NEW DELHI: The government and the central bank are pondering over a plan to move bulk dollar purchases by oil marketing companies out of a turbulent currency market to make the weakening rupee less volatile.
With a weekly demand of $2-3 billion, roughly one out of every 10 dollars bought or sold in the Indian foreign exchange market is by oil companies. In a choppy market, the rupee comes under pressure whenever these companies step in to buy the greenback.
“In such circumstances, a direct dollar line to oil companies can help check volatility in currency markets…It has been discussed,” said an official familiar with the matter. India’s crude oil and petroleum product imports totalled about $155 billion last year.
On a few occasions in the past, the Reserve Bank of India (RBI) has temporarily opened a special window to supply dollars to oil companies to ring-fence the currency market.
The last time such a facility was offered to oil companies was in 2008, when the collapse of Lehman Brothers and the subsequent financial meltdown froze money markets across the world.
Termed special market operation, the transaction involves the central bank selling dollars directly to oil companies at the reference rate – which is based on the dollar-rupee exchange rates prevailing around mid-day – and receiving securities or rupee equivalent from the companies.
In 2008, oil companies had exchanged oil bonds (issued by the government) for dollars from the RBI. But this time the proposal is to let the RBI receive rupee equivalent from oil companies buying dollars, said another person familiar with the proposal.
Often, oil companies have to bear the brunt of a volatile rupee which pushes up the oil import bill. “Our dates for entering the market are known to all as we have to pay for crude imports as per contract,” said a senior board member of an oil company. Oil companies had written to the RBI seeking a direct dollar window.
Crude prices have fallen from a high of $115 a barrel to $110 now. But the rupee has slipped by 4 to a dollar. “The rupee’s depreciation would have offset the gains from fall in crude prices,” said PV Narsimhan, former director (finance), IndianOil.
According to industry estimates, every dollar rise or fall in crude price would impact sales by 3,500 crore annually; a fall of $5 a barrel would reduce under-recoveries of oil companies by around 40,000 crore a year. Thus, a direct dollar line could also help in marginally lowering the import bill.
Besides market intervention, the RBI has recently taken steps to improve dollar supply. Banks have been allowed to offer higher returns on dollar deposits by NRIs while corporates have been directed to convert export earnings into rupees. Chances are the RBI may explore other options to ease supply.
“This may well be the time to take dollar buying for defence imports out of the foreign exchange market,” said Essar Group Treasurer Partha Bhattacharyya.
The rupee, which came under pressure due to policy flip-flops and the Euro zone crisis, has fallen almost 9% against the dollar since March, forcing the RBI to intervene and take regulatory measures. The local currency ended lower at 53.63 to a dollar on Friday against Thursday’s close of 53.42. It touched a low of 53.69 in intra-day trade.
Hinting at more measures, RBI Deputy Governor Subir Gokarn said on Friday the central bank will continue to use instruments within its ambit to curb volatility in the foreign exchange market.
ELECTRONIC TRANSACTIONS KEEP CHEQUE DEALS UNDER CHECK
MUMBAI: Fewer Indians seem to be going the old-fashioned way of writing out a cheque, opting instead for the more convenient electronic transaction. Data from the Reserve Bank of India (RBI) show retail banking through electronic channels accounted for almost 90 per cent of the value transacted in financial year 2011-12, a sharp increase from below 30 per cent in 2005-06, with the rest being via paper transactions — which would include cheques and demand drafts. The amount transacted through the electronic mode increased 70 per cent in 2011-12 against the previous year. Cheque usage fell from 1,387 million transactions in 2010-11 to 1,341 million in 2011-12. The amount cleared through cheques also fell from Rs 101 lakh crore in 2010-11 to Rs 98 lakh crore in 2011-12. Within electronic channels, debit cards have found their way into most wallets and are gradually replacing cash. In March 2012, transactions through debit cards constituted 28 per cent of the volume transacted electronically, followed by credit cards with 26 per cent. There are about 600,000 point-of-sale terminals across Indiathat facilitate receipt of payments at retail establishments through cards. (For details log on to : http://www.business-standard.com/india/news/electronic-transactions-keep-cheque-deals-under-check/474135/)
RBI ISSUES DRAFT ON CORE INVESTMENT COS’ FOREIGN OUTLAY
MUMBAI: The Reserve Bank of Indiahas proposed to allow core investment companies to invest up to 200% of their owned funds in overseas financial assets and up to 400% of their funds in overseas non-financial assets. In draft norms released on Friday, the central bank said that core investment companies that are not under the purview of the RBI’s regulation will have to register with the bank if they wish to invest in financial assets overseas. “CICs that are presently exempted from the regulatory framework of RBI, would be required to be registered with the Bank, for the purpose of overseas investment in financial sector,” the central bank said. (For details log on to : http://www.financialexpress.com/news/rbi-issues-draft-on-core-investment-cos-foreign-outlay/948414/)
ECONOMY LIKELY TO SEE MILD RECOVERY: GOKARN
BANGALORE: India’s economy was likely to witness a mild recovery during this financial year, despite several financial and external pressures that were strongly influencing the policy environment, said Subir Gokarn, deputy governor of the Reserve Bank of India. “Our outlook for 2012-13 is for a mild recovery in growth. Our projection in the April policy indicated that the GDP (gross domestic product) growth would be at 7.5 per cent. We do expect some bottoming out of this process over the course of the year,” said Gokarn, who was here to attend an event organised by the Confederation of Indian Industry Southern Council. The monetary policy had to be sensitive enough to other risks and pressures, if “we are to remain focused on containing inflation”, he said. Global conditions are likely to be challenging for some time to come, and oil prices and capital flow demand greater attention. (For details log on to : http://www.business-standard.com/india/news/economy-likely-to-see-mild-recovery/474137/)
GOVERNMENT TO GET BLACK MONEY ESTIMATES BY SEPTEMBER END
Indiamay be able to get some idea of black money floating its its economy by end September. “The government does not have an estimate of quantum of black money existing in the country. However, based on the recommendations of the Standing Committee on the Finance, the government has commissioned a study by three national-level institutes,” minister of state for finance S S Palanimanickam said in a written reply to the Lok Sabha. These three institutes — National Institute of Public Finance and Policy, National Institute of Financial Management, National Council for Applied Economic Research — have been asked to estimate the quantum of unaccounted income or wealth inside and outside the country and its ramifications on national security, he said. (For details log on to : http://economictimes.indiatimes.com/news/economy/finance/government-to-get-black-money-estimates-by-september-end/articleshow/13096944.cms)
BANKS JITTERY OVER CHANGES IN BANKING CORRESPONDENT MODEL
NEW DELHI: In a bid to improve the economics of rural banking, a division of the finance ministry is driving a radical change in the business of banking correspondents-people who move around with handheld terminals and essentially bring the bank home. That “suggestion”, which nervous banks are seeing as a directive and are implementing, is a package of contradiction: it increases penetration, but stifles competition; it promises to breathe new life into the struggling industry, but threatens to kill small BC firms; it presses BC firms to invest more, but doesn’t guarantee them business. Under the package, the department of financial services (DFS) has split the country into 20 clusters. Large states like Maharashtrawill have one cluster each. In the case of smaller states like Punjaband Haryana, more than one state will be clumped together to form a cluster. Each cluster has a lead public sector bank, which will appoint a BC firm to service customers of all PSU banks in the cluster. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-jittery-over-changes-in-banking-correspondent-model/articleshow/13102204.cms)
RBI ASKS BANKS TO LEVY UNIFORM FEE FOR COLLECTION OF HIGH VALUE CHEQUES
MUMBAI: In a relief to customers, the Reserve Bank today asked the banks to fix a uniform fee for collection of cheques of over Rs 1 lakh, instead of levying it as a percentage of the value of the instrument. In another notification, the Reserve Bank asked the banks in remote areas to set up a mechanism to ensure that cheques are delivered and exchanged on the same day. “Banks, which have fixed their service charges for out- station/speed clearing for instruments valuing above Rs 1 lakh as percentage to the value of instruments are advised to review the same and fix the charges on a cost-plus basis,” RBI said. The RBI also asked the banks to update their cheque collection policy and display the revised rates on their websites. RBI said banks were not recovering the collection charges in a fair and transparent manner on a cost-plus basis, instead they were charging on the basis of arbitrary basis as a percentage of the value. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-asks-banks-to-levy-uniform-fee-for-collection-of-high-value-cheques/articleshow/13099892.cms)
RISING NPAs PUT INDIAN BANK IN FIX
CHENNAI: A three-fold increase in its non-performing assets (NPAs) has put the Chennai-based public sector lender Indian Bank in a tight spot. With its gross NPAs portfolio making a giant leap of R1,110.47 crore last fiscal, the bank hopes to convert a sizeable portion of them into performing assets during the current fiscal. It also forsees a reduction in the overall net interest margin (NIM) as the cost of funds bound to go up. Announcing the earning performance, Indian Bank chairman and managing director TM Bhasin said, “Most of our NPAs are soft ones, that is, these could become good soon. We hope that the gross NPA could be maintained at 2% (of gross advances), going forward.” Indian Bank closed last year’s books with a gross NPA and net NPA of R1,850.78 crore and R1,196.83 crore, up from R740.31 crore and R397.04 crore, respectively, posted during 2010-11. (For details log on to : http://www.financialexpress.com/news/rising-npas-put-indian-bank-in-fix/948411/)
RUPEE FALLS FOR SIXTH WEEK DESPITE RBI MEASURES
MUMBAI: Notwithstanding the Reserve Bank of India’s latest set of measures to give a fillip to dollar flows, the Indian rupee weakened yet again on Friday as foreign investors continued to avoid buying Indian shares and bonds. The rupee, which had gained over 20 paise on Thursday, ended at 53.63/$1, the lowest for the week. It has depreciated over 1.0% in just two weeks and is down 0.60% since January. Foreign institutional investors (FIIs) bought just $64.19 million of shares and sold $41.14 million of debt on Friday. Currency dealers said that persistent dollar buying by foreign banks and oil companies dragged the rupee down. “Foreign banks were on the buy side throughout the day. The trend in the rupee is still downwards despite the measures from the RBI,” said a currency dealer at a public sector bank. (For details log on to : http://www.financialexpress.com/news/rs.-falls-for-sixth-week-despite-rbi-measures/948406/)
AXIS BANK UPS MINIMUM BALANCE ON SAVINGS ACCOUNTS
MUMBAI: Axis Bank, the country’s third largest private lender, said it will raise the minimum average quarterly balance by 20 times to Rs 10,000 from Rs 500 now on its students’ savings account (SBSTU) in metro and urban centres. “We periodically review our charges and fee structures to stay in line with market practices and related changes. As part of the review, the average quarterly balance requirements of various accounts have been revised with effect from next quarter cycle — June 15 to September 14. Non-maintenance of balances attracts charges as per extant guidelines,” the bank told its savings account depositors in a notice. The minimum average quarterly balance has been raised for 17 savings deposit products too. “The prescribed average quarterly balance for savings bank accounts, revised after a gap of nine years, is now in line with (other) banks offering similar services,” the bank’s official spokesperson said. (For details log onto : http://www.business-standard.com/india/news/axis-bank-ups-minimum-balancesavings-acs/474138/)
FEDERAL BANK Q4 NET UP 38% AT RS. 237.60 CRORE
KOCHI: Private sector lender Federal Bank on Friday posted a net profit of R237.60 crore for the fourth quarter ended March 2012, up 38% over the same period last year. Net profit for the full year stands at R776.79 crore, a 32.31% jump, as against R587.08 crore of the previous fiscal. Higher interest income and lower provisioning aided the growth of the bank, which is one of the largest old generation private banks. Net interest income (NII) increased by nearly 12% y-o-y to R1,953.40 crore while net interest margin (NIM) for the year stood at 3.79%. Provisions including tax came down by 38% y-o-y to R135 crore on the back of improved asset quality. Gross non-performing asset ratio fell to 3.35% compared with 3.49% in the same quarter previous year. Net NPA ratio too decreased from 0.60% to 0.53%. (For details log on to : http://www.financialexpress.com/news/federal-bank-q4-net-up-38-at-rs.-237.60-cr/948419/)
CITIBANK LAUNCHES NEW RETAIL BANKING WINDOW
NEW DELHI: Citibank has launched a new retail banking proposition for consumers in India, ‘Citibanking’. It will offer “unprecedented global access” and increased convenience and connectivity for the retail customers by providing a different perspective on everyday banking needs. Designed for customers who are upwardly mobile and maintain a relationship value of a minimum R200,000 deposits with the bank, the aim is to target 16 million households through India. An estimate by Basis McKinsey Indiasays of the targeted affluent segment, 37% is located in the top 14 cities — Mumbai, Delhi, Bangalore, Kolkata, Chennai, Hyderabad, Pune, Nagpur, Surat, Baroda, Ahmedabad, Visakhapatnam, Chandigarhand Kochi. (For details log on to : http://www.financialexpress.com/news/citibank-launches-new-retail-banking-window/948416/)
GOVERNMENT PUTS ON HOLD RAISING FDI LIMIT IN INSURANCE SECTOR
NEW DELHI: The cabinet has put on hold a proposal pending for years to raise the limit on foreign direct investment in insurance firms, possibly until after the 2014 elections, dashing the hopes of foreign insurers to spread their wings in a promising emerging market. Domestic and foreign insurers, which have invested billions of dollars in Indiaover the last decade, have been lobbying the government for years to raise the FDI limit to 49 percent from 26 percent. The cabinet on Thursday deferred a decision on the insurance amendment bill, underlining the difficulty Prime Minister Manmohan Singh’s beleaguered government faces driving reforms that are sorely needed to shore up weakening economic growth. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/government-puts-on-hold-raising-fdi-limit-in-insurance-sector/articleshow/13096942.cms)
LIFE INSURANCE BUYERS IN INDIA BETTER AWARE OF NEEDS: E&Y
MUMBAI: Life insurance buyers in Indiaare surprisingly well aware of their needs and proactively research their options, according to Ernst & Young’s global insurance survey 2012. About 74 per cent of respondents indicate that they conduct detailed research before buying life and pensions policies, far more than in the UK (37 per cent), the US (31 per cent) or China (44 per cent), it points out. However, many customers focus more on price competitiveness in their research rather than product features and performance. E&Y surveyed more than 24,000 life and non-life insurance customers across 23 countries about their buying practices, with over 1,000 consumers in India. The survey has tried to uncover valuable insights into consumers’ perceptions and how expectations have changed over a period of time and as a result insurers in this market will need to think differently if they are to continue to be successful in attracting customers. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/life-insurance-buyers-in-india-better-aware-of-needs-ey/articleshow/13095602.cms)
BRAND, NOT PRICE, DRIVES GENERAL INSURANCE PURCHASES: E&Y
MUMBAI: Consumers prefer the brand of the service provider, customer service and convenience over price while buying general insurance products, an Ernst & Young (E&Y) survey has found. “Pricing is not the most important criterion for consumers when purchasing an insurance product. Brand of the provider, customer service and convenience hold greater importance compared to price,” the survey said here today. The E&Y survey, which covered over 24,000 life and non-life insurance customers across 23 countries about their buying practices with over 1,000 consumers in the country, however, said price sensitivity varies by segments and type of product. The report also pointed out that consumers are increasingly using online mode for research and buying a product. (For details log on to: http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/brand-not-price-drives-general-insurance-purchases-ey/articleshow/13095660.cms)
IL&FS, LIC TO FLOAT $2-BILLION INFRASTRUCTURE DEBT FUND
MUMBAI: IL&FS Financial Services Ltd (IFIN) and Life Insurance Corporation (LIC) will set up an infrastructure debt fund with a targeted corpus of $2 billion. LIC will pick up 10 per cent stake in the asset management company floated by IL&FS, the infrastructure development and finance company headquartered here. IFIN will hold 75 per cent stake. “We will use the trust structure for this venture,” said Ramesh Bawa, managing director and chief executive of IFIN. “It has flexibility to investment in projects from day one of implementation.” The fund will be set up in compliance with the Securities and Exchange Board of India norms. IL&FS has targeted to start the operations from October. It has inked a pact with LIC for the fund. The state-owned life insurer is also associated with funds floated by IDBI and IIFCL. These funds are yet to start operations. (For details log on to : http://www.business-standard.com/india/news/ilfs-lic-to-float-2-bn-infrastructure-debt-fund/474139/)
SEBI WARNS USE ON NEGLIGENCE
MUMBAI: After warning the National Stock Exchange in April over negligence in trade mismatches, the Securities and Exchange Board of India (Sebi) has trained its guns on the currency bourse, United Stock Exchange (USE). Sebi on Friday warned USE to be more cautious in the discharge of its functions and regulatory duties. The warning was issued by Sebi’s whole-time member, Prashant Saran. USE was found to be in violation of rules with regard to surveillance systems, appointment of directors on its board, structure of the governing board, payment of turnover fees by Jaypee Capital, deputation of staff from Bombay Stock Exchange (BSE), dilution of the independence of the public interest directors and lack of sustainable pricing policy, among other charges. Sebi has directed USE to amend its articles of association within two months. It all started in August 2011, when Sebi found 80-90 per cent of trading volumes on USE were done by just two players. One of these was Jaypee Capital, founder-promoter of the exchange. Following this, managing director and chief executive officer of USE, T S Narayanaswami, quit the exchange. In a showcause notice in December 2011, Sebi had said the existing state of affairs at USE was not in the interest of the securities market. (For details log on to : http://www.business-standard.com/india/news/sebi-warns-usenegligence/474132/)
BULLION MARKET NOW IN HANDS OF BEARS
MUMBAI: After almost a decade, gold has slipped into a bear grip, losing 17 per cent from its all-time high of $1,900 an ounce recorded in September 2011. Silver is down 40 per cent since its all-time high of a year before. Even in the current financial year beginning April, gold has fallen 5.4 per cent, while silver has lost 11.1 per cent so far, not seen since a decade. Most analysts have started giving bearish calls on gold prices for the short term. “Ever since gold started its phenomenal rally way back in 2001, I have never seen it disrespecting any kind of chart pattern. This is the first time after an 11-year rally that prices are at an exhaustion phase,” said Aurobinda Prasad, head of commodities at Karvy Comtrade. Today, after JPMorgan declared a loss of $2 billion on synthetic credit securities after an “egregious” failure by its chief investment officer, both gold and silver (along with other commodities) lost further ground. In the international markets, gold was trading at $1,578 an ounce, while silver was trading at $28.6 an ounce. In Mumbai’s Zaveri Bazar, silver was trading near its five-month low of Rs 53,690 a kg, down Rs 800 a kg from yesterday. Gold closed down Rs 60 today at Rs 28,385 per 10g. (For details log on to : http://www.business-standard.com/india/news/bullion-market-now-in-handsbears/474133/)
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