State Bank of India record 25% profit jump

Buoyed by a 45.4% surge in net interest income, State Bank of India, the country’s largest lender, beat expectations with a first quarter net profit of `2,914 crore — a growth of 25% over last year’s `2,330 crore. The better-than-expected results pushed the bank’s share price up 7% to a new high of `2,797.8. The Sensex which had dropped 155 points after disappointing IIP numbers was yanked out of the red by the SBI stock which rose `180.With the stock closing at `2,784, the bank’s marketcap gained over `11,000 crore to touch `1,76,750 crore, overtaking TCS to become the third-most valuable company in the country.“We expect a credit growth in the range of 21-22% for the current fiscal,” said bank chairman OP Bhatt.The quarterly results came on a day when the Rajya Sabha approved the State Bank of India (Amendment) Bill, paving the way for the government to lower its stake in the bank to 51% from 55%. Finance minister Pranab Mukherjee, however, indicated that the dilution of government stake would not be rushed through. “It is just an enabling provision and it does not mean that it is going to be implemented tomorrow,” he said replying to a debate on the Bill. The consolidated net profit of the group grew by 21.99% to `3,365.26 crore for the quarter, compared to `2,758.53 crore in the first quarter of 2009.SBI’s net interest income grew 45.4% to `7,304 crore at the end of the first quarter, bettering forecasts of `6,595 crore. The bank’s net interest margin was 3.18% as of end-June. “Net interest income is looking very good. Going forward, I think this growth should continue as, in a rising interest rate environment, SBI is best positioned in the sector,” Vaibhav Agrawal, an analyst at Angel Broking, told wire agencies.The state-owned bank reported a growth of 20.74% in its gross advances which went up by `1,14,035 crore. The bank’s market share in advances also increased to 16.55% ending June 30, as against 16.43% during the same period last year. The bank will now take a call on increasing the deposit and lending rates for existing borrowers. “We’ve announced the results, after which we’ll take a call,” said Mr Bhatt, adding, that there is an upward bias on both deposit and lending rates.Non-performing assets, or bad loans, of the bank, however, showed a steep rise with fresh slippages of `4,081 crore. Gross NPAs also increased 35% to `20,825 crore for the period ending June 30 as against `15,318 crore during the same period last fiscal. The bank attributed the growth in NPAs to classification of agriculture debt relief advances which stood at `354 crore. Net non-performing assets (NPAs) stood at 1.7% as against 1.55%, with the bank making provisions for NPAs at `1,733 crore in the quarter as against `1,344 crore in the previous corresponding quarter.“We will review deposit rates and benchmark prime lending rate and a hike would be a minimum of 25 basis points,” said Mr Bhatt. He said that deposit rates have almost bottomed out for the industry and there is definitely an upward bias as far as advances are concerned because of the way the RBI is managing the inflation and liquidity. The bank has a credit pipeline in excess of `50,000 crore.The bank is also looking to raise `20,000 crore from rights issue this fiscal. “Our preferred option is the rights issue. We’ll again initiate discussion with the government on whether they want to participate or not,” said Mr Bhatt, adding if rights issue does not happen, the bank will explore other options such as preferential issue and follow-on offer.

RBI hikes short term rates to tame inflation

The Reserve Bank today raised its short-term lending and borrowing rates by 0.25% and 0.50% respectively to bring inflation to 6% by March 2011 from double digits now, but the move would put pressure on banks' interest rates.
In its monetary review, the central bank, however, kept its cash reserve ratio (CRR), the cash which banks are required to keep with RBI, unchanged.The RBI raised upwards the inflation target from 5.5% to 6% and said that economy will grow by 8.5%, up from earlier projection of 8 per cent, this fiscal.The increase in short-term lending rate (repo) to 5.75% and short-term borrowing rate (reverse repo) to 4.5% will be effective immediately.Earlier this month, RBI had hiked repo and reverse repo rates by 0.25% as inflation remained above 10% for the fifth month in succession. Prior to this, RBI had raised thrice its key rates, since January."Inflationary pressures have exacerbated and become generalised with demand side pressures clearly visible…given the spread and persistence of inflation, demand-side inflationary pressures need to be contained," the RBI said.RBI's projection of a higher inflation than the earlier estimate could partly be attributed to the government's move of raising fuel prices.The central bank said there can be an up to 1% impact on WPI-inflation owing to fuel price hike.In June, the government raised petrol prices by Rs 3.5 a litre while decontrolling them and hiked diesel prices by Rs 2 a litre, LPG by Rs 35 a cylinder and kerosene by 3 a litre.The RBI said that the monetary policy stance would be aimed at containing inflation while it will be prepared to respond to any further build-up of inflationary pressures.Revising upwards the GDP target for this fiscal, the RBI said that indications are that the economy is steadily reverting to its pre-crisis growth trajectory.However, uncertainty over global recovery could have possible adverse consequences for India, the apex bank said.If the global recovery slows down, it will affect all emerging market economies, including India, through the usual exports, financing and confidence channels, the RBI said.A global slowdown also carries the significant risk of a potential slowdown in capital inflows, it said, adding that it may act as constraint to domestic investment.On liquidity pressures in the system due to payment for spectrum, the RBI said though current market conditions indicate that liquidity pressures will ease, the system is likely to remain in deficit mode "for now".In another significant move, the RBI said it will now undertake mid-quarter policy reviews, on the lines of major central banks abroad, "to take the surprise element out of the off-cycle actions."These reviews will be conducted at an interval of aboutone and a half months, after each quarterly review, the central bank said.

Indian rupee to have a distinct symbol

The Indian rupee will have its own symbol, a mix of the Devanagri 'Ra' and Roman 'R', to become the fifth currency in the world to have a distinct identity.
The new symbol, designed by IIT post-graduate D Uday Kumar was approved by the Union Cabinet today.The rupee will join the elite club of US dollar, British pound-sterling, Euro and Japanese yen to have its own symbol.The symbol will be printed or embossed on currency notes or coins, information and broadcasting minister Amnika Soni told reporters after the Cabinet meeting.Kumar's entry was chosen from among 3,000 designs competing for the currency symbol. He will get an award of Rs2.5 lakhs.She said the government will try that the symbol is adopted within six months in the country and globally within 18 to 24 months.The symbol will feature on computer key boards and softwares so that it can be printed and displayed electronicaally and print, she said.Soni said it would also help in distinguishing the Indian currency from rupee or rupiah of countries like Pakistan, Nepal, Sri Lanka and Indonesia.

SBI sets base rate at 7.5% per annum

State Bank of India, the country’s largest lender, has set base rate at 7.5% per annum. The base rate would be effective from July 1.SBI'srate is key as all banks would factor that in while setting their own rates.As per the new norms, existing customers will have to migrate to the base rate when their loan contract comes up for renewal. The new rule does not apply to finance companies, including mortgage firms such as Housing Development Finance Corp. They may continue with the PLR mechanism while charging interest rates.SBI can well afford to do this since it has access to a big chunk of relatively low-cost deposits, thanks to its pan-India footprint.
In a bid to end the practice of retailers and small enterprises subsiding large companies, the Reserve Bank of India has mandated that all banks arrive at a base rate for lending, below which no loans can be extended. Once this rule comes into force on July 1, large corporates, which benefited from so-called sub-prime lending rate (PLR) lending, will have to pay at least the base rate.Most state-run banks may fix their base rate between 8% and 9% since their cost of funds does not vary significantly, unlike the private banks. For India’s top private lenders, the challenge will now be to fix the base rate close to SBI or even lower if they have to woo blue chip corporates that are used to shopping around for bargain rates.

Cyber Terrosism will affect major financial markets

Internet is increasingly seen as the Wild Wild West (www) and a virtual world of lawlessness in the US. Under Obama’s new Cyber Security
policy, India will be an active partner in combating cyber terrorism, says cyber security expert Clifford Gregory, also senior VP (security solutions), IonIdea, an Indian outsourcing firm. He spent over quarter century in the US Military developing cyber security programmes for the Senate and White House, apart from working for the FBI, Metropolitan Police, US Secret Service, and other Federal and security agencies.
Each malware attack costs a company $70K, while lost or stolen hardware costs amounts to $300K. Spear Phishing (specific target) costs $500K, damage by disgruntled employees cost a neat one million each, resulting in a $5 million tag when you destroy a brand. These cost figures are averages. If your company is dependent on data regarding customers, the loss could be multiplied.An assessment done in major bank having global operations of 1,600 large Indian companies including BPOs. Three major weaknesses were noticed. One is access control specifically knowing the person logged onto the system with access to customer data was the person who was authorised to do so and it was that companies should adopt either multi-factor authentication or direct observation via CCTV to provide this level of assurance. Two, was in the area of information transit. Some vendors made great efforts to protect data within their networks, but simply did not consider what might happen while the information was in transit. The third gap was in data leakage private or non-public personal information that is sent via email or other means, especially as part of a call center process or part of the software development testing process.India is one of US’s greatest allies, in combating cyber terrorism, and the opportunity could only get bigger. Any attack which may be directed against Wall Street, the effect would be felt in every major financial markets in the world.China has a single point of entry to the internet from outside their country as a defensive measure against cyberwar and this might be true one day for other nations too.

Bank can close account for want of PAN card details: Court

A bank is justified in closing the account of a customer who fails to provide permanent account number (PAN) card details, Delhi's top consumer court has said.Refusing to grant any relief to the customer whose account was closed by the HDFC Bank for want of PAN card details, Delhi State Consumer Disputes Redressal Commission's President B.A. Zaidi said: "The HDFC bank cannot be faulted for its attitude in closing the account in the circumstances." The commission was hearing an appeal filed by Ramesh Chand, who contended that he suffered due to incomplete financial transactions as the bank had closed the account without his consent.The commission, in a recent order, also held that the bank was not guilty of deficiency in service as it had offered to the complainant the facilities of its direct banking channels for utility payments, cash deposits, withdrawals and fund transfers as an alternative.Chand had approached the commission seeking directions to the bank to reopen the account.The commission also agreed with the observations of a district consumer forum which had noted that the bank intimated Chand about closing of the account in view of the high volume transactions which were not proportionate to the business conducted through the bank.Earlier, the bank had contended that as per the Reserve Bank of India guidelines on anti-money laundering it had conducted a review of all the accounts and observed that the volume of transactions in the account of the complainant with respect to cash withdrawal or deposits, and cheque deposits was very high and were not commensurate with the business conducted with it.

Mobile banking vulnerable to laundering: RBI

Reserve Bank Governor D Subbarao on Friday said mobile banking should be driven by banks, not telecom operators, considering money laundering and terror financing threats."The Reserve Bank has a clear preference for the bank-led model," RBI Governor D Subbarao said at a Banking Technology Excellence awards function hosted by the Institute for Development and Research in Banking Technology (IDRBT)."Given the growing concerns about money laundering and financing of terrorism, a bank-led model is decidedly safer and more sustainable," he said, adding, however, that a mobile operator-led model helps accelerate financial inclusion.Subbarao also said the central bank wants financial inclusion to be more than just a remittance facility, which is only possible through banks."We want our customers to get minimum services like deposit insurance, access to affordable credit and the payment system which only banks can offer," he said.However, the governor said that the RBI recognises that mobile telephony has an important role in the value chain and that it is keen that mobile service providers collaborate with banks to provide value-added services.Speaking on the use of technology in banking, he said protection of customer information and confidentiality is on his priority list as there are growing concerns about the increase in cyber crimes, phishing-related frauds, identity fraud and misuse of customer information."We proposed to set up a working group on information security, electronic banking, technology risk management and tackling of cyber frauds," Subbarao said.Further, the statistics about financial inclusion do not convey the true picture of the situation, he said.
"Even where bank accounts are claimed to have opened, verification has shown that a significant portion of these accounts are dormant. Very few conduct any banking transactions and even fewer receive any credit," he explained.RBI has asked all domestic commercial banks, public and private, to prepare their own financial inclusion plan.

Banks may hike deposit rates

With the liquidity in the system gradually drying up, banks may jack up deposit rates to mobilise funds.United Bank of India has already hiked its deposit rates by 25-50 basis points effective Wednesday, while the other Kolkata-based banks are planning to adopt a ‘wait and watch' approach for now.United Bank of India has increased interest rates on domestic retail term deposits, below Rs 1 crore by 25 basis points to 6.75 per cent per annum from 6.50 per cent a year in the time bucket of one year-to-less than two years.For the five years and above, the interest rates have been increased to 7.50 per cent from 7.25 per cent at present.
UCO Bank might not go for an immediate hike in interest rates, according to its Chairman and Managing Director, Mr S K Goel. “Deposit rates are primarily market-driven. We are watching the situation and will take a call on it at our ALCO (Asset Liability Committee) meeting likely to be held on June 30,” Mr Goel told Business Line.“We are currently comfortable on the liquidity position, but going forward we have to see how the credit picks up. Our ALCO will take a call on this soon,” said Mr J.P. Dua, CMD, Allahabad Bank.

RBI favours deregulating savings rate

The Reserve Bank of India is in favour of deregulating savings bank deposit rates of banks, Reserve Bank of India Deputy Governor, K.C. Chakrabarty said on Thursday.
"We have initiated a debate in the last policy..., the deduction is very clear, clear in favour of deregulating all interest rates, including savings bank. But the decision will be taken, when to do that, after having adequate debate on the issue," Chakrabarty said on the sidelines of a banking event.He does not expect the savings bank rate to move in a wide range after the deregulation. "This is a highly competitive market. Prices do not vary much. But what will be the rate, what customers will get, will depend on market conditions," he added. The savings bank rate is at 3.5 per cent and is the only administered rate in the banking system now. The banks offer this rate to the savings bank customers, which form a major part of their low-cost deposit base.The Reserve Bank of India has started to deregulate administered interest rate from 1991 as a part of financial reforms.

Banks see base rate hovering around 8-9%

Most public sector banks on Monday said they will keep the base rate at around 8%. Significantly, banks are moving towards a base rate system
for benchmarking interest rate, replacing the prime lending rate system. The new regime will start from July.SBI chairman OP Bhatt said his bank would keep the base rate between 7.5% and 8.5% while Punjab National Bank CMD KR Kamath said it would be hover around 8-8.5%.Even as banks change the benchmark rate, the effective rate of interest to existing borrowers will not change. It will be merely an adjustment of the rate structure. Indian Overseas Bank chief SA Bhat said the rate will be 8-9% in his bank. “The cost of deposits of most banks is around 5.75-to-6.75%. So, it is no wonder the base rate would be 8-9% for most banks,” Mr Bhat told ET.Canara Bank chief AC Mahajan said the rate will be around 8-8.5%. Union Bank of India chief MV Nair offered a more narrow band of 8-8.25%. Nevertheless, private banks are likely to keep the base rate lower than their public sector peers. Yes Bank MD & CEO Rana Kapoor said last week in Kolkata that private banks are likely to keep the base rate comparatively lower.In the base rate guidelines, RBI told banks to take into account factors like cost of deposits and average return on net worth for base rate calculation. Banks can change the methodology within six months.

Govt. Approval for implementation of 9th Bipartite Settlement

Govt. Approval for implementation of 9th Bipartite Settlement has been received and IBA is expected to issue detailed guidelines in this regard. As regards the various formalities in relation to the 2nd Option on Pension, as well as the Notification etc., further detailed instructions from the IBA are awaited.

Bankers to meet today for base rate consensus

MUMBAI: CEOs of large commercial banks will meet on Friday to arrive at some consensus on the base rate — the new system of charging interest rate on loans. Base rate is the rate, below which no bank can lend to its customers and is aimed at bringing transparency in the system.
RBI has asked banks to replace prime lending rate with base rate from July 1. At the same time, the banking regulator has given banks discretion to decide on parameters to arrive at the bank rate. While some banks may choose to peg base rate on one-year deposits, another bank may choose to peg on overnight call money rates. As a result, bank rate may vary widely from one bank to another.
So far, even as most banks have pegged their PLR in the range of 11-12.75%, bulk of the loan is disbursed at rates below the PLR — popularly known as sub-PLR. Nearly 70% of the loan is at sub-PLR rates. Now that no bank can lend below base rate, some government-owned banks are worried that private banks and foreign banks may peg their base rate very low to capture business. This is because several top-rated corporates, especially oil companies, have been borrowing for one month to three month at rates ranging from 6.5% to 7.5%.
According to a CEO of large bank, “PSU banks do not want to lose lending opportunities. They are worried that if they keep the base rate higher, they may lose business to private banks while if they keep the rate too low, they may have to take a hit on their margins. It’s a Catch-22 situation. But if major banks take a uniform decision on base rate, they could match competition to some extent.”
The meeting of bank chiefs has been initiated by State Bank of India as it will be held at SBI headquarters in Mumbai. In a media briefing, sometime in February, SBI chairman OP Bhatt had indicated that the base rate would be around 8%.
The draft report on base rate, headed by Deepak Mohanti, executive director of RBI, had suggested that banks could arrive at base rate, taking into account one-year deposit to calculate base rate. However, in the final report, RBI said each bank is free to choose any deposit to arrive at the base rate or they can have their own formula to arrive at it.

Seven Banks to get new Chiefs

The Government has cleared the decks for appointing new chiefs for seven public sector banks, including Canara Bank, Corporation Bank, UCO Bank, and Indian Overseas Bank.
With the top slots at most of these banks falling vacant over the next few months, the Government appears to have expedited the appointment process.
Mr S. Raman, Executive Director (ED), Union Bank of India, will assume charge as the Chairman and Managing Director (CMD) of Canara Bank. Mr M. Narendra, ED, Bank of India, will move to Indian Overseas Bank as CMD.
Mr Ramnath Pradeep, ED, Central Bank of India, will head Corporation Bank and Mr Arun Kaul, ED, Central Bank of India, will be at the helm of UCO Bank.
Mr R. Ramachandran, ED, Syndicate Bank, will assume charge as CMD of Andhra Bank. Mr H.S.U. Kamath, ED, Canara Bank, will move to Vijaya Bank as CMD.
Mr Nagesh Pydah, ED, Punjab National Bank, will move to Oriental Bank of Commerce.
According to Mr N. Shankar, Workmen Director, Union Bank of India, 54 per cent of the experienced workforce, right from clerical staff up to the general manager level will retire from public sector banks in the coming three years. The recruitment and promotion process needs to be expedited to fill the void created by the superannuation of experienced bankers, he said.

Blogger Buzz: Blogger integrates with Amazon Associates

Blogger Buzz: Blogger integrates with Amazon Associates

SBI Q4 net down 32% at Rs 1.8K crore

KOLKATA: The country’s largest bank, State Bank of India (SBI), reported a 32% decline in its fourth-quarter net profit due to higher provisions for bad loans and a sharp increase in wage expenses even as it recorded a 38% jump in net interest income. The bank has proposed a 200% final dividend (Rs 20 per equity share) for 2009-10. It had earlier announced an interim dividend of Rs 10 per share.
Net profit for the quarter ended March 2010 stood at Rs 1,867 crore against Rs 2,742 crore in the year-ago period. SBI will have to make a provision of Rs 1,800 crore towards bad loans during the quarter as it booked fresh slippages worth Rs 674 crore. Fresh slippages for the entire fiscal stood at Rs 11,843 crore. The bank, however, improved its NPA provision coverage to 59.23% from 56.98% a year ago.
The results were below analyst expectations. A Reuters poll of analysts had forecast a 3% rise in net profit to Rs 2,822 crore on net interest income of Rs 6,486 crore. The bank’s share price fell 4% to close at Rs 2,222 on the Bombay Stock Exchange on Friday. Although the quarterly net profit dipped, the bank’s core parameters are doing quite well. It has provided aggressively for non-performing assets (NPAs), which will strengthen fundamentals.Bank to improve performance in next 2 years.The bank is expected to improve its performance in the next two years, said Vaibhav Agrawal, a banking analyst with Angel Broking. SBI’s net interest margin (NIM) improved to 2.66% as on March 2010 from 2.30% a year ago and its chairman OP Bhatt expects NIM to improve further as it focuses on low-cost current and savings bank deposits. Its total income grew to Rs 22,474 crore (Rs 22,061 crore).Mr Bhatt attributed the dip in profit to a variety of reasons, including a liquidity overhang in the bank, additional provisioning towards pension payment and NPAs, and a fall in treasury income. Yet, the country’s largest bank aims to grow its lending by 21-22%. “We do expect a higher growth rate in future as some of our loan products are doing well and our new marketing strategy (has) started paying off,” he said on Friday. The bank has a capital adequacy ratio of 13.39% to leverage for lending growth. “We still have enough capital but will look to raise Rs 15,000-20,000 crore via equity this fiscal without diluting the government’s share from 59%,” Mr Bhatt said. It is discussing the possibility of a rights issue with the government to this end.But, at present, what bothers SBI the most is its idle cash pile of around Rs 40,000 crore. The bank plans to go slow on deposit mobilisation till June-July this year to correct the situation. For the full financial year 2009-10, the bank reported a net profit of Rs 9,166 crore, almost flat compared with Rs 9,121 crore in 2008-09. Total income for the year rose to Rs 85,962 crore (Rs 76,479 crore).The bank has crossed a business mix of Rs 14,45,596 crore, including advances of Rs 6,41,480 crore and deposits of Rs 8,04,116 crore. Its market share in advances improved to 16.28% as on March 31, 2010, from 15.99% a year back. Its share in deposits, however, fell to 16.31% from 17.70% a year ago. SBI’s gross NPA ratio as on March 31 deteriorated to 3.05% from 2.86% because of fresh slippages but net NPA improved marginally to 1.72% (1.79%) as it made higher provision.

Rising dollar catches banks on wrong foot

Greek woes forced bankers in London and Singapore to stay back in their offices on Friday, as they scrambled for dollars and tried to sort out their positions, while in Mumbai, the Euro zone mess scotched all hopes of banks, which till mid-last week were certain they would make a killing in the currency market.
Most foreign banks in India had built large short positions on the dollar, as they counted on the rupee to rise amid foreign inflows and good growth numbers. But their bets backfired, almost overnight, as the US currency surged.
“Strange that few saw it coming. The first shock came on Wednesday, when the rupee slipped 32 paise, and stop losses were triggered. Still, some traders felt it would bounce back. By Friday, they knew it was over. Many foreign banks have taken hits,” said the treasurer of a European bank.
Bankers and corporate treasurers are keeping a close watch on the twists and turns in the local money and currency market. Indeed, a few corporates have taken the bet that the dollar’s rise may not be sustainable. A large oil company is learnt to have entered into a derivatives deal to convert a slice of its rupee borrowing into dollar. “There is also a report that a cement firm has also done a similar deal. These players are of the belief that it will pay off in the long run,” said a trader with a large private bank.
The EU’s efforts to ring-fence Greece’s debt problems may soften the credit-default swaps and stabilise the currency market a little and dispel fears of a possible dollar shortage in international markets, but it’s unlikely to alter the course of the currency market or the views. “How markets open after Sunday’s EU meeting is important,” said a trader.
Banks in India were taking positions in the rupee-dollar market through their usual method, where they buy dollar today in the spot market and sell the dollar at value tomorrow to another bank, and the next day they repeat the transaction to roll over the short position.
“It’s nothing unusual for banks getting caught on the wrong foot. What’s important is the view they take from here,” said a banker. Banks were almost taking a structural view on the rupee to gain, something that was strengthened by a flurry of reports on China revaluing its currency. This lead to anticipation that the rupee, along with other Asian currencies, would rise, and foreign portfolio managers were banking on this to pump in more money into emerging markets with appreciating currencies.
In the local market, bond yields are down, with traders betting that interest rate may not rise as quickly as was earlier expected. Overnight swap rates, used to hedge interest rate risk, have come off, and so the Mifor swap rate that banks use to hedge cross-currency risks has fallen unusually.
The Mifor, or the Mumbai Inter-bank Forward Offer Rate, is down as much as one percentage point since April 27, and this is partly explained by the shallow market and the fall in dollar-forward premium.
A lower Mifor would mean a lower hedging cost. “Some corporates may try to borrow in dollar and hedge in rupee. But getting dollar funding may not be easy, unless things stabilise. European banks and institutions have dollar commitments and there is demand from them,” said a derivatives trader.
The currency market may stay choppy for the next two weeks. “Attempts to stabilise the market and resolve the Greece crisis could give a false relief, and a rally could later turn into broad-based selling,” said the head of forex trading at a foreign bank. What he meant was that any signs of dollar easing could be misleading and make some believe that the crisis is over.
Source :- The Economic Times

Currency carry trade could spark next global crisis: UNCTAD

GENEVA: A top UN economist warned on Thursday that so-called carry trades -- a form of speculation on the currency markets -- could sink the global economy back into crisis.
"If you asked me what is the most serious problem in the world now, I would say it's carry trade," said Heiner Flassbeck, chief economist at the UN Conference on Trade and Development.
Carry trade involves borrowing in a currency that levies low interest rates, to invest in another which yields higher interest rates. The investor makes a profit from the difference in interest rates.
With currencies across the developed world, such as the US dollar and the Japanese yen all levying low interest rates at the moment, carry traders are borrowing these currencies and investing in those of emerging economies, such as India, which is paying higher interest rates.
"This dramatically destabilises economies, because (capital) goes from low interest rate countries which are low inflation countries or deflation countries to high inflation countries and appreciates the currency higher," said Flassbeck at a press conference in Geneva.
"That is clearly a destabilising effect for global trade and has always been a danger of collapse of this trade later," he added.
"It has two big dangers -- destabilising and having the potential to bringing the world back into a financial crisis again," he warned.
The dangers of carry trade was raised by China's deputy central bank chief in January. During the World Economic Forum in Davos, Zhu Min had warned that carry trade was a "real risk this year for the economy."
Flassbeck also called on governments to take firm action to stop the markets from speculating on the euro, which is under pressure as investors bet that the currency would be weakened by the Greek crisis and other indebted eurozone states.
"I very much hope that the international community... is able to stop that speculation at a certain point of time because that would clearly contradict all the attempts to balance or to reduce the imbalances that we have in the global trading system," he said.
He pointed out that driving down the euro would also hurt economies such as the United States, which could see its strategy of raising exports thwarted if the dollar were to appreciate sharply.

26/11 case: Ajmal Kasab sentenced to death on 5 counts

Mumbai: Pakistani gunman Ajmal Amir Kasab was today sentenced to death by a special court for the Mumbai terror attacks, three days after he was pronounced guilty of mass murder and waging war against the Indian state. The special anti-terror court of ML Tahaliyani handed down death to 22-year-old Kasab, the lone surviving 26/11 gunman, a year after the trial in the brazen attacks commenced. Kasab was given death penalty on five counts including waging war against the nation, murder, criminal conspiracy and committing terror activities.
Asserting that Kasab's role in the attacks that traumatised the nation fell under the rarest of rare category for giving death sentence, public prosecutor Ujjwal Nikam had on Tuesday branded him as "a Pakistani killing machine" and a "heartless monster" who revelled in seeing innocent people dying in pain.

Nifty drags below 5100

Indices extended overnight losses on Wednesday as concerns of European economic crisis hurt sentiments in global markets. All the sectoral indices, barring defensives like pharma and FMCG, were in the red. The worst hit were high-beta sectors like metals and realty space.

All Ulips, pension products to now come with life cover

The insurance watchdog IRDA has made it mandatory for insurance companies to provide life cover for all Unit Linked Insurance Plans (Ulips), including pension products. These companies cannot sell pension products on a unit linked platform without a life cover. The tightening of rules is seen as a fallout of the spat between the capital markets regulator Sebi and Irda over the regulation of Ulips, one of the hottest investment products in a bull run. Last month, Sebi barred 14 insurers from selling these products without its approval. The ban was, however, lifted after the government’s intervention. The turf war over the jurisdiction of Ulips will now be resolved by courts.

INCREASE IN DEARNESS ALLOWANCE FOR MAY, JUNE, JULY, 2010

The CPI announced for the months of October, November and December are as follows:-
Month CPI
Jan 2010 3926
February 2010 3880
March 3880

Thus, there will be increase of 19 slabs as per the revised pay scales and DA for the months of May, June, July, 2010 will be 39.60%. We give below the new DA effective from May, 2010 (as per revised pay scales).
DA For DA for earlier Increase in DA
May,June,July 2010 Feb,Mar,Apr, 2010
Stage Scale Basic Pay 39.60% 36.75% 2.85%
DA Amount Payable DA Amount Payable DA Amount Payable
1 I,II,III 14500 5742.00 5328.75 413.25
2 I,II,III 15100 5979.60 5549.25 430.35
3 I,II,III 15700 6217.20 5769.75 447.45
4 I,II,III 16300 6454.80 5990.25 464.55
5 I,II,III 16900 6692.40 6210.75 481.65
6 I,II,III 17500 6930.00 6431.25 498.75
7 I,II,III 18100 7167.60 6651.75 515.85
8 I,II,III 18700 7405.20 6872.25 532.95
9 I,II,III 19400 7682.40 7129.50 552.90
10 I,II,III 20100 7959.60 7386.75 572.85
11 I,II,III 20900 8276.40 7680.75 595.65
12 I,II,III 21700 8593.20 7974.75 618.45
13 I,II,III 22500 8910.00 8268.75 641.25
14 I,II,III 23300 9226.80 8562.75 664.05
15 I,II,III 24100 9543.60 8856.75 686.85
16 I,II,III 24900 9860.40 9150.75 709.65
17 I,II,III 25700 10177.20 9444.75 732.45
18 I,II,III 26500 10494.00 9738.75 755.25
19 I,II,III 27300 10810.80 10032.75 778.05
20 I,II,III 28100 11127.60 10326.75 800.85
21 I,II,III 28900 11444.40 10620.75 823.65
22 I,II,III 29700 11761.20 10914.75 846.45
23 I,II,III 30600 12117.60 11245.50 872.10
24 I,II,III 31500 12474.00 11576.25 897.75
25 I,II,III 32400 12830.40 11907.00 923.40
26 I,II,III 33300 13186.80 12237.75 949.05
27 I,II,III 34200 13543.20 12568.50 974.70
28 I,II,III 35100 13899.60 12899.25 1000.35
1 IV 30600 12117.60 11245.50 872.10
2 IV 31500 12474.00 11576.25 897.75
3 IV 32400 12830.40 11907.00 923.40
4 IV 33300 13186.80 12237.75 949.05
5 IV 34200 13543.20 12568.50 974.70
6 IV 35200 13939.20 12936.00 1003.20
7 IV 36200 14335.20 13303.50 1031.70
1 V 36200 14335.20 13303.50 1031.70
2 V 37200 14731.20 13671.00 1060.20
3 V 38200 15127.20 14038.50 1088.70
4 V 39300 15562.80 14442.75 1120.05
5 V 40400 15998.40 14847.00 1151.40
1 VI 42000 16632.00 15435.00 1197.00
2 VI 43200 17107.20 15876.00 1231.20
3 VI 44400 17582.40 16317.00 1265.40
4 VI 45600 18057.60 16758.00 1299.60
5 VI 46800 18532.80 17199.00 1333.80
1 VII 46800 18532.80 17199.00 1333.80
2 VII 48100 19047.60 17676.75 1370.85
3 VII 49400 19562.40 18154.50 1407.90
4 VII 50700 20077.20 18632.25 1444.95
5 VII 52000 20592.00 19110.00 1482.00

9TH bipartite salary revision agreement signed

Historic 9th  bipartite salary revision agreement signed today ,effective date 01/11/2007.

Due to court cases filed in the Hon’ble High Court of Andhra Pradesh,there were certain difficulties which was on account of the sharing of the pension cost by the existing workforce .  The IBA after obtaining the legal opinion advised the convener of UFBU that the contribution towards Pension Fund out of the arrears can be recovered only from the PF Optees who wish to avail the 2^nd Option on Pension and not from those who are already become Pension Optees.  There was a hectic discussion amongst all the constituents of UFBU and after threadbare discussions, UFBU unanimously decided to accept the stand of IBA and proceed with the agreement.

Meeting of UFBU ledears with Finance Minister

We reproduce below circular issued by AIBOC regarding the meeting of  UFBU leaders with FM on 21/04/2010.

"Members are aware that the date of effect of Pension to CPF Optees was not resolved at IBA level, hence, UFBU requested for intervention of Hon’ble Minister of Finance, Govt. of India.  Accordingly, leaders of UFBU met Hon’ble Finance Minister on 21.04.2010 at New Delhi and forcefully presented the views of the UFBU on the effective date of Pension to CPF optees, from 1^st April 2008, as additional cost required for 2^nd Option on Pension was assessed by the common Actuaries based on the details made available as on 31.03.2008. 

2.       But the Hon’ble Finance Minister did not agree with the argument as IBA was of the view that, Pension has to be effective from the date of signing the final settlement on Pension. However, he suggested that, effective date may be from the date of signing the MoU i.e. 27^th November, 2009. 

3.       The UFBU will meet on 26^th April, 2010 at Mumbai, to take a final view of the issue connected with pension, new pension scheme, outsourcing etc.

4.       The IBA has called for a meeting with the UFBU on 27^th April, 2010, at Mumbai, with a view to sign the final settlement on Pension and Salary revision.  We shall advise the further developments later.

Source -  AIBOC Website

RBI hikes repo, reverse repo rates & CRR by 25 bps

MUMBAI: The Reserve Bank of India on Tuesday raised key interest rates by 25 basis points, as expected, tightening policy for the second month in aLive Credit Policy Analysis row as inflation heads towards double digits. The Reserve Bank of India also raised its cash reserve ratio (CRR) requirement for banks by 25 basis points, as expected, in a move to drain further liquidity from the financial system. The hike in CRR will suck out Rs 12,500 crore from the banking system. The CRR increase will come into effect from April 24. India last month became the second Group of 20 economy after Australia, to raise policy interest rates as the world economy recovers from it worst downturn in decades. The central bank surprised markets by raising rates by 25 basis points ahead of this month's scheduled quarterly policy review. Asia's third-largest economy is set to grow at 8.5 percent in the current financial year and 9 percent the following year, and inflation is spreading beyond food to fuel and manufactured goods such as cars. March annual inflation reached 9.9 percent, its highest in 17 months. The central bank lifted the reverse repo rate, at which it absorbs excess cash from the banking system, by 25 basis points to 3.75 percent. It increased the repo rate, at which it lends to banks, by 25 basis points to 5.25 percent. It raised the reserve requirement for banks by 25 basis points to 6.00 percent. "With the recovery now firmly in place, we need to move in a calibrated manner in the direction of normalising our policy instruments," RBI Gov. Duvvuri Subbarao said in the policy statement. Malaysia and China are among the developing nations that have begun to use monetary tools to cool their economies. India also raised policy rates unexpectedly on March 19 by 25 basis points as food price increases spilled over to manufacturing that could set off an inflationary spiral. Industrial output has risen more than 15% for three straight months, wholesale price inflation is at 9.9%, much above the central bank’s raised target of 8.5%, and loan demand is rising, indicating acceleration in economic growth. That has prompted many to forecast a 9% economic expansion this fiscal.

Five insurance policies everyone must have

Insurance is the best known form of financial protection to guard against major uncertainties or vagaries of nature.However, while it pays to be smart about insuring your family and your valuables, it is even wiser to make out which policies are truly worthwhile and which ones are redundant, particularly in such times when you can get insurance for everything, including liability, wedding and your pet. You, therefore, need to know that while each cover has its own benefits, not all of them are needed in normal circumstances. Thus, the insurance that’s worth it typically covers your life, your health, your earning power or the assets you’ve accumulated during your lifetime. Primarily the five main types of insurance everyone should take into account are:

1) Personal Accident Cover

Personal accident cover basically covers the risk of accidental death and permanent total disablement, and is a good choice to supplement a life insurance policy. The best part of it is that it is the cheapest cover for self protection and can be taken even by those whose income is low or cannot qualify for life insurance due to medical issues. Personal accident cover is also recommended in the early stages of life when one has just started his/her career.“Persons below the age of 40 have a bigger risk from death and disability due to an accident compared to any other risk. Disability for a young person can be a bigger tragedy than death. Personal accident insurance provides an extremely low cost option of covering this risk,” says Rahul Aggarwal, CEO, Optima Insurance Brokers.

2) Health Insurance

With healthcare becoming increasingly expensive the world over, health insurance has become a must today. If you are covered under health insurance provided by your employer, there is nothing like that as that usually comes free.If not, you should try to get a health cover for yourself as well as for the members of your family. If you can’t afford specialized health insurance, at least try to take a basic hospitalisation cover which will function as the security blanket for your family against treatment of any sudden illness or injury. Since basic covers cost less, you can save some money on their premiums.“The coverage, however, should take into consideration the health care costs in your city/town. Normally, a sum insured of Rs 2 or 3 lakh would be required. If the customer chooses to, he/she can take a higher cover also, depending on his/her needs.

3) Critical Illness Cover

By opting for this cover, you can insure yourself against the risk of serious illness in much the same way as you insure your car and your house. Under this cover, a guaranteed cash sum is paid if the unexpected happens and someone is diagnosed with a critical illness such as cancer, stroke and kidney failure.The benefit amount is payable once the disease is diagnosed meeting specific criteria and the insured survives 30 days after the diagnosis. This is, in fact, a very important cover for persons who have crossed 45 years of age.

“Although a health insurance policy covers hospitalization expenses, critical illness involves a lot of expenditure even when the person is not hospitalized. Expensive medicines and diagnostic tests, regular doctor visits, special diets etc. add up to a lot of money. A critical illness policy provides financial stability by providing upfront money to the insured for all the treatment.

4) Term Insurance

Once a person crosses 35 years of age, the risk of diseases and ailments starts increasing. The person also becomes more prone to lifestyle diseases.Now it is not uncommon to hear of persons who have died of a heart attack at the age of 30 or 35. Hence it becomes important to cover the risk of death due to reasons other than accident. Term insurance is a no-frills, low-cost option to secure financial security for the family, and therefore should preferably be there in everyone’s insurance portfolio.

“Every human being has a quantifiable economic value for his dependents. Any amount of loan that a person has taken gets added to this value. Protection of this economic value is very important, especially in India which does not have a strong social security net. A term insurance is the cheapest way to cover oneself for one’s Human Life Value (HLV).
5) Home Insurance

Your home is not just your most valuable asset, it’s your safe haven from the world outside. However, while your home cocoons you and your family, it’s your responsibility to see that nothing untoward happens to the building and its contents. Therefore, insuring your home is as essential as ensuring that it has strong foundations.A home insurance policy, also known as householders’ insurance, is the best bet to safeguard your house because “it not only covers the structure of your home but also all its valuable contents from different kinds of perils such as earthquake, fire, terrorism, flood, burglary and house-breaking,” .Also, weather has become very unpredictable and vicious in the last one decade. The unpredictability of weather, its extremes and increasing crimes in urban areas are reason enough to take this policy.

Source;- The Economic Times

UFBU Circular No.3 dated 13th April, 2010

Text of UFBU Circular No.3 dated 13th April, 2010.

Another round of bipartite talks was held between IBA and UFBU constituents at Mumbai today. IBA was represented by Mr. Ramakrishnan, Chief Executive, Mr. Unnikrishnan, Dy. Chief Executive and Mr. M. Venugopalan, Officer on Special Duty. From UFBU, representatives of all the 9 Unions were present.

In today’s meeting, issues relating to settlement on pension option were taken up. The draft Settlement was discussed in details and finalized.

Regarding retirees, the formula for contribution of Rs. 934 crores ( 30% gap ) of the deficit after refund of the PF amount (Bank’s contribution), it has been decided that the retirees will contribute as under:

Refund of PF amount (Bank’s contribution) actually received at the time of retirement (no interest is payable on this amount) - Rs. X

Plus: 56 % on this amount of Rs. X - Rs. Y

Less: Commutation amount Receivable from the Bank - Rs. Z

Net Amount refundable to the Bank ( X+Y - Z ) Rs ...

Regarding existing employees / officers, out of the net gap of Rs. 6000 crores, Banks would contribute 70 % i.e. Rs. 4200 crores. For the balance of Rs. 1800 crores ( 30%) employees / officers would contribute as under: ( This will be a onetime contribution and would be recovered from the arrears.)

For existing employees/officers - 1.6 times of “ Pay ” payable for the month of November, 2007.

For employees who have joined the banks after 1st November, 2007 their contribution would be proportionately reduced.

Date of effect of pension option: IBA reiterated their stand that pension option would be effective from the date of the Settlement while we have explained our viewpoint that it should be w.e.f. 1-4-2008. Difference on this issue persists. UFBU decided to take steps to find a solution to this issue.

Improvements under Pension Scheme: We took up with IBA various improvements in the Pension scheme like periodical updation of pension along with wage revision for serving employees, 100 % DA to be paid to all pensioners, common indexation of pension, increase in commutable portion of pension, increase in Ex Gratia for Pre-1986 retirees/widows, higher pension for pensioners above the age of 80, etc. After discussion it has been decided to submit a memorandum on these issues to the IBA and the Government and to be pursued further."

Source - AIBEA Website

Rupee to stay on firm footing as risk appetite improves

The focus in financial markets shifted back to the ongoing global economic recovery last week. In the recent past, sovereign risk concerns have dominated the market sentiment and weakened risk appetite. A slew of important economic figures, including the US employment report for March, hit the markets last week.

The data points were reassuring for the market as they indicated that the global economic activity was gaining traction led by the manufacturing sector. This was evident from the better readings of purchasing managers’ indices (PMI) for the manufacturing sector from across major economies. The US Institute for Supply Management’s manufacturing index rose to 59.6 in March from 56.5 in February—its highest level since July 2004.

Other such PMIs from across the globe also echoed the message of improving activity, with the market taking particular notice of China’s official PMI which rose to a higher-than-anticipated 55.1 in March.

In the currency markets, the US dollar was under pressure for much of the week. Heightened investor confidence regarding the prospects for global economic recovery dented the safe haven demand for the US currency. The greenback recovered some of its losses on Friday after the US jobs data prompted speculation that the US Federal Reserve may increase interest rates sooner than expected. Monthly non-farm payrolls data showed that 162,000 jobs were created in March, while upward revisions to

January and February data kept the unemployment rate at 9.7%.

The greenback made some healthy gains on Friday, but over the week it remained lower and fell 0.7% against the euro and dipped 0.4% against the Swiss franc.

The pound was the outperformer among major currencies after improving economic data dispelled some of the pessimism over the UK economy. Fourth-quarter 2009 GDP growth was revised higher on Tuesday, while the UK’s current account deficit also narrowed sharply. Meanwhile, the UK purchasing managers’ survey on Thursday indicated that activity in the manufacturing sector rose at its fastest for more than 15 years in March.

The sterling’s rise was given added impetus as opinion polls showed the UK opposition Conservative party had extended its lead ahead of the general election, expected to be held in May. This lessened fears of a hung Parliament, which many fear could leave an incoming UK government without the authority to tackle Britain’s record fiscal deficit.

Market positioning also favoured the pound, with figures from the Chicago Mercantile Exchange showing speculators had placed record bets against the pound in the week to March 23. Last week’s sterling rally was given a further lift as market participants unwound some of those short positions. Over the week, the pound rose 2.1% against the US dollar. Sterling also climbed 1.4% to a one-month high against the euro and gained 4.4% against the yen.

The Japanese unit was the underperformer, dropping 2.3% to a three-month low against the greenback and falling 3% to a two-month trough against the euro. The prospect of interest rates remaining at ultra-low levels in Japan while yields rose elsewhere was increasing the attractiveness of the yen as a funding unit in carry trades.Commodity-linked currencies were buoyed by an increasing risk appetite with the Australian dollar given an additional boost by hawkish rhetoric from the Reserve Bank of Australia (RBA).

Speculation that the RBA will raise rates heightened after governor Glenn Stevens warned it would not be wise to leave rates at “rock-bottom” for longer than necessary. The Australian dollar rose 1.6% against the US dollar over the week.

In the local market, the rupee remained strong against the US dollar and hovered around an 18-month high.

The Indian unit was helped by the weakness in the greenback overseas and continuing capital inflows, especially from the FIIs. Portfolio investors bought local stocks and bonds worth $1.2 billion last week. The rupee finished the week stronger by 0.8% and the rupee-dollar pair traded in the range of 44.88-45.53 over the week. The rupee also finished the last financial year stronger by over 11% against the US dollar.

The top event risk of last week (the non-farm payrolls report) has yet to fully play itself out with most markets shut on Friday. That being the case, the 162,000 increase in payrolls (only the second positive number in 27 months and the biggest in three years) would be interpreted as a boost to the relative growth and interest outlook for the US and thereby assist the dollar. This data is also likely to trigger a surge in risk appetite on Monday and push up riskier assets like equities and commodities and that would undermine the greenback, given its safe-haven status.

If indeed risk appetite regains its footing this week, it would extend the progress of last week’s risk appetite. With a general recovery in investor optimism, carry trades have started to revive.The US non-farm employment report and the round of manufacturing data have bolstered expectations of a solid recovery.There are still credible threats to the advance of risk appetite including Greece’s sovereign debt payments, the UK’s upcoming election, sovereign credit ratings and stimulus withdrawal.Should a swell in risk appetite be averted, the US dollar could actually make considerable headway on Monday.

In the local market, rupee is likely to remain on a firm footing. The market momentum is on the Indian unit’s side this week too. Over the week the rupee-dollar pair can trade in the range of 44.80 – 45.25. But a sharp rise in crude oil prices last week is likely to mute any gains for the rupee. Rupee’s prospects in this new fiscal depend on the capital inflows.

Rising commodity prices, especially crude oil and recovering non-oil imports are likely to lead to a higher merchandise trade deficit. That along with slowing services and other invisibles-related inflows, as was seen from the third quarter balance of payments data, is likely to increase the size of the current account deficit.

To fund that deficit, capital inflows are required. The strength of the rupee therefore critically depends on the size of net capital inflows. Sizeable inflows like those seen in 2007 and early 2008 can trigger sharp appreciation. Among the capital inflows, portfolio investments are the main source of inflows. Any slowdown in these flows creates pressure on the rupee.

Relatively even as strong growth fundamentals support the rupee’s appreciation, the pace and extent of appreciation may still be muted, as capital inflows may not be strong enough.

Souce :- DNA

RBI's base rate norms to ensure full benefit to old borrowers

Floating-rate home loan borrowers, who often felt they got a raw deal, will now have a reason to cheer. The Reserve Bank of India’s (RBI) new rules will ensure that they get the full benefit of any reduction in interest rates.In its final guidelines on the base rate — the new benchmark that banks will use to price loans — the regulator has made it clear that any change in the base rate will apply to new as well as old customers. Banks often offered lower rates and even teaser-rate schemes to attract new customers.

However, existing customers were left out of these schemes, even though they had taken loans at floating rates. As a result, floating-rate borrowers did not get the full benefit of falling rates. This is expected to change, with the new guidelines on base rate coming into effect from July 1.

The central bank has said: “Changes in the base rate shall be applicable in respect of all existing loans linked to the base rate, in a transparent and non-discriminatory manner.” It also said, “the actual lending rates charged may be transparent and consistent”.

The regulator had said that the base rate system was aimed at enhancing transparency in lending rates and would lead to a better assessment of monetary policy transmission. According to the RBI formula, the base rate factors in only cost and profit margin while risk and tenure premia will be charged over and above the base rate. However, RBI has given banks the freedom to use any other methodology, provided it is consistent and is made available for supervisory review or scrutiny when required.

The base rate will be the minimum interest rate, and banks will not be able to lend below it. The RBI has, however, made exceptions in cases of loans to employees, loans against deposits and differential rates of interest schemes. In such cases, the rates can be below the base rate. The central bank will separately announce export credit norms. Even a loan below Rs 2 lakh, on which RBI had so far stipulated that the benchmark prime lending rate, or BPLR, would be maximum rate that a bank could charge, will not be below the base rate.

“Now that banks can’t lend below the base rate, the commercial paper and non-convertible debenture market will grow. Second, our concern on short-term loans is addressed, given that the RBI has given banks freedom to have their own formula on base rate,” said JP Dua, CMD of Allahabad Bank.

Base rate will replace BPLR. Banks will be allowed to use the BPLR system till December 2010. However, during the six months (till December 2010), banks have been allowed to change the benchmark and the methodology till the system stabilises. Thereafter, they are required to review their base rates at least once in three months.

Source : The Economic times

'Poor asset quality may hit banks' profitability'

Quality of assets could pose a challenge for bank profitability in the coming quarters, with some borrowers continuing to default on loans even after they are restructured, said rating agency CARE. But the bad loan losses are likely to be compensated by a rise in interest margins as high-cost deposits shrink.
As a one-time measure in 2008, RBI had allowed banks to give troubled borrowers more time to repay without classifying them as defaulters. Borrowers were given more time by restructuring their loan which involved reducing their debt burden through an increase in the repayment period.
As per CARE’s analysis, the total quantum of restructured assets as on December 31, 2009, stood at around Rs 130,000 crore, amounting to around 4% of total advances. Of this, 70% were in the standard advances category. In its report, Care has warned “Given the huge quantum of restructured assets on their books, additional slippage could impact profitability of PSU banks.”
On bad loans, CARE has estimated the absolute level of gross non-performing assets at Rs 80,000 crore as on December 2009, up 30% over December 2008 levels. “The overall gross NPA ratio for PSU banks was influenced by increase in slippage (when a loan slips to sub-standard category) in Bank of India, Bank of Baroda and SBI.”
CARE Research has said it expects gross bad loans to reach around 2.8% for 2010-11. However, if 15% of the restructured assets slip into the bad loan category, gross bad loans may rise to 3.5%. Further, from September 2010, RBI has instructed banks to provide for 70% of the total bad loans on their books, popularly trend as provision coverage ratio (PCR).
According to CARE, this may eat into bank profits. “A higher NPA provision coverage may no doubt mean reduced profitability for those banks who are presently having a coverage far below the stipulated minimum, but it would at the same time, fortify banks against possible credit losses and thereby strengthen their balance sheet,” said the report.
According to CARE estimates, in the first nine months (till December 09) the PCR of all commercial banks stood at 52.8%, slightly lower than 55.5% a year ago. However, in the same period, the gross bad loan to total advances has risen to 2.42% from 2.18% a year ago.
Care expects that higher credit offtake may show a positive impact on net interest margins (NIM). The NIM of most banks improved on a quarter-on-quarter basis over the September 2008 quarter. Many banks had mobilised huge deposits during the quarter ending December 2008 at rates ranging from 9.5% to 11%.
“The impact of these high-cost deposits should wear off in the current quarter, post which the NIMs should show further improvements,” Care said. 

Source:- The Economic Times

Banks, RBI spar over base rate

 Source ETimes

MUMBAI: A simple promise to give a fair deal to small and retail borrowers has sparked differences

between the Reserve Bank of India and big lenders. The differences are holding back the final guidelines on ‘base rate’ — the new interest rate benchmark that banks will use to price loans.

The banking regulator is insisting that the final communiqué on base rate should state that “lending rates will be fair and non-discriminatory to all retail and small borrowers (mainly farmers)”. Bankers feel that the seemingly harmless sentence in the policy could cause endless feuds between lenders and borrowers.
“A borrower with a 15-year loan may move consumer court on the grounds that he/she is being charged a higher interest rate than someone who has taken a 10-year loan...such a clause would be misleading and could lead to unnecessary problems,” said a senior official of a private bank.
The RBI’s draft note on base rate says, “Apart from transparency, banks should ensure that interest rates charged to customers in the above arrangement (base rate system) are non-discriminatory in nature”. At a meeting with RBI deputy governors in March, bank CEOs urged the regulator to drop the sentence from the final circular. But the central bank is not willing to give in.
There have been several instances where banks have charged different interest rates on loans with the same tenor, said an RBI official. While giving loans to companies, banks charge different risk premiums depending on the borrower’s creditworthiness. Then there is a tenor premium—longer the loan, higher the charge. But for retail borrowers, it’s the loan tenor premium which is factored in. “The RBI wants to protect the interests of retail and small customers. As far as companies are concerned, they are well-placed to extract the best deal for themselves,” said the official.
The base rate—the final circular on which was supposed to be issued a fortnight ago—will be effective from July 1, and will replace the prime lending rate (PLR). While PLR takes into account the cost, profit margin and risk premium, the base rate factors in only cost and profit margin. Under the new arrangement the risk and tenor premia will be charged over the base rate.
The regulator also felt that banks were not pricing their loans accurately. When liquidity was high and there was pressures to meet loan targets, banks gave loans at rates way below their cost, without taking into account the risk premium. Often, this was done to maintain relationship with large borrowers.

The RBI is insistent on inserting the ‘fair and non-discriminatory clause’ to avoid a repetition of what happened in the recent interest rate cycle when several small and retail borrowers did not get the full benefit from the fall in interest rates. While most banks lowered interest rates for new customers, the reduction on old floating rate loans was marginal. Banks argued they could offer lower rates only to new loans since there was a drop in the incremental cost of funds. But RBI said that lower incremental cost brings down the average cost of funds, and the gains should have been passed on to old borrowers.

Sensex hits 18,000 after 2 years

PTI Wednesday, April 7, 2010 9:27 ISTLast updated: Wednesday, April 7, 2010 11:38 IST
The Bombay Stock Exchange benchmark Sensex today regained the 18,000-points level after almost 25 months on aggressive buying by funds expecting good fourth quarter results by corporates.

The Sensex, which was on an upward march in the last three trading sessions, moved up further by 67.03 points or 0.37% to 18,008.40 in opening trade, the highest since February 2008.
Similarly, the wide-based National Stock Exchange index Nifty rose by 19.80 points or 0.36% to 5,385.80.
Stock brokers said firming Asian markets also supported the uptrend on the domestic front.
The major gainers were Reliance Industries up 0.67% to Rs1,128.70, Reliance Infra up 0.69% to Rs1,093.55, ICICI Bank up 0.76% to Rs1,005.50, DLF Ltd
1.16% to Rs331.70, Tata Steel 0.89% to Rs691.60, Sterlite Industries 0.28% to Rs872.60 and ONG Corp 0.80% to Rs1,090.25.
Meanwhile, Japan's Nikkei was up 0.35% and Hong Kong's Hang Seng index gained over 1.2 % in morning trade today.

SBI mulls raising key rates in a few months

SBI mulls raising key rates in a few months

                Business Standard
                   07 April 2010
State Bank of India (SBI) announced today it might raise key interest rates in the next few months, even as it awaited a direction from the Reserve Bank of India’s (RBI’s) annual monetary policy announcement on April 20.
On the sidelines of a meeting here, SBI Chairman OP Bhatt said, “We will wait for the April policy and then decide (whether to increase lending and deposit rates). At the moment, there is enough liquidity in the system and the situation is likely to remain so for the next few months. The rise will not happen immediately. We have to wait for the RBI decision.”
Mr Bhatt said there was no immediate need for the bank to raise capital. “There is no urgency (to raise money). But, we might have to raise capital in the medium to long term. My preference will be a rights issue, as I would like to the government to retain its holding. We will see when the time is right for the market.” He added the bank was planning to raise Rs 10,000-20,000 crore

WAGE REVISION

AIBOC - FEED BACK ON 9TH BIPARTITE UNDERSTANDINGS

AIBOC has issued detailed circular clarifying various points regarding 9th BPS. The circular is reproduced below

FEED BACK ON 9TH BIPARTITE UNDERSTANDINGS

We are receiving a number of SMS and e-mails from our members on the understandings reached with the IBA on 3rd April 2010, as regards distribution of wage load of 17.5% among various components of salary and allowances. In this connection we would like to clarify that,

a) UFBU has agreed to accept 17.5% wage increase w.e.f 01.11.2007, as per MoU signed on 27th November, 2009. The issue cannot be reopened now.

b) The 6th Pay Commission recommendations for wage revision of Central Government employers are effective from 01.01.2006, for a term of 10 years. In case of Bank employees it is for a period of 5 years from 01.11.2007. The distribution of wage load for Central Government employees is not uniform. A meager increase of about 15-20% for lower level officials and higher increase at Secretary Level, with different pay bands is followed for them. Where as in our case we have tried to maintain equidistribution of load factor.

c) In case of Central Government employees, they will first arrive at the proposed revised scales and allowances and there is no restriction as regards cost of wage bill. The entire cost will be debited to the National Ex-chequer of the Government of India.

d) In the case of Bank employees, Government of India first fixes the limit for percentage increase and distribution of the increased load among various components of salary and allowances, is the responsibility of IBA and Unions/Associations.

e) Therefore, it is a herculean task to balance the demands of IBA and the Unions in drawing the revised scales of officers upto scale VII.

f During the current bipartite the demand of the IBA was to distribute higher load to Officers of SMGS IV and above, whereas we demanded equitable distribution of the load to all scales/grades, as higher load to senior grade officers and above will affect the scales of junior officers.

g) However, keeping in view the higher risk and responsibility of senior executives, we suggested to the IBA to get extra cost over and above 17.5% sanctioned from the Government of India to meet their demand. The IBA did not accept our suggestion and was bent upon loading higher increase in scales of senior executives. We are successful in minimising such higher load.

2. Our members will agree that, the issues being sensitive and the cost involved for higher loading at a senior level officer being barely few crores, breaking the negotiations on this point would have divided our membership. The frustration level at grass root level membership for early settlement is known to everyone. Therefore, Negotiating Committee after due deliberations, has agreed to come to an understanding with IBA on distribution of wage load of 17.5% in salary and allowances. There may be a few aberrations/anomalies as regards revised scales etc., which we will take up with the IBA during our further discussions. There is no hurry in coming to premature conclusions and resorting to vilification campaign to belittle the efforts of the Confederation which may divide the membership. Basic principle of Trade Union is “one for all, and all for one”. We hope our enlightened members will appreciate the genuine constraints faced by the leadership at negotiating table.

3. Comrades, we welcome your constructive feedback, but do not appreciate immature reactions, which affect the unity of the great organisation, AIBOC.

OUR UNITY ZINDABAD

With greetings,

(G.D.NADAF)

GENERAL SECRETARY

Source: AIBOC website

Disribution of Wage Load to officers upto scale VII , Final settlement on pension and salary revision by 15/04/2010

AIBOC has issued a circular giving a chart showing the present and revised scales from Scale I to VII and giving other additional details.

According to AIBOC, "It is proposed that next round of discussion on residual issues be held on 9th and 10th April 2010 to finalise the joint note for officers. The UFBU will hold a meeting with IBA on 12.04.2010 to finalize the draft settlement on pension related issues. We expect that by 15th April 2010, final settlement on pension and salary revision will take place."

Bipartite talks on 03.04.2010 - AIBOC version

According to AIBOC 9th BIPARTITE is on the verge of conclusion. Formal signing in 2nd Week of April 2010.

The important ingredients of the working out are as follows:-

SCALES

JMGS-I - Rs.14, 500/- TO Rs.31, 500/-@

MMGS-II - Rs.19, 400/- TO Rs.34, 200/-@

MMGS-III - Rs.25, 700/- TO Rs.35, 100/-@

@including two additional stagnation increments

SMGS-IV - Rs.30, 600/- TO Rs.36, 200/-

SMGS-V - Rs.36, 200/- TO Rs.40, 400/-

TEG-VI - Rs.42,000/- TO Rs.46,800/-

TEG-VII - Rs.46,800/- TO Rs.52,000/-

DEARNESS ALLOWANCE

For every 4 points rise/fall in index, Dearness Allowance at 0.15% per slab.

CITY COMPENSATARY ALLOWANCE

We have freezed the existing CCA and utilized the amount towards improvement in Basic Pay. Accordingly, CCA rates will be as under;

Places in Area I - 4% of Basic Pay, Max. Rs.540/- p.m.

Places with population of more than 5 lacs - 3% of Basic Pay,

Max. Rs.375/- p.m.

HOUSE RENT ALLOWANCE

We have retained the existing rate of HRA as under:

Major A class cities - 8.5%

Other places in Area I - 7.5%

Other places - 6.5%

MEDICAL AID –

For officers other than SBI, the medical aid has been enhanced as;

Scale I to III – Rs. 5100/- p.a.

Scale IV & above - Rs. 6320/- p.a.

STAGNATION INCREMENTS:

It is a fact that majority of senior officers in Scale I to III are stagnated as promotions are linked to vacancies. Hence, we have ensured to add two additional stagnation increments in these scales.

Date of Effect - 1st November 2007