igh savings account rates may hit net interest margins for banks: Crisil Research

MUMBAI: Higher savings account interest rates may pull down net interest margins for banks by around 10 basis points but the impact on net profit will be partly offset by higher fee income, Crisil Research said in a note on Tuesday.

"The impact would be higher for banks with a higher proportion of savings accounts in their deposit mix," Ajay Srinivasan, head of Crisil Research, said.

For large banks such as State Bank of India , Punjab National Bank , HDFC Bank ,and ICICI Bank savings accounts constitute 30-35 percent of their total deposits. For relatively smaller banks it is lower at 15-20 percent.

The pressure on net interest margins is likely to further increase if the RBI deregulates savings account deposit rates, Crisil said.

To compensate for this rise in cost of deposits, banks may impose additional charges for providing various facilities on the savings account such as charges for non-maintenance of minimum balance requirement, additional cheque issue charges, and a limit on the number of free transactions, it said.

As a result, the impact on net profit due to higher costs will be partly offset by the increase in fee income, it said.

Source: EconomicTimes

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Uncertainty continues over licences to new private banks

MUMBAI: The Reserve Bank on Tuesday said the uncertainty over issuing guidelines for new bank licences is likely to continue for some more time as it is in consultation with the government over the draft norms.

"There is some uncertainty about the time-frame for issuing new bank guidelines. We are discussing (the issue) with the Government," RBI Governor D Subbarao told reporters here today.

"We must see where we agree and if there is any difference of opinion, we must resolve that so the legislation for amendment to the Banking Regulation Act, which is a pre-condition for the new bank licence framework (is passed)," he said.

The RBI was hoping that the legislation would go through in the Budget session but it got curtailed. There is some uncertainty about the timeframe as some loose ends are still to be tied-up, he said. "I am hoping that sooner than later the guidelines will be ready," Subbarao said.

In the Budget 2011-12, Finance Minister Pranab Mukherjee had said the RBI plans to issue guidelines for the grant of new banking licences before the close of 2010-11. However, that deadline was missed.

The Reserve Bank had released the discussion paper on licensing of new banks in August 2010, seeking views of banks, NBFCs, industrial houses, other institutions, and the public.

The discussion paper reviewed the international and Indian experience on various issues and also indicated possible approaches with the pros and cons of each of the approaches.

Thereafter, detailed discussions were held with various associations of stakeholders from the industry, banks, NBFCs, and MFIs and some consultants in October, 2010.

Last month, the Finance Ministry said it is holding consultations with RBI and will approve the draft guidelines for granting new banking licences within 15 to 20 days. However, the guidelines have not been issued yet.

Various entities like Reliance Capital , India Bulls, Religare, IFCI and Aditya Birla Financial Services are said to be mulling an entry into the banking space.

India at present has 26 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, four local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Talking about allowing more foreign banks in the country, the RBI in its policy statement said that the comprehensive guidelines on the mode of presence of foreign banks in India are being formulated, keeping in view the suggestions and comments on the discussion paper, received from all concerned.

A discussion paper on presence of foreign banks in India was released by the central bank in January 2011, inviting comments from stakeholders and public on the mode of presence of foreign banks through branch or wholly-owned subsidiary.

Source: EconomicTimes

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Bank of India Q4 net up 15% at Rs 494 cr

State-run lender Bank of India (BoI) today reported a 15.5%increase in its net profit to Rs 493.6 crore for the fourth quarter ended March 2011, compared to Rs 427.9 crore of the year-ago period.

Total income rose to Rs 7,130 crore during the January-March period of FY11 from Rs 5,248.2 crore of the corresponding period an year earlier, BoI said in a filing to the Bombay Stock Exchange (BSE).

The bank has recommended a dividend of 70%or Rs 7 per share for the year 2010-11.

For the full financial year ended March 31, 2011, BoI posted a net profit of Rs 2,488.7 crore, down by 43%as compared to Rs 1,741 crore in the last fiscal.

The bank's total income during 2010-11 rose to Rs 24,393.5 crore from Rs 20,494.6 crore in 2009-10.

Shares of BoI were trading at Rs 427.05, down 6.54%in the afternoon trade on the BSE.

Source: Business Standard

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Indian Overseas Bank JV to market software solutions

Public sector lender Indian Overseas Bank (IOB) plans to form a joint venture (JV) company to market in-house developed software solutions to other banks by the end of September.

The company also aims to open 800 new branches by the end of the next year and plans to add around 3,500 new employees.

IOB has shortlisted five information technology (IT) companies for the joint venture, along with two technical consultancy firms to guide the bank through the deal, said General Manager M S Raghavan. “We would choose the partner from the list soon and the target is to float the new company by September 30, subject to regulatory approvals,” he said.

The bank would use the support of consultancy firms to deal with the IT firms.The bank would also use the JV to look at taking its solutions to overseas markets.

It has already received preliminary inquiries from Africa and some small banks in Europe. The bank aims to sell software and core banking solutions to co-operative banks in India and in Bangladesh and Europe, Raghavan said.

“We are in the process of selecting the consultant and the partner,” said Chairman and Managing Director M Narendra. The bank plans to introduce an image-based check clearing facility in Chennai soon. It would later extend the new technology to all its branches across south India, he added.Narendra said the bank would recruit around 1,500 clerks, 1,500 officers and another 525 specialist officers in 2011-12.

The bank launched the interbank mobile payment service (IMPS), a real time fund transfer facility through mobile phones, and a short messaging service-based customer grievance redressal system. IMPS is an alternative delivery channel for the transfer and receipt of funds by IOB customers to and from customers of 19 other banks, which are members of the National Payment Corporation of India. The grievance redressal system would offer customers a reply to a complaint from the regional bank official within half an hour and the complaint would be addressed within soon, according to bank officials.

Source: Business Standard

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HDFC Life IPO to hit market by year-end

Private sector life insurer HDFC Life plans to raise funds through an initial public offering (IPO) of 10 per cent of the current capital base. The insurer is planning the IPO by the year-end.

HDFC Life is a joint venture between Housing Development Finance Corporation (HDFC) Ltd and UK-based insurer, Standard Life. While HDFC holds a stake of 74 per cent, the British insurer holds the remaining 26 per cent – the maximum permitted under Indian laws.

While most private insurers plan to wait for a rise in the foreign direct investment (FDI) limit in insurance — from 26 per cent to 49 per cent — HDFC Life is prepared for a domestic issue, even if the FDI limit is not raised. “Even if the FDI limit is not raised to 49 per cent, HDFC Life will go ahead with a domestic issue, where each shareholder will dilute on a parity basis,” said a senior HDFC Life official. This means in case of a domestic issue, the stake of the foreign partner — Standard Life — could decline to below 26 per cent.

Currently, the Insurance Bill, which seeks to increase the FDI limit in the insurance sector to 49 per cent from the current 26 per cent, is pending in Parliament.

“Whenever we decide to go for an IPO, the dilution would happen on a parity basis. Both the shareholders are committed to list the company next year,” the official told Business Standard.

“There are a lot of things to be considered while going for a public offering. There is a need to access what should the business model and acceptable margins be in the future. Then, the valuation of the company has to be considered. The combination of all these would decide the timing and the size of the issue,” he said.

The insurer would also take into account the fund requirements for the first three years of listing. According to current guidelines, public shareholding in a company must be at least 25 per cent within the first three years of its listing.

The official did not comment on the valuation. However, HDFC Standard Life was one of the first private life insurers to disclose the embedded value of its business. It stood at Rs 3,380 crore as of March 31, 2010. The embedded value of a company is arrived at after taking into account the total net worth of the company and the future profits from policies that have already been written, apart from the lapse of policies, mortality charges and other expenses.

During 2010-11, HDFC Life collected Rs 4,065 crore by writing new policies, a rise of 12.26 per cent compared to the previous year. However, according to analysts, based on its current performance, the valuation of HFDC Life is estimated at Rs 10,000 crore. “Taking the Reliance Life-Nippon Life deal as a benchmark, the valuation of HDFC Life should be in the region of Rs 8,000-10,000 crore,” said an analyst with a domestic brokerage house. In March, Japanese life insurance major, Nippon Life Insurance, had signed an agreement to acquire a 26 per cent stake in Reliance Life for Rs 3,062 crore.

Other private life insurers like ICICI Prudential, SBI Life and Reliance Life have also expressed interest to tap the capital market.

The Insurance Regulatory & Development Authority is expected to come out with the IPO guidelines over the next two months.

Source: Business Standard

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