MUMBAI: There is some relief for borrowers, as large banks have started reducing their lending rates across the board after a gap of three years. Punjab National Bank, the second largest lender in the country, and ICICI Bank, the largest private sector lender, on Thursday reduced their base rate by 25 basis points (bps) each to 10.5 per cent and 9.75 per cent, respectively. Another large public sector lender, Bank of Baroda, is likely to reduce its base rate by 25 bps to 10.5 per cent.
The Pune-based Bank of Maharashtra has also announced a reduction in base rate by 10 bps to 10.5 per cent. Yesterday, another public sector lender, IDBI Bank, had reduced its base rate by 25 bps to 10.5 per cent.
The base rate is the benchmark rate to which all loans are linked. As a result, consumer loans like home and auto loans, as well as loan rate for working capital and project loans availed by the corporate sector would become cheaper.
The move comes after the Reserve Bank of India (RBI) reduced the key policy rate or the repo rate by 50 bps in the annual monetary policy on Tuesday, signalling the beginning of a softer interest rate regime.
Deposits, however, will fetch lower returns, as both PNB and ICICI Bank have reduced their retail deposit rates by 25-50 bps. In addition, the banks also reduced their BPLR, the erstwhile benchmark lending rate, applicable for loans taken before July 2010.
“With the easing of systemic liquidity, we have already seen some correction in wholesale deposit rates. We expect the cost of funds to gradually come down and this reduction in the lending rates is a proactive move by us to pass on the benefit to our valued customers,” said Chanda Kochhar, managing director & CEO of ICICI Bank.
The tight liquidity conditions that prevailed, especially during the second half, in the previous financial year were addressed by the central bank with a reduction in the cash reserve ratio (or CRR, the proportion of cash out of the total deposits banks need to keep with the RBI) by 125 bps to 4.75 per cent in two phases.
Further, the RBI has enhanced the borrowing limit for banks under the marginal standing facility to two per cent of net demand and time liabilities as compared to one per cent earlier to provide an additional liquidity cushion to the banking system.
Banks do not receive any interest for keeping CRR with the RBI.
If the CRR is cut, banks are able to deploy the resources in the market, which earns them a return. Banks also said the CRR cut helped them reduce their lending rates.
“The RBI had reduced the CRR twice, which has released resources that can now be deployed. In addition, by cutting the repo rate, the RBI has signalled the reversal of its monetary policy stance,” said K R Kamath, chairman and managing director of Punjab National Bank.
Most of the lenders, including Union Bank of India, Indian Overseas Bank, United Bank of India and others, will have their asset-liability committee meetings shortly to decide on interest rates.
RETROSPECTIVE CHANGE IN TAX LAWS HURT INVESTMENTS, CEOs TELL PM
NEW DELHI: A group of CEOs has told Prime Minister Manmohan Singh that retrospective changes in tax laws proposed in the Budget have seriously damaged the country’s credibility as an investment destination. The CEOs, led by Godrej Group chairman Adi Godrej, communicated industry captains’ concerns to Singh in a meeting on Wednesday. Godrej took charge as president of the Confederation of Indian Industry on Thursday. The group said retrospective application of tax laws and provisions such as the General Anti-Avoidance Rules should have been avoided at a time when multiple scandals and frozen policy-making have tarnished the country’s image. The government’s decision to retrospectively tax Vodafone has created a huge international uproar. “We have very clearly expressed our views to the finance ministry as well as to the prime minister,” Godrej said. “The rule of law shouldn’t be overcome by excessive recourse to retrospective legislative change. There must be belief in the Indian system, Indian laws and in Indiasticking to its assurances to both foreign and Indian investors.” (For details log on to : http://economictimes.indiatimes.com/news/news-by-company/corporate-trends/retrospective-change-in-tax-laws-hurt-investments-ceos-tell-pm/articleshow/12740067.cms)
REFRAIN FROM YEAR-END WINDOW DRESSING: RBI
MUMBAI: The Reserve Bank of India (RBI) has come down heavily on banks that went for aggressive expansion of the top line around March-end to meet yearly targets. In the last week of March, bank deposits had risen by a whopping Rs 2 lakh crore, while loan growth stood at Rs 93,000 crore. Also, more than a fifth of the deposits collected in 2011-12 came in during this period. As a result of the mad rush for deposits, mostly by public sector banks which control two-third of the market, short-term rates went through the roof. Rates on three-month certificates of deposit went up to 11.75 per cent, 100-150 basis points (bps) higher than what it was a month before. According to bankers, RBI wanted a more steady growth of deposit and credit through the year, rather than a skewed one. Bankers attributed the reason for a sharp increase in deposit growth at the end of the year to sluggish deposit mobilisation in 2011-12, although retail deposit rates hovered around 9.5 per cent. (For details log on to : http://www.business-standard.com/india/news/refrainyear-end-window-dressing-rbi/472014/)
RBI WEIGHING AUCTION OF GOVT CASH SURPLUS
NEW DELHI: Yet another permanent liquidity management mechanism may soon be at the disposal of the Reserve Bank of India. The central bank has proposed a mechanism to the finance ministry to auction the exchequer’s surplus cash balance held with it to commercial banks. The new facility will allow the managers of the country’s financial system to deploy the exchequer’s occasional surpluses from, say, a bountiful advance tax collection or a windfall like the telecom spectrum revenue, for the benefit of the banking system. It will also allow the government to earn some extra returns on its idle cash, while the RBI will be able to even out liquidity variations. The new mechanism will work as follows: The RBI invites bids from banks willing to borrow at a cut-off price for the excess cash with the exchequer. The RBI auctions cash to banks at the highest bid. As the RBI is aware of the spending plans of the government, it can plan auctions keeping these in mind. (For details log on to : http://www.financialexpress.com/news/rbi-weighing-auction-of-govt-cash-surplus/939094/)
CDR REFERENCES LIKELY TO STAY HIGH IN FY13
MUMBAI: With economic slowdown and stress on corporate balance sheets looming, bankers expect the pace of reference to corporate debt restructuring (CDR) fora to stay high for at least two quarters. The year gone by (2011-12) saw an over three-fold growth in the amount of loans referred to CDR cells, at about Rs 80,000 crore from about Rs 25,000 crore in 2010-11. A senior bank executive and analyst said though banks had begun to cut lending rates after the Reserve Bank reduced its key policy rate, it will take a while to see reduction in interest costs (for small and medium enterprises and companies). The adverse effect of an uncertain economic environment and a high interest rate regime on the banking system would continue to weigh on the financial health of firms. A senior State Bank of Indiaofficial said the CDR book would continue to grow. It is a way to prevent a company or a unit from becoming a full-fledged non-performing asset, which is a more difficult problem to handle, he said. (For details log on to : http://www.business-standard.com/india/news/cdr-references-likely-to-stay-high-in-fy13/472030/)
HDFC BANK SEES NO NEED TO OFFER PREMIUM ON BULK DEPOSIT RATES
MUMBAI: HDFC Bank, the second-largest private sector lender in the country, will not offer a higher rate on bulk deposits than it pays for retail deposits of similar maturities. The lender’s comfortable liquidity position, combined with downward bias in interest rates and slow credit growth expectations in the first three months of this financial year, has allowed it to take this decision. “The difference between bulk and retail deposit rates has come down sharply. The difference is probably 50 basis points now. Our view is that the bulk deposit rates should actually collapse to the retail rates,” Paresh Sukthankar, executive director, said. He added despite the decline in bulk deposit rates in recent weeks, these would be lowered further to match the retail deposit rates, as the outlook on credit growth in the current quarter appears muted. “It is logical that bulk deposit rates will decline first before any reduction in retail deposit rates,” Sukthankar said. (For details log on to : http://www.business-standard.com/india/news/hdfc-bank-sees-no-need-to-offer-premiumbulk-deposit-rates/472015/)
MSC BANK GETS BANKING LICENCE, SCOPE FOR STRONGER BUSINESS
MUMBAI: The Maharashtra State Cooperative Bank (MSCB), which has been under the administrator’s rule since May last year, finally received the banking licence on Thursday from the Reserve Bank of India (RBI). The state’s anchor bank for agriculture and allied activities had missed the pertinent deadline of March 31. MSC Bank managing director Pramod Karnad, while confirming the development, said the licence came after the entity fulfilled the necessary formalities. “Also, we had achieved a positive net worth and four per cent CRAR (capital-to-risk assets ratio) as mandated by the RBI and Nabard (National Bank for Agriculture & Rural Development), he told Business Standard. MSCB’s CRAR stood at 5.76 per cent. A state government official said the license was crucial for MSCB to “regain its past glory” and “enhance its credibility”. It would also facilitate the bank to get better credit rating by the regulator, auditors and the government. Further, the license would help MSCB establish ATM centres. Its forex operations, too, would gain, as some relaxations are expected from overseas bankers. Besides, risk management parameters by other banks could be modified. (For details log on to : http://www.business-standard.com/india/news/msc-bank-gets-banking-licence-scope-for-stronger-business/472031/)
INDUSIND BANK’S Q4 NET PROFIT UP 30%
MUMBAI: IndusInd Bank on Thursday said its net profit for the quarter ended March 31 expanded 30 per cent to Rs 223 crore, from Rs 172 crore a year ago, driven by higher fee income and rise in interest income from advances. The private sector lender’s net profit grew 39 per cent to Rs 803 crore during financial year 2011-12 (April-March). Net interest income, or the difference between interest income and interest expense, was Rs 464 crore during the quarter, up 20 per cent year-on-year. Net interest margin, however, narrowed 21 basis points from a year ago to 3.29 per cent in January-March, due to an increase in cost of deposits. Fee income surged 60 per cent during the three months to Rs 264 crore. (For details log on to : http://www.business-standard.com/india/news/indusind-banks-q4-net-profit30/472017/)
HSBC REVIVES UNSECURED LENDING
MUMBAI: Hongkong and Shanghai Banking Corporation (HSBC), the second-largest foreign bank in the country in terms of branch network, has resumed offering unsecured loan products after more than two years. While the lender is offering personal loans only to clients with whom it has a prior banking relationship, it is acquiring new customers in the credit card space. The bank, however, is now more cautious than ever before in sourcing these businesses. “This time we are doing things differently,” Gannesh Bharadhwaj, head of retail banking and wealth management at HSBC in India, told Business Standard. “The last time all of us went into the market, things blew up and we shut shop. Now, everybody is going back to the market again. If we do the same thing, why would we get a different result? Hence, this time around, we are being very careful about the customer we target.” (For details log on to : http://www.business-standard.com/india/news/hsbc-revives-unsecured-lending/472032/)
BANK OF AMERICA POSTS HIGHER PROFIT FOR FIRST QUARTER
Bank of America, the second-largest USlender, said first-quarter profit rose amid a rebound in trading and lower provisions for bad loans. The shares rose 5% in early trading. Profit excluding certain one-time items increased to 31 cents a diluted share from 23 cents a year earlier, according to a statement on Thursday. That beat the average per-share estimate of 27 analysts surveyed by Bloomberg of 12 cents. Net income, which includes accounting charges, fell to $653 million, or 3 cents a share, from $2.05 billion, or 17 cents. Chief executive officer Brian T. Moynihan regards trading units run by Thomas K Montag as critical to reviving income and had warned he would cut costs more deeply if results didn’t improve. The business posted its first profit in three quarters amid the best start for the Standard & Poor’s 500 Index in 14 years and a lull in Europe’s debt crisis. (For details log on to : http://www.financialexpress.com/news/bofa-posts-higher-profit-as-trading-results-rebound/939201/)
NIC EYES 22% RISE IN PREMIUM
KOLKATA: Kolkata-based National Insurance Company is eying close to 22 per cent rise in premium for the present financial year to Rs 9500 crore, against Rs 7800 crore in the 2011-12 financial year. Last year the insurer registered about 25 per cent rise in premium, against 23 per cent for the entire general insurance industry, said N S R Chandraprasad, chairman and managing director, National Insurance Company at an interactive session organized by the MCC Chamber of Commerce and Industry. Meanwhile, following the AMRI fire incident last year, National Insurance will take up risk assessment in all contracts with fire and engineering cover worth over Rs 50 crore. Earlier, the insurer had ordered assessment of properties worth over Rs 100 crore. The AMRI group has an insurance cover of Rs 200 crore. (For details log on to : http://www.business-standard.com/india/news/nic-eyes-22-rise-in-premium/471952/)
RELIGARE GETS R2 LICENCE FOR HEALTH INSURANCE BIZ
MUMBAI: Healthcare and financial services major Religare Enterprises said on Thursday its health insurance company has received R2 licence from the Insurance Regulatory Development Authority. “We are pleased to move a step closer to launching our operations, and are in a complete state of preparedness for the same,” Religare Health Insurance managing director and chief executive officer Anuj Gulati said in a statement. Religare Health Insurance is a joint venture between Religare Enterprises, Union Bank of Indiaand Corporation Bank. Religare is present in the life insurance segment and has a partnership with Dutch insurer Aegon. (For details log on to : http://www.financialexpress.com/news/religare-gets-r2-licence-for-health-insurance-biz/939196/)
IL&FS ARM RAISES $100 MN VIA DIM SUM BONDS
MUMBAI: ITNL Offshore, an arm of IL&FS, has raised $100 million by selling dim sum bonds, which are denominated in yuan and issued in Hong Kong. The three-year securities carry a coupon rate of 5.75 per cent and are guaranteed by the Export and Import (EXIM) Bank of India, sources familiar with the development told Business Standard. Deutsche Bank, Royal Bank of Scotland, and UBS AG managed the issue. This is the second time that an Indian company is raising funds by selling dim sum bonds. In 2011, IDBI Bank had raised close to $100 million through this route, which was managed by Hongkong and Shanghai Banking Corporation. Sources said the bond proceeds will be used to refinance the loans, which IL&FS borrowed to fund its acquisition of 49 per cent stake in a Chinese toll road project last year. “A part of these proceeds will be converted into dollar and will be used to repay the existing loan,” a source said. (For details log on to : http://www.business-standard.com/india/news/ilfs-arm-raises-100-mn-via-dim-sum-bonds/472016/)
TVS LOGISTICS RAISES $53 M FROM KKR & GOLDMAN SACHS
CHENNAI: The Indian arm of private equity firm KKR, Kohlberg Kravis Roberts India, and Goldman Sachs have invested R269 crore (approximately $53 million) in third-party logistics service providers TVS Logistics Services. KKR alone invested R242.4 crore (approximately $47 million) for a significant minority stake. Goldman Sachs and TVS Capital had made investments of R100 crore each in 2008. Goldman Sachs has made a fresh investment of $6 million (a little over R26 crore) along with KKR, taking its total investments in the company to a little over R126 crore. This is the second time TVS Logistics has successfully received private equity funding. After these investments, the promoters of TVS Logistics continue to hold a majority stake, a company official said. (For details log on to : http://www.financialexpress.com/news/tvs-logistics-raises-53-m-from-kkr-&-goldman-sachs/939122/)
PRIVATE EQUITY PLAYERS UPSET AS REGULATOR TIGHTENS NOOSE
NEW DELHI: The private equity (PE) industry, which has already failed to live up to the returns expectations of its investors, has pleaded with regulators not to put additional pressure on it through new and more stringent rules. Earlier this month, market regulator Securities and Exchange Board of India (Sebi) introduced guidelines to regulate all alternate investment funds (AIFs), including private equity funds. According to the new regulations, AIFs will not be permitted to invest more than 25 per cent of investible funds in one investee company and not be able to invest in associate companies. AIFs shall also provide, on an annual basis, investors with financial information of portfolio companies as well as material risks and how these are managed. Sebi has also permitted the number of investors in one fund at 1,000 and the minimum investment figure per individual at Rs 1 crore. “Currently, more than 90 per cent of the funds’ pool money comes from outside Indiaand it never comes under the purview of the Indian regulators. If the regulators want to clip the wings of those who pool money in India, then they will also opt to go abroad to pool in the capital,” said a managing partner of a $250-million India-focused fund, on condition of anonymity. (For details log on to : http://www.business-standard.com/india/news/private-equity-players-upset-as-regulator-tightens-noose/471992/)
MUTUAL FUNDS FIND RIDE TO SMALLER CITIES ROUGH
MUMBAI: The Indian mutual fund industry continues to find it tough to attract money from investors in the country’s interiors. Despite consistent efforts to spread awareness about mutual funds as a financial product for investment, the industry has little to rejoice, as close to three-fourths of its assets still come from the country’s five major cities. Mumbai, Delhi, Bangalore, Chennai and Kolkata collectively contributed a little over 73 per cent of the assets under management (AUM) of fund houses during the December quarter. Interestingly, compared to the September quarter, this was a decline of around 150 basis points. The next 10 cities, including Ahmedabad, Pune, Hyderabad, Barodaand Jaipur, reported a marginal rise of 23 basis points, contributing 13.2 per cent of AUM. Contribution from the next 75 cities, too, declined during the period, a clear blow for the fund houses struggling to increase penetration. Though industry officials admit there is huge untapped money in India, they have failed to route this into mutual funds. Based on the overall folio number as on March 31, 2012, the penetration of mutual fund products, at less than four per cent, continues to be poor. (For details log on to : http://www.business-standard.com/india/news/mfs-find-ride-to-smaller-cities-rough/471998/)
FUND MANAGERS FOCUS ON RATE-CUT, IIP NUMBERS
MUMBAI: Markets remained volatile for the period under review (April 11 to 18) on account of a sharp 50-basis-point repo cut by the Reserve Bank of India after three years and lower-than-expected Index of Industrial Production (IIP) figures. Also dampening investor sentiment was the disappointing fourth-quarter earnings, coupled with lower dollar revenue and earnings per share (EPS) guidance for FY13 from IT bellwether Infosys Technologies. All the four fund managers of Smart Portfolios Season 4 remained active throughout the time under review. Parikh carried out nine transactions during the period under review. He bought Power Finance Corporation, Ipca Laboratories, Jaiprakash Associates and Allahabad Bank. Housing Development Finance Corporation, State Bank of India, Tata Motors and Reliance Industries, where he sees some significant drop in KG-D6 volumes and gross refining margins (GRMs) in its Q4 numbers, were on his exit list after making gains in the range of two to four per cent. (For details log on to : http://www.business-standard.com/india/news/fund-managers-focusrate-cut-iip-numbers/471991/)
KRAs APPROACH SEBI, FMC TO ENTER COMMODITIES SEGMENT
MUMBAI: After tasting rapid success in the securities segment by getting lakhs of customers on board, KYC registration agencies (KRAs) are now eyeing commodities market. KRAs have asked both the securities and commodities regulators for permission to operate in the commodities space. According to sources, KRAs have already submitted a formal application to Securities and Exchange Board of India (Sebi) and Forward Markets Commission (FMC), and are expecting a response by next month. “Both the regulators are involved as KRAs are regulated by Sebi and FMC looks at the commodities market,” said a source. “The whole process started when one of the spot exchanges approached us, asking if our database could be used for commodity market investors, who still face issues related to multiple and repetitive KYC. Then, we approached both the regulators who, we believe, are evaluating the matter,” the source explained. (For details log on to : http://www.financialexpress.com/news/kras-approach-sebi-fmc-to-enter-commodities-segment/939021/)