NBFCs too raise interest rates to attract depositors

With most banks increasing deposit rates, non-banking finance companies(NBFCs), including housing finance companies and non-banking non finance companies, are being forced to fork out higher interest rates on deposits to woo savers.
All major housing finance companies like HDFC,LIC housing finance, DHFL and HUDCO are now offering over 7% for a one year deposit compared with between 6-6.50% about 6 months back. For instance, Mahindra and Mahindra Finance(MMFL) rated FAA+ is paying a 8% for a one-year maturity while Shriram Transport, which commands a similar rating is offering 8.75% for a one-year deposit. While ICICI Bank offers 6.75% for a one year deposit, though it offers 7.25% for 390 days.
Meanwhile, Corporates looking for deposits too are being forced to raise interest rates. Real estate major Unitech is offering 11% for 6 months while Avon Corporation and another real estate company, Kolte Patil are paying 11.46% for a one year deposit. Not surprisingly, most savers prefer banks.(FE 27.10.2010)

Pon IIIam inaugurated in Maduri

Pon IIIam (Gold House), the exclusive set up for those who deal in Gold, was inaugurated in State Bank of India(SBI),Madurai Branch recently.Inaugurating the set up, Mr. J. Chandrasekaran, Chief General Manager, Local Head Office , SBI Chennai, said this was the second in the circle, the first one at Chennai and soon such exclusive set up would be established in Coimbatore and Tiruchi, he said.(BL 27.10.2010)

Karvy to provide online trading facility to BOI customers

Karvy Stock Broking Ltd.(KSBL) will provide its online trading services to customers of Bank of India(BOI). According to an agreement between the Hyderabad-based Karvy and BOI, customers having savings/current account with Bank of India alongwith depository participant account either with NSDL/CDSL can avail a readymade online trading account from Karvy.(BL 27.10.2010)

Banking sector in India put up a good show during global financial crisis

The performance of various bank groups as on March 2009 and March 2010 had been impressive despite constraints faced by them due to slow down in the economy of the global financial crisis and adverse real economic scenario witnessed all over the world.The performance parameters during the two-year period showed that the banking sector exhibited remarkable resilience in withstanding the impact of global economic crisis. Increase in net NPAs or fall in return on assets during the period was marginal whereas the cost of funds registered a significant decline. Analysis of bank group-wise performance was as follows:-
Cost of funds:
The cost of funds had come down considerably during 2009-10 although it continued to be high for all bank groups except for foreign banks. The cost of funds which ranged between 4.46% and 6.67% for different bank groups in March 2009 came down considerably and worked out between 2.82% and 6.13% in March 2010.
Foreign banks could bring down their cost of funds from 4.6% to 2.82% during the period, whereas the State Bank group and nationalised banks could bring down their cost only from 5.94% to 5.32% and 6.09% to 5.35% respectively. While the new private sector banks could bring down their cost of funds sharply by 1.63%, the old private sector banks could bring down their cost of funds only by 0.54% during the period.
Cost of funds for public sector banks and old private sector banks continued to remain high and is a matter of concern.
Return on advances adjusted to cost of funds:
Return on advances adjusted to cost of funds in respect of various bank group remained in the range of 3.95% and 8.14% as at the end March 2009 and 3.60% and 7.17% as at end March 2010. State Bank group had the lowest return on advances for both the years. Foreign banks outperformed the entire bank groups as their return on advances adjusted to cost of funds stood at 8.14% and 7.17% as at end March 2009 and 2010 respectively.
Return on assets:
In respect of return on assets, while the foreign bank group scored well as compared with the other bank groups, State Bank group stood lowest even compared with old private sector banks.It is noteworthy to observe that while the new private sector banks increased their return on assets from 1.12% in March 2009 to 1.38% in March 2010, all other bank groups, including foreign banks, registered a decline on their return on assets.
Net NPAs
Barring the State Bank group, nationalised banks, and foreign banks, the other bank groups could show a reduction in their net NPAs during the period 2009-10. The benefit of restructuring of assets might have come to the rescue of banks to improve their NPAs position.(BL 25.10.2010)

Corporation Bank to focus on improving low-cost deposits

Corporation Bank is chanting the "you scratch my back and I'll scratch yours' mantra when it comes to extending credit to corporates. While sanctioning loans, the Bank will insist that corporates open salary accounts of at least one division or unit.
The Bank has hit upon this strategy to grow its current account savings account(CASA) deposits, which at 25 percent of total deposits is lower than the 35-40 percent prevalent among public sector banks.
For every large corporate loan that Corporation Bank sanctions- be it on a standlone basis or in consortium with other banks- the Bank will insist that salary accounts of that company's staff be opened with it. This way the bank hopes to tap CASA deposits. To improve the proportion of CASA deposits in the total deposits, the Bank plans to open 200 branches, mostly in the semi-urban and rural areas in the North, East and West, every year over the next 5 years.(BL 21.10.2010)

Canara Bank to invest in tech to attract the young

Canara Bank plans to invest significantly in technology with a view to wooing younger customers. Mr. S.Raman, CMD,Canara Bank advised that the Bank would invest as much as it requires to make the Bank the most technologycally advanced Bank. The Bank will also invest in recruiting specialities such as IT professionals and Chartered Accountants.The Bank will recruit 100 IT professionals, 100 Chartered Accountants, risk analysts and young people with technical skills, he added. There are also plans to appoint officers to exclusively work in rural branches. The Bank is also embarking on branch expansion plans, including a better ATM network. Canara Bank also plans opening branches in Africa,"possibly Nigeria, South Africa and Kenya", he added.(BL 21.10.2010)

State Bank raises base rate 10 bps to 7.60%

Striking a balance between wanting to attract more borrowers into its fold and the need to pass on the increased cost of mobilising resources, State Bank of India has nudged its base rate up by 10 basis points to 7.60 per cent. Simultaneously, India's largest lender increased its benchmark prime lending rate by 25 basis points to 12.50 per cent. Both the rate hikes are effective from October 21. By upping its base rate only marginally at a time when other banks have raised their rates by as much as 50 basis points, SBI clearly wants to attract borrowers from other banks into its fold, say analysts.Most public sector banks , including PNB, BOB, Union Bank of India and IDBI Bank have increased their rates from 8.00-8.25% to 8.50% after the RBI hiked key short term interest rates in September. Private sector banks such as ICICI Bank and Axis Bank have increased their base rate by 25 basis points to 7.75%. HDFC Bank has raised its base rate by 25 basis points to 7.50%. With interest rates on deposits of various maturities being marked up by 25-75 basis points over the last few weeks, analysts say the increased cost of mopping up liabilities will pinch banks.(BL 21.10.2010)

Microfinance rates can be cut if banks lower interest : Apex body

Microfinance institutions are ready to cut lending rates by as much as 2.50 percentage points provided banks reduce the cost of money for these institutions by a similar quantum, according to a senior official of the industry association of MFIS.
The 12-13% interest on loans taken from banks is the single biggest cost for MFIS and this presents them a challenge in bringing down lending rates, said Mr.Alok Prasad, CEO, Microfinance Institutions Network (MFIN), the apex industry body.
MFIN is a self-regulatory organisation representing the interests of MFIS that are registered as non-banking finance companies (NBFC-MFIS)with the RBI.Its members represent about 80% of total outstanding micro loans in the country.
MFIS are in the eye of the storm as negative perception has gained ground that they are creaming off profits by charging high interest rates on loans given to small borrowers and also for resorting to strong -arm tactics while making recoveries.
Recently, the Reserve Bank of India(RBI) has set up a committee to study the issues and concerns in the microfinance institutions (MFI) sector, including ways and means of making interest rates charged by them reasonable.
The RBI regulates only those MFIS that are registerted with it as non-banking finance companies.Although the registered companies cover over 80% of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIS in the country. The Central Bank, however, does not prescribe lending rates for these institutions. ( BL20.10.2010)

SBBJ plans rights issue

Mumbai: State Bank of Bikaner & Jaipur is planning to raise Rs.800 crore (inclusive of premium ) through a rights issue of shares.( BL 20.10.2010)

Crisil to develop index for financial inclusion

Rating agency Crisil is developing an index for financial inclusion, which will look into operational nature of "no-frills accounts". Mr.R. Gopalan, Secretary, Financial Services, MOF addressing a press conference at Chennai, after assessing the financial inclusion plans of South based- banks, said that Crisil would develop various indices, including the percentage of these accounts that are operational. The Crisil Index, a neutral index will be applied to evaluate public sector banks performance on financial inclusion. When asked about number of active "no-frills account", Mr. Gopalan said that the operational efficiency of these accounts vary from Bank to Bank. Corporation Bank has an operational efficiency close to 60% while other banks are much less but they are beefing up their technology to improve efficiency. Facilities to be provided for "no-frills account" will be deposits, withdrawals, remittances, account queries, in the next phase loan products micro insurance and micro pension will be offered.(BL 15.10.2010)

Risk rating determines our lending rate :PNB

" Technology advancements in banking operations not only make transactions cost effective but also easy and quick. Avail (yourself' of)internet facility, use technology,"urged the Field General Maneger(Chennai) of state-oriented Punjab National Bank, Mr. S. Ranganathan in a meeting with the selected customers at Tirupur.
His reminder and reiteration on use of technology was in response to a customer's request for slashing interest rates.
The bank had invited around 25 customers for a 'customer meet' on Thursday. When a customer raised the issue of rising borrowing cost, the banker said that PNB's Prime Lending Rate (PLR) was the lowest in the industry. They have since June switched to Base Rate.Due to inflationary pressures, the rate of interest on deposits has gone up and with it bank's cost of funds is also registering an increase. The Bank has a system of risk rating in place, based on which it determines the lending rate. The system is transparent .The rate would depend on the borrower's rating category and the rate difference the best and poorly rated units would be roughly around 3.5 percentage points. Low rating means higher interest, the banker said. He further stated that where the borrowing limits exceeded Rs 5 crore, the account was rated by an external rating agency as well. But the Bank does not go only by the external agency rating.(BL 09102010)

Banks' commission from Govt. business set to rise

Commission earned by banks on Government business are likely to rise with the Reserve Bank of India setting up a committee to review the existing payment structure. The structure is generally reviewed every five years. It was last reviewed in 2005. RBI has formed a committee under A M Pedgaonkar for the review.
Banks receive Rs. 60 per transaction in case of pension payments. For other payments, they get nine paise for every Rs.100. For receipts, they get Rs.45 per transaction. Bankers have made a case for increasing the commission to 15 paise per Rs.100 for payments other than pension and to Rs.100 per transaction in case of pension.
The country's largest lender, State Bank of India(SBI) has the major share in Government business. More than 7000 branches of SBI conduct Government business. As such, State Bank of India will be the biggest beneficiary.
Recently, the Central Bank asked State Governments not to engage private sector banks. The wide network of state-run banks, especially in rural and semi-urban areas, was seen as an effective means to carry out Government transactions.(BS 07.10.2010)

Southern Banks begin financial inclusion process in villages

South India- based banks such as Corporation Bank, Karnataka Bank have kickstarted the financial inclusion plan as envisaged by the Reserve Bank of India to provide financial services to the rural populations. Most of these financial institutions are also in the process of appointing business correspondents who will work as financial intermediates between banks and the rural people. The Corporation Bank has a plan to extend financial services in 212 villages by the end of this fiscal of which they have already covered around 80% of the villages as of now under financial inclusion plan, said the Executive Director, Corporation Bank. However, the Bank is yet to tie up with any "for-profit" or "not for-profit" organisation to act as business correspondents.
The Karnataka Bank plans to cover 75 villages under the financial inclusion plan in the present fiscal.
Under financial inclusion plan, banks will open no-frills accounts with service provisions like deposit, withdrawal, remittance payment, loan repayment among others excluding cheque services. Vijaya Bank has also recently started its financial inclusion plan from Mandya district of Karnataka.(BS 07.10.2010)

Banks against freeing savings account rate

Bankers, especially from the public sector, are against deregulation of savings bank (SB) deposit rates. At a pre-monetary policy review meeting with the Reserve Bank of India on 4th Oct.2010, they feared this would unleash unhealthy competition in garnering deposits .
At the meeting, called to gauge the views of select bank chiefs on credit and deposit growth, interest rates, deregulation of the SB rate, the non-performing assets situation and the transition from the Benchmark Prime Lending Rate to Base rate-linked lending regime, the bankers are believed to have told the RBI that deregulation of the SB rate could trigger volatility in the interest rate on these deposits.
Currently, the 3.50% interest rate on SB deposits serves as a floor rate for all deposits in the banking system. Once deregulated, the SB rates could fluctuate wildly, depending on the liquidity situation. If call money rates shoot up, SB rates would go up, and vice versa. So, whether the depositor will gain or lose, it will be difficult to assess. At least now there is a certainity that the depositor is earning 3.50 per cent interest daily on SB deposits, said a banker clued into the developments.
"Most banks are against the de-regulation of savings bank rate as they feel it would give rise to competition, and could hit the growth of Current Account, Savings Accounte deposits. Also, depositors have been compensated by the daily calculation of savings bank rate and the de-regulation would not serve any additional purpose", said Dr. K. Ramakrishnan, Chief Executive, Indian Banks' Association.(BL 05.10.2010)

More banks hike base rate

Bank of Baroda, ICICI Bank, HDFC Bank and Development Credit Bank on Tuesday hiked their base rates by upto 50 basis points. This comes close on the heels of PNB, IDBI Bank, Allahabad Bank and Axis Bank and a host of other banks increasing their base rates.
ICICI Bank hiked base rate by 25 basis points from 7.50 to 7.75 per cent. The Bank also hiked the interest rates on fixed deposits of various tenors by 25 to 50 basis points, it said in an announcement on the BSE.
Bank of Baroda hiked its base rate by 50 basis points to 8.50 per cent. The public sector bank said it is raising the rate in response to the Reserve Bank of India's sustained monetary tightening and to lower the impact on cost of funds.
HDFC Bank raised its base rate by 25 basis points to 7.50 per cent from 7.25 per cent. Andhra Bank increased the base rate from 8.25 to 8.50%. However, State Bank of India (SBI) is the lone exception. It has retained its base rate at 7.50 per cent.(BL 06.10.2010)

Companies offer more fixed income options for retail investors

Tight liquidity conditions are prompting more companies to raise public deposits from retail investors. Mutual fund houses, seeing an opportunity in the current regime of rising interest rates, are rolling out a slew of fixed maturity plans (FMPS). And topping this off, financial institutions such as IDFC, REC and Life Insurance Corporation are preparing to make public offers of 10-year "infrastructure" bonds which offer tax benefits. With their expansion plans taking off again, more Indian companies are tapping the fixed deposit market to raise funds from retail investors. Companies from the realty and infrastructure space with huge fund requirements such as Jaypee infratech, Jaiprakash Associates, Ansal Properties and Unitech have been inviting retail deposits at high interest rates starting from 10-10.50% for one year and go upto 11.50-12.50% for a three year term.(BL 04.10.2010)

SBT hikes rates on domestic, NRO deposits

State Bank of Travancore( SBT ) has revised interest rates on domestic and non-resident (ordinary) deposits with effect from 4th Oct.2010. Resident senior citizens will get an additional 0.50 per cent margin on deposits of Rs 5,000 and above for periods of one year and more, Chief Manager, Personal Banking Business Department,SBT said. (BL 04.10.2010)

Govt. may compensate banks on no-frills accounts expenses

The Finance Ministry is considering a proposal to compensate around " 50-60 per cent" of the expenses that banks incur on opening and maintaining each " no-frills account", sources in the banking industry said. Such an incentive may encourage banks to expedite the financial inclusion process,they said.
All banks were asked by the Reserve Bank of India in 2005 to offer no-frills accounts at their branches. These are accounts with nil or low minimum balances, limited facilities and nominal charges that encourage people from economically- weak background to open such accounts.
On an average, each bank incurs a total cost of about Rs. 250 for opening and maintaining such accounts in the opening year and lesser in the subsequent years or if the minimum balance in the account is substantial, the sources said. It is estimated that banks have opened over 50 million " no frills accounts" and these have an outstanding balance of over Rs.5400 crore.(BL 04.10.2010)

Honda Siel ties up with SBI

Honda Siel Cars India announced on Friday that it has entered into a finance programme with the country's largest lender, State Bank of India(SBI).Under the agreement, SBI has approved a line of credit for financing HSCI dealers under the Electronic Dealer Finance Scheme(e-DFS). HSCI and SBI already have a retail finance agreement, under which SBI provides automobile loans to Honda customers at competitive rates. According to Mr. Manas Kumar Nag, Chief General Manager, SME BU, Corporate Centre, Mumbai," This agreement will further give us the opportunity to provide our customers more value-added services at competitive rates, and expose them to our various offerings."(BL 02.10.2010)

SBI to pay more for deposits: holds base rate

From 1st Oct 2010, bank depositors will earn 15 to 75 basis points more interest on term deposits across various maturities, while borrowers will have to pay more as a host of banks have marked up interest rates.
State Bank of India has hiked interest rates on domestic term deposits by 25 to 75 basis points across various maturity buckets. While SBI has decided to hold its base rate at 7.50% "for the present",Punjab National Bank(PNB),IDBI Bank and Allahabad Bank have increased their base rates from 8% to 8.50%. Axis Bank too upped its base rate by 25 basis points to 7.75%.
With effect from July 1, banks moved to the transparent base rate- linked lending regime. Banks determine their actual lending rates on loans and advances with reference to the base rate (which is the minimum rate below which banks can not lend ) and by including other such customer-specific charges.
PNB and IDBI Bank have upped term deposit rates by 25-50 basis points and 15-50 basis points respectively across various maturities. Over the next few days, other banks are also expected to increase interest rates on term deposits and the base rate.(BL 1.10.2010)