MUMBAI: There is an expectation among many that the Reserve Bank of India (RBI) would cut the repo rate (at which it lends to banks) by 25 basis points in its annual policy review meeting scheduled on Tuesday, to boost growth in the economy.
After increasing the policy rate 13 times between March 2010 and October 2011, to 8.5 per cent, the central bank made no change in its last two policy reviews. Quite a few economists and market participants believe the high global oil prices may act as a deterrent for a rate cut, but, the cost of not cutting is also rapidly rising. reflected, for instance, in slowing economic activity. “Today’s weak IIP (Index of Industrial Production) data, along with lower core inflation, should cement the case for a rate cut, as the cost of not cutting rates is rising. We expect a 25-bps repo rate cut and no change in the Cash Reserve Ratio (the portion of their reserves banks must keep instead of lending) on April 17,” said economists Sonal Verma and Aman Mohunta of Nomura Securities.
Factory output data for February was 4.1 per cent, lower than the consensus estimate. The trend in recent months suggested interest rate-sensitive consumer durables goods’ output growth had fallen sharply. Economists expect March industrial production data to also be weak.
“Overall, we think growth momentum in the economy is weak, though not as weak as in the last quarter of 2011…we think RBI will be willing to support growth by cutting the repo rate by 25-bps in the coming monetary policy meeting, unless the March inflation number surprises sharply to the upside,” said Taimur Baig and Kaushik Das, economists with Deutsche Bank.
The inflation figures for March, to be released a day before the policy meet, would be a key input for the central bank’s decision. The market is expecting slightly lower inflation in March, but core or non-food manufacturing inflation could see a sharp decline.
Treasury officials said the bond market had factored in a 25-bps rate cut, as yields on government paper fell sharply on Thursday following the poor IIP numbers. Yield on the 10-year benchmark government paper closed at 8.44 per cent, about 11-bps lower than yesterday’s close.
“Bond markets have discounted a 25bps rate cut in the annual policy because of poor industrial production numbers. So, markets are expecting RBI to cut rates to support growth,” said T S Srinivasan, general manager-treasury at Indian Overseas Bank. He added the uncertainty on the government being able to reign in the fiscal deficit might limit RBI’s comfort in starting the monetary easing cycle. During its mid-quarter review, RBI had said a credible plan for fiscal consolidation was essential to have lower inflation.
“The inflation risks are legitimate and in our opinion, should be an important factor in determining essentially the magnitude of rate cuts by RBI. As such, we expect RBI to ease rates by 50-75 bps in FY13,” said a YES Bank note, adding that a weak outlook on growth warranted commencing of monetary easing, by cutting the policy rate 25 bps on Tuesday.
Market participants, however, are ruling out a cut in CRR, as liquidity has improved in April. This is reflected in lower borrowing from RBI’s repo facility. CRR was reduced by 125 bps to 4.75 per cent since January, to ease tightness.
Banks’ daily borrowing has fallen from about Rs 2 lakh crore in March to Rs 80,000 crore-1 lakh crore in the current fortnight. The overnight call money rates have eased from around 10 per cent to nine per cent in the same period. Market participants said government spending in the form of bond redemptions helped in easing the liquidity pressures.
In the first week of April, about Rs 27,000 crore of inflows came as the government redeemed maturing bonds. Another Rs 34,000 crore worth of redemptions are due next month.
SLUGGISH IIP DATA SET TO WEIGH HEAVILY ON MONETARY POLICY: FM
MUMBAI: The index of industrial production (IIP) rose a lower-than-expected 4.1% in February as manufacturing slowed while consumer goods and durables contracted, official data showed on Thursday, bolstering the case for a rate cut when the central bank meets next week. What made matters worse was that the government also sharply revised downward the industrial output figure for January to 1.14% from 6.7%, citing a significant revision in the production data of sugar following “incorrect reporting by the directorate of sugar” under the food ministry. Finance minister Pranab Mukherjee blamed a protracted bout of monetary tightening and a global macro-economic crisis for the “dis-appointing” industrial growth. “These figures will have a bearing on monetary policy announcement scheduled for next week. The government, along with RBI, will take required steps to revive activity in the economy,” he said. (For details log on to : http://www.financialexpress.com/news/sluggish-iip-data-set-to-weigh-heavily-on-monetary-policy-fm/936261/)
RBI SHOULD CUT CRR TO IMPROVE LIQUIDITY: KIDWAI
KOLKATA: Days before the RBI’s annual credit policy announcement, HSBC’s country head & director for Asia-pacific Naina Lal Kidwai said that a cut in the cash reserve ratio is expected from the apex bank. Her statement comes at a time when the industry has been stressing more on a repo rate cut. Gauging the rising concerns over the liquidity in the system, Kidwai said that liquidity in the system is a cause of concern. “Liquidity in the system is also a cause for worry. Government borrowing can potentially crowd out the private sector and there is a liquidity issue in the market… We might see further CRR easing from the RBI,” she said. In March this year, the RBI has reduced CRR by 75basis points to 4.75% to ease liquidity and infuse R48,000 crore into the banking system. (For details log on to : http://www.financialexpress.com/news/rbi-should-cut-crr-to-improve-liquidity-kidwai/936090/)
LENDING RATES MAY NOT FALL DRASTICALLY IN FY13, SAYS CRISIL
MUMBAI: Corporate and retail borrowers will not see a significant reduction in lending rates in the current financial year owing to tightness in liquidity, higher Government borrowings and high cost of deposits, according to leading rating agency Crisil. Lending rates are likely to drop by 25-50 basis points (0.25-0.5%) during this period, it said. “Lending rates are likely to fall by 25-50 basis points (bps) over the next one year – lower than the 50-75 bps drop expected in repo rate as banks attempt to protect their margins,” the agency said in a report here today. According to the rating firm, liquidity in the banking system has remained tight despite reduction in cash reserve ratio (CRR) by 125 bps (1.25%) since January 2012. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/lending-rates-may-not-fall-drastically-in-fy13-says-crisil/articleshow/12638157.cms)
GOVERNMENT TO GIVE RS 2,065 CR MORE TO SWAVALAMBAN PENSION SCHEME
NEW DELHI: In a move that will benefit 70 lakh unorganised sector workers, the Centre today approved an additional support of Rs 2,065 crore to Swavalamban Scheme, a pension programme, and also extended the funding support to subscribers for another two years. Extending funding support for implementing the scheme under the New Pension System (NPS) from present three years to five years for all subscribers enrolled during 2010-11, 2011-12 and 2012-13 has been approved, HRD and Telecom Minister Kapil Sibal told reporters after the Cabinet meeting. The Cabinet, he said, provided an additional funding support of Rs 2,065 crore to the scheme upto 2016-17 towards government’s co-contribution to the subscribers and also for promotional and developmental activities. (For details log on to : http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/government-to-give-rs-2065-cr-more-to-swavalamban-pension-scheme/articleshow/12641450.cms)
SBI TO BUY LOANS FROM BANKS IN US, EUROPE
State Bank of India, the country’s largest lender, plans to buy loans from banks in the USand Europeto boost its overseas credit assets and profitability. The Mumbai-headquartered bank is seeking to purchase loans given mostly to Indian companies, managing director Hemant Contractor, who heads the bank’s international operations, said in an interview on Wednesday. Record net interest margin for its international loans encouraged the State Bank of Indiato seek the acquisitions and expand the business, Contractor said. Credit at State Bank’s overseas offices expanded 21% last year compared with a 17% increase at its Indiaunit, the bank said on February 13. (For details log on to : http://www.financialexpress.com/news/sbi-to-buy-loans-from-banks-in-us-europe/936071/)
BANKERS FAVOUR REPO RATE CUT TO BOOST ECONOMY
MUMBAI: Even if the Reserve Bank of India reduces the repo rate in order to provide the much needed relief to turnaround the economy, the bankers might not pass on the benefits to the customers soon after. Some bankers refrained, and said status quo is likely too. “The economic growth has decelerated and we would like environment to reverse and see some aggressive growth taking place. However, I would not take a call on the policy, but we are more interested in the guidance the central bank would be giving us”, said Bank of Baroda managing director MD Mallya. He added that one has to look at how the cost of funds and liquidity situation would be after the policy. The banks might not be in a position to trim the lending rates immediately. Bank of Baroda is one of very few bank that raised deposit rates on shorter maturities due to poor liquidity conditions. The last fortnight of the financial year 2011-12 saw the deposit growth reaching a seven year low of 13.4%. (For details log on to : http://www.financialexpress.com/news/bankers-favour-repo-rate-cut-to-boost-economy/936089/)
IDBI PLANS TO INCREASE MTN PROGRAMME TO $2.5 BILLION
MUMBAI: PSU lender IDBI Bank expects to increase the size of its medium-term notes (MTN) programme from the current $1.5 billion to $2.5 billion by January next year, a senior executive said on Thursday. Melwyn Rego, executive director at IDBI Bank, said that the bank has already raised $720 million under the MTN programme and has headroom to raise a further $780 million. “Since we expect to raise another $750million-$1 billion worth of foreign currency debt this year, we will look logically look at expanding our MTN programme size by $1 bn,” he said. MTN is a debt instrument through which a bank/company raises capital at cheaper rates from the overseas market. Usually, there is a fixed coupon or interest rate that is paid by the issuer to the subscriber of the issue on maturity. It allows banks to raise funds on an ongoing basis through instruments like floating-rate notes and fixed-rate bonds. On March 16, IDBI Bank launched a Swiss Franc (CHF) denominated bond of CHF 110 million at an annual coupon rate of 3.125%. The issue was oversubscribed by private banks and high net worth individuals (HNI). IDBI’s MTN is listed both on the Singaporeand Switzerlandstock exchanges. (For details log on to : http://www.financialexpress.com/news/idbi-plans-to-increase-mtn-programme-to-2.5-billion/936088/)
BANKS’ Q4 EARNINGS SET TO GROW 39-46% Y-O-Y
MUMBAI: Banks are expected to report a 39-46% y-o-y increase in earnings for the three months to March 2012, according to analysts’ estimates. A Citibank report states that Indian banks’ earning slowdown should reverse in Q4. “We can we expect a 46% y-o-y profit growth (16% excluding SBI). Net profits will be robust driven by higher yields, peaking credit charges and easing operating expenses,” the report observed. A Kotak Securities report notes that the overall earnings growth rate for the public sector banks will look inflated, thanks to SBI registering strong numbers on the back of a low base. SBI reported weak earnings during Q4FY11. “Our PSU banking universe is likely to grow faster at 71.9% (ex-SBI:decline of 4.2%) while private sector banks under our coverage are likely to grow at 21.3%. Several PSU banks will report contraction in earnings (Canara Bank, Andhra Bank, Union Bank, OBC, etc) due to higher credit costs,” the Kotak report said. (For details log on to : http://www.financialexpress.com/news/banks-q4-earnings-set-to-grow-3946-yoy/936092/)
PUNJAB NATIONAL BANK PLANS 24 HOURS BANKING SERVICES CENTRES
CHANDIGARH: State-run Punjab National Bank will roll out new service centres where customers can access select banking services like updating of passbook 24X7. The bank would set up ‘E-Lobby’ which will have one ATM, cash deposit kiosk, pass book printing terminal, cheque deposit machine and two Internet banking terminals, PNB Circle Head Kalpana Gupta told reporters here. “The main idea behind having E-Lobby is to provide 24 hours banking services to customers who do not have enough time to visit bank branches during office hours. Now they can visit these E-Lobbies where they can carry out banking transactions at their conveniences,” she said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/punjab-national-bank-plans-24-hours-banking-services-centres/articleshow/12638904.cms)
HSBC WANTS A BIGGER SHARE OF INDIAN BANKING BUSINESS
KOLKATA: HSBC rues the fact that expansion of banking business is still restricted for foreign entities in India, one of the fastest growing economies. Its country head in Indiaand director for Asia Pacific, Naina Lal Kidwai said on Thursday that restriction of opening branches is an issue which very much bothers the management. HSBC is present in the country for over 150 years but it has a limited network of 50 branches as Reserve Bank of Indiadoes not give licences to foreign banks too easily. “”The good news is Indiahas always been on top of our mind,”” Kidwai said in the city. Indiahappens to be the sixth largest contributor to HSBC Group’s profit, after Hong Kong, China, UK, Braziland Canada. Kidwai was on a two-day visit in Kolkata to held meetings with local officials. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/hsbc-wants-a-bigger-share-of-indian-banking-business/articleshow/12636674.cms)
REDUCTION IN CRR AND SLR EXPECTED: HSBC
KOLKATA: The Reserve Bank of Indiashould reduce CRR and SLR to ease the stress on liquidity, HSBC Asia Pacific Director and India Country Head Naina Lal Kidwai said. “We should see a reduction in Cash reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). The last reduction was supposed to ease liquidity, but that did not happen because there was offsetting cash withdrawals,” she told reporters here today. She said inflation was sticky due to supply side constraints. “Huge borrowing programme of the government could crowd out the private sector and given the tight liquidity scenario, we may see a further easing of the CRR,” Kidwai said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/reduction-in-crr-and-slr-expected-hsbc/articleshow/12637672.cms)
SIMPLIFY POLICY DOCUMENTS IN HEALTHCARE SECTOR: IRDA
HYDERABAD: Insurance Regulatory and Development Authority (Irda) has asked the Life Insurance Council and industry trade bodies such as CII and Ficci to come out with recommendations to simplify policy documents in the health insurance sector. To bring in more clarity, the regulator has suggested simplification of terms to bridge the gap in communication levels between insurers and the service providers. “Communication in health insurance has to become simpler and understandable by the policyholders,. We have suggested to the Council and other stakeholders to come out with recommendations for simpler communication in the policy documents” J Hari Narayana, chairman, Irda, said. Due to complexities of the language, it is also fuelling in increasing number of frauds. Owing to poor understanding levels by the policy holders, the insurance regulator may also soon be making easy communication norms mandatory as opposed to those jargons, which are presently in use in the policy documents. (For details log on to : http://www.financialexpress.com/news/simplify-policy-documents-in-healthcare-sector-irda/936097/)
GOOD POLICY COMMUNICATION IS RESPONSIBILITY OF INSURER: IRDA
HYDERABAD: Faced with large number of complaints against non-life insurance companies, the regulator IRDA today suggested making the common people understand the policy by simplifying the language. Speaking at the first meeting of newly-formed Health Insurance Forum, IRDA Chairman J Harinarayana said they received 92,898 complaints in the non-life sector, of which 38,891 or 37.48 per cent were with regard to health insurance. “Probably the lack of clarity in communication is reflected in the form of increasing number of complaints. Therefore, good communication is the responsibility of the insurance company and not with the policy holder. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/good-policy-communication-is-responsibility-of-insurer-irda/articleshow/12640012.cms)
IRDA FOR STATE-BACKED HEALTH INSURANCE SCHEME
HYDERABAD: The Insurance Regulatory and Development Authority (Irda) has strongly come out in support of an upcoming government-backed health insurance policy aimed at providing health cover to a large population of the country. “Why not have a state-backed health insurance coverage for people when practically all the governments in the world have similar coverage for their citizens,” asked Irda chairman J Hari Narayan. He was referring to a meeting of a group of experts in the Planning Commission today on the new health insurance scheme which is in the works. Stating the cover could be on the lines of the Rashtriya Swasthya Bima Yojana, he said Irda had to see the contours of the scheme once it was ready. A government-backed health scheme involved risks, too. “One such could be that the pricing may go up,” he said, while addressing the launch of Health Forum, a self-regulatory body that Irda constituted to address the issues of the health insurance sector. (For details log on to : http://www.business-standard.com/india/news/irda-for-state-backed-health-insurance-scheme/471202/)
NO TIME LIMIT FOR LIC TO CUT STAKE IN COMPANIES: IRDA
The Irda on Thursday said no timeframe had been set for Life Insurance Corp of Indiato reduce its holding in companies in which it has more than 10 per cent stake. “There is no specific time for that (LIC to cut stake in companies),” chairman J Hari Narayan said on the sidelines of a health insuranc summit. “They (LIC) will do it (reduce stake)…at an appropriate time.” Insurance companies are not allowed to hold more than 10 per cent stake or 10 per cent net worth of a company. LIC has more than this mandated stake in at least 10 companies. On initial public offerings of insurance companies, Narayan said so far, no insurer had sought Irda’s approval. In December, the regulator issued IPO norms for life insurance companies, as the sector is demanding capital infusion for further growth. “So far, nobody (has) approached us,” Narayan said. (For details log on to : http://www.business-standard.com/india/news/no-time-limit-for-lic-to-cut-stake-in-companies/471203/)
JAPAN‘S MITSUI SUMITOMO INSURANCE COMPANY TO BUY 26% STAKE IN MAX NEW YORK LIFE
NEW DELHI: Japan’s Mitsui Sumitomo Insurance Company agreed to buy out New York Life’s 26% stake in its life insurance joint venture with Max India, valuing the insurer at about Rs 10,000 crore, nearly double the market cap of the listed holding company. The 2,731-crore, two-leg, all-cash deal values Max’s 70% holding in the insurer at 7,000 crore. In contrast, the market capitalisation of Max itself stands at 5,395 crore. Max India shares surged 8.3% to 203.95. ET had reported about New York Life’s plan to exit the insurance venture in its edition dated February 15. The valuation of Max New York at about three times the so-called embedded value – net assets plus the present value of future profits – is lower than the 3.5 times that Nippon Life paid last year for a stake in Reliance Life. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/japans-mitsui-sumitomo-insurance-company-to-buy-26-stake-in-max-new-york-life/articleshow/12643026.cms)
ICICI PRUDENTIAL LOSING 300 STAFF EVERY MONTH
MUMBAI: ICICI Prudential Life Insurance Company is hiring close to 300 people every month. The life insurance arm of the country’s largest private-sector lender does it not to expand workforce, but to maintain its strength, as almost a similar number of staffers keeps leaving every month. “We believe that the insurance sector is under-penetrated,” said Judhajit Das, chief of human resources of the company. “There is an opportunity for profitable growth by serving our customers with the right products that meet their needs. Hence, we never stopped replacement hiring,” he told Business Standard. The life insurer, functioning since 2000, currently has 13,500 employees. According to senior executives of the company, the current attrition rate of around 25 per cent is in line with the industry average, but unlike most other insurers in the country, ICICI Prudential was making fresh recruitment to replace the employees who left the company. (For details log on to : http://www.business-standard.com/india/news/icici-prudential-losing-300-staff-every-month/471176/)
SUNSET CLAUSE IN GAAR TO HELP MAURITIUS FIIs TRIM POSITIONS
NEW DELHI: Facing united opposition from foreign investors to the proposed general anti-avoidance rules (GAAR), the finance ministry has decided to revisit the changes made in Budget 2012-13. A key option is to extend the period of introduction of the new tax regime, so that foreign institutional investors (FIIs) get time to wind down existing commitments to their investors abroad. This means instead of making entire books of FIIs potentially taxable at the rate of 20%, the government will offer a sunset clause. This would allow investors who have put their money with FIIs using the Mauritiusroute to factor in the tax impact while investing in Indian markets. The rethink came after FIIs met finance secretary RS Gujral last week. Taking note of concerns that GAAR could dampen portfolio investment flows, the department of economic affairs has begun working with the revenue department under Gujral to find a way out. FIIs have also approached the stock market regulator to step in. (For details log on to : http://www.financialexpress.com/news/sunset-clause-in-gaar-to-help-mauritius-fiis-trim-positions/936258/)
NSE TO LAUNCH DERIVATIVE TRADE IN FTSE 100 INDEX FROM MAY 3
MUMBAI: National Stock Exchange (NSE) on Thursday said it has received regulatory approval to start derivatives trade in Londonexchange’s benchmark index FTSE 100 and would launch trading from next month. With this initiative, for the first time, local traders would be able to bet on UKindice. “The National Stock Exchange of India has received regulatory approval, to start trading futures and options contracts, based on FTSE 100,” NSE said in a statement. The exchange will be launching the product on May 3, it added. The new contracts would be tradable by all equity derivatives members of the NSE, through existing infrastructure, the NSE said adding that no additional investment would be required. The introduction of derivative products on the FTSE 100 index, would enable Indian investors to hedge and gain exposure to the top 100 constituents, listed on the main market of London Stock Exchange. (For details log on to : http://economictimes.indiatimes.com/markets/regulation/nse-to-launch-derivative-trade-in-ftse-100-index-from-may-3/articleshow/12638596.cms)