Mid-term review of Annual Policy for year 2007-08

Dr. Y. Venugopal Reddy, Governor, presented the Mid-term Review of Annual Policy for the Year 2007-08 today in a meeting with Chief Executives of major commercial banks. The Mid-term Review consists of two parts: Part I Mid-term Review of the Annual Statement on Monetary Policy for the Year 2007-08; and Part II Mid-term Review of the Annual Statement on Developmental and Regulatory Policies for the Year 2007-08. Highlights Bank Rate, Repo Rate and Reverse Repo Rate kept unchanged. The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially, is retained. CRR increased by 50 basis points to 7.5 per cent effective fortnight beginning November 10, 2007. GDP growth forecast retained at 8.5 per cent during 2007-08, assuming no further escalation in international crude prices and barring domestic or external shocks Inflation to be contained close to 5.0 per cent during 2007-08 while resolving to condition expectations in the range of 4.0-4.5 per cent, with a medium-term objective of inflation at around 3.0 per cent. Moderating net capital flows so that money supply is not persistently out of alignment with indicative projection of 17.0-17.5 per cent. Covering of ‘Short-sale’ and ‘When Issued’ transactions to be permitted outside the Negotiated Dealing System – Order Matching (NDS-OM) system. Systemically important non-deposit taking NBFCs (NBFC-ND-SI) to be considered as ‘qualified entities’ for accessing the NDS-OM using the Constituents’ Subsidiary General Ledger (CSGL) route. Reinstatement of the eligible limits under the past performance route for hedging facility to be permitted. Oil companies to be permitted to hedge foreign exchange exposures by using overseas over-the-counter (OTC)/ exchange traded derivatives up to a maximum of one year forward. Importers and exporters having foreign currency exposures to be allowed to write covered call and put options in both foreign currency/ rupee and cross currency and receive premia. Authorised Dealers (ADs) to be permitted to run cross currency options books subject to the Reserve Bank’s approval. ADs to be permitted to offer American options as well. Working Group to be constituted for preparing a road-map for migration to core banking solutions (CBS) by Regional Rural Banks (RRBs). RRBs and State/ Central Cooperative Banks to disclose their capital-to-risk weighted assets ratio (CRAR) as on March 31, 2008 in their balance sheets. A road-map to be evolved for achieving the desired level of CRAR by these banks.M High Level Committee to be constituted to review the Lead Bank Scheme. Financial assistance to RRBs for implementing information and communication technology (ICT) based solutions. Working group to be constituted to lay down the road-map for cross-border supervision and supervisory cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision (BCBS). Besides general market risk, specific risk, especially the credit risk arising out of deficient documentation or settlement risk to be covered under the supervisory process. Action plan to be drawn up for implementation of National Electronic Clearing Service (NECS) with centralised clearing and settlement at Mumbai. Domestic Developments Real GDP growth during the first quarter of 2007-08 is placed at 9.3 per cent as against 9.6 per cent in the corresponding quarter a year ago. The year-on-year (Y-o-Y) wholesale price index (WPI) inflation eased from its peak of 6.4 per cent on April 7, 2006 to 3.1 per cent by October 13, 2007. The average price of the Indian ‘basket’ of international crude has increased to US $ 80.0 per barrel as on October 23, 2007 from US $ 72.1 per barrel in July-September, 2007. The Y-o-Y CPI inflation for industrial workers showed a sharp increase to 7.3 per cent in August 2007 as against 6.3 per cent a year ago. The Y-o-Y growth in money supply (M3) was higher at 21.8 per cent on October 12, 2007 than 18.9 per cent a year ago. The Y-o-Y growth in aggregate deposits at Rs.5,69,061 crore (24.9 per cent) was higher than that of Rs.3,88,528 crore (20.4 per cent) a year ago. Total credit exhibited a Y-o-Y growth of Rs.3,81,333 crore (23.3 per cent) as on October 12, 2007 on top of an increase of Rs.3,66,463 crore (28.8 per cent) a year ago. The Y-o-Y growth in total resource flow from scheduled commercial banks (SCBs) to the commercial sector was 22.1 per cent, over and above the growth of 28.0 per cent a year ago. Banks’ holdings of Government and other approved securities increased to 30.0 per cent of their net demand and time liabilities (NDTL) as on October 12, 2007 from 28.0 per cent at end-March 2007. The overhang of liquidity under the LAF, MSS and the Central Governments’ cash balances taken together increased to Rs.2,22,582 crore by October 24, 2007 from Rs.85,770 crore at end-March 2007. The Government of India, in consultation with the Reserve Bank, revised the ceiling under MSS for the year 2007-08 from Rs.1,10,000 crore to Rs.1,50,000 crore on August 8, 2007 and further to Rs.2,00,000 crore on October 4, 2007. During the second quarter of 2007-08, financial markets remained generally stable with conditions of abundant liquidity and interest rates moderated in almost all segments of the financial system. During April–October 2007, public sector banks (PSBs) decreased their deposit rates, particularly at the upper end of the range for various maturities, by 25-60 basis points. During April-October 2007, the benchmark prime lending rates (BPLRs) of private sector banks moved from a range of 12.50-17.25 per cent to 13.00-16.50 per cent. The range of BPLRs for PSBs and foreign banks, however, remained unchanged at 12.50-13.50 per cent and 10.00-15.50 per cent, respectively, during this period. The BSE Sensex increased from 13,072 at end-March 2007 to 19,243 on October 26, 2007. The gross market borrowings of the Central Government through dated securities at Rs.1,27,060 crore (Rs.1,17,548 crore a year ago) during 2007-08 so far (up to October 26) constituted 67.3 per cent of the budget estimates (BE) while net market borrowings at Rs.75,387 crore (Rs.65,951 crore a year ago) constituted 68.7 per cent of the BE. External Sector Merchandise exports rose by 18.2 per cent in US dollar terms during April-August 2007 as compared with 27.1 per cent in the corresponding period of the previous year while import growth was higher at 31.0 per cent as compared with 20.6 per cent in the previous year. Non-oil imports rose by 44.3 per cent (10.9 per cent a year ago); oil imports, however, slowed down to 6.0 per cent (44.5 per cent), mainly on account of moderation in the price of the Indian basket of crude oil by 0.5 per cent during April-August 2007. India’s foreign exchange reserves increased by US $ 62.0 billion during 2007-08 and stood at US $ 261.1 billion on October 19, 2007. The rupee appreciated by 10.3 per cent against the US dollar, by 2.4 per cent against the euro, by 5.4 per cent against the pound sterling and 7.1 per cent against the Japanese yen during the current financial year up to October 26, 2007.Global Developments The downside risks to the global economic outlook have increased from a few months ago, accentuated by the recent financial market turmoil, firm inflationary pressures and high and volatile crude prices. According to the IMF’s World Economic Outlook (WEO) released in October 2007, the forecast for global real GDP growth on a purchasing power parity basis has been retained at 5.2 per cent for 2007 as in the July 2007 update, down from 5.4 per cent in 2006, but forecast for 2008 has been revised down to 4.8 per cent in October from 5.2 per cent in the July 2007 update. In the US, real GDP growth had risen to 3.8 per cent in the second quarter of 2007 as compared with 2.4 per cent a year ago - The IMF’s October 2007 WEO expects the US economy to grow at 1.9 per cent in 2007 and 2008 as against 2.9 per cent in 2006. There was a sudden fall in credit market confidence in late July brought on by the spread of risks from exposure to the US sub-prime mortgages with credit crunch spreading into corporate bond markets and equity markets. The European Central Bank and the US Federal Reserve, which have intervened since August 9 by providing liquidity to the inter-bank market, were joined by central banks in Canada, Japan, Australia, Norway and Switzerland. Bank of England has provided liquidity support to a mortgage lending bank, while giving a blanket guarantee to depositors on the safety of their deposits. Several central banks have cut policy rates during the third quarter of 2007 after financial markets were significantly affected by turbulence, such as the US Federal Reserve, the Banco Central do Brasil, Bank Indonesia (BI) and the Bank of Thailand. The central banks that have tightened their policy rates include the European Central Bank; the Bank of England; the Bank of Japan; the Bank of Canada; the Reserve Bank of Australia; the Reserve Bank of New Zealand; the People’s Bank of China; the Bank of Korea; the Banco de Mexico; and the Banco Central de Chile. A few central banks in Asia have used supplementary measures for tightening, besides increasing key policy rates. The only central bank that has kept policy rates steady is the Bank Negara Malaysia. Overall Assessment Some positive elements in the global economy are (i) the global economy is strong and resilient; (ii) EMEs, by and large, have a better macro-environment than before; (iii) globally, corporate balance sheets are strong and less leveraged than in the past; (iv) large financial intermediaries are perhaps adequately capitalised to absorb the shocks of credit infirmities; and (v) the inflation environment has been, on the whole, benign. The global environment is fraught with uncertainties with international crude prices at new highs, having breached the level of US $ 90 per barrel while elevated food and metal prices would, in current circumstances, pass through to domestic inflation. The US Federal Reserve has been the most aggressive in terms of easing monetary policy, with a higher than expected rate cut, reflecting the concerns over impact of housing issues on consumption and, hence, growth. The most important issue for India is the possible impact of global financial market developments and policy responses by central banks in major economies. The immediate task for public policy in India, therefore, is to manage the possible financial contagion which is in an incipient stage with highly uncertain prospects of being resolved soon. On the domestic front, aggregate demand conditions have remained firm and on the uptrend. Key monetary aggregates, i.e., reserve money and money supply have been running well above initial projections, reflecting the impact of higher than expected deposit growth and the exogenous expansionary effects of capital inflows as well as the drawdown of fiscal cash balances. The incomplete pass-through of international prices of crude, metals, food and commodities in general to consumer prices is indicative of suppressed inflation which carries destabilising potential into the future. The policy responses in the form of active liquidity management operations to modulate expansionary monetary and financial conditions were reflected in a generally orderly evolution of market liquidity. Since late July, global financial markets have experienced unusual volatility, strained liquidity and heightened risk aversion. While the trigger was the rising default rates on sub-prime mortgages in the US, the source of the problem was significant mis-pricing of risks in the financial system. Easy monetary policy, globalisation of liquidity flows, wide-spread use of highly complex structured debt instruments and inadequacy of banking supervision in coping with financial innovations also contributed to the severity of the crisis. At the current juncture and looking ahead, on the domestic front, the biggest challenge for monetary policy is the management of capital flows and the attendant implications for liquidity and overall stability. Yet another challenge is the rapid escalation in asset prices, particularly equity and real estate, which are significantly driven by capital flows. Over the next twelve to eighteen months, risks to inflation and inflation expectations would also continue to demand priority in policy monitoring. Stance of Monetary Policy Real GDP growth in 2007-08 is placed at 8.5 per cent for policy purposes, as set out in the Annual Policy Statement of April 2007 and reiterated in the First Quarter Review. Policy endeavour would be to contain inflation close to 5.0 per cent in 2007-08 and the resolve, going forward, would be to condition expectations in the range of 4.0-4.5 per cent so that an inflation rate of 3.0 per cent becomes a medium-term objective. Moderating the expansionary effects of net capital flows is warranted so that money supply is not persistently out of alignment with the indicative projections. The Reserve Bank will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants. Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for inflation, the overall stance of monetary policy in the period ahead will broadly continue to be: • To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports export and investment demand in the economy so as to enable continuation of the growth momentum. • To re-emphasise credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while simultaneously pursuing greater credit penetration and financial inclusion. • To respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations, financial stability and the growth momentum. • To be in readiness to take recourse to all possible options for maintaining stability and the growth momentum in the economy in view of the unusual heightened global uncertainties, and the unconventional policy responses to the developments in financial markets. Monetary Measures The Bank Rate has been kept unchanged at 6.0 per cent. The repo rate under the LAF is kept unchanged at 7.75 per cent. The reverse repo rate under the LAF is kept unchanged at 6.0 per cent. The Reserve Bank has the flexibility to conduct repo/reverse repo auctions at a fixed rate or at variable rates as circumstances warrant. The Reserve Bank retains the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors. The Reserve Bank will continue to use this flexibility including the right to accept or reject tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity management. CRR increased by 50 basis points to 7.5 per cent effective fortnight beginning November 10, 2007.Developmental and Regulatory PoliciesFinancial Markets Non-Competitive Bidding Scheme in the Auctions of State Development Loans (SDLs) to be operationalised by March 31, 2008. Re-issuance of SDLs in the second half of 2007-08. The facility of new issuance structure for floating rate bonds (FRBs) is being built into the new Negotiated Dealing System (NDS) auction system being developed by the Clearing Corporation of India Limited (CCIL). The Reserve Bank is committed for permitting market repos in corporate bonds, once the corporate debt markets develop and the Reserve Bank is assured of availability of fair prices, and an efficient and safe settlement system based on delivery versus payment (DvP) III and Straight Through Processing (STP) is in place. Covering of ‘Short-sale’ and ‘When Issued’ transactions to be permitted outside the Negotiated Dealing System – Order Matching (NDS-OM) system. Systemically important non-deposit taking NBFCs (NBFC-ND-SI) to be considered as ‘qualified entities’ for accessing the NDS-OM using the Constituents’ Subsidiary General Ledger (CSGL) route. The facility of permitting all exporters to earn interest on their Exchange Earners’ Foreign Currency (EEFC) accounts to the extent of outstanding balances of US $ 1 million per exporter is extended up to October 31, 2008 and banks are free to determine the rate of interest. Reinstatement of the eligible limits under the past performance route for hedging facility provided that supporting underlying documents are produced during the term of the hedge undertaken. Oil companies to be permitted to hedge their foreign exchange exposures to the extent of 50 per cent of their inventory volume as at the end of the previous quarter by using overseas over-the-counter (OTC)/ exchange traded derivatives up to a maximum of one year forward. Importers and exporters having foreign currency exposures to be allowed to write covered call and put options in both foreign currency/ rupee and cross currency and receive premia. Authorised Dealers (ADs) to be permitted to run cross currency options books, subject to the Reserve Bank’s approval. ADs to be permitted to offer American options as well. Credit Delivery Internal Working Group to be constituted to examine the recommendations of the Committee on Agricultural Indebtedness (Chairman: Dr. R. Radhakrishna) relevant to the banking system in general and the Reserve Bank, in particular. Working Group to be constituted with representatives from the Reserve Bank, the NABARD, sponsor banks and RRBs for preparing a road-map for migration to core banking solutions (CBS) by RRBs. RRBs and State/ Central Cooperative Banks should disclose the level of CRAR as on March 31, 2008 in their balance sheets. A road-map may be evolved for achieving the desired level of CRAR by these banks. Working Group to be constituted to study the recommendations of Sengupta Committee report on ‘Conditions of Work and Promotion of Livelihood in the Unorganised Sector’ relevant to the financial system and suggest an appropriate action plan for implementation of acceptable recommendations. High Level Committee to be constituted to review the Lead Bank Scheme. Proposed to prepare a concept paper on financial literacy-cum-counseling centres detailing the future course of action. Financial assistance to RRBs for implementing information and communication technology (ICT) based solutions, including installation of solar power generating devices for powering ICT equipment in remote and under-served areas. Prudential Measures Final guidelines on Credit Default Swaps would be issued by end-November 2007. Banks are urged to follow prescribed specific considerations while engaging recovery agents. Abusive practices followed by banks’ recovery agents would invite serious supervisory disapproval. Constitution of a working group to lay down the road-map for adoption of a suitable framework for cross-border supervision and supervisory cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision (BCBS). In order to enhance the effectiveness of the banking supervisory system, the process of consolidated supervision to be integrated with the financial conglomerate monitoring mechanism for bank-led conglomerates. It is proposed to cover, besides general market risk, specific risk, especially the credit risk arising out of deficient documentation or settlement risk, under the supervisory process. Institutional Developments Banks are urged to ensure that adequate disaster recovery systems are put in place to fully comply with the requirements. Banks are urged to draw up time-bound action plans for implementation of CBS across all their branches. An action plan to be drawn up for implementation of National Electronic Clearing Service (NECS) using the existing infrastructure of National Electronic Funds Transfer (NEFT) system with centralised clearing and settlement at Mumbai. Working group to be constituted comprising representatives of the Reserve Bank, State Governments and the Urban Cooperative Banks (UCBs) to examine the various areas where IT support could be provided by the Reserve Bank to UCBs. The Committee on Financial Sector Assessment (CFSA) (Chairman: Dr.Rakesh Mohan; Co-Chairman: Dr.D.Subbarao) submitted an interim report delineating its approach and reviewing the progress of work to the Finance Minister and Governor, Reserve Bank of India in July 2007. The CFSA is expected to complete the assessment by March 2008 and lay out a road-map for further reforms in a medium-term perspective. From RBI website

Banks allowed pref share issue

Banks, facing pressure on their capital due to the increasing demand for credit, may soon have another set of instruments to raise funds. The RBI has allowed them to raise Tier I and upper Tier II capital through preference shares. Banks can raise Perpetual Non-Cumulative Preference Shares (PNCPS) as Tier I capital. They can also raise upper Tier II capital through Perpetual Cumulative Preference Shares (PCPS), Redeemable Non-Cumulative Preference Shares (RNCPS) and Redeemable Cumulative Preference Shares (RCPS), in Indian rupees. The PNCPS will be treated on part with equity, and hence, the coupon payable on these instruments will be treated as dividend (an appropriation of profit and loss account). All other types of preference shares will be treated as liabilities and the coupon payable will be treated as interest (charged to Profit and Loss Account). Issuing additional pure equity would impact the earning per share and the return on equity will start shrinking. This will affect valuations of the share, said a senior bank official. Also, in case of preference shares there is no issue of voting rights, he added. The outstanding amount of Tier I preference shares along with Innovative Tier I instruments shall not exceed 40 per cent of total Tier I capital at any point of time.

PNB revises interest rate on fixed deposits

Public sector Punjab National Bank on Saturday announced a 50 basis point increase in interest rates on fixed deposits for term of 1-2 years while slashing rates by 25 basis points on various other maturities. Interest rate has gone up by 50 basis points to 8.5% for 1-2 years fixed deposits. Deposits for 180 days to less than one year would now attract interest rate of 7.25% against 7.5% earlier. The interest rate on 2-5 years deposits has been slashed to 8.5% as compared to 8.75% earlier, it said. The new rates would come into effect from October 29.

SBI plans to buy South African bank

The State Bank of India (SBI) has begun its due diligence to buy a small or medium size bank in South Africa, the window to the African continent. A mid-sized South African bank, Capitec, with an asset of around $350 million (Rs 1,400 crore) and 280 branches is a potential target. When contacted, SBI’s South African CEO Vijay Jasuja confirmed that the bank might take the inorganic route to make its South African business profitable. “We need to have at least 20 branches in South Africa to make our retail venture profitable here. If we try to expand in an organic manner, it may take one and half years, or even more. the banking business has been a profitable proposition in the country because of high service charges here. For an ATM withdrawal of 1000 rand, for example, a customer needs to pay as high as 14 rand to the bank. Similarly, service charges for credit card, telephone banking, and other business banking services are quite high compared to India." The SBI, which has three branches in South Africa, has been present in the country for the last 10 years.

Bank of Maharashtra drops housing loan rates

Bank of Maharashtra has reduced the rates of interest on its housing loan segment by 25 basis points with effect from October 25. Processing fee on its retail segment for housing, vehicle, consumer and personal loans has also been waived till January 15, 2008. As per the new structure, the floating rate for loans up to Rs 20 lakh is 10 per cent for a five-year term, 10.25 per cent for a 5-10 year term, and 10.5 per cent for 10-20 years. The rates for above Rs 20 lakh are 10.25 per cent, 10.75 per cent and 11 per cent for the three periods, respectively. The fixed rates of interest for loans up to Rs 20 lakh, are 10.75 per cent and 11.25 per cent for terms of five years and 5-10 years, respectively. The same for higher amounts are 11 per cent and 11.75 per cent.

TMB hikes term deposit rate

Tamilnad Mercantile Bank (TMB) has hiked the interest rate on domestic term deposits for the tenor period 1 year to 399 days by 10 basis points from October 24. The new interest rate is applicable for both fresh deposits and deposits matured and renewed after this date. After the hike, senior citizens will be receiving interest at the rate of 10.10 per cent per annum while this will be 9.60 per cent per annum for others. The increase, effected as a festival bonanza, is for a limited period only. Under special category, the bank offers 10.25 per cent per annum for senior citizens and 9.75 per cent per annum for others under TMB 400 days deposit scheme.

SBI plans general insurance foray

State Bank of India plans to enter general insurance early next year and has appointed a consultant, said Mr O.P.Bhatt, its Chiarman. The bank is likely to tie up with a foreign player to set up a joint venture for general venture. The bank has infused Rs 500 crore capital in its life insurance subsidiary, SBI Life and may infuse Rs 2,000 crore next year. The bank saw a growth of 18 per cent in housing loans as on September 30, 2007 and will continue to focus in this segment, Mr Bhatt said. Retail advances now constitute about 25 per cent of the bank’s gross domestic advances and housing loans constitute 52 per cent of retail advances

Bank of Japan

Headquarters : Tokyo, Japan Established : 1882 Currency : Japnese Yen Website : http://www.boj.or.jp/ Like most modern Japanese institutions, the Bank of Japan was born after the Meiji Restoration. Prior to the Restoration, Japan's feudal fiefs all issued their own money, hansatsu, in an array of incompatible denominations, but the New Currency Act of Meiji 4 (1871) did away with these and established the yen as the new decimal currency. The former han (fiefs) became prefectures and their mints became private chartered banks which, however, initially retained the right to print money. For a time both the central government and these so-called "national" banks issued money; to end this, the Bank of Japan was founded in Meiji 15 (1882) and given a monopoly on controlling the money supply. The Bank of Japan issued its first banknotes on Meiji 18 (1885), and despite some small glitches -- for example, it turned out that the konnyaku powder mixed in the paper to prevent counterfeiting made the bills a delicacy for rats -- the run was largely successful. In 1897 Japan joined the gold standard and in 1899 the former "national" banknotes were formally phased out. The Bank of Japan has continued ever since, with the exception of a brief post-WW2 hiatus when the occupying Allies issued military currency and restructured the Bank into a more independent entity. However, despite a major 1997 rewrite of the Bank of Japan Law intended to give it more independence, the Bank of Japan has been criticized for lack of independence. A certain degree of dependence is enshrined in the Law itself, article 4 of which states: In recognition of the fact that currency and monetary control is a component of overall economic policy, the Bank of Japan shall always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government's economic policy shall be mutually harmonious.

Missions

According to its charter, the missions of the Bank of Japan are: Issuance and Management of Banknotes Implementation of Monetary Policy Providing Settlement Services and Ensuring the Stability of the Financial System Treasury and Government Securities-Related Operations International Activities Compilation of Data, Economic Analyses and Research Activities

Location

The Bank of Japan is headquartered in Nihonbashi, Tokyo, on the site of a former gold mint (the Kinza) and, not coincidentally, near the famous Ginza district, whose name means "silver mint". Despite featuring a Neo-baroque building from 1896 designed by Tatsuno Kingo, the Tokyo headquarters is a bit off the tourist track, and the better-placed Osaka branch in Nakanoshima is generally regarded as the symbol of the bank. Mr. Shigetoshi Yoshihara (6 Oct 1882 – 19 Dec 1887) Mr. Tetsunosuke Tomita (21 Feb 1888 – 3 Sep 1889) Mr. Koichiro Kawada (3 Sep 1889 – 7 Nov 1896) Baron Yanosuke Iwasaki (11 Nov 1896 – 20 Oct 1898) Mr. Tatsuo Yamamoto (20 Oct 1898 – 19 Oct 1903) Baron Shigeyoshi Matsuo (20 Oct 1903 – 1 Jun 1911) Mr. Korekiyo Takahashi (1 Jun 1911 – 20 Feb 1913) Viscount Yataro Mishima (28 Feb 1913 – 7 Mar 1919) Mr. Junnosuke Inoue (13 Mar 1919 – 2 Sep 1923) Mr. Otohiko Ichiki (5 Sep 1923 – 10 May 1927) Mr. Junnosuke Inoue - second term (10 May 1927 – 1 Jun 1928) Mr. Hisaakira Hijikata (12 Jun 1928 – 4 Jun 1935) Mr. Eigo Fukai (4 Jun 1935 – 9 Feb 1937) Mr. Seihin Ikeda (9 Feb 1937 – 27 Jul 1937) Mr. Toyotaro Yuki (27 Jul 1937 – 18 Mar 1944) Viscount Keizo Shibusawa (18 Mar 1944 – 9 Oct 1945) Mr. Eikichi Araki (9 Oct 1945 – 1 Jun 1946) Mr. Hisato Ichimada (1 Jun 1946 – 10 Dec 1954) Mr. Eikichi Araki - second term (11 Dec 1954 – 30 Nov 1956) Mr. Masamichi Yamagiwa (30 Nov 1956 – 17 Dec 1964) Mr. Makoto Usami (17 Dec 1964 – 16 Dec 1969) Mr. Tadashi Sasaki (17 Dec 1969 – 16 Dec 1974) Mr. Teiichiro Morinaga (17 Dec 1974 – 16 Dec 1979) Mr. Haruo Maekawa (17 Dec 1979 – 16 Dec 1984) Mr. Satoshi Sumita (17 Dec 1984 – 16 Dec 1989) Mr. Yasushi Mieno (17 Dec 1989 – 16 Dec 1994) Mr. Yasuo Matsushita (17 Dec 1994 – 20 Mar 1998) Mr. Masaru Hayami (20 Mar 1998 – 19 Mar 2003) Mr. Toshihiko Fukui (20 Mar 2003 – present) Missions and Activities of the Bank of Japan . The Bank of Japan's missions are to maintain price stability and to ensure the stability of the financial system, thereby laying the foundations for sound economic development. To fulfill these two missions, the Bank conducts the following activities. A. Issuance and Management of Banknotes The Bank of Japan issues banknotes (officially referred to as Bank of Japan notes) as the nation's sole "issuing bank." It employs a wide range of measures to prevent counterfeiting, including watermarks, special inks, and micro-lettering. Worn and soiled banknotes make it more difficult to distinguish genuine notes from counterfeits, which may proliferate as a result. Therefore, the Bank of Japan checks the validity and cleanness of each of the banknotes which return to the Bank, destroying badly worn notes and putting only those that are in good condition back into circulation. Because banknotes are used in all kinds of transactions, the Bank pays close attention to the control of the physical quality of banknotes so that the public is able to use the notes with confidence. B. The Conduct of Monetary Policy What if the prices of your daily necessities and food were to rise continuously? You would need to spend more money to buy the same basket of goods. In other words, the purchasing power of your money would go down. If the prices of various goods rose, people would naturally have a harder time making a living. On the other hand, what if the prices of goods were to decline continuously? A decline in prices appears to be favorable to consumers as they can buy the same basket of goods more cheaply. But if prices were to decline continuously, both the sales and profits of firms that produce or sell goods would decrease. As a result, the salaries of workers at those firms would decrease and the number of unemployed persons might increase. A continuous rise in the prices of goods and services is generally referred to as "inflation," and a continuous decline in prices is referred to as "deflation." As you can see from the above, both inflation and deflation are a threat to our daily lives. When the economy enters a period of inflation in which the purchasing power of money is gradually eroded, people's confidence in money will diminish. If many people considered that the prices of goods and services would continue to rise in the future, they would rush to buy goods and services before prices rose even further. This would create upward pressure on prices, thus increasing the likelihood that the anticipated rise in prices would actually take place. In contrast, if people considered that prices would continue to decline in the future, they would wait to make their purchases until prices had declined further. Thus, they would spend less and save more and economic activity might eventually be endangered. Both inflation and deflation distort the distribution of income and assets across the economy, and disrupt financial transactions, which involve the lending or borrowing of money. The Bank of Japan's mission is to pursue price stability, in other words to maintain an economic environment in which there is neither inflation nor deflation. The Bank controls the overall volume of money in the economy and interest rates on a daily basis through money market operations, i.e., through its sales/purchases of money market instruments such as Japanese government securities (JGSs) to/from private financial institutions. The Bank's policy to stabilize prices, thereby contributing to the sound development of the national economy, is called monetary policy. For example, if Japan's economy weakened so that sales of goods declined and there was downward pressure on prices, the Bank would buy money market instruments such as JGSs from private financial institutions, thus increasing the volume of money in the economy and lowering interest rates. More money in circulation and lower rates enable firms to borrow money more easily and act as a spur to economic activity: more people purchase goods and services, and thus prices are less likely to decline. Conversely, if economic activity heated up, with goods selling too well and upward pressure on prices, the Bank would reduce the volume of money in the economy and would raise interest rates. Accordingly, economic activity would be dampened and prices would be unlikely to rise. As noted above, the Bank conducts monetary policy to achieve price stability, thereby contributing to the stability of the economy as a whole. The Bank believes that price stability is a prerequisite for stability in our daily lives and for realizing sustainable and balanced economic growth. C. Providing Settlement Services and Ensuring the Stability of the Financial System The term "financial system" refers to the collective mechanisms through which financial institutions intermediate funds between depositors and investors and provide payment and settlement services, such as funds transfers between accounts. The financial system constitutes a fundamental social infrastructure that supports our daily lives, as is the provision of electric power, water, and gas. The Bank of Japan conducts various activities to maintain this particular infrastructure.

1. Provision and Maintenance of the Settlement System Financial transactions between financial institutions are settled by transferring funds across the current accounts held by each institution at the Bank of Japan. Because it offers accounts to financial institutions, the Bank is often referred to as the "banks' bank." The amount settled across the accounts at the Bank of Japan totals over \300 trillion per day. In order to facilitate such funds transfers, the Bank operates an electronic settlement system, the Bank of Japan Financial Network System (BOJ-NET), and is constantly working to upgrade and improve the efficiency of the settlement system.

2. Monitoring and Examination of the Financial and Management Conditions of Financial Institutions The sound management of individual financial institutions is a prerequisite to the stable functioning of the financial system. The Bank of Japan thus closely monitors trends in the loans and deposits of financial institutions, and the Bank's staff regularly visits financial institutions to carry out an "on-site examination" to review their financial and management conditions.

3. Function as the Lender of Last Resort When a financial institution becomes insolvent and this is likely to pose a threat to the financial system, the Bank of Japan may provide emergency liquidity to the troubled institution in its role as the "lender of last resort" in an effort to prevent financial disorder. D. Treasury and Government Securities-Related Operations As the "government's bank," the Bank of Japan handles receipts and disbursements of treasury funds, including acceptance of tax monies and payment of public works expenditures and public pensions. It also conducts accounting and bookkeeping for government agencies. In addition, the Bank deals with the entire business of Japanese government securities, namely issuance, registration, interest payment, and redemption. Settlement of funds and Japanese government securities arising from the above operations are facilitated by the BOJ-NET. E. International Activities The Bank of Japan engages in the following international activities. 1. International Financial Transactions and Operations The Bank provides yen accounts to central banks and governmental institutions overseas. It also makes capital subscriptions and loan extensions to international organizations such as the Bank for International Settlements (BIS) and the International Monetary Fund (IMF). 2. Intervention in the Foreign Exchange Markets The Bank closely monitors exchange rate developments. It intervenes in the foreign exchange market as an agent of the Minister of Finance, when necessary. 3. International Exchange of Views The Bank of Japan frequently participates in discussions held at various international forums, such as the meetings at the BIS, the G7, and the IMF. Topics of discussions range widely, from monetary policy and the foreign exchange markets to bank supervision and settlement systems. Exchange of views with overseas central banks is important in strengthening cooperative relationships among the central banks. F. Compilation of Data, Economic Analyses and Research Activities To ensure appropriate implementation of monetary policy, the Bank of Japan must have an accurate understanding of the overall economic and financial conditions in Japan. To this end, the Bank compiles various statistics, including the Corporate Goods Price Index, the Corporate Service Price Index, and money stock. It also conducts a regular business survey known as the Tankan -- Short-Term Economic Survey of Enterprises in Japan. Based on these and a wide variety of other statistical data, including those prepared by government agencies and other organizations, the Bank reviews Japan's financial and economic conditions. In addition, the Bank's head office and branches make direct contact with a large number of firms to directly receive their views on the economy. The Bank also conducts opinion polls of the public when necessary, to which Bank's careful attention is paid. The Bank explains its view mainly through the publication of results of these analyses. Additionally, the Bank is able to receive the public's views and opinions through the Public Relations Department. Further to the above activities, the Bank is also engaged in theoretical research from a longer-term perspective, on issues such as monetary policy and the financial system.

Banks told to drop special deposit schemes

Depositors who are wary of withdrawing their money from fixed deposits for fear of losing the interest may soon have some relief. The Reserve Bank of India has asked banks that are offering special term deposit schemes under which no interest is paid in case of premature withdrawal during the lock-in period, to discontinue such schemes with immediate effect. The interest rates offered on these deposits are not in tune with the rates of interest on normal deposits, said the RBI.

PNB to allow overdraft facility

Taking 'no frill' account drive to another level, Punjab National Bank has allowed overdraft facility of up to Rs 500 to its account holders in the state of Punjab. In a state where half of the agricultural debt still flows from non-institutional sources, the measure is meant to make financial inclusion process more inclusive and faster

Banks switch to any time mobile transaction

After automated teller machine (ATM) and internet, banking transactions are set to migrate to mobile phone. From providing balance information and account alerts, banks with the help of IT companies have developed applications that now allow customers to make changes in their investment portfolios, purchase mutual funds and facilitate peer-to-peer payments. With over 250 million mobile subscribers in the country, the IT developers are hoping such applications become the preferred mode of transacting in the coming years. While mobile technology is evolved enough to allow cash remittances across users, RBI does not allow non-banks to provide money transfer services. This provides a great opportunity for banks to partner mobile companies and provide such services. All the transactions happen over SMS, but they use a security feature called Unstructured Supplementary Service Data (USSD), a technology unique to GSM. USSD doesn’t allow the sent messages to be saved onto the phones, and hence will guard the customer’s details in case of loss or theft of the phone, according to mChek CEO Sanjay Swamy. Paymate, another mobile solutions provider, has tied up with two banks for peer-to-peer money transfer as well as peer-to-merchant money transfer, and will be announcing these tieups within the next two weeks.

SBI 'Easy' card payment option

SBI Card announced 'Paycash' payment option for its customers through Easy Bill payment outlets in India. This facility will enable SBI Card customers to make direct cash payment for their outstandings at 3,500 available Easy Bill merchant outlets through out India. This is for the first time a credit card company has introduced a cash payment option.

Kotak Bank’s product for salaried

Kotak Mahindra Bank’s ‘salary 2 wealth’ account has been designed for the present day salaried professional. Launching the product, the bank’s Group Head (Retail Liabilities and Branch Banking), Mr K.V.S. Manian, said the Kotak Salary 2 Wealth proposition would provide the salaried professional an ideal platform to achieve his aspirations by going beyond the vanilla corporate salary account. Besides offering conventional banking service, the Salary 2 Wealth account would provide offerings such as reimbursement account, investment account, demat account with facility to transfer funds (from and to) the linked online trading account provided by Kotak Securities, preferential loans, office banking and many more options.

SBH to make a/c opening simpler

Opening an account with State Bank of Hyderabad branches in the twin cities will be made easier soon. A customer can complete opening of an account within 10 minutes along with an ATM card and cheque book. The bank is in the process of setting up a Liability Centralised Processing Centre (LCPC) to facilitate ‘fast-paced account opening’ for customers in Hyderabad and Secunderabad, Mr R.P. Sinha, Chief General Manger, SBH, said. A customer will be given a temporary ATM card, a booklet of 10 cheques and Pass Book within ten minutes, once LCPC becomes operational,” Mr Sinha said. Within 10 days, a personalised ATM card and cheque book would be sent to the customer. The centre would be opened before December 31. The initiative is a part of the bank’s efforts to mobilise current accounts and savings accounts, he added.

Reliance Money ties up with Corp Bank

Reliance Money, the financial services and distribution arm of the Anil Dhirubhai Ambani Group, announced its tie up with Corporation Bank to offer broking services to the customers and clients of Corporation Bank. Under this agreement, the depository system of Corporation Bank would be linked with Reliance Money’s trading platform and consumers having DP accounts with the Corporation Bank would be able to trade on the Reliance Money Platform. “We expect to add over two lakh demat accounts with this tie up, with our effort focused to get the not-so-savvy semi-urban and rural investor to participate in the stock market,” said Mr Sudip Bandyopadhyay, Director and CEO, Reliance Money. The customers will be offered a free trading account for a year for trading up to Rs 5 lakh.

SBI to offer reverse mortgage loan

State Bank of India is launching a reverse mortgage loan for senior citizens, starting from October 12. Called the “SBI Reverse Mortgage Loan”, it will be available for customers above 60 years. The loan would be given jointly if the spouse is alive, provided he or she is above 58 years. The loan is available at all SBI branches. It carries a fixed interest rate of 10.75 per cent per annum, which is subject to reset at the end of every five years along with revaluation of security and re-adjustment of loan instalments, if necessary. The maximum tenure of such a loan is 15 years, said Mr Sangeet Shukla, Chief General Manager, Personal Banking, SBI. Other players in this segment include DHFL and Punjab National Bank.

Festival offer: SBI drops rates on home, other retail loans

State Bank of India, the largest lender in the country, has reduced the interest rates on all retail loans including home loans by 50-100 basis points. The maximum reduction (one percentage point) in rate applies to loans for a duration of 5 to 15 years. The new rates would be applicable for all loans taken between October 8 and December 31, 2007. For loans up to Rs 20 lakh, the revised rate on floating rates above 15 years and up to 20 years is 10.5 per cent (11.25 per cent). Loans above Rs 20 lakh will carry additional 0.25 percentage point interest. Other banks and financial institutions that have cut home loans recently include HDFC Ltd, Bank of Baroda, IDBI Ltd, Union Bank, Canara Bank, Axis Bank, Allahabad Bank and Dena Bank. Housing loans constitute 52.22 per cent of SBI’s retail advances as on June 2007. SBI has also reduced rates on personal loans by 50 basis points to 100 basis points. The bank is also offering a 50 per cent concession in processing charges on all personal segment loans. For small road transport operators in SME sector, the bank has reduced interest rates ranging from 100 to 200 basis points on the existing rates and the revised rates will now be in the range of 10 to 12.25 per cent for various loan maturities. The festival offer is also extended to farm mechanisation loans

ICICI Bank gets RBI nod for 425 branches

http://thebankpage.blogspot.com/icici-rbinodIndia’s second largest bank ICICI Bank has received permission from the Reserve Bank of India’s to open 425 new branches and over 2,500 ATMs. The bank currently has a network of 950 branches and extension counters and about 3,600 ATMs. This is the first time that the central bank has allotted such a large number of branches to any private sector bank in India. This is over and above the 100 branches that ICICI Bank received after the embargo on several banks that followed the IPO scam. The majority of the new branches will be in semi-urban and rural regions.

City Union Bank allots 68 lakh shares on pref basis

Having got the Reserve Bank’s approval and the shareholders’ nod for raising capital through issue of 68 lakh equity shares of Rs 10 each at a premium on preferential basis, the Kumbakonam-headquartered City Union Bank today went ahead with the allotment. The bank has allotted 3 lakh shares to L&T and 15 lakh shares to LIC at Rs 169.15/share, while fixing the rate at Rs 190 each for the 15 lakh shares allotted to FMO, Netherlands, 12.5 lakh shares each to Ares Investments LLC and Argonaut Ventures and 10 lakh shares to Yatish Trading Company. The allotment in exchange for cash has aggregated to Rs 125.45 crore. It would enhance its capital from Rs 25.2 crore to Rs 32 crore. The total holding by FIIs/NRIs, post this preferential issue, would be a little over 19 per cent against the 24-per cent norm.

Get mini-statements, change PIN at ATMs

The ATM cardholders of the six banks forming part of the MITR (ATM sharing arrangement) network can now benefit from new value-added services introduced today. Such customers, numbering about 80 lakh, can now obtain ‘mini statements’ of their accounts in any of the ATMs of the members banks of ‘MITR’. The MITR network came into existence on October 8, 2003. The customers with debit card/ATM cards would also be able to change their ‘Personal Identification Number’ (PIN) in any of the ATMs under the network. Currently, the MITR network has 3154 networked ATMs. The six banks forming part of the MITR network are Punjab National Bank (PNB), Oriental Bank of Commerce (OBC), Indian Bank, Karur Vysya Bank, IndusInd Bank and UCO Bank. The PNB’s Executive Director, Mr J.M. Garg, said that the bank was adding 50,000 ATM cards every week. “We want to increase it to 1 lakh cards every week”, he said.

UCO Bank plans follow-on public issue

UCO Bank plans to come up with a follow-on public offering (FPO) of shares during the last quarter of the current fiscal or first quarter of 2008-09, its Chairman and Managing Director, Mr S.K.Goel, has said. “We hope to raise Rs 200-Rs 250 crore in the FPO. The capital raising is, however, contingent on the Finance Ministry approving a capital restructuring proposal submitted by us and pending before the Government,” Mr Goel said. He said that UCO Bank has sought Government approval to convert Rs 300 crore of equity capital into preference share capital. UCO Bank’s paid-up capital as on end-June 2007 stood at Rs 799.36 crore. If the FPO goes through, the Government’s stake in the bank would come down from 74.98 per cent to 55-56 per cent, he added

Festive offer: Axis, Dena Bank drop home loan rates

Axis Bank and Dena Bank have reduced interest rates on home loans in the run-up to the festival season. Dena Bank is offering a 50 basis-point reduction in interest rates for all tenors and slabs as part of its ‘Festival Bonanza’. The reduced rates would be applicable on fresh housing loans in both the fixed and floating interest categories sanctioned from October 10 till December 31, said. The new interest rates range from 9.25 per cent to 10.5 per cent in the floating rate category and 9.75 per cent to 11 per cent in the fixed rate category depending on loan amount and tenor. Axis Bank has reduced its floating rates by 50 basis points. The new floating rate will now stand at 10.5 per cent.

Class Room

ATM frauds/crimes This article aims at alerting those who use their ATM/Debit cards. In this world fraud can take place in any form. We should be ever vigilant to protect ourselves from that frauds. The technology has paved the way to many frauds. Today’s fraudsters are white collard people sitting somewhere and steeling from your pocket your hard earned money. E-mail and Internet related fraud schemes are being perpetrated with increasing frequency, creativity and intensity. A few methods adopted by fraudsters are; Skimming: Here the fraudsters make counterfeit ATM cards by using a skimmer, which is s card swipe device that reads the information on a consumer’s ATM card. Scammers insert onto an ATM, ready to swipe information from unsuspecting customers. They take a blank card and encode all the information from an ATM card when they swipe The skimmer catches the PIN through a small camera mounted on the ATM. Lebanese Loop: Here fraudsters insert a portable steel loop into an ATM card slot. The fraudster usually approaches the victim while at the machine, and poses as the person next in the line. Victims are advised to enter their PIN three times and then hit cancel to get the machine to accept the cards. The fraudster is able to memorize the PIN for future use and the machine keeps the card because of the excessive number of attempts to enter the correct PIN. The victim cannot get back the card as it is held in the loop. When the victim leaves the fraudster removes the loop and he has both card and pin. Spoofing: Here the attacker creates a misleading context to trick victim into making an inappropriate security relevant decision. For example, fraudster have set up bogus automated teller machines, typically in public areas or shopping malls. The machines would accept ATM cards and ask for PIN codes. Once victim gives the information. Fraudster has enough information to steel the money. Pretexting: Here the fraudster has some information about you and wants to have more information so that he can steel your money. He claims to be from victims bank and makes calls to victim to provide the needed information. Many a times victim provides the needed information and fraudster can make merry on that. Phishing: Here the fraudster sends emails at random, purporting to come from a genuine company operating on the internet and this mail requests the victim to provide his personal information like password etc to update the database. The link provided in the mail takes the victim to look alike website of the bank. When the victim provides the required information, fraudster can steel the money at his will. Protect yourself: While using ATM see that no extra fitting is attached to Machine if any inform the security or the contact number of the bank provided on the ATM. Never take the help of third person to operate your card. Never disclose your PIN to anybody. Never keep your PIN and card at same place. Be cautious when third person comes to help you generously. Never disclose your personal information over phone to bank unless you know Cent percent that this is genuine call. Banks usually never call/mail you to take your personal information, when you receive Such call/mail take his number and confirm/inform the bank.

No RBI subsidy to banks for ‘no frills’ accounts

The Reserve Bank of India (RBI) has ruled out support or subvention to banks for the opening of ‘no frills’ accounts as part of the nationwide financial inclusion project. Speaking after inaugurating the biometrically- enabled smart cards of Canara Bank, the RBI Deputy Governor, Ms Usha Thorat, said, “Banks stand to benefit through financial inclusion and they are prepared to incur the costs for the purpose.” Financial inclusion, she said, allowed the State governments to dispense social security, subsidies and pensions directly to the beneficiaries through their bank accounts. She also said that for the last financial year, about 60 million ‘no frills’ accounts had been opened by the public sector banks. These cards allowed customers to use Automatic Teller Machines, especially in the rural regions where literacy rates were low. Customer identification is done on the basis of finger prints. These cards are estimated to cost anywhere between Rs 80-100 each. Mr M.B.N. Rao, Canara Bank Chairman and Managing Director, said that Canara Bank intended to complete banking inclusion in 1639 villages by the end of the current financial year and open at least 10 lakh ‘no frills’ accounts. The bank, he said, had opened about 6.5 lakh such accounts after completing the inclusion project in 23 districts where it was the lead bank

Fitch ties up with Dena Bank

Credit rating agency Fitch has tied up with Dena Bank to evaluate the credit quality of its existing and potential clients to help the bank prepare for Basel-II norms. Fitch has also signed MoU for bank loan ratings with Indian Bank, State Bank of India, Syndicate Bank and UCO Bank and was in the process of signing MoUs with other banks.

IBA resists CBI plan to probe private banks

India’s premier investigative agency the Central Bureau of Investigation (CBI) is seen attempting to extend its turf to cover private banks and corporates which remain largely outside its investigative domain. The agency has sounded out the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA), which represents the interests of a multitude of banks, on whether private banks and corporates could be brought under the ambit of the investigative agency. CBI is now of the view that since private banks deal with public money, the onus is on the agency to check corrupt practices taking place in such institutions. IBA was of the view that CBI was not in tune with the nuances of banking. “Very often, a banker may take a commercial decision to grant a loan and the account holder may default due to various reasons such as a slowdown in the economy or the export-import policy and other reasons. This may not mean that the banker is in the wrong,” said a banker. There are other reasons for banks to resist the move. According to bankers, a probe undertaken by CBI drags on for long before the agency arrives at a logical conclusion. “Currently, as per the Banking Regulation Act and Prevention of Corruption Act, private entities are not covered under CBI. These two Acts will have to be amended to include private banks and corporates under CBI,” said former RBI executive director and now IBA chief legal advisor MR Umerji.

SBM logs into e-trading

Bangalore-based State Bank of Mysore on Wednesday launched e-trading services under which its customers will be able to access bank account, demat account and Internet trading account sitting at home. Initially, the facility is being offered through the designated branches of SBM at Bangalore, Mysore, Mumbai, Surat, Ahmedabad, Hyderabad and Chennai. The brokerage charges vary between 0.5 per cent and 1.5 per cent depending on the monthly turnover. The bank has tied up with SBI Cap Securities Ltd (SSL) for offering e-trading facility

Fed cut may prod RBI to soften rate regime

Bankers expect the Reserve Bank of India to soften its view on interest rates in the light of the US Federal rate cut. Domestic loans and overseas borrowing may become cheaper. “There may not be direct correlation between the US Federal Reserve action and the RBI’s moves. But the country is more tuned to global trends especially capital flows which has implications on exchange rate and relative difference in interest rates,” said a chairman of medium size public sector bank. S K Goel, chairman and managing director of UCO Bank, said the domestic interest rates could soften by about 50 basis points in the coming days. This also means reducing deposit rates to control cost.

Fed beats expectations; cuts key rate by 50 bps

The Federal Reserve cut a key interest rate for the first time in four years, seeking with an aggressive half-point move to prevent a steep housing slump and turbulent financial markets from triggering a recession. The Fed announced on Tuesday that it was reducing its target for the federal funds rate, the interest that banks charge each other, from 5.25% to 4.75%. The halfpoint reduction was double the quarterpoint move that many economists had been expecting. Commercial banks were expected to quickly match the Fed’s action by cutting their prime lending rate. The prime rate has been at 8.25% for the past 15 months.

Now, passbook update at ATMs

Now you can withdraw money and simultaneously get your passbook updated at the automated teller machine (ATM) instantly. Banks in association with NCR, a technology company, are planning to get the self service technology in India. “Every passbook update costs the bank Rs 70 to Rs 80. The updating of passbooks at ATMs is a good concept but in India we have major bandwidth problem. Banks will have to train customers, there could be instances where in the passbook could get stuck in the printer. The customer wait time at the ATM will also increase,’’ said a retail banking head of a private bank

BoI relocates site hosting from US to India

After facing attacks on its website, the Bank of India has shifted website hosting from United States to India in an attempt to have greater control over operations. The site was hacked on August 31, 2007 and remained inaccessible for many days. There were attempts to load multiple copies of malware, one of which had features to steal information such as user names and passwords

StanChart buys AmEx, expands India presence

Standard Chartered Plc today reached an agreement to acquire US-based American Express Bank Ltd for about £431 million ($860 million) in cash - a deal that would give the British banking major additional branch licences in India. American Express Company (AXP), which agreed to sell its banking business American Express Bank to UK's Standard Chartered, said the sales does not include its primary card and travel-related businesses.

Lakshmi Vilas goes live with RTGS

Lakshmi Vilas Bank has gone live with RTGS (Real Time Gross Settlement) transactions across its 120 Core Banking Solution enabled branches. This facility would enable LVB customers in faster transfer funds between banks, better fund and liquidity management and considered more secure. The bank has established a primary site for RTGS at Chennai and a disaster recovery site at Mumbai.

Sekhsaria hikes stake in Centurion Bank

Radha Madhav Investments, the investment arm of Narottam Sekhsaria, has increased its stake in Centurion Bank of Punjab by 0.66%. The company purchased 1 crore shares of the bank from Citigroup Venture Capital International Growth Partnership Mauritius, through a bulk deal on the Bombay Stock Exchange. The total size of the transaction was around Rs 40.46 crore. Following this transaction, the stake of Radha Madhav Investments in Centurion Bank of Punjab has risen to 3.21%.

IndusInd Bank rejigs loan portfolio

IndusInd Bank is planning to re-balance its retail portfolio by reducing its dependence on vehicle financing on account of the rising interest rate risks. The bank had earlier decided to offer personal loans only to customers with corporate salary accounts due to fears of defaults. “As a part of our overall strategy, we want to reduce the share of vehicle finance loans in our total loan book to about 40 to 45 per cent from the existing 58 per cent,’’ said managing director, Bhaskar Ghose. Over dependence on a particular business segment could expose a bank to the risk of credit concentration. "These loans are 2 to 3 years, fixed rate loans. Attempts to convert these fixed rate loans to floating rates have not been accepted by the market. Hence, there is a interest rate risk in this business segment," added Ghose. Fitch ratings has downgraded IndusInd Bank (IBL’s) rating citing weak financials compared with its peers and continued vulnerability in a rising interest rate scenario. The proportion of fixed-rate retail loan stood at 60 per cent, while wholesale term deposits constituted 75 per cent of the bank’s total deposits.

Andhra Bank hikes rates to woo short-term bulk deposits

Andhra Bank has raised the interest rate on the certain short-term buckets by up to 200 basis points for large-sized (read bulk) deposits. This is being done to replace deposits, which are due to mature. “There is going to be outflow of some deposits on maturity. We want to replace them at a lower cost,” said a bank official. The public sector bank will offer 8% on 91-119 days deposits compared with 6.50% earlier and 8.50% on 120-179 days deposits from 6.25% earlier.

Bank of Maharashtra turns 72

Bank of Maharashtra, which was registered on September 16, 1935 with an authorised capital of Rs 10 lakh, celebrated its 73rd foundation day on Monday. The bank launched two new schemes to coincide with its Foundation Day. The Maha Suraksha Deposit Scheme provides life insurance to savings/current/term deposit account holders between 18 and 59 years of age, under a one-year renewable term insurance plan of LIC of India. The Maha Grih Suraksha Scheme provides life insurance cover to the housing loan borrowers of the bank through LIC under “Group Mortgage Redemption Assurance Scheme” (GMRA).

Fed may cut rates

The Federal Open Market Committee, which meets Tuesday, is widely expected to act in the face of the worst housing slump in decades, which has led to rising mortgage defaults and a tightening of credit standards that threatens the overall economy. A growing number of analysts say they expect the FOMC, which has held its federal funds rate at 5.25 per cent since June 2006, to cut the benchmark rate by 25 to 50 basis points.

SBI associate banks staff strike

The State Sector Bank Employees Association (SSBEA), an umbrella organization of six SBI associate banks, has called for a strike on September 27, to oppose any attempt of merger with SBI. The union is opposed to consolidation of associate banks with SBI as the merger is not in the interest of the economy and banking sector, SSBEA central committee member Mr V B Gupta said.

China hikes interest rates

China's central bank announced on Friday its fifth interest rate hike this year, raising both deposit and lending rates by 27 basis points. After the hike, which takes effect on Saturday, the key one-year lending rate will be 7.29 per cent.

ICICI Bank's training programme

ICICI Bank has announced a nation-wide initiative called "Probationary Officer Programme' aimed at attracting bright graduate students to pursue a career in banking. Applications will be invited from graduates across the country and aspirants who are selected under this programme will go through an intensive one-year residential training programme. They will also have an opportunity to pursue an e-MBA while working and costs incurred would be borne by ICICI Bank.

IOB in talks for tie-up with another bank

Chennai-based Indian Overseas Bank is looking for a tie-up with another bank to expand its business and reach. Mr S.A. Bhat, Chairman and Managing Director, IOB, said, “Talks are at a very formative stage. We will tie up with a bank that will complement us in terms of business and geographies.” Mr Bhat said that the agreement would be on the lines of the alliance between three public sector banks - Oriental Bank of Commerce, Indian Bank and Corporation Bank, which was signed last year.

Tools RBI uses to contain inflation:

Cash Reserve Ratio This is the portion of funds that banks have to retain with the Reserve Bank. When the RBI increase this percentage, the amount actually available with the commercial banks comes down The RBI increases the CRR to draw out exess money from the banking system and thus check increase in prices. Bank Rate This is the rate at which the BRI lends to other banks. If the RBI increase its lending rate, the ripple effect will be felt across all the other banks that will hike lending rates to continue making profits. Repo Rate If banks face any shortfalls of funds they borrow from the RBI. Repo rate is the rate at which banks borrow money from the RBI. If the RBI reduces repo rates, it will be cheaper for the banks to borrow money. On the other hand, if repo rates go up, borrowing becomes expensive. Reverse Repo Rate: The RBI can borrow money from the banks and offer them a lucrative rate of interest. This is called the reverse repo rate and banks will be very glad to have their money with the RBI for a good interest rate as the money is safe here. When the reverse repo rate is increased, banks find it more attractive to park their money with the RBI, and hence money is drawn out of the system.

Housing Loan Rates

HOusing loan Rates (floating rates) Bank 0to5years 6to10years Over10years Canara Bank 10.75 11.00 11.25 Bank of India 9.50 10.00 10.25 Corporation Bank 10.00 10.50 10.75 Syndicate Bank 8.75 9.25 9.50 Federal Bank 10.50 11.00 11.00 IDBI Bank 11.00 11.00 11.00 ICICI Bank 12.00 12.00 12.00 Vijaya Bank 9.25 9.75 10.00 SBI 10.25 10.75 10.75

RRBs can now attach properties

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act 2002 has been extended to the regional rural banks (RRB) too. Under the Act, banks can now exercise the power to take possession of securities and sell them without the intervention of courts. This would enable RRBs to improve their recovery performance. Karnataka Vikas Grameena Bank (KVGB) senior manager said the bank plans to impart suitable training to all its 401 branch managers on the provisions of the Act so as to enable them to make an effective impact on defaulting clients. He said the bank would enforce the Act against wilful defaulters as it provides power to take possession of securities and sell them without waiting for court directions or police action.

Banks told not to vie for creamy loans

The Reserve Bank of India (RBI) has warned banks against competing to lend to top-rated corporates under the Basel-II regime, saying it could squeeze their margins. The new capital norms require banks to set aside lower capital for loans to corporates with higher credit ratings. Under Basel-II, the risk weight for loans to AAA-rated companies is just 20 per cent against 150 per cent for BB or lower-rated companies. This means banks would have to provide only Rs 1.8 of capital for every Rs 100 lent to an AAA-rated corporate, while they would need to set aside Rs 13.5 of capital for loans to corporates rated BB or lower

PNB picks credit card partners

PNB decided to join hands with American International Group (AIG) for its credit card business.The bank said that its board of directors has approved the setting up of a joint venture bank in Bhutan and the upgradation of Representative Office in Shanghai in China to a branch. PNB has decided to rope in Venture Infotech Global Pvt Ltd - American International Group (AIG) Consortium as joint venture partner for the proposed credit card business subject to approval of the RBI and the Central Governement.

Banks in a position to meet Basel II norms’

The Basel II norms might lead to an increase in the overall regulatory capital requirements for the banks, particularly under the simpler approaches adopted in India, if the additional capital required for the operational risk is not offset by the capital relief available for the credit risk, said Mr V. Leeladhar, Deputy Governor, Reserve Bank of India. Mr Leeladhar was speaking on the implementation of Basel II. He felt that the Indian banks are adequately prepared for its implementation. “We have been scrutinising the progress of every bank for each quarter during the last two years and we are confident that banks are now in a position to meet the requirements,” he said. Basel II is based on three pillars. The Pillar 1 stipulates minimum capital ratio and requires allocation of regulatory capital not only for credit and market risk but also operational risk, while Pillar 2 deals with supervisory review process and Pillar 3 with market discipline which focuses on the effective public disclosures to be made by the banks. The advanced approaches, being data-intensive, require high-quality, consistency and time-series data for various borrowers and facility categories for a period of five to seven years to enable computation of the required risk parameters. It also calls for robust risk management and technological architecture and the highest standards of corporate governance.

IndusInd unveils 3-in-1 account

IndusInd Bank has launched its freedom 3-in-1-account which enables buying and selling of stocks and shares and making payments at the click of a mouse. The account offers customers a whole new way of trading by helping them integrate their bank and demat accounts with their trading accounts, thereby ensuring seamless transactions.

City Union offers anywhere access

The Kumbakonam-headquartered City Union Bank has interconnected its entire network of 175 branches across the country, providing anywhere access to its customers. The bank has also introduced ‘CUB Classic Plus’ - a new current account with special features and freebies such as free cash remittances and deposits (unlimited), demand draft up to Rs 1 lakh/month at no extra cost, and inter-branch funds transfer for free up to Rs 5 lakh/day. These facilities would be available for customers maintaining a minimum quarterly average of Rs 1 lakh in their current account.

Pump more into PSBs or trim stake, Govt told

The Government should either bring down its equity stake in public sector banks below 51 per cent or infuse more capital into them. These banks will require more capital for the adoption of Basel II norms and to meet the growth of the real sectors of the economy, said Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister. “As the growth is at a rapid pace, there is need for injecting equity or enlarging the shareholding of public sector banks. According to analysts, it is difficult to get an exact estimate of the capital requirement of the entire banking industry post-Basel II. Stressing the need for consolidation in the banking sector, which has so far been largely confined to a few private sector banks, Dr Rangarajan said, “As the bottomlines of domestic banks come under increasing pressure and the options for organic growth exhaust themselves, banks in India will need to explore ways of inorganic expansion.”

J&K Bank to launch apple insurance scheme

In a significant step to promote horticulture sector, Jammu & Kashmir Bank has decided to launch a first-of-its-kind apple insurance scheme in the state next week. Bank chairman Haseeb Drabu said J&K Bank has made an investment of Rs 800 crore in horticulture, which needs to be enhanced keeping in view the vast potential of the sector. Drabu also suggested minimising risk factors in the horticulture sector to prompt financial institutions to make greater investments in the sector. He said apple, cumin seed and saffron are ideal products for profitable investments.

Loan recovery may lose muscle

Failed wrestlers and goons are an integral part of the country’s sophisticated financial sector. They are used in large numbers to recover dues from customers. Not averse to using some muscle power on the customer, they invariably get the job done. If the Reserve Bank of India (RBI) has its way, these tough-talking, muscle-flexing men could soon find themselves without a job. The RBI is working on a comprehensive set of guidelines that will make banks responsible for ensuring that their recovery agencies do not recruit individuals with a criminal background. The RBI move follows a sharp rise in complaints from credit-card holders against the recovery methods used by some banks. Recently, the Supreme Court had also expressed its strong reservations against banks recruiting goons for recovering loan dues. This does not mean that defaulters will be protected against the banks. Banking sources said once the new guidelines were in place, all banks would have to ensure that recovery agencies did a thorough background check of their employees, including police verification. The proposed RBI guidelines will also require each bank to publish the names of its recovery agencies, including on its website. Collection agents would be barred from making calls from any other number.

Banks cannot ignore weak spots: S&P

The banking sector in India is highly fragmented, with 53 domestic banks accounting for about 93 per cent of the system’s assets. The top 10 banks together account for 66 per cent of the system (as of March 31, 2006), with the remaining 27 per cent market shared between 43 banks. The banking business benefits from scale, especially with the increasing role of marketing- and technology-based systems. With about three-fourths of the banking systems’ assets in the hands of 29 public sector banks, a meaningful consolidation is not possible until this segment is included in the process. Hence, it is the government that determines the extent and speed of consolidation in the Indian banking system.

SBI`s sale of gold coins

State Bank of India (SBI) on Tuesday launched its scheme of retail sale of gold coins/ingots to the public at 15 branches in Andhra Pradesh. Coins of 2 gm and 5 gm and ingots of 10 gm will be initially sold at these branches. TS Bhattacharya, MD, said the scheme assumed importance as the corporates have started gifting gold coins to their employees as part of their reward and recognition initiative besides growing importance of gold at social functions.

ICICI sells 5.3% stake in Andhra Cement

ICICI Bank Ltd has sold its 5.30 per cent stake in Andhra Cement Ltd thereby reducing its holding in the company to 0.35 per cent from 5.65 per cent. It sold 62,10,997 shares, according to the data available on the BSE.

ICRA to rate IOB loans, exposures

Credit rating agency ICRA said it has signed a MOU with Indian Overseas Bank (IOB) for assigning ratings to the latter's loans and other exposures. The ratings would be done under the standardized approach of the RBI's New Capital Adequacy Framework for Basel-II, the rating firm said in a filing to the Bombay Stock Exchange.

Gold Rates

2 Gram 2205 5 Gram 5240 8 Gram 8295 20 Gram 20570 50 Gram 49900 100 Gram bar 95100

ICICI Bank in ‘phishing’ net?

India's largest private sector bank, ICICI Bank, is now in for a rude shock after a battery of e-mails that said that the bank's website was a victim of phishing, by which fraudsters steal passwords, user-names and other personal data of customers by setting up fake look-alike websites of companies.

YES Bank chalks out mega expansion plan

YES Bank is set for a mega expansion drive. The Rana Kapoor-promoted bank plans to foray into retail broking space and also carve out separate subsidiaries for existing banking segments. Besides, the bank is also looking for private equity investments to enlarge and enhance operations. While the retail broking business will be incorporated as a separate entity, YES Securities, the online transaction platform will be branded YES Direct. In fact, the bank is already looking at private equity placement for the new venture.

CBoP allots 13 cr shares to LKB shareholders

Centurion Bank of Punjab (CBoP) has allotted 13.21 crore equity shares to the shareholders of Lord Krishna Bank (LKB), which was merged with itself recently. The Reserve Bank of India (RBI) approved the amalgamation of LKB with CBoP and had said all branches of LKB would function as branches of CBoP with effect from August 29.

Bank unions defer strike

Bank employees have decided to defer the nation-wide strike called for Wednesday following the Indian Banks’ Association (IBA) assurance to commence negotiations on the unions’ demands within a fortnight.

Branchless banking - reaching out to remote villages

"If I want to visit the nearest branch, I will have to spend a major portion of may day's earning as bus charge to and fro (nearly Rs.10-12). With that, half of my day's productivity will come down," says Zulaikha, who also nurses her ailing mother at home. For Zulaikha, fellow village Shobha is the banker. Shobha, a member of the local self-help group, is the Business Correspondent of Corporation Bank in Surinje village of Dakshina Kannada district. Her home serves as the extension counter of Tadambail branch, situated 8 km away from the village, providing basic banking facilities to the villagers. Zulaikha wanted to deposit a portion of her savings with the bank at Shobha's house. After enquiring about the health of her mother, Shobha asked Zulaikha for her smart card, to be inserted in the small device kept at her house. Unlike in the sophisticated systems, where one has to produce a PIN (personal identification number) and passwords, the customer is asked to place her left thumb at the place marked on the device. Voice guidance from the device confirms the authentication of the transaction to both the customer and the banking correspondent. This system is now proving to be a role model on how banking facilities can be taken to more un-banked areas in the country.

BoB hires US consultancy to groom talent

Bank of Baroda (BoB) has appointed US-based consultancy firm, Wright Management Grow, to groom 300 employees in the scale-4 and above segments, as future senior managers. “The level of loyalty and commitment is very high among this bunch, in spite of the poor compensation package, so we decided that it is necessary to provide them with good development program along with an attractive incentive from the total profit,” said A K Khandelwal, chairman and managing director. The bank has devised several training programs to train recruits at various levels. The bank has been imparting specialised training for 500 young people in new segments such as mutual funds, wealth management and others. At the same time, the bank is also training 100 people for frontline sales and customer services.

Recovery ratings of NPAs soon

Distressed or non-performing assets can now have a better market with the credit rating agencies offering to rate such assets. The rating agency will assign the rating on the basis of the possibility and extent of recovery from a defaulted or non-performing asset through its recovery rating mechanism. Mr Krishnan Sitaraman, Head - Fund Services & Fixed Income, Research, CRISIL, felt that the key benefit of the recovery rating was basically an independent third-party evaluation of the recovery prospects in defaulted assets or NPAs based on which the banks or asset re-construction companies could arrive at a valuation to their investments backed by such assets.

Vijaya Bank biz volume rises to Rs 66,000 cr

"With a lift in the volume of business of more than Rs 22,000 crore since March 2006, our bank has moved from a small bank to a mid-sized bank in the country. Within a year and four months, the business volume which stood at Rs 44,471 crore in March 2006 has risen to around Rs 66,000 crore at present. Our aim is to register a business volume of Rs 1 lakh crore by 2010 with focus on SMEs, retail business and infrastructure,” Mr T. Valliappan, Executive Director, Vijaya Bank, said.

Gold Selling Rates (09.09.2007)

2 Gram 2205 5 Gram 5245 8 Gram 8295 20 Gram 20570 50 Gram 49900 100 Gram bar 95100

HDFC, Fidelity pick Corp Bank stake in NSE

Corporation Bank has offloaded its stake in the National Stock Exchange by 0.27 per cent. Fidelity Trustee Corporation and HDFC Ltd have together picked up the stake sold by the bank for Rs 35 crore on September 7. Earlier this year a host of institutional investors such as Industrial Development Bank of India, State Bank of India, SBI Capital Markets Ltd, Corporation Bank, Union Bank of India, Bank of Baroda, Canara Bank and Oriental Bank of Commerce had sold part of their stakes in the NSE.

Foreign banks looking beyond metros

The Reserve Bank of India would like foreign banks to get a flavour of semi-urban India and the rural hinterland. The branches of foreign banks that have been approved between July 2006 and June 2007 are mostly in smaller towns and tier-2 and tier-3 cities. Of the 13 branches for which permission was given, only one branch belonging to Shinhan Bank has been allowed in New Delhi. Most foreign banks follow a strategy of first setting up base in metros – Mumbai, New Delhi, Kolkata and Chennai. Then, in the next stage, they move to the mini-metros such as Bangalore, Hyderabad, Pune and Ahmedabad. Foreign banks in India have got approval from the Reserve Bank of India to open 10 branches and seven representative offices during the July 2006- June 2007 period. There are currently 29 foreign banks operating in India with 268 branches. There are also 34 other foreign banks that have representative offices. The share of foreign banks in the business done in the country (deposits and advances) has been hovering between 5 - 7% during the past decade.

ICICI Bank ties up with City Union Bank

ICICI Bank has tied up with City Union Bank (CUB) to provide its Money2India (M2I) online platform services to CUB customers. Under the tie-up, the non-resident Indian (NRI) customers of CUB will be able to transfer funds to their beneficiaries (CUB customers) in India. Besides online transfer of funds to CUB accounts, the remitter can also request for issuance of demand draft payable at over 2,300 locations across the country

Andhra Bank to hire in a big way

Andhra Bank will be hiring about 2,000 personnel in different categories over the next three years to strike a balance between retirements and new business needs. “The human resource needs of banks are now varied. In line with the business growth, we will be hiring clerks, probationary officers, market/finance executives, legal officers, rural development/agricultural officers, IT professionals and analysts,” Mr Kalyan Mukherjee, ED, said. The bank, which has indicated its likely foray into insurance, would also be needing domain experts in insurance. “We are not looking at big institutes like IITs and IIMs for campus recruitment. We are focusing on mid-sized institutes to bring in rural people, as we believe in employment inclusion,” Mr Mukherjee said.

Syndicate Bank's Premium Savings Account

The Bank has introduced a Premium Savings Account at e-banking branches that combines full safety, easy liquidity and highest possible interest. The salient features of the scheme are as under A unique 'Sweep out, Sweep in' facility offered at our e-banking branches ensures that while the customer's money earns solid interest as a fixed deposit, it turns liquid to meet his urgent needs. That too at no extra cost. Average monthly balance of Rs.10000/-to be maintained in the Premium Savings Account. Balance available in the account in excess of Rs.10000/-on any day gets automatically swept out into a fixed deposit for 180 days in units of Rs.1000/-. In the event of shortfall in SB for meeting your clearing cheques or for other urgent needs, the fixed deposit is swept back into the Premium Savings Account in required number of units of Rs. 1000/- free of cost. No penalty is charged for breaking the fixed deposit prematurely. However, the amount swept out earns interest for the period run at the applicable rate. Even while breaking the fixed deposit, only the most recently converted fixed deposit is first broken to minimise interest loss to the customer. Only those amounts swept out of your Premium Savings Account are eligible for sweep in and not other fixed deposits. When fixed deposits mature at the end of 180 days, the Bank will renew the principal every 180 days while crediting the interest to the savings account. Rs.100/-per month is levied as service charges whenever the monthly average balance in the Premium Savings Account goes below Rs.10000/-

Canara Banks CanChamp Deposit Scheme

SB CANCHAMP DEPOSIT SCHEME Basically an SB deposit for children WHO CAN OPEN Children upto the age of 12 years (i.e. till 11 years, 364 days) WHAT IS THE MINIMUM DEPOSIT Initial deposit can be any nominal amount with a minimum of Rs.100/- RATE OF INTEREST As applicable to SB deposits. Presently 3.5% per annum CHEQUE BOOK Cheque books are not issued under the scheme JOINT ACCOUNT Joint accounts cannot be opened under the scheme OTHER FACILITIES • Nomination facility is available • C-Net Banking facility is available (For view only) • Loan eligibility card for educational loan as per the then prevailing educational loan scheme • Attractive Savings Box to cultivate the habit of savings among children • Attractive photo folder cum personal details with 16 pouches to store photos of the child and record memorable moments • Free collection of cheques/DDs gifted to the child upto Rs. 25,000/- per annum (In Indian Rupees or foreign currency) • Conversion of the account into regular SB account after the child attains majority

State Bank of Patiala offers e-trading

The State Bank of Patiala has launched a 3-in-1 account e-trading facility in association with SBICAP Securities Ltd. It is an online trading facility which will allow the account holders of the bank to trade on BSE and NSE - equity and derivatives segment without the hassle of running around to a broker’s office for placing orders. SBICAP will provide demat account and trading account to the bank’s account holders. Apart from account holders of State Bank of Patiala, SBICAP already offers its e-broking services to the account holders of State Bank of Indore and will extend similar services to the account holders of other SBI associate banks in the near future.

Award for Canara Bank CMD

The Hyderabad-based Institute of Practical Accountancy (IPA) has conferred ‘Lifetime Achievement Award’ on Mr B.N. Rao, Chairman and Managing Director, Canara Bank, for his professional excellence and contribution to the banking and financial sector. Prof K.C. Reddy, Chairman of AP State Council of Higher Education, presented the award to Mr Rao.

Allahabad Bank cuts home loan rates

Allahabad Bank has reduced interest rates on fresh housing loans under various maturity buckets by 1 per cent, both on fixed and floating schemes.

Bank as a neighbour

A survey by market research firm IIMS Dataworks shows that Indian consumers rarely distinguish between banks in their decisions to opt for the one over the other. They go for the bank that comes their way, for one reason or the other. "Only very high income groups make a choice to go to a particular bank, others just walk into the nearest bank branch,” says K C Chakrabarty, chairman and managing director, Punjab National Bank (PNB). About 60 per cent of the working population still do not have bank accounts, he added. While State Bank of India (SBI) dominates the mind space almost as a singular monolith, PNB’s brand recall seems to be in line with its status as the second largest public sector bank in the country. Among the relatively low income segments, the only private bank that has any significant brand recall is ICICI Bank

Bank of Maharashtra in pact with LIC

Bank of Maharashtra in association with Life Insurance Corporation of India has launched two products, Maha Suraksha Deposit Scheme and MahaGrih Suraksha scheme. Under the Maha Suraksha Deposit Scheme, deposit holders get life cover under a one-year renewable term insurance plan of LIC of India. Deposit account holders between 18 and 59 years of age, who opt for the scheme, would be eligible for an insurance cover of Rs 1 lakh on life, at a low premium. The Maha Grih Suraksha Scheme provides life insurance cover to the housing loan borrowers of the bank through LIC under “Group mortgage redemption assurance scheme” (GMRA).

Indian Bank revises rates on term deposits

Indian Bank has revised the interest rates on domestic term deposits with effect from September 1. Interest rate for the 7-14 days period for an investment of Rs 15 lakh is at 3.5%, while that for the same period for Rs 15 lakh to less than Rs 1 crore is at 4%. Interest rate for the 30-45 days period upto Rs 1 crore is at 4.5%. The bank has fixed interest rate on deposits for 46-90 days for Rs 15 lakh at 5.25% and for Rs 15 lakh to less than Rs 1 crore at 5.75%. Term deposits for 91-179 days for investment upto Rs 1 crore is at 6.5% and that for 180-364 days is at 7%. For a period of one year to less than three years, the interest rate is at 9%. For 3 years to less than 5 years, the interest rate is at 8.75% and for five years and above at 8.50%.

PSB Director resigns

Punjab and Sind Bank (PSB) Director, Mr Harcharan Singh Josh, has resigned from the board of the bank, which is fully state-owned. The Government order accepting his resignation was received by the bank a few days ago, sources in the Board said. Mr Josh, who was one of the five non-official directors in the bank’s board, had a face-off with the PSB Chairman, Mr R.P. Singh, over alleged favouritism in sanctioning Rs 150 crore loan without collateral and at lower interest rate to Orbit Resorts expansion project. The PSB Chairman had contended that politically affiliated directors were attempting to frustrate the debt recovery measures of the bank.

India's sub-prime market proves a prime opportunity

Like the US, India too has a subprime market and it is booming. The success of early entrants like Citi Financial and GE Money has encouraged several others to enter the consumer lending business, nearly half of which is a sub-prime market. These include players like HSBC (Pragati Finance), Stanchart (Prime Financial), Fullerton India, DBS Cholamandalam and Indiabulls. Industry sources say Barclays, Deutsche Bank and AIG are eyeing the segment, which includes private lenders like ICICI Bank and HDFC Bank, which entered in 2004. What’s attracting them is an estimated $10-11 billion market for unsecured credit, which is growing at 25-30 per cent, according to Citi Financial Managing Director Sandeep Soni. The smaller players are growing at 50 per cent or more. "It’s an untapped market. There’s an opportunity to expand the market like in telecom," said Rajeev Yadav, head of personal loans at GE Money. A typical sub-prime customer is the self-employed, neighbour-hood retailer or a trader who needs credit to buy goods and grow their business. He may be filing a tax return (most show an income of Rs 70,000-80,000), but it doesn’t truly reflect his cash flows. "Many of these people do huge business in cash; there’s no way it can be registered on paper. If he maintains an average bank balance of Rs 2,000-3,000 and that’s increasing or services an EMI of Rs 1,500 on credit card or another loan, it shows he has cash flows. Banking tells us about a guy’s character, about his cash flows."

Demand for home loans slowing down

The demand for home loans has slowed down over the past few months due to rising property prices and high interest rates. The number of applications for home loans and registrations of new flats have come down, say bank officials and analysts. The stricter prudential norms for the real estate sector have pushed up property prices across the country. According to Mr Sunil Rohokale, General Manager, Mortgage Finance and Real Estate, ICICI Bank. “Interest rates have increased by 250-350 basis points in the last 18 months. Also, the property prices have increased by as much as 40-50 per cent in the same period. Customers have been hit by a double whammy,” he said. Mr H.N. Sinor, Chief Executive, Indian Banks’ Association, said that there is need for some kind of relaxation of the prudential norms with regard to sectors such as housing, as the sector is seeing a slowdown.

SBH deposit mop-up drive

State Bank of Hyderabad (SBH) will launch a nation-wide ‘Deposit Mobilisation Utsav’ from September 1. During the one-month programme, an additional interest of 25bps per annum would be offered on all term deposits for a period of one year and above. Coinciding with the campaign, the bank would also be launching two new deposit products - Recurring Deposit Plus and Current Account Plus. These account-holders would be offered free Internet banking facility, free ATM/debit card, free multi-city cheques, and free accident insurance cover. The bank had set a goal of opening more than three lakh new accounts during campaign and mobilise over Rs. 3,500 crore of deposits.

Bank of Baroda cuts home loan rates

Bank of Baroda reduced the rate of interest on housing loans up to 50 basis points. The bank said the new rates would be applicable to all new housing loans sanctioned on or after September 1, 2007. The new floating rates for loans up to Rs 20 lakh range from 10 to 11 per cent for periods from five years to 25 years. For loans of above Rs 20 lakh, the rates vary from 10.25 per cent to 11.5 per cent. In case of fixed rate option, the revised rates on loans up to Rs 20 lakh range from 11.25 per cent to 12.5 per cent for periods from five to 15 years. For loans of more than Rs 20 lakh, the rates are between 11.5 and 12.75 per cent. The reduction in rates is merely to realign with the market.

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.