Tuesday, March 30, 2010

Indian Bank launched Visa Business cards and ATM cards for RRBs

Indian Bank is offering Visa business cards to its corporate and SME clientele segments. Bank is offering the cards with an interest-free period of maximum 45 days and revolving credit on payment of minimum amount of 10 per cent of the outstanding.

Bank has also launched ATM cards for its sponsored regional rural banks (RRBs). The cards were launched by CK Ranganathan, director, Indian Bank, and chairman and managing director of Cavin Kare Ltd, in the presence of MS Sundara Rajan, chairman and managing director, Indian Bank.

The three RRBs of the bank are Saptagiri Grameena Bank (Chittoor, Andhra Pradesh); Pallavan Grama Bank (Salem, Tamil Nadu) and Puduvai Bharathiar Grama Bank (Puducherry) with a total number of 234 branches and over 1.3 million depositors.

Rajan informed all the three RRBs has achieved 100 per cent CBS, therefore Indian bank has launched the co-branded ATM cards. He said, “This will enable rural customers to avail of 24x7 services. Our RRB customers can transact in all the ATMs of Indian Bank.”

Thursday, March 18, 2010

LIC Housing Finance to expand its loan portfolio by next fiscal

LIC Housing Finance, a subsidiary of Life Insurance Corp is on the move of expansion of its loan base looking at the growing demand for affordable housing. The company plans to expand its loan portfolio by the next fiscal. Also this fiscal mortgage companies are recovering from last year’s economic crisis.

R R Nair, chief executive & director at LIC Housing Finance informed, “Last year it was a difficult year for housing finance companies, as we could grow only by 24 per cent and this year our growth is over 60 per cent. So with this trajectory we will be able to make a growth of 30-40 per cent next year. We are planning Rs 18,000 crore of disbursement next year.”

Also, company is waiting for the government or the Reserve Bank of India's guidelines for applying for a banking license.

Nair said, “We recognize it is an opportunity and welcome it, we have to wait for the guidelines and regulatory requirements before taking a call if we are eligible for it and if eligible what are the requirements to fulfill. So after knowing the details we will take a call. We are positive about it.”

It was in 2003 RBI has issued the banking licenses before this.

Along with LIC housing there are other corporates that are trying to convince the apex bank for permission to set up banking operations and these include Reliance Capital, the Bajaj Group, the Tatas and Birlas.

Banks hiking deposit rates investors can look for better times

Again the traditional bank fixed deposit will give good returns and investors can look forward to better times. In last few weeks several banks have increased their deposit rates after taking cue from RBI’s recent hike in cash reserve ratio.

Since the last week of January more than 24 banks have hiked rates and there have been increase of 25-150 basis points in bank deposit rates, depending on the term of the deposits.

Majority of the private banks and foreign banks such as HDFC Bank, ICICI Bank, Yes Bank and Kotak Mahindra Bank; foreign banks such as Standard Chartered Bank and HSBC; have hiked the deposit rates and amongst the public sector banks IDBI Bank, Union Bank of India, Indian Bank and Bank of India have hiked their deposit rates. But some of the large public sector banks such as State Bank of India, Bank of Baroda and Punjab National Bank still have to take decision on hiking the rates.

Most of the banks have hiked rates for the 1-2 year and 2-3 year deposits. The banks such as Kotak Mahindra Bank and HDFC Bank have hiked deposit rates more than 75 basis points for deposits of more than three years.

The banks liquidity is being flushed out in spite of that they are increasing deposit rates. It is believed banks are hiking rates as companies are demanding more credit and also RBI is likely to increase rates to control high inflation.

As a result of increase in deposit rates the flow of liquidity in deposit is also increasing. According to RBI figures for the fortnight ended February 26, Scheduled Commercial Banks have seen rise in deposit inflow (around Rs 40,000 crore as against Rs 20,000 crore for the fortnight ended February 12).

But the hike in deposit rates is the indication of hardening of interest rates. Moreover due to prevailing high inflation the investors won’t get much benefit from the increased deposit rates.

In spite of hike the investors who have invested big amount in fixed deposit will see negative post-tax real returns while for the conservative investors hike in deposit rates is good news.

At present 1-year term for deposit is most favorable and as the terms draws near to maturity period the investors can decide for long –term after carefully studying the rates.

The banks are not hiking deposit rates for short –term i.e. for less than six months, thus investors have to invest for long tenures in such case 1-year tenure is the good option.

As the banks have started increasing the deposit rates therefore investors should wait to get a decisive idea on the increase.

The second option can be to invest in a 91-day bank deposit at 5-5.5 per cent, then on maturity reinvest for 9- months on which they can get interest rate of up to 7-7.5 per cent. This way an investor will be able to improve his overall return.

However the investors will earn less this way rather than by investing in a one-year deposit.

Amongst the public sector banks State Bank of Travancore, Vijaya Bank and UCO Bank are offering attractive propositions, for one-year deposits the rate is 7 per cent. Although these banks have not hiked their rates recently but are still better than those who have revised rates since February 2010.

For instance banks such as Indian Bank and Bank of India are offering lower rates at 6.75 per cent on their one-year deposits, even after the hike.

On the other hand private banks such as Catholic Syrian Bank, Karur Vysya Bank and Lakshmi Vilas Bank are offering 7.5 per cent, 7.25 per cent and 7.25 per cent respectively on one-year deposits.

Some of the banks had launched special deposit schemes under which they are were offering better rates compared with the usual schemes. . The best of the special offer schemes comes from City Union Bank, which offers 7.5 per cent for its 400-day scheme.

Most of the banks are also offering senior citizens additional 25-50 basis points higher for deposits that mature later than six months.

The bank deposits have lower risk and the return is also low. However there are few companies who have deposits offering high return but the risk factor is high.

For instance, corporates such as Unitech offers one-year deposits at 11 per cent. Also, non-banking finance company such as Dewan Housing Finance is offering 9 per cent interest on its one-year deposit.

There are chances that non-banking companies such as Shriram Transport Finance and Sundaram Finance might hike their deposit rates.

The investors who can take higher risk can invest in companies’ deposits for short term up to one year.

Wednesday, March 10, 2010

Banks request for free hand for selecting parameters for calculating base rate

According to the Reserve Bank of India (RBI) from April 1 banks were to give loans on base rate system but on the request of the bankers RBI has postponed the implementation of base rate system for 3 months.

Bankers are still confused about the parameters for calculating the rate. In this regard bankers met RBI deputy governor on Friday. In the meeting bankers have requested RBI to give free hand for selecting the parameters for calculating the base rate during the first year of the new regime.

According to the new formula for calculating rate, the base rate will depend on the cost of deposit, adjustment for the negative carry in respect of cash reserve ration and statutory liquidity ratio, overhead costs and a profit margin.

Bankers, who met RBI deputy governors on Friday, discussed the issues regarding the parameters for calculating the rate.

According to the formula proposed by the regulator, the base rate will depend on the cost of deposit, adjustment for the negative carry in respect of cash reserve ratio and statutory liquidity ratio, overhead costs and a profit margin.

But banks are not sure over what parameters they have to use for arriving at the cost of deposit and the profit margin. For example, in case bank use overnight cost of funds as the parameter then the cost of deposit can be negligible. If bank finally decides to take a particular parameter to indicate cost of deposit or profit margin, it will not be able to change it.

State Bank of India Chairman OP Bhatt said, “We have requested for allowing us to change the parameter at least in the first year of operation (of the new regime).”

He said SBI is thinking of taking the average cost of deposit as the indicator for its cost of deposit. Bhatt added, “We have not decided the indicator for profit margin, but we can opt for net profit, though it can be very volatile.”

As for now, RBI has given free hand to banks to decide the parameters banks are trying to work out the methodology to be adopted by competitors. In case bank opts for short-term deposits as the benchmark for calculating the cost of deposit, its base rate will be low.

The banks have got three months time to work out parameters before entering the new regime.

Banks on move to hike home, auto loan rates

After union budget 2010-2011 banks are on the way to increase interest rates even though the Reserve bank of India (RBI) has not raised its key policy rate yet.

Few of the private sector lenders ICICI Bank, Kotak Mahindra Bank Ltd and the largest mortgage player Housing Development Finance Corp. Ltd (HDFC) have announced closure of special home loan schemes.

Before this some of the commercial banks such as Axis Bank Ltd, Union Bank of India, Canara Bank, Punjab National Bank, Bank of India and IDBI Bank Ltd have discontinued special home loan schemes after RBI had hiked its CRR by 75 basis points in its January review of monetary policy.

One basis point is one-hundredth of a percentage point. CRR is the portion of deposits that banks are required to maintain with RBI.

In the auto loan segment HDFC bank, IDBI bank and Kotak Mahindra Bank have raised interest rates on auto loans.

Kamlesh Rao, executive vice-president at Kotak Mahindra Bank said, “The hike in rates comes after most of the banks raised their deposit rates by 75 to 100 basis points. We have just realigned the lending rates to deposit rates.”

However in case of deposit rates IDBI Bank was the first one to increase the deposit rates by 50 basis points, followed by ICICI bank and HDFC bank.

As from April 1 banks will have to calculate interest on savings accounts on daily basis will thus increase pressure on banks to raise lending rates. Currently banks are offering 3.5% interest on savings accounts, but the actual cost is less as the interest is given on the minimum balance kept between the 10th and the last day of a month.

Also RBI has instructed banks to do away with the benchmark prime lending rate (BPLR) system and introduce the base rate below which no bank can give loans. At present banks keep BPLR high and give loans to 70% of their customers at below BPLR.

After the budget the profits on bonds have also increased. Before budget profit on 10-year bond was 7.83% after budget the profit increased to 7.94%.

HDFC has said although it is withdrawing its special home loan scheme but those who have applied for loans till 27 February and avail of at least part of the disbursement till 31 March will get loans at 8.25% for two years.

Meanwhile ICICI Bank has withdrawn its 8.25% special home loan scheme and hiked auto loan rates.

ICICI Bank spokesman said, “Auto loan rates have been raised by 0.25-0.5% depending on segment and tenure with effect from 5 March.” Thus the new rates for new auto loans will be in the range of 9.75-11%.

While few of the public sector banks such as Union Bank of India, Canara Bank, Punjab National Bank and Bank of India will now be offering loans at the prevailing rates in September when banks launched their special schemes.

Many bankers are saying that they might increase the rates after RBI monetary policy at the end of April as they are expecting RBI might raise its policy rates to fight rising inflation.