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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