriculture officers. Currently, it is falling short of the regulatory requirement of 18 per cent of adjusted net bank credit as on March-end of the previous year by about two percentage points, said Mr Varghese K. I., Additional General Manager.

Further, it will step up focus on gold loans, home loans and small and medium enterprise loans.

Branch expansion

The bank is planning to open 100 branches across the country on March 10. This will take its branch network to 938.

It is also planning to open a representative office in Abu Dhabi and an offshore banking unit in Dubai.

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ICICI Bank, LIC, Bank of Baroda to launch infra debt fund

The decks have been cleared for the launch of country's first infrastructure debt fund (IDF) under the company route. Private sector lender ICICI Bank and other financial biggies, including Bank of Baroda and Life Insurance Corporation, have decided to come together to set up an IDF as a non-banking finance company (NBFC).

A memorandum of understanding will be signed for this purpose in the presence of the Finance Minister, Mr Pranab Mukherjee, here on Monday, official sources said.

The Finance Ministry had on June 24 last year issued guidelines, allowing IDFs to be set up either as trusts or as companies. A trust-based IDF would basically be a mutual fund that would issue units. On the other hand, a company-based fund is an NBFC that would issue bonds to domestic as well as foreign investors.

RBI NORMS

As per the guidelines issued by RBI and the Finance Ministry, the IDF-NBFC can invest only in public private partnership and post-commercial operation date infrastructure projects, which have completed at least one year of satisfactory commercial operation and are a party to a tripartite agreement with the concessionaire and the project authority for ensuring a compulsory buyout with termination payment.

Refinance by NBFC-IDF would be up to 85 per cent of the total debt covered by the concession agreement. Senior lenders would retain the remaining 15 per cent, for which they would charge a premium from the infrastructure company.

The returns from the investments made by IDFs in debt securities of PPP projects are fully tax-exempt. For investors subscribing to bonds issued by an IDF, the main attraction will be the lower withholding tax of five per cent, against the normal 20 per cent tax deducted at source on interest payments. The returns to investors are not entirely tax-free as dividend distribution tax will be applicable to any dividend payout made by the IDF.

NET-OWNED FUND

The RBI guidelines stipulate that IDF-NBFC is required to have a net-owned fund of Rs 300 crore or above. Also, sponsors of NBFC-IDFs will have to contribute a minimum equity of 30 per cent.

The maximum equity of sponsors in a NBFC-IDF is 49 per cent. The minimum capital adequacy to be maintained by the IDF-NBFC will have to be 15 per cent of risk-weighted assets.

The major part of debt requirements of infrastructure sector in India continues to be sourced through commercial banks.

Of the total investment in infrastructure during 2007 to 2010, 50 per cent is from budgetary sources, 36 per cent from debt funding and the remaining from private equity.

Commercial banks have contributed 20 per cent of the total debt funding and the remaining 16 per cent has together been pumped in by NBFCs, external commercial borrowings and insurance companies.

The total bank lending to infrastructure went up from 8.68 percent of total bank credit as at end March 2008 to 14.7 per cent by end March 2011.

krsrivats@thehindu.co.in

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