Indian economy could take another two years to return to 9% growth, but a lot depends on global recovery, says BA Prabhakar, CMD, Andhra Bank. In an interview with ET , Prabhakar says the RBI may cut policy rates in April, but lending rates will decline only after six months as liquidity is likely to remain tight. Excerpts:
What is your view on the economy? When do you think we would be back to 9% growth?
The projected 7.6% growth in the coming year is reasonable and likely to be achieved. It will take another two years for growth to get back to 9% and a lot will depend on how global economy recovers. Domestic growth can pick up if inflation is controlled which will compel the RBI to reduce lending rates. This could be a driver for domestic growth. But, global factors such as crude oil prices could impact inflation. So, a lot will depend on global economy.
What feelers you get from borrowers on economy?
The SME sector is doing reasonably well even amid liquidity issues. Their expansion plans are directly related to their customers — vendors and large corporates. We have not seen major projects taken up by small companies. Their capex plans will depend on indication they get on whether their vendors are going ahead with expansion plans.
Large corporates are not sure if earlier growth of 9% will come back very soon. Once they are confident that demand will pick up and growth rate would be 8.5-9% on a sustained basis, then only they will look at expansion plans.
What is your view on interest rates?
Liquidity will continue to be tight. Interest rates purely based on liquidity considerations will remain at a slightly higher level. But I do expect that in the April policy, the RBI may consider a cut in policy rate at least by 25 bps, which will send a signal for banks to cut rates. And that may lead to reduction in rates across.
SBI has raised deposit rates. Does it mean that borrowers will have to wait a little longer for a reduction in rates?
SBI’s move is keeping in mind the current liquidity conditions and the rates offered by other instruments like mutual funds for the same period. If comparable instruments are giving similar returns, then I think any financial institution will have to match those rates.
So naturally, that is one of the reasons for SBI to raise rates. Given tight liquidity and the fact that deposits are critical to meet credit growth, I think banks have to offer competitive rates. From SBI point of view, retail deposits are the most stable source of fund. If you offer retail depositors competitive rates, they will stay with you for a much longer time.
So when do you expect rates to come down?
Lending rates are a function of availability of liquidity, demand for credit and cost of funds. Liquidity will continue to be tight, credit demand is not very robust and cost of funds is not expected to come down steeply.
If the RBI cuts rates, cost of funds may come down with a lag effect and so it could take 6-8 months for lending rates to come down. But if credit demand is weak, then probably banks may consider reduction in rates in certain segments such as retail loans — housing and education.
There are worries that stressed and restructured assets would impact banks’ performance. What is your view?
Given the economic environment, it was expected that restructured assets would rise. The current NPA levels would be at manageable levels and banks would be in a position to make provision and show decent profits. Also, banks have strengthened NPA monitoring and the recovery system has been robust. So accretion in NPA would not be as much as last year. The rate of increase in NPA has slowed down. Restructuring is by-and-large complete.
Being in Andhra Pradesh with the largest concentration of MFI players, what feelers you get on this industry?
The MFI scenario has not improved at all. Due to legislative changes in AP, it is unlikely that things would improve. There are so many restrictions placed on their recovery efforts that it’s difficult to lend in AP and do business. In AP, MFIs may not be able to survive.
Our exposure to MFI is not very large. In few MFIs where we have exposure, they have operations outside AP. For some, we have restructured the loans and we are confident that the restructuring programme will work.
What is your vision for Andhra Bank?
Our vision is to take Andhra Bank to the category of large banks by March 2014. Our total business is Rs 1.90 lakh crore and we want to reach Rs 3 lakh crore by 2014. For this, we will have to grow faster than the industry at 30%. Our strategy would be to open more branches – about 150 – which will enable us to reach higher growth.
Any plans to enter newer business areas?
No, we are not looking at any new business. We already have 23% in insurance venture. We will need capital for our own growth requirements.
FOREIGN POLICY TO DECIDE BANKS’ FORAY ABROAD
NEW DELHI: The presence abroad of state-run banks may now be linked to the country’s perceived strategic interests. The finance ministry is in talks with the home ministry and the Reserve Bank on guidelines for expansion of public sector banks (PSBs) abroad, in sync with India’s relations with other countries. It also wants insurance companies to converge with banks to provide a wide range of services to customers abroad. The government may ask banks to explore possibilities in neighbouring countries such as Bhutan, Myanmarand Nepal, as well other countries strategically important to Indialike Canadaand Iran. It could also ask PSBs to diversify to newer territories like Mexico. (For details log on to : http://www.business-standard.com/india/news/foreign-policy-to-decide-banks-foray-abroad/469818/)
RBI WARNS STATES ON POWER UTILITY LOSSES
MUMBAI: The Reserve Bank of India has said the mounting losses of state power utilities (SPUs) is a growing problem for finances of state governments which have issued guarantees and agreed to foot subsidy bills. SPUs are making huge cash losses due to non-revision of rates over extended periods of time and non-realisation of subsidies from the governments concerned. They’ve increasingly financed their losses through short-term borrowings from banks and other financial institutions. These borrowings have assumed alarming proportions, RBI said. State governments provide budgetary support to SPUs through subsidies, grants and loans. They have also extended guarantees for loans taken by the utilities from financial institutions. (For details log on to : http://www.business-standard.com/india/news/rbi-warns-statespower-utility-losses/469820/)
CALL RATES TO STAY HIGH THIS WEEK
MUMBAI: The overnight call money rate is expected to remain elevated this week, as banks have fewer working days to borrow and cover reserve needs for the fortnight ending April 6. On Friday, the four-day call money rate closed at a three-year high of 15 per cent on lack of fund supply in the debt market. This, despite banks borrowing Rs 1.97 lakh crore from the Reserve Bank of Indiathrough two repo auctions under the Liquidity Adjustment Facility (LAF). Banks borrowed Rs 35,585 crore in the special LAF conducted on Saturday. “The spike was due to year-end pressure on top of high systemic liquidity deficit,” said a senior treasury official of a large public sector bank. Banks and money markets will remain shut on Monday, Thursday and Friday due to their yearly closing, Mahavir Jayanti and Good Friday, respectively. This leaves just two working days to cover reserve needs for the rest of the fortnight. (For details log on to : http://www.business-standard.com/india/news/call-rates-to-stay-high-this-week-/469781/)
BANKS CAN’T FREEZE ACCOUNTS IF KYC DOCUMENTS NOT SUPPLIED: HC
AHMEDABAD: The Gujarat High Court has ruled that banks cannot freeze accounts nor can they stop issuing cheque book or providing ATM facility where the account holder has not supplied KYC (Know Your Customer) documents. The court has further ruled that presence of the account holder was not a ‘must’ for production of documents required for KYC. The ruling was given by division bench of Justice Jayant Patel and Justice Paresh Upadhyay last week while hearing a petition seeking temporary bail filed by one of the convicts of the 2008 Patan gangrape case, serving a life term. The accused Ashwin Parmar had approached the High Court for temporary bail on the ground that he was required to remain himself present at the State Bank of Indiabranch to submit documents under KYC norms. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-cant-freeze-accounts-if-kyc-documents-not-supplied-hc/articleshow/12494763.cms)
‘BANKS CAN SAVE RS 300 CR ANNUALLY BY SWITCHING OVER TO RUPAY’
MUMBAI: A switchover to RuPay Card, the Indian version of Visa or MasterCard, can help domestic banks save as much Rs 300 crore annually in transaction fees, says the National Payments Corporation, which launched the card last week. “Adoption of the RuPay Card will help banks save Rs 250-300 crore annually as our interchange charge is cheaper by up to 40 per cent than what banks pay to foreign cards like Visa and MarsterCard,” National Payments Corporation of India (NPCI) Managing Director and Chief Executive Officer A P Hota told PTI. After years of preparation and soft launch, NPCI commercially launched RuPay Card on March 26, with major banks such as SBI, BoB, UBI, BoI, Corporation Bank and Axis Bank launching their domestic debit cards on the RuPay platform. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-can-save-rs-300-cr-annually-by-switching-over-to-rupay/articleshow/12493807.cms)
ALLAHABAD BANK OPENS 2500TH BRANCH
KOLKATA: Allahabad Bank, currently celebrating 147th year of its service to the nation, opened its 2,500th branch at ModelTown, Delhion March 31, 2012. The branch was inaugurated by J P Dua, Chairman & Managing Director of the Bank. With opening of the branch, the total number of branches in Delhi/ NCR stands at 98. The newly opened branch will be on CBS platform from Day -1, thereby providing anywhere banking facilities to its customers. (For details log on to: http://www.business-standard.com/india/news/allahabad-bank-opens-2500th-branch/469796/)
SYNDICATE BANK TO OPEN 200 BRANCHES THIS FISCAL
BANGALORE: Syndicate Bank opened 108 branches across the country on Saturday. Speaking at the inauguration event, Mr M.G. Sanghvi, Chairman and Managing Director, Syndicate Bank, said the bank plans to open 200 branches during the 2012-13 fiscal. Currently, the bank has a network of over 2,700 branches. With a capital adequacy ratio of 12 per cent and net NPA below one per cent, the bank is geared to grow qualitatively, he said. “We are on the verge of crossing the Rs 3-lakh-crore business, and we are confident of achieving this in the first quarter of 2012-13,” said Mr Sanghvi. The bank has achieved the government’s priority sector lending and direct agriculture advances targets, he added. Mr Sanghvi pointed out that this was a growing market for the banking industry in the future. (For details log on to: http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3270085.ece)
YES BANK RAISES RS 380 CR FROM IFC, REVIVES PLAN TO RAISE $400 MN IN SHARE SALE IN EUROPEAN MARKETS
MUMBAI: YES Bank has raised Rs 380 crore in debt from International Finance Corp (IFC) and revived its plan to raise $400 million in share sale in the European markets as investors’ risk appetite returns after the European crisis appears to have eased. In the last quarter, the bank had raised Rs 830 crore through debt issuances. It raised Rs 380 crore of hybrid debt from IFC. The 15-year issue was raised at a coupon of 482 basis point over Libor. A basis point is 0.01 percentage. “This is long-term money and cost-efficient. We received the money on March 29. The bank’s capital adequacy will be over 16% following this issue,” said Rana Kapoor, managing director and chief executive officer, Yes Bank. The bank that’s one of the fastest growing, has also revived its plans to raise funds through an equity issue. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/yes-bank-raises-rs-380-cr-from-ifc-revives-plan-to-raise-400-mn-in-share-sale-in-european-markets/articleshow/12498688.cms)
INDIA, UK BILATERAL TALKS TO FOCUS ON FINANCIAL SECTOR TIES
NEW DELHI: The fifth ministerial level India-UK Economic and Financial Dialogue, to be held in here on Monday, is likely to focus on strengthening financial sector partnership and boosting infrastructure ties. The Finance Minister, Mr Pranab Muherjee will co-chair the dialogue with the UK Chancellor of the Exchequer, Mr George Osborne. A bilateral meeting between Mr Mukherjee and Mr Osborne will also take place on the sidelines of the dialogue to exchange views on macroeconomic policy issues and issues of mutual commercial concern, among others. This year’s dialogue will also focus on issues of structural reforms, education and skill building. The British Government has been urging Indiato allow enhanced presence for foreign banks. Many Indian banks have, in the recent years, established presence in the UK. A case may be made for further strengthening the ties on this front. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-economy/article3270051.ece)
IRDA SEEKS REVISION OF NEW TAX NORMS
MUMBAI: To keep insurance affordable for middle-aged and older individuals, India’s Insurance Regulatory and Development Authority (Irda) is seeking a review of two key decisions announced in the national budget. The regulator will meet finance ministry officials on 4 April to seek a revision of its decision to levy 18% minimum alternate tax (MAT) on insurers and to allow tax rebates only if the sum assured is at least 10 times the annual premium. At present, there is no MAT levied on the business of insurers, and a policy with sum assured as minimum five times the annual premium, up to Rs.1 lakh, is eligible to get tax rebate under Section 80CC. “If the new rules are to be implemented in the current form, policies for the middle-aged and older individuals will be deprived of tax benefits. Again, at the time of maturity, they would be taxed,” said J. Hari Narayan, chairman of Irda. “This is a genuine concern and we are taking up the issue with the finance ministry to examine ways of dealing with the matter.” (For details log on to : http://www.livemint.com/2012/04/01222559/Irda-seeks-revision-of-new-tax.html?atype=tp)
MOTOR INSURANCE PREMIUM RATES TO GO UP FROM TODAY
NEW DELHI: Owners of cars, commercial vehicles and two-wheelers will have to pay more towards insurance with enhanced motor insurance rates coming into effect from today. The premium rates for third party motor insurance in certain cases will go up by as much as 40 per cent from April 1, 2012, as per the notification of the Insurance Regulatory and Development Authority (IRDA). The IRDA had earlier announced that the new rates of third party motor insurance premium would be revised at the end of every fiscal year. Third-party insurance cover protects the vehicle owner from any financial liability, in case of damage to life or property in an accident to the third person. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/motor-insurance-premium-rates-to-go-up-from-today/articleshow/12492474.cms)
EXPOSURE TO BANK STOCKS BEGINS TO HURT LIC BADLY
CHENNAI/MUMBAI: Life Insurance Corporation of Indiabought 1.584 crore shares of Punjab National Bank at Rs 1,003.69 each last week. By Friday, the last trading day of the week, the stock slipped to Rs 926, a decline of about 8.4 per cent. LIC has not been very fortunate in its decision to buy the shares of 12 other public sector banks last week either. The shares which LIC agreed to buy or has already bought, lost between 0.8 per cent and 8.4 per cent of their value. Such mark-to-market losses have cost LIC roughly around Rs 423 crore. Taken together with the price at which it bought the shares of ONGC, the total loss works out to Rs 1,800 crore. While the latest new premium collection figures are not available, such losses work out to almost 9 per cent of new premium collected by LIC until November 2011. (For details log on to : http://www.thehindubusinessline.com/todays-paper/article3270066.ece)
DMI FINANCE ACQUIRES 16% STAKE IN ALCHEMIST ARC
NEW DELHI: DMI Finance, an NBFC founded by former Citigroup employees Shivashish Chatterjee and Yuvraj C Singh, has acquired 16% stake in Alchemist Asset Reconstruction Company. The financial services firm has been valued at 200 crore, according to industry executives familiar with the development. Both DMI Finance and Alchemist confirmed the acquisition but declined to divulge the deal size or the valuation. “We have been in the lending space for about three years now. We decided to acquire an asset reconstruction company (ARC) to expand our presence and build different types of financial services business in India,” said Chatterjee. ARCs buy distressed assets from banks and financial institutions whose values they unlock by way of reconstruction and then sell off. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/dmi-finance-acquires-16-stake-in-alchemist-arc/articleshow/12499524.cms)
RELIGARE FINVEST EYES $5-BILLION LOAN BOOK WITH ONE-LAKH CLIENTELE
NEW DELHI: In an ambitious business expansion plan, non-banking finance company Religare Finvest is looking to double its loan book size to $ five billion and quadruple the customer base to one lakh clients in about three years. “Religare Finvest Ltd (RFL) is committed to providing debt capital to power the growth of the MSMEs ( Micro, Small and Medium Enterprises), which form the backbone of India’s economy,” the company’s CEO Kavi Arora told PTI. A subsidiary of Religare Enterprise Ltd (REL), RFL is focused on financing for the MSME sector. RFL has embarked on an ambitious expansion exercise and is targeting a loan book of $ five billion with a one-lakh clientele in about three years, he said. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/religare-finvest-eyes-5-billion-loan-book-with-one-lakh-clientele/articleshow/12490899.cms)
TAX CAVEAT TO HAUNT FIIs REMITTING FUNDS ABROAD
MUMBAI: From Monday, foreign institutional investors (FIIs) remitting funds from sale of securities will have to deal with the possibility of a tax liability later. Many chartered accountants and audit firms will add a caveat when FIIs ask for a clearance chit required for remitting funds abroad. As per Reserve Bank of India (RBI) rules, FIIs have to furnish a clearance statement signed by professional accountants to custodian banks for transferring funds overseas. “The dilemma is most accountants will prefer putting in a caveat since there is no full clarity on the tax issue. On the other hand, there is a fear that custodian banks may not remit funds if clearances come with the caveats,” said an advisor to one of the FIIs. The big four audit firms, custodian banks and advisors to FII asset managers will meet this week to thrash out the format and language of the clearance certificate that will be acceptable to custodian banks, senior sources in the stock market told ET. (For details log on to : http://economictimes.indiatimes.com/markets/stocks/market-news/fiis-remitting-funds-abroad-may-face-tax-liability/articleshow/12497128.cms)
SEBI MAY SET MINIMUM CONTRIBUTION BY PE PROMOTERS AT 2.5% OF FUND CORPUS INSTEAD OF 5%
MUMBAI: The Securities & Exchange Board of India, or Sebi, may relax rules stipulating minimum contribution by the sponsor or promoters in a private equity fund after hectic lobbying by the PE industry. New Sebi rules may peg the minimum contribution at 2.5% of the fund corpus as against 5% proposed earlier. Globally, it is an established industry practice for a general partner or promoter to contribute a certain percentage to show commitment. Though not mandatory in most markets, the limited partners – investors who put money in private equity funds – typically negotiate on 1-2% of the fund size as general partner commitment depending on the corpus of the fund. “The 5% (floor) proposed by Sebi was way too high and, in fact, could discourage many successful professionals from getting into this space, which would have resulted in reduced competition in favour of institutional general partners,” said Siddharth Shah, partner, funds practice group, Nishith Desai Associates, which advises several private equity funds. (For details log on to : http://economictimes.indiatimes.com/markets/regulation/sebi-may-set-minimum-contribution-by-pe-promoters-at-2-5-of-fund-corpus-instead-of-5/articleshow/12497226.cms)