Thursday, February 28, 2008

PNB cuts lending rates by 50 Bps

Falling in line with the leading public sector banks, Punjab National Bank on Monday announced reduction on the benchmark prime lending rate (PLR) by 50 basis points (bps) from the existing level of 13% per annum to 12.50% per annum and will be effective from March 1, 2008, said in a communication to the Bombay Stock Exchange.

The reduction in PLR is likely to moderate lending rates linked with PLR, including housing (floating rate), corporate, car loan etc.

Further the bank has also reduced its interest rates by 50 basis points on loan, which are not linked to BPLR such as housing loans above Rs 20 lakh where interest rate will be in the range of 9.5% to 10.5% (against the existing rates ranging from 10%-11%).

In addition to this the interest rates in respect of loans granted for the second house have also been reduced by 50 basis points. The bank has also reduced rates of interest on car loans consumer loans (personal loans) by 0.5% i.e. by 50 bps and 100 bps respectively.

The net profit of the bank for the nine months ended December 2007 amounted to Rs 1505.01 Cr, as compared to Rs 1302.37 Cr during the nine months ended December 2006, registering a y-o-y growth of 15.6%.

Last week, public sector banking giant State Bank of India had reduced the PLR by 0.25% to 12.25% while Bank of Baroda announced cutting the rate by 50 basis points to 12.75%.

At the same time, Bank of India and Union Bank also announced reduction in PLR by 0.5% to 12.75% on Monday.

Bangalore-based Canara Bank also cut PLR by 0.25% to 12.75%.

Federal Bank launched web-based remittance service for NRIs in the US

Federal Bank has a web-based service for remittances from NRIs in the US. The service was inaugurated by Federal Bank Chairman M. Venugopalan. During the inauguration he said the remitter would be able to do the registration and give remittance instructions from his home, office, Internet cafe in the US or anywhere in the world.

The service, called Fed-India Remit Service (FIRSE), will allow an NRI to transfer money from his or her bank account in the US.

The customer will have to get a one-time online registration done with the bank to access the service. The bank carries out the remittance instructions through Automated Clearing House (ACH), which is a paperless clearing house in the US, handling electronic funds transfer. Bank of America is the partner bank for Federal Bank for carrying out the transfer.

The remitter can see the status of the transaction from the website while the recipient will know the payment into one’s account through mobile alert.

He said the bank will not take any service charge for the facility. The bank will convert the money into rupees at a competitive exchange rate as on the date of payment to the beneficiary. The payment takes three to seven days and the maximum amount that could be sent would be $5000 at a time. The recipient has to be a Federal Bank customer.

Federal Bank executive director K.S. Harshan said that this remittance process is much faster than methods of transfer through demand draft or cheques.

He launched the monthly e-newsletter ‘Federal Link’ on the occasion.

Explaining the characteristics of the new scheme, Abraham Tharian, General Manager (Treasury), Federal Bank, pointed out that the transaction through cheque collection takes 20-25 days. According to the bank officials the DD method of transfer involves charges including interest for a period of about 10 days required for the clearance.

Tuesday, February 26, 2008

MoU signed between Corporation Bank and MRPL for set up of ATMs at fuel outlets

An MoU was signed between Mangalore- based Corporation Bank and Mangalore Refinery and Petrochemicals Limited (MRPL), an ONGC company, to provide a bunch of financial services to MRPL customers across their fuel outlets.

According to an agreement, Mangalore-based Corporation Bank can now set up ATMs at MRPL retail outlets across Karnataka and other southern states and provide banking facilities to customers on the move.

According to a bank press release opening of ATMs at MRPL retail outlets will enable the bank to offer its services to a large number of customers without having to bring them into the bank premises.

Previously, the Centre had given signal to MRPL’s plan to set up 500 retail outlets across the country. After the launch of high quality fuel (HiQ) outlet in Maddur on the Bangalore-Mysore Highway, HiQ outlets in Hubli and Mangalore will be built in the current financial year.

Sanjay Grover, general manager (Retail Sales) of MRPL informed that more outlets will be opened in different parts of Karnataka, Tamil Nadu and Andhra Pradesh in this phase.

In the next phase of operations HiQ outlets imminent in Goa, Maharashtra and Gujarat as well, besides from expansion of the network in the four southern states.

Corporation Bank card holders will be able to avail services such as transfer of funds, recharge of prepaid mobiles, LIC premium payment among others at the ATMs.

Monday, February 25, 2008

Corporation Bank installed coin vending machine at Mangalore

The first of its kind coin vending machine has been installed by the Corporation Bank has at its Car Street Branch at Mangalore. The bank is the first one to take this initiative to lessen the acute shortage of coins in the city. The coin vending machine scans the note inserted into it for genuineness and upon being satisfied it can dispense two types of coins.

There are two hoppers in the machine in which three types of coins of different denominations five, two and one can be stored.

For instance if a Rs 50 note is inserted in the machine, after verification of the genuineness of the note it will dispense five Rs 5 coins and 25 Rupee 1 coins. This is however, subject to stock of various denominations of coins in the machine. The machine accepts notes of denominations Rs 10, Rs 50 and Rs 100 only.

The vending machine has been installed for public particularly for individuals and retail businessmen.

American Express and Etihad Airways signed an agreement for loyalty programs

An agreement has been signed between American Express Middle East, provider of premium payment solutions and North Africa, with the UAE’s national airline, Etihad Airways, to link their respective loyalty programs to offer a host of lifestyle rewards for affluent customers across the world.

According to the agreement American Express Card members from over 13 countries including the Middle East and North Africa, who are enrolled in the award-winning Membership Rewards program will be eligible to transfer their rewards points to the Etihad Guest program’s Rewards Shop. Points collected can be redeemed for a wide range of rewards, including free flights and upgrades.

“Partnering with a fast-growing and successful brand such as Etihad Airways is indicative of how American Express continues to enhance its premium offerings in the luxury and rewards space in line with the distinctive lifestyles of our affluent Card members,” said Premal Patel, Senior Marketing Director – American Express Middle East & North Africa. “Membership Rewards and Etihad Guest are both loyalty program of high stature, developed by brands that have in-depth understanding of luxury offerings and offer personalized service. The coming together of these two programs will undoubtedly appeal to our regional and global Card members.”

Membership Rewards program was launched in 1991 is one of the world’s largest card-based rewards program. The Card members earn points based on their spending on the Card and can redeem them for retail, travel, dining and entertainment benefits, as well as use the points to make charitable donations or pay their membership fees.

Currently Membership Rewards has over 1,500 partners around the world – all leading names in the retail, travel, hospitality and entertainment sectors.

Peter Baumgartner, Executive Vice President of Marketing and Product at Etihad Airways said: “Our award winning Etihad Guest program continues to go from strength to strength and we are proud to boast many of the world’s leading companies as our partners. We are delighted to team up with American Express and give its Card members access to our unique Reward Shop where they can redeem points against a wide selection of rewards ranging from free flights and upgrades to hotel accommodation and car rentals.”

Etihad Guest membership is free and mile accumulation is immediate, with individuals from every country aged two-years old and upwards eligible to join. It was started in August 2006, the award-winning Etihad Guest program at present is having more than 30 international partners. Members can spend and accrue miles on a wealth of flights, products and services using the exclusive Reward Shop.

Indian commercial banks SBI, ICICI bank beats MasterCard on brand valuation

Most of us don’t think much of homegrown financial sector brands, do you? Understand this. According to Brand Finance’s Global 500 Financial Brands Index, 2007 (GFBI) the country’s number one commercial bank, the government-owned State Bank of India (SBI) and leading private sector bank, ICICI Bank (ICICI), beat the globally renowned “There are some things money can’t buy...” brand, MasterCard, on brand valuation! SBI’s $2.852-billion and ICICI’s $2.603-billion brand value gain over MasterCard’s $2.6 billion.

Brand Finance’s GFBI 2007 integrated data from the world’s thirty-two largest stock markets. It doesn’t value or rank private companies, and for this reason another big global payments brand VISA, which is yet to go public, wasn’t included in 2007’s league table. Apart from brand value and the global ranking, the GFBI also accords each of the 500 brands a brand rating—a measure of strength, risk and future potential of the brand relative to its competitor set.

Two years ago SBI and ICICI, two Indian brands that outstandingly figured in a similar Brand Finance ranking, the Global 200 Financial Brand Index 2005, have now been joined by seven other financial sector brands from the country in GFBI 2007 rankings––HDFC Bank, Kotak, Housing Development Finance Corp, Axis Bank, IDBI Bank, LIC Housing Finance and even the troubled IFCI.

The financial sector’s visibility as an emerging powerhouse, which up till now cloaked in the routine of IT, ITeS and telecom industry, has now begin to come to the forefront. While new Indian companies have entered the Brand Finance’s GFBI 2007, two Indian in office have smartly consolidated. So much so, SBI today figures amongst the top 10 globally in terms of its brand value-to-market capitalization ratio (BMR), with a BMR of 24%. Two years back SBI has dramatically improved its brand value to $2.85-billion in 2007, up from $1.99-billion.

Similarly, ICICI’s $2.603-billion current brand value (up from $1.72-billion in 2005) has BMR of 15% which fairly high by global standards. Among the top 20 brands in GFBI 2007, American Express has one of the highest BMR at 31% and the second lowest market cap ($51.46-billion). Others with high BMR include Santander Central Hispano (31%), Capital One (26%), NICOS (25%) to name a few.

The overall ranking on the GFBI 2007 are pretty much conventional with top three—HSBC, Citibank and Bank of America—playing musical chairs amongst them. HSBC improved from its 2005 No 2 rank and displaced Citibank from the top slot, with a brand value of $35.46-billion. The subprime-crippled Citibank came in No. 2 with a brand value of $27.32-billion followed by BoA which ranked No 3 with brand value of $25.42-billion.

Interestingly, banks abode in large and rapidly emerging markets—Brazil, Russia, India and China (the BRIC countries)—continue to benefit from rapid economic growth in their regions notes the GFBI 2007 report.

For instance, Brazil has three banks among the top 60 brands—Banco Bradesco (brand value $4.11-billion), Banco do Brasil ($4.01-billion) and Banco Itau ($3.5-billion), ranked 42nd, 45th and 53rd, respectively. China has three banks—Industrial & Commercial Bank of China ($8,427-million), China Construction Bank ($7.79-billion) and Bank of China ($6.74-billion, ranked 16th, 18th and 23rd respectively, Russia has one bank—Sberbank ($3.42-billion) ranked 55th, and India’s SBI ($2,852-million) is ranked 59th.

Saturday, February 23, 2008

RBI asks banks to cover under banked areas in financial inclusion

The Reserve Bank of India (RBI) has asked the banks to speed up their efforts for financial inclusion and to cover under banked areas under the scheme of financial inclusion and increase pool for funds.

“The banks have to combine profit motive with certain social functions. The financial system cannot leave out certain sections of the society,” RBI Executive Director Anand Sinha said, while addressing the Second Annual Risk and Compliance Summit organized by the Indian Banks’ Association.

Referring to the financial inclusion RBI official said such efforts help in improving the bank’s balance-sheet. He said, “In the long run, banks will get stable source of funds.”

Many of the international banks are being affected by the funding crisis mainly because of less stable core deposits. They get the funds through unstable deposits.

Currently, the Indian banking bodies are busy in stiff competition to raise resources for business growth. This has pushed the rates for bulk deposits as well as term deposits.

Some banks are giving close to 10 per cent (per annum) interest on short-term deposits. Therefore, the share of low-cost deposits (savings and current account) has come down over the time period.

Also, there has been a downward shift in the average maturity period for deposits. The major portion of deposits (retail and bulk) has maturity of less than one year.

In the past RBI has warned banks against overdependence on the high-cost bulk deposits, which is sensitive to even marginal rise in rates (read they move swiftly from bank to bank).

Friday, February 22, 2008

Bank to take over Centurion Bank of Punjab stock deals

In Economic Times there was news on February 13 stating Centurion Bank was looking at a merger and HDFC Bank was one of institutions it was in talks with. Finally the biggest merger in Indian banking is going to take final shape. This is the second time after almost six years that these two banks are discussing a merger. Last time issue related valuation reasons was not worked out due to which the merger was put on hold but now the personal equation between the top brass of the two banks has been worked out.

HDFC Bank will take over Centurion Bank of Punjab (CBoP) in an all-stock deal. The bank board members are likely to meet on Saturday to discuss the merger proposal. The share-swap deal, worth over Rs 10,000 crore, may be worked around the current market price of Rs 57 a share of CBoP.

In the class structure order, the merged entity will still be way below India’s biggest private sector bank ICICI in terms of assets, but it will be significantly bigger than Axis Bank. On Wednesday, marathon meetings were held between the officials of both the banks with a leading investment banker to discuss the finer points.

HDFC Bank MD Aditya Puri, CBoP chief executive Shailendra Bhandari and CBoP chairman Rana Talwar are all ex-Citigroup bankers. Mr Bhandari was also a part of the core team that set up HDFC Bank in ‘94. Besides this, Citigroup is also the single biggest shareholder in HDFC - the mortgage giant and parent of HDFC Bank.

Mr Bhandari will be joining the board of the new bank while Rana Talwar is probable be its non-executive chairman. As per sources, the HDFC group has a more ambitious deal in mind: a three-way merger between Centurion, HDFC Bank and its promoter HDFC.

But, at present they have decided to go ahead with the merger of the two banks first, with RBI unwilling to relax the reserve requirements (like CRR and SLR).

The proposed HDFC Bank-Centurion merger will not only help the new bank in making its presence in states like Punjab, Haryana and Kerala, but also give some headroom for greater capital market lending - a business that HDFC Bank has perfected. Besides, it will help HDFC bank to step up its retail and SME assets.

On Wednesday the CBoP scrip moved up 14.4% to Rs 57.05 after a business news channel reported the “merger buzz” while HDFC Bank scrip rose marginally to close at Rs 1,542.90. Interestingly, the HDFC scrip slipped 3.75% to close at Rs 2,648.55.

In a message to the Bombay Stock Exchange, HDFC Bank said that “presently there is no such proposal for the consideration of the board of directors of the bank”, while CBoP said it would not like to comment on the matter.
The major shareholders in CBoP are Sabre Capital (3.48% stake), Bank Muscat (14.02%) and Kephinance Investment (Mauritius) (6.13%). HDFC has a 23.28% stake in HDFC Bank.

In 2003 as a part of the recapitalization, Centurion Bank had 13.5 crore warrants to Sabre Capital to be converted into a similar number of equity shares. The face value of these shares was at Re 1. There was a lock-in period for these shares. Due to which these shares were to be released at a 40:30:30 ratios at the end of three years, four year and five year starting from 2007. The conversion of these warrants will help Sabre to increase its share in the bank.

At present HDFC Bank has 754 branches and has received RBI permission for another 250. The addition of 394 branches of CBoP will help the bank overtake ICICI Bank in terms of branch presence. In the North, CBoP has 170 branches while HDFC Bank has around 250 while in the South, CBoP has 140 branches and HDFC Bank has 150.

Thursday, February 21, 2008

RBI grants restricted banking license to American Express Bank

The American Express Bank gets the green signal from RBI to retain its credit card and travel business in India.

The Reserve Bank of India (RBI) has issued a restricted banking license to American Express Bank (Amex) to conduct credit card and travel-related businesses in India.

With the getting of license the floor is cleared for the merger of Amex’s banking businesses in India with that of Standard Chartered (StanChart) Bank as part of an $860-million global deal. This is the first time that such license has been issued by the apex bank.

StanChart is taking hold of American Express Bank (AEBL), a wholly-owned subsidiary of American Express Company that is present in 47 countries, excluding the travel and credit card business.

Amex was interested to start American Express credit card and travel business in India by transferring it to a non-banking finance company (NBFC). But this did not find support from the RBI as the regulator was not comfortable with an NBFC without a bank as a partner issuing credit cards. Amex then approached the banking regulator with a suggestion that it be issued a restricted banking license to conduct credit card and travel-related businesses.

“The RBI only gives one banking license. It is up to the bank what line of business it chooses to pursue or enter. Amex wants to continue with the credit card and travel business,’’ said a banking source.

Responding to Business Standard’s email query, Amex’s spokesperson said, ``We see tremendous opportunity in India and intend to continue growing our payments business and maintain significant operations in the market. We are currently working to obtain the appropriate regulatory approvals.’’

Amex has organized a meeting of its shareholders on February 28 in New York to consider and approve the scheme of merger with or without modification of the Indian undertaking of the company with the Indian undertaking of StanChart. Once the scheme is approved, the merger will be going to the RBI and other authorities for the subsequent approval.

Wednesday, February 20, 2008

Mobile banking pilot project started in villages across 12 states

The government will be starting mobile banking facilities for the villagers. Mobile banking pilot project and its full-scale operations are being conducted across 12 states, and the entire network will be managed by the government with the help of the Reserve Bank of India (RBI), banks, leading telecom operators and technology implementation partners.

With the help of this facility thousands of people from rural areas across 12 states will able to get their social security pension and wages paid under the National Rural Employment Guarantee Act (NREGA) scheme with the help of mobiles over the coming few months.

For example in Andhra Pradesh (AP) alone, 250,000 people have registered for mobile banking services. The state government is extending out a program to enroll three million people by the end of 2008.

The network is important as banking regulations in India presently do not allow cash for exchange of another ‘unit’ such as ‘airtime’ in the case of mobiles. Only banks and the Indian Post (through money orders) are currently allowed such transfers.

Mobile banking, which is catching up fast in the cities and surrounding areas, is not only helping the government to take a step forward towards fulfilling its aim of having one bank account for every household, but also saving it crores of rupees by way of reducing transaction costs.

While the government incurs a transaction cost of Rs 12-13 for every Rs 100 it shells out, mobile banking helps it reduce the cost to a mere Rs 2. According to RBI estimation around 40 per cent of Indians lack access to formal financial services and are largely ‘unbanked’.

For instance, the AP government has tied up with banks like the State Bank of India (SBI), Union Bank of India, Axis Bank, Andhra Bank, State Bank of Hyderabad, Andhra Pradesh Grameen Vikas Bank, and Punjab National Bank.

A Little World (ALW), a technology implementation partner, has come in a partnership with NXP Semiconductors to design a mobile for the AP government that encloses an RFID card, and works with ALW’s micro-banking platform ZERO.

Mobile works as a branch of the bank by storing a database of customers. It also has a smartcard, which biometrically stores the identity of the customer such as name, address, photograph, fingerprint templates and relevant details of the savings or loan accounts held by the issuing bank.

Customers get a secure electronic identity via phone or smartcard, while agents take deposits and dispense cash. ALW works with the banks on a revenue-sharing basis.

Anurag Gupta, founder director & CEO of ALW, says: “We have carried out pilot projects with SBI in villages located in some of the most inaccessible and difficult terrains of the country such as Pithoragarh in Uttarakhand, Mizoram, Meghalaya, and remote villages in Andhra Pradesh.”

Lokanath Panda, director, ALW, also pointed out that SBI had tied up with the Indian Post to extend banking services especially in unbanked/under-banked areas. “Select post offices will make available to the public SBI’s deposit and loan products, and ALW is the technology partner.”

ALW is also navigating a program with SKS Microfinance and the Bank of India to provide a mobile banking service that works on BSNL SIM cards.

New Delhi-based Ekgaon Technologies too has developed a system for tracking transactions made by self-help groups. It has partnered with the likes of CARE, World Vision and the World Bank to conduct a pilot which it plans to extend to 14 Indian states.

Bharti Airtel, too, is in the process of joining hands with two leading banks to extend its mobile remittance services to rural areas, according to its president (Mobile Services), Sanjay Kapoor.

Airtel has already partnered with the Indian Farmers’ Fertilizer Cooperative Limited (IFFCO) to set up IFFCO Kisan Sanchar Limited in Rajasthan.

Under this plan, the cooperative department will make available mobile handsets to farmers at marginal price through its outlets in the rural areas. These handsets would be loaded with green SIM cards, which will flash daily updates on agricultural practices and weather forecast free of cost.

While he did not provide details, Kapoor hinted that the partnership deal would be extended to mobile banking services too. Kapoor reasons that with 55 per cent of the mobiles being internet-enabled, mobile banking would help bridge the digital divide.

Reliance Communications, will allow ICICI Bank account holders with Reliance handsets (even the low-end Rs 1,000 ones — with or without Internet connectivity) to make intra-bank (to ICICI account holders) money transfers. It has already tied up with HDFC to offer Reliance mPay — a virtual credit card.

Tuesday, February 19, 2008

RBI asks banks to step up vigilance against misuse of banking channel by terrorists and criminals

RBI has issued a directive to the banks regarding stepping up vigilance against use of banking channels by terrorists and criminals. The directive was issued after the security agencies had complained to finance ministry that the banks were not reporting any suspicious transactions.

RBI asked banks to report any suspicious transactions to security agencies and guard against misuse of the system.

"Banks are advised to develop suitable mechanism... for enhanced monitoring of accounts suspected of having terrorist links and swift identification of the transactions and making suitable reports to the Financial Intelligence Unit-India on priority," it told bank chiefs.

RBI also instructed the banks to scan existing accounts to make sure that they are not linked to bodies which figure in the list of suspected persons available on UN website.

The central bank has asked the banks to review the risk profile of customers every six months, RBI said they should update the identification data of low risk customers every five years and for customers in high and medium risk categories every two years. "Adequate screening mechanism" for hiring was also proposed.

Wednesday, February 13, 2008

VTB Russia’s first Bank started its operations in India

VTB Bank the first Russian Bank on Tuesday opened its full service branch in the country to service corporate clients.

"The branch will mostly serve corporate clients and is designed to contribute to forging foreign trade relationship between Russia and India," VTB Bank Deputy Chairman Titov Vasily told reporters here.

He said approximately, by the end of this year the branch assets in New Delhi are to exceed USD 50 million with equity amounting to USD 27 million.

He further added that next year the branch assets are likely to double to over USD 90 million.

Since 2005 Russia's second largest lender is having its representative office in Delhi and has been carrying out its operation in the country through it.

At present, two Indian banks State Bank of India and Canara Bank combined together and ICICI Bank have branches in Russia.

Speaking on the occasion of opening of branch Russian Deputy Prime Minister Alexander Zhukov said, "I am sure that other Russian Banks will follow the suit and open branches in the country.

He added Sber Bank (the largest bank of Russia) will soon be starting its operations in India.

Vasily said, with opening up of the branch in the country, the VTB Bank will be able to offer banking services to Russian customers and their Indian partners both within the existing and scheduled projects.

Tuesday, February 12, 2008

Mobile driven remittances starts making a strong foothold in India

In India soon people will be able to use their mobiles for transferring of funds. Mobile driven remittances is making a strong foothold in India. Customers would be able to transfer funds from their mobile phone to friends or relatives, bypassing other remittance routes like net-banking and money orders. Even though, the recipient does not have a bank account or ATM card.

Standard Chartered Bank in the first move of its kind has introduced a cardless cash withdrawal scheme which will enable a StanChart customer to transfer funds from an ATM to any person in the country who has a mobile phone.

In the second phase of its implementation the bank have plans of making this possible through the sender’s mobile itself, and in due course the service will be extended to international fund transfers.

Banks are upgrading their technological platforms to include mobile-based services, in order to make banking conveniently accessible and customer-friendly. Recently ICICI Bank launched a mobile banking platform, which will replicate all internet-banking transactions on the cell phone.

Its not only that the big banks are improving, also the public sector bank Corporation Bank and Pune-based co-operative bank Cosmos Bank have already signed an agreement with mobile-payments provider PayMate to offer customers with SMS-based payments services.

With the introduction of mobile remittance service a StanChart account holder can go to an ATM and opt for the cardless transfer. On giving the mobile number of the recipient, the account holder will get an order number from the ATM. The sender then needs to pass on the order number to the beneficiary, while the bank will send a personal identification number (PIN) to the latter’s phone.

The recipient will be required to go to a StanChart ATM, enter the combination of the PIN and order number and withdraw the cash within 24 hours of receiving the message. As told by StanChart head of consumer transaction banking and strategic initiatives CDK Sai Narain, there will be a limit on such transfers at Rs 10,000 per transaction and Rs 20,000 per day.

The transfer will be instant and the amount will be debited in the sender’s account only when the amount has been withdrawn. In initial stage the system will work only on the StanChart ATM network, but there is a scope of being expanded to the CashNet ATM network, according to Euronet Services India managing director Loney Anthony.

Also, the bank has plans of making this particular process possible entirely through the mobile phone. StanChart has also signed an agreement with PayMate to allow customers to book air and movie tickets directly through their cell phone while also allowing customers to pay through mobile phones at restaurants.

Indian Overseas Bank likely to cut interest rates on select loans

According to sources from Indian Overseas Bank (IOB), the bank is planning to slash interest rates on select loans by at least 25 basis points.

Indian Overseas Bank chairman and managing director SA Bhat informed that the bank’s asset-liabilities committee will be meeting on Friday to identify on lending rates.

The bank will be cutting on select lending rates for loans meant for consumer goods, by 25 basis points, but will be waiting till March to reduce deposit rates.

However Canara Bank and Allahabad Bank had already announced a cut in their lending rates. Besides, HDFC and PNB Housing Finance too have reduced interest rate on housing loan.

Monday, February 11, 2008

FM to ask Banks to raise credit and lower interest

On Tuesday Union finance minister Mr P Chidambaram is going to have meeting with the heads of public sector banks and is likely to come under pressure as economic growth likely to slow down to 8.7 per cent this financial year. It is expected the finance minister ask them to raise lending to the manufacturing sector and cut interest rates.

“Some public sector banks have already reduced interest rates, but other banks should also bring down interest rates considering there is ample liquidity in the system and deposit rates have come down,” official sources said.

The official sources informed that the main focus of the meeting is likely to be on “banks' role to meet Budget targets, their performance apart from credit quality and delivery to the target sectors”.

The meeting is supposed to have significance as it comes on the heels of the Reserve Bank maintaining status quo in key rates.

It is likely, the finance minister, who met RBI Governor Dr YV Reddy on Saturday, have discussed measures to moderate the possible rise in capital inflows besides steps to raise credit to the productive sectors and for consumer goods to ensure better GDP figures in the fourth quarter.

According to the advance approximation by Central Statistical Organization, manufacturing output growth is expected to slow down to 9.4 per cent this fiscal against 12 per cent in the financial year 2006-07.

It is expected in the industrial activities, construction is likely to grow by 9.6 per cent against 12 per cent last fiscal.

Saturday, February 9, 2008

Central Bank of India and Mashreq Bank enter into tie-up for US Branch

According to press release issued by the public sector lender, Central Bank of India, on Friday it has entered into a tie-up with Mashreq Bank.

As per this agreement all trade transactions and remittances denominated in US Dollars relating to the US, will be handled by Mashreq Bank through a dedicated desk. The desk would be like a virtual branch of Central Bank.

The press release stated through this arrangement, Central Bank would be able to take the benefits of operational capabilities of Mashreq Bank, New York, for various business operations.

The tie-up further will provide flexibility to Central Bank to invest funds with institutions of its choice forgetting higher return. "The virtual branch scenario is expected to bring down the cost of transactions which will be beneficial to the bank's customers," the release added.

The desk will make easy for quick response to customer queries and fast realization.

"Overall, the tie-up for virtual branch will enable Central Bank of India to provide more efficient and timely service to the exporter and importer community," the release said.

Friday, February 8, 2008

PNB following downward interest rate scenario cuts home loan rates

First the second largest private sector bank HDFC following the guidelines of the RBI reduced home loan rates. Working on the same lines PNB Housing Finance, a subsidiary of Punjab National Bank, reduced home loan rates by 50 basis points for new borrowers.

“In view of the downward interest rate scenario, the company has decided to reduce interest rates on home loans for new borrowers by 0.50 percentage points with immediate effect,” PNB Housing said in a press release.

During the nine months ended December 31 the company reported 76% growth in net profit at Rs 28.87 crore. The total income of the company rose 51% to Rs 159.97 crore during April-December 2007 compared with Rs 106 crore in the year-ago period.

VK Khanna, managing director, PNBH, said: “The company is looking at a higher business volume in the coming months. It is entering into tie-ups for promoting individual loans in the projects of various builders across the country."

Punjab National Bank had recently said that it planned to either register PNB Housing Company or introduce a strategic partner into the company.

The net worth of the company was Rs 156.60 crore, as on December 31, 2007. The book value per share was Rs 52.20, as on December 31.

Thursday, February 7, 2008

Central bank of India and Thomas Cook sign a deal for money transfer service

An agreement between state-owned Central Bank of India (CBI) and leading outbound travel agency Thomas Cook was signed to offer a money transfer service via MoneyGram International, a leading global payment service.

Since 1997 Thomas Cook has been a partner of MoneyGram in India.

"We are pleased to offer MoneyGram Money Transfer Services through our branches. Non-resident Indians (NRIs) and their family members can use these services," bank chairperson and managing director H.A. Daruwalla said.

Transfer of funds to India from US, Britain, Canada, Australia and the UAE, is very high as large number of NRIs settled in these countries. With the starting of this service people will be able to do transactions easily.

"Reaching to our customers is very important and they can complete their transactions at high levels of convenience," Thomas Cook (India) Managing Director Madhavan Menon said.

According to MoneyGram's regional director for south Asia Harsh Lambah, the Central Bank of India is having a network of 3282 branches through which it can provide convenient and reliable money transfer services anywhere.

Tuesday, February 5, 2008

PSU banks cut home loan rates

Amongst the private sector banks last week HDFC announced the cut in home loan rates, while ICICI, the leader among private banks in home loans, still have to decide on lending rate cuts. Earlier RBI had asked the PSU banks to reduce the rates and the moral suasion has worked. State-owned banks have begun bringing down lending rates even without a cut in benchmark rates by RBI.

Close on the heels of HDFC, on Tuesday Canara Bank and Allahabad Bank announced cuts in lending rates.

State-controlled Canara Bank and Allahabad Bank have slashed the lending rates by 0.25 percentage points and 0.5 to 0.75 percentage points respectively. Taking the signals from the Reserve Bank of India Governor YV Reddy in the credit policy on January 29, paving the way for other banks to follow, HDFC was the first bank to cut the rates.

Canara Bank, the third largest bank in the country, has cut home loan rates by 0.25 per cent almost across the board. Currently, the bank’s home loan below Rs 20 lakh for five years is priced at 10 per cent and a long-end loan for 25 years will cost 10.5 per cent per annum.

“The decision is in line with the expected softening of interest rates. However, a cut in rates of other loans will be considered later," Canara Bank chairman MBN Rao told Hindustan Times. Although the growth in the corporate sector is at a robust pace, but credit growth will remain within the Reserve Bank-targeted level of 24 per cent. However this step will encourage small industries and households to seek loans.

Allahabad Bank chairman AC Mahajan informed the cut in housing loans is 0.5-0.75 percentage points, education loans by 0.25-1.00 percentage points and while consumer durable rates by one percentage point following a fall in the incremental cost of funds.

Addressing the reporters at a conference ICICI Bank's chief executive officer KV Kamath said that the bank is keeping an eye on the interest rates trends, which usually go up during the last quarter, before taking a decision on a possible cut.

3 arrested for Rs 27-lakh bank fraud

In Kolkata a promoter, Chiranjeet Saha, along with two others were arrested on Monday on charges of attempting a Rs 27-lakh fraud at a nationalized bank in Salt Lake.

Police told Saha, along with three others, walked into a nationalized bank at BE Block to encash three bank drafts, worth Rs 9 lakh each. While encashing those, bank officials found something suspicious about the drafts as the banks officials were aware that Saha had allegedly been involved in a fraud earlier.

The officials asked Saha and his men to wait while they called up the draft issuing bank branch.

It was then discovered that the said bank did not issued any such draft to Saha and the drafts were found to be forged. Saha also had a nominal sum left in his account.

Saha and the three others were apprehended and police was called. After cross-examination, one of the three was allowed to go while Saha and two others were arrested.

Monday, February 4, 2008

RBI in its policy review opts for flexible policy financial scene

The Reserve of India’s in its third quarter monetary policy review did not change any of its policy rates — the Bank Rate, the repo rate and the reverse repo rate and this has become the focal point of discussion on the subject. RBI has not touched the cash reserve ratio, while the central bank has clearly chosen status quo in so far as interest rates are concerned. Whereas individual banks, have been urged to lower lending rates. Moral suasion helps up to a point while even overt signaling devices, for instance a reduction in CRR or repo rate, need not always work.

While as a rule public sector banks, are following the suggestions, especially if they come from the Finance Minister. In mid-October last year on one widely publicized occasion, the Finance Minister had convinced banks to reduce their interest rates on car loans. To give respite to auto sales was given as the reason for the intervention.

May be such instances will become part of history as they do not leave good impression on the autonomy of the monetary authorities.

At present the Finance Minister has publicly authorized the RBI’s stand of not changing the policy rates. Functional though it may be, but it does give the central bank the flexibility to increase or decrease the rates depending on the emerging domestic and global situations. Moreover, through a conscious decision, the RBI wanted to convert monetary policy statements into ‘non-events’. Even though increasing the frequency of policy statements from two to four in a year, the central bank had made it clear that it is not necessary making rate changes will be always be a part of each policy statement. Such de-linking gives flexibility to the central bank.

However, on the eve of its latest policy review, there were more assumptions than the usual level as to what the RBI would do with its rates. Most of them thought that it would reduce the rates, for this there were several reasons why their expectation was not baseless.

Week ahead to the central bank policy review, the U.S. Federal Reserve (Fed) had cut its federal funds rate by a massive 0.75 percentage points mainly to encourage the U.S. economy that was seen as sliding into a recession. On stock exchanges prices had crashed across the globe. As the result of the rate cut, there was some recovery but that proved short-lived. On January 30, after the announcement of the RBI’s review, the U.S. Fed further reduced the fed funds rate by another 0.50 percentage points.

Such massive interest rate reductions done by U.S. Fed have several implications for India and other emerging economies too. Many of them among a large section of market analysts had expected that other countries, including India, will follow suit, perhaps not to deflect a decline as in the U.S. but to remain competitive and encourage growth.

In India, economic growth continues to be strong but there are signs of a slowdown in manufacturing and to a lesser extent in services. For the current year almost all recent gross domestic product (GDP) forecasts have been less cheerful giving signal that the second half of 2007-08 would see a much slower growth than the average 9.1 per cent recorded in the first six months. It was thought that two sectors, consumer durables and transportation equipment, which have been slowing down and an interest rate reduction in India, will help in their recovery. Though not changing of interest rates looked equally strong but were based almost entirely on considerations of price stability. Inflation, which has always been a major worry for most central banks, is right back at centre stage of monetary policy.

However inflation numbers has been below 4 per cent but rise can been seen in the recent weeks. Globally, oil prices are going to remain high though Indian consumers continue to be insulated. Then there is the ‘food inflation’ caused partly by record prices of wheat, corn and other cereals.

There has been growth in the money supply and bank deposits, ahead of targets while non-food credit from banks is sharply lower. The surplus of liquidity is a cause for worry. The RBI is hoping to hold inflation within 5 per cent this year and anchors expectations in the region of 4-4.5 per cent over the medium term.

As always, the RBI have to tackle several — often conflicting — objectives simultaneously. Maintaining price stability while providing for the credit needs of the economy has always been a dilemma. There is also the question of balancing short-term considerations with those of the medium term. The RBI has been clearly indicating that the complexities of monetary management are such that there is a requirement of substantial flexibility to deal with the emerging situations both in India and abroad. What’s more, fiscal policies should supplement monetary policies even for achieving monetary goals.

For instance, steady accumulation to the RBI’s forex assets has contributed to the huge growth in reserve money. A major portion of the assets build-up is owing to large portfolio investments in the stock market. The RBI’s actions of first sterilizing the dollar flows and then trying to clean up domestic liquidity — through market stabilization schemes and so on — are the classic monetary policy fix. Fiscal policy obviously comes into play in several ways. The debate over better utilization of forex reserves cannot be done in isolation from the quasi-fiscal costs that are incurred in keeping the reserves in safe, but low yielding instruments such as U.S. government paper.

Lastly, the RBI in sticking to its GDP growth target of 8.5 per cent for the current year, is not necessarily conservative. Days after the monetary policy review, the Finance Minister, is expecting the economy to grow at closer to 9 per cent which will be not substantially higher than earlier official forecasts.