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Banking Newsletter - December 13 to December 19, 2012

India Infoline News Service | Mumbai |

Finance minister P Chidambaram on Wednesday said in Parliament that the clause, which would allow banks to trade in commodity futures would be dropped from the Banking Bill.

Top Stories 

India one of the most under-banked nations

Lok Sabha on Tuesday passed the Banking Laws (Amendment) Bill, which allow the Reserve Bank of India (RBI) to start distributing licences to set up new banks.

RBI deputy governor KC Chakrabarty, on Wednesday, said the process for issuing new banking licences would be expedited. However, the deputy governor did not mention the timeframe.

India needs hundreds of banks as the country still remains one of the most under-banked nations among the bigger economies of the world. The banking penetration depends on loan-to-GDP (gross domestic product) ratio. It is measured by the amount of domestic bank loans made as a ratio of GDP.

India's loan-to-GDP ratio was 75% in 2011, while China's was 146%. The US has a ratio of 233%, with the UK close behind at 214%, according to media reports.

Changes brought by the new Bill will allow RBI to issue new banking licences. The Bill also seeks to raise the voting rights of retail/minority investors in private sector banks from 10% to 26%. The Bill also allows RBI to supersede boards of private sector banks and increase the limit on voting rights of private investors in public sector banks to 10% from 1%.

No surprises... RBI keeps key policy rates unchanged

The Reserve bank of India (RBI) in its mid-quarter review of monetary policy kept policy rates unchanged on Tuesday.

The RBI has been decided to keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.25% of their net demand and time liabilities; and keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8%. Consequently, the reverse repo rate under the LAF will remain unchanged at 7%, and the marginal standing facility (MSF) and the Bank Rate at 9%... Read more

What is repo and reverse repo rate?

Banking Bill: Commodity trade clause to be dropped

Finance minister P Chidambaram on Wednesday said in Parliament that the clause, which would allow banks to trade in commodity futures would be dropped from the Banking Bill.

Parliamentary Affairs Minister Kamal Nath had earlier confirmed the same to a news agency. The Bill which is most likely to bring in foreign investment into the banking sector and increasing the RBI’s regulatory oversight in local banks was being opposed especially on the grounds of the future clause.

Bhartiya Janta Party was reportedly fine to support the bill if the futures contract clause was done away with.

RBI allows $1bn ECB for low-cost housing

On a review of the policy related to ECB and keeping in view the announcement made in the Union Budget for the Year 2012-13, RBI has been decided to allow ECB for low cost affordable housing projects as a permissible end-use, under the approval route. ECB can be availed of by developers/builders for low cost affordable housing projects.

Housing finance companies (HFCs)/National Housing Bank (NHB) can also avail of ECB for financing prospective owners of low cost affordable housing units… Read more

RBI allows SCBs to open branches in Tier 2 to Tier 6 centres

General permission has been granted by RBI (Reserve Bank of India) to domestic scheduled commercial banks (other than regional rural banks) to open branches in Tier 2 to Tier 6 centres (with population up to 99,999) which include rural centres; in rural, semi urban and urban centres of the North-Eastern States and Sikkim; and to open mobile branches in Tier 3 to Tier 6 Centres (with population up to 49,999) without permission from RBI in each case, subject to reporting.

The new private sector banks are also required to have 25% of their total number of branches in rural and semi-urban centres with population below 1 lakh on an on-going basis. The Banks are also required to allocate at least 25% of the branches proposed to be opened during a year in unbanked rural Tier 5 and 6 centres… Read more

Leader Speak

Balancing act of RBI.....win-win proposition

“It is a win-win stance of RBI to protect the interests of two large stake holders, off-shore investors and the SBI. The Government (and the borrowing community) can afford to take this disappointment when there is optimism little ahead,” Moses Harding, Head-ALCO and Economic & Market Research, IndusInd Bank, says… Read more

Special Stories

SEBI tweaks base minimum capital norms

Stock market regulator Securities & Exchange Board of India (SEBI) on Wednesday, raised the base minimum capital (BMC) for stock brokers holding registration as stock-broker in the cash segment. SEBI has also introduced BMC for members holding registration as trading member in any derivative segment… Read more

EPFO proposes new norms on salary, allowances

Employees Provident Fund Organisation (EPFO) issued a circular on 30th November that had asked employers to deduct the subscription from the gross salary, including allowances, a move that would have reduced the take-home salary of over 5 crore workers.

Although a final decision is yet to be taken. Also more clarification has to be provided on which allowances needed to be included in the calculation of basic wage. EPFO circular also seeks to tighten norms for initiation of inquiry against employers in provident fund (PF) cases and clubbing of allowances with basic wages for computing PF contribution… Read more

Comments on RBI Policy

CRR cut would disappoint a large section of street

Commenting on RBI policy, Amar Ambani, Head of Research-IIFL said, “The RBI kept the repo rate unchanged at 8% along expected lines. Even though the inflation figure moderated recently, the RBI chose to wait and watch, possibly for a few more weeks. We expect the Central Banker to cut rates in January 2013. We expect a 75-100bps cut in repo rates in calendar year 2013. Though CRR cut would disappoint a large section of street, RBI would actively manage liquidity conditions through OMOs to support the growth recovery.”… Read more

RBI credit policy arbitrary and anti-growth: CREDAI

Blasting the status quo in RBI’s monetary policy review as “arbitrary” and “anti-growth”, developer’s apex body CREDAI has called for opening a dialogue with all stake holders before taking policy decisions that impact a cross section.

“It is sad and unfortunate to see RBI taking such a stubborn stand, despite economic realities of the day,” said CREDAI national president Lalit Kumar Jain… Read more

RBI policy status is perplexing: Motilal Oswal

Commenting on RBI policy Motilal Oswal said that RBI kept the policy rates unchanged on expected line but somewhat unexpectedly kept the CRR too unchanged. Expectations of a 25bp CRR cut was predicated upon liquidity deficit reaching INR1.4t on last count and consistently remaining above 1% NDTL band set by RBI as the tolerance limit… Read more

50 bps reduction in key policy rates is likely in Q4 FY13

The RBI has clearly reiterated its impending shift in focus to propel growth through monetary easing, as first suggested in its October Policy guidance. One may hence, expect a reversal in rates in the last quarter of this fiscal. A continuation of Open Market Operations would help in cushioning liquidity pressures as this policy-shift comes into effect… Read more

Monetary authority appears to have disappointed somewhat on both counts

Commenting on RBI Policy, Abheek Barua, Chief Economist, HDFC Bank, said that given the RBI’s guidance in its second quarter review in October of policy easing only in Q4FY13, today’s review was never really meant to be an especially dramatic event. All the market was really looking for at this stage was a clear pro-growth signal from the central bank either by way of a more explicit policy easing guidance than was the case in October or by way of a CRR cut. Unfortunately though, the monetary authority appears to have disappointed somewhat on both counts… Read more

India Ratings views on RBI policy

The RBI’s decision to maintain status quo on liquidity measures implies that liquidity management would be through OMOs… Read more

Disappointed that RBI has kept key policy rates unchanged

“We are disappointed that RBI has kept the key policy rates unchanged. We were hoping for some relief in the form of a cut in CRR & Repo Rates as the industry continues to witness hard times given the current situation. We hope the next credit policy decision would consider reduction of CRR which will bring in some liquidity in the banking sector,” Anshuman Magazine, Chairman & MD, CBRE South Asia Pvt. Ltd, says.

RBI’s status quo disappointing: CII

The decision of the RBI to hold policy rates on status quo is disappointing, said Chandrajit Banerjee, Director General, CII. “With the Government having announced a clear road map for fiscal consolidation and non food inflation demonstrating a secular decline, the conditions are conducive for the RBI to have intervened with a repo and CRR reduction,” Banerjee added… Read more

Assocham statement on RBI policy review

As the inflation is at its 10-month low, it is time the Reserve Bank of India (RBI) took measures to ensure that the interest rates are reduced irrespective of tools it may choose to use, said Mr. Rajkumar N Dhoot, President Assocham… Read more

New Launches

IIFL launches ‘108 Mantras for Financial Success’ in Hindi & Gujarati

India Infoline Ltd (IIFL) unveiled the Hindi and Gujarati version of its popular book on financial literacy titled ‘108 Mantras for Financial Success’ in Delhi. These books are available at leading bookstores across the country. The book, a best-seller in English, has been specially conceived and conceptualized under IIFL’s FLAME (Financial Literacy Agenda for Mass Empowerment) initiative towards spreading financial literacy amongst masses. The book is attractively priced at Rs.125 and is also available online… Read more

FDIC publishes a money guide for young adults, teens

The Federal Deposit Insurance Corporation (FDIC) on 14th December published a collection of simple, practical tips for young adults and teens on saving, managing money, and avoiding financial scams.
This special edition of the agency's quarterly FDIC Consumer News (Fall 2012), entitled "For Young Adults and Teens: Quick Tips for Managing Your Money," also includes suggestions for parents and caregivers on saving for a child's future and teaching youngsters about money… Read more

Axis Bank launches e-Gift Card

Axis Bank, India’s third largest private sector Bank, announced the launch of ‘Axis Bank e-Gift Card’, thereby becoming India’s first bank to offer to all bank’s domestic customers an option to buy an e- Gift Card… Read more

PayU India launches IVR payment facility

PayU India, the leading online payments solution company, has introduced its own Interactive Voice Response (IVR) payment facility for the merchants, thereby enabling the business owners to accept payments of their products and services over the telephone… Read more

ElectraCard Services opens new office in UAE, Dubai 

ElectraCard Services (ECS), a leading electronic payments solution provider, announced the opening of its new office in the heart of Middle East and Africa (MEA)–Dubai. Dubai office is part of ECS’ strong global expansion plans… Read more

Domestic News

RBI announces interest rate on Floating Rate Bonds, 2020

The rate of interest on the Floating Rate Bonds, 2020 (FRB, 2020) applicable for the half year December 21, 2012 to June 20, 2013 shall be 8.15% per annum.

It may be recalled that the rate of interest on the FRB, 2020 was set at average rate (rounded off up to two decimal places) of the implicit yields at the cut-off prices of the last three auctions of Government of India 182 day Treasury Bills held up to period preceding the coupon reset date, which is December 21.

The implicit yields will be computed by reckoning 365 days in a year. The coupon rate has been fixed accordingly.

FM in talks with SEBI, IRDA to trade in commodity futures

Entry of large institutional investors such as banks, insurance firms and asset management companies would help in deepening the commodity market.

The finance ministry is in talks with SEBI (Securities and Exchange Board of India) and IRDA (Insurance Regulatory and Development Authority) to ensure that mutual funds and insurance companies are also allowed to trade in commodity futures, according to media reports.
This follows a similar move to allow banks to enter the segment by amending the Banking Regulation Law, the reports added… Read more

RBI postpones rate cut to 2013: CRISIL

The Reserve Bank of India (RBI), in its monetary policy review on December 18, 2012, kept the repo rate unchanged at 8% while reiterating its guidance of policy easing in the next quarter.
The cash reserve ratio was also held constant at 4.25%. Although WPI inflation for November fell to a 10-month low of 7.24%, upward revision in inflation figures for earlier months suggests an upward bias to the November data… Read more

New CTS cheque book date extended to 1 April 2013

The Reserve Bank of India (RBI) has extended the deadline for implementing the Cheque Truncation System 2010 (CTS-2010) by another three months. Banks have now been asked to ensure all cheques are compliant with CTS-2010 standards by April 1, 2013. The earlier deadline was December 31… Read more

Credit-deposit ratio of SCBs for March 2012 stood at 78%: RBI

The Reserve Bank of India last week released its ‘Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 2012’. The publication contains data on spatial distribution of deposits and credit of scheduled commercial banks including regional rural banks (RRBs) based on Basic Statistical Return (BSR)-7 as on March 31, 2012. The data are classified according to states, centres (top 100 and 200 centres), population groups and bank groups… Read more 

RBI to issue of Rs. 100 bank notes within set letter ‘L’

The Reserve Bank of India (RBI) will shortly issue Rs. 100 denomination bank notes with inset letter ‘L’, in both the numbering panels, in the Mahatma Gandhi Series-2005, bearing the signature of Dr D Subbarao, governor, RBI, and the year of printing 2012 printed on the reverse of the bank note… Read more

Axis Bank to increase the authorised share capital from Rs. 5bn

Axis Bank Ltd has announced that the Board of Directors of the Bank at its meeting held on December 17, 2012, has taken the following decisions: To increase the authorized share capital of the Bank from Rs. 5bn to Rs. 8.50bn… Read more

Axis Capital, Baird announce strategic alliance for investment banking

Axis Capital, the investment banking subsidiary of Axis Bank, one of the leading private sector banks in India and Baird, an employee-owned, international financial services firm, today announced a strategic alliance for investment banking services, with an initial focus on cross-border mergers & acquisitions (M&A) between India and Europe, and India and the U.S… Read more

There will be substantial challenges for banking: G Padmanabhan

Information and communication technology is playing a vital role across many industries and sectors, resulting in a positive impact on economic development cutting across the geographical barriers. It is important to note that the financial sector and more particularly banking industry was one of the very first to utilize information technology way back in the 1960s, and has thus the record of influencing the development process through the technology… Read more

Intra-regional Trade in South Asia not a Zero-sum Game: SR Rao

Intra-regional trade offers tremendous potential, said SR Rao, Commerce Secretary, Ministry of Commerce and Industry, at the Valedictory Session of the ‘Driving South Asia Economic Integration’ conference organized by CII in New Delhi on December 17, 2012… Read more

Magma aims to grow 40% in Rajasthan 

Magma Fincorp Ltd, one of India’s leading asset finance companies, announced its ambitious growth plans for Rajasthan for FY 13. The company, which disbursed Rs. 5.81 billion in Rajasthan last year, plans to romp up disbursements by another 40% in retail loans in FY 13. Magma, headquartered in Kolkata, has 17 branches in the state of which 5 have been opened this year, making it amongst the best networked retail finance company in the state with deepest presence… Read more

S&P assigns ‘A-1+’ short-term rating to ICICI Bank’s U.S. CP program

Standard & Poor's Ratings Services on Wednesday said that it has assigned its 'A-1+' short-term issue rating to the proposed US$300 million U.S. commercial paper (USCP) program of ICICI Bank Ltd. (BBB-/Negative/A-3).

This program is supported by a US$300 million irrevocable direct-pay letter of credit (LC) issued by Wells Fargo Bank N.A. (AA-/Negative/A-1+)… Read more

Federal Bank staff strength crosses 10,000 mark 

The staff strength of Federal Bank crossed the 10,000 mark on December 17, 2012.  This growth in manpower is in consonance with the growth of its branch network which has taken the latest tally of its retail outlets to 1,020. 

The Federal [Bank] family which considers this achievement another milestone in its history, reminisced the collective vision and the shared passion which enabled it to face the challenges and make the institution grow to its present eminence… Read more

Awards Won

Global Finance names World’s Best Trade Finance Banks 2013

Global Finance magazine (GFmag.com) has named the “Best Trade Finance Banks” by region and country in an exclusive survey to be published in the February 2013 issue… Read more

ICAI announces nominees for 6th edition of ICAI awards 2012

The Indian Institute of Chartered Accountants (ICAI) announced nominations for the 6th edition of ICAI Awards 2012 to be held on 02 February 2013… Read more

IFR names BNP Paribas Bank of the Year 2012

International Financing Review (IFR), Thomson Reuters’ leading financial industry publication, has named BNP Paribas its 2012 Bank of the Year… Read more

International News

Most investors know that fixed income is key to well-diversified portfolio 

Japan-based Hengan Securities has enhanced and redesigned its fixed income-trading platform following a nationwide Hengan Securities customer survey that revealed the need for practical information and education about fixed income securities as well as simplified pricing. The survey indicated over 65% of respondents believes fixed income is an integral part of a well-diversified portfolio… Read more

60% worry about rising retirement healthcare expenses in Asia

The world’s ageing population continues to expand, as scientific and medical advancement enables people to live longer. This presents enormous challenges for government and society, as well as the insurance industry. To better understand consumers' behaviour and perception of their retirement and healthcare planning, Swiss Re has conducted a survey entitled Spotlight on Consumer Health: Healthcare Funding in Retirement–Planning for the Golden Years, among more than 2,400 respondents in five key Asian markets: namely China, Hong Kong, South Korea, Singapore and Japan… Read more

More than 2 million couples have never discussed finances together

London-based Prudential reports that many British couples are burying their hands in the sand over their financial situations. One in seven* (14 per cent) couples over the age of 40 - or around 4.2** million people - admit they have never discussed their finances. Fears about having awkward conversations drives this behaviour, with 15 per cent of those surveyed admitting they feel uncomfortable talking to their partners about financial planning… Read more

Moody's outlook for New Zealand banking system stable

Moody's Investors Service says that the outlook for the New Zealand banking system remains stable, reflecting a combination of supportive macro-economic factors and favourable trends for the banks' own financial fundamentals, although risks are also apparent… Read more

Asian banks to gain double-digit growth in customer profitability: FICO

FICO the leading provider of analytics and decision management technology, called on Asian lenders to strengthen their portfolios from within by cultivating existing customers for untapped profit potential. According to Dan McConaghy, president, FICO in Asia Pacific, continued macroeconomic pressures, decreased rates of regional growth, more expensive capital, and competition from non-traditional lenders demand that Asian lenders ensure they are attracting the best customers, continuing to lend to them, and realizing the full value of the relationship… Read more

Moody’s changes Philippine banking system outlook to positive

Moody's Investors Service has changed the outlook for the Philippine banking system to positive from stable on the combined effects of a strong domestic macro-economic backdrop as well as improvements in the banks' fundamentals, including asset quality, liquidity, earnings and, therefore, capital generation… Read more

Experian reveals mortgage fraud set to surge in 2013

Experian predicts there will be a dramatic increase in attempted mortgage fraud in the UK next year, bringing the number of people fraudulently trying to obtain home loans to the highest level since records began in 2009… Read more

IMF completed 6th review under Extended Fund Facility for Seychelles 

The Executive Board of the International Monetary Fund (IMF) completed today the sixth review under the Extended Fund Facility (EFF) for the Seychelles. The completion of the review enables a disbursement of SDR 1.32mn (about US$ 2.0mn), which will bring total disbursements under the arrangement to SDR 19.8mn (about US$ 30.5mn)… Read more

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