MUMBAI: In the wake of the Reserve Bank of India’s (RBI) rate reversal signal, the ongoing and impending reductions in banks’ base rate — the benchmark lending rate to which all loans are linked — may deplete lenders’ margins. Especially those of public sector lenders, which had aggressively raised deposit rates only last month and which they have to service for at least a year.
Banks that have cut their base rate after RBI’s move have also reduced deposit rates. However, the benefit of the latter cut would come with a lag; the effect of a loan rate cut would be felt immediately. It is difficult for banks to bring down deposit rates sharply when competing assets, such as small savings offer similar rates.
Following RBI’s repo rate cut on Tuesday by 50 basis points, Punjab National Bank, ICICI Bank, IDBI Bank and Bank of Maharashtra have reduced their base rates. Today, government-owned Bank of Baroda and Syndicate Bank responded with a 25 bps cut in their base rates to 10.5 per cent and a 25-50-bps cut in deposit rates.
“Margins will be under pressure but may not hurt that much. It will depend on the liability profile of individual banks,” said M D Mallya, chairman and managing director, Bank of Baroda. Its own net interest margins from domestic operations were 3.3 per cent for the past few quarters and the bank expects it to stay above three per cent.
Investors have noticed that margin pressures weigh on public sector banks (PSBs), with share prices of those that had cut their rates declining more than the broader indices. Saday Sinha, deputy vice-president of Kotak Securities, said: “The NIM (net interest margin) of banks should compress with the cut in both lending as well as deposit rates, as lending rate cuts will start impacting the yield on assets, while deposit re-pricing comes with a lag. However, the decline in NIM will be arrested by the recent cut in CRR (Cash Reserve Ratio), along with the easing of bulk rates.”
Bankers said the positive effect of the 125-bps CRR cut in January-February was neutralised by the steep deposit rate increase, especially on bulk deposits, by banks in March. Due to that month’s mad rush for deposits (mostly by PSBs, which control two-thirds of the market), short-term rates went through the roof. Those on three-month certificates of deposit were up to 11.75 per cent, 100-150 bps higher than the rate a month before.
Some brokerages are preferring private banks over PSBs, as they perceive the former better poised to protect margins. “We continue to remain overweight on private sector banks, and retain Axis Bank and YES Bank as our top picks,” said an ICICI Securities’ note after RBI’s monetary policy action.
State Bank of India (SBI), the country’s largest lender, is yet to decide on reducing the base rate. It is, though, likely to reduce the spreads on automobile loans and on credit to small and medium enterprises. SBI increased both corporate and retail deposit rates by 50-100 bps after a hawkish RBI statement during the March mid-quarter review. SBI sources had indicated it might take a month or two before the cost of funds came down enough for it to reduce the base rate. Following SBI, some others also increased deposit rates, to remain competitive.
“The sentiment in March changed following a very hawkish statement from RBI in the mid-quarter review,” said a PSB chairman. “The expectation of a rate reversal changed and banks were not expecting any immediate change in policy stance. The mood was reflected in the bond market, as yields on the benchmark 10-year paper hardened significantly. But the more-than- expected rate cut by RBI now has changed the calculation all over.”
GOVT MAY DILUTE GAAR PROPOSALS, TARGET TAX HAVENS
NEW DELHI: The finance ministry may dilute some provisions of the proposed General Anti-Avoidance Rule (GAAR) to allay investors’ fears about excessive powers to the taxman under the regime. The rules may be worded in a manner that the onus to prove tax avoidance is also on the tax officials and not only on the taxpayer as proposed in the Budget. The ministry may also consider suggestions to include people other than income tax department officials in the approving panel, which will assess whether GAAR will be invoked or not. GAAR, along with retrospective amendments of the Income Tax Act, has created a scare among the industry on the ground that these proposals might hurt investor sentiment. GAAR would be invoked if a deal’s purpose is proved to be avoidance of tax. (For details log on to : http://www.business-standard.com/india/news/govt-may-dilute-gaar-proposals-target-tax-havens/472137/)
BUILDERS CAN AVAIL ECB ONLY FOR LOW-COST HOUSING PROJECTS: GOVERNMENT
NEW DELHI: The government will allow builders to raise overseas debt only for projects where 90% of the units are for low or middle-income groups, according to a senior official in the ministry of housing and poverty alleviation. The official said these projects will, however, be permitted to have high-end apartments or commercial spaces in the remaining area. Apartments under 85 sq metre, or 900 sq ft, of covered area are classified as MIG. Finance Minister Pranab Mukherjee had announced in the Budget that external commercial borrowing will be permitted for low-cost housing but he had not defined the projects that will be eligible for it. Real estate companies were allowed to raise funds through ECB in 2009 only for integrated townships. Other projects cannot access overseas funds through this route. (For details log on to : http://economictimes.indiatimes.com/markets/real-estate/news-/builders-can-avail-ecb-only-for-low-cost-housing-projects-government/articleshow/12773130.cms)
GOVT FIRM ON TAXING SALE OF SOFTWARE AS ROYALTY
NEW DELHI: Intense lobbying by US multinational software firms notwithstanding, the government is unwilling to roll back its proposal to categorise the sale of software as royalty, as the double taxation avoidance agreement between Indiaand the USallows Indiato tax the sale of software as royalty. Finance ministry officials said Indiahad told both the USand the Organisation for Economic Co-operation and Development software sales always came under royalty according to Indian tax laws, and any change in the Budget tax proposal now would mean going back on that statement. Finance Minister Pranab Mukherjee, in the US to attend the International Monetary Fund-World Bank meeting, told US Treasury Secretary Timothy Geithner that in the past, both the US and India had agreed to disagree on the categorisation of software sales as royalties. (For details log on to : http://www.business-standard.com/india/news/govt-firmtaxing-salesoftware-as-royalty/472134/)
INDIA STICKS TO ITS GUNS ON TAX AMENDMENTS
NEW DELHI: Indiahas refused to budge from its stand on retrospective amendments to the Income Tax Act. It has categorically told Washingtonthat companies recording capital gains on assets in Indiawould have to pay tax either in Indiaor the country of origin. The reaffirmation of India’s position came after Indiahad conveyed this stand to the United Kingdomearlier this month, even as investors continued to say the proposed move may harm investment sentiments. The message was given at a meeting between Finance Minister Pranab Mukherjee and US Treasury Secretary Timothy Geithner in Washingtonon Thursday, said officials at the Indian mission in the UScapital. Geithner had raised the issue of retrospective amendments to the Income Tax Act. “It was informed (to the USside)…Indian tax laws are very clear. Companies making capital gains from assets located in Indiawould have to pay taxes either in the country of their origin or in India,” said the officials, according to a release issued by the finance ministry here. (For details log on to : http://www.business-standard.com/india/news/india-sticks-to-its-gunstax-amendments/472135/)
PRANAB PROPOSES WORKING GROUP FOR BRICS DEVELOPMENT BANK
WASHINGTON: Indiahas suggested setting up a working group comprising officials from finance ministries and central banks of the five BRICS countries for the formation of a development bank to increase trade within the grouping. “I propose that a working group be set up comprising representatives from our finance ministries, central banks and other experts co-chaired by India, as the current BRICS chair, and South Africa, as the next BRICS chair,” said the Finance Minister, Mr Pranab Mukherjee. He was addressing a meeting of the BRICS (Brazil, Russia, India, Chinaand South Africa) Finance Ministers here on Thursday. Mr Mukherjee said the working group should be asked to submit its report by November this year and that would form the basis for formation of the proposed development bank. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article3337125.ece)
PUBLIC SECTOR BANKS MAY CUT LENDING RATES FOR RETAIL BORROWERS, NO RELIEF FOR OTHERS
KOLKATA: Several state-run lenders from Allahabad Bank to Union Bank of Indiamay reduce lending rates on retail or SME loans to a higher extent and avoid cutting lending rates uniformly across the board, as the government wants them to focus more on these customer segments. Top executives with these banks said they are weighing various options and a clearer picture will emerge in the next couple of days. The government – the biggest owner of state-run lenders – wants bank chief executives to review lending rates with specific focus on retail customers because for many of them, retail loans are costlier than even that of private lenders. Finance secretary DK Mittal had raised this issue at a meeting with top bankers days before Reserve Bank of India’s annual policy statement. “We are examining all possibilities. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/public-sector-banks-may-cut-lending-rates-for-retail-borrowers-no-relief-for-others/articleshow/12769928.cms)
BANKS TO COVER 743 REMOTE VILLAGES IN UTTARAKHAND
NEW DELHI/DEHRADUN: After providing account facilities to villages with a population of more than 2,000 by March, under the financial inclusion programme, the tasks may now be getting more difficult. The move is afoot to cover villages with a population of over 1,000, having rough terrain and bad connectivity. There are nearly 743 un-banked villages in the hill state with a population of more than 1,000. The difficulty is that most villages are in remote areas, with majority of them having no or poor roads. The task gets tougher when scores of these villages are perched on hill tops in Garhwal and Kumaon regions. “It is going to be a challenge to cover nearly 743 villages having population above 1000,” said A K Mittal, AGM, State Bank of India. But the task to cover 226 villages with a population above 2,000 was also not so easy. The banks toiled hard as they relied on business correspondents (BCs)to reach villagers. “We appointed BCs which in turn appointed agents to reach these 226 villages,” said Mittal, quoting SLBC data. (For details log on to : http://www.business-standard.com/india/news/banks-to-cover-743-remote-villages-in-uttarakhand/472108/)
SYNDICATE BANK, BOB CUT LENDING RATES
MUMBAI: In line with its industry peers, Bank of Baroda(BoB) and Syndicate Bank have cut lending rates across the board. BoB and Syndicate Bank have both reduced their base rates and benchmark prime lending rates (bplr) by 25 bps to 10.50% and 14.75%, respectively. BoB has also reduced its deposit rates by 25 to 50 bps across various maturities. MD Mallya, CMD, Bank of Barodasaid, “We have reduced the base rates in line with the RBI monetary stance and have passed on the benefits to the customers”. He added that the rate cut could have some impact on the margins. However, the bank believes with the economy improving and the inflation coming down, there could be change with the asset liability favoring us. (For details log on to : http://www.financialexpress.com/news/syndicate-bank-bob-cut-lending-rates/939440/)
SBBJ NET PROFIT RISES 32% Y-O-Y
MUMBAI: State Bank of Bikanerand Jaipur (SBBJ) recorded a net profit of R247.88 crore for the fourth quarter FY 2011-12, up 32% year on year (y-o-y). Shiva Kumar, managing director of SBBJ, said strong credit growth and better asset management propped up the bank’s earnings. The public sector lender also saw a sequential improvement in its net interest margins (NIMs) from 3.62% in the quarter ending December 2011 to 3.70% in the quarter ending March 2012. The NIM growth was aided by an improvement in it’s yield on advances from 10.30% in March 2011 to 11.51% in March 2012. A SBBJ release said that bank has seen no significant increase in the gross NPA levels over the last six months. The gross NPA level as on March 2012 stood at 3.3%, and the net NPA stood at 0.83%. (For details log on to : http://www.financialexpress.com/news/sbbj-net-profit-rises-32-yoy/939442/)
HDFC MAY CUT RATE BY 25 BPS NEXT WEEK
MUMBAI: Housing Development Finance Corporation (HDFC), the largest mortgage lender in the country with nearly a third of the market share, is set to reduce its lending rates by 25 basis points (bps) early next week, people familiar with the development told Business Standard on Friday. The move is likely to benefit about 1.1 million HDFC customers, reducing their equated monthly instalment (EMI) burden for the first time in three years. For every 25-bps cut in lending rate, the EMI will reduce by Rs 17 per lakh for a loan taken for 20 years. “We will take a decision early next week, probably on Monday or Tuesday,” Keki Mistry, vice-chairman and chief executive, said. “The extent of the cut will be decided after we assess our cost of funds.” (For details log on to : http://www.business-standard.com/india/news/hdfc-may-cut-rate-by-25-bps-next-week/472150/)
UBS SLASHES INDIA MARKET RATING TO ‘NEUTRAL’
MUMBAI: UBS has downgraded Indian shares to ‘neutral’ from ‘overweight’, as the foreign brokerage no longer sees the potential for big downside inflation surprises or aggressive policy easing from hereon. “We continue to think the best theme in the region is to be tilted towards policy easing. Our preference here is now Chinarather than India,” UBS strategists said in a report on Friday. “With liquidity easing, economic stabilisation and attractive valuations, Chinais our biggest overweight,” they added. The Reserve Bank of India (RBI) on Tuesday cut its key policy rate by 50 basis points, but warned that scope for further rate cuts was limited. “We think Indiawill struggle to outperform as much going forward as it did in Q1. We think there is a more table thumping call to be made on China,” UBS strategists said. (For details log on to : http://www.business-standard.com/india/news/ubs-slashes-india-market-rating-to-neutral/472128/)
SOUTH KOREA‘S WOORI BANK SETS UP ITS FIRST BRANCH IN INDIA
CHENNAI: South Korea-based Woori Bank, a part of the Woori Financial Group, has launched its first branch in India, at Chennai, to provide assistance to Korean companies in the country in corporate banking and to serve local clients. The Chennai branch would be the head office of Woori Bank in India. The bank, which is the second largest commercial bank in South Koreawith its focus on corporate banking, has received in-principle approval from the Reserve Bank of Indiain June, 2011, to set up its branch in India. It has already infused around $35 million in India, said a senior executive from Woori Bank. “Woori Bank is strong in corporate banking sector. We will provide assistance to corporate banking with focus on Korean companies which are already present in India,” said Soon Woo Lee, president and CEO, Woori Bank. He added that the company would also focus on localising the business and offering new products, to serve local clients. (For details log on to : http://www.business-standard.com/india/news/south-koreas-woori-bank-sets-its-first-branch-in-india/472094/)
MUTUAL FUNDS PUSH FOR GOLD ETFs AHEAD OF AKSHAYA TRITIYA
MUMBAI: Mutual fund houses are aggressively pushing gold ETFs to investors through online and offline promotional campaigns in the run-up to Akshaya Tritiya, which falls on April 24 and is considered an auspicious day to buy gold. Most fund houses are focussing on the online platform to reach out to customers. “Online campaigns have seen a spike this year,” said Anjaneya Gautam, VP – mutual fund group, Bajaj Capital. Added Jaideep Bhattarcharya, chief marketing officer, UTI AMC: “We are using web banners and social media such as Facebook and Twitter to create awareness among investors about the advantages of purchasing gold ETFs.” According to industry observers, fund houses are paying a higher commission to brokers, who act as intermediaries for buying and selling gold ETFs, which are traded on the exchanges. Some have joined hands with their distribution partners to promote gold ETFs, even going to the extent of sourcing contact details of investors from these distributors. Fund houses are getting in touch with customers through emails, SMS and even direct phone calls. “We are trying to create visibility for the product mostly through below-the-line promotional activities,” said Lakshmi Iyer, head – fixed income & products, Kotak Mutual Fund. UTI MF is using marketing collateral – flyers, danglers, tent cards and brochures — at its branches to market gold ETFs. (For details log on to : http://www.financialexpress.com/news/mfs-push-for-gold-etfs-ahead-of-akshaya-tritiya/939468/)
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