Rather than counting on the government for additional capital, banks need to grow their balance sheets by raising capital from the market, as keeping them adequately capitalised would be a challenge once the Basel II accord comes into force, according to K C Chakrabarty, deputy governor, Reserve Bank of India (RBI). “The era of cheap capital is over. Investors are wary of the volatility of returns. Newer instruments and techniques would be required to attract investors. While the creation of enabling conditions for capital flow to the sector would continue to remain on the top of the reforms agenda, banks would need to grow their balance sheets by raising capital from the markets rather than count on government,” Chakrabarty said. He added that balancing the interests of shareholders and depositors alike would be a challenge for banks. Another key issue where banks might face challenges was meeting the funding requirements of the productive sectors of the economy, estimated to grow by nine per cent annually, Chakrabarty said. “The debate over channeling a larger portion of available credit to the most productive sector or to those where the investment efficiency is lower is yet to be fully resolved. In any case, to make banks allocate increased credit to the productive sectors of the economy is strongly predicted on the bank’s capital strength. To do so, more capital infusion for banks will be required,” he said.
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Thursday, March 17, 2011
Further rate hike by RBI may hurt growth: Experts
New Delhi: Terming the RBI`s move to raise key policy rates by 25 basis points as in-line with market expectations, analysts said the apex bank should not go for any further rate hikes in the current year in order to keep the India growth story intact. The Reserve Bank of India on Thursday raised its short-term lending (repo) rate and borrowing (reverse repo) rate by 25 basis points each to 6.75 per cent and 5.75 per cent, respectively, for the eighth time since March, 2010 in a bid to rein in inflation. Market observers feel the 25 basis points hike by the apex bank is on expected lines and was discounted by the market. "RBI has acted on expected lines. The problem of inflation is still on top of RBI`s mind, so they have continued tightening monetary policy even at the cost of growth momentum slackening," Motilal Oswal Financial Services Joint Managing Director Raamdeo Agrawal said. Analysts feel the RBI should not opt for another hike in the calendar year as it may hurt the economic growth of the country. "The increase of 25 basis points would be detrimental to our economic growth estimates and if banks opted to pass on all the increase to consumers, the capital formation in the economy will remain subdued. The inflation should come down in the fiscal year 2012, and this rate increase is almost all the increase we need in this calendar year," MAPE Securities Head (Research) Kislay Kanth said. Kanth added the RBI raising the inflation projection to 8 percent for March-end, against 7 per cent estimated earlier is a matter of concern. Echoing Kanth`s opinion, Padmakshi Financial Services Director (Institutional Equities) & Chief Strategist Sailav Kaji said, "We believe RBI is near end of tightening as inflation is expected to moderate with lag". Experts also feel the government needs to come out with more policies to tackle food inflation apart from the measures taken by monetary authorities, in view of the rising global uncertainties and soaring oil prices as the RBI`s continuous rate hikes may impact India`s long-term growth story.
RBI step to hike key rates in 'right' direction: Montek
The Planning Commission on Thursday said the Reserve Bank has taken the "right" step in hiking key policy rates by 25 basis points as inflation is above the comfort level. "I think it is on long expected lines. I don't think markets would be surprised by (RBI key rate hike) given that inflation is not in the comfort level, I think it has done the right thing, " Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters here. The central bank raised its short term lending and borrowing rates by 25 basis points each in a bid to contain inflation. About RBI increasing its March-end inflation forecast to 8 per cent from 7 per cent, Ahluwalia said, "I don't disagree with the (RBI's revision of inflation) forecast of 8 per cent inflation by March end." He said, "We are hoping that it would go down to 7 per cent level by March end. We have to admit that inflation rate in February is higher than what we wanted it to be." The overall inflation increased marginally in February to 8.31 per cent from 8.23 per cent a month ago. "If the fiscal deficit projections presented in the budget are maintained and (with) gentle tightening of monetary policy, I assume (that) with a normal production year, inflation during 2011-12 will definitely below 7 per cent," he said. Dismissing the contention that RBI's monetary tightening would hurt the economic growth, Ahluwalia said, "longer term economic growth rate is function of many things. "I don't agree with the view that in order to keep the long-term interest rate modest (lenders rates), you should keep the short-term interest rate (key policy rates of RBI) low," he added. Ahluwalia suggested that it does not make sense to keep RBI policy rates at low level and let inflation rise, for ensuring cheaper long-term credit from lenders.
Banks for maintaining priority sector status for MFIs
Banks today asked the Reserve Bank of India (RBI) for preservation of priority sector status for the micro lending sector, irrespective of the individual conduct of borrowing microfinance institutions (MFIs). "Bankers' main reservation is nothing should happen by which some act or conduct or misconduct of MFIs should result in the priority sector status being withdrawn," Indian Banks Association Chief Executive K Ramakrishnan told PTI here. Top bankers, including Corporation Bank CMD Ramnath Pradeep, HDFC Bank MD Aditya Puri, Axis Bank CEO Shikha Sharma and Dhanlaxmi Bank CEO & MD Amitabh Chaturvedi, met RBI Deputy Governor KC Chakrabarty to voice their concerns regarding the recommendations of the Malegam Committee on MFIs, before they are ratified into guidelines on April 1. Ramakrishnan said even though the Malegam Committee has suggested the continuance of priority sector status for loans to the MFI sector, there are some conditions wherein the status can be cancelled due to the misconduct of borrowing MFI like using coercion, charging higher interest rate, etc. "If the MFIs don't do certain things vis-a-vis borrowers, don't penalise me in terms of regulation by taking out sector (from priority sector)," he said. He added the RBI was appreciative of the reservations expressed by the bankers. Another banker said on the condition of anonymity the RBI is keen to implement the Malegam Committee recommendations from April 1 itself. The banker said if the Reserve Bank becomes the single regulator for the MFI sector, "it will be a great positive". All commercial banks are mandated to lend a certain amount to priority sectors, which mainly includes advances to boost the rural economy and encourage smaller enterprises. As the MFIs lend to micro enterprises in rural areas, loans given to them are also qualified as priority sector lending. The Malegam Committee was constituted after certain problems in the MFI sector which came to the fore after suicides by some borrowers of MFIs in the largest market of Andhra Pradesh, allegedly due to coercive tactics used by collection agents. AP has since come out with a legislation to regulate the MFIs, while the RBI constituted the Malegam committee, which has given a slew of recommendations, including the suggestion to allow RBI to regulate the sector, capping maximum lending limit to an individual at Rs 25,000 and interest rates at 24% per annum.
RBI: NBFCs' telecom tower loans can be considered infra loans
Credit for construction of telecom towers provided by non-banking financial companies (NBFCs) can now be categorised as infrastructure loans, said the Reserve Bank of India on Thursday after amending its definition of infrastructure loans. Also, only those credit rating agencies that have been approved by the RBI can rate infrastructure finance companies, the central bank said in a notification placed on its website.
HDFC Bank sees another rate hike in May
With the Reserve Bank of India revising upward its inflation estimate for FY 11 to eight% from the earlier 7%, the rate hiking cycle in FY 12 is now likely to be more extended than initially anticipated and far more front-loaded, a leading economist said. "We expect inflation to print in at 8.1% in March and move close to nine% by August," HDFC Bank's chief economist, Abheek Barua, said in a statement in Mumbai on Thursday. In his reaction to the Reserve Bank hiking its repo and reverse repo rates by 0.25% each in its mid-quarter monetary policy review on Thursday, Barua said that with inflation in February at a high of 8.3% instead of the sub-8% as expected, the apex bank's move was expected. "Indeed, with inflation for the month of February coming in as a rude shock to the market (the reading came in at 8.3% against expectations of 7.8% and on top of an upwardly revised estimate of 9.4% for December) at the start of the week, this is the very least the central bank could have done to assuage concerns on price pressures," he said.
Rate hikes will help curb price rise, says Pranab
New Delhi, March 17 (IANS) Finance Minister Pranab Mukherjee said Thursday the Reserve Bank of India's move to hike key policy rates by 25 basis points would help curb inflationary pressure. 'This (rate hike) is good. I do have a hope that it will have a salutary impact on the inflationary pressure,' Mukherjee told reporters here after the country's central bank raised key policy rates for the eighth time in 15 months to tame stubborn inflation. The central bank hiked the repurchase or repo rate to 6.75 percent from 6.5 percent and reverse repo rate to 5.75 percent from 5.5 percent. The finance minister said the 25 basis points increase in repo and reverse repo rates were in tandem with the government's fiscal policy. In the mid-quarter review of the monetary policy, Reserve Bank of India Governor Duvvuri Subbarao also revised upward the inflation forecast sharply to 8 percent by end-March, from 7 percent forecast in January, and a lower 5.5 percent in November. The projection on growth rate has been retained at 8.5 percent. Revising his earlier projects, Mukherjee said inflation was likely to remain 7.5 percent by March-end. 'By March-end we can say it will be around 7.5 percent.' The finance minister had earlier said inflation would come down to 7 percent by the end of the current fiscal. Inflation rose marginally to 8.31 percent in February from 8.23 percent in the previous month.
International Women’s Day celebrated in Delhi
Mrs Thagu Maya Bardewa from Sikkim received Kannagi Award which is amongst the ‘Stree Shakti Puraskar’ for her great work in helping people in distress, orphans, widows and destitutes. In a function organized by the Ministry of Women and Child Development in New Delhi on 8th March the Minister of State (Independent Charge) of Women and Child Development Smt. Krishna Tirath inaugurated the event and also presented the ‘Stree Shakti Puraskar 2010’, given every year to eminent women for their dedication to the cause of women and the struggles in their own lives to bring about a more gender equitable society. A panel discussion was organised on the theme of “Socio-Economic Empowerment of Women: A Way Forward” including issues of concerns for women in agriculture and informal sectors, financial inclusion of women and women’s access to education and skill development. Ms. Usha Thorat, Former Deputy Governor, RBI chaired the panel discussion. The eminent panellists were Renana Jhabvala from ‘SEWA’, Anshu Gupta from ‘Goonj’, Madhura Chatrapati, from Ascent and Mrs Williams, Principal, Mount Caramel School. The panellists highlighted the various concerns of women in the informal sectors while emphasising on the need for financial inclusion of women. The event saw a major gathering of more than 1200 women and men from various Government and Non-Government sectors. Development partners and women from Self Help Groups also participated in the event.
Economists react to RBI's key rate hike by 25 bps
The Reserve Bank of India raised key interest rates on Thursday by a quarter point each, as expected, scrambling to contain inflation that has spread beyond food to fuel and manufacturing in Asia's third-largest economy. The increase in key rates was the eighth since March last year. The repo rate, the short-term lending rate, was up 25 basis points at 6.75%. The reverse repo rate, the short-term borrowing rate, was hiked 25 basis points at 5.75%. The cash reserve ratio (CRR), the level of deposits that commercial banks must keep with the central bank, was unchanged at 6%. "This policy is very much on expected lines in terms of rate action, and no action on liquidity or SLR (statutory liquidity ratio). But the policy has now given more credence to domestic factors on inflation and so I expect the RBI to continue with its anti-inflationary stance and hike rates by another 25 basis points before it thinks of a pause. I don't expect bearishness in government bonds and swaps to materialise very heavily and markets will be mostly tracking liquidity and global developments," said Manish Wadhawan, director and head of rates trading, HSBC Mumbai. "The rate hike is basically on expected lines. The RBI has revised its inflationary expectations to 8% at March-end. So that is something that has influenced the rate hike decision. One or two more hikes cannot be ruled out (in 2011). It will depend on how inflation and the economy behave. RBI would not like to hurt growth," said KK Mital, head of portfolio management at globe capital, New Delhi "RBI is acknowledging the risks due to inflation and in turn a risk to growth. Its anti-inflationary stance will continue into the next quarter, and we expect it to hike rates further from hereon, said Rajat Rajgarhia director of research at Motilal Oswal Financial Services, in Mumbai "Today's hike was already priced in and despite external headwinds, which Today's hike might make other regional policymakers reconsider the pace of monetary tightening, RBI might not enjoy such luxury. We have penciled in +25bps hike every quarter, with risks that they could do more. Unfortunately monetary policy faces the complete burden of anchoring inflationary expectations and risks of generalization in price pressures seems more glaring than earlier," said Radhika Rao, economist, forecast PTE in Singapore "RBI is concerned about the international events and commodity prices. Inflation still remains a big challenge. I would expect RBI to hike rates by another 25 basis points at the next review," said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services, in Bangalore.
Urban Cooperative Banks’ burial may not be far off
The way cases of violation of RBI norms by Urban cooperative banks are coming, there is strong doubt if these banks could be counted as reliable carrier through which government could alleviate the condition of the poor. The modus operandi in majority of cases is to give loan either to one of the Directors of the board of Urban cooperative bank or his relatives. Norms are flouted and RBI guidelines are thrown to the winds in such cases of patent favouritism. On Monday again the Reserve Bank of India has imposed a monetary penalty of rupees one lakh on The Jai Bhavani Sahakari Bank Limited, Pune, in exercise of powers vested in it for violation of Reserve Bank of India’s directive on Directors related loans. 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. Only a few days back Indian Cooperative.com has reported the violation of RBI guidelines by Muslim Cooperative bank of Pune. The story of Madhavpura cooperative bank is too well known to need recall here. There is scams galore in urban cooperative banks coming to media from time to time. Two cooperative sector lenders — Surat Mercantile Co-operative Bank and Urban Co-operative Bank, Cuttack were fined by the Reserve Bank with a penalty of Rs.5 lakh due to the reason being violation of certain banking norms. Even the Maharashtra Deputy Chief Minister and nephew of Maratha strongman Sharad Pawar Ajit Pawar’s close aid Shivaji Kale has been charge sheeted in one of such case involving an urban cooperative bank in Pune. The Reserve Bank also imposed penalties of Rs1 lakh each on four cooperative banks on various charges including violation of anti-money laundering guidelines. The four banks are the Jamnagar Mahila Sahakari Bank, Amreli Nagarik Sahkari Bank, Shri Mahila Sewa Sahakari Bank, Ahmedabad, and the Virambam Mercantile Cooperative Bank, the RBI said in different statements. Surprisingly all such cases are from the year 2011 alone. If we ferret out the data from past, no space would be enough. There are some people who are doing good work and because of whom the trace of reliability is there. Persons like Ela Bhatt and Chetan Sinha are welcome relief from the thugs mostly dominating urban cooperative bank scenario. Chetna Sinha has become a source of inspiration and hope for the poor women in the forgotten town of Satara district in Madhya Pradesh and has been recognized by Obama administration. Similarly Ela bhatt is being awarded by Harvard University in May,2011. But are such examples enough? This is high time urban cooperative banks should mend it ways else the public resentment and governmental harsh action would ensure their untimely burial.
Indian Bank to employ retired staff to cut NPA
Indian Bank, which has been witnessing a significant rise in its non-performing assets (NPA) level over the past few quarters, is now banking its hopes on its new proposal to bring down the level of its. The Chennai-based bank is planning to recruit retired banks officials for the recovery of NPAs for a prescribed fee. The bank has invited applications from retired officers and clerks of all banks and plans to appoint one such recovery agent for recovery of 100 accounts in each zone. The agents would be paid fee of 5 per cent of the recovered amount for unsecured advances and 3 per cent of the recovered amount for secured advances, said the bank, in its website. Few months back, Crisil in its research report had warned that banks in India could see deterioration in their asset quality and their NPA levels may rise to 3.6 per cent in 2010-11 against 2.3 per cent in 2008-09. Apart from the normal additions to gross NPAs, the rise will also be due to the deterioration in the quality of few restructured assets, the report said. Indian Bank saw its gross NPA rise by 46 per cent during the nine-month period ended December 2010, to Rs 752 crore (1.02 per cent). The net NPA of the bank saw a three-fold rise to Rs 417 crore in the period April-December 2010 against Rs 89.73 crore in the period April-December 2009.
India’s Banking Sector: Don’t Go Soft
The reality is that though the Indian banking sector has not been hurt by the ongoing global finance crisis, yet it has a long way to go in competing with its counterparts in other countries. The Reserve Bank of India’s annual policy statement is round the corner. The big challenges still loom large before the entire economy – satisfaction over GDP growth rate is nothing more than a mere complacency as the emerging economy has to move forward and should not waste time in drum beating. The government has to do a balancing act of sustaining economic growth on one hand and maintaining price stability on the other. Side by side, the monetary authority’s prime role is to be maintained – steps are necessary towards gradually weaning away the economy from its past tendency of dependence on accommodative monetary policy so as to make it market-driven with an aim to prop up growth and arrest inflationary pressure. Thankfully, ongoing facts and circumstances vis-Ã -vis policy prescriptions are not moving in the wrong direction if a comprehensive view is taken. The comparatively muted growth of credit is likely to be stimulated and buoyancy restored. Thus, the inflationary pressure needs to be controlled without affecting the momentum for growth. The reality is that though the Indian banking sector has not been hurt by the ongoing global finance crisis, yet it has a long way to go in competing with its counterparts in other emerging economies as well as the developed countries, globally speaking. No doubt, Indian banking has emerged as a strong and vibrant banking system and has its standing and reputation in the global financial market. It ranks sixth in terms of efficiency, productivity and soundness among 11 banking institutions of emerging economies. Some of the major strengths on this score that have helped Indian banking marking their place on the global banking scene are: regulatory systems, commendable economic growth, technological advancement and risk assessment system as well as credit quality. When compared with other countries like China, Japan, Russia, Singapore, UK, USA on these essential parameters, Indian banks stand better than/ at par with China, Japan and Russia but less advanced than Singapore, UK and USA. Thus, it can be said safely that we are moving closer to a global benchmark. But that does not call for any sort of complacency as there are a number of areas which need to be geared up for future growth — diversification of markets beyond metropolis/ big cities, SR systems, size of banks, high transaction costs, banking infrastructure and of course labour inflexibilities. Essentially, in today’s business climate, becoming a high performance organization requires evaluation of current corporate resources, technology and people. That is more, technological penetration level in India till now has been quite modest. Wide disparities exist within the banking sector as far as technological capabilities are concerned. Banks have to further gear up the technological efficiency level of employees before reaching at a level-playing field vis-Ã -vis biggies in the private sector/ foreign banks. Besides, computerization needs to go beyond the mere ‘arithmetical’ and needs to be leveraged optimally to achieve and maintain high service and efficiency standards. The challenge, therefore, remains threefold: acquiring the right technology, deploying it optimally and remaining cost-effective whilst delivering sustainable returns to shareholders. Thus, managing technology so as to reap the maximum benefits remains a key challenge for Indian banks. As has rightly been diagnosed, an institution can optimize performance by ensuring that each of the three sides of the performance triangle — corporate culture, the task the individual must perform and the motivation/ behavioural make-up of their employees – undergoes cautious treading. It is a pure case of change management, and as such banks need to focus on appropriate capacity-building measures to equip their employees to handle advanced risk management systems. And it will not be out of the place to mention here that the supervisors as well need to equally equip themselves with appropriate skills to have effective supervision in adopting those systems.
Again, the RBI may actively consider giving additional licenses to private sector players and NBFCs in order to extend the geographic coverage of banks and improve access to banking services. The need is also there to strengthen the capital base of not only laggard public sector banks but RRBs as well so that the latter can have adequate capital base to support increased lending to the rural economy in particular. Providing banking facilities to the villages having population more than 2,000, and extending insurance and other services to these villages using the BCBF (Business Correspondent Banking Facilitator) model could pave the way for the banking services reach the unbanked areas. Side by side, it should not be forgotten that the contribution made by cooperative banks are also not small. Cooperative banking can bring about financial inclusion as the future of UCBs lies in penetrating the unbanked people in urban areas. RBI Deputy Governor Dr KC Chakrabarty rightly opined, “Commercial banks may not be able to penetrate this layer because they do not have contact with people as much as UCBs do. Yes, of course, for reaching out to these people, UCBs have to bring in technological enhancements.” It is in the fitness of ongoing facts and circumstances that the RBI allows banks to take over weak urban co-ops. The RBI issued guidelines for amalgamation of weak UCBs with commercial banks. In cases where such proposals are not forthcoming, the RBI may consider transfer of assets and liabilities (including branches) of UCBs having a negative net worth with Deposit Insurance and Credit Guarantee Corporation’s support. The scheme ensures cent per cent protection to depositors (DICGC support would be restricted to the amount provided under Section 16(2) of the DICGC Act, 1961). That is to say, the existing created capacities are to be fully explored so that the incidence of regional imbalance comes down to the minimum level – not an easy task but achievable, measurable and realistic in nature. This would have been possible had there been adequate attention paid to all of the regions. This has not been done over the years as a result of which eastern region and Northeast have been showing a very low rate of growth compared to other regions in spite of the fact that strategic importance and latent resources have been very much in existence. Whither HR policy? Is it attrition-oriented? Many of the banks are now going to hire fresh talents from the market. On this score it is to be ensured that the banks are required not only to recruit fresh talents, but retain the existing talent through prudent human resource management policy also, in the absence of which the growth process will be hit largely. It has been noted that in some of the cases golden things are not located by the top and that too out of personal bias or to manoeuvre the misdeeds which are non-banking and non-professional in nature. Such personnel at the decision-making level are to be essentially taken to task by the Reserve Bank of India so that the damagers do not go scot-free. Let market musings get enquired, albeit confidentially. The need is there to have a close watch on how public money is utilized for training and development purposes. An integrated HRD approach calls for a bold strategy focusing on the systems targeting to achieve both business goals and employee satisfaction. Finally, it is good to note that foreign banks are warming up to make foray into small towns as well. Competition has been intensifying and in the coming days more players would be coming in a bigger way. Indigenous banks are thus required to be more on the guard so that they are not heavily dislodged from the regions where they are ruling high. Not only more technology intensification, but more leaning towards educating the customers and retaining technique practices are required to be followed. In fact, a crisis period does some good too — it calls for a careful assessment of the causes, effects as well as the future plans; and as such any sort of complacency is out of question. Naturally, fixation of strategies, continuous upgrade of skills and making the best use of talent, backed by effective planning techniques that take care of the forthcoming series of happenings/ things, pose the biggest challenge. There is no room for complacency.
Again, the RBI may actively consider giving additional licenses to private sector players and NBFCs in order to extend the geographic coverage of banks and improve access to banking services. The need is also there to strengthen the capital base of not only laggard public sector banks but RRBs as well so that the latter can have adequate capital base to support increased lending to the rural economy in particular. Providing banking facilities to the villages having population more than 2,000, and extending insurance and other services to these villages using the BCBF (Business Correspondent Banking Facilitator) model could pave the way for the banking services reach the unbanked areas. Side by side, it should not be forgotten that the contribution made by cooperative banks are also not small. Cooperative banking can bring about financial inclusion as the future of UCBs lies in penetrating the unbanked people in urban areas. RBI Deputy Governor Dr KC Chakrabarty rightly opined, “Commercial banks may not be able to penetrate this layer because they do not have contact with people as much as UCBs do. Yes, of course, for reaching out to these people, UCBs have to bring in technological enhancements.” It is in the fitness of ongoing facts and circumstances that the RBI allows banks to take over weak urban co-ops. The RBI issued guidelines for amalgamation of weak UCBs with commercial banks. In cases where such proposals are not forthcoming, the RBI may consider transfer of assets and liabilities (including branches) of UCBs having a negative net worth with Deposit Insurance and Credit Guarantee Corporation’s support. The scheme ensures cent per cent protection to depositors (DICGC support would be restricted to the amount provided under Section 16(2) of the DICGC Act, 1961). That is to say, the existing created capacities are to be fully explored so that the incidence of regional imbalance comes down to the minimum level – not an easy task but achievable, measurable and realistic in nature. This would have been possible had there been adequate attention paid to all of the regions. This has not been done over the years as a result of which eastern region and Northeast have been showing a very low rate of growth compared to other regions in spite of the fact that strategic importance and latent resources have been very much in existence. Whither HR policy? Is it attrition-oriented? Many of the banks are now going to hire fresh talents from the market. On this score it is to be ensured that the banks are required not only to recruit fresh talents, but retain the existing talent through prudent human resource management policy also, in the absence of which the growth process will be hit largely. It has been noted that in some of the cases golden things are not located by the top and that too out of personal bias or to manoeuvre the misdeeds which are non-banking and non-professional in nature. Such personnel at the decision-making level are to be essentially taken to task by the Reserve Bank of India so that the damagers do not go scot-free. Let market musings get enquired, albeit confidentially. The need is there to have a close watch on how public money is utilized for training and development purposes. An integrated HRD approach calls for a bold strategy focusing on the systems targeting to achieve both business goals and employee satisfaction. Finally, it is good to note that foreign banks are warming up to make foray into small towns as well. Competition has been intensifying and in the coming days more players would be coming in a bigger way. Indigenous banks are thus required to be more on the guard so that they are not heavily dislodged from the regions where they are ruling high. Not only more technology intensification, but more leaning towards educating the customers and retaining technique practices are required to be followed. In fact, a crisis period does some good too — it calls for a careful assessment of the causes, effects as well as the future plans; and as such any sort of complacency is out of question. Naturally, fixation of strategies, continuous upgrade of skills and making the best use of talent, backed by effective planning techniques that take care of the forthcoming series of happenings/ things, pose the biggest challenge. There is no room for complacency.
Dr BK Mukhopadhyay (The writer, a management economist, is an Associate Professor, NERIM, Guwahati )
Watch out for fake notes in Ahmedabad
The next time the person at the deposit counter of a bank suspiciously looks at the notes you have handed him or her, don't get annoyed. For, bank employees have reason to be wary. This is because banks in the city have reported fake Indian currency notes (FICN) to the tune of around Rs14 lakh in the last eight months. fficial figures state that 2,730 fake currency notes were deposited in the city banks, most of which were in the 500 denomination, followed by the 1,000 denomination. Details of all these counterfeit notes have been sent to the Detection of Crime Branch (DCB) which is currently investigating the source and route through which the currency came. HDFC Bank tops the chart as it reported 1,361 FICNs, of which 880 were in the Rs500 denomination. The total amount of FICNs, according to DCB, debited to HDFC Bank and found out amounts to Rs7.18 lakh. Apart from that, 482 FICNs, including 292 in Rs500 denomination and 73 in Rs1,000 denomination respectively were deposited with the Reserve Bank of India. These deposits were made by the customers as well as banks. Interestingly, a fake Rs10 note was also deposited at RBI, a cop from DCB toldDNA. Axis Bank stands second in the chart with a deposit of 742 different fake currency notes in the last eight months. Of this, 387 notes were in the Rs500 denomination while 129 were in the Rs1000 denomination — all amounting to Rs3.24 lakh. Citibank reported the least number of FICNs. “Only one fake note of Rs1,000 was submitted at Citibank,” a police source said. Sources in the banking sector told DNA that the banks which report high number of FICNs are penalised depending on the total amount of such notes deposited with them.
Banks Say Inclusiveness Is Costly - Megha Bahree
The Reserve Bank of India may want all banks to focus on financial inclusion-service the poor at the bottom of the pyramid-but is it a viable business? “It’s not really profitable to have people in financial inclusion,” admitted Neeraj Swaroop, regional chief executive India and South Asia, Standard Chartered Bank. “A lot of the accounts are dormant and not activated because there’s no credit as those people are really poor,” he added. “You can’t have financial inclusion go ahead without economic inclusion and if those people don’t have access to roads, electricity, [a steady stream of income].” Mr. Swaroop uttered a rarely spoken truth as he spoke on a panel at Mint’s Annual Banking Conclave in Mumbai Tuesday. (The WSJ has a content sharing partnership with Mint and the two announced at the conclave a new collaboration on mergers and acquisitions coverage called Deals India) Making a clever pitch to K.C. Chakrabarty, deputy governor RBI, to ease up regulation to allow foreign banks into India, Stuart Fraser, chairman of policy for the City of London, said while it wasn’t profitable to bank the poor, it can be “an obligation that banks coming into India will have to take on if they want to enjoy the benefits of long term growth.” O.P. Bhatt, chairman of the State Bank of India, the country’s largest bank, agreed that financial inclusion wasn’t profitable. But he said that as the volume of transactions at a particular outlet increased, losses would reduce. “The question is how quickly can you enroll more people,” he said. “This could be an investment for the future especially if rural India is [expected to grow] faster than urban India. You may not see profits for the first three to four years, and you lose or invest rupees 10-50 crore [100 million to 500 million rupees, about two million to 10 million dollars] whatever your balance sheet can bear, whatever your board approves, and profits will come in the future.” SBI is working on a deal with cellphone service provider Airtel to open bank accounts through its kiosks. Chanda Kochhar, the chief executive of India’s largest private bank ICICI, agreed with Mr. Bhatt. “We are adding one million accounts a month with a view to say this is where the next growth of India will come from, [profits] could be three years from now, this could be the next set of customers,” she said. ICICI is offering accounts in rural India where customers should eventually be able to do NREGA payments, remittances, crop insurance, and get microloans. “When you do five products with one customer, your business model is more viable,” she said.” Standard Chartered’s Mr. Swaroop said the banking industry was working hard to make it profitable to bank the poor. “We are all experimenting with business models to drive costs down and technology will be at the heart of it,” he said. “It will happen someday.”
Bank stocks shine ahead of RBI policy
The interest-sensitive financial sector stocks, led by ICICI Bank, recorded sharp-to-moderate gains on the Bombay Stock Exchange today as buyers discounted a likely hike in key rates by the Reserve Bank of India. Strong Advance tax numbers, which indicated corporate earnings growth was on track, also supported the trading sentiments. Mirroring the upbeat mood, the BSE banking sector index emerged as the second best performer among sectoral indices by rising 261.67 points, or 2.15 per cent higher at 12,438.34 points, helping th BSE benchmark index Sensex to close 191.05 points up, or 1.05 per cent, at 18,358.69 points. Stocks of State Bank of India, country's largest lender, rallied by 3.10 per cent to Rs 2,642.85 and Punjab National Bank rose 1.50 per cent to Rs 1,096.25. Largest lender in the private sector, ICICI Bank spurted by 3.03 per cent to close the session at Rs 1,026.60, while Axis Bank gained 2.85 per cent to close at Rs 1,317.65 on BSE. Brokers said expectations that the RBI may raise key rates by 25 basis point to curb inflation in its monetary policy tomorrow, which is lower than earlier anticipated, triggered buying interest in financial stocks. In addition, reports of strong advance tax numbers, indicating strong corporate growth also buoyed the trading sentiments, they said. Other gainers were Bank of India up by 1.20 per cent to Rs 464.40, Canara Bank by 4.08 per cent to Rs 634.45, Bank of Baroda by 1.08 per cent to Rs 909.35, Yes Bank by 4.95 per cent to Rs 278.65, IndusInd Bank by 1.25 per cent to Rs 247.85.
SKS Microfinance to explore banks for funds
MUMBAI: SKS Microfinance today said it will raise additional funds from banks, a move likely to help it tide over liquidity shortage. "The Board of the Company...decided against CDR route, instead will explore other possibilities of additional fund raising from various banks/financial institutions," SKS Microfinance said in a filing to the Bombay Stock Exchange (BSE). The Board has decided against going for Corporate Debt Restructuring (CDR) route, it said. Several banks are believed to have approached the CDR cell of RBI to restructure loans advanced by them to Micro Finance Institutions (MFIs). Some major banks such as State Bank of India , ICICI Bank and Axis Bank are estimated to have lent over Rs 15,000 crore to MFIs. ICICI has lent around Rs 2,000 crore, SBI Rs 1,000 crore, while Small Industries Development Bank of India (SIDBI) has MFIs exposure to about Rs 4,000 crore. The Reserve Bank had in January relaxed the debt restructuring norms for the micro finance sector to enable banks to provide liquidity support to the crisis-ridden MFIs. With the clamp down on bank loans to MFIs, the business of these companies has slowed down considerably since October last year when a string of farmer suicide cases in Andhra Pradesh led to the introduction of an ordinance to regulate the MFIs' operations in the state. The ordinance is now passed into an Act. SKS with over 2,400 branches has more than 77 lakh members. As on December 31, 2010 amount disbursed by SKS stood at Rs 21,431 crore. Shares of the company closed at Rs 551.95, up 0.67 per cent from its previous close on the BSE.
Advance tax outflows squeeze out liquidity
A day before the Reserve Bank of India (RBI) announces its mid-quarter review of monetary policy, banks have borrowed Rs 1,33,205 crore from the former. “This is mainly due to the advance tax payments as the liquidity shortfall for the system is expected to be Rs 1.2-1.3 lakh crore,” said Moses Hardings, head-global markets group, IndusInd Bank. The drawdown from the repo window under RBI’s liquidity adjustment facility was above Rs 90,000 crore on Monday. It touched Rs 1.17 lakh crore on Tuesday. “It seems the advance tax payments are better than what the market was expecting,” said Ajay Manglunia, senior vice-president, Edelweiss Securities. Expectations were around Rs 45,000 crore, he added. Reflecting a high demand from banks, call rates also ended high. The call money rate closed at 7.25 per cent, higher than Tuesday’s close of 7.05 per cent, according to the Clearing Corporation of India. At Rs 19,043 crore, the volumes in call money market also rose as compared to Rs 18,024 crore a day before. “Liquidity will remain tight till money comes back into the system in the form of government spending,” said N Eswaran, general manager, Indian Bank. In this situation, banks having securities in excess of the Statutory Liquidity Ratio (SLR) requirement were gaining from the arbitrage opportunity by borrowing from RBI and investing in mutual funds, he added. “Banks are able to earn 1.5 to 2 per cent in arbitrage,” he said. Market participants are of the view that RBI will raise both the policy rates by 25 basis points each to curtail the rising inflation and inflationary expectations. As of now, the repo rate and reverse repo rates stand at 6.5 per cent and 5.5 per cent, respectively.
Life Insurance Corporation Of India Online Payment Through Credit Card - On the Path of Unbound Grow
Soon you won't have to carry your plastic money for your payment purposes as your mobile number will act as the credit card number. Recently, Reserve Bank of India (RBI) in its annual policy statement informed that it was in the process of formulating the guidelines for a payment system using mobile phones. RBI is discussing with both public and private sector Banks, service providers and industry bodies to develop the payment system. RBI said the draft guidelines would be placed on its official website by June 15, 2008. In India the usage of mobile is growing rapidly. There are about 250 million mobile phone connections in the country, whereas credit card holders are far lower as compared to number of mobile phone users. Hence, mobile for payments is being considered for quite some time as a progressive step forward. As reported by The Times of India, RBI said in the policy statement "The rapid expansion of this mode of communication and transaction have thrown up a new delivery channel for banks." RBI further states, "This channel will definitely facilitate small value payments to merchants, utility service providers and the likes and money transferred at a low cost." Check Internet #1 - Life Insurance Corporation Of India Online Payment Through Credit Card @ http://insurancecure01.webs.com and solve your problems right now! The credit card market is going to witness some more progressive changes in this year. A joint venture between Life Insurance Corporation of India (LIC) and GE Money is likely to launch its first product by the end of 2008. As reported by Business Standard, the venture is now on cards. But we have sorted out those issues (conflict of interest). Currently, we are looking at human resources-related issues. The two financial giants are planning to launch the card by the end of the calendar year.
Regulatory body sought to check illegal financial firms
Agartala: The Left Front government in Tripura Thursday urged the central government and the Reserve Bank of India (RBI) to constitute a regulatory body and form a national policy to check the spurt of illegal non-banking firms. “Large number of unauthorised Non-Banking Financial Companies (NBFCs) and Un-Incorporated Bodies (UIBs) have been collecting money, alluring people with assurances of very high returns and cheating the innocent depositors,” Tripura Finance Minister Badal Chaudhury said. “In order to monitor and supervise funding of these NBFCs and UIBs, there is a need to put in place a regulatory body at national level with its official arm extending up to state level,” said Chaudhury, after presenting a tax-free Rs.6,859.45 crore budget for the 2011-2012 fiscal with a deficit of Rs.246.58 crore. Unauthorised NBFCs have mushroomed in the northeastern region in recent years. These organisations take deposits from people by promising abnormally high rates of interest from 25 to 30 percent. After collecting the money, they shut down their operations and leave the area. The NBFCs not recognised by the RBI, the Insurance Regulatory Development Authority (IRDA) or the Securities and Exchange Board of India (SEBI) cannot do any monetary business or take deposits from people. The Tripura government, during the ongoing budget session of the state assembly, moved a new bill amending the Tripura Protection of Interest of Depositors (in financial establishments) Act, 2000 for enhancing the level of protection of the depositors in monetary firms, including NBFCs and UIBs, by providing more teeth to the existing legislation. The new bill proposed to impose a fine of Rs.10,000 for every flawed provision and act by the NBFCs and UIBs and in addition Rs.1,000 per day for continuation from the date of default. “The RBI would soon open branches in many northeastern states and that would help to deal with these unscrupulous NBFCs and UIBs,” Chaudhury said after presenting the state budget.
Japan may affect RBI policy, rate hike likely
Mumbai: Events in Japan are expected to weigh on the mind of Reserve Bank of India governor D Subbarao while charting the course of action in his midterm policy review on Thursday. However, the majority bet continues to be on a 25 basis point hike in policy rates. Fear’s that quake would push Japan – the world’s third largest economy – further into recession, resulted in oil prices dipping more than $4 per barrel to $97.4 on Monday. Besides oil prices, the reaction of world capital markets and the impact on capital flows and trade as also inflation are expected to be taken into account by the central bank governor. According to Frederic Neumann, co-head of HSBC’s Asia Economic Research many Asian countries are expected to tighten policy rates in coming months. “However, financial market volatility could delay these moves well into the second half, if not further. The risk then would be that officials would need to deliver an even more forceful punch to compensate for the current hold up and bottle up rising inflation expectations”. However, bond dealers and bankers are betting on an 25 basis point hike in policy rates. “I expect RBI to increase the repo and reverse repo rate by 25 basis points since inflation is a major concern” said Ashish Vaidya, head of forex, interest rates, currency and commodities trading at UBS India. “I do not think a 25 basis point hike in the repo rate would push up lending rates. The market has already factored in this increase and this is being reflected in short term rates” said Keki Mistry, vice chairman and CEO Housing Development Finance Corporation. Economists too are betting on a rate hike. “Looking ahead, given the structural element in high food prices, as well as upside risks arising due to oil, we expect inflation to come in the 7%-7.5% range with an upward bias through 2011. We maintain our view that the RBI will hike by an additional 50bps in 2011, with a 25bps hike likely in its review this Thursday, and a further 50bps in 2012” said Rohini Malkani, economist, Citi India. Tushar Poddar, Chief India Economist, Goldman Sachs Said that RBI is expected to hike policy rates by 25 bp in the March 17, meeting. “Beyond that, we believe the RBI will hike policy rates by another 50 bp in calendar year 2011”, he said.
New bank licences will create dissonance - RANA KAPOOR MD & CEO , YES BANK
The country's newest private sector bank, Yes Bank, which started operations in 2004 has become the fourth largest private sector bank with a balance sheet of R52,000crore. RanaKapoor ,MDandCEO, is gearing up for a foreign listing together with an international launch. Kapoor tells Anita Bhoir, the bank wants to set offices in Singapore and Dubai next year.
You have launched a Version 2.0 growth plan...In Version 2.0 we aim to become the "Professionals Bank of India" and to grow the balance sheet to R1,50,000 crore with advances at Rone lakh crore and deposits of R1,25,000 crore by March 2015. Moreover, on the cards is a pan India branch network of 750 and a workforce of 12,000. By March 2015 we would migrate from a medium sized bank to a large bank. We would like to scale up our branch banking business which includes the SME piece, micro enterprises, consumer banking and wealth management and take it to about 60% of the loan book from five% currently. The remaining 40% would be split between large and mid corporates. We also want to ensure that our borrowings from the wholesale market would be down to 7% from the current 10%.
When will you be a full service retail bank?
We will launch retail assets without a credit card offering in March 2012 with a thrust on growing liabilities. We will have marketing tie-ups with other banks to provide various loan products rather than manufacture products.
Do you have any plans to raise fresh capital?
We will raise funds to the tune of $500 million through an American Depository Receipt(ADR) by the end of next year. We are keen on an overseas listing. In 2011-12 our priority would be to set up branches in Singapore and the Dubai International Finance Centre.
What is your exposure to the MFI sector and are you open to restructuring these loans?Our advances to the MFIs, including pool buyouts, are at 0.97% of total advances, across 15 borrowers. To the Andhra Pradesh MFIs we have an exposure of about 60 crore. I am of the view that if the restructuring leads to economic value preservation we should do it. The RBI is in the process of issuing new bank licence.
What does this mean for medium sized banks like you?
New bank licenses would create dissonance. At present, there would be around 15 banks in the country that need to be reinvigorated since their brands are underutilised. In the next four years we should look at beefing up their capital. It would take about two years at least for the RBI to issue licenses and it would be sometime before they start operations. However, competition is good.
You have built a greenfield bank, would you consider existing your investment?
As and when the bank raises fresh capital there would be dilution in my holding. I am not selling my stake. Till we do not build a world class institution we would not be ready to amalgamate or be ready for a sale.
Did the global crisis throw up greater challenges for you considering you were in the growing mode?
We began operations in 2004 and it has been a dream run since then with the bank raising funds from private equity players, an IPO and a private placement. The global crisis was a shock of sorts and we focused on improving our risk and liquidity management and costs. We ensured that our management had the tenacity to handle these risks. As such, we saw a the best performance in second half of 2010-11, reflected in our revenues, margins and costs.As a consequence of those three years between2008ans2010,wearenowaleaner,efficient and agile organisation.
What steps did you take to manage the various risk?
We began diversifying our liabilities base and stepped up provisioning to ensure that we had enough of a buffer on account of our pool of profits. We brought in about 175 management cadre professionals through lateral recruitments from banks and the services sector. To manage costs, we renegotiated vendor arrangements.
Air India accepts turnaround plan
Cash-strapped Air India has accepted the restructuring plan presented by consultancy firm Deloitte and SBI Caps and this would be taken to the government, banks and the Reserve Bank of India (RBI) soon, the airline said on Tuesday. “We have only approved what we need to take to the banks, the government and the RBI. After all the confabulations, we officially have a turnaround plan. We will soon be making it public,” Air India chairman and managing director Arvind Jadhav said while speaking to reporters at the sidelines of the MRO India 2011 conference in Mumbai. “We will be calling a meeting of a consortium of bankers soon,” he added. The restructuring mainly involves debt revamp, sources said. This could be in the form of interest rate reduction and moratorium on repayment. The total debt of the airline is around Rs 40,000 crore. It already has a debt of around Rs 18,000 crore in working capital loans taken from banks. There's also a proposal to convert working capital loans into long-term term loans at lower interest rates.
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