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.
Friday, June 18, 2010
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.
"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.
Tuesday, June 15, 2010
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.
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.
Monday, June 7, 2010
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.
Friday, June 4, 2010
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.
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.
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.
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