Bank mergers may affect insurance distribution scene

Bank mergers in India are likely to impact the insurance sector as many insurers have selected banks as their bancassurance partners. Bancassurance is the sale of life, pension and investment products through the branch network of a bank. The recent merger announcement of HDFC Bank and Centurion Bank of Punjab is expected to impact the business of Aviva Life Insurance and ICICI Lombard General Insurance Co. Centurion Bank is the bancassurance partner for these two insurers. The arrangements might be discontinued because HDFC Bank sells life and non-life insurance policies of group companies HDFC Standard Life Insurance and HDFC General Insurance. Insurers find recruiting and training individual agents a time-consuming and costly process. There are also issues like agency attrition and small-sized policies procured by agents. V Srinivasan, chief financial officer of Bharti Axa Life Insurance, said that the one bank-one insurer concept was not right and would lead to skewed scenario. A bank should be allowed to be a broker and sell the policies of different insurers, he said.

PSBs must clear education loans in one month, says FM

Finance minister P Chidambaram on Tuesday said that the public sector banks (PSBs) are required to clear education loans within 15-30 days and they should also institute an online system to clear such loans. This will enable students to download the loan application form, apply online and learn the status of their loan application, he said adding the facility is now provided by all major public sector banks.

Motilal Oswal, IDBI Bank team up for online trading facility

Motilal Oswal Securities Ltd and IDBI Bank on Tuesday announced that they were entering into a strategic alliance to provide online trading facility to the bank’s customers. IDBI customers now have the option of investing in equities, derivatives and IPOs using Motilal Oswal’s online trading platform. On the trading front, Motilal Oswal will provide the bank’s customers instant order/trade confirmation, single margin for equity/IPO/derivatives, “buy now sell tomorrow” and “after market hours” order placement facilities and margin benefit on hedged positions. Corporation Bank has tied up with IL&FS, Religare and Reliance Money; Asit C. Mehta has an arrangement with Union Bank while Bank of India has tied up with Anand Rathi. This is the second such partnership that Motilal Oswal has got into; where last year it had tied up with SBI Bank.

Corpn Bank ATMs at MRPL outlets

The Mangalore-based Corporation Bank and Mangalore Refinery and Petrochemicals Ltd (MRPL) have decided to leverage their respective strengths to provide a bouquet of services to customers in the fuel retail segment. MRPL, which has the approval from the Government to open 500 retail outlets, is planning to open 25 retail outlets under the brand name ‘HiQ’ by December, and Corporation Bank will have the choice of setting up of ATMs at the ‘HiQ’ retail outlets. Mr B.R. Bhat, General Manager (IT), Corporation Bank, and Mr Sanjay Grover, General Manager (Retail Sales), MRPL, said that the two will leverage their strengths to generate greater opportunities from each contact they have with the individual customer.

Staff liabilities may bleed small PSBs

Public sector banks will need to fully deploy an RBI escape clause in provisioning requirements for employee liabilities to ensure their costs do not soar by at least Rs 800 crore each this fiscal. These banks are planning to introduce additional retirement benefits that could cost them up to Rs 25,000 crore. This is more than half their estimated gross profit for this fiscal at Rs 42,000 crore. The proposed package for employee benefits includes pension, provident fund and gratuity. Banking sources said liabilities could vary from Rs 800 crore to Rs 1,000 crore for each bank, depending on employee strength. To make full provision for employee-related costs in a single shot in one year could push a large number of banks into the red. They are, therefore, keen to use the breather provided by RBI on the accounting standards on employee benefits. The AS-15 norm allows them to spread the full provision for staff-related liability over five years. One PSU bank CEO said that while State Bank of India and Canara Bank, which have net profits of Rs 4,541.31 crore and Rs 1,421 crore, respectively, could afford to make provisioning for employee-related costs in one shot without any major impact on their bottom lines, mid-sized banks like Oriental Bank of Commerce and Corporation Bank, with net profits of Rs580 crore and Rs 536 crore, respectively, may need to space out the liabilities. The cost for banks would soar by an additional Rs 5,000 crore in case the government decides to provide an option to all employees to move towards pension benefits in lieu of provident fund. Of the 7 lakh people employed by the 27 public sector banks, about 3 lakh are covered under provident fund.

HDFC Bank, Centurion boards approve 1:29 share swap ratio

Shareholders of Centurion Bank of Punjab would be eligible to exchange 29 shares into one share of HDFC Bank. This follows the board of directors of the two banks approving on Monday a share-swap ratio of 1:29. HDFC Bank’s share closed at Rs 1,422.70, down by 3.5 per cent while Centurion Bank ended the day at Rs 48.25, lower by 14.45 per cent on the BSE on Monday. The entire process of the merger would take about four months for completion. The merged entity will be known as HDFC Bank. Mr Rana Talwar, Chairman of Centurion Bank, has been offered a seat on the Board as non-executive director and Mr Shailendra Bhandari, Managing Director, Centurion Bank, has been invited to join as the Executive Director on the board post merger. “The near-term impact on HDFC’s financials would be moderately negative considering the relatively poor financials of Centurion Bank. It would take HDFC Bank a while to leverage the branch network of Centurion Bank to improve its financials, said Mr Vaibhav Agrawal, Senior Analyst-Banking, Angel Broking Ltd. The draft scheme of amalgamation, the due diligence report and any other matters as required will be considered by the board of HDFC Bank at its meeting scheduled on February 28.

Uco Bank to clean up balance sheet

Kolkata-based Uco Bank has put some Rs 264-crore of nonperforming assets (NPAs) on the block to clean up its balance sheet. This was indicated by Uco Bank chairman & managing director SK Goel. Out of this, around Rs 100 crore of bad loans are likely to be sold off by March 31. Overall, Uco Bank is struggling with bad loans totalling Rs 1,664 crore. “NPAs with a minimum size of Rs 5 crore have been identified for putting on the block,” Mr Goel said. “The bank has recently finalised deals to transfer NPAs to the tune of Rs 44 crore to a few to asset reconstruction companies (ARCs). Negotiations are on for selling off another Rs 60-70 crore of NPAs this fiscal. Talks are at an advanced stage,” Mr Goel said. It is understood that companies like Asset Reconstruction Company (India) Ltd (Arcil), Arsec India Ltd, Pegasus Asset Reconstruction Co have evinced an interest for taking over part of Uco’s bad loan portfolio. This selling off exercise would help the bank. Out of the total NPA, Rs 400 crore is in the agriculture sector and another Rs 450 crore is in the retail segment. It has identified nearly 1.80 lakh bad loan accounts, including nearly 1.44 lakh small accounts. Besides transferring bad loans to ARCs, it has also started negotiating with default borrowers directly to recover bad loans. It has recovered some Rs 213 crore during the first half to September 30, 2007. It is looking to recover another Rs 300 crore by March 30, 2008.

HDFC Bank, Centurion boards okay merger plan

The boards of HDFC Bank and Centurion Bank of Punjab have approved in principle a merger between the two banks. The boards of both banks will again meet on February 25 to consider the share swap ratio after the receipt of the valuation reports. Mr Deepak Parekh, Chairman, HDFC, the promoter of HDFC Bank, said: “We get scale…we will get about 400 branches at one go. Today, size is important in the banking sector. They (Centurion) have good presence in Punjab - thanks to Bank of Punjab, which was merged with Centurion. Similarly, they have a large branch network in Kerala following the merger of Lord Krishna Bank. This would help us leverage the NRI business and probably tap opportunities in the Gulf.”

SBI, ICICI Bank among top 100 global banking brands

Indian banks, barring SBI, and ICICI Bank, come a cropper in the global stage when it comes to their brand value, while their counterparts in China have fared better, according to the findings of a study. In a study by London-based consultancy Brand Finance, only two Indian Banks - the country's biggest lender SBI and ICICI Bank, the largest in the private sector, figure among the top 100 global banking brands. Compared to the Indian brands in top 100, three Chinese banks find a place in the top 25 brands. According to the study, SBI has a brand value of $2,852 million, while for ICICI Bank it is $2,603 million. Industrial & Commercial Bank of China has a brand value of $8,427 million, China Construction Bank is at $7,786 million, Bank of China at $6,741 million.

HDFC Bank, Centurion boards to consider merger

HDFC Bank and Centurion Bank of Punjab (Centurion) on Friday confirmed that they are considering a merger proposal. The boards of directors of both the banks are meeting separately on Saturday to consider “in principle” a possible merger. The boards will appoint independent valuers for deciding on the share swap ratio. After the merger, the combined entity would have a formidable network of over 1,100 branches with a pan-India presence. This would overtake ICICI Bank in terms of branch network (955). However, in terms of balance sheet size, ICICI Bank maintains its lead by a large margin. As on December 31, 2007, the balance sheet size of Centurion Bank of Punjab stands at Rs 25,403 crore and of HDFC Bank at Rs 1.31 lakh crore. ICICI Bank’s balance sheet stands at a much larger figure of Rs 3.76 lakh crore. Centurion has traditionally adopted the inorganic route to expansion. It took over BankMuscat’s Indian operations in 2003 followed by Bank of Punjab in 2005 and the Lord Krishna Bank in 2006. Centurion has a large presence in the North and a considerable exposure to the agriculture sector, thanks to its merger with Bank of Punjab in 2005. Centurion has 394 branches and 452 ATMs with employee strength of around 7,500. HDFC Bank has a branch network of 754 and is understood to have over 200 more licenses in hand. HDFC Bank has 1,906 ATMs in 327 locations

Corp Bank lifts Rs 300 cr from NPCIL for 9.87%

Corporation Bank has piped rival public sector banks in the race to pick up bulk deposits from Nuclear Power Corporation of India (NPCIL). Corporation Bank had bid 9.87 per cent for Rs 300 crore bulk deposits of one year duration from NPCIL and lifted the funds through placement of certificates of deposit. The effective cost after factoring in reserve ratios (cash reserve ratio and the statutory liquidity ratio) was likely to be about 40-50 basis points higher. Besides public sector banks, private banks were also in the fray for the bulk funds. Some of the private sector banks had bid even higher rates of over 10 per cent. The high rates were seen due to tight liquidity conditions as oil refiners were drawing down their credit lines, for funding their dollar purchases. Bankers said a slow down in capital inflows had also resulted in reduced RBI interventions in the foreign exchange markets leading to a shortage of rupee liquidity. Some bankers said that the high bids were also in expectation of firm call rates next month, when advance tax payments begin.