RBI limits banks' equity investments in companies & subsidiaries

MUMBAI: RBI on Wednesday set prudential limits for banks' equity investments in other companies and subsidiaries in order to prevent banks from having any significant influence over such entities even with limited investments.

The Reserve Bank of India said banks can't invest more than 10 percent of their paid-up capital in a subsidiary or financial services company, while total investments made in all subsidiaries and non-subsidiary financial services companies shall not exceed 20 percent.

For companies engaged in non-financial services activities, equity investments would be capped at 10 percent of the investee company's or bank's paid-up capital, whichever is lower.

"It is reiterated that banks are permitted to set up subsidiaries for undertaking activities which are conducive to the spread of banking in India," the RBI said.

A bank's equity investments in subsidiaries and other entities that are engaged in financial services together with equity investments in entities engaged in non-financial services activities should not exceed 20 percent of the bank's paid-up share capital and reserves, the RBI said.

Source: EconomicTimes

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Punjab National Bank set to foray into Canada

CHENNAI: Punjab National Bank (PNB), India's second largest public sector bank, is set to foray into the Canadian market by setting up a subsidiary with an estimated capital of Rs 100 crore, a top bank official said on Wednesday.

The bank currently has operations in countries such as England, China and Dubai. Canada would be the latest foray of the bank in the overseas market.

"We will be setting up our subsidiary there. It will initially serve the Indians living there. A capital of Rs 100 crore will be required," Punjab National Bank Chairman & Managing Director K R Kamath told reporters at Chennai.

Kamath said the 100 crore capital required would help increase PNB's presence in Canada.

"We want to increase our presence their by setting up more branches. When we entered London, we had required capital of a similar amount to establish a subsidiary there. Today, we have seven branches in London alone."

Asked about PNB's future plans for the overseas markets, he said they had recently set up a representative office in Norway and planned to open a similar one in Australia.

On their proposal to enter the life insurance business, Kamath said they would decide about a partner in the coming quarter as the bank was holding talks with them.

"We have shortlisted three life insurance companies -- Aviva, MetLife and BhartiAXA . We are expecting it to be released by the coming (third or fourth) quarters. We are looking to tie up with a company who already has a presence in the (insurance) industry," he said.

Kamath said PNB had started mobilising the business in Central Asian country Kazakhstan. Last year, the bank picked up a majority stake in Kazakhstan-based Dana Bank for about USD 23.7 million (about Rs 104 crore).

Source: EconomicTimes

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SIDBI offers 9.84 per cent yield on 12-13-month fixed deposits

MUMBAI: The Small Industries Development Bank of India (SIDBI) on Wednesday said that it now offers general investors and bulk depositors an annualised yield of 9.84 per cent on its fixed deposit scheme with a duration of 12-13 months.

SIDBI offers an interest rate of 9.50 per for fixed deposits of 12-13-months duration; 9.25 per cent for fixed deposits of 14-36-months' duration and 9 per cent for fixed deposits of 37-60-months duration.

SIDBI also offers higher interest rates of 10.38 per cent to senior citizens for a 12-13-month period, 9.75 per cent for fixed deposits of duration 14-36-months and 9.5 per cent for fixed deposits of 37-60-months' duration.

"Our fixed deposit scheme is rated 'AAA' by CARE, which is quite unique for a development bank. SIDBI always benchmarks its interest rates against the industry," SIDBI's Chairman & Managing Director, Sushil Muhnot , said in a statement issued here.

SIDBI offers both cumulative and non-cumulative deposit options. In case of non-cumulative option, depositors can opt for quarterly or annual interest payment options. The minimum deposit amount is Rs 10,000 and in multiples of Rs 1,000 thereafter. Nomination facility is also available, the statement said.

The scheme also offers TDS exemption for income upto Rs 5,000 per annum. It comes under the eligible investments for religious and charitable trusts under Section 11(5) of the IT Act, 1961. Deposits are also exempt from wealth tax.

Besides, the scheme also offers direct credit of interest to the depositor's bank account through ECS facility wherever available. Interest and redemption cheques will be encashable 'at par' in the depositor's city, the bank statement said.

Source: EconomicTimes

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HDFC Bank sees RBI increasing key interest rates again

Mumbai: Leading private sector lender HDFC Bank today said it expects the Reserve Bank of India (RBI) to increase its key interest rates at least twice to contain the spiraling inflation.

"What they (RBI) will do in this policy, I don't know, but one or two rate hikes are in the offing till inflation comes under control," HDFC Bank Managing Director Aditya Puri told reporters here on the sidelines of the bank's annual general meeting.

The central bank has since March 2010 raised key interest rates ten times, with the latest on June 16 when it hiked short-term lending and borrowing rates by 25 basis points each to 7.5 and 6.5 per cent, respectively.

"We are fortunate the oil price is coming down, global economy is slowing so commodity prices will come down. So atleast the supply side factors will come down by a bit," he added.

After a month-long uptrend, food inflation plunged to one-and-a-half month low of 7.78 per cent for the week ended June 18, down from 9.13 per cent in the previous week as vegetables and pulses became cheaper.

Puri added that his bank so far has not faced pressure on its margins and credit demand.

"We as a bank have not faced pressure on credit offtake and margins. Our margins are sound and our credit offtake has grown," he said, adding the lender would maintain its net interest margin in the range of 3.9-4.2 per cent during the current fiscal.

Source: Financial Express

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RBI: Data revisions crippling policymaking

Reserve Bank of India (RBI) Governor Duvvuri Subbarao on Tuesday said policymaking by the central bank had been hit by the frequent revisions in key data like that of the country’s growth, inflation and factory output.

“RBI’s policy formulation is handicapped by frequent revisions to data. We make policies in real time, and if the provisional data these are based on are inaccurate, the resultant policies can turn out to be sub-optimal choices,” Subbarao said at the central bank’s Statistics Day conference.

The governor cited the estimates of growth in gross domestic product (GDP) in 2009-10, which exhibited wide fluctuations. He said the advance GDP growth estimate at market prices from the expenditure side, published in February 2010, was 6.8 per cent, which was changed to 7.7 per cent in the revised estimate in May 2010. The estimate was again revised to 9.1 per cent in the quick estimate in February. “Therefore, policy that had to use information on advance GDP estimates was fraught with the risk of underestimating the growth momentum,” he said.

He added the volatility in the Index of Industrial Production (IIP) figures was bewildering, as it showed counter-intuitive trends. Subbarao said during the peak of the financial crisis, IIP, based on the previous series, was positive. This was contrary to the central bank’s assessment of the underlying trend of deceleration. "The new IIP series, with 2004/05 as the base year, now shows IIP growth was, in fact, negative during that period, vindicating our intuition," Subbarao said.

“Another problem with IIP has been its volatility, with the volatility being even larger in the capital goods sector. This is analytically bewildering. The volatility persists in new series too,” he said.

The IIP data has also contributed to RBI’s under-projection of inflation in the last financial year. The central bank has been criticised for its projections on inflation, since the headline number has consistently been above the estimates since last year. Inflation remained much higher than RBI’s comfort zone last year, though till January, the central bank continued to project March inflation at six per cent. RBI revised its inflation target to eight per cent for March-end during its mid quarter policy review, while March-end inflation figure stood at 9.68 per cent.

Apart from a higher-than-expected rise in crude oil prices and a below-expected decline in food prices, erroneous signals from IIP data and a higher-than-usual upward revision of past inflation data also contributed to RBI’s under-projection of inflation, Subbarao said. “In this context, persistently high inflation during 2010-11 and the continuation of this trend through the first half of 2011-12 suggest we need to revisit our estimates of the potential growth rate of the economy,” he said.

The central bank has been left guessing on the likely revision in the provisional inflation number while assessing inflation. “The more critical data on wholesale price index inflation, too, has been subject to large revisions,” he said. “Often, it is not clear if the revisions are occasioned by one-off factors or systemic factors,” he said.

Source: Business Standard

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