Corporation Bank eyeing takeover of small banks

With Reserve Bank of India gearing up from bring up guidelines for introducing new lenders into the lending space, the existing banks are preparing to face higher competition. On this note, public sector lender, Corporation Bank is planning to expand via take over of smaller banks. Presently it is eyeing Pune based Rupee Cooperative Bank.

Corp Bank denies Pune cooperative takeover report

MUMBAI: State-run Corporation Bank denied a newspaper report on Monday it was in takeover talks with Pune-based Rupee Co-operative Bank to expand in the state of Maharashtra.  "The report is absolutely wrong. We were earlier looking at it (but) now we don't have any interest in the co-operative," Ramnath Pradeep, chairman and managing director, told Reuters over the telephone.  "In Maharashtra, there are no other avenues, only by way of branches I'm going ahead (with expansion)."  According to the report, the state-run lender is in talks to acquire the Pune-based cooperative bank to expand its footprint in Maharashtra.  Pradeep said he had received a proposal from a consultant for a buyout but the bank did not consider it.  Shares in Corporation Bank were little changed on Monday at 557.4 rupees in a weak Mumbai market.

The Muslim Co-operative Bank Ltd., Pune, Maharashtra – Penalised

The Reserve Bank of India has imposed a monetary penalty of Rupees one lakh on The Muslim Co-operative Bank Ltd., Pune, Maharashtra, in exercise of powers vested in it under the provisions of Section 47(A)(1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS) for violation of instructions/guidelines of the Reserve Bank of India.  The bank had violated the RBI instructions by making donations over and above the prescribed limit of 1 per cent of the published profits of the bank for the previous year. The bank had violated the above instruction on five occasions between August 1, 2005 and July 27, 2009 and the percentage of donations ranged between 13.40 per cent and 18.20 per cent of the published profits of the previous year.  The Reserve Bank of India had issued a show cause notice to the bank, in response to which the bank submitted a written reply. After considering the facts of the case and the bank's reply in the matter, the Reserve Bank came to the conclusion that the violations were substantiated and warranted imposition of the penalty.

Hiring in banking sector rose marginally in 2010

The total number of employees of scheduled commercial banks in the country witnessed only a marginal rise of 0.76% in 2010, mainly on account of falling headcount in foreign banks and in the country's largest lender State Bank of India. The number of bank employees in the country at the end of the last year was 9,44,620, a marginal rise from the figure of 9,37,445 in 2009, according to the 'Statistical Tables Relating to Banks of India' released by the Reserve Bank.  Among the total bank employees in 2010, there were 4.70 lakh officers, 3.19 lakh clerks and 1.55 lakh sub-staff.  While the number of employees in the private sector and public sector lenders went up during the year on an annual basis, the reverse was the case in foreign banks.  Foreign banks, which are increasing focusing on mechanisation, saw a dip of 6.22% in their employee strength in India to 27,742 in 2010 from 29,582 in the previous year.  Among the major foreign banks, Standard Chartered was the only exception. It increased its payroll to 7,903 in 2010 from 7825 in the previous year.  The country's largest lender, SBI also saw a decline in its headcount to 2,05,896 employees in 2010 from 2,00,299 in 2009. This was a fall of 2.79%.  However, all six of SBI's associate banks -- State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore -- saw their payroll go up during the year under review.  Among all public sector banks, the employee strength saw a marginal increase of 0.42% to 7,34,594 in the last year from 7,31,524 in 2009.  The best jump in payroll came from the private sector lenders. Private banks reported a growth of 3.37% in their total employee numbers at 1,82,248 persons in 2010 as against 1,76,339 in 2009.  While HDFC Bank's employee strength saw a decline (from 52,687 in 2009 to 51,888 in 2010), ICICI Bank's was up to 35,256 in 2010 from 34,596 in 2009 and Axis Bank's to 21,640 in 2010 from 20,624 in the previous year.

IRDA seeks to come out of competition regulator's purview

NEW DELHI: Insurance regulator could seek immunity from the competition watchdog's authority on mergers in the sector, taking a cue from the Reserve Bank of India, which ensured that anti-trust laws will not come in the way of consolidation in the banking industry.  "We are considering the matter," said J Hari Narayan, chairman of Insurance regulatory development authority, or Irda. "We are yet to take a decision on this," he said.   A proposal from the insurance watchdog is likely to find sympathetic hearing in the government. There are 23 life insurance companies and 22 non-life insurers in India. Industry experts say this is far too many and see consolidation as inevitable. Recently, Reliance General Insurance expressed interest in buying a stake in Royal Sundaram Alliance Insurance.  Last week, the government had notified the much-awaited merger proposals under the Competition Act to be brought into force in June this year. But the government accepted RBI’s position that all aspects of mergers and acquisitions in the banking sector should be regulated by it and approved necessary changes to the Banking Regulation Act. "Let them come up with the guidelines on M&A (mergers and acquisitions) in non-life sector as well. We will bring legislative changes if required," a finance ministry official said. Corporate affairs secretary D.K.Mittal had told ET that while no sector has yet been granted immunity from the purview of Competition Commission of India's merger norms, it would consider such requests if made in a formal way. The banking amendment bill, approved by the government, says all M&As in the banking sector, including the competition aspect, will be regulated by RBI. Irda could suggest similar exemptions when it frames the M&A guidelines for general insurance companies. The rules for life insurers contained in the proposed insurance bill, however, do not seek such an exemption. The finance minister in last week's budget speech said that the government intends bring the insurance laws amendment bill in the next fiscal. As per the draft guidelines issued by Irda for the non-life industry, the regulator can appoint an independent actuarial consultant to carry out valuation of the insurance business of the transacting parties. It also seeks players to explain the intent behind proposed deal. These are the very issues the competition authority will also be looking into. "If these clauses are built in (in the regulations), what more will CCI do," said the finance ministry official. Sectoral exemptions could, however, undermine the regulatory authority of the competition commission of India, or CCI, which is already struggling to make its presence felt. Shipping industry has also demanded exemption from CCI scrutiny.  "A large number of exemptions are not desirable so early into the life of any legislation. Let the norms operationalise and then the need for exemption can be assessed," said Suhail Nathani, senior partner at law firm Economic Laws Practice.

Over Rs 1360 cr unclaimed money with Indian banks

Indian banks have over Rs 1,360 crore unclaimed amount, enough to run Central government hospitals and dispensaries for a year or provide funds to farmers under the National Horticulture Mission. Any bank account, not been operated for a decade, turns inoperative and the money is transferred to the bank’s suspense account. There are over one lakh inoperative accounts with Indian banks, each having on average Rs 1,350, the RBI said in a RTI reply. Over 75 % of these accounts are of savings.  Although the Reserve Bank of India has asked banks to issue notices to account holders to take back the money back along with the interest, the banking regulatory is not willing to transfer the money to the government as done in case of unclaimed dividend from the companies. "There is no scheme under consideration of RBI whereby such unclaimed deposits in banks including those in inoperative accounts may be transferred to some government account after a specified period," said D Mahapatra, RBI’s Central Public Information Officer. After the RTI applicant Subhash Aggarwal sought information on money in suspense accounts, the RBI woke up and issued a new circular in July 2010 asking the banks to review the accounts where there have been no operations for more than a year and inform the account holder about the same in writing. "Banks are taking every step to ensure that unclaimed money lying with them is safe and not misused," T M Bhasin, chairman and managing director, Indian Bank told Hindustan Times. Chairman of a public sector bank said in case of any transaction, which may happen after that period, will be monitored closely to ensure that there is no fraudulent activity. The RBI has admitted that it has received complaints of customers facing problems in operating the accounts termed as inoperative and unwillingness of the banks to pay interest on the money in these accounts. The country top-banking regulator has asked the banks to make all efforts to locate the customer and in case, it fails to find the person, the bank should contact the person who introduced the account holder. "Banks can consider a special drive to find the whereabouts of the customers," the RBI had said. The nationalized banks have around Rs 988 crore in inoperative banks followed by State Bank of India and Associate banks, private sector banks and foreign banks.

Rising interest rates thwart NBFCs' fund-raising moves

MUMBAI: Non-bank finance companies are caught between a rock and a hard place with volatile markets and rising interest rates dimming prospects of fund raising even as the Reserve Bank of India has directed them to hold more capital.  If the equity market does not turn favourable in the next few months, loan disbursements by more than 300 finance companies may slow, hitting the small and medium enterprises which depend on these companies for survival.  Debt funding to boost capital is also an expensive option with interest rates ruling at more than a two-year high on sustained policy rate increases by the Reserve Bank of India to tame inflation.  "NBFCs have only two options here; they'll have to either bring down their pace of growth or raise capital," said Chaitra Bhat, research analyst-banking & financial services, LKP Securities. "Capital raising will be wholly-dependent on the market. Uncertain equities and low liquidity in debt market will be detrimental for non-banks raising capital," she added.  The central bank recently directed all deposit-taking non-banking finance companies to maintain a CAR of 15% by March next year. Previously, deposit-taking NBFCs were required to keep their capital base at 12% against 15% reserves held by non-deposit taking non-banks. Since NBFCs lack deposit insurance coverage and refinance facilities, RBI sees the need for wider capital base to weed out depositor risks.  While the central bank may be doing this as a counter-cyclical policy measure to reduce risk, some even question the direction on higher capital for finance companies because of their less risky model.  At some level, RBI's decision to raise risk provisioning norm to 15% doesn't make sense for NBFCs which are into secured lending business," said a chief executive of a Chennai-based finance company. "An NBFC engaged in gold loans or vehicle leasing need not keep such high reserves as they indulge in pure securitised lending," he added.  Raising funds through private equity is also a long-drawn process with investors raising scores of questions and seeking rights, which the regulations may not even permit at times.  "We're looking at several fund-raising options," said Oomen K Mammen, chief financial officer of Muthoot Finance. "We will come out with an IPO over the next few months. If the market is not favourable, we'll look at private equity, short-term and perpetual debt to raise capital," he said.  The RBI diktat may not affect large-sized NBFCs in a big way as most of them have CAR above 15%. Non-bank lenders like Reliance Capital , Indiabulls, Manappuram General Finance, Srei Infrastructure and IDFC maintain 20- 30% as capital reserves. It is smaller NBFCs that will find it difficult to beef-up their capital base.

Making fin inclusion must for new players is problematic: E&Y

Leading industry expert Ernst & Young (E&Y) today said if the financial inclusion project is to be materialised and sustained, it must be pushed directly by the government, as in the present model it is not only unviable but will also deter prospective new bank licence applicants.  "The Reserve Bank is inviting trouble by insisting on a financial inclusion plan as a mandatory criterion for getting new bank licences," E&Y National Leader (Global Financial Services Ashvin Parekh told PTI.  "Since the current inclusion model is not a profitable model, this will not only deter prospective licence applicants from seeking licence, but will also create problems for the entire banking industry as banking is a highly inter-related business," he said.  It seems that the Reserve Bank is either not getting the right direction or not sure of its direction when it comes to the inclusion project, if the latest vibes are any indication, he said, adding, "I feel the regulator is on the back foot now." He further said, "I don't think any private business house will be in a position to make such a huge investment needed for inclusion just because it is mandated." Parekh, who did not join the RBI committee that wrote the draft paper on new bank licences, despite an invitation citing conflict of interest, further said, "if the Centre can give away Rs 6,000 crore by way of capital infusion to the weak public sector banks, why can't it start a mechanism to start the financial inclusion project." "The government is in a much better position to start this project and then incentivise banks to carry on," he said. Many of the existing banks do not have the financial wherewithal to take up a long-term projects, as the inclusion project will be a viable business proposal for banks only after a long period, he added.

RBI to review monetary policy on March 17

The Reserve Bank of India is slated to announce its mid-quarterly review of the monetary policy on March 17. Concerned over worsening political turmoil in the Middle-East and the impact of rising global crude prices on the domestic economy, the Finance Ministry has suggested the Reserve Bank to focus on steps to contain inflation.

With rising interest rates, does it pay to pre-close your term deposit?

Banks have once again begun levying a penalty on customers for pre-closure of their term deposits. In some cases, this is an anticipatory move, given that customers are closing their existing term deposits with the intention of redeploying them in higher yielding deposits.  This is happening as interest rates are being hiked by banks to mop up funds before the year-end.  Banks are allowed by the regulator, the Reserve Bank of India, to levy pre-closure penalty. To facilitate better asset-liability management, the RBI, in April 2010, in a review of its earlier guidelines, allowed banks to formulate their own policies in this regard.  HDFC Bank has implemented this clause for all pre-closure of deposits with effect from January 24. HDFC Bank states on its Web site that the penalty on premature closure of FDs, including sweep-in and partial closure, will be 1 per cent. For instance, if you have deposited money at 8 per cent interest for one year and opted to pre-close after 10 months. If the interest for the 10-month period  is 7 per cent, the bank will reduce 1 per cent and pay you interest at the rate of 6 per cent for the appropriate number of days.   Similarly, the country's top bank, SBI levies a penalty at the rate of  1 per cent below the rate applicable for the period that the deposit has remained with the bank.  Karur Vysya Bank levies a penalty of 1 per cent on pre-closure of all deposits. However, a branch official said that if the pre-closure proceeds are redeployed with it, waiver of the penalty may be considered. So, should you close your deposits when there is a pre-closure penalty?  That depends on how long you have held the deposit and the new rates, of course.  But you can think about it if there is still some time before the deposit matures.  Consider this: If you have a three-year deposit of Rs 3 lakh at 8 per cent interest, and you hold the deposit till maturity, you will receive Rs 3.78 lakh. But if you pre-close the deposit after holding the deposit for seven months, your loss will be Rs 4,375 (considering an interest rate of 6.5 per cent and a penalty of 1 per cent). But by deploying the pre-closure proceeds at 10 per cent interest for the remaining two years and five months, you gain Rs 5,400. So it may be prudent to close your deposit and enjoy the extra income from higher rates.

Saldanha strike helps Gunners nail SBI

MUMBAI: Golden Gunners got the better of State Bank of India (SBI) 1-0 in a league match of the GSA veterans' football tournament for the Late Aniceto Fernandes Memorial Trophy and played at the GSA ground, Cross Maidan on Tuesday. Anton Saldanha netted the lone winning goal of the match. Earlier, Reserve Bank of India (RBI) played out a 1-1 draw with Colaba Young Stars in another league match. Mathew Verghese was on target for RBI while Abba Kadam scored for the Colaba side in the event.

Yunus loses HC appeal against sacking

Muhammad Yunus, the Bangladeshi winner of the 2006 Nobel peace prize, on Tuesday lost a high court appeal after being sacked from his own bank in a bitter clash with the country's authorities.  Yunus, 70, who is celebrated worldwide for tackling poverty through his pioneering “microfinance“ cash loans to small farmers and villagers, was fired last week on the orders of Bangladesh's central bank. Backed by a high-profile international campaign amid al- legations of a political vendetta, he defied the order by re- turning to work at Grameen Bank's headquarters and lodging an appeal which he will now take to the Supreme Court. “Yunus has been continuing in his job with no legal basis. Therefore, his petition is rejected,“ judge Muhammad Mamtaj Uddin Ahmed told the court on Tuesday. It was “crystal clear“ that the order to remove Yunus from his post as managing director was legal, Ahmed said. “Also, the managing director is an officer of the bank, and the mandatory retirement age for bank officers is 60, so he has exceeded his retirement age long ago,“ he said. The central bank--which is nominally independent from the government--removed Yu- nus on the basis that he had been in his position illegally since failing to seek its approv- al when he was reappointed indefinitely in 1999. “There is no such thing as an appointment for life. Yunus should have rejected this ap- pointment when the Grameen Bank board made it,“ attorney general Mahbubey Alam told reporters.

Understanding the Crisis and Its Aftermath

Book review - Understanding the Crisis and Its Aftermath