SBI to launch four SME processing units

State Bank of India, Bengal Circle, plans to set up four small and medium enterprises (SME) processing units across the State in the next six months. The circle currently has one SME processing unit in Kolkata.

These processing units would help in speedy disbursals of SME loans and would aid in building up the bank's SME loan book in the region, Mr Sureinder Kumar, Chief General Manager, SBI Bengal Circle, said.

“SBI Bengal Circle's exposure to SME loans has been increasing over the last two years. The total outstanding currently stands at about Rs 11,000 crore,” Mr Kumar said while speaking at a seminar on avenues of raising fund for SMEs jointly organised by the Bengal National Chamber of Commerce and Industry and Peerless Securities Ltd here on Friday.

SBI Bengal Circle witnessed a 20 per cent growth in its business to Rs one lakh crore in 2011-12. The circle aims to achieve 25 per cent growth in business to Rs 1.25 lakh crore by the end of March 2013, he said.

shobha@thehindu.co.in

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Exim Bank plans $500m MSME fund

Export-Import Bank of India is planning to set up a $500-million fund to assist export-oriented micro, small and medium enterprises (MSME) with long-term foreign currency loans. The development financial institution (DFI) will put together the corpus of the ‘Technology & Innovation Enhancement and Infrastructure Development' Fund on its own and lend to MSMEs over the next five years.

Exim Bank will work in collaboration with other commercial banks/ financial institutions to reach out to a large number of MSMEs to build capacities in the area of skill development, design, packaging, and market development, for specific MSME clusters.

Fund constraints

As per the MSME Census 2010, because of the funding constraints of Tier II banks, only 12.2 per cent of registered MSME units had taken foreign currency loans. Most MSME units get only working capital loans from banks.

For term loans they have to either make do with their own funding or depend on informal sources of finance.

“Our collaboration with mid- and small-sized commercial banks will be win-win. While we have the expertise in raising foreign currency resources, the banks have the reach to extend foreign currency loans to MSMEs,” said Mr Samuel Joseph, General Manager, Exim Bank.

Export-oriented MSMEs, which currently get rupee loans only at 14-15 per cent interest, could get foreign currency loans (term and working capital) at 7-8 per cent interest from the Fund.

Support for creative units

Exim Bank plans to launch a new programme for financing export-oriented creative industries.

India has competitive advantages, among others, in modern segments such as animation, gaming software, content development for movies, media, education, as also traditional skills, including making carpets, decorative items, wickerware, glassware, handmade lace, needlework rugs, and embroidery.

India is the 8th largest exporter of creative goods in the world and the growth rate in 2010 was the highest among the top 10 exporters.

kram@thehindu.co.in

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ICICI Bank logs 25% rise in consolidated net

ICICI Bank has reported a 25 per cent increase in consolidated net profit at Rs 7,643 crore in FY12, against Rs 6,093 crore in FY11.

The consolidated net profit, among others, includes financial performance of subsidiaries such as ICICI Prudential Life Insurance, ICICI Bank UK, ICICI Lombard General Insurance, ICICI Home Finance, and ICICI Securities Limited.

Ms Chanda Kochhar, MD and CEO, ICICI Bank, said some of the subsidiaries, such as ICICI Bank UK and ICICI Prudential Life Insurance, have declared maiden dividends. In FY12, the bank received dividends aggregating Rs 740 crore.

The bank's consolidated net profit for FY12 and Q4-FY12 includes the impact of the additional pool (third-party motor pool) losses of Rs 503 crore, in line with its shareholding in ICICI Lombard General Insurance. Following the insurance regulator directing the dismantling of the pool, ICICI General has decided to recognise the additional liabilities of the pool in the current year. Hence, the general insurer reported a loss of Rs 416 crore in FY12, against a loss of Rs 80 crore the previous year.

ICICI Prudential Life Insurance reported a 71 per cent jump in net profit at Rs 1,384 crore in FY12, against Rs 808 crore the previous year.

The bank's board has recommended a dividend of Rs 16.50 per equity share (Rs 14 per share last year).

Ms Kochhar attributed the higher dividend to healthy growth in profit and strong capital position (capital adequacy ratio at 18.52 per cent as on March-end 2012).

Year-on-year, the bank's deposits increased by 13 per cent to Rs 2,55,500 crore (Rs 2,25,602 crore as on March-end 2011) and loans were up by 17 per cent to Rs 2,53,728 crore (Rs 2,16,366 crore).

A break-up of the loan book shows that, of the total loans, retail loans accounted for 36 per cent; domestic corporates 23 per cent; overseas loans 27 per cent; SMEs 5 per cent and rural loans 9 per cent.

“In FY2013, we expect a credit growth of 20 per cent and a deposit growth of 16-18 per cent….. Demand for loans is not just a function of interest rates, it is also driven by clarity on policy and statutory approvals,” said Ms Kochhar.

On overseas loans, Ms Kochhar explained that volatility in the rupee-dollar exchange rate is changing the quarterly disbursement numbers substantially, making it difficult to project loan growth. The outstanding net restructured loan book stood at Rs 4,256 crore as at March-end 2012. The net addition to the restructured loan portfolio was Rs 1,200 crore in the reporting quarter.

“Bulk of the loan restructuring has already been done…..Our asset quality outlook is stable. We don't expect any shocks,” said Ms Kochhar.

kram@thehindu.co.in

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Axis Bank to divest 25% stake in AMC to Schroder; reports 25% jump in Q4 net

Axis Bank will induct Schroder Singapore Holdings Pvt Ltd as a 25 per cent shareholder in its wholly-owned subsidiary Axis Asset Management Company Ltd. The Bank's board approved a proposal to this effect on Friday.

The induction of Schroder Singapore Holdings Pvt Ltd, a wholly owned subsidiary of Schroder Plc, is subject to regulatory approvals.

Axis AMC had average assets under management of Rs 8,800 crore in the January-March 2012 period.

Axis Bank has reported a 25 per cent increase in net profit at Rs 1,277 crore in the January-March 2012 period as against Rs 1,020 crore in the corresponding quarter last year.

Net profit for FY12 rose by 25 per cent to Rs 4,242 crore as against Rs 3,388 crore for FY11, said a bank statement.

The board of India's third biggest private sector bank has proposed a dividend of Rs 16 per share as against Rs 14 per share last year.

In the reporting quarter, India's third largest private sector bank reported a 26 per cent rise in net interest income (difference between interest earned and paid) to Rs 2,146 crore (Rs 1,701 crore).

Other income, which includes fee income and trading income, was up by 9 per cent to Rs 1,588 crore (Rs 1,450 crore in Q4FY11).

Acquisition of Enam's financial services biz

The bank's board has approved the reassessment of valuation of the financial services business proposed to be acquired from Enam Securities Private Ltd at Rs 1,396 crore.

The bank said the reassessment is in view of the ‘prevailing market conditions and with a regard to underlying commercial factors.

Hence, Enam shareholders would receive Axis Bank shares in the ratio of 5 shares (5.7 shares earlier) for every 1 share held in Enam, translating into approximately 2.93 per cent shareholding in Axis Bank. The bank said the RBI has conveyed its ‘no objection' to the revised Scheme of Arrangement for the acquisition.

Shares of Axis Bank closed 1.57 per cent up at Rs 1,103.25 per share on the BSE as against the previous close of Rs 1,086.20.

kram@thehindu.co.in

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LIC to sell stakes in good time

Life Insurance Corporation of India (LIC), the largest institutional investor in the country, is not in a hurry to bring down its holdings in unlisted companies to align with the 10 per cent equity exposure cap mandated by the insurance regulator.

According to highly placed sources in LIC, the insurance behemoth has already made its stance clear with the government and the Insurance Regulatory Development Authority of India (Irda), citing the practical hindrances involved. The largest life insurer in the country has also requested the regulator to tweak some of the debt investment norms to allow more flexibility.

“There are practical challenges involved, even if we are to bring down the stakes in these unlisted companies. It cannot happen overnight. We are aware of the regulations, but we are not in a hurry,” said an official at LIC.

The insurer has exceeded investment limit in 57 unlisted firms. “We need to arrive at a valuation, then need to look for a suitor. Also, some have been hugely profitable investments. All these procedures are easy and take a lot of time. We have made our position clear to the government and regulator,” he added.

LIC can invest up to 10 per cent of capital employed by the investee company or 10 per cent of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds. LIC has asked Irda to allow more investments in AA-rated papers. Otherwise it might impact yields.

According to the norms, insurers are required to invest 75 per cent of its debt investment in AAA-rated papers. “More than half of our debt instruments are in government securities, which are more secured than the AAA-rated papers. Now with 15-20 per cent investment in equities and another 10 per cent in policy loans, it leaves us with very small headroom. If we have to invest the remaining amount in AA-rated papers (to maintain 75 per cent cap) it means the return will be lower,” the official added.

The insurance behemoth has made a profit of Rs 15,000 crore from sale of equity investments in 2011-12, as against Rs 17,000 crore a year ago. LIC is planning an investment of around Rs 2.25 lakh crore in 2012-13, of this Rs 60,000 crore is expected to be in equities. In 2011-12, the insurer invested around Rs 2 lakh crore in debt and equities put together. “Last year, around Rs 1.5 lakh crore was invested in debt and around Rs 50,000 crore in equity investments,” an LIC official said.

During 2010-11, investments of the insurance behemoth stood at Rs 1.96 lakh crore and the corporation made a profit of Rs 9,000 crore by selling equity investments. LIC collected Rs 81,514 crore by selling new policies in 2011-12, down 5.7 per cent compared with Rs 86,444.72 crore in the corresponding period last year.

Source: Business Standard

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S&P cuts rating outlook of SBI, ICICI, HDFC Bank

India's top 10 banks, including the SBI, ICICI Bank and HDFC Bank suffered a collateral damage following the Standard and Poor's lowering the country's sovereign rating outlook.

The global agency downgraded the rating outlook of these banks, stating the move reflects "the outlook on the sovereign credit rating on India".

While it is only the outlook which has been lowered at the moment, the S&P warned that the banks' ratings can also be revised downward if similar steps are taken for sovereign rating.

Other lenders included in the latest rating outlook revision are, Axis Bank, Bank of India, IDBI Bank, Indian Overseas Bank, Indian Bank, Syndicate Bank and Union Bank of India.

Besides, the Infrastructure Development Finance Company Ltd (IDFC) is also impacted by the rating action.

Experts feel that the S&P's move will not significantly impact the cost of resource mobilisation of the Indian banks since they raise bulk of the money from the domestic sources.

Justifying the move, it said, "S&P does not rate Indian banks above the rating on the sovereign because of the direct and indirect influence that the sovereign in distress would have on banks' operations including ability to service foreign currency obligations."

It said the banks get influenced if the country's sovereign rating itself is affected because they are subject to government policy and regulation and they invest a significant portion of their funds in state securities. The banks are also majority owned by the government.

"We could revise the outlook to stable if we take a similar action on the sovereign rating," it said.

However, the S&P risk assessment on the country's banking industry remains unchanged.

Source: Business Standard

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Muthoot Finance eyeing 15-25% growth this fiscal

Muthoot Finance, which grew over 100 per cent two years ago, looks at a slower growth this fiscal.

“This year is one of consolidation, both for growth of assets under management and branch expansion,” Mr George Alexander Muthoot, Managing Director, Muthoot Finance, told Business Line. The NBFC is looking at 15-25 per cent growth in 2012-13.

In 2010-11, its AUM grew over 100 per cent to Rs 15,000 crore, while in 2011-12 it grew about 50 per cent to Rs 24,000 crore. “The lesser growth is also due to our base growing over the years,” he said.

The company will go slow on its branch expansion plans too.

“During the last two years, we opened 900 branches in each year.

This fiscal, we plan to open only 250-300 branches,” said Mr Muthoot.

The consolidation plans come at a time when the RBI has also asked banks to reduce their exposure to gold-loan companies such as Muthoot Finance from 10 per cent to 7.5 per cent of their net-owned funds.

On this directive, Mr Muthoot pointed out that his company was dealing with about 30 banks, and “none of the banks has reached the 7.5 per cent level of funding yet”. There was enough elbow room, he added.

Lending rates

On the RBI's concerns on NBFCs' high lending rates, he said the rates increased to 22 per cent in 2011-12 from 19 per cent in 2010-11 consequent to banks increasing their lending charges. “Going forward, if we get bank funding at cheaper rates, we will also bring down our lending rates,” added Mr Muthoot.

The RBI's move to bring down the loan-to-value ratio to 60 per cent is a concern, as it would “force some customers to go back to moneylenders,” he said. The company will approach the RBI for a re-look at this aspect, and Mr Muthoot also hoped that the K.U.B. Rao Committee will look into this.

anju@thehindu.co.in

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PSU banks invite bids for ATM units

Public sector banks have called for bids to install 5,259 cash dispensers (ATM) in Bihar and Jharkhand by March 31, 2014. This is 30 per cent more than the estimated 4,039 ATMs announced in the first week of March.

And if the 50 per cent additional requirement is factored in, the final ATM units figure would be 7,889. Going by the original estimate, this is 95 per cent higher.

Though Bank of Baroda has called for the bids on an outsourced basis, it had made it clear that the requirement is for all PSU and co-operative banks. The main banks in the consortium are Bank of Baroda, IDBI Bank, Corporation Bank, SBI and Allahabad Bank.

Banks can place orders under the tender up to March 31, 2015. The banks may also increase the requirement of cash dispensers by 50 per cent. It is also obligatory for bidders to take over operation and maintenance services of bank owned ATMs that are in operation for less than seven years. Vendors will have to take over the ATM, peripherals, networking and other equipment in ATM room owned by the banks which support functioning of the ATM.

The selected vendor will receive a seven-year contract from the procurers.

raghavendrarao.k@thehindu.co.in

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Federal Bank cuts base rate by 20 bps

Kerala-based Federal Bank today cut its base rate or the minimum lending rate by 0.20 per cent to 10.45 per cent following last week’s RBI reduction in the key policy rate.

The bank action will be applicable from May 2, it said in a statement.

The Reserve Bank had surprised all by slashing the repo rate at which it lends to the banks by 0.50 per cent to 8 per cent at its annual monetary policy announcement on April 17.

Reacting to the move, all the bankers had said this will lead to lower rates but some opined that the deposit rates will go down first and the reduced cost of funds will trigger base rates decreasing.

Other lenders like ICICI Bank, IDBI Bank and Corporation Bank have already announced cut in interest rates.

State Bank of India, the country’s largest lender has cut rates on select offerings, but is keeping the base rate intact.

Federal Bank reduced term deposit interest rates by up to 0.25 percent depending on maturity, the statement said.

The reduced deposit rates will be effective from April 26, it added.

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Punjab & Sind Bank to hire 1,700 officers, clerks

Punjab and Sind Bank has notified the recruitment of 900 probationary officers and 800 clerks.

Candidates, who had taken the common written examination for probationary officers and clerical cadre vacancies conducted by the Institute of Banking Personnel Selection in 2011 and obtained a valid score card, are eligible to apply.

Clerical recruitment is earmarked for single window operators ‘A’ category of posts. Online registration for applying commenced on April 24 and will continue up to May 5, the bank said in a notification.

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LIC Housing Fin net drops 19% as interest cost soars

LIC Housing Finance has reported a 19 per cent drop in net profit to Rs 254 crore in the January-March 2012 period against Rs 315 crore in the corresponding year-ago period.

In the full year ending March 31, 2012, the housing finance company reported a 6 per cent fall in net profit to Rs 914 crore (Rs 974 crore in FY11).

The board has recommended a dividend of Rs 3.60 per equity share of Rs 2 each subject to approval at the forthcoming annual general meeting.

In the reporting quarter, the profit was impacted mainly due to a 44 per cent jump in interest costs at Rs 1,257 crore (Rs 873 crore), and a 55 per cent decline in ‘other income' at Rs 27 crore (Rs 60 crore). Higher provisioning prescribed by the housing finance regulator on standard assets also pulled down the profit. LICHF made a provisioning of Rs 150 crore towards standard assets.

LICHF Director and Chief Executive, Mr V. K. Sharma, said,“The year was extremely challenging and the business environment was unrelenting…NIMs have started showing some signs of improvement in Q4.”

Net Interest Margins (NIM) for Q4 FY12 stood at 2.44 per cent as against 2.27 per cent for Q3FY12.

The housing finance company has put in place systems and procedures so that project financing proposals could be fast-tracked, said Mr Sharma. The plan is to modify the loan book mix to 92 per cent retail (95 per cent currently) and 8 per cent project finance (5 per cent) in FY13.

Fund raising

LICHF will raise Rs 25,000 crore to support a loan book growth of 25 per cent in FY13. Of this amount, 70 per cent will be mopped up by issuing non-convertible debentures and the balance through bank loans, refinance from the National Housing Bank and retail deposits.

“We plan to raise Rs 1,000 crore from retail depositors. Currently, our retail deposit portfolio stands at Rs 300 crore,” said Mr Sharma.

Shares of LICHF closed 0.04 per cent down at Rs 258.20 per share on the BSE as against the previous close of Rs 258.30.

kram@thehindu.co.in

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YES Bank Q4 profit jumps 34% on strong net interest income

YES Bank reported a 34 per cent increase in net profit to Rs 272 crore in the fourth quarter ended March 31, 2012, against Rs 203 crore in the corresponding year-ago period.

A robust 43 per cent growth in non-interest income at Rs 266 crore (Rs 187 crore in Q4 FY11) coupled with a 29 per cent increase in net interest income (NII) at Rs 448 crore (Rs 348.5 crore) boosted the bank's profit.

Net profit for the year ended March 31, 2012, also rose by 34 per cent to Rs 977 crore (Rs 727 crore). Net interest income grew 30 per cent at to Rs 1,616 crore (Rs 1,247 crore).

NII growth

The Managing Director and CEO, YES Bank, Mr Rana Kapoor, attributed the profitability to steady NII growth, and continued focus on revenue diversity — cross selling of financial products, financial advisory, transaction banking and retail banking fees — leading to strong non-interest income growth.

Savings accounts (SA) deposits increased by 206 per cent year-on-year and 108 per cent on a sequential basis.

CASA (Current and Savings Account deposits) ratio has improved by 2.4 per cent on a sequential basis. CAR (Capital Adequacy Ratio) was at 17.9 per cent with a Tier I ratio of 9.9 per cent as on March 31, 2012.

The advances grew by 10.5 per cent at Rs 37,989 crore (Rs 34,364 crore) as on March 31, 2012, while deposits growth slowed to 7 per cent at Rs 49,152 crore (Rs 45,939 crore).

The cost of funds rose to 9 per cent (8.8 per cent) in the year ended March 31, 2012.

YES Bank may raise $400-500 million at the end of the fiscal year, Mr Kapoor said.

The bank expects to increase its retail banking portfolio to 36 per cent of total advances by FY15 from 18 per cent in FY12, he added.

The shares of the bank ended higher by 1.86 per cent at Rs 366.40 per share on the Bombay Stock Exchange.

beena.parmar@thehindu.co.in

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Allahabad Bank to open four branches overseas

Allahabad bank has approached the Reserve Bank of India (RBI) for opening four overseas branches. At present, the bank has one overseas branch and representative office.

Mr J. P. Dua, Chairman and Managing Director, Allahabad Bank, said: “We have approached the regulator for opening overseas branch each in Dhakha, Shanghai, Singapore and Hong Kong. With this Hong Kong will have two branches.”

The bank has a representative office in China. The bank is celebrating 148 years of its existence.

The oldest joint stock bank of the country aims to maintain net interest margin of 3 per cent during current fiscal. The bank expects credit and deposits to growth at 20 per cent each in the current fiscal, Mr Dua added.

The bank has opened its 2,525th branch, which is in the Delhi region. It has also launched 148 ultra small branches which will work with one official and banking correspondents.

The bank also announced the launch of inter-bank mobile payment service, Rupay Card, prepaid card and other e-products.

Highlighting the bank's performance, Mr Dua said that the bank's business has crossed Rs 2,72,000 crore in 2011-12.

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Union Bank cuts base rate by 15 bps

Union Bank of India has reduced its base rate by 15 basis points from 10.65 per cent to 10.5 per cent, according to a release filed with the Bombay Stock Exchange.

The revised rate is effective May 1, 2012, the release said.

With this reduction, the base rate has been effectively brought down by 25 bps in two stages: 10 bps from December 26, 2011 and 15 bps from May 1, 2012.

Deposit rates

The bank has also realigned deposit rates across maturities. While in the longer end, the deposit rates have been brought down by 25 to 45 bps; at the shorter end, it has been realigned upwards by 15 to 25 bps.

This change will come into force from April 27, 2012.

In December 2011, Union Bank had reduced its base rate marginally by 10 bps to 10.65 per cent.

Review of BPLR

Union Bank would also take up the review of the BPLR (Benchmark Prime Lending Rate) shortly.

It has also proposed to review the spread over base rates for suitable reduction in certain specific segments like Agriculture, MSME and Retail, which would also be announced shortly

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Interest income boosts ING Vysya Bank net 39.5% in Q4

Higher net interest income boosted ING Vysya Bank's net profit by 39.5 per cent to Rs 127.4 crore during the fourth quarter of the last fiscal (2011-12).

The net interest income grew 19 per cent while operating profit rose 54 per cent during the quarter. “It's an all-round performance, and our core income has grown in line with the balance-sheet. We could hold our cost growth well, which is the primary driver of improvement in profitability,” said Mr Jayant Mehrotra, Chief Financial Officer, ING Vysya Bank.

The bank made higher provisioning this quarter at Rs 56.6 crore to take its provision-coverage ratio to 90.7 per cent. “We have set this aside for a rainy day and have made a very conservative approach,” he said.

Mr Mehrotra also pointed out that the effective rate of tax during the quarter was lower due to the bank claiming the deduction allowed on lending to infrastructure and other sectors under Section 36(1)(viii) of the Income-Tax Act, 1961.

This deduction has been claimed on a cumulative basis from the financial year ended March 2008, he said, adding that the bank used a large part of the tax benefit to enhance the provision coverage ratio.

Gross NPA ratio improved to 1.92 per cent (2.3 per cent) and net NPA ratio was at 0.18 per cent (0.39 per cent).

Full year show

For the year ended March 31, 2012, the bank's net profit grew 43.2 per cent to Rs 456.3 crore (Rs 318.7 crore), driven by a 20 per cent increase in net interest income to Rs 1,208.3 crore (Rs 1,006.5 crore).

anju@thehindu.co.in

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SBI rate cut may trigger war in car loan segment

The country's largest bank, State Bank of India, has slashed auto loan rates and deposit rates while many others including Kotak Mahindra Bank, Bank of Baroda and Deutsche Bank have cut their benchmark base rates.

SBI has reduced its auto loan rate by 75 basis points to 11.25%. The move will force other big lenders in the auto finance business like HDFC Bank and Kotak Mahindra Bank to cut rates. SBI's rate cut will enable borrowers save Rs 40 on every lakh. The equated monthly instalment on a Rs 1 lakh seven-year loan has come down from Rs 1,765 to Rs 1,725. Till now SBI had pegged its auto loans at its rack rate of 12%.

Lenders such as HDFC Bank, Axis Bank and Kotak Mahindra, who had higher rack rates, have been offering better deals through special rates starting around 11.5%."This is a highly interest sensitive market and we will have to review our rates to retain our market share," said an official with a leading private bank.

On Monday Kotak Mahindra Bank and Deutsche Bank brought down their base rates by 25bps and 50bps respectively. "We decided to pass on maximum benefit to our customers in keeping with the spirit of supporting economic revival and as signalled in the recent RBI policy," said Gunit Chadha, CEO, Deutsche Bank India. Meanwhile, Bank of Baroda has said that its base rate will come down by 25 basis points with effect from May 1, 2012 while deposit rates are also being reduced by 25 to 50 basis points across maturities.

The reduction in lending and deposit rates are a fallout of the Reserve Bank of India's decision to signal cheaper funds by reducing its repo rate by 50 basis points in its monetary policy on April 17. The repo rate is the rate at which RBI extends overnight funding to banks to meet their short-term cash requirements . According to rating agency Moody's , the move will improve credit-worthiness of Indian banks and reduce pressure on bad loans.

"The RBI's policy easing and greater access to liquidity are credit-positive because they support banks at a time of increasing asset quality and liquidity pressure," Moody's said. It added that in the short-term the easing will help banks steady borrowing rates and interest margins.

Source: EconomicTimes

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Allahabad Bank, Uco, UBI cut lending rates

Three Kolkata-based lenders have reduced their respective base rates following a government order after Reserve Bank of India lowered its short term policy rate by 50 basis points. Allahabad Bank and Uco Bank has announced to cut the base rate by 25 basis to 10.50% while United Bank of India has lowered it by 15 bps to 10.45%.

Base rate is the minimum lending rate for banks and one percentage point is equal to 100 bps. The new rates for Allahabad and Uco Bank will come into effect from May 1 while UBI's new rates becomes effective from Monday.

Uco Bank has also slashed its housing and car loans by up to 175 bps to boost its retail lending portfolio. It cut housing loan interest rates by 175 bps across all tenures and car loan rates by 125-175 bps. The government wants state-run banks to make retail loans cheaper and compete with private lenders.

At a recent meeting with bankers, finance secretary DK Mittal told bank captains to follow this strategy. Uco Bank has cut deposit rates by 25-50 bps across various maturities from Tuesday to reduce cost of funds.

Source: EconomicTimes

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HDFC Bank, Wells Fargo tie up for fund transfer facility

HDFC Bank has entered into a tie-up with Wells Fargo to enable US-based NRIs to remit funds online or through phone to their beneficiaries in India.

To avail of the remittance facility, all that a US-based customer needs to do is conduct his first transaction at a Wells Fargo branch. Subsequent transactions can be conducted through Wells Fargo.com, or via Wells Fargo Phone Bank. Funds are sent to HDFC Bank quickly for credit.

“Our Web-based service reach will allow people to send money back home safely and quickly,” Mr Harish Engineer, Executive Director, HDFC Bank, said.

HDFC Bank's relationship with the financial services giant Wells Fargo is a preferred one and not exclusive, he added. Ms Dilek Mutus, Executive Vice-President, Wells Fargo, said the alliance will help both the banks expand operations in the two countries. “We believe that Indians are key consumers in the US and HDFC Bank's large customer base in India and abroad will help us grow.”

Ms Mutus also said the bank does not plan to seek a branch licence in India for now.

The San Francisco-based had entered into a partnership for remittances with ICICI Bank in 2005.

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SBI to hire 2,500 officers soon

State Bank of India will recruit about 2,500 probationary officers soon.

"The total recruitment for this year could be around 12,000 officers and clerks including a couple of thousand or a little higher number of officers,’’ Mr A. Krishna Kumar, Managing Director, SBI, told.

Last month, State Bank of India had notified recruitment of 8,500 clerks and 1,000 stenographers.

State Bank of India plans to add 1,000 branches in the current financial year to take the total number of branches to 15,000 by March 2013.

The bank would need staff to man these branches and replace retirements, the official said.

nagsridhu@thehindu.co.in

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Sebi mulls safeguards against 'flash crash' menace

Market regulator Sebi is looking to strengthen the risk management framework of Indian stock market to ring-fence it against a 'flash crash' like scenario -- where value of a stock or index get severely beaten within seconds due to a punching error or even a manipulative trade.

The Indian markets have witnessed at least three cases in the past few days when the value of a stock or index plunged sharply within a few seconds.

Although top officials at Sebi and stock exchanges are not willing to call them 'flash crash' cases, as a recovery was quite fast in those cases, a consensus has emerged that systems need to be strengthened to avoid any similar, or even worse, cases in the future, sources said.

In most likelihood, these were cases of 'fat-finger trade' -- a term used for punching error or wrong pressing of orders on the trading terminals, a senior official said.

The upcoming guidelines for stress testing of stock exchanges would ensure that appropriate systems are in place to safeguard the interest of investors from any 'flash crash' like scenario, he added.

On Friday, April 20, the Nifty futures witnessed a sharp plunge of nearly 7 per cent for a few seconds, and some market players put the blame on a huge sell order executed by mistake. The day also saw a sharp plunge in Infosys futures. However, the recovery was fast, limiting the estimated loss from the two freak trades at less than Rs 10 crore.

Later, NSE clarified that "the trading systems worked normally and all the trade executions were within the price limits prescribed by Sebi.

"The Exchange is examining the causes for the sudden fall in the Nifty, as part of normal investigation procedure. NSE further clarified that no trades were cancelled or annulled by the Exchange," it said in a statement.

However, these two freak trades came within days of the two benchmark indices Nifty and Sensex witnessing a sharp plunge for a few minutes, which is widely expected to have been caused by huge sell orders in some blue-chip stocks.

Also, last year on Diwai day on October 26, 2011, the the BSE had to annul all its derivatives trade executed during its Muhurat Day trading after some freak trades were noticed.

Earlier on June 1, 2010, a presumably freak trade pulled down the share price of Reliance Industries by nearly 20 per cent, while the benchmark index Sensex also fell by more than 400 points within minutes to a one-year low.

The US markets witnessed a far worse 'flash crash' on May 6, 2010, when its benchmark Dow Jones index fell by over 900 points, or about 9 per cent.

The US market regulator had later proposed safeguards like circuit-filters to tackle such cases and is still working on a concrete and long-term solution.

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RBI's big rate cut won't spur housing market

Prospective home buyers in India are unlikely to even blink, let alone give a thought, to hinging their purchase decision on the 50 basis points (bps) rate cut announced by the Reserve Bank of India on Thursday.

The cut translates to a 3.2% decrease in a homebuyer's equated monthly installment (EMI), which isn't motivation enough to turn people from squirrels to squanderers. Besides, the rate easing comes after a 375 bps increase between March, 2010 and October, 2011.

If that kind of a rise did not deter those who wanted to build their own nests from putting down the money for a home, this cut isn't going to spur demand either.

That's because purchasing a home is the biggest investment by far for most people in India and the loan taken for that will be exposed to various interest rate regimes over the 15- or 20-year period that the loan is repaid.

So a rate cut now with the prospect of an increase again as soon as inflation rises makes it unwise for buyers to take a bet on this.

The Real Effect

Not many buyers may think in these terms - but taking a loan because interest rates have fallen in anticipation of lower inflation makes no sense. High inflation erodes the real burden of debt. If inflation keeps declining over the years, mortgage payments will be higher in real terms.

Evidence of the lack of linkage between interest rates and housing demand is in the March 2012 sales registrations figures in Mumbai. They were down just 1% at 5,776 on a year-on-year basis, whilst increasing 37% month-on-month, according to figures provided by equities brokerage Prabhudas Lilladher.

"It may not have any major impact since interest rates are still very high," says MR Jaishankar, chairman of Bangalore-based developer, Brigade Enterprises. "Home loan seekers would like to see their EMI's coming down to Rs 1,000 per Rs 1 lakh for a 15-year loan," he says.

The Young Ones

Mortgage payments are among the last considerations, especially among the biggest group of homebuyers in India at present - the 25 to 35-year age-group segment. Those are people with high aspirations, stoke a fire in the belly with peak calorific content and expect to repay their loans much before maturity.

The primary concern of homebuyers is affordability and the assurance of it being built and delivered on time. India's five most-promising cities - Mumbai, Delhi, Chennai, Bangalore and Pune are failing fast on this front with city-centre and suburban prices going beyond the reach of even people with a monthly income of Rs 50,000, if they have no monetary support from the family.

In Mumbai, for instance, the most number of apartment purchases in the past year have been between Bhayandar and Naigaon - at a distance of 75 km from Churchgate station. The distance doesn't matter because these extended suburbs are connected to the city by the electric suburban train network.

To underscore the sheer pace of construction that is catering to booming demand here, just look at the numbers of one developer out of close to a hundred operating in that region.

Rashmi Developers Pvt Ltd, which started 10 years ago, has till now built 2.5 million sq ft in 220 buildings. During this period, they delivered 7,000 flats, which means they completed close to two homes each day.

Rashmi's director, Yogesh Bosmiya, says the company currently has 1.5 million sq ft under development and expects to increase its building pace to 2.5 apartments each day.

Big Funds

India's real estate industry has changed dramatically since 2005 when Press Note Two allowed global private equity funds to invest in the country. There are billions of dollars raised overseas and committed to investments in the sector in India.

Currently, there are close to 100 overseas and domestic funds that are scouring the market to inject money into residential and commercial projects. The numbers of just one private equity fund gives an idea of the quantum of money available for investments in Indian real estate.

JP Morgan's Global Real Assets division exhausted its first India-focused fund of $360 million last year. Currently, it is in the process of raising a second fund of $500 million and has already received commitments for about half of it.

The changes in the sector are also evident in the type of players entering the industry - Tata, Godrej, Wadias and former banker Jerry Rao.

Suitcase Problem

Still there are problems and they can't be fixed by interest rates or economic reform. It requires changing India's political funding system. Politicians receive cash in suitcases that they can't deposit in banks.

Real estate is a business where you need such gilded suitcases - not for the real wealth-creating activity of constructing an asset and delivering it to customers. It's needed only to buy land and to get approvals to build. As is widely known by many, but never been backed by evidence, some of India's most astute politicians have major stakes in land.

As for approvals, there are dozens to be sought and they vary from state to state, allowing for discretion in refusing them - once again the domain of politicians.

Puncture the artificially propped-up cost of land and approvals and real estate will become an asset class in India that generates more business volumes than equities, foreign exchange and commodities put together.

The writer, a former journalist, is founder of Realmark, a financial intermediary that advises global private equity funds on real estate.

Source: EconomicTimes

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