Narayana Murthy to join HSBC board

Global banking giant HSBC said Infosys' Chief Mentor, Mr N R Narayana Murthy, will join its board in May with an annual remuneration of ₤65,000 (about Rs 52 lakh). "Mr N R Narayana Murthy (61) has been appointed a Director of HSBC Holdings plc with effect from May 1, 2008. He will bean independent Non-Executive Director," HSBC said in a regulatory filing. The appointment shall be for an initial three-year team.

Loan waiver could be blessing in disguise for banks: experts

Contrary to the widespread consternation regarding the extent of the massive hit which banks, particularly in the public sector segment, will have to take, on account of Chidambaram’s populist waiver of Rs 60,000-crore of farm loans, tax experts feel banks may actually benefit out of all this. According to tax experts, banks will collectively get tax breaks to the tune of Rs 20,400 crore, when they waive Rs 60,000 crore of overdue loans. They will also get a chance to clean up their balance sheets by way of writing off bad loans. The general perception is that the government would compensate the banks for the losses which, prima facie, would be a maximum of Rs 39,600 crore after taking into account the benefits of tax exemption. Tax experts believe that banks would need to provide for a much lesser amount as the major part of it appears to have been provided for. Banks would automatically get another Rs 30,000 as repayments of loans on account of OTS (farmers can avail of the scheme by paying 75% of the loan and get a rebate of 25%). This would be cash inflow and allow banks to give fresh loans. “Technically, not all overdues are non performing assets. Overdues become NPA if repayment is not made for three months. These are largely sub-standard assets and banks need to follow a less stringent provisioning norms for such assets. We have just begun our calculation and a clearer picture would emerge in a couple of days,” a top banker said. Therefore, banks would need to make a fresh provisions against the amount waived and take a hit on the profitability.

'Loan waiver sends wrong message to borrowers’

The repayment culture gets badly impacted and it would be several years before some semblance of loan discipline can be restored. To fulfil their mandatory obligations banks might implement the scheme of waiver and even may disburse fresh loans and oblige the government in reaching the revised target of Rs 2,80,000 crore. It would, however, be a task for the managements to inculcate and sustain the culture of recovery amongst their field staff. From the farmers’ perspective too, the scheme has too many flaws. First, it sends a message to the honest borrowers, for the umpteenth time, that they have been unwise in repaying their loans. Second, the farmers who have invested their own resources or borrowed from money lenders, with no borrowings from the banks, stand to lose out. Third, the conscious and genuine farmers who have invested more of their savings than borrowings would be deprived of the benefit from this generous scheme

Prompt payers may feel cheated: Experts

Mr M. Srinivas Achar, President of the All-India Areca Growers’ Association, said that both those who had made prompt repayments and who had not availed themselves of loans would feel cheated. “Banking discipline may be lost in future with such loan waiver move,” he said. Prof N.K. Thingalaya, noted rural banker, said that waiver of loans was undesirable. Though banks would not be losing financially, those who have made prompt repayment will be affected morally.

4 cr farmers to benefit from debt waiver scheme

The Finance Minister has proposed that all agricultural loans distributed by scheduled commercial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and overdue as on December 31, 2007 will be covered under debt waiver and debt relief scheme. For marginal farmers and small farmers there will be a complete waiver of all loans that were overdue on December 31, 2007 and which remained unpaid until February 29, 2008. He has also called for completing the implementation of the two schemes by June 30, 2008. For other farmers, there will be a one time settlement (OTS) scheme for all loans that were overdue for the above period. Under the OTS, a rebate of 25 per cent will be given against payment of the balance of 75 per cent. Agricultural loans which were rescheduled and are restructured during 2004-06 as per the RBI guidelines will also be eligible for a waiver or an OTS on the same pattern. The total value of overdue loans being waived is estimated at Rs 50,000 crore and the OTS relief on the overdue loans is estimated at Rs 10,000 crore

Loan waiver: Bankers await the fine print

Bank stocks fell in the wake of the Finance Minister’s announcement but recovered when he clarified that the Government would bear the cost of the loan waiver. According to Mr K. Ramakrishnan, Chairman and Managing Director, Andhra Bank, this move will not hit the profits of banks. “As the money will come from the Government, banks will not lose a single penny. This will benefit banks, as the loans will be off our books. The outstanding that the borrower has to pay will now be paid by the Government,” he said. Mr Ajay Bagga, CEO, Lotus India Asset Management Company, said. “It represents a write off of nearly 4 per cent of outstanding bank loans and 25 per cent of outstanding agricultural credit. Since this money has already been consumed, it will not create any fresh purchasing power immediately, though over time, the principal and interest servicing payments will flow into consumption,” he said. Mr Viren Mehta, Partner, Financial Services, Ernst & Young, said: “The aggregate profits of all scheduled commercial banks in India for FY2005-06 and FY2006-07 was in the range Rs 24,000 crore and Rs 31,000 crore, respectively. Therefore, it should be considered as a foregone conclusion that the Government will provide support for the debt relief. Whether this is in terms of hard cash or some other mechanism and over what period would the support be provided is something that requires clarity.” For the fiscal 2008-09, a provision of Rs 16,000 crore has been made for continuing with the interest subsidy for short-term crop loans. The target for agriculture loans for 2008-09 has been set at Rs 2.8 lakh crore.

Budget-2008

Two things stand out prominently in the Finance Minister, Mr P. Chidambaram's 2008-09 Budget - a substantial relief to farmers from indebtedness and a bonanza of sorts for the salaried class. The agriculture loan waiver scheme outlined by him in Parliament on Friday would cost Rs 60,000 crore, but there is no provision in the Budget for this, suggesting that the burden would fall on the banking sector for now. For individual taxpayers the Finance Minister has raised the threshold limit for tax to Rs 1,50,000 a year from the current level of Rs 1,10,000, which translates into a straight gain of Rs 4,000 per annum for all tax-payers. He has gone ahead to alter the slabs as well, with the 10 per cent rate kicking in at the Rs 1,50,000 to Rs 3,00,000 slab, 20 per cent at Rs 3,00,000 to Rs 5,00,000 and a 30 per cent tax on income exceeding Rs 5,00,000 per year. For women taxpayers the threshold limit has been raised to Rs 1,80,000 from Rs 1,45,000 and for senior citizens from Rs 1,95,000 to Rs 2,25,000 per annum. For senior citizens, another relief could be in the form of clarifications on the reverse mortgage scheme intended to benefit them in their old age. The scheme, where one could mortgage the house to the bank in lieu of a steady inflow or lump sum amount, has not taken off in the absence of clarifications on the likely tax implication. Mr Chidambaram made it clear that reverse mortgage would not amount to "transfer" and the stream of revenue received by the senior citizen would not be "income". The corporate sector has not been a direct beneficiary this year - corporation tax rates and the surcharge remain unchanged. But there are indirect benefits, in the form of across-the-board reduction in Cenvat (excise duty) rate from 16 to 14 per cent, which should spur demand and, with more money in the hands of the taxpayer, more sales hopefully. Indian industry would also continue to enjoy the same level of protection against competitive imports with unchanged peak customs duty of 10 per cent. The auto sector has already raised a toast as excise on small cars and twoand three-wheelers and also buses and chassis has been lowered from 16 to 12 per cent and the pharma sector has given its thumbs up to the Budget as excise for all goods manufactured by this sector would see a cut from 16 to 8 per cent. Corporate debt instruments stand exempt from tax deduction at source.

Federal Bank’s money transfer facility for NRIs in US

Federal Bank, on Wednesday, launched Fed-India remit service (FIRSE), the Web-enabled money transfer facility between the US and India, targeted at the NRI population. The traditional means of money transfer, through issue of cheques and drafts, used to take close to a month and at a cost to the customer. The telegraphic transfer used to be fast but entailed a service charge of between $25-50 (Rs 1,000-2,000) per transaction. Now, a similar facility is being offered free to Federal Bank NRI customers in the US. A couple of new generation private banks, which are offering similar services, are charging a fee for the same. And the bank is the first among the old generation private sector banks to offer such a facility. Federal Bank uses 128-bit encrypted technology offering 100 per cent security to both the remitter and recipient.

Union Bank to use 3i Info tool

3i Infotech has entered into an agreement with Union Bank of India to implement AMLOCK, the company’s anti money laundering software.