NEW DELHI/MUMBAI: In a push to financial sector reforms, the Cabinet on Thursday cleared the much awaited Banking Law (Amendment) Bill. It approved a proposal to cap shareholders’ voting rights in private banks at 26 per cent irrespective of their total holding. To find common ground with the Opposition, the Cabinet diluted the provisions of an earlier legislation to increase entities’ voting rights in proportion to their shareholding.
“The Cabinet has cleared the Banking Laws (Amendment) Bill, 2011. It also approved an increase in voting rights from 10 to 26 per cent for private sector banks,” Information and Broadcasting Minister Ambika Soni told reporters after a Cabinet meeting.
Since the Cabinet cleared the Bill with just one change, it meant all other provisions in the legislation introduced in the Lok Sabha in 2011 would stay, officials said.
These provisions are raising the cap on voting rights of an entity in nationalised banks to 10 per cent from the existing one per cent, empowering the Reserve Bank of India (RBI) to supersede the board of a bank for up to a year if it is not working in depositors’ interests, vesting the central bank with the power to ask for information from banks’ associate companies, and taking mergers and acquisitions in banks outside the purview of the Competition Commission of India (CCI).
Interestingly, the Cabinet approval came on a day when the CCI gave the green signal to HSBC to acquire the retail and commercial banking business of Royal Bank of Scotland (RBS) inIndia.
The Bill, with the change, will now go to Parliament for clearance.
Voting rights in private sector banks were a bone of contention between the government and the Opposition in the Bill. According to some ministers, however, the voting rights of shareholders will be progressively increased to 26 per cent and not in one go.
Earlier, BJP leaders had said they did not have any objection if the voting rights were raised but capped at 26 per cent. But, they had said, they would oppose any Bill to increase them in proportion to shareholding. When contacted, BJP leaders on Thursday said they would have to see the Bill fine print to take a call on supporting it.
“The amendment opens interesting possibilities for bank ownership and governance, especially in relation to small private sector banks. It is also likely to attract the attention of global investors in Indian banks. However, given the requirement of the RBI’s approval for any share acquisition of five per cent and above, any meaningful change will happen only with the central bank’s concurrence and any change will be calibrated and controlled,” said Shinjini Kumar, director for banking regulations at PricewaterhouseCoopers in India.
A senior executive of a Mumbai-based bank said he did not think it was party time yet. “The RBI’s directive is very clear. Promoters should not hold more than 10 per cent stake in the bank. In case the promoters have more than 10 per cent stake, it should be reduced over a period of time. Hence, having voting rights of 26 per cent does not really give any material benefit to existing private sector banks,” said a senior executive of a Mumbai-based private bank.
A chief executive of a private sector bank in south India said it was a step in the right direction in terms of aligning the Act with regulations. “This will allow promoters in some private sector banks to have a higher voting right,” he said.
The chief financial officer of a Mumbai-based private bank said the move would benefit the new players who would enter the market once the RBI started issuing new licences.
“In the initial years, their shareholding will be high and this will give them a voting right of 26 per cent instead of 10 per cent. As far as the existing banks are concerned, except a few, it does not have any material impact on most,” he said.
Since there were several amendments to be done in the banking sector, the government had earlier clubbed them in one Bill. So, amendments to the Banking Regulation Act (BRA) also formed part of the Bill.
Admitting there had been delays in the passing of certain financial sector reforms Bills, the finance minister had said yesterday, “We’ll try to get these pieces of legislation enacted with a broad consensus. I hope some may be enacted during the latter part of the session or surely in the Monsoon session.”
OUR FINANCIAL SYSTEM IS STRONG: RBI
HYDERABAD: Against the backdrop of Standard & Poor’s downgrading India’s outlook to negative, Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty on Thursday said the country’s financial system was strong and all risks to growth and the economy were only internal, in terms of productivity and efficiency. “It is only an outlook change and what is coming in the rating is already in the know. The market has already discounted it,” he said, to a question on the impact of the rating downgrade on external borrowings, among other things. Asked about RBI’s views on the state of the economy and fiscal conditions, he said it would be known when the central bank issued its financial stability report in the month of June. While RBI undertakes overall diagnosis of the country’s economic and financial parameters every six months, it is a long haul before combining all the reports and informing the Financial Stability and Development Council, he said. The report is then made public. (For details log on to : http://www.business-standard.com/india/news/our-financial-system-is-strong/472741/)
EXPAND RETAIL LOANS: GOVT
MUMBAI: The finance ministry has asked state-owned banks to improve their retail lending. These banks, which generally lag their private counterparts on retail lending, have been asked to do so while ensuring there isn’t a spike in their bad assets. In a recent communication to state-owned banks, the ministry has sought details on how these loans are priced, the approval mechanism and eligibility norms taken into consideration for approvals. It also wants the details on the time taken to approve the various segments of retail loans. Retail loans cover those for housing, vehicles, education and all personal loans. The ministry has also asked each bank to adopt a standard policy on these loans. “Generally, retail lending rates have been higher for public sector banks, compared to the private lenders. The ministry feels the interest rates on such loans should be similar and rates should also not vary across banks,” said a banker. (For details log on to : http://www.business-standard.com/india/news/expand-retail-loans-govt/472740/)
RBI SOFTENS S&P BLOW, SAYS FINANCIAL SYSTEM IS STRONG
HYDERABAD: A day after global credit rating agency Standard & Poor’s cut India’s sovereign credit outlook to ‘negative’, the Reserve Bank of India (RBI) said the country’s financial system is strong and, sometimes, these ratings are discounted by markets. RBI deputy governor KC Chakrabarty said the central bank will intervene in the forex market only if there is high volatility in the currency market, and not just because of the ratings. The central bank will come out with its next financial stability report in June, which showcases the country’s financial strength and will reflect the position of the economy. “Indian financial system is stable and strong and this is our internal assessment. An RBI’s financial stability report will be released in June to understand the position,” Chakrabarty said on the sidelines of a seminar on ‘Financial Inclusion: Trends, challenges and policies towards an effective framework for financial inclusion’ in Hyderabad. (For details log on to : http://www.financialexpress.com/news/rbi-softens-s&p-blow-says-financial-system-is-strong/942035/)
EPF INTEREST RATE WILL BE RAISED TO 8.6% THIS YEAR: KHARGE
NEW DELHI: Interest rate on employees’ provident fund will be increased to 8.6 per cent for the current fiscal, a move which will benefit around five crore subscribers. “The rates were brought down due to lower income (on investment in Special Deposit Schemes)…There is no question of minimum or maximum interest rates. We distribute it as per our revenue. Next time, it will be 8.6 per cent,” Labour Minister Mallikarjun Kharge said in the Rajya Sabha replying to a debate on working of Labour Ministry. The Employees’ Provident Fund Organisation (EPFO) had brought down the rate of interest to 8.25 per cent for 2011-12 from 9.5 per cent provided in 2010-11. The retirement fund body EPFO has parked in excess of Rs 55,000 crore in the Special Deposit Schemes (SDS) aimed at providing better returns to non-government provident funds and other such funds. (For details log on to : http://economictimes.indiatimes.com/news/economy/policy/epf-interest-rate-will-be-raised-to-8-6-this-year-kharge/articleshow/12883354.cms)
SBH DESIGNS RECURRING-TERM DEPOSIT SCHEME
CHENNAI/HYDERABAD: In what it claims to be a first-of-its-kind from the Indian banking industry, the State Bank of Hyderabad (SBH) is thinking about launching a new product, which will combine the features of recurring deposit (RD) and term deposit schemes. “The idea is to freeze the interest rate at the time of entry. In the case of a fall in interest rates, it will not impact the customer. So far, nobody (bank) has thought of it (concept),” SBH managing director M Bhagavantha Rao told Business Standard. Under the proposed scheme, the period – six, nine and 12 months – will be chosen by the customer. At the end of that period, and depending on the requirement of the customer, it could be turned into a fixed deposit from anywhere between one and 10 years. “We are awaiting regulatory approvals from the Reserve Bank of India (RBI). Also, we have to rework on our core banking system to support this product. We expect the whole process to complete in two to three months from now,” he said. (For details log on to : http://www.business-standard.com/india/news/sbh-designs-recurring-term-deposit-scheme/472691/)
SBH MAY SEE PRESSURE ON NIM BY 22 BASIS POINTS
CHENNAI/HYDERABAD: Public sector lender, State Bank of Hyderabad (SBH), on Thursday said that there could be some pressure on its net interest margin (NIM) because of the central government indicating that the interest rates should come down, according to the bank’s managing director M Bhagavantha Rao. “This year, the banking sector deposits are going to be under a lot of stress because of the small savings offering a good rate of interest, in addition to tax concessions. And, banks have to compete with them. So, this is going to be a problem as we cannot go on cutting down our deposit rates,” he told mediapersons here on Thursday. SBH’s NIM stood at 3.47 per cent during the 2011-12 financial year, as compared to 3.51 per cent in the previous year. “The pressure on NIM could be in the range 3-4 basis points (bps) during the first quarter as we are yet to take a decision on our interest rates. We would be happy to end the NIM at 3.25 per cent (with a pressure of 20-22 bps) in FY13,” Rao said. (For details log on to : http://www.business-standard.com/india/news/sbh-may-see-pressurenim-by-22-basis-points/472690/)
RABOBANK SELLS 3.59% STAKE IN YES BANK
MUMBAI: Rabobank, the largest retail bank in the Netherlands, today sold a majority of its stake in private lender YES Bank for about Rs 453 crore. Rabobank has been gradually paring its stake in YES Bank since June 2010, as the Dutch lender moves closer to setting up its own banking unit in India. Rabobank, which owned 16.7 million shares or 4.73 per cent stake in YES Bank as on end-March, sold 12.7 million shares in bulk deals on the Bombay Stock Exchange (BSE). After the sell, the Dutch lender’s stake in YES Bank has now come down to 1.14 per cent. The shares were sold at about Rs 357 apiece, a discount of about 2.5 per cent from YES Bank’s closing price yesterday. Bajaj Allianz Life Insurance purchased 2.52 million shares from Rabobank, while Citigroup Global Markets Mauritius acquired 2.2 million shares, BSE data showed. (For details log on to : http://www.business-standard.com/india/news/rabobank-sells-359-stake-in-yes-bank/472729/)
EXIM BANK TO RAISE OVER $3 BILLION IN FY13
MUMBAI: Export and Import Bank of India(EXIM Bank) plans to raise over $3 billion in the current financial year to fund its lending operations. The government-owned export credit agency raised about $2.62 billion in 2011-12. The total borrowings, including rupee resources, were Rs 27,630 crore. The actual borrowings in FY13 would depend on demand for funds from Indian business, Chairman and Managing Director TCA Ranganathan said. Its lending book grew 18 per cent to Rs 54,530 crore at the end of March 2012 from Rs 46,041 crore a year ago. Ranganathan said this year, the bank estimates advances to grow 18 per cent. The last financial year was turbulent for Indian companies due to the financial crisis in Europeand slump in demand from foreign markets. The bank reported a net profit of Rs 675 crore, up from Rs 584 a year ago. It paid a dividend of Rs 205 crore to the government for 2011-12. (For details log on to : http://www.business-standard.com/india/news/exim-bank-to-raise-over-3-bn-in-fy13/472743/)
WEAK MARKETS AND CHARGES SPOIL DEUTSCHE BANK’S Q1 RESULTS
FRANKFURT: Deutsche Bank missed market expectations for profits in the first quarter as Germany’s biggest bank was hit by one-off charges and weak markets, which hurt earnings from trading and asset management. Group pretax profit of 1.9 billion euros, came in below the 3 billion euros in the year-earlier period and the 2.4 billion euro forecast in a Reuters poll, weighed by litigation charges and an impairment on its investment in Actavis. Pretax profit at the corporate banking and securities division, traditionally Deutsche’s main profit driver, fell to 1.7 billion euros in the quarter in what the bank described as a difficult environment, down from 2.3 billion euros in the year-earlier period. Deutsche said that while overall performance was strong, reflecting increased client activity compared to the second half of 2011, it remains less favourable compared to a year ago. Conditions in the global economy remain challenging, the bank said. (For details log on to : http://www.financialexpress.com/news/weak-markets-and-charges-spoil-deutsche-banks-q1-results/942045/)
BARCLAYS’ PROFIT UP 22% ON BACK OF INVESTMENT BANKING REBOUND
LONDON: Barclays beat forecasts with a 22% rise in first-quarter profit, as a strong rebound in revenue from its investment banking arm and a drop in bad debt countered increased compensation for insurance mis-selling. The British bank reported an adjusted pretax profit of £2.45 billion in the three months to end-March, up from £2 billion a year ago and above the average forecast of £2 billion from a poll of analysts supplied by the company. “Barclays first-quarter results are an encouraging start to the year and demonstrate continued progress across our execution priorities,” CEO Bob Diamond said in a statement. Shares in the bank were up 1.6% to 214.65 pence. Top-line income at Barclays Capital, the investment bank business that provides the bulk of the bank’s profit, rose to £3.46 billion. (For details log on to : http://www.financialexpress.com/news/barclays-profit-up-22-on-back-of-investment-banking-rebound/942044/)
IRDA ADVISED TO STUDY, RELAX NORMS FOR RURAL BRANCHES
NEW DELHI: The government has asked the insurance sector regulator to examine and relax the branch opening norms for the smaller cities, hoping increased presence of insurance companies will boost penetration of insurance products. There are 23 life and 24 non-life insurers in the country but the penetration of life policies is only 4.4% while non-life is even lower at 0.7%. Insurance firms need prior approval from the Insurance Regulatory and Development Authority, or IRDA, before opening any branch. In a letter to Insurance Regulatory and Development Authority or IRDA, the finance ministry has argued that banking sector regulator the Reserve Bank of Indiahas also eased the norms on branch opening and the IRDA needs to do the same. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/irda-advised-to-study-relax-norms-for-rural-branches/articleshow/12890510.cms)
INSURERS SCRAP SUB-LIMITS IN HEALTH POLICIES
MUMBAI: Two years after introducing sub-limits in health insurance policies, non-life insurers are now deleting the clause from new plans to attract retail customers. Sub-limits imposed specific restrictions on room rents, doctors’ fees and operation theatre charges. They were introduced to cut losses in the health insurance segment. Industry executives said Apollo Munich and Tata AIG General have removed sub-limits from new health insurance products, while other non-life insurers are contemplating a similar move. But, for group insurance policies, such limits will continue as these policies cannot have unlimited benefit, industry executives said. “More companies are looking at each line of business separately without cross-subsidy ,” said Antony Jacob, MD & CEO, Apollo Munich, a standalone health insurance company. Tata AIG’s MediPrime and Apollo Munich’s Optima Restore are the recent products that have done away with sub-limits. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/insurers-scrap-sub-limits-in-health-policies/articleshow/12889958.cms)
INFRASTRUCTURE DEBT FUND TO BE IN PLACE BY END MAY
NEW DELHI: The India Infrastructure Finance Company Ltd (IIFCL) is confident that its proposed $1 billion-infrastructure debt fund (IDF) would be operational by end-May. The capital market regulator SEBI has given its in-principle nod for this fund, Mr S.K.Goel, Chairman & Managing Director of IIFCL, said. The infrastructure lender would invest close to Rs 1,500 crore in the IDF, being set up through the mutual fund route. There are plans to bring in such public sector lenders as PNB and Oriental Bank as members of the Board of Trustees for monitoring the fund. Of the total amount of $1 billion, the domestic investors — IDBI Bank and LIC, besides IIFCL — will bring $500 million, while the balance will come from foreign investors, Mr Goel said. IIFCL is in talks with Asian Development Bank, Barclays and HSBC to rope them in as foreign investors. While ADB may bring in $200 million, HSBC and Barclays are looking at investments of $150 million each in the proposed fund, he said. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-economy/article3357913.ece)
SUNDARAM BNP HOME TO RAISE RS 2,700 CR THIS FISCAL TO UP ASSETS UNDER MANAGEMENT
CHENNAI: Sundaram BNP Home Finance, the home finance subsidiary of Sundaram Finance Limited, is planning to raise around Rs 2,700 crore during the current financial year, which would help the company in closing the year with Rs 5,000-crore assets under management (AUM). Srinivas Acharya, managing director, Sundaram BNP Home Finance, said that 40 per cent of the money would be raised through non-convertible debentures (NCDs), and the remaining from the National Housing Board, debts, commercial papers and public deposits. At present, the company’s assets under management (AUM) is around Rs 2,500 crore. Also, its securitisation would be increased from the present Rs 300 crore to Rs 500 crore. “This is mainly due to the increase in the portfolio size,” G Sundararajan, chief financial officer of Sundaram BNP, said, adding that the company was looking at entering project financing from next year. “We will start with a small experiment with a ticket size of Rs 10-20 crore.” (For details log on to : http://www.business-standard.com/india/news/sundaram-bnp-home-to-raise-rs-2700-cr-this-fiscal-toassets-under-management/472693/)
L&T FINANCE Q4 NET UP 44.5% AT RS. 141 CRORE
MUMBAI: L&T Finance Holdings reported a 44.5% y-o-y rise in consolidated net profit at R140.67 crore for the fourth quarter ended March 31, 2012. L&T Finance Holdings CMD YM Deosthalee said the growth in profit was due to improvement in the overall loan book position as well as improving net interest margins (NIMs) and operating efficiencies. Deosthalee said the consolidated NIMs of the NBFC’s two main subsidiaries, L&T Infra and L&T finance, were sequentially up from 5.7% to 6.25%. “This was on account of better pricing, a one-time mark-to-market provisioning and an enhanced drive to collect interest dues,” he added. He said the NBFC grew in the quarter despite losses in microfinance and higher provisions against infrastructure loans. The microfinance business posted a net loss before tax of R122.86 crore for the fiscal year 2011-12. In Andhra Pradesh, the financial firm did not disburse any fresh loans towards microfinance while marginal collections continued. (For details log on to : http://www.financialexpress.com/news/l&t-fin-q4-net-up-44.5-at-rs.-141-crore/942033/)
POLICY UNCERTAINTY MAKES FIIs WARY OF INDIA
MUMBAI: Foreign institutional investors (FIIs) are increasingly getting edgy as recent policy actions, or the lack of it in several cases, have dampened their enthusiasm to buy Indian shares. Tax uncertainty due to the proposed general anti-avoidance rules (GAAR), policy flip-flop on foreign direct investment (FDI) in multi-brand retail, rollback of rail fare increases, status quo on petrol prices, the Coal India fuel supply penalty issue and the telecom regulator’s proposals for a steep increase in spectrum prices have not gone down well with them. As a result, net inflow from investors abroad into Indian shares have come down to a trickle in recent weeks. After pumping in about Rs 44,037 crore in the Indian stock market in the first three months of this year, FIIs pulled out Rs 582 crore in this month till April 25, showed Securities and Exchange Board of India (Sebi) data compiled by the Business Standard Research Bureau. The National Stock Exchange (NSE) benchmark, the Nifty, which delivered 15 per cent returns in the first three months of 2012, has fallen two per cent in this month so far. The 50-stock index closed down 0.25 per cent at 5,189 on Thursday. (For details log on to : http://www.business-standard.com/india/news/policy-uncertainty-makes-fiis-waryindia/472722/)
MUTUAL FUNDS LOSE OVER 7 LAKH FOLIOS IN SIX MONTHS
MUMBAI: The past six months were particularly tough for the mutual fund industry as indicated by the number of folio closures witnessed in the period. Mutual funds lost over 7 lakh folios (1.5%) during the six months ended March 2012 to end with 4.64 crore folios, according to industry body Association of Mutual Funds in India(Amfi). For the year ended March 2012, the industry lost 7.8 lakh folios or 1.7%, indicating that the number of folio closures rose substantially during the last six months. The retail category was the biggest loser in terms of folios, especially in equity. This was mainly because of the volatile movement of the equity market. Between October and December, the benchmark BSE Sensex declined 5.4%, but rose 6.4% between October and March, thanks to the surge in FII inflows in the early part of 2012. (For details log on to : http://www.financialexpress.com/news/mutual-funds-lose-over-7-lakh-folios-in-six-months/942150/)
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