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Saturday, March 17, 2012

Budget 2012: A new entity for helping Public Sector Banks

Finance Minister Pranab Mukherjee has proposed setting up of a company to hold the government's stake in banks, a move aimed at overcoming the trouble of periodic capital investment in public sector lenders that upsets fiscal calculations.

The new holding company may also eliminate the embarrassment of knocking at the doors of Life Insurance Corporation, as it did this year, to bail out the government by investing policy holders' funds in public sector banks. The move also raised questions about governance standards at the state-run insurer.

The FM raised the outlay for capital investment in state run banks next fiscal by 32% to Rs 15,888 crore, as the system moves towards meeting the stringent capital requirements of the so-called Basel III global norms to prevent recurrence of the 2008 credit crisis. "The government is also examining the possibility of creating a financial holding company, which will raise resources to meet the capital requirements of public sector banks,'' Mukherjee said in his Budget speech.

Budget at ET: Budget 2012 | Union Budget | Live Union Budget Blog | Railway Budget | Budget News | Economic Survey of India

The proposed structure may be a corporation set up through a special Act of Parliament, so that it is also away from regulatory glare, said a person familiar with the details. This corporation will be responsible for providing capital to banks, though it is not clear how it would raise funds.

"The move to set it up as a corporation is mainly to ensure that the holding company does not come under the ambit of the Companies Act, or within the Reserve Bank of India's net as a finance company,'' said an official at the finance ministry who did not want to be identified.

"Instead, if it is set up as a corporation through an Act of Parliament, the government will have full control over it.'' The government is working out this new structure as nearly three-fourths of the banking system is under state control and it is unwilling to reduce its stake below 58%.

Although the minister did not spell out how the government would raise capital and distribute it without dipping into the government's kitty, some speculate that the equity of the holding company itself could be sold to public and the proceeds re-invested.

The dividend the holding company receives will be passed on to the government. LIC, fully-owned by the government , stepped in for the government to invest more than Rs 8,000 crore in various staterun banks, including Punjab National Bank and Bank of Maharashtra, to ensure that they had enough capital. This holding company's mandate may extend beyond the banks to include other financial institutions such as the LIC, General Insurance Corp, National Bank for Agriculture and Rural Development, Power Finance Corp and others, said the person.

Source: EconomicTimes
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IDBI Bank prices 100 million Swiss franc bonds at MS+274 bps

India's IDBI Bank priced its three and half year Swiss franc bond issue at mid-swaps plus 274 basis points, becoming the first lender to raise funds in this currency in 2012.

The state-run bank launched its at least 100 million Swiss franc bond issue earlier in the day and Deutsche Bank is the sole arranger of the deal.

"Against our launch size of 100 mln Swiss Francs we have got an oversubscription on the very first day of the launch," said Melwyn Rego, executive director at the bank.

Settlement in Swiss franc issuances take 3 to 4 weeks from the bond issue.

The transaction follows a deal by Rural Electrification Corp (REC) in February, in which the state-run power financing company raised 200 million Swiss francs through a five-year borrowing, at mid-swaps plus 305 basis points.

In 2011, three Indian banks -- Union Bank of India, State Bank of India, and Export-Import Bank of India -- printed Swiss franc deals totalling 660 million Swiss francs.

Among these, State Bank of India's 325 million Swiss franc five-year issue was the biggest one, which was priced in March at 185 basis points over mid-swaps.

Several issuers have been showing interest in raising funds in Swiss francs as it works out cheaper for Indian borrowers compared with US dollar borrowings. Moreover, it also offers the issuer a chance to diversify its funding sources.

Source: EconomicTimes
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Part of your health check just got tax-free

Spending on your health check-ups can also help you save tax in the new financial year. Finance Minister Pranab Mukherjee on Friday introduced a deduction of Rs 5,000 for expenses incurred on preventive health care under section 80D. Under this, citizens can save tax for the monies spent by them on their health check-ups. This will include various medical tests that individuals are asked to undergo at hospitals. The amendments made will be effective from April 1, 2012. In addition, Section 80DDB, that allows deduction for the medical treatment of specified diseases and ailments, has enhanced its limit from Rs 40,000 to Rs 60,000.

“The positive aspect of the Budget is that it has shown much more awareness and understanding on issues related to health care. It’s a step in the right direction, because giving a tax exemption to health check-up, means there is a movement towards incentivising preventive healthcare,” says Bhargav Dasgupta, managing director and chief executive, ICICI Lombard general insurance.

Section 80D allows deductions for health insurance premiums paid up to Rs 15,000 per family (spouse, self and two children), and a further deduction of Rs 15,000 if a health policy is brought in the name of parents. In case parents fall under the category of senior citizens, deductions can go up to a higher sum of Rs 20,000.

Since amendments are made into the existing section, one can make use of this deduction for preventive health care if one has not purchased a health plan yet.

  • Up to Rs 5,000 incurred on preventive healthcare eligible for a deduction under Section 80D
  • Deduction limit for treatment of specified diseases and ailments, under Section 80DDB, raised from Rs 40,000 to Rs 60,000

However, the cap could be too small given the cost of such check-ups. The Rs 5,000-cap will be applicable for the entire family (self, spouse, children and parents). The payment made on check-ups can be made by cash or any other mode of transaction.

“This will increase the demand for medical tests and hospitals may even raise the prices on it soon. Indirectly, this may also push medical inflation up, a problem everyone is still grappling with,” says Amarnath Ananthanarayanan, managing director and chief executive, Bharti AXA general insurance.

Some insurers fear the new deduction in the section of health insurance may eat into the demand for health policies.

Source: Business Standard
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Govt allows lenders to raise Rs 60Kcr via tax-free bonds

To encourage investment in the infrastructure sector, financial institutions have been allowed to raise about Rs 60,000 crore from tax-free bonds in 2012-13.

"For the year 2011-12, tax-free bonds for Rs 30,000 crore were announced for financing infrastructure projects. I propose to double it to raise Rs 60,000 crore in 2012-13," Finance Minister Pranab Mukherjee said, while presenting the Union Budget 2012-13 in Parliament.

"This includes Rs 10,000 crore for NHAI, Rs 10,000 crore for IRFC, Rs 10,000 crore for IIFCL, Rs 5,000 crore for HUDCO, Rs 5,000 crore for National Housing Bank, Rs 5,000 crore for SIDBI, Rs 5,000 crore for ports and Rs 10,000 crore for power sector," he added.

Strengthening the investment environment, Finance Minister also said, "the domestic investment environment has suffered on multiple counts in the past year. It is time to fast track policy decisions and ensure on-time implementation of major projects."

Focusing on domestic demand-driven growth recovery, he said, "we need to emphasize on infrastructure and industrial development of the country."

"Lack of adequate infrastructure is a major constraint on our growth. The strategy we have followed so far is to increase investment in infrastructure through a combination of public investment and public private partnerships (PPP)," he added.

Mukherjee further said that during the 12th five Year Plan, infrastructure investment will go up to Rs 50 lakh crore with half of this expected from private sector.

In line with investments in the infrastructure sector, the Finance Minister will ease the burden on rupee debt of the existing power projects in the country.

"I propose to allow external commercial borrowings (ECB) to part finance rupee debt of existing power projects," he said.

Source: Financial Express
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Budget unveils tax-exempt Rajiv GESS

In order to increase retail participation in the capital market, Finance Minister Pranab Mukherjee today proposed a tax exemption scheme for new investors.

The Rajiv Gandhi Equity Savings Scheme will allow 50 per cent tax deduction for those whose annual income is below Rs 10 lakh and who invest up to Rs 50,000 in stocks.

The scheme will have a lock-in period of three years, Mukherjee said while announcing the budget proposals for 2012-13.

The move is first-ever tax benefit for direct investments in stocks.

However, Secretary Department of Economic Affairs R Gopalan later informed that this scheme for new investors can be availed only once, meaning people who have already invested in equity market cannot avail this tax benefit.

"This is once in a lifetime (offer)," he said, adding this scheme is over and above the deduction provided on investments up to Rs 1 lakh in capital market.

Gopalan said the aim is to channelise savings into the stock markets, which "our economy needs".

According to market analysts, the move will further encourage flow of savings into financial markets.

In addition, government sought to make trading in capital markets less costlier and simpler, with the lowering of securities transaction tax, along with various other measures to boost equity, commodity and bond market.

ICICI Securities' MD & CEO Anup Bagchi said the initiative like Rajiv Gandhi equity savings scheme would lead to increased participation from retail investors.

Homi Mistry, Partner, Deloitte Haskins and Sells, said tax benefits under Rajiv Gandhi Equity Saving Scheme is a step in the right direction for the benefit of capital markets.

Sunil Goyal, MD, Ladderup Corporate Advisory Pvt Ltd, said tax incentives for subscription to capital issues by retail investors will attract funds in capital market from a larger number of the investors.

Source: Financial Express
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Budget: Scanner on property, gold buys

Mandatory reporting of assets held by individuals abroad and re-opening of I-T return filings up to 16 years are among the steps being proposed by the government to tackle the menace of black money.

"I propose a series of measures to deter the generation and use of unaccounted money," Finance Minister Pranab Mukherjee said while presenting the Budget for 2012-13 today.

The government has also proposed slapping a tax of 30 per cent on undisclosed money, credits, investments and expenditures, irrespective of the slab of income.

Strengthening its efforts to check black money flow in the

system, the Budget has proposed mandatory reporting for every resident having any assets, including financial interest in any entity, overseas. The same would be applicable for those having signing authority in any account located outside India.

"Furnishing of return by such a resident would be mandatory irrespective of the fact whether the resident taxpayer has taxable income or not," according to the Budget.

The proposal would be effective retrospectively from April 1, 2012.

Besides, the government would bring in amendment in existing rules for re-opening of I-T return filings up to 16 years, where "the income in relation to any asset... located outside India, chargeable to tax, has escaped assessment".

According to Mukherjee, the government would lay on the table of the House a White Paper on black money in the current session of Parliament.

The Minister proposed introduction of a General Anti Avoidance Rule (GAAR) in order to "counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel".

Further, the Budget has proposed compulsory reporting requirement in case of assets held abroad and tax collection at source on trading in coal, lignite and iron ore.

Mukherjee said the government plans the tax deducted at source (TDS) on transfer of immovable property (other than agricultural land) above a specified threshold.

In addition, the government plans to collect tax at source on cash purchase of bullion or jewellery in excess of Rs 2 lakh.

It has also been proposed to "increase the onus of proof on closely-held companies for funds received from shareholders as well as taxing share premium in excess of fair market value".

Further, the Budget has proposed a system of Advance Pricing Agreement (APA) to significantly bring down tax litigation and provide tax certainty to foreign investors.

He said this was relevant in a globalised economy with expanding cross-border production chains and growing trade within entities of the same group.

"Though, the provision for APA has been included in the DTC Bill, 2010, I propose to bring forward its implementation by introducing it in the Finance Bill, 2012, he said.

In 2011, the government had initiated a five-pronged strategy to tackle the "malaise of generation and circulation of black money" and its illegitimate transfer outside India.

Source: Financial Express
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Budget: Gold, daily use items dearer

Almost all the manufactured items used in every day life will become costlier, while luxury cars, gold, eating out at restaurants or hotel accommodation will become even more expensive after a steep hike in tax rates proposed in Budget 2012-13.

Cigarettes and bidis will also become dearer as Finance Minister Pranab Mukherjee has proposed to tax these items more in the Budget for 2012-13.

With service tax being hiked to 12 per cent from the existing 10 per cent except in a few items, common man will have to pay more while travelling by air or hiring a law firm.

Mukherjee proposed to increase excise duty on all non-petroleum products, excepting a few, to 12 per cent from the existing 10 per cent.

On the other hand, items like imported LCD and LED TV panels of about 20 inches will have lesser increase in price due to excise duty hike. Customs duty on these items has been removed. Similar is the case with LEDs used for making lamps.

Prices of life saving drugs, probiotics and iodine have been cushioned from a steep rise as import duties on these items have been reduced.

Branded garments will escape the impact of increase in excise duty as abatement has been provided.

Gold and platinum will also become more expensive as the customs duty in imported standard bar has been hiked to 4 per cent from 2 per cent. The duty on non-standard gold bar has been hiked to 10 per cent from 5 per cent earlier.

Mobile phone parts will become cheaper as excise duty has been cut to 2 per cent from the existing 10 per cent.

In the budget, Mukherjee proposed increasing the customs duty on import of completely built cars and Sport Utility Vehicles to 75 per cent from 60 per cent (3,000cc engine capacity for petrol and 2,500 cc for diesel vehicles).

Moreover, excise duties for petrol cars with engines under 1,200 cc and diesel cars with engine capacity under 1,500 cc but the length exceeding four metres have been increased to 24 per cent from 22 per cent and a fixed duty of Rs 15,000.

Petrol and diesel driven vehicles having length exceeding four metres and engine capacity of over 1,200 cc and 1,500 cc respectively will now be charged with an ad valorem duty of 27 per cent instead of the earlier 22 per cent and a fixed duty of Rs 15,000.

Imported bicycles will also become more expensive as customs duty has been hiked to 30 per cent from 10 per cent, while the same for bicycle parts has been increased to 20 per cent from 10 per cent.

"Cost of most of the services and goods will increase for the common man with the increase in service tax and excise duties," Ernst & Young Tax Partner Saloni Roy said.

The Finance Minister has taken these steps given the tough fiscal position, Roy said.


Costlier and cheaper items table

New Delhi, Mar 16 (PTI) A large variety of day-to-day usage items and services will burn a hole in the common man's pocket with Finance Minister Pranab Mukherjee proposing to raise excise duty to 12 per cent from 10 per cent and a similar hike in service tax rate.

Following is a list of what will be costlier and which ones will be cheaper following the Budget 2012-13.


> Two-wheelers, cars, commercial vehicles.

> Refrigerators, air-conditioners, washing machines, watches

> Soaps, cosmetics, homecare items,

> Cigarettes and bidis,

> Packaged food items

> Pan masala and chewing tobacco,

> Unbranded precious metal jewellery,

> Imported luxury vehicles,

> Imported bicycles and bicycle parts,

> Imported digital still cameras,

> Imported gold bars and coins of certain categories, platinum

> Imported cut and polished coloured gem stones,

> Air travel, eating out at restaurants and hotel stays

Not all is gloomy as the Budget has also made some items and activities cheaper.


> Mobile phone parts,

> Branded silver jewellery,

> Branded garments,

> Imported LCD and LED TV panels of over 20 inch,

> Matches,

> Footwear below Rs 500,

> Adult diapers,

> Soya protein food products,

> Probiotics,

> Writing instruments,

> Imported medical equipment.

Source: Financial Express
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Budget proposes no big ticket reforms

The Budget for 2012-13 hiked excise duty and service tax by 2 per cent across-the-board to raise Rs 45,940 crore and offered marginal relief to individuals in income tax, stoking fears of adding to inflation but contained no big ticket reforms.

Prices of all non-oil goods are likely to go up on account of the 2 per cent raise in the effective rate of excise duty of 10 per cent and service tax as well as on account of the widening of tax net to all services, except 17.

Quoting from Shakespeare's immortal words in the 'Prince of Denmark' that "I must be cruel only to be kind", Finance Minister Pranab Mukherjee sought to raise an additional Rs 27,280 crore through customs and central excise levies and Rs 18,660 crore through service tax.

While the Opposition slammed the Budget as inflationary that will further burden the common man, a view shared by the corporates, Prime Minister Manmohan Singh and Mukhejree said it will help in fiscal consolidation and take the economy on growth path.

Corporates expressed disappointment that the government was not taking any serious steps at economic reforms and said it was a missed opportunity.

One bold move the Finance Minister intends to carry forward in the next three years is to bring down subsidies from 2 per cent of the GDP to 1.75 per cent, an intent that created speculation that the government could resort to hiking petrol and diesel prices.

However, Mukherjee in media interviews hedged the possibility saying there is need to carry all the coalition partners before a decision is taken in this regard.

The Budget left untouched the corporate taxes and the peak customs duty and gave tax concessions to infrastructure sectors like power, airlines, road and bridges and hospitals, cold-chain facility and affordable housing.

Mobile phones, branded silver jewellery, branded garments, imported LCD and LED TV panels of over 20 inch and matches will be cheaper on account of duty reduction while two-wheelers, cars, refrigerators, air-conditioners, washing machines, watches, soaps, cigarettes and bidis, air travel, pan masala and chewing tobacco, gold and unbranded metal jewellery and imported bicycles will cost more.

Sacrificing Rs 4,500 crore in direct taxes, the Budget provided marginal sops to the salaried class through a tax relief up to Rs 2,000 for those at the threshold stage by raising the exemption limit from Rs 1.8 lakh to Rs 2 lakh.

The upper limit of the 20 per cent tax slab is being raised from Rs 8 lakh to Rs 10 lakh. Those with income above Rs 10 lakh will continue to pay 30 per cent tax.

In addition, a deduction of up to Rs 10,000 has been allowed for tax payers for interest from saving bank account.

This would help a large number of small tax payers with salary income up to Rs 5 lakh and interest from saving bank accounts up to Rs 10,000 as they will not be required to file income tax returns.

Within the existing limit for deduction allowed for health insurance, the Budget proposed to allow up to Rs 5,000 for preventive health checkups.

Senior citizens who do not have any income from business are proposed to be exempted from payment of advance tax to reduce their compliance burden.

To the capital market, the Budget had something to offer by way of reducing the Securities Transaction Tax (STT) from 0.125 per cent to 0.1 per cent as also announcing a income tax deduction of 50 per cent to new retail investors with income below Rs 10 lakh who invest up to Rs 50,000 directly in equities.

As a measure of support to the ailing civil aviation sector, the Budget fully exempted from basic customs duty imports parts of aircraft and testing equipment and allowing external commercial borrowings of up to USD 1 billion.

Duty-free baggage allowance for Indian air travellers has been raised from Rs 25,000 to Rs 35,000 and for children up to 10-years from Rs 12,000 to Rs 15,000.

Flowing out of the adverse verdict in the Vodafone tax case on sale of capital assets located in India outside the country, the Budget seeks to amend the Income Tax Act retrospectively from 1962 to bring under the scanner 50 year old deals.

The proposal has come under attack from the corporates which said that it was retrograde and the government does not seem to learn lessons.

Dispelling apprehensions that the measure could lead to uncertainty among overseas investors, Mukherjee said it also was necessary to avoid demands for return of tax collected.

It is also aimed to tackle the problem of investors enjoying zero tax in double taxation avoidance agreements (DTAAs) going to a zero tax country and avoiding tax in India which defeats the purpose of DTAA.

In a bid to tackle the menace of blackmoney, the Budget proposes amendments in law to compulsorily report assets and revenue held abroad and allowing for reopening of assessments up to 16 years in such cases.

Other measures include tax collection at source on purchase in cash of bullion or jewellery in excess of Rs 2 lakh, transfer of immovable property and trading in coal, lignite and iron ore.

The additional resource mobilisation in this Budget breaks the practise in the last few years of being low on fresh taxes, expect in 2010-11 when the net gain was Rs 20,500 crore.

Source: Financial Express
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Interest subvention scheme for farmers to continue

To encourage prompt repayment of bank loans, the Government will continue with the additional three per cent interest subvention scheme for farmers, said the Finance Minister, Mr Pranab Mukherjee.

Under the existing interest subvention scheme, farmers get short-term crop loans at seven per cent interest. If the loan to the bank is promptly paid then the effective rate of interest to the farmer works out to four per cent a year due to the additional interest subvention.

“The Government is giving interest subvention to improve the loan repayment culture in the farm segment. The agriculture debt waiver and debt relief of 2009 had marred the repayment culture,” said a senior public sector bank official.

Subvention against warehouse receipts

The Government said it will give a three per cent subvention on post-harvest loans up to six months against negotiable warehouse receipt. This will encourage the farmers to keep their produce in warehouses.

Bank Credit

In the Budget, the Finance Minister said that banks will have to lend Rs 1 lakh crore to the agriculture in FY2013. “Farmers need timely access to affordable credit. I propose to raise the target for agricultural credit in 2012-13 to Rs 5,75,000 crore (from Rs 4,75,000 crore in 2011-12),” he said.


Kisan Credit Card (KCC) scheme will be modified to make it a smart card which could be used at ATMs. The card is an effective instrument for making agricultural credit available to the farmers.
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Interest up to Rs 10,000 on savings deposits out of tax net

The plain vanilla savings bank (SB) deposit could turn a tad attractive. The Finance Minister, Mr Pranab Mukherjee, on Friday said individual taxpayers will be allowed a deduction of up to Rs 10,000 on interest from these deposits.

In his Budget speech, the Minister justified the move stating that it would help a large number of small taxpayers with salary incomes up to Rs 5 lakh and interest from savings bank accounts up to Rs 10,000 as they would not be required to file income-tax returns.

No rush

If one weighs the benefit of 4 per cent tax-free interest on these deposits with post-tax fixed deposit return of 7.2 per cent (9 per cent pre-tax interest) for an income-tax payer in the 20-per-cent tax slab, then the scales tilt in favour of the latter.

“The move on SB deposits in the Budget is somewhat positive. However, there will be no rush from depositors to maintain higher balances in SB deposits given that FD fetches higher post-tax return,” said Mr Rajkumar Bansal, Executive Director, IDBI Bank.

As on December-end last year, commercial banks had savings bank deposits aggregating Rs 15,45,140 crore (Rs 13,81,000 crore as on December-end 2010).

“Depending on the rate that your bank pays, balances of around Rs 1.66 lakhs (at 6 per cent interest rate) to Rs 2.5 lakhs (at 4 per cent) will enable you take advantage of the tax exemption on interest earnings of Rs 10,000 from SB deposits,” said Mr K.V.S. Manian, President, Consumer Banking, Kotak Mahindra Bank.

The Budget proposal on tax deduction for interest from savings bank deposits comes about four months after the Reserve Bank of India deregulated the interest rate on the deposits. In October last year, the central bank said banks were free to determine their deposit interest rate.

The central bank then said each bank has to offer a uniform interest rate on these deposits up to Rs 1 lakh, irrespective of the amount in the account within this limit. On deposits over Rs 1 lakh, a bank can provide differential rates of interest.

However, there cannot be any discrimination from customer to customer on interest rates for similar amount of deposit.

From April 1, 2010, payment of interest on savings bank deposits by scheduled commercial banks is being calculated on a daily basis. Prior to this date, banks were calculating interest on the minimum balance in the deposit account during the period from the 10th to the last day of each calendar month.
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Friday, March 16, 2012

PNB distributes free medicines

On the occasion of World Disabled Day, Punjab National Bank distributed medicines to the disabled inmates of St. Antony's Sadan, Ernakulam.

Mr S. Ranganathan, General Manager, handed over the medicines to the inmates of the Sadan, a Centre for disabled people.

The bank has also sponsored ceiling fans for the new building of the Centre. Speaking on the occasion, he said that PNB is always in the forefront in fulfilling its CSR initiatives.

The bank is rendering similar type of services in various parts of the country. Mr K. V. Rajesh, Deputy General Manager and Circle Head of the bank, briefed about the various CSR activities of the bank in the State.
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Muthoot Finance not interested in acquiring Thomas Cook India

The largest gold loan company by asset portfolio Muthoot Finance today said that it was not looking at buying out the troubled travel and money changer firm Thomas Cook India, which has been put on the block by its British parent.

"It is true that we were approached for Thomas Cook. But after due diligence, we decided not to follow it," Muthoot Finance managing director George Alexander Muthoot told PTI from Thiruvanathapuram.

Maintaining that the deal would have made perfect business fit for his company, he, however, parried queries on the reason for not going ahead with the deal.

A section of the media today had reported that many bidders including private equity like Kohlberg Kravis Roberts, Carlyle Group, Everstone Capital, TA Associates, and Actis, apart from Muthoot Finance had submitted bid yesterday, the last day for submission.

The other reported bidders also include England-based foreign exchange firm Travelex, Chinese travel and tourism firm HNA Group and the Hong Kong-based Bravia Capital.

When contacted by PTI, however, Thomas Cook said it would not react to market speculations nor would it reveal the names of the bidders.

Merchant banking firm Credit Suisse is advising Thomas Cook to carry out the deal.

The parent Thomas Cook had put its the 131-year-old India arm on block late last year, as part of its attempt at disposing off non-core assets and to cut the mountain of debt, by selling its entire 77.1 per cent stake.

Thomas Cook India was set up in 1881 and enjoys over 60 percent market share in the foreign exchange business in here.

Earlier in 2006, Thomas Cook Plc had sold its stake in Thomas Cook India to Dubai Financial, following a pullout by its two major shareholders--German airline Lufthansa and Karstadt. But two years later in 2008, it had bought back 54.9 percent stake from Dubai Financial for about Rs 950 crore and another 20 percent from open market.

Source: EconomicTimes
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DCB Bank raises Rs 94 crore via QIP; to mop up Rs 99 crore more

Medium-sized private lender DCB Bank said it has raised Rs 94 crore through a qualified institutional placement (QIP) and will get an additional Rs 98.75 crore through preferential allotment of shares to enhance its core capital and reduce promoters' holding.

"The capital raised will certainly help us in executing our plans for growth in the near future," DCB Managing Director and Chief Executive Murali M Natrajan said in a statement here.

The bank's tier-I capital as of the December quarter stood at 11.15 per cent. The lender has not specified at what levels will it go to post-infusion.

It, however, said an additional Rs 98.75 crore in capital is expected to flow in by way of a preferential allotment. Shareholder and regulatory approvals are pending for the same.

The bank board had last month decided to infuse Rs 100 crore through the preferential allotment, the statement said.

Once completed, the twin fund infusion will help bring down the promoters' holding to 19.20 per cent from 23.06 per cent as of December end, it said.

The Aga Khan Foundation-promoted DCB Bank, which changed into a private sector lender from being a co-operative, has been asked by the Reserve Bank to bring down its stake to 10 per cent by March 2014.

The bank had earlier said it expected the capital infusion through the QIP route to come through in the first quarter of the next fiscal due to sloppy market conditions.

Source: EconomicTimes
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Loan fraud: Youth dupes ICICI bank of Rs 2.5 cr

An ICICI Bank sales executive, arrested for allegedly duping the bank of Rs 2.5 crore by making it disburse loans against fake insurance policies, has been remanded in police custody for three days by a Delhi court.

Metropolitan Magistrate Satish Arora handed 29-year-old Prem Prakash over to police for his custodial interrogation, while remanding his two woman accomplices, Vandana and China, to judicial custody till March 29.

The trio were arrested on charges of causing a loss of Rs 2.5 crores to bank by making it disburse the loan against fake sureties.

Police told the court that Prakash had the responsibility of procuring persons interested in obtaining loans by pledging securities such as bonds, shares and insurance policies.

In December 2010, he came in contact with Ajit Pudhir, a native of Uttar Pradesh and they connived to cheat the bank on basis of fake LIC policies and the amount so earned was used to purchase properties and other valuable securities.

The duo also roped in West Bengal natives Vandana and China and prepared bogus LIC insurance policies in the name of China and her husband Sunil Kumar. The bank disbursed Rs 49 lakh as loan in his name, which was withdrawn by them. They later bought two properties in South Delhi in names of Vandana and China.

The trio were arrested on March 14 on a complaint by the bank.

Source: Financial Express
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At a time when most banks have failed to convince the Reserve Bank of India (RBI) in allowing them to set up subsidiary companies, Federal Bank has revived its wholly-owned arm to expand its retail loan business.

The Kerala-based private sector lender’s arm, Fedbank Financial Services, has started a gold loan business and plans to offer car loans and loans against property, in addition to its distribution business. It would also enter the wealth management space at a later date, to provide services to high net worth clients.

While RBI has not issued any formal guidelines, in the recent past it has not allowed banks to form separate subsidiary companies for businesses that can be done through bank branches.

The banking regulator had nixed South Indian Bank's plan to form a gold loan subsidiary, Bank of India's proposal to set up a company to train its employees, and Lakshmi Vilas Bank's application for a housing finance arm. Proposals from ICICI Bank and Axis Bank to float infrastructure finance subsidiaries also did not find favour.

"We are aware that RBI does not want banks to set up separate subsidiaries for businesses that they can do through their own bank branches. But it is different in our case. The subsidiary was formed sometime back. We are just adding new lines to the existing businesses. The regulator has not raised any objection," a senior official of the bank told Business Standard, requesting anonymity because of the sensitivity of the issue.

Fedbank Financial Services was incorporated as a wholly-owned subsidiary of the bank in April, 1995. In 1998, it received a licence to operate as a non-banking finance company. But the license was surrendered and operations were suspended between 2001 and 2007.

In 2007, the company was revived and was acting only as a distributor of financial products on behalf of the parent bank. It applied for a fresh NBFC licence in 2009, which it received on August 24, 2010.

The company started offering gold loans from February, 2011 and plans to enter the secured assets business from next financial year.

"Unlike other banks, we did not apply for a new subsidiary," said another official, adding the bank will continue to do businesses like gold loans and car loan despite entry of Fedbank Financial Services in this space.

Currently, Federal Bank's gold loan portfolio is estimated around Rs 3,300 crore, while for Fedbank Financial Services it is close to Rs 300 crore. The bank has 938 branches, while its NBFC subsidiary has around 129 offices.

Source: Business Standard
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Higher govt borrowing may not eat up public credit: RBI

Reserve Bank Deputy Governor KC Chakrabarty today said private credit demand will not be crowded out as a result of higher market borrowing by the government even as the fiscal deficit target for next fiscal is pegged at 5.1%.

"The idea of 5.1% fiscal deficit should not deprive credit needs of the society," he told PTI at an HDFC Bank event here.

In the FY13 Budget, Finance Minister Pranab Mukherjee has targeted a fiscal deficit of 5.1% and a net market borrowing of Rs 4.79 lakh crore to overcome it.

When asked if the higher fiscal deficit, as proposed which forces the government to borrow extra from the market, would crowd out private investment, the deputy governor said, "I don't think so.. Legitimate credit demand will not be crowded out."

Chakrabarty said before arriving at the fiscal deficit number, the government does a lot of groundwork which entails assessing the credit requirements of the industry and agriculture, apart from what it will need for itself.

"I think all these exercise has been done and based on that, what has been prepared, will ensure credit needs of the society," he said.

According to the experts, excess borrowing by the government ends up hurting credit flow to the private sector.

As against the targeted deficit of 4.6% announced in last year's Budget, a combination of factors such as higher subsidies, rising crude prices and deteriorating macroeconomic situation have caused the number to go up to 5.9% for FY12.

The government has already ended up borrowing Rs 92,000 crore in excess of the targeted Rs 4.17 lakh crore for FY12.

The Reserve Bank, led by Governor D Subbarao, had been demanding that the government take steps towards fiscal consolidation in the run-up to the Budget.

Asked if the Budget numbers sound credible, Chakrabarty said the RBI will examine the steps being taken by the government in the coming months.

Source: Business Standard
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ICICI Bank to raise Rs 10 bn via bonds

Chanda Kochchar-led ICICI Bank is planning to raise at least 10 billion rupees ($198.47 million) via 6-year bonds at 9.20 percent semi annual coupon, two sources with direct knowledge of the deal said on Friday.

The bonds have been placed with the country's largest life insurer, the state-run Life Insurance Corp of India (LIC), said the sources. ($1 = 50.3850 Indian rupees)

Source: Financial Express
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SBI may cut rates on select loans

Your wait for a reduction in lending rates may soon be over, if the country’s largest commercial bank has its way.

State Bank of India (SBI) is weighing options to pare interest rates on certain sector-specific loans, despite the Reserve Bank of India (RBI) keeping the repo rate unchanged at its mid-quarter policy review. The bank’s asset-liability committee (ALCO) is scheduled to meet tomorrow to review lending rates.

I see some room for cutting lending rates following the cut in the cash reserve ratio (CRR) last week. It is not right for me to pre-decide on behalf of the ALCO. But when we had a 50 basis point CRR cut last time, we passed it to our customers with significant cut in rates of our educational loans. Similarly, we will definitely cut rates (again), but the segments and extent will need a more granular analysis. That will be done by our ALCO,” Pratip Chaudhuri, SBI chairman, said.

The lender, however, is not likely to reduce its base rate, or the benchmark lending rate to which all loan rates are linked. It’ll rather tweak card rates and sacrifice on margins. According to a senior SBI official, the bank would have already cut the rates, but the recent spike in short-term rates deferred the plan. Short-term rates like the three-month certificate of deposit rate are close to three-year high of 12 per cent due to tight liquidity conditions.

The state-run lender had cut interest rates on educational loans by 25-100 basis points at the end of February, a month after the central bank reduced CRR by 50 basis points. Earlier this month, the RBI slashed CRR by another 75 basis points to infuse liquidity in the system.

Though SBI hints at softer lending rates, other banks are still in a wait-and-watch mode. “I don’t foresee lending rates coming down immediately. For that to happen, the resource cost has to come down. Given the current tightness in liquidity conditions, I don’t think there’ll be any cut in rates as of now,” M D Mallya, chairman and managing director of Bank of Baroda, said.

Similar views were echoed by chief executives of several other public and private sector banks. They felt it was too early to reduce interest rates and prefer to keep a status quo on rates till the next monetary policy review on April 17.

“I don’t think it’s possible for us to cut rates immediately. While the CRR cut has definitely provided some relief on the liquidity front, we’ll still wait for some more time before reducing our rates,” said T M Bhasin, chairman and managing director of Indian Bank.

Since the RBI pressed the pause button on the rate hike spree in December, only three banks — Union Bank of India, Bank of Maharashtra and Federal Bank — have reduced their base rates or minimum lending rates. The rate cuts, however, were limited to only 10 basis points.

While most bankers said they were not likely to reduce rates in the near term, industry analysts said if SBI decided to cut its lending rates aggressively, other banks would have no option but to follow suit.

Even Chaudhuri appeared to corroborate this. “If some efficient banks start lowering their base rates, other banks will either have to fall in line or forego the good business,” he said.

However, like most other banks, SBI does not plan to slash its deposit rates anytime soon, as it may lead to flight of funds from the bank to other government savings schemes offering attractive interest rates.

“In India, for almost all banks, 80 per cent of their funding comes from deposits. So, I do not see much room for a deposit rate cut because the government’s savings schemes are offering 8.4 per cent rate and tax-free bonds are available at eight per cent. So, if the bank’s deposit rates go below that, we will lose deposits,” Chaudhuri said.

Source: Business Standard
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Monday, March 12, 2012

ICICI fined Rs 50K for no cashless service

ICICI Lombard General Insurance Company has been directed by a Delhi consumer forum to pay Rs 50,000 as compensation to one of its policy holders for harassing him by not providing cashless medical facility.

The District Consumer Disputes Redressal Forum held the company "deficient in service" for not providing cashless facility and remaining silent on the request of the consumer who provided all necessary information.

"The deficiency in service on the part of the insurance company is its non-action on the request of the complainant to provide him cashless facility for his medical treatment," the forum presided over by B B Chaudhary said.

The complainant Satya Prakash, had purchased a health insurance policy for two years, during which he underwent treatment at Sir Ganga Ram Hospital for a heart problem.

He said despite acting as per the terms of the policy for availing cashless facility, he was denied the same.

The company, in its reply, contended that cashless request was never denied and the case went into closure as no reply was received to its queries from the hospital or Prakash.

The forum, however, said, "The hospital provided all necessary information to the insurance company to make available the facilities to the complainant so he could be admitted in the hospital for his heart problem."

"It appears that the insurance company decided to remain silent about the request of extension of cashless facility. By implication, it amounts to denial of cashless facility and that too without any valid reason," it said.

"We allow the complaint with directions to the insurance company to pay the complainant a sum of Rs 40,000 for causing harassment and a sum of Rs 10,000 as cost of litigation," it said.

Source: Financial Express
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Axis Bank working on multi-currency services on travel card

Encouraged by the success of its travel cards, Axis Bank is looking to offer them in multiple currencies and with valued added services.

The private sector bank is also working on other specialised products in the travel cards segment. These include a bundled product that can be used for public transport in Singapore. Another one is a special card for students going abroad, jointly with ISEC (International Student Exchange Card) so that they can avail themselves of discounts at merchant outlets.

The bank, which is the biggest issuer of travel cards in India, has roughly four lakh active cards with a usage volume of over $2 billion.

Axis Bank entered the travel card business in 2003. This segment has seen a consistent average annual growth rate of 40 per cent, said an official.

A travel card is a prepaid card which can be loaded with foreign currency. It can be used like a debit or credit card while travelling overseas.

Currently, cash accounts for more than 80 per cent of the foreign currency transaction volumes. Travel cards and travellers' cheques make up the balance.

“This shows the potential for the travel card business. Even a 10 per cent conversion from currency in favour of travel cards will mean a huge rise in volumes,'' the official said.


Although travellers' cheques have been around for longer, travel cards offer certain advantages over them. One is the convenience of being able to use the card at merchant outlets and at ATMs. The second is the ability to reload the card. But the biggest advantage is that the exchange rate is locked in at the time of loading the card. This ensures that the customer does not face nasty surprises in case of a currency fluctuation.

Most people now use travel cards to withdraw money from ATMs.

Axis Bank is trying to highlight the benefits of using the cards at point-of-sales terminals at stores and merchant outlets overseas and also for online ticket or hotel bookings.

“The benefit for customers is that every ATM withdrawal costs $2 or more in fees, while there is no additional charge for POS or online usage,” the official said.

Currently, one travel card allows transactions only in one currency. Axis Bank is working on a multi-currency card which will allow transactions in more than one currency.

For the variants such as silver, gold and platinum the bank is working on benefits depending on the segments like faster clearance at airports, free emergency services and so on, the official said.
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IRDA to streamline servicing of ‘orphaned' life insurance policies

If your agent stopped servicing life insurance policy after making you buy it, there is nothing to worry.

Such policies, which are ‘orphaned' due to exit of an agent from the profession after selling a policy, should be well-serviced by the insurers by allotting them to other agents, the Insurance Regulatory and Development Authority said.

In its exposure draft on servicing of orphaned policies, the regulator said a large number of agents were discontinuing their services with a given insurance company before completing the minimum service prescribed.

At present, a minimum period of five years is must for an agent to get renewal commission.

Due to this, some policies are left ‘orphan' and the policyholder suffers from lack of proper assistance in the servicing of the policy.

The insurance company also suffers because of the drop of persistency which might occur in such cases.

“It is important and in the interest of such policy holders to provide for a system where they are not denied the benefit of having an agent to look after their policy service issues in the best interest of policyholders,'' IRDA said.

The life insurers shall notify the particulars of ‘allottee agent' to the concerned policy holders as well.

While allotting the policies for servicing, the life insurers should direct the allottee agents that all policy services shall be rendered similar to how an insurance agent would render to those policies that were otherwise effected by him / her.

The insurers should put in place procedures for capturing the details of the policy allotted agents who are servicing the allotted policies, in order to ensure that the objectives of allotment are met, the draft said.
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Federal Bank opens 856th branch

Federal Bank has opened a branch, its 856th, at Kothuval Street in Chalai, here. Dr A.P. Majeed Khan, Chairman, Noorul Islam Education Trust and Chancellor, Noorul Islam University, inaugurated the branch at a function presided over by Mr Madhavakumar V.R., Zonal Head, Federal Bank, Thiruvananthapuram. The on-site ATM counter was inaugurated by Mr Vinson M. Paul, Additional Director-General Of Police (Crime), Kerala.

Mr R. Murugan, Chief Executive Officer, PRS Hospital, and the PRS Group of Institutions, unveiled the safe deposit locker facility. Among those who spoke on the occasion were the Chalai Imam Moosa Moulav; Mr Anthony T.O., Chief Manager of the Palayam branch of the bank and Ms Rema Devi O., Senior Manager, of the Chalai branch.

It was also announced that the bank is introducing the bulk note acceptor facility for the first time at Chalai Branch.
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