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Aug 31, 2007

Canara Bank bags SME award

The Centre has conferred the first award under 'National Awards for Excellence in Lending to Micro and Small Enterprises for the year 2006-07' on Canara Bank. The award instituted by the Ministry of Micro, Small and Medium Enterprises was in recognition of the bank's performance in lending to micro and small enterprises sector during the year 2006-07. The award was presented by the Prime Minister, Dr Manmohan Singh, in New Delhi to Mr MBN Rao, CMD of Canara Bank. The bank increased its lending to micro and small enterprises (MSEs) by Rs.3,261 crore during the year, recording an impressive growth of 49.48 per cent over March 2006.

The Sub-Prime Drama

In India, banks have what is called a Benchmark Prime Lending Rate (BPLR) which is supposed to be the basic lending rate beyond which markups are added for borrowers with lower credit rating. Sub-PLR rates, i.e. rates lower than this BPLR, are offered only to the top class borrowers. In the USA, however, the best rates are offered to 'prime' borrowers and it is the sub (below) prime borrowers who are quoted rates with a premium or markup loaded, depending on their credit rating. Therefore, sub-prime refers to the (lower) quality of the borrower and this kind of borrower is usually charged a higher rate than a 'prime' (best) borrower. According to Wikipedia, subprime lending, also called B-Paper, near-prime, or second chance lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. It is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and murky financial situations often associated with subprime applicants. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. The term "subprime" refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself. Generally, subprime borrowers will display a range of credit risk characteristics that may include one or more of the following: i) Two or more loan payments paid past 60 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months; ii) Judgment, foreclosure, repossession, or non-payment of a loan in the prior 48 months; iii) Bankruptcy in the last 7 years; iv) Relatively high default probability as evidenced by, for example, a credit bureau risk score (FICO) of 660 or below (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood. About 21% of all mortgage originations from 2004 to 2006 were subprime, up from 9% between 1996 and 2004, as per chief economist for Moody's Investors Service. Subprime mortgages totaled $600 billion in 2006, accounting for about one-fifth of the U.S. home loan market. Many of the sub-prime mortgages were offered at special schemes offering below-market rates for the first few years of the mortgage but escalating thereafter. Consumers took these mortgages hoping that they could refinance them after a few years at an affordable interest rate. On the other side of these transactions, rapid developments in financial engineering allowed mortgages of all types to be packaged into pools and sold as high-yielding securities to a range of investors from third-tier banks to sophisticated hedge funds. Thus both homeowners and buyers of such securities got caught in this cycle. The tricky part was that after a few years, the artificially-low mortgage rates were required to reset to levels more in line with current market rates, which, in all likelihood, would be higher than the initial low rate levels. If house prices continued to increase, homeowners would still find it profitable to refinance their mortgages at affordable interest rate levels. However, beginning in late 2006, the realty bubble started to burst. Two events that were assumed to have a low probability in a booming market in fact happened: first, interest rates increased and second, home prices began falling. This led to sub-prime mortgages resetting at shockingly high rates, with homeowners missing payments and banks foreclosing accounts. On the other hand, banks and other financial institutions holding the mortgage-backed securities incurred losses and had to sell their assets. It is estimated that in the next five years $1 trillion in adjustable rate mortgages will reset, with sub-prime mortgages making up the majority. Resets of mortgages this year are estimated to occur at rates that are about four percentage points higher than the current rate on 30-year home loans. The virtuous cycle of mortgages turned sour. Banks and other institutions cut back their lending, not only for mortgage-related activities, but also for other activities, as liquidity fell. As the impact spread from the US to Europe and then globally, central banks rushed to inject liquidity into their respective markets in order to stem the tide. The US Federal Reserve Board announced a half a percentage point cut in the discount rate (the rate at which it lends to commercial banks) to 5.75 per cent on August 17 alongwith other measures to boost liquidity. The impact of this crisis has been felt as far as in India, where the stock market showed a steep fall from around mid-July'07 onwards (Sensex on 16 July'07 was 15,311, dropping to 14,195 by 17 Aug'07) as FIIs starting drawing down their investments in emerging markets to create enough cash for meeting their obligations in the US market. However, it is to RBI's credit that the early actions taken by it to stem credit to the booming real estate market in India by raising provisioning requirements and risk weights, besides warnings about heating up of this sector, stopped banks from overextending themselves to this sector like US banks. Rising property rates as well as interest rates on housing loans also contributed towards lowering excess demand, especially from second time home loanees. The Indian banks having branches abroad were also not much affected as their exposure to mortgage backed securities had been quite low. Ultimately, fund flows to the Indian stock market will improve as the fundamentals of the Indian corporate sector continue to be good. Meanwhile, the fall in the stock markets had the side-effect of weakening the (appreciating) rupee to over Rs 41 levels against the US$, and this would be welcomed by the Indian IT majors and other exporters like the textiles sector, as their dollar-denominated pay cheques will now fetch them a higher revenue.

Aug 30, 2007

Investing in Bank Deposits

Investing in Bank Deposits The easiest way all do is to deposit their money in bank fixed deposits. Because they feel it is the safest and easiest method to grow their money and also it is highly liquid. Banks normally give interest ranging from 3% to 10% per year (approx.) on the deposits kept by public. The senior citizens will get higher interest ranging from 0.5% to 1.0%. The rate may vary from time to time. The rate of interest also varies with the period of deposit. The higher the period higher will be the interest. But recently this trend has changed. Now the banks fix their rate of interest based on their assets and liabilities so you may get higher interest for shorter period and lesser interest for higher periods. Some banks also give floating rate (the rate of interest varies when bank raises or lowers the interest) but this concept has not find good response from public. Here the banks normally give two options. You can get simple interest or you can get compound interest. When you opt for simple interest you may get interest at Monthly, Quarterly, Half yearly or Yearly intervals. Normally banks give quarterly interest. If you opt for monthly interest you will get discounted rate. This type of deposit is suitable for those who want to get fixed monthly income like senior citizen or when you have fixed monthly commitment that can be met by this interest. (like monthly rent, school fees etc.) Other way is when you do not opt for above you should go to compound interest, here the interest is added to principal and interest portion also starts to earn interest. This type is suitable for those who want to get lumpsum amount after a period like for education, marriage etc. Other very good deposit is Recurring deposit, here you can invest small amount monthly for a period ranging from one year to ten years and get lumpsum at the end of the term. This is novel scheme for salaried class as they can save small and get big. Higher the period greater will be the amount you get back. Drawback: 1. The maximum period of deposit will be for 10 years. 2. Tax will be deducted at source if the interest earned on your deposit exceeds threshold limit fixed by income tax department which is Rs.10000 per year. If you want not to deduct tax you must submit form 15H/G every year. 3. Thinking that the rate of inflation is 5% the return you will get on these deposits is very minimal. 4. Interest earned on deposit will be added to income in hands of assesse and tax will be paid by him. 5. Now many banks are charging 0.5% to 1% for prematurely withdrawing your deposits thus lowering your yield. Plus Points: 1. Rs.100000/- per year exemption can be got under sec.80CCC of IT act. 2. Highly liquid. 3. Repayment risk is minimal. 4. Loans can be taken in case of need. Calculations: Rs.100000/- invested in Fixed deposit for 5 years at 10% p.a. at quarterly interest option will fetch you Rs.150000/- (principle plus interest) effective int. 10% Rs.100000/- invested in Compounding interest scheme for 5 years at 10% will fetch you Rs.163862/- (principle plus interest) effective int. 12.77% Rs.1000/- invested per month in Recurring deposit at 10% will fetch you Rs.12665/- for 1 year (prin. Plus int.) effective int. 10.38% Rs.77908/- for 5 year (prin. Plus int.) effective int. 12.77% Rs.205569/- for 10 year (prin. Plus int.) effective int. 16.85%

Govt should cut stake in banks to below 51%

The Indian Banks’ Association has made a representation to the government proposing consolidation of public sector banks as well as dilution of government holding to below 51%. “Even with a 33% or 26% holding, the government will be the single largest shareholder, thereby giving it total control,” said IBA chief executive HN Sinor. However, if that happens, the government will lose the right of appointment, which will rest with the Reserve Bank of India (RBI) thereafter.

YES Bank bets on mobile phone for micro-fin biz

YES Bank is looking at using mobile phone as a platform to enhance the reach and bring down the cost of micro-finance. The bank along with Accion, the US based micro-finance agency, plans to tie up with a global software provider in order to find a software solution for the same. “We will pass on the cost benefits to our customer by bringing down the interest rates on micro-finance,” said Mr Somak Ghosh, President, Corporate Finance and Development Banking, YES Bank. “We are in advanced stages of talks and are hopeful of launching the product by the end of this year or by March 2008,” he said. He felt it would bring down the cost of operations by about 30-35 per cent. The bank also plans to lend it to other banks and micro-finance institutions. The bank plans to launch more products such as medical loan, emergency loan, special events loan and home improvement loan from the second and third year based on its experience and the track record of its clients.

Andhra Bank drive on ‘kiddy bank’

Andhra Bank is very aggressive on the ‘kiddy bank’ account. Andhra Bank has this year commenced a month-long ‘AB Celebrations 2007’ drive to create awareness about the various products and services offered. At one such meeting, its Deputy General Manager (Chennai Region), Mr P.N. Murthy, gave away the ‘kiddy bank’ doll, which, according to him, was the USB product of Andhra Bank. While asking the child to put his/her savings into it, Mr Murthy also informed the gathering about the secret lock in the doll. “This can be opened only at the branch where the account is held.” It is now targeting schools for popularising this product.

Aug 29, 2007

Five-day work for StanChart staff

Standard Chartered Bank employees would work five days a week from September 1, a move which, the foreign lender said, aimed at ensuring work-life balance among the staffers. All the 5,500 employees in the consumer bank division would come under the new work schedule. The bank started implementing the five-day week in phases. In the first phase, 2,000 staff in the wholesale banking, corporate divisions and support functions came under the norm. The bank has, however, ensured its business hours continues to be the same and the “customer delivery” is not affected.

Indian Bank revises deposit rates

Indian Bank on Tuesday revised interest rates on fixed deposits, effective from September 1. Interest rates on term deposits of tenure one to less than three years have been revised to 9%. Fixed deposits of 3-5 years would now draw an interest rate of 8.75%. A maturity period of over five years would attract a rate at 8.5%. The short-term deposit rates of tenure 180-364 days and 91-179 days has been fixed at 7% and 6.5%, respectively.

PSU banks face staff crunch at senior levels

Mumbai-based Bank of India, faced with an impending talent crunch at the top, has started grooming 70 assistant general managers and deputy general managers to takeover from the current crop of general managers, all of whom would retire by 2012. With one in every eight public sector bank officials set to retire over the next three years, public sector banks would soon be hard-pressed to fill the vacuum in their senior managements. While 13 per cent of the 2.5 lakh officers currently employed would retire over the next three years, only 8.7 per cent of the 4.7 lakh clerks and sub-staff would reach the end of their service by then. The departure of a large number of officers for greener pastures, has only added to the woes of these banks. A K Khandelwal, chairman and managing director, Bank of Baroda, had estimated that public sector banks were losing 1,000 officers every year to their private and foreign counterparts. “Why should all the public sector banks have the same salary structure. They should be allowed to target cost to income ratio and the board can then decide on the salary structure. They should also be allowed to give employees’ stock options,” M V Nair, chairman and managing director, Union Bank of India, said.

Banking services at doorsteps

The District Collector, Mr S.S. Jawahar, launched ‘Canara Gramin Vikas Vahini’ scheme at Thottiyapatti village, 40 km West of Madurai recently, in an effort to take banking services to doorsteps in remote villages, under a nationwide scheme initiated in June. Executed through a van service equipped with public address system, the branch manager travelling in the van has the authority to sanction spot loans for eligible candidates, who could come and collect the amount the next day at a nearest branch, according to Mr Murugaprabhu, Senior Manager, Canara Bank. Apart from carrying requisite forms to open bank accounts and pamphlets on different schemes, the van will carry the latest farming techniques developed by agricultural colleges. The villages would be intimated in advance of the visit and would operate on a fixed schedule, round the year.

Aug 28, 2007

Now, IndusInd Bank launches exercise to change its name

After the UTI Bank’s move to change its name to Axis Bank, its now turn of IndusInd Bank to go in for a new name. The bank, which wants to consolidate its presence in the private sector banking in India, has already launched exercise for the same. It has so far considered various names such as Indus Bank, the Plus Bank, the Right Bank and so on.

Centurion- LKB merger okayed

The Reserve Bank of India has sanctioned the scheme of amalgamation of Lord Krishna Bank Ltd with Centurion Bank of Punjab Ltd, said a press release from RBI. The scheme will come into force with effect from August 29. All the branches of Lord Krishna Bank will function as branches of Centurion Bank of Punjab effective August 29.

Aug 27, 2007

State Bank of Patiala’s scheme

State Bank of Patiala (SBP) has launched ‘SBP-Smart Deposit Scheme’ (term deposit and special term deposit) for a maturity period of 455 days. The deposits would provide an interest of 9.5 per cent per annum for general public and 10 per cent per annum for senior citizens.

State Bank of Saurashtra to be merged with SBI

SBI has decided to merge State Bank of Saurashtra, a wholly owned associate bank, with itself. The boards of both SBI and State Bank of Saurashtra have given an in-principle approval to the merger proposal, a senior SBI official confirmed on Saturday. SBI will now have to get approvals from both the Government, the majority owner of the bank holding 59.73 per cent stake, and the Reserve Bank of India. State Bank of Saurashtra is the smallest among the seven associate banks of SBI, in terms of networth. SBI’s controlling interests in the associate banks range from 75 per cent to 100 per cent. State Bank of Saurashtra (SBS) has a branch network of 460 and SBI officials said once the merger is approved, consolidation of the branch network for eliminating duplication of branches in the same geographical area would start in six months. SBS reported a net profit of Rs 87.4 crore in 2006-07, a jump of 45.4 per cent from Rs 60.1 crore in the previous year. The bank has paid-up equity capital of Rs 314 crore. SBS’ total deposits stood at Rs 15,804 crore while total advances were at Rs 11,081 crore. A senior SBI official said State Bank of Indore could be the next bank on the radar in the consolidation process as it is the smallest bank after State Bank of Saurashtra

Canara Bk plans open offer for Can Fin Homes

The board of directors Canara Bank, which met recently, approved a proposal to make an open offer for Can Fin Homes. The bank will acquire shares so as to hold 51% stake in Can Fin Homes in order to convert the sponsored entity into a subsidiary. Necessary permissions have been obtained from the Reserve Bank of India (RBI) and the ministry of finance.

Indian Bank to hike stake in NSE

Indian Bank, one of the leading state-run lenders in southern India, will increase its stake in the National Stock Exchange (NSE). At present, the bank holds 0.52% stake in NSE, the country’s largest bourse in terms of turnover

Public sector banks want to use more profits for staff rewards

Public sector banks have pitched for the right to use up to 5% of their net profits for compensation purposes. As of now, the government policy allows them to use only up to 1% of their profit to compensate performers. Speaking at an HR conference organised by Indian Banks’ Association (IBA) on Friday, Bank of Baroda CMD Anil Khandelwal indicated that IBA has made such a proposal. He further said the restriction to use only 1% of profit has not yielded proper results. Though public sector banks are still giving huge competition to private and foreign banks, rigid compensation packages are the biggest disadvantage they face in attracting and retaining talent. Canara Bank chairman and managing director MBN Rao raised concerns over PSBs being constrained by “structured compensation packages with limited flexibility”. Mr Rao, who is also the IBA chairman, further said, “PSBs need to find ways to nurture their available talent base rather than hiring fresh talent.” Mr Khandelwal said, “Nationalised banks are losing more than a thousand employees to private and foreign banks every year. Union Bank CMD MV Nair said it was the time to take a call on whether all PSBs should have the same salary structure. Most felt that serious engagement of employees, providing ownership and instilling a feeling of institutional pride in them were the main ways of employee retention, apart from compensation. Mr Chakrabarty felt there should be a common objective that the CEO of the bank as well as the head of human resources work towards, which should be effectively communicated to every employee of the organisation

Bank staff to strike on Sep 12

The United Forum of Bank Employees will spearhead a nationwide strike on September 12 for additional pension benefits and protest against outsourcing activities of banks. The forum is represented by 8.5 lakh nationalised bank employees. The protest is being supported by one crore signatures to be presented to Prime Minister Manmohan Singh. While unions are quiet on the service issues plaguing state-owned banks, the four bank officers unions and five bank workmen’s union have decided to jointly highlight how government’s banking policy is hurting the interests of the nation.

New priority sector lending norms for RRBs

The Reserve Bank of India (RBI) has issued revised priority sector guidelines for regional rural banks (RRBs) to increase lending under financial inclusion. The banks will have to ensure that 60 per cent of their advances are towards priority sectors such as agriculture, small industries and retail trade. Of the total priority sector advances, at least 25 per cent (that is 15 per cent of the total advances) should be advanced to weaker sections of the society. The revised guidelines have taken effect immediately.

Banks to start new pension plan

In their first step towards introducing a pension scheme based on defined contribution, public sector banks have in-principle decided to introduce such a scheme for new recruits in the officer cadre. The cost of servicing the present “defined benefit” pension scheme has been mounting, with banks having to make provisions to the extent of 32 per cent of the employee’s annual salary. Under the government’s defined contribution pension scheme, the employee has to compulsorily contribute 10 per cent of the basic pay and dearness allowance every month. This contribution has to be matched by the employer. The income that the employee receives is not fixed and depends on the returns earned on the funds contributed towards pension. For higher returns employees, can increase their contribution, even as the employer’s contribution remains fixed.

Farm loans up to Rs 50 k may get service tax waiver

Small and marginal farmers availing agriculture loans up to Rs 50,000 need not pay any service charge and need not deposit land documents at bank branches. These are some of the recommendations of the group set up by the Reserve Bank of India to examine the procedures and processes of agriculture loans. For loans exceeding Rs 50,000, the service charge should not exceed 0.25 per cent of the loan limit per annum, said the group’s report. The group has suggested that the Nabard should issue and circulate the mandatory application forms among banks. The form should be simple, user- friendly and should use the local language. The report also suggest that all loans having credit limit of up to Rs 50,000, should be disposed off within a fortnight and those with credit limits up to Rs 3 lakh, within four weeks.

All borrowers to get documents in loan agreement

It is now mandatory for banks to provide a copy of the loan agreement including all enclosures to the borrower. The condition would apply for all loans across the board, said a senior RBI official. Banks usually furnish these documents only at the request of the borrowers. Banks also provide a copy of all the documents to their corporate or big-ticket size customers.

LS passes Bill to replace SBI Ordinance

The Lok Sabha on Monday (20.08.07) passed a Bill to replace the Ordinance promulgated on June 21 to facilitate the Centre’s buyout of the Reserve Bank of India’s shareholding in SBI. On June 29, the Centre acquired 59.73 per cent stake of RBI against total payment of Rs 35,531.33 crore drawn from the Consolidated Fund of India

Aug 21, 2007

Central Bank of India lists at 28% premium

Central Bank of India listed at Rs 130 - a 27.5% premium to its issue price of Rs 102 per share. The stock touched a high of Rs 132, and a low of Rs 125 in early trades.

SBI tying up with post offices

The country's largest commercial bank, State Bank of India (SBI) has chalked out an innovative strategy to widen its network and reach out to the remotest villages of India. It has decided to tie up with post offices for this purpose

UCO Bank to sell off Rs 500-cr bad loans

UCO Bank, which is sitting on an Rs 1,285-crore pile of non-performing assets, will put up about Rs 500 crore of the stressed assets next month for bidding by various asset reconstruction companies (ARCs). Stressing that the bank would sell the loans only if it got a fair price, the bank’s Chairman and Managing Director, Mr S.K. Goel, told that there would be no let-up in efforts to effect recoveries . He said that two General Managers and about 300 of the bank’s staff had been put on the task of making recoveries.

Aug 14, 2007

FIIs hit ceiling in 10 state-run banks

Foreign institutional investors’ investments in three more public sector banks - Andhra Bank, Indian Overseas Bank and Canara Bank - are nearing the 20 per cent ceiling specified by the Reserve Bank of India (RBI). The FII holding in these three banks went over 19 per cent in the June 2007 quarter, taking the total number of banks, where FIIs are barred from making fresh purchases, to 10. The list comprises State Bank of India, Punjab National Bank, Union Bank, Bank of Baroda, Allahabad Bank, Oriental Bank of Commerce and Vijaya Bank. Among private sector banks, FIIs has hit the ceiling in ICICI Bank and Centurion Bank of Punjab.

SBH defers public offer

The State Bank of Hyderabad, which planned a public offer during the second quarter of the current fiscal, has put on hold its proposed IPO and has decided to take a final call in December. “We will review the proposal in December. Currently, it is put on hold,” Amitabha Guha , the managing director , State Bank of Hyderabad said. This follows the instruction from the State Bank of India to all its associate bank not to indulge in such exercise pending their merger with SBI. “With every passing day the possibility of merger is getting brighter”, Guha added.

Barclays unveils platinum debit card

Barclays India has launched the ‘Barclays Platinum Debit card’, which is an international debit card with a host of benefits. This includes cash withdrawal facilities and benefits on dining, golf, travel, shopping and other services. Barclays’ customers can spend up to Rs 1 lakh on their card per day and withdraw the same amount from an ATM per day.

HSBC India goes in for a down-to-earth transformation

HSBC Bank's image in India is undergoing a change. Nowhere is this more evident than in the bank’s increasing focus on the small and medium enterprise segment as well as retail borrowers. “We are serving all ends of the spectrum,” says Ms Kidwai. “We have coined a brand of products called HSBC Pragati Finance - basically consumer finance. Today we are among the top three lenders in the country in this space. We are disbursing about 15,000 loans a month.” These small-ticket loans (less than Rs 50,000 per loan) are given without a security. Explains Ms Kidwai, “We have taken a view to giving it without collateral. What good is the security? What do we do with a durable like a scooter or television? We are really looking for the willingness to repay. Not too many banks lend unsecured loans of this order.” “If a borrower’s record improves with us, he or she will get lower interest rates,” says Ms Kidwai. Those rates are currently in the region of 32 per cent to 48 per cent per annum.

Aug 13, 2007

PSBs may get the golden option to raise money

The government may have to consider the golden share option for public sector banks to help them raise extra capital from the markets. This is among several proposals being debated by advisers to the government as part of a strategy to strengthen the capital structure of these banks. Golden share means vesting a share or a set of shares with extraordinary rights to block any move made by a board of directors to alter a bank’s structure, like transforming a public sector bank into a private sector one, even if the government holds minority stake in it. The proposal is a re-run of a plan mooted by the previous NDA government to dilute government equity in banks from 51% to 33%.

Bank of India cuts term deposit rates

Bank of India has cut the interest rates on rupee term deposits by 10 to 50 basis points across various maturity periods. The revised rates on deposits having maturity of two years to less than three years would be 9 per cent (9.5 per cent), three to less five years 9.25 per cent (9.6 per cent) and five years and above 9.5 per cent (9.6 per cent). Senior citizens will now get additional 0.5 per cent above the card rates for maturity of six months and above on all deposit schemes uniformly.