FINANCIAL NEWS
{updated on 2nd August, 2008}
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1. Regulators seek review of credit rating agencies' role à Move follows
tight norms for raters in US, EU after global financial turmoil. With the role
of rating agencies under the lens across the global, Indian financial sector
regulators too have decided to review their functioning and explore the
possibility of strengthening regulation. Sources said the issue has been
discussed threadbare by the high-level coordination committee (HLCC) on
financial markets at the last two meetings and the Securities and Exchange
Board of India (Sebi) has been asked to come out with a paper on it. "While
there is neither anything wrong with our rating agencies nor any suspicion of
wrongdoing, the review is due to the global developments. The paper will be
more like a discussion paper," said a source close to the development. Another
source said the regulators were merely discussing the possible issues that they
may need to deal with. At present, rating agencies in India do not fall within
the purview of any regulator. In India, an issue under discussion is the
possible conflict of interest between an agency's rating role and the
consulting activity undertaken by it. Even in the US and Europe, regulators are
grappling with the issue and are trying to deal with norms for registration,
quality standards, reporting and supervision. [Business Standard]
2. MTM losses take a toll on banks' Q1 profits à The country's 40 listed
banks reported near flat profit growth during the first quarter of 2008-'09 as
higher provisioning ate into their bottom lines. On a cumulative basis, these
banks reported a 0.46 per cent rise in net profit to Rs 6,918 crore for the
quarter ended June this year as against Rs 6,866 crore during April-June 2007.
With bad debt and bond yields on the rise, cumulative provisions and
contingencies turned out to be higher than the combined net profit. Total
provisions rose over two-and-a-half times to about Rs 7,667 crore during the
first quarter of 2008-09 compared with Rs 3,056.18 crore during April-June
2007. It was around 120-basis point rise in the yield on the 10-year government
paper so far in 2008-'09 to 9.10 per cent that hit the banks the most. While
State Bank of India was the biggest loser, providing Rs 1,656 crore for
mark-to-market (MTM) losses during the first quarter, ICICI Bank said its
treasury income and the loss on the bond portfolio was Rs 594 crore. The
country's top six banks, including Punjab National Bank, HDFC Bank, Axis Bank
and Bank of Baroda, together accounting for nearly half the business, reported
total MTM provisions of Rs 2,700 crore during the first quarter. [Business
Standard]
3. FM sees lower interest rates in six months à Finance Minister P
Chidambaram on Friday said interest rates will moderate from the current high
levels over the next six months. "These interest rates will not remain high
forever. We will get out of the trough and we will go back to moderate to
normal rates, hopefully in about six months to a year. In the meanwhile, we
have an opportunity to mitigate the burden of high interest rates by reducing
the cost of money so that banks are not obliged to raise interest rates, every
time the monetary policy is tweaked," he said. [Business Standard]
4. RBI wary of credit card defaults à The Reserve Bank of India (RBI) on
Friday said it is worried over rising defaults on credit card payments that
reflect gaps in the client selection process by banks and high interest rates.
If banks issue cards without proper scrutiny, there will be growth in defaults,
RBI Deputy Governor V Leeladhar told reporters on the sidelines of a seminar
organised by the Indian Banks' Association. Banks have to take into account
paramters like financial capability while issuing cards, he added. The latest
RBI data show that credit card outstandings rose 87 per cent to Rs 26,596
crore, with Rs 12,375 crore added between May 25, 2007, and May 23, 2008. Till
May-end last year, the rise was 45 per cent. Economists and bankers look at a
sharp rise in the outstanding balances on credit cards with caution as the risk
of default goes up. [Business Standard]
5. P&SB, ING Vysya hike lending rates a Following in the footsteps of
other lenders, state-owned Punjab & Sind Bank (P&SB) and private lender ING
Vysya Bank on Friday raised lending rates by 50-75 basis points. Banks are
increasing interest rates after the Reserve Bank of India (RBI) hiked the repo
rate, the rate at which it lends to banks, by 50 basis points and the cash
reserve ratio (CRR), the portion of deposits set aside by banks, by 25 basis
points, on July 29. [Business Standard]
6. Yes Bank ups interest rates on fixed deposits à Private sector lender
Yes Bank has increased its fixed deposit interest rate by 0.25 per cent on a
tenure of one year and one day up to 18 months to 10 per cent from the earlier
9.75 per cent. Senior citizens will earn a return of 10.50 per cent now as
against the existing 10.25 per cent, a bank release said here. The new rates
are effective from today. The new-age lender has also upped interest rates on
fixed deposits for tenors ranging from six months 1 day to 2 years. [Economic
Times]
7. CanBank, BoI may hold rates à Fearing defaults and taking a bet that
interest rates would soften in the next one year, some state-owned banks are
reluctant to pass on the rate hike to existing customers. Canara Bank is
considering a one-year freeze on interest rates for existing home loan and
personal loan borrowers at the prevailing level. Another large nationalised
bank, of India (BoI) is also not planning to pass on the rate hike to its home
loan customers. At present, Canara Bank offers personal home loans at floating
rates linked to prime lending rates (PLR). However, this time around, home and
personal loan borrowers may not have to shell out extra money towards interest
payment even after the bank hikes its PLR. Canara Bank CMD AC Mahajan, said:
"We are considering the option of freezing interest rates on personal and home
loans at current the level for one year." [Economic Times]
8. Separate entity for payments, settlements à RBI is paving the way for a
separate entity to carry out payment and settlement activities within the
country which will bring down transaction costs, including credit card
transactions. The new entity - National Payments Corporation of India (NPCI) -
will be set up by the Indian Banks' Association (IBA) and will be owned jointly
by banks. However, no bank or group of banks will be allowed to hold more than
10% of the ownership while 51% of the equity will be held by public sector
banks, according to Reserve Bank of India deputy governor V Leeladhar. Speaking
at a conference on Friday, Mr Leeladhar said, "The setting up of this umbrella
organisation would bring greater efficiency by way of uniformity and
standardisation in retail payments, expand its reach and bring innovative
payment products to augment customer convenience." Further, the NPCI will be a
Section 25 company - which will not distribute its profits as dividend, but
will plough it back for the improvement and expanding the reach of the retail
payment systems. Also, now that the Payment and Settlement Systems Act 2007 has
been ratified by Parliament, it is going to be notified by the government in a
week or two, following which it will come into force, the deputy governor said.
[Economic Times]
9. Federal Bank eyeing strategic stakes in lenders à Kerala-based Federal
Bank is looking to pick up small strategic stakes in other lenders, including
major ones, a top executive said on Friday. The private bank has already
acquired small percentages (up to 5 per cent) in three south-based banks, its
Executive Director K F Harshan told reporters. The three banks are South Indian
Bank, Catholic Syrian Bank and Lakshmi Vilas Bank. "These are financial
investments. Existing regulations don't permit us to acquire beyond that (5 per
cent)," Harshan said. [Economic Times]
10. JM Financial launches Multi Strategy Fund à JM Financial Asset Management
Company on Friday announced the launch of JM Multi Strategy Fund. The
investment objective of the open ended equity scheme is to provide capital
appreciation by investing in equity and equity related securities using a
combination of strategies. Primarily, investment will be made in stocks using a
dynamic investment strategy related to the expected market scenario in the
future. The new fund offering commenced on July 31 and will close on August 29.
The scheme will reopen for continuous sale and purchase from September 28.
[Economic Times]
11. StanChart to review its BPLR soon: Swaroop à Private lender Standard
Chartered Bank may again review its benchmark prime lending rates (BPLR) soon,
a top bank official said. The bank had increased its BPLR by 1.25 per cent to
14.25 per cent in late-July.StanChart might review its BPLR in view of the
changed environment, Standard Chartered Bank India Head Neeraj Swaroop told
reporters here today. Several banks have raised their lending rates in last two
to three days following the Reserve Bank hiking its key rates earlier this
week. Swaroop said further monetary tightening could be expected in the coming
months given the prevailing high inflation rate, which currently stands at
11.98 per cent. However, StanChart's lending portfolio being very small, the
bank has not seen any delinquencies in the corporate segment. In consumer
finance, however, there has been a marginal increase in bad loans, Swaroop
said. [Economic Times]
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