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Saturday, August 18, 2012

SBI opens new branch in Hyderabad

State Bank of India opened a new branch at Chandanagar near B.H.E.L. It was inaugurated by its Chief General Manager, Rakesh Sharma. The branch would focus on housing loans, car loans and financing small businesses. Sharma said the interest rates offered by SBI on these products were the best compared to other banks.
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Federal Bank opens 1,000th branch

Federal Bank has crossed a milestone with the opening of its 1,000th branch at Thiruvalla in Kerala on Friday.

The launch at Muthoor coincided with the first day of Malayalam calendar year, Chingam 1, 1188. It was on the same day that Federal Bank had begun its journey with the opening of its first branch.

The Bank has gained the distinction of being the first among banks headquartered in Kerala to cross the 1,000-branches mark. It has 542 branches in Kerala and 458 branches spread over the other states, Shyam Srinivasan, Managing Director and CEO, Federal Bank said.

On the sidelines of the inauguration, he said the bank its resolve to donate 1,000 units of blood in association with Indian Medical Association during August 17 to October 18, when the bank would celebrate its founder’s day.

The business size of the bank stands over Rs 88,000 crore as on June 30.

The total deposits increased by 17.75 per cent from Rs 42,936 crore to Rs 50,558 crore as on June 30. CASA deposits constitute 28.35 per cent of its deposit mix.

The net advances went up by 18.99 per cent to Rs 38,240 crore as on June 30 from Rs 31,972 crore. This growth was contributed by SME, corporate advances and retail segments, he said adding that the bank has a net worth of Rs 5,897 crore, making it one among the top league of strong banks in India.
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RBI stance has delivered ‘to some extent,’ says Governor

Reserve Bank Governor D. Subbarao is of the view that recent policy monetary initiatives have succeeded “to some extent.”

“Has the RBI succeeded in its efforts? To some extent, I would say,” Subbarao remarked during the course of a lecture delivered here.

Gains can be seen on the headline inflation front. But core inflation remains to be high and consumer price inflation is in double digits, he admitted.

In a low-growth, high-inflation scenario, it is worthwhile to imagine what the situation would have been without RBI’s tightening cycle.

Inflation cannot be reined in without sacrificing growth. Some sacrifice is built into monetary tightening but the impact would be only for the short term.

Monetary action cannot be helped since it is low and stable inflation that enables people to make decisions.

“Inflation is a regressive tax for the silent poor,” the Governor said.

Powerful and resourceful corporates may protest high interest rates, but there also exists a vast majority of silent poor who suffer worst from high inflation.

Unlike in the former’s case, their voice is not heard in the media. Also, savers want high interest rates while borrowers would not like to contract money at those rates.

Inflation is fuelled as much by domestic supply shocks as it is by imported items(commodities, oil). Demand pressures too create inflation.

Monetary policy has to be the first line of defence in these scenarios. The RBI seeks to restrain demand while the government has to deal with the supply side.

Interestingly, in other emerging market economies, a low-growth phase has been accompanied by low-interest regime.

This does not happen in India. In that respect, India continues to be an outlier in the world. This has to do with high wages and infrastructural and supply bottlenecks.

Depreciation of the rupee has been more intense than currencies in other EMEs.

Risks to the economy arise also from global uncertainty, especially in the Euro zone.

This transmits into the trade channel (exports), the financial channel and the confidence channel, the Governor said.
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Oriental Bank ties up with M&M for vehicle financing

Mahindra & Mahindra has signed an MoU with Oriental Bank of Commerce (OBC) for personal and commercial vehicle financing. Customers of M&M will be able to avail of these services from any of the 1808 OBC branches. M&M has a total of 250 dealer outlets.

The MOU was signed by Arun Malhotra, Senior Vice-President, Sales & Customer Care – Mahindra & Mahindra and Atul Gautam, General Manager, OBC in the presence of S. L. Bansal, Chairman & Managing Director, OBC.

OBC is expanding its operations in the Commercial and Passenger vehicle financing. It has been making attractive offers to its customers and this arrangement with M & M will be one of several such initiatives,” said Bansal.

Malhotra added, “With highly competitive schemes for car loans and commercial vehicles with up to 80 pre cent on-road funding and facility for repayment up to 84 months, we are hopeful of a good response from our dealers and customers.”
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Education loans, NPAs on bank chiefs meet agenda

The Finance Minister P Chidambaram is scheduled to discuss expansion of education loans with banks chiefs on Saturday. This will be one of the key points on the agenda apart from Non-performing Assets (NPA) in the banking sector.

This is the first such performance review meeting after Chidambaram returned to the Finance Ministry. According to the agenda note circulated for the meeting, four issues related to education loans are to be considered. These are expansion, ensuring time-bound disposal of applications, education loans for meritorious students admitted under management quota, and loans for professional diploma courses.

At end-March, public sector banks had over 24 lakh education loan accounts, with outstandings of nearly Rs 49,000 crore. The banking system is working on two imperatives with regard to education loans. First is a credit guarantee fund (as announced in this year budget) and creation of a framework for rating of institutions/courses and students.

Considering the need for extending credit for vocational courses and to skill up graduation, a “Model Loan Scheme for Vocational Education and Training” has also been formulated and circulated by banking body Indian Banks Association (IBA).

This scheme proposes bank finance for students who secure admission into a Government-recognised, employment-oriented vocational training course. Loan amount will be Rs 20,000 for courses with duration up to three months and Rs 1.50 lakh for courses of more than 1 year. The repayment period will range from 2 years to 7 years.

Non-performing assets

The meeting will discuss increase in NPA in more detail. There has been an alarming increase in gross as well as net NPA at the end of first three months (April-June, 2012).

According to a senior Finance Ministry official, as informed by RBI, at system level, new accretion to NPAs has been much more than the reduction in existing NPAs. This is due to lower level of upgradation and recoveries. Also, despite write offs, gross NPAs have continued to rise significantly.
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Friday, August 17, 2012

Union Bank to seek Rs 1,000-cr capital support

Union Bank of India will seek Rs 950-1,000 crore worth capital support from the Union Government to fund its growth needs this year.

The bank aims to achieve 18-20 per cent growth in business in 2012-13, said D. Sarkar, Chairman and Managing Director, Union Bank.

“We had sought Rs 650 crore from the government last year, but we did not get it. This year we plan to ask for Rs 950-1,000 crore to meet our growth target,” he told newspersons on the sidelines of a banking conclave organised by the Federation of Indian Chambers of Commerce and Industry here on Thursday.

Asset-Liability management

Asset-liability management is one of the biggest challenges for banks at present, Sarkar said.

Earlier, banks could mobilise deposits for a longer tenure — nearly 5-7 years — but now the average tenure of deposits have come down to less than two years.

“It becomes a challenging task for banks to lend to sectors like infrastructure — which typically requires long term funding — as it leads to asset-liability mismatch,” he said.

According to Sarkar, resource mobilisation is also turning into an uphill task for banks. “Savings growth has become limited as people are moving towards non-financial assets. Over last three years, the rate of growth in deposits has been lower than that in credit, thereby creating a mismatch in asset-liability,” he said.

Overseas plans

Union Bank is hopeful of setting up its offshore banking unit in Dubai and its wholly owned subsidiary — UBI UK Ltd — in London by the end of this fiscal. The bank also plans to upgrade its representative offices in China and Sydney into full fledged branches, Sarkar said.
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RBI directive on‘survivor’ clause

The Reserve Bank of India has directed banks to incorporate the “either or survivor” or “former or survivor” clause in their account opening forms.

The central bank has also asked banks to inform their existing as well as future term deposit holders about the availability of such an option.

“If such a mandate (“either or survivor” or “former or survivor”) is obtained, banks can allow premature withdrawal of term/fixed deposits by the surviving depositor without seeking the concurrence of the legal heirs of the deceased joint deposit holder,” said the RBI in a circular.

The RBI reiterated that premature withdrawal by the surviving joint depositor would not attract any penal charge.

The RBI observed that many banks have neither incorporated the “either or survivor” or “former or survivor” clause in the account opening form nor have they taken adequate measures to make the customers aware of the facility of such mandate. This has put the “surviving” deposit account holders to unnecessary inconvenience.
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Reliance Life open to talks on bancassurance tie-up

Reliance Life Insurance aims to be in the top three league of private life insurers by premium income in the next three years.

To meet this aspiration, the company has now realised that it needs to get on board a bank of a critical size as a bancassurance partner.

As on date, Reliance Life is in the sixth position in premium income among the private players. Bancassurance has been a distribution gap for Reliance Life.

To bridge this gap, Reliance Life is now open to discussions on giving a very small equity (say up to 5 per cent) to a good candidate (bank) as distributor stock option.

But the company has ruled out giving any upfront money for bancassurance tie-ups as sought by some banks, if such deals are legal.

“Upfront money is not legal and not permitted in any law. We know it is not legal and so there is no point offering it also,” Malay Ghosh, President and Executive Director, Reliance Life, said in an interview to Business Line here.

“If a company in five years can create value for us, we are ready to give small equity to them at today’s valuation with guarantee to buy them back at future valuation. This is possible. But giving upfront dowry our promoters do not like.”

According to him, to address the bancassurance gap, the company is working on two-pronged strategy.

First, it will undertake more intensive discussions with the insurance regulator and engage with it to see that the bancassurance guidelines — which talks of opening up bancassurance in whatever form — happen fast.

The company is also talking to every bank in India and impressing on it that if an opportunity comes for it and if it looks for another partner (if not happy with the current one), it might think of Reliance Life as a partner.

Reliance Life Plus Club

Reliance Life Insurance, a part of Reliance Capital, has launched a first-of-its-kind customer service initiative — ‘Reliance Life Plus Club’.

Inspired by ‘Zutto Motto’ (forever more service) service at Nippon Life, Reliance Life has under the new initiative made it mandatory for all the sales agents and channel partners to visit its policy holders at least once in a year.

During the interaction, these representatives would review the customers’ existing policies, understand the changes and developments in their lives since the last policy was issued, evaluate current insurance needs and offer advice on suitable new products.

Such a structured post-sales customer service platform will help reduce mis-selling, according to Malay Ghosh.

The Indian life insurance industry is facing issues on orphan policies and also complaints on mis-selling.

The company targets to meet 1 million customers (out of 9.5 million customers) by the end of the current financial year.
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SBI Cards targets 1 million new customers by 2014-15

SBI Cards, the second largest credit card solutions provider in India after HDFC Bank, is targeting to add one million new

customers by 2014-15, Mr Kadambi Narahari, CEO, said on Thursday.

Between 2007 and 2010, the number of credit card holders in India fell from 27 million to 17 million. Even after this consolidation in the wake of global slowdown, when many credit card companies went out of business, penetration of credit cards in India is still low — as against China and Brazil accounting for 200 million cards each, India accounts for only 18.4 million credit card holders, he told presspersons here.

SBI Cards have a customer base of 2.3 million. HDFC currently issues about 80,000 credit cards per month while SBI Cards issues about 50,000.

On an average, an Indian credit card holder spends only $755 (Rs 40,000) annually, as against the Australians ($3,352), and even the Thais ($2,084).

With its expansion in Tier II and III towns and cities becoming profitable with 12 per cent of cards reaching there, SBI Cards is now banking on the spread of the Internet to 121 million customers and grow its business by three to four times by 2014-15. India currently has 80 million banked households, he said.

Ticket booking and similar instant payment facilities have boosted the business of SBI Card, particularly after its tie up with the Indian Railways and other agencies and co-branding cards with the Oriental Bank of Commerce, Bank of Maharashtra and the Karur Vysya Bank.

Credit card spend in India is expected to increase from Rs 96,000 crore in 2011 to Rs 120 crore this year. SBI Cards and Payment Services Pvt Ltd, a joint venture with GE Capital, is the only standalone credit card providing company in India. It offers 14 different modes of payment options to customers.
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Federal Bank eyes 20% credit growth this fiscal

Despite poor monsoon and economic slowdown, the Kerala-based Federal Bank expects credit growth of 20 per cent in the current fiscal.

Though, during the lean period, advances grew lower than targeted, they are expected to pick up in the coming months, said Shyam Srinivasan, Managing Director and CEO, Federal Bank.

“We have targeted 20-22 per cent growth, but hope to achieve close to 20 per cent,” he said.

Retail and gold loan businesses are doing well (gold loans which account for 27 per cent of its retail loan book, grew by almost 100 per cent in the first quarter). But lending to new projects has slowed down. “We are also cautious in this business. We continue to focus on SMEs, NRIs and agri-businesses.”

The bank, which has been on an expansion spree from last year, will open its 1,000th branch at Thiruvalla in Kerala on Friday. In the last 13 months, the bank opened 260 branches. The plan plans to add another 200 branches in the current year. However, this will depend on the performance of the newly opened branches, Srinivasan said. “One of the priorities has been to expand in our chosen geographies. We are now fairly well spread — in five States outside Kerala —Tamil Nadu, Karnataka, Gujarat, Maharashtra and Punjab,” he said.

The bank, which reported a 30 per cent increase net profit, in the first quarter, has been focussing on NRIs and SMEs in tier-II and tier-III cities.

“NRI business (which grew by 65 per cent in last quarter) help us get more local business. For every NRI account we get two-three captive accounts,” he said.

The bank accounts for 7.5 per cent of the total NRI remittance to the country.

The bank which has been hiring more than 1,000 people every year in the past two–three years will be adding about 1,200 people this year also.
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IndusInd Bank enters into prepaid forex sector

IndusInd Bank on Thursday entered the prepaid forex segment by launching a card offering cash in six currencies.

A customer can load an amount in the card in the country before travel and use the card to withdraw cash from automated teller machines and shopping at merchant establishments, the bank said in a statement.

IndusInd has tied up with ElectraCard Services (ECS), which will provide technology and processing services.

The Indus Forex card will be available in US dollar, euro, Sterling pound, Singapore dollar, Australian dollar and Saudi riyal.

Customers can use multiple ways to track spends and check balances through various means. Also, in order to help them in case of card losses, customers are given two cards, so that the second one can be used, it said.
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RBI stance has succeeded ‘to some extent’, says Subbarao

Reserve Bank Governor D. Subbarao is of the view that the recent policy monetary initiatives have succeeded “to some extent’’.

“Has the RBI succeeded in its efforts? To some extent, I would say,” Subbarao remarked during the course of a lecture delivered here.

Inflation front

The gains can be seen on the headline inflation front. But core inflation remains to be high and consumer price inflation is in double-digits, he admitted.

In a low-growth, high-inflation scenario, it is worthwhile to imagine what the situation would have been without RBI’s action of tightening.

There are lots of inflationary pressures being built up in the system. Inflation cannot be reined in without sacrificing some growth.

“Some sacrifice is built into monetary tightening but the impact would be only for the short-term,” the RBI Governor said.

Monetary action can’t be helped since it is low and stable inflation that make people make decisions. Inflation is a regressive tax for the silent poor.

Powerful and resourceful corporates may protest high interest rates, but there also exists a vast majority of silent poor who suffer worst from high inflation.

Silent poor

Unlike in the former’s case, their voice is not heard in the media. Also, savers want high interest rates while borrowers would not like to contract money at those rates.

Inflation is fuelled as much by domestic supply shocks as is imported (commodities, oil). Demand pressures too create inflation.

Monetary policy has to be the first line of defence in these scenarios. The RBI seeks to restrain demand while the Government has to deal with the supply side.

Interestingly, in other emerging market economies, a low-growth phase has been accompanied by low-interest regime too.

But this is not available in India. In that respect, India continues to be an outlier in the world. This has to do with high wages and infrastructural and supply bottlenecks.

Rupee depreciation

Also, depreciation of the rupee has been more intense than currencies in other EMEs.Risks to the Indian economy arise also from global uncertainty, especially in the Euro zone.

This transmits into the trade channel (exports), the financial channel and the confidence channel, the Governor said.

Capital flows are drying up because of risk aversion. Funds reverse flows and are homeward-bound during these times. So, short-terms players are withdrawing money. In this respect, India’s promise has dimmed a bit.
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Monday, August 13, 2012

Quarterly numbers: Dhanlaxmi Bank under scanner

What's brewing at Dhanlaxmi Bank? The auditors of the old private sector lender have resigned earlier this month following certain differences with the management while the banking regulator suspects that some of the shareholders of DLB are acting in concert.

The auditors Walker Chandiok & Co - the local audit arm of the management and audit consultancy Grant Thornton - have put a question mark on some of the bank's performance numbers for the quarter ended June 2012.

Dhanlaxmi CEO & managing director PG Jayakumar said that there was no "truth in the statement" and added that the bank had not received any communication from RBI on shareholding issues.

But, it is believed that the auditors were not comfortable with the sudden spurt reported by the bank in its yield on advance for the June quarter. The bank's yield on advances - which simply put, is the ratio between total interest income on advances and average advance outstanding for the period - rose to 13.27% from 11.35% in the previous quarter. A two percentage point rise in yield on advances in a single quarter is very unusual for a bank unless there is a big surge in unsecured loans where interest charges are higher.

The bank's net interest margin-the difference between interest income and interest expenses upon interest earning assets-has increased from 1.53% to 2.50%. Such an improvement in margins is also rare in a quarter simply because it is difficult for a bank to replace high-cost liabilities with cheaper deposits within such a short span.

The bank recently announced its unaudited quarterly numbers which are released after a limited review by the auditors.

When contacted, Khusroo Panthaky, partner at Walker Chandiok & Co, declined to comment. The auditors, it's learnt, will continue with the DLB till the bank's annual general meeting.Sources said that towards end May, RBI had pointed out that two individual shareholders along with a few funds were acting in concert. In this case, the individual concerned have been former business partners. In case of DLB, one of the shareholders in question has certain influence on the board.

Source: EconomicTimes
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SBI hopes to maintain treasury gains in second quarter

State Bank of India (SBI) is hopeful of maintaining its impressive performance on the treasury income front in the second quarter as well, a top bank official said today.

“We are hopeful that income from treasury will be maintained at the present (Q1) level,” Deputy Managing Director and Group Executive (Global Markets) of SBI, P.P. Pradeep Kumar told PTI here.

During the first quarter, the public sector lender has optimally managed its treasury operations to post mark-to-market gain.

SBI has a mark-to-market gain of Rs 521 crore during the last quarter, which was an important factor that helped it post its highest-ever net profit of Rs 3,752 crore.

Furthermore, the bank said that it was able to check losses in the equity portfolio by exiting from all loss-making entities.

Referring to high government borrowing plan coupled with possible hardening bond yield, Pradeep Kumar said any small change in yield is not going to impact the profitability of the treasury operations.

“I don’t think any small change will have major impact on the treasury gain,” he said.

SBI posted a 137 per cent rise in its net profit to Rs 3,752 crore in the first quarter ending June on the back of healthy net interest income.

Net profit of the public sector bank stood at Rs 1,583 crore in the same period previous fiscal.

Total income of the bank increased by 16.9 per cent to Rs 32,415 crore in the June quarter compared with Rs 27,732 crore reported in the same period last fiscal.
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Central Bank launches new RD scheme

Central Bank of India has launched a recurring deposit scheme ‘Centswashakti’ for retail depositors. This scheme allows depositors the flexibility to deposit up to 10 times the originally decided minimum amount every month. 

The instalments can be deposited in the scheme, with tenures ranging from 6 months to 120 months, one or more times during a month. Interest rate on the RD will be as per prevailing term deposit card rate. It will be calculated on a daily basis and will be credited half-yearly.
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'HDFC Bank not mulling rate cut on auto loans'

HDFC Bank is not mulling a rate cut on its auto loans offering as done by State Bank of India (SBI), in the near future, a senior official has said.

The city headquartered HDFC bank is not contemplating a rate cut even though SBI announced a reduction of up to 0.5 per cent in its auto loan offering earlier this month, senior Executive Vice-President and Business Head for Vehicle Loans, Ashok Khanna, told PTI.

“Not immediately,” he answered, when asked if HDFC Bank will also take a cue from SBI and follow suit with a rate cut.

Khanna said his bank lends up to Rs 1,500 crore on vehicle loans a month, holding a share of 22 per cent in the market.

While announcing the rate cut, SBI executives had claimed that the bank held a 19 per cent share.

The SBI move, which also included a cut in its home loan rates, was prompted by the twin non-monetary rate cut moves by the RBI over the past two months, wherein it announced a hefty increase in export credit refinance to 50 per cent and the one per cent cut in statutory liquidity ratio (SLR).

When asked about the growth from the auto landing segment for HDFC Bank, Khanna said it has been growing at 10 to 15 per cent on an annual basis and stressed that the growth this year is satisfactory.

Khanna said HDFC Bank usually charges anything from 11 to 13 per cent for new cars while for the used vehicles, where it lends up to Rs 300 crore per month, the rates go up to 16 per cent.
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I-T dept to press money laundering charges in HSBC case

The Income Tax department has decided to include the offence of money laundering in its soon to be filed charge sheet against individuals named in the classified HSBC list, for stashing illegal funds.

The department in its probe has found that the illegal funds were laundered in many cases which can be categorised as “criminal proceeds of crime”.

According to sources, I-T may have to coordinate its prosecution action in this case with the Enforcement Directorate which is the designated enforcement agency for the Prevention of Money Laundering Act (PMLA) in the country.

The stringent and criminal provisions of the PMLA can ensure attachment of properties of the accused and handing down of strict punishment by courts.

The I-T department is also particularly wary about the recent disclosure made by a US Senate panel that had accused HSBC of exposing the American and Indian financial systems to various terror financing, money laundering and drug trafficking activities due to its poor risk control systems.

“The disclosures that have come recently in the US corroborate what tax department investigations in this case indicate. Money laundering charges would be pressed against individuals,” the top sources in the Finance Ministry said.

Various probe units of the I-T department, according to the sources, have informed the Central Board of Direct Taxes (CBDT) and top echelons of the Finance Ministry about these developments.

Meanwhile, the department is set to file prosecution cases in designated courts and the first complaints are expected to be filed in Delhi and Mumbai with regard to people figuring on the banks’ list.

In an official statement earlier this week, the Finance Ministry had said that the Income Tax department has begun assessment proceedings in “cases related to HSBC accounts”.

The department, according to the sources, has prepared a sound case after learning from the experiences of the LGT Bank accounts cases which is already under prosecution.

India has reportedly obtained data of over 700 HSBC accounts from French government channels.

In 80 cases till now, the department has detected undisclosed income of Rs 438 crore and taxes of Rs 135 crore have been realised so far.
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SBI sees Rs 1,100-crore of restructured loans turning bad

State Bank of India expects about 3 per cent of its total restructured loan portfolio of Rs 36,904 crore to slip into the loss category.

What this means is that the bank will have to make 100 per cent provisioning for loans aggregating about Rs 1,100 crore. Recovery of loans in the loss category takes a long time as this entails liquidating the collateral.

According to SBI Chairman Pratip Chaudhuri, given the tough economic environment, about 20 per cent of the restructured book eventually turns into non-performing assets (NPA). Of the total restructured loan portfolio, about Rs 7,373 crore has turned NPA. This is a mix of recent and past restructuring.

Potential damage

“We think the eventual loss on the total restructured book will be to the extent of 3 per cent of the book (Rs 1,000-1,100 crore). That is the potential damage or loss we expect on the restructured portfolio,” said the SBI chief.

India’s largest bank restructured accounts worth Rs 564 crore in the April-June quarter. It also sees loans aggregating about Rs 3,000 crore coming up for restructuring in the current quarter. This includes backlog from the first quarter and cases referred by the bank to the corporate debt restructuring (CDR) cell.

The Mumbai-based bank made a provision of Rs 2,790 crore ( against Rs 2,782 crore in Q1 FY12) to cover potential loan losses in the April-June quarter. Banks refer certain accounts in their lending portfolio to a special cell known as CDR cell when a particular company is going through a temporary rough patch. This entails modification of original contractual terms to provide for concessions of interest, or principal, or for an extension in maturity period.

For the quarter ended June 30, 2012, the bank’s gross NPA and net NPA sequentially increased by about Rs 7,500 crore and Rs 4,500 crore, respectively.

In April-June, gross NPA ratio increased to 4.99 per cent (from 4.44 per cent in March, 2012) and net NPA ratio increased to 2.22 per cent (from 1.82 per cent in March 2012).

“NPAs have been a bit of an aberration for the bank,” said Chaudhuri.

NPAs in the April-June quarter came mainly from a power company, a highway construction company and a pharmaceutical company.

Cautious lending

The bank said it will be cautious on lending to mid-corporates due to stress in the segment.

The bank sees infrastructure, steel and engineering as sectors with capacity to absorb more credit.
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StanChart allegations cast light on former U-turn payments

The recent allegations levelled against Standard Chartered – that it schemed to hide billions of dollars of transactions, leaving the US financial system “vulnerable to terrorists, weapon dealers, drug kingpins and corrupt regimes” has shone the spotlight on a US regulatory loophole that for years allowed banks with US operations to maintain their activities with Iran, at the same time that the US maintained a tough sanction regime against the country.


US sanctions against Iran have grown over the years since 1987, strengthened through subsequent executive orders issued by President Bill Clinton that prohibited US involvement in practically all trade and investment activity.

At the same time, a number of exemptions remained, including for so-called U-turn payments that involved Iran but did not originate or terminate in an account in Iran itself — thereby allowing Iranian institutions with foreign accounts (say, in Switzerland) to transmit funds through New York to an account in another country, say, Germany. As with all US economic sanctions, those relating to Iran were administered and enforced by the Office of Foreign Assets Control.

U-turn payments were finally banned in November 2008, but even before that it was clear that US authorities had concerns about the use such payments could be put to.

In 2006, US authorities brought in a ban on any dealings with the Bank of Saderat, thereby denying it “direct and indirect access to the US financial system” and any attempt to “dollarise” its funds.

Disclosure requirements

Over the next two years bans were brought against individual banks linked to the Iranian government, until the US concluded that US foreign and national security could be compromised by the deals, and instituted the blanket ban.

In its strongly-worded order against Standard Chartered, the New York State Department of Financial Services argues that the bank did not comply with the disclosure requirements on any bank involved in U-turn transactions, and instead “concealed” some 60,000 U-turns, cleared through its New York branch, for Iranian clients.

Under pressure from Iranian clients fearful of delays in clearing funds, the bank chose to “transmit misinformation” to the New York branch by removing or misrepresenting wire transfer data that would have identified Iranian entities.

And when other European competitors began to exit the U-turn business, the bank positioned itself to fill the gap, the DFS contends. It suggests that the U-turn transactions continued even after the ban was introduced, and up to 2010.

Standard Chartered has been vigorous in its rebuttal, insisting that its review conducted by external and internal consultants revealed that only around 0.1 per cent of the U-turn transactions relating to Iran didn’t meet the regulations, representing just under $14 million, and that not a single payment had been for an entity the US at the time had deemed a terrorist one.

More details of exactly how there could be such a large discrepancy between the two accounts are likely to emerge next week, when Standard Chartered is due to appear before the DFS to respond to the order.
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