RBI turns down banks' proposal to dip into 2% of SLR to meet short-term asset liability mismatch

MUMBAI: Bankers urged the Reserve Bank of India (RBI) to allow them to dip into 2% of their SLR, or statutory liquidity ratio, of the mandated 24% to meet short-term asset liability mismatch. This was conveyed by treasury heads of select banks at a meeting with senior RBI officials early this week.

The meeting was called to discuss the Deepak Mohanty report on the operating procedure of the monetary policy, which was released last month. However, senior RBI officials turned it down on the grounds that banks had not even availed of 1% of the standing facility of net demand and time liabilities (NDTL) of the total SLR in the past. Bankers also discussed issues regarding RBI's preference to maintain liquidity in a deficit mode of 1% of the NDTL.

"During the meeting, RBI officials agreed that at times it would be difficult to maintain the liquidity deficit of 1% of NDTL, but efforts have to be made in that direction," said a treasury head present in the meeting. RBI felt that the transmission of the monetary policy hinged on regulating the liquidity in the system, and liquidity in excess of 1% could thwart the process of policy transmission.

"I do not see the possibility of liquidity getting into a surplus, but certainly we wanted to be less in a deficit than it is now because the deficit now is about 2% of NDTL and we thought that the more appropriate level would be 1%. That is where we would like to see it," Subir Gokran had told research analysts soon after the January policy.

However, bankers are sceptical on RBI's desire to keep liquidity in a preferentially deficit mode. The meeting was also attended by primary dealers and mutual funds. RBI made a presentation on the report to market players. The objective was to place the report before them for their feedback and have an inclusive discussion there on the possible points of contention.

The report proposes a single operational rate, which would be the repo rate and the reverse repo. It also suggests the repo-reverse repo rate corridor to be maintained at 100 bps and the base rate to be maintained at 50 bps below the repo rate. The banker also discussed how the base rate was no more operational , and therefore, needed to be scrapped.

Source: EconomicTimes

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Local, foreign I-bankers split over PSU stake sale fees

MUMBAI: Domestic and foreign investment banks may appear united in public in their demand for fees from the government for managing share sales of state-owned companies. But, privately, domestic investment banks are nursing a grudge against their foreign counterparts; they complain that foreign investment banks are not vocal enough in their joint fight against the government for a fee to facilitate public offerings of state-owned companies.

The reason, according to domestic investment bankers, is that foreign banks recover the costs of free services for government share sales by providing participatory note and funding services to overseas clients, who invest in these public issues. The fee from these services helped foreign banks offset the expenses that they incurred while managing public sector share offerings in 2010-11.

Source: EconomicTimes

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I-banks told to avoid PSU, private float clash

NEW DELHI: The government has banned bankers managing public sector floats from simultaneously handling offers of private sector firms in the same sector, saying such situations lead to a conflict of interest that could affect its divestment plans.

Merchant bankers manage divestment issues for almost free as these mandates offer them huge visibility. The ban on managing private sector floats could make them rethink this strategy. "We had sought advice from the Attorney General on the guidelines (for merchant bankers) which have been now approved," said a finance ministry official.

Source: EconomicTimes

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RBI relaxes norms for provisioning of bad loans

MUMBAI: The Reserve Bank of India has relaxed norms regarding setting aside money for bad loans — a move which has come as a major relief for all commercial banks. The banking regulator has said banks should maintain 70% of the provision coverage ratio (PCR) of their gross bad loans as on September 2010, but they do not have to maintain 70% of PCR on an ongoing basis.

PCR is the amount that a bank expects to forgo from a loan if they have to writeoff that loan account. Thus if a Rs 100 loan has turned bad, setting aside 70% as PCR means that the bank has set aside Rs 70 as provision and it expects to recover Rs 30 of the loan.

Source: EconomicTimes

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Citi, Standard Chartered, HSBC betting high on consumer loans in rising economy

MUMBAIL: Banks like Citigroup, Standard Chartered and HSBC, which had gone slow on consumer loans during the credit crisis, have started ramping up the business as bad loans decline and soaring interest rates reduce other borrowings. After a decline in fiscal 2010, consumer loans are picking up due to increase in salaries and better job prospects, with the economy poised to grow 9%.

Source: EconomicTimes

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