Despite the central bank’s concerns, bank credit to non-banking financial companies (NBFCs) continues to grow at a robust pace......
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Thursday, September 1, 2011
NBFCs better placed than corporates for bank nod
Non-banking finance companies (NBFCs) seem to have an edge over corporates in bagging the new banking licences, if the draft norms issued by the Reserve Bank of India are any indication. This is particularly the case with NBFCs with strong track record. “Though corporates are eligible to apply for banking licences under these norms (draft guidelines for new banking licences), there is ambiguity on how RBI would define ‘diversified ownership’. As a result, clarity is yet to emerge on eligibility of Reliance Capital (54% promoter holding), Bajaj Finserv (58%) and Mahindra & Mahindra (25%),” said Pathik Gandotra, Chinmaya Garg, Kavitha Rajan of IDFC Securities in a report on Monday. The analysts are also of the view that, “NBFCs with strong track record (as Shriram Transport, IDFC) and diversified parent ownership (as L&T Finance) could be likely recipients of the new bank licences.” However, few analysts think differently. Mahrukh Adajania and Parees Purohit of Standard Chartered said in a report on Tuesday said that it is positive for groups without existing financial businesses and less so for those with existing NBFCs. “Less positive for existing NBFCs -M&M Finance and Shriram as their asset financing business will need to merge with the bank,” said Adajania and Purohit. Also, if industrial houses come into the picture it may trigger acquisition of small private sector players in the banking sector. Mihir Sheth, Anil Agarwal, Subramanian Iyer, Reshma Seth and Sumeet Kariwala of Morgan Stanley Research said in a report on Tuesday, “From a near-term perspective, the fact that industrial houses have been allowed to apply could be perceived by investors / markets to be a positive catalyst for small private sector banks (as potential acquisition plays).” Also, increase in number of players may have its own disadvantages. “It (introduction of new aggressive banks) is likely to increase existing fragmentation levels, raise competitive intensity (both on the lending and deposit sides) as well as escalate cost pressures,” said Manish Chowdhary, Aditya Narain of Citigroup Global Markets in a report on Monday. This could also lead to an erosion of the scarcity premium for existing private sector banks - especially the smaller ones (Yes Bank, Kotak, old private sector banks) - though should be gradual and over a longer period of time, said Chowdhary and Narain.
DNA
NBFCs fret over RBI proposals
Non-banking finance companies (NBFCs) are upset over new regulatory recommendations from a Reserve Bank of India panel that wants them to increase their cash cushion by redefining what constitutes a substandard loan. If the RBI working group's suggestion to make asset classification norms similar to banks is implemented, NBFCs will have to classify loans that involve due payments of more than 90 days as "substandard" and make provisioning of 15% with respect to their assets. What this could mean is that a greater share of loans will be seen as non-performing assets (NPA) - triggering a squeeze on the firms' funds, harsher methods to recover loans or interest and a loss of business, say the NBFCs. They add they might have to charge higher rates. "We give loans to mostly the un-banked people such as truck drivers who want to buy second-hand trucks. Most of them are first time customers. They have no collateral and no repayment track record. And banks do not fund them. From those customers' point of view, stricter norms will make things difficult," said R.Sridhar, Managing Director, Shriram Transport Finance Corporation. "For banks 90 days (to classify a loan as substandard) is okay. But, for NBFCs what is reasonable is 180 days," added Sridhar, whose company extends 400,000 loans a year for pre-owned trucks. "Ninety days mean we have to start acting after 30 days of overdue. This will change recovery practices," Sridhar said. N. Sivaraman, president, L&T Finance, said unorganised sector customers need a different approach. "For example, small contractors may not be very regular in repayment. It does not mean they default," he said. Ramesh Iyer, managing director, Mahindra Financial Services Ltd, said the new norms for vehicle loans suggest legal support for recovery and income tax benefits, which might balance the tough cushioning norms.
HT
Indian companies will find it difficult to raise funds abroad, says RBI
NEW DELHI: Indian companies will find it difficult to raise funds from the overseas market due to the impact of US sovereign debt rating downgrade by Standard and Poor's on global financial market, the Reserve Bank of India (RBI) has said. Several lenders and financial institutions including Rural Electrification Corporation (REC), IDBI Bank, Bank of India and Indian Bank have already postponed their overseas offerings, said a central bank note on impact of rating downgrade on India. RBI further said its decision to relax the norms for repayment of Foreign Currency Convertible Bonds (FCCBs) may not yield the desired results. "The relaxation in ECB (external commercial borrowings) guidelines offered by the Reserve Bank for repayment of... liabilities (by companies) may not be as useful as foreign sources might dry up," the note to the Sub-Committee of Financial Stability and Development Council (FSDC) said. In May, RBI had raised the overall limit for ECBs to $30 billion from $20 billion for the current financial year, a move seen as a breather for corporates battling high interest rates. Earlier this month, S&P downgraded the US government's 'AAA' sovereign credit rating -- a development which raised concerns that investors will lose confidence in its economy. As per the note, the outstanding of trade credit and loans is about $205 billion as on March 31, 2011, as per India's International Investment Position.
ET
Nebulous, hazardous norms
...One is at a loss to find the RBI mandating listing within two years of licensing. Why this tearing hurry when the insurance regulator had barred insurance companies from going public for ten years by putting a bar on Indian promoters holding 74 per cent of the capital from offering their shares to the public during this period?....
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Central bank’s proposed norms may hit NBFCs’ profitability
The guidelines suggested by an RBI working group on Monday are likely to impact the NBFCs’ profitability. Industry experts feel that with increased capital requirement in a rising interest rate scenario, NBFCs are likely to face tough challenges in maintaining a decent bottomline growth once the guidelines are implemented...........
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A tale of two banking sectors
Sure, times are difficult for the banking sector as a whole with slowing credit growth, hikes in interest rates and rise in non-performing assets. However, public sector banks have additional pressures to deal with, mostly concerning asset quality.
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Madhavpura Mercantile Bank seeks merger in order to survive
Madhavpura Mercantile Co-operative Bank (MMCB), infamous for its association with stock broker Ketan Parekh, has got a six months’ breather from the banking regulator. As a last-ditch attempt to keep the bank alive, a revival package is being worked out by merging MMCB with another bank, said an official of the Gujarat Urban Cooperative Banks Federation (GUCBF).
Mint
Mandi Urban Bank awaits RBI nod to restart operations
Shimla: With the financial health of Mandi Urban Cooperative Bank (MUCB) having improved, the government awaits a nod from Reserve Bank of India to permit the bank that was asked to suspend operations 7 years to start functioning again. Papers laid in the Vidhan Sabha monsoon session that concluded on Wednesday revealed that RBI carried out a statutory inspection of MUCB under Banking Regulation Act for the year 2010-11 from 3rd to 9th August, 2011. A proposal to RBI for relaxing or removing restrictions imposed on the bank was submitted in March and April, 2011 and a response for the request to resume normal banking operations was still awaited, chief minister Prem Kumar Dhumal who is also the state finance minister disclosed in the paper. Financial position of the bank on 30th July, 2011 was shown that it had total deposits of Rs 29.47 crore and had investments of Rs 27.62 Cr. MUCB with a share capital of Rs 2.1 Cr had reserves of 4.36 crore and the financial position of the bank was conducive for normal functioning of the bank, Dhumal stated. Reserve Bank of India (RBI) had imposed a complete ban on withdrawal of money from the bank seven years ago after it detected misappropriation of funds and other large scale financial bunglings. At the time of closure there were about 2600 depositors with the bank and non performing assets had crossed Rs 7.7 crore. An RBI inspection then had revealed that loans had been advanced to employees and relatives of those in the management. Loans of even those not eligible were noticed to have been written off.
My Himachal
I-T sleuths train their guns on co-operative banks
AHMEDABAD: The many erring co-operative banks in the state might find income tax (I-T) sleuths on their doors soon. The I-T department has decided to go behind the banks which allegedly help tax evaders by flouting norms like Know Your Customer (KYC) and Anti-money Laundering (AML) guidelines among others. Sources with the department said that the soon to be set-up Directorate of Income Tax (Criminal investigation), or DCI, which will have directors posted in eight cities of the country including Ahmedabad, will look into these cases. "Details of cash transactions, especially those above Rs 10 lakh in banks, remain to be a crucial data during investigations of the I-T department. But a number of cash transactions go unnoticed when banks flout AML guidelines. Banks flouting KYC norms can knowingly or unknowingly help tax-evaders open dummy accounts to manage their black money," said an I-T official. Reserve Bank of India (RBI) has in the last eight months slapped Rs 1 lakh and Rs 5 lakh fine on more than 50 co-operative banks in Gujarat for flouting such norms. There are over 1,700 big and small co-operative banks in the country. Gujarat is among the top five with 280 banks, the majority of which are located in rural areas. The main complaint against co-operative banks is that they allow multiple accounts of a single person or company and hide higher value transactions. RBI had in 2002 made it mandatory for banks to share monthly details of all accounts where cash transaction of more than Rs 10 lakh has taken place with the Financial Intelligence Unit, India. But on several occasions, state co-operative banks have fallen short of complying with the RBI guidelines. "More than 75% of the total banks RBI has penalized in the country in the last one year are from Gujarat. Most of these banks are in rural centers and don't have a trained and aware staff. Several banks have started training their staff and are conducting workshops so that they don't fall on the other side of law due to ignorance," said a co-operative bank director.
TOI
‘Islamic banking has emerged a viable source of financing'
...The importance of Islamic finance has been realised by some big corporates in India. To take an example, Reliance launched Sharia-compliant portfolio management scheme and so has many others. The Reserve Bank is considering starting Islamic NBFCs (non-banking financial companies). In the mutual fund industry, too, a few but big mutual funds have launched Sharia-compliant scheme.......
Wednesday, August 31, 2011
Banks to go on strike if Govt introduces Amendment Bill on new licences
Mumbai : The United Forum of Bank Unions (UFBU) plans to go on a flash strike if the Government introduces the Banking Laws (Amendment) Bill in Parliament. UFBU is opposed to the Bill, which will also pave the way for issue of new bank licences to corporates by the RBI, as it would help in easier merger of banks, unrestricted voting rights to enable takeover of private banks by corporates and foreign investors. The Bill also proposes a 10-fold increase in the voting rights of private shareholders in nationalised banks. “Instead of strengthening public sector banks by pumping in capital, the Government is letting in corporates in the banking space in the name of financial inclusion. This will be detrimental to the health of the financial sector,” said Mr Vishwas Utagi, Secretary, All India Bank Employees Association. About 10 lakh bank employees and officers working in all public sector banks, old generation private sector banks, and co-operative banks will go on an all-India flash strike under the aegis of UFBU if the Government introduces the Bill in the current session of Parliament, he added. The current Parliament session is on up to September 8, 2011. UFBU is the apex body of nine trade unions operating in the banking industry. The Unions are also opposed to the Planning Commission's Draft Approach Paper for the Twelfth Plan. The Paper has suggested reduction of Government's capital in public sector banks to less than 51 per cent.
HBL
Barclays Wealth appoints Asha Mathen as Director, PCG
Barclays Wealth, the wealth management division of Barclays PLC, has appointed Asha Mathen as Director, Private Client Group, Chennai. In this role, Mathen oversees and manages the team of private bankers covering Tamil Nadu, and assumes overall responsibility for the development and bottom line of this key market. She reports to Vishal Jain, Managing Director, based in Mumbai. Mathen has over 22 years of experience in the financial services industry. She started her career at the Reserve Bank of India and moved to ICICI Bank where she headed the Chennai region overseeing 42 branches. In 2005, she joined Deutsche Bank to start its Chennai retail banking division, and went on to head the South and East regions for the Bank. In 2008, she moved to the Private Wealth Management division of Deutsche Bank.
We are Indians, we love cash: A tale of 2010-11
The economic turbulence and inflationary scenario of 2008-2011 has made Indian households risk-averse. According to data released by the Reserve Bank of India (RBI) in its annual report for 2010-11, Indian households are dumping equity, and investing more in government-backed savings schemes (public provident funds and post office savings schemes), and hoarding cash. In 2010-11, Indian households’ financial savings grew by a small 5.3 percent to Rs 10,43,977 crore – just about Rs 52,400 crore more than the previous year. And yet, most of the increase went into hoarding cash, which grew 44 percent to Rs 1,39,344 crore, Rs 42,400 crore in absolute terms. Clearly, Indians seem to like the feel of hard cash to investing in shares or risky assets. Most of their incremental investments went into super-safe avenues. After cash, investments in life insurance funds and deposits with banks and non-banking companies came next in terms of increase. Among the six major heads of financial savings – currency, deposits, shares and debentures, claims on government, life insurance funds and provident and pension funds – claims on government have grown the most by 58.5 percent to Rs 67,954 crore, driven by a huge jump in small savings schemes. Small savings like post office deposit schemes, public provident funds, National Savings Certificates and Kisan Vikas Patras took up the lion’s share of savings, while government securities attracted less than 1 percent under the “claims on government’ head. Investments in ‘shares and debentures’ and ‘provident and pension funds’ however took a beating, as households wound down their investments in mutual funds (with a negative figure possibly reflecting a lack of fresh investments when old ones matured). Investments in direct equities fell. The total liquidation of investments in the shares and debentures category was to the tune of Rs 4,636 crore. Investments in provident and pension funds also declined by almost 17 percent to Rs 95,159 crore. By the looks of it, the trend for risk-aversion among households continues in 2011-12 as well, with retail investors staying out of equities, and deposits continuing to show healthy growth.
Firstpost
Public cautioned against bogus cash awards SMS
The Crime Investigation Department of the Police has advised the people not to believe and respond to bogus SMSs sent by unknown persons promising cash transfer. The Additional Director General of Police (law and order) and spokesperson S.A. Huda in a press release here on Tuesday said that in the recent past many SMSs are being received by the public stating that recipients of the message will get 10 lakh pounds and they are asked to part with details of account number, address for further information. The messages are very tempting and the public innocently send their details to the sender and get cheated. They are also remitting certain amounts as demanded by the sender. Sometimes, they were using the names of RBI, Coca-Cola and other organisations. Mr. Huda said this was all bogus propaganda and nothing but cheating the innocent people.
HBL
Rajya Sabha passes SBI Bill amidst din
Rajya Sabha on Tuesday passed a bill which seeks to transfer powers to the central government from the Reserve Bank with regard to SBI subsidiary State Bank of Hyderabad with an amendment moved by a BJP member. The transfer of powers to the Centre has been necessitated after the ownership of the SBI was transfered from the RBI to the government. The Bill was passed amid din even as the debate on it remained inconclusive. The upper house saw repeated adjournments after noon following protests by BJP over appointment of Lokayukta by the governor in Gujarat. The government agreed to an amendment by Piyush Goyal (BJP), who detected a technical flaw in the Bill. He had pointed out that the State Bank of India (Subsidiary Banks Laws) Amendment Bill, 2009, which was before the House, was not the same that was sent to the Standing Committee. As soon as the House reassembled, the BJP members continued their protest trooping into the well. Even as they were shouting slogans against Gujarat governor, minister of state for finance Namo Narain Meena moved the Bill for consideration of the House. Before PJ Kurien, who was in the chair, adjourned the House for the day, he asked for a voice vote and approved the Bill.
HT
Foreign banks pause branch expansion
The Reserve Bank of India (RBI) appears to have gone slow in offering new branch licences to foreign banks which have greater presence in the country. The top seven lenders, which account for over 70 per cent of foreign bank branches in India, have not added a single branch to their existing network in the current year.
Sahara to pay depositors 4 years before RBI deadline
Sahara India Financial Corp. Ltd, India’s largest residuary non-banking company, has decided to wind up deposits and pay all its customers by December, about four years before a deadline set by the central bank. The company, which made the announcement in a public notice published as an advertisement in leading newspapers on Tuesday, didn’t give any reason for the move. An email sent to Abhijit Sarkar, head (corporate communications) at Sahara India Pariwar, did not elicit any response. Analysts said this could be a precursor to Sahara seeking a banking licence so that it starts with a clean slate. The Reserve Bank of India (RBI) on Monday released a draft proposal to allow industrial houses and non-banking financial companies to set up banks. Sahara India Financial, a so-called para-banking company, is part of the Sahara group, which is involved in a range of businesses, including entertainment, media and real estate. The group publishes a Hindi-language newspaper that competes in some markets with Hindustan, published by Hindustan Media Ventures Ltd, a unit of HT Media Ltd, which also publishes Mint. In 2008, the banking regulator asked Sahara India Financial not to accept fresh deposits and wind up the Rs.20,000 crore of public deposits it had in seven years. It also banned the company from accepting fresh deposits maturing beyond June 2011. RBI had directed Sahara India Financial to repay the deposits as and when they mature and bring down the aggregate liability to depositors to zero on or before 30 June 2015, after it found irregularities in the functioning of the company. As per the order, by 30 June of this year, the firm should not have had a deposit liability of more than Rs.9,000 crore. Sahara India Financial’s advance payment notice said the company accepted Rs.73,000 crore of deposits till June 2011, but didn’t say anything about outstanding deposits. The company will have no liability following the payment, it said.
Mint
‘Next rate hike could trigger SME defaults'
Small and medium enterprises (SME) find themselves at the end of the tether as the interest-rate cycle takes its toll, exposing them to the risk of default. Mr Amitabh Chaturvedi, Managing Director and Chief Executive Officer, Dhanlaxmi Bank, sees a likely trigger in the next round of interest-rate hike, if and when that occurs. “Another 50 bps (basis points) in hike may just about see us through, but beyond that defaults will definitely begin to happen,” Mr Chaturvedi told Business Line. The Reserve Bank of India's priority to hold the price line would imply a 25 to 50 bps hike in its policy-making meeting due next month.
HBL
GDP slows, will RBI?
....What is more worrisome is the continued slowdown in gross fixed capital formation, which fell to 28.4% of the GDP, the lowest level since 2004-05. Read together with the RBI numbers on the slowdown in the financial investments of households, the prospects on the savings and investment front suggest a recovery will take a while. .....
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