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)