Banks can lend below base rate to tribals, differently-abled: RBI

The Reserve Bank today said banks can lend below the base rate, or the minimum lending rate, to tribals and physically challenged persons. "Such lending (to tribals and handicapped), even if below base rate, would not be considered as a violation of our base rate guidelines," the central bank said in a circular.  At present, banks get refinanced from National Scheduled Tribes Finance and Development Corporation (NSTFDC) and National Handicapped Finance and Development Corporation (NHFDC) for loans extended to tribals and differently-abled people. Such lending would not be in contravention to the apex bank's rule, which restricts lending below base rate to borrowers, the RBI added. Banks may charge interest at the rates prescribed under the schemes of NSTFDC and NHFDC to the extent refinance is available. As per micro credit scheme of NSTFDC, banks can provide subsidised loans at interest rates not exceeding 8 per cent, where refinance at 3-5 per cent from the corporation is available. Similarly, under various schemes of NHFDC, loans are provided at concessional rates to beneficiaries, subject to refinance option from the development corporation. At present, base rates of banks are hovering around 10 per cent and the lenders are not allowed to lend below this rate.

NDTV Profit

Public Provident Fund panel report may not mean much

The suggestion of the committee on comprehensive review of National Small Savings Fund to improve the state of the Public Provident Fund (PPF), 1968, may sound great on paper, but it has drawn less enthusiasm from experts. Headed by former Reserve Bank of India (RBI) Deputy Governor, Shyamala Gopinath, the committee has suggested that the deposit limit under the PPF scheme be raised to Rs1 lakh per annum from Rs70,000. “The limit of Rs 1 lakh is never enough because it is plugged with every other tax savings instrument. So this is not going to increase the benefit much. The deduction amount itself has to be increased so that the benefit increases,” says Sandeep Shanbhag, director, Wonderland Consultants. It also suggest that interest rate on advances against deposits be fixed in PPF scheme at 2% against 1%. “In conjunction for the rise in limit for the demand to sustain, there should also be status quo on other benefits. For example, if they make the interest rate market linked, automatically some bit of allure is gone. If they remove the EEE benefit, the allure is reduced,” said Jayant Pai, vice president, Parag Parikh Financial Advisory Services. The committee is of the view that the interest rates on small savings schemes need to be market linked. Few financial planning support this.  “This makes the scheme sustainable. One of the big subsidy is that even the interest is tax free. Linking it to the market will be fair. Otherwise, it is unnecessarily creating a government handout during times when interest rates are low,” says Harsh Roongta, chief executive officer, Apnapaisa.com. Roongta agreed that increasing the limit will also benefit investments. The committee has further recommended benchmarking interest rate on small saving schemes to interest rate on government securities of similar maturities with a positive spread of 25 basis points on all schemes. The National Savings Certificate and Senior Citizens Savings Scheme would be exempted, where the spread would be 50 bps and 100 bps, respectively.

DNA

Re-engineering financial inclusion in agriculture is key to promoting inclusive growth

In fact, there is a clear need to look closely at most, if not all agriculture value chains in the country from the primary producers' perspective and re-engineer financing arrangements to enable and facilitate a wide range of innovative financing solutions that can reduce the vulnerability of the primary producer. I do hope that the concerned ministries and stakeholders, including the Reserve Bank of India (RBI) and National Rural Livelihood Mission (NRLM) take up this task on a war footing…that is very critical if indeed they are serious about fighting poverty and ensuring inclusive growth for large numbers of Indians living in Bharat.

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Only 35 of 346 NBFCs pass R1K cr annual asset stress test: FE study

Mumbai: A working group constituted by the Reserve Bank Of India and headed by its former Deputy Governor Usha Thorat has recommended that NBFCs with assets of R1,000 crore and above should be inspected comprehensively on an annual basis with a stress test carried out to ascertain their vulnerability. An FE study reveals that out of 346 major NBFCs, only 35 NBFCs have assets of R1,000 crore and above as on March 31.  Kishor P Ostwal, CMD,CNI Research said, “ NBFCs are allowed to set up banks and the risk involved in a bank for a systemic failure is very high. Therefore, RBI wants to regulate the major NBFCs.” Out of 35 NBFCs, Muthoot Finance, Manappuram Finance and Future Capital showed more than 100% growth on their assets during 2010-11 and are consistently doing better during last three years. The total assets of Manappuram Finance have increased by 209.8% to R7,578 crore during 2010-11 from the level of R2,446 crore during 2009-10.The Kerala based company's total gold loan disbursements rose to R18,057 crore during the year from R7,123 crore of previous year. It also posted a two-fold net profit growth to R283 crore for the financial year 2010-11. Similarly the assets of Muthoot Finance increased by 126.3% to R13,273 crore during 2010-11 from the level of R5,865 crore during 2009-10. It is the largest gold financing company in India in terms of loan portfolio. The company's gold loan outstanding increased by 114% to R15,728 crore during the year 2010-11 from R7,341 crore during 2009-10. The company registered a growth of 117% in its net profit to R494 crore for the financial year ended March 31, 2011. The assets of future capital increased by 176.1% to R3,304 crore during 2010-11 from the level of R1,196 crore during 2009-10. A downward trend in asset growth was seen in the case of JM Financial, Network 18 Media and Bajaj Finserv. The asset of Bajaj Finserv decreased by 9.1% to R1,390 crore during 2010-11 from the level of R1,529 crore during 2009-10.In 2010-11, there are 12 NBFCs which have more than R10,000 crore assets but in the previous year there were only eight. Four companies namely Dewan Housing, Muthoot Finance, M&M Financial and Sundaram Finance have entered in the list of R10,000-group during 2010-11. The lowest growth in assets was registered in the case of Can Fin Homes, Tata Inv, PNB Gilts, SKS Microfinance and Shriram Trans. The assets of Can Fin Homes increased only 3.5% to R2,214 crore during 2010-11. Top five NBFCs according to assets during 2010-11 are HDFC, Power Finance, REC, LIC Housing Finance and IDFC. Among these five, highest increase in assets was registered in the case of IDFC. The assets of IDFC has increased by 42% to R47,367 crore during 2010-11 from the level of R33,346 crore during 2009-10. Profit after tax (PAT) of the company increased by 26.1% from 1,013 crore in 2009-10 to R1,277 crore in 2010-11.In July 2010, IDFC got the infrastructure finance company status within the NBFC category from the RBI.

FE

Banks told to integrate operations with Regional Rural Banks for rural lending

NEW DELHI: In an attempt to extend the reach of banks in rural and semi-urban areas, the finance ministry has asked public sector banks to integrate their operations with regional rural banks (RRBs).  "Charges for various banking services used by customers of RRBs are to be aligned with the sponsoring banks," a finance ministry official said on condition of anonymity. "Further, cheques or drafts issued by RRBs should be treated at par with their sponsoring bank." The government expects RRBs to offer more, and quicker, loans to borrowers in India's hinterland as part of its financial inclusion drive. It wants RRBs to disburse at least s 51,000 crore worth of loans, or 10.7% of the 475,000 crore lending target it has set for public sector banks for the current fiscal. The finance ministry has also directed public sector banks to relocate their branches from areas where there is an existing branch of an RRB. This will help in increasing the coverage area of banking services, the finance ministry official said. "RRBs can play a major role in financial inclusion," the official said, adding, "they not only do agricultural lending, but also play a significant role for small and medium enterprises." The government and the Reserve Bank aim to provide banking facilities in 73,000 villages with a population of more than 2,000 by March next year. This is estimated to provide bank accounts to about 50 million rural households. "Regional banks are further asked to develop an e-governance plan within this month and adopt the human resource practices followed in their sponsoring banks," the above quoted official said. RRBs have a network of 15,475 branches. Nearly a fifth of these are sponsored by the country's largest lender, State Bank of India. In order to meet its financial inclusion agenda, the government is looking to strengthen RRBs and has provided them 500 crore in 2011-12. Under the new directions, employees of RRBs will be sent on deputation to sponsoring banks to give them better exposure and those above 45 years of age will not be appointed as chairmen of RRBs. Some public sector banks, however, said the integration of banking services would take some time. "There are concerns over non-performing assets and lending practices followed by RRBs, which needs to be streamlined first," said an official with Bank of India. Finance minister Pranab Mukherjee has directed RRBs to reduce the level of non-performing assets, or bad loans, to below 5% by the year-end. Under the new directives, chairmen of the sponsoring bank would have to review the status of audit of their sponsored RRBs. Nearly 40 of the over 82 RRBs need capital support, which is pegged at 2,200 crore. The delay in investments from state governments has undermined RRBs ability to fund the farm sector.

ET

ICICI Bank to hire around 6,000 this fiscal: Kochhar

Mumbai  : The country’s largest private lender, ICICI Bank, will recruit up to 6,000 people this fiscal to help its business growth and expansion. “Our business is growing between 18 and 20 per cent and we are also adding branches...its expected that we would hire between five to six thousand people in our workforce,” the Managing Director and Chief Executive, Ms Chanda Kochhar, told reporters here today. Most of the recruitments will be at the entry level and will be done either directly or through institutes training graduates in banking and insurance where the bank has tie-ups, she said.
Asked about the Banking Ombudsmen’s recent suggestion to ban pre-payment charges on floating rate loans and how ICICI Bank will be gearing up for it, Ms Kochhar said: “I think it is a recommendatory discussion about action points. So we should wait for the clarifications to emerge.”  Though the suggestion of the Banking Ombudsmen is morally suggestive in nature, it is generally accepted by the banks. Technically speaking, their suggestions have to be followed up by a circular from the RBI.

HBL

Now, LIC Housing Fin launches teaser home loan

Mumbai : More lenders are joining the fixed-cum-floating interest rate home loan bandwagon. LIC Housing Finance on Friday launched such a product. ICICI Bank had introduced such a product last month and HDFC Ltd launched one last week. Under the new home loan product, “New Advantage 5”, LICHF is offering home loans at a fixed rate of interest for the first five years and floating rates thereafter. The floating rates will be linked to the prime lending rate prevailing at the time of the switch.  For loans up to Rs 30 lakh, LICHF will charge a fixed interest rate of 11.15 per cent in the first five years; for loans above Rs 30 lakh and less than Rs 75 lakh, 11.40 per cent; and for loans of Rs 75 lakh and up to Rs 1.5 crore, 11.65 per cent. LICHF's product will be available till December-end 2011 with a condition that the first disbursement should be availed by the customer on or before January 15, 2012. Lenders are launching fixed-cum-floating rate products at a time when interest rates appear to be peaking. If the interest rates start easing, say, six months down the line, the home loan borrower will not get the benefit as he will be stuck with the fixed rate home loan, said a senior banker. Borrowers need to weigh the pros and cons of the product being offered by lenders, he added. “From hereon, interest rates may rise, at the most, by 50 basis points. The interest rate structure of the new home loan product introduced by the three lenders (ICICI Bank, HDFC, and LICHF) suggests that they have adequately protected their interests,” said a public sector banker.  The RBI is of the view that fixed-cum-floating products come under the ‘teaser loan category' and, hence, lenders will have to make additional provisioning.

HBL

Credit Agricole, Karnataka Bank penalised for derivative norm violation

Mumbai : The Reserve Bank of India has imposed a penalty of Rs 10 lakh on Credit Agricole – Corporate & Investment Bank and a penalty of Rs 5 lakh on Karnataka Bank Ltd for non-compliance with its directives on derivatives. The penalty on France-based Credit Agricole has been imposed for failing to carry out proper due diligence on user appropriateness and suitability of products, the RBI said in a statement. The central bank said the compliance function in the foreign bank failed to ensure strict observance of all statutory provisions contained in various legislations, issued by it in respect of derivative transactions. The penalty on Karnataka Bank has been imposed for failing to carry out proper due diligence on user appropriateness and suitability of products and failing to document the pricing, periodical valuation of products and quantifying financial risks in derivatives. The Reserve Bank had issued show-cause notice to both the banks. The banks submitted their written replies in response. On a careful examination of the banks' responses and their oral submissions made during personal hearings, the RBI found that the violations were conclusively established. The RBI, therefore, penalised these banks in exercise of the powers vested with it under the provisions of the Banking Regulation Act, 1949.

HBL

RBI lets dealer banks approve change of lender in external commercial borrowings

....Authorised banks have now been allowed to approve requests from ECB borrowers with respect to change in the recognised lender without referring it to the RBI.....

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Cop's kin among those who ransacked petrol pump

NAGPUR: The city police appear to be dragging their feet in bringing to book four youths who ransacked the Indian Oil Corporation (IOC) petrol pump at Reserve Bank of India square early on Friday morning and made away with Rs 8,000 from pump attendant. Shockingly, the youths had wrenched away a nozzle, sprayed diesel on petrol pump employees and threatened them of dire consequences.

TOI

'Time to re-examine RBI's anti-inflationary measures'

Ahead of the RBI's monetary policy review scheduled on September 16, the Federation of Indian Export Organisations (FIEO) Thursday said that the apex bank should reexamine its policy to use monetary measures to tame inflation.  FIEO President Ramu S Deora said in a press statement that India should take a cue from Brazil which has actually reduced repo rates notwithstanding inflation which is also beyond its comfort zone. "This is also substantiated by UNCTAD which lay emphasis that the policy to control inflation was to rely on an income policy that aims to check inflationary pressures instead of on a monetary policy," he added. FIEO Chief stated that economic slowdown is expected to continue if RBI continues to raise interest rates in the hope of reigning in inflation which stood at around 9.22 percent, well above the RBI's target rate of 4 percent to 4.5 percent. India's economy grew 7.7 percent in the the first quarter of the current fiscal, compared with the same period of 2010 and it was the weakest for the last six quarters. Ate present, gross fixed capital formation is at its lowest ebb at 7.9 percent y-o-y lower than 11.9 percent a year ago and as a result of increasing input costs the pace of industrial growth slowed to 5.1 percent y-o-y from 6.1 percent in the previous quarter. "Construction slumped to 1.2 percent, agricultural GDP slowed to 3.9 percent but these figures were offset by growth in services at 10 percent y-o-y. Situation on the global front is equally grim.The pace of global recovery has been slowing down in 2011. Global GDP is expected to grow by 3.1 percent as reported by UNCTAD, following an increase of 3.9 per cent in 2010," FIEO added. Deora said that despite the slowing momentum of growth, prices continue to rise unabated and one can anticipate an aggravated decline in growth momentum as a result of lagged impact of interest rate hikes bulk of which came in June and July.

http://smetimes.tradeindia.com/smetimes/news/top-stories/2011/Sep/09/time-re-examine-rbis-policy-measures-to-tame-inflation50405.html

Lowering the SLR is feasible only when we have fiscal discipline

RBI Governor D Subbarao's endorsement of a lower statutory liquidity ratio (SLR) or mandated buying of government bonds by banks is sound in theory but difficult to implement. The SLR, like the cash reserve ratio (CRR) that mandates banks to keep a certain fraction of their liabilities in cash with the RBI, operates as a tax on banks. It forces them to deploy funds as mandated by the central bank rather than in more profitable avenues.  To the extent it pre-empts their lendable resources, it crowds out other borrowers. On paper, therefore, it is hard to justify an SLR; which is why the Narasimham Committee (that laid out the blueprint for banking sector reform in the early 1990s) called for a reduction in the SLR to 25% (and CRR to 3%). What is the sanctity of 25%? The answer to that explains why, in practice, a reduction in SLR would be difficult. The SLR provides the government with a captive source of funds. When liquidity is plentiful and there is no demand for bank funds from the private sector, this may not matter. In fact, banks may opt to hold more government bonds than mandated by the SLR. But when the economy is booming and demand for funds is robust, as was the case in the pre-financial crisis years, the SLR ensures the government's borrowing programme is not jeopardised and, further, goes through at rates lower than what the government would have to pay, if it were to compete with other borrowers for funds. Agreed, the government no longer borrows at a fixed (read, artificially low) interest rate, as in the pre-reform years but through auctions where the rate is largely market-determined. Agreed, also, that the high SLR served a two-fold purpose during the global financial crisis. It provided individual banks a liquidity cushion. And it helped mitigate the consequences of a decline in bank lending at a macro level as it was possible to spur lending through a reduction in SLR to 24%. But none of this (not even the new Basel III agreement that mimics something like an SLR) justifies financial repression of banks of such a high order. There is no reason why banks should pay for the sins of the government. It is far better for the government to stop sinning. 

ET

RBI clears Enam-Axis Bank deal

The Reserve Bank of India has approved Axis Bank’s revised plan to acquire the broking and investment banking businesses of Enam Securities. This ends nearly 10 months of uncertainty over the deal. The terms of the earlier proposal were revised following the central bank’s discomfort with the structure of the deal that entailed Axis Bank offering shares to Enam, while the acquisition was done by a subsidiary. Sources familiar with the developments said the clearance came a few days earlier. While the details of the revised structure were not known, the sources said it would remain an all-stock deal. The deal would still require approval from other regulators. According to sources, while Axis Bank would acquire Enam’s businesses through shares, the bank’s subsidiary, Axis Securities and Sales, may pay cash to the bank before merging the businesses with itself. The bank’s board will soon meet to take stock. Earlier on Friday, the bank issued a statement that the deal continued to be all-stock. While giving its in-principle approval for the transaction in April this year, the central bank had also specified certain conditions, expected to increase the bank’s tax burden. As a result, the bank wrote to the RBI, seeking “certain modifications” in the terms and conditions specified. The terms specified by the RBI included a revised scheme of accounting and change in the eventual structure of the business proposed to be acquired. According to sources, the bank was exploring different options to revise the deal structure without attracting additional tax burden. The bank had also said upon examining the implications of the conditions, it had sought certain modifications to the approval granted by the RBI. “Pending the receipt of the necessary approvals, no effect of the acquisition has been given to the financials for the quarter ended June 30, 2011,” the bank had said. The RBI had also stalled Axis Bank’s plan to induct Vallabh Bhansali, co-founder and chairman of Enam, as an independent director on the bank’s board. Axis Bank had earlier said Enam would de-merge its equities and investment banking businesses into a wholly-owned subsidiary of Axis Bank. The bank would also de-merge its investment banking business into this subsidiary. Enam shareholders will get 5.7 shares of Axis Bank for every one share held in the broking company. In other words, Enam shareholders will get 3.3 per cent stake in the bank on enlarged capital. The deal value is estimated around Rs 2,067 crore. 

BS

RBI’s Enam rider makes life difficult for Axis Bank

Axis Bank is trading lower by over 4.70 percent after The ET reported that the Reserve Bank of India (RBI) has made it clear to the bank that the proposed acquisition of Enam’s broking and investment banking business has to be an all-cash deal. The Rs 2,067-crore deal has been pending with the RBI since November 2010. Axis Bank closed at Rs 1,096.3 at 1.45 p.m on Friday. Analysts say it would be difficult for Axis Bank to go through the deal if it is made to pay cash for the transaction. The reason being that the same set of valuation can not be applied for a cash down deal and a share swap deal. Axis Bank was to swap 5.7 shares of its own for every one share of Enam. DNA had quoted analysts as saying it would be better if the deal falls through since the deal is expensive for Axis Bank. RBI had put some conditions to the deal — the two participants, Axis Bank and Enam, must complete the transaction within six months. The caveat is expected to have a negative tax impact on Axis. Earlier, the central bank raised questions of giving Vallabh Bhansali a board seat in Axis Bank. RBI had earlier rejected the first proposal submitted to it in which Enam’s promoters were given shares of Axis Bank, while its business was transferred to a subsidiary. Axis Bank then submitted a new proposal whereby the business of Enam would ‘momentarily’ be acquired by the bank which will hold the assets and later transfer these to a subsidiary. This too is unlikely to be cleared, according to news report, as it will set a precedent for future deals. The report also quotes a senior bank official as saying the board will meet to consider a revised plan. Till such time, Axis Bank is likely to remain volatile.

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