MUMBAI: Chief executives of banks, who feel the deteriorating pulse of the economy, told Reserve Bank of India Governor Duvvuri Subbarao that interest rates and cash reserve requirement have to be lowered to revive investments and demand.
A failure to cut cost of funds and ease liquidity pressure could derail the hopes of an early return to 9% growth levels that pulled millions out of poverty, the bank chiefs told Subbarao at their customary pre-monetary policy meeting.
“It is important to give boost to investment and growth, which requires interest rates to go down,” Chanda Kochhar, CEO of India’s largest private sector lender, ICICI Bank, told reporters after the meeting. A combination of interest rate cuts and easing of reserve requirement is essential for customers to benefit from lower rates, she said.
The RBI’s annual monetary policy will be announced on April 17.
Lenders, corporates and politicians have been lobbying for lower interest rates to ease the pressure on the economy that’s slowing down, squeezing profitability and pulling down tax revenues. Loan defaults are surging to multi-year highs, and debt restructuring is soaring.
But the governor is stubbornly holding on to policy rates as inflation threatens to undo the economic achievements of the last two decades.
Subbarao had said suppressed oil and coal prices and fiscal profligacy were holding him back from cutting rates.
“Most bankers have asked for a 50-basis-point cut in repo rate and CRR to ease liquidity conditions and boost investment,” said a bank chief present at the meeting but not wanting to be identified. “There is a lot of stress in the economy and investment sentiments are very low. A cut in rates is needed to send a positive signal to industry.”
Repo rate, the rate at which the central bank lends to banks, is at 8.5% and CRR at 4.75%.
During the meeting, RBI Deputy Governor KC Chakrabarty asked bankers whether they have passed on the benefit of CRR cuts to customers.
The bankers said the CRR cuts had eased liquidity, but did not bring down costs.
The Reserve Bank has raised repo rate by 3.75 percentage points since 2010 to October last year to tame inflation that began with food prices and spread to manufacturing. But it cut the cash reserve requirement twice last month as bank borrowings from the liquidity adjustment facility rose to record levels, which has since eased.
Banks also said they would not be able to reduce lending rates since their cost of funding remains high and that will hurt their profitability. They said with a surge in defaults and restructuring, any cut in lending rates would weaken them, causing long-term harm to the system.
“Most banks said base rates won’t come down in first quarter of 2012-13,” said Pratip Chaudhuri, chairman, State Bank ofIndia. “Bankers told the RBI that they will have to sacrifice their spreads to cut lending rates.”
Spread is the difference between cost of funds and yield on advances. The SBI chief said the bank will cut rates for loans yielding above 13% and for small and medium enterprises by as much as 2 percentage points if CRR is cut.
FINANCE MINISTRY ADVISES BANKS TO POPULARISE E-PAYMENTS TO REDUCE USAGE OF CHEQUES, BANK DRAFTS
NEW DELHI: Finance ministry has advised banks to popularise electronic funds transfers to reduce usage of cheques and bank drafts that are prone to fraud, assuring them electronic transfer of funds will have same legal protection as the traditional banking instruments. There are currently over 30 lakh cases of bounced cheque in the courts, a problem the government feels can be addressed through electronic transfers. “We have examined the matter and told banks that this (dishonour of e-payment) will involve the same penalty clause as in the case of a bounced cheque,” said a finance ministry official, emphasizing customers will not be legally disadvantaged if they opted for electronic transfer instead of cheque payments. Officials believe increased awareness can help electronic funds transfer become more acceptable among customers. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/finance-ministry-advises-banks-to-popularise-e-payments-to-reduce-usage-of-cheques-bank-drafts/articleshow/12540515.cms)
NON-FOOD CREDIT INCREASES 16.8%; DEPOSIT GROWTH SLUGGISH AT 13.4%
MUMBAI: Non-food credit in the fortnight to March 23, 2012 rose 16.8% year-on-year, taking outstanding credit to R45,30,326 crore, Reserve Bank of India data releases on Wednesday showed. In the previous fortnight, loans to corporates and individuals had grown at 16.1% y-o-y. However, deposits have been sluggish, increasing by just 13.4% y-o-y. The outstanding deposits in the system stood at R59,03,659 crore. The credit-deposit ratio remains fairly high at above 76%. The growth in credit is in line with outlook given by most bankers. The year to date credit growth has been 16.9%. This is little better than the levels RBI had projected of 16% for 2011-12, having pruned it from 18%. Indeed, banks appear to have been somewhat risk averse in the light of a slowing economy and increasing non-performing assets. (For details log on to : http://www.financialexpress.com/news/nonfood-credit-increases-16.8;-deposit-growth-sluggish-at-13.4/932683/)
BANKS CLOCK A THIRD OF FY12 CREDIT GROWTH IN FEB & MAR
MUMBAI: Growth in bank advances, which remained muted most of the year, picked up in February and March. Banks added Rs 2.6 lakh crore, or a little more than a third of the financial year’s total of Rs 6.6 lakh crore of loans, in the past two months of 2011-12, data released by the Reserve Bank of India (RBI) on Wednesday showed. However, the year-end phenomenon of spikes in credit growth drew flak from RBI. Bankers said the central bank had raised the issue at the pre-policy meeting on Wednesday. As on March 23, annual credit growth stood at 16.98 per cent, above the central bank’s revised projection of 16 per cent. RBI had scaled down the year-end credit growth projection twice. The central bank had increased the repo rate by 175 basis points in April-October 2011 to tackle high inflation and inflationary expectations, and banks had responded by increasing lending rates. So, the demand for credit was hit during the initial part of financial year 2011-12. (For details log on to : http://www.business-standard.com/india/news/banks-clockthirdfy12-credit-growth-in-febmar/470186/)
SBI EXPECTS RBI TO CUT CRR BY 0.75% ON APRIL 17
MUMBAI: Country’s largest lenderStateBank of India (SBI) expects the Reserve Bank to further unlock liquidity by reducing Cash Reserve Ratio (CRR) by 0.75 per cent later in the month, that could lead to moderation in lending rates. “My personal stance is that cut CRR. Everything else follows. Lending rate will come down eventually. I would expect 75 basis point cut in CRR,” SBI Chairman Pratip Chaudhuri said after the pre-monetary policy consultation of Indian Banks’ Association (IBA) with the Reserve Bank. Last month, RBI slashed CRR (cash reserve ratio), the percentage of deposits that banks have to keep with the RBI, from 5.5 per cent to 4.75 per cent. With this, the central bank had infused Rs 48,000 crore into the economy. The apex bank is eliciting view of stakeholders to formulate the annual monetary policy which is scheduled to announced on April 17. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-expects-rbi-to-cut-crr-by-0-75-on-april-17/articleshow/12534624.cms)
ICRA DOWNGRADES BOND PLANS OF UCO BANK
MUMBAI: Rating agency Icra on Wednesday downgraded bond programmes of UCO Bank by one notch due to deterioration in its asset quality. The revised ratings of various tier-2 bonds programmes, aggregating to R1,075 crore, were changed from [Icra]AA+ to [Icra]AA. The agency also revised the ratings assigned earlier to the R500 crore upper tier-II bond programme and to R185 crore IPDI programme of UCO from [Icra]AA to [Icra]AA-. However, the long- term ratings carry stable outlook. According to the agency, the revision in rating is on account of deterioration in asset quality and weak solvency profile and are supported by bank’s sovereign ownership, adequate profitability, comfortable capitalization and comfortable liquidity profile of the bank. The bank’s asset quality deterioration is reflected in increase in gross non-performing assets (NPA) from 2.57% as on December, 2010, to 3.49% as on December, 2011. (For details log on to : http://www.financialexpress.com/news/icra-downgrades-bond-plans-of-uco-bank/932693/)
ICICI BANK FILES CAVEAT WITH CLB ON KINGFISHER
MUMBAI: ICICI Bank has filed a caveat with the Company Law Board (CLB) and civil courts in some states, requesting for a hearing in case Kingfisher Airlines moves to liquidate assets that are pledged with the bank. Banking industry sources said, the move by the lender is pre-emptive to protect its interest. ICICI Bank officials were not available for comments. Kingfisher Airlines’s stock jumped 11 per cent on Wednesday as the airline management stuck to its promise on paying salaries to its staff and employees called off the proposed strike. This is the second consecutive rise for the troubled airline’s stock. This was on top of the 10 per cent rise on Tuesday. (For details log on to : http://www.business-standard.com/india/news/icici-bank-files-caveatclbkingfisher/470185/)
RBI ASKS KOTAK BANK PROMOTERS TO CUT STAKE TO 10%
MUMBAI: The Reserve Bank of Indiahas asked the promoters of Kotak Mahindra Bank to cut their stake in the bank to 10 per cent from 45 per cent by 2016. This regulatory directive is in keeping with the guidelines for entry of new private sector banks. The guidelines require promoters to gradually bring down their stake to 10 per cent. Promoter holding in Kotak Mahindra Bank was at 45.40 per cent as on December-end 2011 against 63 per cent in 2003, when it became a bank. Promoters of private sector banks such as Kotak Mahindra bank, YES Bank and Development Credit Bank have been getting regulatory exemptions every year to hold higher stakes. (For details log on to : http://www.thehindubusinessline.com/todays-paper/article3281978.ece)
RBS OPTED OUT OF $207-M BOND SALE
Royal Bank of Scotland Group pulled a $207 million sale of bonds backed by its own derivative trades after investors scarred by losses on exotic debt balked at the complexity, sources said. The deal, called Score, was cancelled in February, said a source. Money put up by bondholders would have been used to reimburse RBS if customers failed to pay up on a $3.2 billion book of derivatives trades, according to a November presentation. If no customers defaulted, bondholders would get their money back plus interest topping 15%. The cancellation shows RBS misjudged the appetite for securities constructed like those that led to the 2008 financial crisis. While RBS described deals such as Score as a “key tool” to build capital after its government bailout, investors burned by about $420 billion of losses on subprime-backed collateralized debt obligations remain wary of intricate vehicles that promise outsized returns, the people said. (For details log on to : http://www.financialexpress.com/news/rbs-opted-out-of-207m-bond-sale/932690/)
MUKHERJEE PULLS IRDA FOR MICRO MANAGEMENT
NEW DELHI: Finance minister Pranab Mukherjee has ticked off Insurance Regulatory and Development Authority (Irda) for micro management of the industry and has underlined that the the regulator should be expressively punitive to companies who resort to mis-selling or violate the initially agreed terms and conditions. Speaking at the meeting of board of directors of Irda, the finance minister said, “The regulatory environment should be conducive to changes with regulator seeking broad guidelines as opposed to micro management.” He added there is a case for moving to a ‘use and file’ system for approving products or mix it with the existing ‘file and use’ policy, in order to speed up the product approval process which has been the concern in the sector for some time. (For details log on to : http://www.financialexpress.com/news/mukherjee-pulls-irda-for-micro-management/932685/)
ICICI PRU LIFE TO AUGMENT AGENCY NETWORK; RAMP UP ONLINE SALES
MUMBAI: ICICI Prudential Life Insurance is looking to engage 20,000-25,000 new agents this year. Currently, its agency network is about 1.25 lakh strong, said Mr Tarun Chugh, Chief Distribution Officer. After the IRDA upgraded the training model for agents, the company is investing more in its training programme. It currently has 700 trainers. “The training programme for insurance agents has now become more meaningful and the quality of output is significantly enhanced. The new curriculum ensures that agents become more of financial advisors. They are now better equipped to understand customer needs and present relevant life insurance solutions,” Mr Chugh said. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3282037.ece)
INDIAFIRST PREMIUM GREW BY OVER 43 PC TO RS 1,000 CR IN FY12
Private insurer IndiaFirst Life Insurance today said it garnered premium at Rs 1,000 crore during FY12 by over 43 percent compared to the previous fiscal. IndiaFirst premium stood at Rs 700 crore in FY11, the company said in a statement issued here. “Being incorporated in November, 2009, we have approximately covered 1.6 million lives. The trust displayed by our customers, distributors and shareholders in us, adds to our responsibility of ensuring continuous innovation to keep providing enhanced value,” IndiaFirst Managing Director and CEO P Nandagopal said. Last financial year, IndiaFirst surpassed its rural and social obligations laid down by the regulator, he said. The company acquired 14 per cent of its business from rural India and covered 5,27,589 lives against 5,000 lives – taking the benefits of life insurance to the doorsteps of customers across the country, irrespective of their location. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/indiafirst-premium-grew-by-over-43-pc-to-rs-1000-cr-in-fy12/articleshow/12533184.cms)
BERKSHIRE HATHAWAY FINALLY FORAYS INTO INDIA’S REINSURANCE BUSINESS
MUMBAI: Warren Buffett’s Berkshire Hathaway has shed its India aversion – due to controls – and for the first time took up the role of a dominant reinsurer for three insurers, signalling the end of ‘loss makers’ tag for the domestic insurance industry, said two people familiar with the development. The hesitant insurer, which started off last year with the distribution of insurance products coinciding with the iconic investor’s visit to the country, has tiptoed into the reinsurance business this year. In the current fiscal, Berkshirewill be the lead reinsurer for Bajaj Allianz and National Insurance and will be a co-lead for New India Assurance with GIC. Leading the treaty indicates that it will reinsure the majority portion of the insurance policies sold by these companies. Berkshire Hathaway did not respond to an email query. Buffett’s reinsurance unit, the biggest profit earner for the investor and headed by India-born Ajit Jain, has been reluctant to commence business in India, citing various regulations and the fact that the country still does not permit 100% foreign ownership in the industry. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/berkshire-hathaway-finally-forays-into-indias-reinsurance-business/articleshow/12529795.cms)
FDI MAY BE ALLOWED IN MORE NBFC ACTIVITIES
NEW DELHI: The Government may consider widening the list of Non- Banking Financial Companies (NBFCs) activities that can get foreign direct investment. The Reserve Bank of Indiahas endorsed such a move. The new activities are likely to find place in the FDI Press Note which will be effective for 2012-13. The Department of Industrial Policy and Promotion (DIPP) is readying this note. At present, 18 NBFC activities have been permitted for FDI. A person familiar with the development told Business Line that “there is a proposal to reorganise the ‘leasing and finance’ business (one of the 18 specified NBFC activities for FDI. The reorganisation may be into four activities — leasing, loans and advances, hire purchases and factoring.” (For details log on to : http://www.thehindubusinessline.com/todays-paper/article3281981.ece)
GAAR TO APPLY ONLY IN SHADY ARRANGEMENTS, FIIs ASSURED
NEW DELHI: The finance ministry on Wednesday tried to soothe the nerves of foreign institutional investors (FIIs) over the tax treatment of their investments. Finance secretary R S Gujral told FIIs the General Anti-Avoidance Rule (GAAR) would be invoked only in case of impermissible arrangements. “If they are in a permissible arrangement, clearly they are governed by the particular treaty and GAAR does not get invoked at all. If it is an impermissible arrangement, then GAAR gets invoked and the treaty does not help them,” Gujral told reporters after a meeting with FIIs, which comprised Goldman Sachs, Morgan Stanley, JPMorgan, CLSA and Credit Suisse, among others. GAAR is a component of the proposed Direct Taxes Code proposed in the Budget. GAAR is essentially aimed at deals whose purpose is tax avoidance. The fear in the market is the new rule could apply to participatory notes issued by FIIs, through which entities not registered in Indiacould invest in the stock markets. (For details log on to : http://www.business-standard.com/india/news/gaar-to-apply-only-in-shady-arrangements-fiis-assured/470202/)
FUNDS RAISED THROUGH IPOs SLUMP 82% FOR LAST FISCAL
NEW DELHI: Indian companies raised a total of R5,800 crore during the last fiscal 2011-12 through initial public offers (IPOs) — a slump of 82% from the previous year. As per the analysis of data available with the exchanges, a total of 33 Indian firms together raised R5,808 crore via IPO route during the fiscal ended March 31, 2012. In comparison, a total of R33,183 crore worth capital was raked in by 52 firms during the fiscal 2010-11. Interestingly, NBCC was the single state-owned firm to enter the capital market through IPO route during 2011-12. It raised about R120 crore through its public offer. Besides, two other public sector firms — Power Finance and ONGC — raised capital through FPOs during the past fiscal. PFC and ONGC raised R4,660 crore and about R12,000 crore, respectively. Among the major IPOs of the year, L&T Finance raised R1,245 crore, Muthoot Finance garnered R900 crore, Future Ventures India, mopped up R750 crore and commodity bourse MCX raked in R663 crore. (For details log on to : http://www.financialexpress.com/news/funds-raised-through-ipos-slump-82-for-last-fiscal/932739/)
PRINCIPAL MF COLLECTS RS 190 CR FROM PRINCIPAL PNB FIXED PLAN
Asset management firm Principal Mutual Fund today said its fixed income plan, Principal PNB Fixed Maturity Plan-Series A4, has mopped up Rs 190 crore. The close-ended scheme with a maturity of 367 days, was open from March 22 until March 29. “We are very pleased with the collections of the Principal PNB Fixed Maturity Plan-Series A4 and the investor confidence that it has attracted,” the fund house’s Chief Investment Officer Rajat Jain said in a statement. Fund houses normally launch a slew of fixed maturity plans during February and March as these schemes provide attractive yields and double indexation benefit available to investors. Double indexation benefits mean providing the advantage of two cost inflation indices to the investor for staying invested in a particular instrument for a particular time period. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/principal-mf-collects-rs-190-cr-from-principal-pnb-fixed-plan/articleshow/12531818.cms)
MUTUAL FUND INDUSTRY LOST RS 36K CRORE IN ASSETS LAST FISCAL
The mutual fund (MF) industry, which has been battling a downturn for almost a year now, lost nearly Rs 36,000 crore in assets or 5.1% in the just concluded fiscal year. The average assets under management (AUM) of fund houses stood at Rs 6,68,824 crore in 2011-12, the lowest in three years. The average AUM has fallen for the second consecutive year. It dropped 6.2% year-on-year (y-o-y ) to Rs 7,00,810 crore in 2010-11. The assets managed by the industry fell 2% on a sequential basis. The AUM of equity funds increased 13.5% during the first quarter of 2012, slightly better than the advance made by the sensex but still lower than the gains recorded by the Nifty. The fall in the average AUM is attributed to redemption (exits) made by corporates due to advance tax payments in March, which amounted to Rs 50,000-60 ,000 crore (Rs 30,000-40 ,000 crore at the end of previous quarter), according to ratings agency Crisil. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/mutual-fund-industry-lost-rs-36k-crore-in-assets-last-fiscal/articleshow/12530385.cms)
MANIPULATORS OF DEBT NAV NORM FACE SEBI IRE
MUMBAI: The Securities and Exchange Board of India (Sebi) has directed mutual fund (MF) houses to take action against distributors who circumvent norms to get the same day’s net asset value (NAV) in debt schemes by splitting their purchases to ensure the Rs 1-crore limit is not crossed. The securities market regulator has asked MFs to review the conduct of these distributors, who break the investments into multiple applications to comply with Sebi’s NAV norms for debt schemes “in letter but not in spirit”. Sebi has also asked MFs to take appropriate action to reimburse the losses incurred by existing investors in schemes where multiple applications were made by certain entities to circumvent the requirement of the availability of funds. Business Standard has reviewed Sebi’s note to fund houses on the issue. (For details log on to : http://www.business-standard.com/india/news/manipulatorsdebtnav-norm-face-sebi-ire/470144/)