MUMBAI: Moody’s Investors Services on Thursday said it was reviewing ratings for ICICI Bank, Axis Bank and HDFC Bank for a possible downgrade, following a change in its rating methodology.
The agency, clarified however, that the debt and deposit ratings for these private sector lenders remained unaffected. In another statement, Moody’s indicated there was a chance of state-owned Life Insurance Corporation (LIC) being downgraded given the insurer’s direct exposure to Indian sovereign risk in terms of its investment portfolio and business profile.
LIC’s financial strength rating is currently at Baa2 or stable. The announcements come less than a week after Standard and Poor’s (S&P) cut India’s rating outlook to negative from stable and warned of a one in three chance of a downgrade to junk status.
Monday’s announcements, Moody’s explained, reflected its revised assessment “of the linkage between the credit profiles of sovereigns and financial institutions globally”.
In the wake of this changed assessment, the agency expects the standalone credit assessments of most banks globally at, or below, the rating of the sovereign where the bank is domiciled. Currently, the three private sector banks all enjoy stand-alone credit assessments positioned above India’s sovereign debt rating. The reviews are expected to be completed in approximately three months but is unlikely to make borrowings abroad more expensive for the lenders. In fact, Moody’s expects that most standalone credit assessments will be rated at the same level as their domicile sovereigns’ debt ratings.
Said Hitendra Dave, managing director and head, global markets, HSBC India: “The review is entirely on account of Moody’s changed methodology and is unlikely to impact the cost of borrowings of these banks in overseas markets. As Moody’s has said, there is no change in the profile of debt and deposits.”
Citigroup observed in a note that since this review was only impacting the BFSR/BCA ratings, the current rating of, Baa2 foreign currency long-term senior unsecured debt, would be unaffected. “Even in the event the standalone rating were to be downgraded to Baa3, the Baa2 issuer rating would remain unchanged and benefit from a one-notch uplift due to external support. Because this review is on the back of Moody’s revised assessment, and not due to fundamental deterioration, we believe that this review should have a relatively limited impact on the private sector banks and their bonds,” Citigroup said.
While undertaking the rating exercise, Moody’s will assess the degree to which the issuer’s standalone credit profile is correlated with that of the sovereign. In India, banks are mandated to hold 24% of their net demand and time liabilities in the form of government securities. Moreover, the agency would also consider the extent to which the banks’ business depends on the domestic macroeconomic and financial environment as also to what extent it relies on market-based funding.
In a statement, ICICI Bank said the BCA of ICICI Bank along with the other mentioned banks, which was higher than the sovereign rating have been placed on review for a possible revision downwards in the next three months to bring it in line with the sovereign rating. “Standalone ratings of other Indian banks were already lower and was aligned to the sovereign rating. The rating action by Moody’s is not a change in the sovereign rating of India and does not affect ratings of any instruments issued by ICICI Bank (bonds or deposits),” the bank said in a release.
The statement noted that “as far as ICICI Bank is concerned, our ALM is well matched with asset repayments in FY2013 broadly covering our bond and loan repayment obligations. So, we do not need to access bond markets for refinancing. We will look at accessing the markets to raise funds for new lending depending on the cost and the rates at which we can deploy the funds.”
Economists point out that there is growing concern on the exposure that some financial institutions have to sovereign debt at a time when economic fundamentals are deteriorating. Explaining its stance on LIC, Moody’s said the credit quality of financial institutions, with high levels of domestic sovereign debt holdings, and low geographically diversified revenue and earnings sources, is closely linked to the sovereign’s credit strength. “Issuers with these characteristics are unlikely to have standalone credit assessments above the sovereign,” the agency noted.
Gilts and government-guaranteed bonds comprise more than half the value of LIC’s portfolio; at the end of December, 2011, they accounted for 54% (Rs 6 lakh crore or approximately $111 billion) of the insurer’s total cash and invested assets (excluding unit-linked invested assets). The amount represents 764% of adjusted shareholders’ equity.
In its report on April 25, S&P had cited the slow pace of fiscal consolidation, the worsening external sector situation, inflationary pressures and the slow pace of economic growth as reasons for a possible downgrade to ‘junk’ status. Indeed, the concern in financial circles is, Moody’s said that for the affected three banks, the key rating drivers were the level of cross-border diversification of their operations, the level of balance-sheet exposure to domestic sovereign debt, compared with their capital bases, the franchise resilience and intrinsic strength within the operating environment, shareholder composition and the rating of the parent bank incorporated in Moody’s JDA and/or the assumptions for systemic support available to a bank in case of need.
RBI MAY TIGHTEN SHADOW BANKING RULES
MUMBAI: The Reserve Bank of India (RBI) is looking at “shadow banking” activities closely and will tighten regulations if needed. “Next on the agenda is increasing the surveillance on shadow banking,” Anand Sinha, deputy governor of RBI, said on Monday while addressing a meet organised by the Associated Chambers of Commerce and Industry of India. Shadow banking refers to financial sector services beyond the active regulatory purview of central banks. According to RBI, the unprecedented increase in shadow banking was a reason for the global financial crisis of 2008. Sinha added the central bank might tighten regulations if required. Strengthening regulations on such businesses are being addressed in the Basel-III norms, proposed to become applicable from 2017-18. (For details log on to : http://www.business-standard.com/india/news/rbi-may-tighten-shadow-banking-rules/473053/)
INDIA GETS EASY ACCESS TO SECRET SWISS A/CS
NEW DELHI: Indiahas got a step closer to identifying taxpayers with secret accounts in Switzerland. Under an agreement signed between Indiaand Switzerlandon April 20, the latter has agreed to relax the condition for providing information on people who have stashed undeclared money in that country. The pact allows exchange of information even with limited details about the person under scrutiny. This is a shift from the existing structure where Indiahas to provide the name of the person and the name of the foreign holder of the information while requesting for information. The government said this was a restrictive provision and not in line with the international standards. According to the new agreement, Indiawill have to indicate the name and address of any person who is expected to have the required information under Article 26 of their Double Taxation Avoidance agreement (DTAA). (For details log on to : http://www.business-standard.com/india/news/india-gets-easy-access-to-secret-swiss-acs/473064/)
BANK CREDIT OFFTAKE FALLS: SECTORAL DATA
MUMBAI: Credit offtake by banks to companies offering various services showed a marked deceleration in 2011-12 compared with the previous financial year, the Reserve Bank of India’s sectoral data showed on Monday. Banks’ lending to the services sector grew by just 14.7% compared with 23.9% in 2010-11. Within services, loans to companies offering financial services and commercial real estate grew the slowest. Credit to finance companies grew just 26.3% in 2011-12 after growing at a scorching pace of around 54% the previous year. Showing increased vigilance over non-banking finance companies, the RBI recently curbed banks’ exposure to companies offering gold loans to 7.5% from 10% earlier. Bank loans to commercial real estate grew by 7.8% in 2011-12 from 21.4% in 2010-11. (For details log on to : http://www.financialexpress.com/news/bank-credit-offtake-falls-sectoral-data/943572/)
RBI EXPECTS ASSET QUALITY TO IMPROVE
MUMBAI: The Reserve Bank of India (RBI) expects asset quality of banks to improve, even as it remains anxious over the sharp increase in banks’ restructured loans. “Assuming that things do not deteriorate, the NPAs might have peaked or the asset quality might have bottomed out. The expectation is from here on asset quality should improve,” said Anand Sinha, deputy governor of RBI on Monday at a conference organised by The Assocham. Sinha said that restructuring is an essential process that banks undertake to manage their loan portfolio and must not be viewed negatively. He added that by restructuring, banks are ensuring their non-performing assets do not rise. (For details log on to : http://www.financialexpress.com/news/rbi-expects-asset-quality-to-improve/943561/)
RBI TO SET UP PANEL TO LOOK INTO FIXED RATE LOAN PRODUCTS
MUMBAI: The Reserve Bank will soon set up a committee to look into the issue of facilitating development of fixed rate loan products in the banking system. “We will set up a committee soon to facilitate the development of fixed rate loan products in the market, which are presently absent in the system,” RBI deputy governor Anand Sinha said on the sidelines of an event. Explaining the rationale behind the move, he said it is the question of market development as consumer should get a range of products to make a choice. In its last credit policy review in April, the central bank had announced to set up a committee to look into the issue. Referring to the issue of hedging, Sinha said the central bank has asked banks to have a board mandated hedging policy to protect corporate clients from currency fluctuations. (For details log on to : http://www.financialexpress.com/news/rbi-to-set-up-panel-to-look-into-fixed-rate-loan-products/943563/)
BILL TO TRANSFER CENTRAL BANK’S SHAREHOLDING IN NHB
NEW DELHI: To enable RBI to focus on its supervisory function and avoid clash between its regulatory and ownership roles, a Bill was introduced in Lok Sabha to transfer shareholding of the country’s central bank in the National Housing Bank to the Centre. The National Housing Bank (Amendment) Bill, 2012 introduced by Finance Minister Pranab Mukherjee also seeks to transfer the registration and regulation related powers of the National Housing Bank (NHB) over housing finance companies to the RBI to ensure uniform control over non-banking financial companies. Once the Bill is passed, the NHB will concentrate on supervision and financing of such institutions. The amendment proposes to provide for transfer of surplus by the NHB to the central government. The Centre and not the RBI will be empowered to hike the authorised capital of NHB through a notification. After getting ownership of NHB, the government would also have a greater say in the board of the institution and the flexibility to issue directions to meet its credit objectives for the priority sector. (For details log on to : http://www.financialexpress.com/news/bill-to-transfer-central-banks-shareholding-in-nhb/943568/)
FINANCE BILL 2012: NEW PROCESS OF FILING TAX RETURN TO BECOME MORE TAXING
One should appreciate the intent and focused attention of Indian tax authorities to improve the tax filing experience, like introduction of online tax filing forms and making it mandatory for a specified category, the Centralised Processing Centre, and outsourcing the process to external vendors. While the corporate governance policies require companies to mandatorily disclose various aspects to all stake holders, the tax authorities have taken one step ahead to apply ‘disclosure’ principles for individuals. The Finance Bill 2012 proposes that, with effect from tax year 2011-12, every resident individual who has an asset outside Indiahas to file the tax return mandatorily irrespective of income. In other words, income is not the only criteria to file an income tax return in India. While the Finance Bill is yet to be passed by the Parliament, tax authorities have acted swiftly and brought out the tax return forms (Forms ITR-2, 3 and 4) in line with the above requirements. The new forms that have been notified include a separate schedule wherein the details of foreign assets are to be reported. (For details log on to : http://economictimes.indiatimes.com/personal-finance/tax-savers/tax-news/finance-bill-2012-new-process-of-filing-tax-return-to-become-more-taxing/articleshow/12943496.cms)
GOVERNMENT BANKS JOIN HANDS TO OPEN ATMS, CUT COSTS
MUMBAI: State-run banks (PSBs) will join hands to open over 65,000 automated teller machines, or ATMs, this fiscal that will bring down the cost of operations for all the member banks by at least 30%. One of the member banks will float a single tender on behalf of others for every region. For instance, State Bank of Indiahas invited tenders on behalf of UCO Bank, Allahabad Bank and United Bank to set up 6,099 ATMs in Uttar Pradesh. The move will help banks reduce transaction cost as the number of ATMs in a particular geography will increase substantially, giving them more bargaining power in settling transaction charges with the vendors. However, it will result in lower margin for ATM vendors. The unified approach in installing ATMs or cash dispensation machines follows an earlier directive from the finance ministry which wanted banks to reduce transaction cost – the price they pay to vendors for running the machines. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/government-banks-like-sbi-uco-bank-allahabad-bank-join-hands-to-open-atms-cut-costs/articleshow/12945763.cms)
ANDHRA BANK, BANK OF INDIA, OBC CUT BASE RATES BY 25 BASIS
MUMBAI: Public sector banks — Andhra Bank, Canara Bank, Bank of India (BoI) and Oriental Bank of India (OBC)on Monday re-aligned their base rates by trimming them by 25 basis points to 10.50% in line with their peers. Most banks now have a base rate of 10.50% except State Bank of Indiaand other private sector banks, which have lower base rate than the industry average. Almost all banks have now reduced their base rates in order after the Reserve Bank of Indiacut the key policy rate by 50 basis points on April 17, 2012. ICICI Bank had lowered its base rate by 25 basis points to 9.75% while Punjab National Bank (PNB) and Bank of Baroda (BoB) too dropped their base rates by 25 basis points to 10.5%. (For details log on to : http://www.financialexpress.com/news/andhra-bank-bank-of-india-obc-cut-base-rates-by-25-bps/943570/)
OBC NET FALLS 20% ON RISING NPAs
NEW DELHI: Oriental Bank of Commerce net profit slumped 20.65% to R265 crore in January-March quarter (Q4) in financial year 2011-12 (FY12) from R334 crore in Q4 FY11. A sharp spike in non-performing assets (NPAs), reversal of interest income, higher deposit costs and increase in restructured assets contributed to lower prof its. OBC stock closed lower 4.7% at R230.25 at the Bombay Stock Exchange on Monday. Its gross NPA ratio grew to 3.17% of gross advances as on March 31, 2012, higher than 2.92% as on December 31, 2011 and 1.98% as on March 31, 2011. The net NPA ratio was at 2.21% of net advances as on March 31, 2012, higher than 1.89% as on December 31, 2011 and 0.98% as on March 31, 2011. (For details log on to : http://www.financialexpress.com/news/obc-net-falls-20-on-rising-npas/943567/)
VIJAYA BANK Q4 NET JUMPS 234%
BANGALORE: Public-sector lender Vijaya Bank on Monday posted a 234% jump in its net profit for the fourth quarter ended March 2012 backed by improved business and lower provisioning. The PSU bank’s net profit for the quarter stood at R180.97 crore compared with R54.23 crore in the corresponding period last year. Chairman and managing director of Vijaya Bank HS Upendra Kamath said, “Calibrated approach towards improving the business, containing delinquency of borrowal accounts and costs has resulted in better performance even in the dwindling economic scenario”. The bank’s operating profit for the quarter was up 140% to R263.48 crore. For the full year ended March 2012, the Bangalore-based bank posted profit of R581 crore, up 10.9% year on year. Vijaya Bank said net profit for the year was arrived at after making necessary provisions including provision for NPA (non performing assets) of R414 crore, provision for standard assets of R34.81 crore and provision for standard restructured accounts towards economic loss of R39.58 core. (For details log on to: http://www.financialexpress.com/news/vijaya-bank-q4-net-jumps-234/943566/
BANK OF INDIA Q4 NET UP 93% Y-O-Y
NEW DELHI: Public sector lender Bank of India (BoI) on Monday reported Q4 net profits for financial year 2011-12 of R953 crore, up 93% year-on-year (yoy). The bank’s bottomline was boosted by a growth in net interest income (NII), lower operating expenses and income tax refunds. Net interest margins (NIMs) rose 31 basis points (bps) sequentially to 2.86%. chairman and managing director (CMD) of BoI Alok K Misra, said better yield on advances and enhanced current account savings account (CASA) ratio helped prop up NIMs. “We have done a re-balancing of our asset portfolio by increasing the proportion of high yielding retail and SME lending, compared with low yielding corporate advances. Also our branch expansion efforts have helped improve the CASA ratio,” he said. The yield on advances for the the bank at the end of Q4 stood at 9.73%, while the cost of deposits was at 5.98%. BOI’s CASA ratio ratio was at 34.25%, up from 32.4% in the previous quarter. (For details log on to : http://www.financialexpress.com/news/bank-of-india-q4-net-up-93-yoy/943565/)
PROFIT GROWTH OF TOP PRIVATE BANKS MAY MODERATE IN FY13
MUMBAI: India’s three largest private sector banks – ICICI Bank, HDFC Bank and Axis Bank – reported good numbers for the quarter ended March 2012, with ICICI Bank and Axis Bank surprising analysts positively to some extent. Despite the macro headwinds of slowing credit demand as well as high interest rates, the three banks were able to deliver healthy growth in loan book. Growth in fee income was largely good, even as they were able to hold on to their asset quality. Going ahead, while analysts remain largely positive on ICICI Bank and Axis Bank, they also see some concerns on slowing loan and earnings growth (ICICI Bank) and asset quality risk (Axis Bank). However, for HDFC Bank, which is relatively better placed, high valuations may cap any upside. (For details log on to : http://www.business-standard.com/india/news/profit-growthtop-private-banks-may-moderate-in-fy13/473035/)
IRDA LAUNCHES EXCLUSIVE WEBSITE FOR CONSUMER EDUCATION
CHENNAI/HYDERABAD: The Insurance Regulatory and Development Authority (Irda) has launched an exclusive website for consumer education on insurance products, including what they need to buy and whether they are being offered the right product. “The objective of having an exclusive website is to educate consumers about insurance in particular, regarding buying insurance, making a claim etc. The website is an attempt to reach out to all to give certain basic generic information on the subjects in order that consumers begin to think and seek answer to questions such as what they need to buy, whether they are being offered the right product,” J Hari Narayan, chairman of Irda, said in a circular on Monday. To begin with the website – www.policyholders.gov.in – will be in English and then will be enabled in Hindi and so on, according to Irda. The regulator also sought feedback from general public on the website on or before May 21, 2012. (For details log on to : http://www.business-standard.com/india/news/irda-launches-exclusive-website-for-consumer-education/473016/)
AVIVA CEO WON’T ACCEPT 2012 SALARY RISE
Aviva Plc, UK’s second-largest insurer by market value, said Chief Executive Officer Andrew Moss would not accept his 2012 salary rise. The move follows talks with shareholders on whether the compensation of executive directors reflect the firm’s 2011 performance, London-based Aviva said on Monday. Moss’s salary was due to rise five per cent to £1 million ($1.6 million) in April from £951,000 last year, according to the company’s annual report. (For details log on to : http://www.business-standard.com/india/news/aviva-ceo-wont-accept-2012-salary-rise/473049/)
GRUH FINANCE NET UP 32 PER CENT
MUMBAI/AHMEDABAD: Gruh Finance Ltd has registered net profit of Rs 120.34 crore for the year ended March 31, 2012 against Rs 91.51 crore for the previous year, up by 32 per cent. The board of directors of the company has recommend payment of dividend for the year ended March, 2012 of Rs 11.50 per equity share, which includes regular dividend of Rs 8.50 per share plus special silver jubilee dividend of Rs 2.50 per share as against Rs 11 per share dividend paid in the previous year. The dividend payout ratio for the year inclusive of tax on dividend will be 39.30 per cent. (For details log on to : http://www.business-standard.com/india/bsheadline.php)
BMW GROUP INCREASES ITS INVESTMENT IN BMW FINANCIAL SERVICES
MUMBAI: The BMW Group has increased its investment in BMW Financial Services India to 5.3 billion Indian Rupees (US $ 106 million) in 2012 from 2.3 billion Indian Rupees (US $ 50 million) in 2010. “In less than two years, BMW Financial Services India has established itself as the leading provider of customized financing solutions, individually tailored leasing plans and unrivalled services,” said Dan DeChristopher, MD and CEO, BMW Financial Services India. BMW Financial Services India has made significant contribution to BMW Group’s success in India. This investment will help us enhance our product and service offering in Indiato further augment BMW India’s market leadership, Mr DeChristopher said. In 2012, BMW Financial Services India will employ more than 80 people at its headquarters in Gurgaon. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/bmw-group-increases-its-investment-in-bmw-financial-services/articleshow/12934946.cms)
FOREIGN BROKERAGES GO DEFENSIVE AS MARKET SLIPS
MUMBAI: With a bleaker outlook for the equities market, foreign broking houses have taken a sharp U-turn in strategy, asking clients to shed risky stocks and shift focus to defensive bets. Investors typically turn towards defensive sectors when the market forecast is expected to remain bearish. Most broking houses have already cut their year-end target of the Bombay Stock Exchange (BSE) benchmark, the Sensex, and expect the market to remain subdued, due to stalled reforms and a deteriorating macroeconomic situation. Three leading foreign firms — Nomura, Deutsche Bank and UBS — are recommending clients to go overweight on sectors such as fast moving consumer goods (FMCG), pharmaceuticals and automobiles, while asking them to remain under-invested in high-beta sectors such as real estate and banks. High-beta stocks are those tending to rise or fall faster than the markets. (For details log on to : http://www.business-standard.com/india/news/foreign-brokerages-go-defensive-as-market-slips/473032/)
INVESTORS UNLIKELY TO GIVE UP ON INDIA OVER GAAR
In a large and raucous democracy like ours, sometimes it becomes hard to execute progressive policies and offer investors an India which is an attractive investment destination, says Tarun Kataria, chief executive officer – India, Religare Capital Markets. But he is sanguine that issues like GAAR in itself will not lead to an abandonment of plans to invest in a large, emerging market such as Indiawith a 6% GDP growth. Speaking to ET, he says Indiais too large an economy to ignore. Excerpts: Is the investment interest slowing down due to slow demand? By investment interest, if you mean domestic capex spending then no, it is not slowing down due to slow demand. Consumption demand continues to be robust as we see from what the FMCG companies are reporting. Rather investment is slowing down due to uncertainty about the direction of the macro economy, uncertainty about policy direction, uncertainty about reforms and of course high interest rates which makes investment less attractive. If by investment interest you mean interest from FIIs and FDIs then there remains a cautious interest in India. We have seen interest from Chinese and Southeast Asia countries looking to make mid-sized investments in India. Our offices in Hong Kong, Singaporeand Jakartaare now allowing us to participate and advise on these inbound flows. (For details log on to : http://economictimes.indiatimes.com/opinion/interviews/investors-unlikely-to-give-up-on-india-over-gaar-tarun-kataria-religare-capital-markets/articleshow/12943198.cms)
EQUITY FUND REDEMPTIONS IN APRIL ARE LARGEST IN 17 YEARS
BOSTON: Global investors this month pulled the most money from stock funds in any April in at least 17 years, amid escalating concern that Europe’s economy was faltering. Equity funds had net redemptions of $18.6 billion through April 25, according to data from EPFR Global, a research firm based in Cambridge, Massachusetts. The April withdrawals were the largest since at least 1996, the first year for which comparable data is available. “April has thrown up a lot of things that could change the equation, especially in Europe,” Cameron Brandt, director of research at EPFR, said. Investors have been shifting money from stock funds since the global credit crisis sent the Standard & Poor’s 500 Index down 38 per cent in 2008. In the US, money continues to flow to bond funds even as the benchmark index of big stocks has more than doubled since reaching a 12-year low in March 2009. (For details log on to : http://www.business-standard.com/india/news/equity-fund-redemptions-in-aprillargest-in-17-years/473043/)