WEDNESDAY WATERLOOS ON BANKING: SHARING LATEST NEWS ON BANKING FROM NEWSPAPERS COMPILED BY SHRI.D.S.GANESAN: 1.Highlights of RBIs monetary policy review Business Line / New Delhi / Aug 5: Following are the highlights of RBI’s bi-monthly monetary policy statement: * Short-term lending (repo) rate unchanged at 8% * Cash reserve ratio (CRR) unchanged at 4% * SLR cut by 0.50% to 22% to unlock banking funds * Estimates GDP growth at 5.5% for current fiscal * Targets 8% CPI inflation by January 2015, 6% by Jan 2016 * Lowers banks’ SLR holdings in held-to-maturity category by 0.5% to 24% * Govt policies to improve domestic demand, supply conditions * Higher oil prices, pass-through of administered price increases pose upside risks to inflation * Monsoons still a concern, posing risks to inflation * Govt action on food management and fast-tracking project completion to improve supply * Banking sector reforms will continue * Next bi-monthly policy statement on September 30. 2. State Bank of Travancore Q1 net skids 73% as bad loans rise Business Line / Thiruvananthapuram / August 5: State Bank of Travancore saw its net profit plunge 73 per cent in the first quarter of this fiscal from the year-ago level as more standard assets went under. Gross non-performing assets (NPAs) grew 51.77 per cent and net NPAs rose to 68.39 per cent. Effective steps are being taken to achieve substantial reduction in NPA levels, a bank spokesman said. Full activation of asset-tracking centres is one of the major strategies being adopted to prevent further slippages in asset quality. Income flat Total income remained flat year-on-year and ‘other income’ fell by 12.68 per cent even as expenses rallied under various heads. Employee costs rose by 15 per cent and operating expenses by 12 per cent, which brought down operating profit by 33 per cent. In comparison, tax expenses sat comparatively light from the year-ago level, down by as much as 49 per cent. But this was not enough to prevent the slide in net profit. 3. Syndicate Bank episode should not be ‘extrapolated to tar other banks’ Business Line / Mumbai / August 5: Reserve Bank of India Governor on Tuesday said the recent Syndicate Bank episode, where its chief was arrested for allegedly taking bribe, should not be extrapolated to tar other public sector banks. The Central Bureau of Investigation arrested Syndicate Bank Chairman and Managing Director SK Jain and 11 others for allegedly accepting a ₹50-lakh bribe to grant credit extension to two private firms — Bhushan Steel and Prakash Industries — said to be embroiled in the coal block allocation case. “We have to be careful that while thorough investigations are done and culprits are brought to book, it doesn’t become a witch hunt which then stops the entire credit process,” Governor Raghuram Rajan cautioned. There are, Rajan said, a lot of highly qualified and reputable people working in public sector banks. They should not all be tarred with the same brush. While acknowledging that the Syndicate Bank issue raises troubling questions, the RBI Governor added that there is a need to look again at the governance of the public sector banks and understand the deficiencies and improve them. “I would emphasise that one should not extrapolate from this for the entire public sector banking system and assume that the entire problem in the public sector banking system is because of criminality rather than because of other factors,” he added. Pricing of loans When asked if the RBI would come out with recommendations on pricing of loans to curb quid pro quo in lending, Rajan said that this would be tantamount to taking the banker out of the (lending) equation. One cannot take away the banker’s discretion while lending, he added. “The whole point of banking is taking risks and using discretion in taking those risks… Where there is banker’s judgment, you have to be careful about what genuine banker judgment is and what non-genuine banker judgment is,” he added. He added that the answer is not to make all loans uniform based on some observable characteristics, as that might lead to very bad decisions. Also, the banker would not be using his intuition on the character of the borrower. 4. HDFC Bank opens branch in Dubai Business Line / Pune / Aug 5: HDFC Bank Ltd has opened its branch in Dubai at the International Financial Centre, and will provide wealth management services to non-resident Indians based in the UAE. A bank statement said after Bahrain and Hong Kong, this is HDFC Bank’s third branch overseas. It also operates two more representative offices in the UAE at Dubai and Abu Dhabi which will continue to function. The new branch will offer advisory services to NRIs on treasury products, trade finance, loans amongst other related services. The bank’s Bahrain and Hong Kong branches offer corporate, trade finance, loans and deposits to both corporates and ultra high net worth individuals. “We will continue to expand our off-shore operations to meet the banking requirements of our customers,” said Abhay Aima, Group Head - Equities, Private Banking, Third Party Products, NRI and International Consumer Business, HDFC Bank, said in the statement. As of June 30, the bank had a network of 3,488 branches and 11,426 ATMs in 2,231 cities and towns. 5. SLR cut to provide flexibility to banks, not cheaper loans: Rajan Business Line / Mumbai / Aug 5: The 50-basis point reduction in the Statutory Liquidity Ratio (SLR) to 22 per cent was meant to provide more flexibility to the balance sheets of banks and may not result in cheaper loans, said RBI Governor Raghuram Rajan. “SLR cut was not meant to make loans cheaper but to give more flexibility to banks on their balance sheets going forward as credit growth picks up,” Rajan said in a post policy conference. SLR is the portion of deposits that banks have to compulsorily invest in government bonds. Rajan explained that the idea behind the SLR cut was to release more funds to companies from banks. “If government finances are improving and the Government is on a fiscal consolidation mode, we can afford to liberate access to government financing and make it possible for the public and private sector firms to get access to that financing,” he said, adding that banks may not need it now but as credit picks up and the economy gets stronger, banks will be able to use the funds to lend to the productive sectors of the economy. Rajan said, “The best time to do these cuts is when credit demand is not so strong that the cut suddenly converts into substantial demand for credit and shift from government bonds.” At present, banks have surplus SLR and this cut is part of long term planning by the central bank. Liquidity management As call rates are trading in a wide range of 7-9 per cent, Rajan said the RBI is trying to keep it closer to 8 per cent (repo rate). “Some of those oscillations are due to substantial and unanticipated variations in government balances. It creates certain amount of volatility. We are looking at the possibility of doing more frequent term repos of shorter maturities… to reduce volatility,” Rajan said. The RBI is undertaking an analysis and may shortly come out with changes to smoothen the liquidity-management process. RBI Deputy Governor Urjit Patel said the call money rate volatility in July was due to special circumstances, both in terms of volume and government balances. “In July, the average call volume came down by 40 per cent. So, it was a thin market and in a thinner market, volatility is amplified. The average volume has come down from ₹16,000 crore to ₹10,000 crore. Secondly, given the late Budget and fiscal deficit target laid out by the Government, the turnaround in government balances were of the order of ₹90,000 crore,” Patel explained. He further added that the call money market is highly skewed in favour of four to five banks which are perpetual users of call money. On Tuesday, the call market closed at 7.25 per cent as against Monday’s close of 7 per cent. 6. Syndicate Bank tells customers that fundamentals are robust Business Line / Bangalore / Aug 5: Syndicate Bank on Tuesday sought to assure its customers, stakeholders and all concerned that the fundamentals of the bank continue to be robust and that it was functioning normally. This follows the suspension of its Chairman and Managing Director, Sudhir Kumar Jain, on Monday by the Government after he was arrested by the Central Bureau of Investigation on Saturday for allegedly receiving a bribe of Rs. 50 lakh to extend credit limit to steel companies -- Bhushan Steel and Prakash Industries. In a press statement, the Bank, further, reiterated its commitment to continue satisfactory customer services and assured that all customers can avail themselves regular banking services as usual. The Syndicate Bank scrip was trading flat at Rs. 134.75 in the intraday trade at the BSE on Tuesday. 7. RBI keeps repo rate at 8%, cuts SLR by 0.5%; says inflation concerns remain Business Line / Mumbai / Aug 5: The RBI Governor Raghuram Rajan stayed put on the key policy rates in his third bi-monthly credit policy review today. This was on expected lines. Repo rate or the rate at which RBI lends money to banks for short-term, stayed at 8 per cent while the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities. The RBI has decided to reduce the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.5 per cent to 22.0 per cent of their NDTL with effect from the fortnight beginning August 9, 2014; and continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system. On inflation Explaining its monetary policy stance, the RBI said in its statement that the recent moderation in CPI headline inflation for two consecutive months was due to base effects and deceleration in CPI inflation excluding food and fuel. It noted that the the recent fall in international crude prices, the benign outlook on global non-oil commodity prices and still-subdued corporate pricing power should all support continued disinflation, as should measures undertaken to improve food management. The RBI, however, cautioned that upside risks remain (although more balanced than in June) in the form of the pass-through of administered price increases, continuing uncertainty over monsoon conditions and their impact on food production, possibly higher oil prices stemming from geo-political concerns and exchange rate movement, and strengthening growth in the face of continuing supply constraints. It is, therefore, appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged, the RBI said. Firm on fiscal consolidation Explaining the decision to cut the Statutory Liquidity Ratio (currently at 22.5%) by 0.50%, the RBI said that the renewed commitment to the medium-term fiscal consolidation roadmap and budgeting 4.1 per cent of GDP as the fiscal deficit for the year in the union Budget announced last month had opened up space further for banks to expand credit to the productive sectors in response to its financing needs as growth picks up. Accordingly, the SLR is reduced by a further 0.5 per cent of NDTL, the RBI said. Concurrent with the reduction in SLR, and in order to enhance liquidity in the money and debt markets the RBI is also bringing down the ceiling on banks’ total holdings of SLR securities in the (held to maturity category (HTM), from 24.5% of their net demand and time liabilities to 24%. 8. Syndicate Bank fiasco: Caution note for PSBs Business Standard / New Delhi / August 6, 2014 Advisory will be issued to banks to cut role of intermediaries, remain transparent The finance ministry has decided to issue directives to public sector banks (PSBs) to be more transparent in their dealings, cut the role of intermediaries, and fix accountability for actions at the top level. This comes after the arrest of Syndicate Bank Chairman S K Jain. The Department of Financial Services swung into action as it suspended Jain on Monday and held an internal meeting on Tuesday to discuss ways to prevent more such cases. The issue has also been discussed with Finance Minister Arun Jaitley. “We are thinking of how to cut the role of intermediaries. There should be more openness and people should be held accountable. Approvals must be given in a timely manner. An advisory will be issued to state-owned banks in a day or two,” said a government official who did not wish to be identified. Jain’s case might also act as a trigger for pushing reforms at the boards of government banks. The finance ministry will make a stronger case for splitting the post of chairman and managing director and giving fixed five-year tenures to the heads of PSBs to make them accountable for their decisions. “When the government gets complaints against CMDs of PSBs and confronts them on it, their standard response is that the decision was taken by the credit approval committee. It can’t be collective responsibility. Head of the committee has to be accountable,” the official added. A former RBI governor, however, said the problem cannot be fixed unless the government stops interfering in the functioning of state-owned banks. “This is a very big problem. There is too much government intervention. Credit appraisal in state-owned banks is extremely weak and, as a result, non-performing assets are rising. It is important that the government stays away from day-today functioning of these banks,” he said, requesting anonymity. Banks will also be asked to strengthen the role of chief vigilance officers (CVO). Currently, the CVO is an outsider and “doesn’t function effectively”, but now he will have to play a more effective role. In order to build some safeguards and ensure genuine customers are not unnecessarily harassed by extra-cautious bank officials fearing action from investigative agencies, the finance ministry might also ask the banks to set their processes in a way that the customer knows the status of his application or request. If a bank is rejecting a loan it should give the reasons for same and not keep customers hanging. “People doing their work sincerely should not be penalised. If someone has taken bonafide decision with no ulterior motive he should not be punished if it goes wrong,” said the official. CBI arrested Jain on August 2 for allegedly accepting bribe of Rs 50 lakh to enhance the credit limit of some companies. The RBI has initiated inspection of the books of Syndicate Bank. Jain, 54, was one of the youngest CMDs of a public sector bank and was due to retire in 2020. After the announcement of monetary policy, RBI Governor Raghuram Rajan also said a balance has to be maintained and the investigative agencies should be careful that while culprits are brought to book, it doesnt become a witch-hunt which then stalls the entire credit process. 9. RBI policy: A wait & watch approach Business Standard / New Delhi / August 6, 2014 Risks on account of the monsoon may have been mitigated, though not entirely dispelled, says RBI In what was probably a foregone conclusion, the central bank has left the key policy repo rate unchanged. In its monetary policy statement, the Reserve Bank of India (RBI) reaffirmed its commitment to fighting inflation. The benchmark rate remains at eight per cent, while the statutory liquidity ratio has been reduced by 50 basis points from 22.5 per cent to 22.0 per cent. In the statement, RBI attributes the moderation in Consumer Price Index (CPI)-based headline inflation, despite the “seasonal firming up of fruits and vegetable prices”, to both the base effect and the steady deceleration in CPI core inflation that excludes food and fuel. Although, the recent CPI data does indicate that inflation will trend below RBI’s target of eight per cent by January 2015, the tone of the policy was measured. Government policy actions to contain inflation in the form of lower hikes in minimum support prices (MSPs), the decision to release food grains and to create alternate mandis are likely to moderate inflation. However, risks remain. The monetary policy review, while indicating that achieving the inflation target of eight per cent in early 2015 is likely, elaborates on the uncertainty lurking on the horizon. With normal rainfall expected in August, one could argue that risks on account of a deficient monsoon may have been mitigated, however, they haven’t entirely dispelled. The other uncertainty, centers on the possibility of higher oil prices. Oil prices could spike up in the short term on account of disruptions in West Asia. Further, while the HSBC Manufacturing Purchasing Managers Index (PMI) report did suggest rising input price pressures and marginal rises in output prices across all sub-sectors, the services PMI data showed that “input costs rose at a slower rate in July and that firms were able to pass on a slightly bigger portion to customers by raising prices”. Thus whether the slowdown in inflation is transitory or permanent remains unclear, leading RBI to adopt a wait and watch approach. On the issue of a revival in growth, the recent data on key economic parameters points towards signs of an incipient recovery. The Index of Industrial Production has risen on the back of a revival of the manufacturing sector. The index of eight core industries has also recorded fastest growth recorded since October 2013, growing at 7.3 per cent in June. Further, the HSBC’s Manufacturing PMI has also climbed to a 17 month high of 53 in July signaling improvement in the business environment. However, the HSBC Services Purchasing Managers Index (PMI), fell to 52.2 in July from Junes 17-month high of 54.4. The RBI statement, reflecting these mixed signals, is cautiously optimistic stating that the “prospects for reinvigoration of growth have improved modestly”. Pointing to the role of the government in reviving growth the central banks indicates that in the event of a revival of the investment cycle along with greater fiscal consolidation, coupled with external demand picking up and stable crude oil prices, real GDP growth of 5.5 per cent can be sustained. Interestingly, the statement does signal that RBI will be keeping a close watch on the global economic scenario, especially the actions of the US Federal Reserve. With the Fed expected to wind down its QE programme, the post taper world is likely to be unpredictable. With strong GDP and job numbers in the US, there is a high probability of the Fed recalibrating its monetary policy, with a rate hike expected early next year. A rise in the interest rates will reduce the interest rate differential and is likely to impact flows. Thus, while foreign institutional investor flows have been strong, going forward the Feds policy will have significant implications for global capital flows, especially those to emerging markets such as India. 10. RBI policy hawkish, feels SBI chief The Hindu / Mumbai / Aug 5: The Reserve Bank of India policy statement for August strikes a marginal hawkish tone with a firm eye on 6 per cent inflation target by January, 2016, State Bank of India (SBI) Chairperson Arundhati Bhattacharya said here on Tuesday. As widely expected, the RBI, kept the repo rate unchanged at 8 per cent but cut the Statutory Liquidity Ratio (SLR) and held-to-maturity (HTM) by 50 basis points each. “The 50 basis points cut in SLR to 22 per cent from 22.5 per cent is expected to provide roughly Rs.40,000 crore growth-supportive liquidity to the system, and the move is not intended to trigger an interest rate cut,” said Ms. Bhattacharya The held-to-maturity (HTM) ceiling is being brought down by 50 basis points to 24 per cent of NDTL. “As all the major banks are holding less than 24 per cent in HTM, there will not be any immediate impact,” she added. “We believe the retail inflation trajectory will be significantly benign in the current fiscal, but beyond November, the inflation trajectory will be on the upside, though the 8 per cent inflation target by January, 2015, looks sacrosanct,” said Ms. Bhattacharya. “The 6 per cent retail inflation target looks challenging (remember, 6 per cent is the upper confidence level of the median RBI target at 4 per cent), and to that extent, the RBI will hold rates at least till that time it is not breached. Banks will, thus, need to factor possibly a prolonged policy pause in their decision making,” Ms. Bhattacharya added. “The monetary policy statement is a reflection of the RBI’s continued commitment towards containing inflation. The policy acknowledges the gradual improvement in economic conditions and the government’s commitment to fiscal consolidation,” said ICICI Bank Managing Director and CEO Chanda Kochhar. “The reduction in the statutory liquidity ratio is a welcome step as it would make more lendable resources available for various sectors of the economy. This is a pragmatic policy considering the current macro-economic environment,” Ms Kochhar added. Indian Banks’ Association (IBA) Chairman K. R. Kamath said that anticipating an increase in the credit demand in the coming months, the RBI had reduced the SLR. With a view to enhancing liquidity in the money and debt markets the central bank had also brought down the ceiling on banks’ total holdings of SLR securities in the Held To Maturity category (HTM)“These two policy measures basically infuse growth-supportive liquidity in the system,” Mr. Kamath said. 11. Private banks’ fee income hits slow lane as business falters Economic Times / Mumbai / Aug 06: Private sector banks led by ICICI Bank, HDFC Bank and Axis Bank have reported better operations, but seem to have slipped on their strength: fee income, which has slowed as corporate activity and treasury income remained muted. Axis and HDFC Banks rise in fee income has faltered because of lower forex exchange and treasury gains. For Axis Bank, the core fee income growth has moderated sharply to +5% year-on-year, mainly due to slowdown in corporate banking fees (-12% y-o-y), along with debt capital market and small and medium enterprises fee, said a report from IDFC. Axis Banks other income, comprising fee income and trading profit for the quarter ended June, dipped 5% to Rs 1,691 crore from Rs 1,781 crore a year ago. HDFC Banks other income too fell 3.89% to Rs 1,850.6 crore. Other income will pick up once the economy bounces back, said Vaibhav Agrawal, banking analyst at Angel Broking. An economic revival will lead to increase in distribution of mutual funds and insurance. Treasury income is volatile and if inflation numbers come down consistently, then bond gains will be back. HDFC Bank did not meet analysts expectations as it posted a 21% rise in net profit to Rs 2,233 crore during the April-June quarter from Rs 1,844 crore a year ago. Axis Bank, the third-largest private sector bank, saw an 18% growth in net profit at Rs 1,667 crore. However, the countrys largest private sector bank, ICICI Bank, bucked the trend by posting a higher other income with increase in treasury profits and dividend from subsidiaries. Its net profit rose 17% to Rs 2,655 crore. The other income for the bank included Rs 103.09 crore of foreign exchange gains, Rs 416 crore dividend from subsidiaries, and Rs 388 crore treasury gains. The net interest margin (NIM), or the difference between the interest paid by banks on deposits and earned by them on loans, has also come under pressure. ING Vysya Bank saw a sharp fall in NIM due to interest reversal on restructured accounts turning bad. Its NIM slipped to 3.37% in April-June from 3.56% a year ago. Credit Suisse, in a report, warned that NIM of the bank may come under further pressure as the share of large corporates rises in its loan book. Competition for secured business --home loan -- is increasing, which will have an impact on yield on advances, said Saday Sinha, banking analyst, Kotak Securities. The cost of funds of banks will depend on their capacity to garner new deposits. ICICI Bank is now testing waters by raising funds through infrastructure bonds which will give it an advantage on maintenance of statutory ratios which will add to the cost advantage... We expect margins to remain stable for banks in coming quarters. Bad loans seem to have hit a peak in the June quarter with ICICI Banks provisions rising 55% to Rs 714 crore in March from Rs 460 crore a year ago. After provisions, net non-performing assets (NPAs) made up 0.97% of its loans, compared with 0.77% in the year-ago quarter. However, Axis and HDFC Banks provisions dropped in the period. Managing director and chief executive officer of ICICI Bank Chanda Kochhar said provisions went up because of the additions to the banks NPAs in the last few quarters. But she expects this to slow down and loan growth to pick up in the current fiscal year, with many infrastructure projects kicking off and the economic sentiment getting better.
Posted on: Wed, 06 Aug 2014 04:05:15 +0000
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