THURSDAY TWEETS: BANKING NEWS 29.01.2014 SHARING BANKING NEWS COMPILED BY SHRI.D.S.GANESAN 1. Rajan surprises bankers Business Line / January 28, 2014: Deposit rates and borrowing costs may not go up substantially for bank customers in the next few days despite the key policy rate hike by 25 basis points on Tuesday. This will however increase the bank’s cost of funding. Most bankers said they will take a call on whether to hike deposit and lending rates after consulting their respective internal asset liability management committees. “The RBI move to hike repo rate by 25 basis points was a surprise to me. I had expected the RBI to keep policy rate unchanged. As for Vijaya Bank, there is no immediate plan to relook at base rate or our deposit rates,” V Kannan, Chairman and Managing Director, Vijaya Bank, said P Jayarama Bhat, Managing Director, Karnataka Bank, said the increase in policy rate expresses the central bank’s strong persistence on bringing in price stability He said that even though there may be some impact on the overall growth and the hardening of the interest rates at the longer end of the rate curve, the markets are expected to take comfort from the dovish guidance of the RBI. George Alexander Muthoot, Managing Director, Muthoot Finance Ltd, welcomed the hike in repo rate. “This move by the RBI would further increase the lending rates putting pressure on the overall demand scenario,” he said Shyam Srinivasan, CEO of Federal Bank, said the RBI Governor Raghuram Rajan’s statement that the enhanced framework for resolution of distressed assets will be operational by April 1 is of significance to the banking industry. “Elevated interest rates remain a challenge for the industry,” Srinivasan said. Naresh Thakkar, MD and CEO, ICRA Ltd, said the increase suggests that the RBI is earnestly attempting to meet the targets for combined CPI set in the recommendations of the Urjit Patel Committee. Though the move will be negative for industry as borrowing costs are likely to inch up, the action indicates the near term focus has clearly moved to according higher priority to inflation management.” 2. Bank workers to strike work on Feb 10, 11 Business Line / New Delhi / Jan 28: The United Forum of Bank Unions (UFBU) has revived its call for a 48-hour nationwide strike to begin from February 10, in view of meagre improvement to the initial wage revision offer made by bank managements. The bank managements represented by IBA increased their offer from 9.5 per cent to 10 per cent on pay slip cost at their bipartite talks with UFBU on Monday. As this improvement is seen to be inadequate, it has been decided to revive the strike call for February 10 and 11, said C.H. Venkatachalam, General Secretary of All India Bank Employees Association. UFBU, a representative body of nine bank unions, had earlier given a strike call for January 20 and 21. But this strike plan was deferred after the Indian Banks Association (IBA) increased their initial offer from five per cent to 9.5 per cent on January 17. 3. Banks may not pass on rate hikes, yet Business Line / January 28, 2014: The RBI Governor took back some of the Christmas cheer by increasing the policy repo rates on Tuesday. This will increase banks’ cost of funds, at a time when good lending opportunities are hard to come by and bad loan problems are aplenty. But borrowers may not feel the pinch yet. Deposit and lending rates may not move up immediately, as the liquidity scenario has eased over the last two months. Banks’ plight The repo rate, the rate at which banks borrow from the RBI under the liquidity adjustment facility (LAF) window, has been increased from 7.75 per cent to 8 per cent. The impact of this is three-fold. One, banks borrow close to Rs 38,000 crore daily under the LAF window. Thus the increase in repo rate directly impacts the cost of borrowings through this window. Two, banks also borrow through Marginal Standing Facility (MSF), over and above the LAF. The cost of borrowing here is 100 basis points higher than the LAF repo rate, and hence the MSF rate which is now at 8.75 per cent will move to 9 per cent. Three, the new term repos which are available to banks at 8 per cent currently, will also see rates go up by 20-25 basis points. Overall, average cost of funds for banks will increase by about 20 basis points as banks borrow more than 80 per cent of their requirement through LAF and term repo windows. Some comfort But users of banking services can breathe easy as lending or deposit rates may not go up significantly. Lending rates are a function of deposit rates, and hence unless there is a significant increase in the latter, the former will not change. For now, deposit rates may not go up in a hurry. The transmission of any monetary policy — up or down — is dependent on the prevailing liquidity conditions. Since September, the 100 basis points cost savings by banks did not flow through to borrowers, due to a tight liquidity scenario. Now, by the same logic, a more comfortable liquidity scenario will mean that repo rates hike may not be passed through immediately. The liquidity position for banks has significantly improved ever since the RBI opened up term repo windows and made FCNR (B) deposits more attractive. “The immediate impact of rate increase will be on money market instruments, which now track the yield on term repos, says Jaideep Iyer, Deputy CFO & Group President, Financial Management, YES Bank. What’s ahead? The RBI in its monetary policy does seem to indicate that further policy tightening in is not anticipated for now. “The good thing is that there is more certainty in the direction of the policy action. This may be the last of the rate hikes for now” says Jaideep Iyer. But Tuesday’s monetary policy action is a clear indication of the central bank’s emphasis on adopting a path of disinflation and targeting CPI inflation as proposed by the Urjit Patel committee. “There still remains considerable uncertainty about whether CPI inflation rates could moderate to below 8 per cent by January 2015. The inability to meet the target could prompt the RBI to hike rates further. Besides, the prospect of a gradual reversal in US monetary policy could force emerging market central banks, like the RBI, to tighten monetary policy to defend their respective currencies, says Abheek Barua, Chief Economist, HDFC Bank. 4. RBI’s key interest rate hike could hit realty market The Hindu / New Delhi / Jan 28 The Reserve Bank’s hiking the key policy rate on Tuesday will hit property sales, particularly in the residential segment, real estate developers said while expressing disappointment at the move. Realty firms and consultants hoped however that this would be the last round of monetary tightening by the central bank. “We are very very disappointed. This will bring more suffering to developers’ community,” Confederation of Real Estate Developers Association of India (CREDAI) Chairman Lalit Kumar Jain told PTI. “It seems that market will see its bottom in terms of sales and liquidity, and then there may be an effort to revive the economy and market in an intense manner,” he said, adding that the developers would look forward to the March review. RBI raised the key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for the corporate. Parsvnath Developers Chairman Pradeep Jain said: “It is a highly disappointing step by RBI to raise repo rate. It is not going to help RBI curb inflation any more. “This move by RBI would encourage banks to increase their lending rates, which is already beyond reach. I am afraid this rate hike will demoralise home buyers.” In its fight with inflation, RBI governor Raghuram Rajan is completely ignoring the IIP data, which is diving into the negative territory, he noted. CREDAI-NCR president Anil Sharma, who also heads the Amrapali group, said: “There is already a slowdown in the property market and the overall economy. So, there would not be much adverse impact on sales“. Stating that the hike in policy rate was “contrary to the expectations”, consultant Knight Frank said rate hike would show an adverse signal to the realty market in the short term. “Although the latest inflation figures have shown a downward trend, the consumer inflation is still at a much higher level, and is exerting pressure on our currency. In fact, the CPI, without food and fuel, has gone up. “Keeping inflation as a focus, the Central Bank has taken this anti-inflationary pressure. And in all likelihood, this may be the end of the monetary tightening process by the central bank in this fiscal year,” Knight Frank India Chief Economist and Director Research Samantak Das said. Brys Group CMD Rahul Gaur said the repo rate hike is not just disappointing but also surprising and it would further hammer the buyers’ sentiments. TDI Infracorp Managing Director Kamal Taneja said the hike in repo rate by RBI would hit already weak investment momentum and impact Indian economic growth. “This step will make corporate and retail loan more expensive. It may increase EMI burden on common man”. 5. Another 25-bp hike possible Business Standard / Mumbai / January 29, 2014 Core, headline retail inflation expected to remain high and above central banks comfort level Despite the Reserve Bank of India (RBI) saying additional rate rises will not be required if the inflation trajectory showed a decline, experts foresee at least another rise in rates in the next six months. “The extent and direction of further policy steps will be data-dependent, though if the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture,” RBI said on Tuesday, while raising the repo rate for the third time in five months. Since September 2013, the rate has been raised by 75 basis points. Markets, which stabilised after an initial knee-jerk reaction, interpreted the comment as a signal for a pause. However, economists weren’t too sure. “While we expect CPI (Consumer Price Index)-based inflation to moderate in the coming months on lower vegetable prices and base effects, we do not see headline CPI inflation sustaining below nine per cent, given the structural bottlenecks in food and the re-emergence of inflationary pressures in rural areas. Thus, we expect interest rates to continue to inch higher; we see another 25-basis-point repo rate hike to 8.25 per cent in the first half of 2014,” said Sonal Varma, economist at Nomura. The central bank also highlighted upside risks to its CPI inflation projection of eight per cent, as suggested by the Urjit Patel committee, through a 12-month period. CPI inflation fell to a three-month low of 9.87 per cent in December 2013, compared with 11.16 per cent a month earlier. While Wholesale Price Index (WPI)-based inflation stood at a five-month low of 6.16 per cent in December, it was 7.52 per cent in November. A few economists say core inflation (inflation that doesn’t factor in food and fuel prices) may continue to remain high. “Core inflation is far too high and a decline in the near term is not on the cards. Inflation expectations remain elevated and we do not see sufficient slack in the economy to bring core inflation down notably. Lack of structural reform and infrastructure investment has done serious damage to the economy’s growth potential. Moreover, bringing inflation down to six per cent in two years will require further tightening. We have, therefore, pencilled in at least another 25-basis-point rate rise between now and summer, even if RBI switches to a monitoring mode for now,” said Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations, HSBC Global Research. In December 2013, core inflation stood at about eight per cent, an uncomfortable level, according to RBI. In 2014-15, the central bank expects a modest recovery in economic growth. However, it cautioned inflation risks might continue, despite the moderation in prices in recent weeks. It scaled down its growth forecast for this financial year to below five per cent, against five per cent earlier. RBI expects five-six per cent growth in 2014-15. “A moderate-paced recovery is likely to take shape in the next year, with support from rural demand, a pick-up in exports and some turnaround in investment demand. The growth in 2014-15 is likely to be in the range of five-six per cent,” the banking regulator said in its report on the third-quarter review of macroeconomic and monetary developments. The central bank said the pace of growth might accelerate beyond five-six per cent if project clearances translated into investment, the outlook on global growth improved and inflation softened. Despite moderation in December and some further softening expected in near-term, inflation risks have to be watched carefully as we enter into the next year. This is due to upward revision in domestic energy prices, expected growth acceleration, structural bottlenecks affecting food inflation and adverse base effects, RBI said. 6. Banks to set up expert panel to study insurance broking Business Standard / Mumbai / January 29, 2014 Public and private sector banks will set up a group of experts on the insurance broking model to be followed by banks. K R Kamath, CMD, Punjab National Bank and chief of Indian Banks’ Association, said representatives of banks had met finance ministry and regulatory officials on the matter. The priority is to see what is good for the customer. Banks should give options to customers. While each model has pros and cons, one particular model may not be the right way. There are contractual obligations of different banks who have joint ventures (with insurance companies). We hope to come up with an acceptable solution, keeping the customer at the centre, he said. Kamath said banks would set up the group with representations from banks, insurance companies, Insurance Regulatory and Development Authority (Irda) and Reserve Bank of India (RBI) “to come out with an acceptable solution”. According to him, though some public sector banks have their licences as corporate agents coming in for renewal in February, they might renew the licence for now and wait for the final guidelines to come. In December 2013, the finance ministry had sent a circular to public sector banks to become insurance brokers, in order to boost insurance penetration. Irda chairman T S Vijayan said, We will not discriminate between public sector banks and private banks. They have to decide how to go about this process. Finance Minister P Chidambaram, in his last Budget speech, had said banks could become insurance brokers. After this, Irda and RBI brought out enabling legislations facilitating the same. Irda guidelines said banks could become insurance brokers after their individual proposals were approved by RBI. Now, Irda is looking to make insurance broking model compulsory for banks. Bancassurance, which refers to banks selling insurance products, now follows a corporate agency structure. The central bank, on the other hand, bought out stringent norms on this model. RBI said only banks with strong capital base can become brokers. Further, their net non-performing assets (NPA) should be below three per cent. You are requested to implement the spirit of the budget announcement within the framework of guidelines by Irda and RBI in this regard under intimation to this department (department of financial services) by January 15, 2014, said the circular by department of financial services. The stringent deadline and mandatory nature of the circular has created some discontent among public sector banks, especially those who have shareholder agreements in insurance joint-ventures. Public sector banks have already expressed displeasure in implementing this regulation. In a recent interview to Business Standard, Vijayalakshmi Iyer, chairperson and managing director, Bank of India said, We have said banks that have an insurance subsidiary have the obligation to honour the MoU signed among various partners.” The Indian Banks’ Association (IBA) — the banking industry lobby group — in an internal meeting had earlier decided that each PSB’s board will discuss the finance ministry circular on becoming such brokers. Officials had felt that given the differences in the structure and the size of the banks, it is difficult to take a collective view on this issue. As an insurance broker, a bank will be liable for each policy sold to a customer. Under current bancassurance norms, the banks are not responsible for policies sold. At present, bank-promoted insurers have almost 55-60% business coming from the bancassurance channel. If these banks become brokers, these insurers have to look towards other channels. Also, the bank executives fear that misselling would become rampant, sinvce each bank would sell multiple insurance products. 7. Private banks not game for charging customers for using ATMs Business Standard / Mumbai / Kolkata / January 29, 2014 IBA, nudged by state-run banks, had proposed limiting the number of free transactions at own-bank ATMs to five a month You might not have to pay for using your banks automated teller machines (ATMs) if you have an account in a private sector bank. While most public sector lenders favour charging customers for using ATMs more than five times a month even if they transact at ATMs of their own bank, private sector banks are against charging customers. The difference in opinion was apparent when bankers met Reserve Bank of India (RBI)’s Governor Raghuram Rajan on Tuesday following the central banks third quarter review of monetary policy. There are some dissenting voices with respect to increasing charges for ATM usage. Bankers will have to consider that before taking a final decision, the chief executive of a private sector bank told Business Standard following the bankers meeting with the governor. Earlier this month, HDFC Banks Deputy Managing Director Paresh Sukthankar had told reporters that his bank will not be the first to charge customers for using own ATMs. We have never charged our customers in the past for using HDFC Bank ATMs. We have not taken a call yet (whether to introduce such a charge). But if there is a general feeling among banks that it is better to have a small charge, then we may have to be a part of that decision, Sukthankar had said. A few private bank chiefs appeared more decisive on not charging customers for using own bank ATMs. For our own customers, we are very clear that we will not charge them. I encourage customers to use my ATMs because if you transact with me, you are also keeping your money with us...My target is to grow our savings deposits and ATM is a channel to get these accounts, said Romesh Sobti, managing director and chief executive officer of IndusInd Bank. Following an attack on a woman customer at a Corporation Bank ATM in Bangalore recently it was decided to strengthen security of ATMs. Banks reportedly would incur Rs 4,000 crore expenses every month for the additional security requirements. To meet the cost, the Indian Banks Association (IBA), nudged by state-run banks, had proposed limiting the number of free transactions at own-bank ATMs to five a month. Currently, there is no cap on transactions at own bank ATMs, while customers can use other banks ATMs up to five times a month without paying a fee. It has also been proposed that the rate for each ATM transaction (interchange fee) be raised. The interchange fee is the charge paid by one bank to another for acceptance of card-based transactions. Our initial bias is not to introduce any new charges on ATM usage. We will evaluate the actions of competitors and review our cost structure before charging customers for using our ATMs, Shyam Srinivasan, managing director and chief executive officer of Federal Bank, said. At present, the private lender does not charge its customers even for using other banks ATMs. YES Bank also echoed similar views. We dont want to be the first mover in introducing these charges. At the same time, we cannot be completely different from what others are doing. So, we will wait and watch before introducing these charges, Pralay Mondal, executive director for branch and retail banking at YES Bank, said. 8. RBI-monthly policy review cycle from April Business Standard / Mumbai / January 29, 2014 Under new regime, RBI will hold six reviews in each financial year as against present practice of eight reviews Starting April 1, 2014, the Reserve Bank of India (RBI) will move to a new regime of conducting monetary policy review wherein monetary policy will be reviewed once every two months — in line with the recommendation of the Urjit Patel panel on monetary policy. Under the new regime, RBI will hold six reviews in each financial year, against the present practice of eight. At present, monetary policy authority conducts four quarterly reviews and four mid-quarter reviews. Policy reviews will ordinarily be undertaken in a two-monthly cycle, consistent with the availability of key macroeconomic and financial data, RBI said in a statement. Patel panel on Monetary Policy framework had suggested that the Monetary Policy committee (MPC) should ordinarily meet once every two months. It should retain the discretion to meet and recommend policy decisions outside the policy review. 9. SBI may up deposit rates, others to wait and watch after RBI hikes repo rate Financial Express / Mumbai / Jan 29 2014 While the State Bank of India (SBI) may hike deposit rates after the Reserve Bank of India (RBI) effected a repo rate hike of 25 basis points on Tuesday, taking it to 8%, other banks may refrain from any rate action as of now. The hike in the repo rate and the increase in the marginal standing facility to 9% will mean higher cost of funds for banks who rely more on the special windows because their access to retail deposits is limited. Arundhati Bhattacharya, chairperson, SBI, told reporters on Tuesday that while rates might rise a bit, SBI is likely to think twice before passing on the increase in costs to its borrowers. “Transmission will only happen when it affects the cost of funds. There will be a little bit of rise in deposit rates, how much of it can be passed on will depend on the capacity of the people who have borrowed money from us,” Bhattacharya said. Indias largest bank held an assets and liabilities committee (ALCO) late on Tuesday to review interest rates. Other banks, however, may take their time to decide on any rate action in the near term. “Lending rates are dependent on our cost of funds. For the last many quarters, the deposit rates have not changed, the reason is that deposit rates are, in a way, linked to the rate of inflation. You should watch the trends in inflation and deposit rates,” said Chanda Kochhar, MD & CEO, ICICI Bank. Bankers point out that since a hike did not happen in the December monetary policy announcement, the current increase may be considered as status quo. “If inflation is to come down, as the governor seems to feel it will, then the trend probably is not for rising interest rates,” said Aditya Puri, MD & CEO, HDFC Bank. The rate hike will not put bank margins under pressure, he added. Bankers feel any increase in lending rates will be prompted only by an increase in deposit rates, which is not likely in the current scenario. They point out that a hike in loan rates may further stress weaker borrowers at a time when bad loans are rising. Moreover, deposit rates being offered to customers need to be adjusted, keeping in mind the rising inflation in the economy. “We need to find a balance between these two,” says KR Kamath, CMD, Punjab National Bank. In his monetary policy announcement, RBI governor Raghuram Rajan noted that inflation is set to moderate going ahead, which may result in no rate hikes in the future. Bankers who met the RBI governor on Tuesday also interacted with the central bank on the discussion paper on management of non-performing assets (NPAs), viability of automated teller machines (ATMs) and the need to manage counterfeit notes. Since he took over in September, Rajan has raised the repo rate by 75 bps, which forced leading banks to revise their lending rates by 10-20 bps. SBI had hiked its base rate twice by 10 bps each time, to 10% finally. HDFC Bank and ICICI Bank, too, hiked their respective base rates to 10% each. Banks have been seeing a significant moderation in credit growth due to a lack of demand from the wholesale lending business. Deposit growth in the banking system has surpassed credit growth for the fourth consecutive fortnight, as per RBI data. In the fortnight ended January 10, non-food bank credit grew 15% year-on-year, while deposit growth stood at 15.56% from a year ago. 10. RBI a vigilant owl, not a dove or a hawk: Raghuram Rajan Financial Express / Mumbai / Jan 29 2014 RBI Governor Raghuram Rajan on Tuesday said monetary policy can contribute to reviving consumption and investment in a sustainable way only by bringing down inflation to a low and stable level. “Inflation is also a tax that is grossly inequitable, falling hardest on the very poor,” Rajan said after unveiling the monetary policy. Excerpts: ON INFLATION AND INTEREST RATE: “The juxtaposition of growth and inflation is not correct. Even if we cut rates, banks won’t cut rates as inflation is still high. We have to get away from the fact that there is a magic wand. The notion about inflation being irrelevant has to be revisited. We are confident we will bring down inflation within more tolerable limits. Let’s first fight the fight that needs to be fought.” ON WITHDRAWAL OF NOTES ISSUED BEFORE 2005: “It is not intended to get at black money, tax evasion, etc. I am not saying those are good things. This is technical action, in order to withdraw notes which have fewer security features than new notes. It is an attempt to reduce the possibility of counterfeiting and give more reliable notes at the hands of the public. We have no doubt we are in a constant race, we have to keep improving the security features and counterfeiters keeps trying to figure out how to do that. Notes will continue to be withdrawn. I have no doubt today’s note will be withdrawn at some point.” ON COMMENT THAT RATE HIKE WAS HAWKISH WHILE GUIDANCE WAS DOVISH: “We are neither hawks, not doves but we are owls, vigilant when others are resting. An owl is traditionally a symbol of wisdom. The broad point is that don’t try and put us into buckets. We are doing what is necessary for the economy. Last time, we needed to convey the signal that we are ready to act. This time, we have acted. We will take action on the rate cut front whenever the situation warrants.” PATEL PANEL PROPOSALS: “The RBI is studying the recommendations of the panel on monetary policy and complete implementation of its report will need a dialogue with the government. The panel’s timeline to bring down retail inflation seemed reasonable and the 8 per cent retail inflation target can be reached by the end of the year. It is premature to say the RBI is moving towards inflation targeting. We’ve not accepted Patel committee’s inflation target. We are looking into it. We will take up with the government what we need to do.” RBI’S FOCUS AND ACTION: “Last time the decision (on rates) was close, but we chose to wait. This time, too, the decision was close, but we decided to act. At this point, we think we had to deliver some medicine which we have done. Let’s see how it goes. We have to wait and see, given the external as well as domestic uncertainties. The primary focus is not the markets; it’s the Indian consumer.” 11. Banks may not raise home and car loan rates immediately Economic Times / Mumbai / Jan 28 Retail home and car loan borrowers may have little to worry despite a hike policy rate by the Reserve Bank of India to control inflation. Chief executive of large commercial banks has indicated that they are not in a hurry to raise lending rates yet. The RBI on Tuesday raised repo rate - the rate at which they lend customers- - by 25 basis points to 8% signalling that rates would remain at elevated level for some time. Yes, of course, there will be a little bit of rise but how much of that rise can be passed on I have to see the capacity of the people who have taken money from me (SBI) as well, said Arundhati Bhattacharya, chairman of State Bank of India (SBI) which has pegged its base rate at 10%-lowest in the industry. Transmission of policy rates - whereby banks pass on a hike or a cut in policy rate - to their customers is unlikely to happen when repo rate is revised. This is mainly because banks borrowing from repo window is less than 1% of their total borrower, however repo rate signals the direction in which the RBI wants rates to move. Repo is a very blunt tool. Transmission (of policy action) will only happen when it is actually affecting the cost of funds, said Ms Bhattacharya. Besides, cost of funds, bankers also factor in demand for credit and competition from peers while tinker with rates. In December, HDFC and ICICI Bank were forced to cut home rates after SBI cut its rates by 10-25 basis points. Rising stress in the economy, which has resulted in several corporates delaying their payments to banks in recent months, has prevented banks from raising the lending rates. K R Kamath, CMD of Punjab National Bank and chairman of Indian Banks Association said, Looking at inflation depositors need be given a better rate. Looking at stress of the assets we need to see that we dont pass on a lot to the borrowers. How do we balance that is what will ultimately decide what sort of transmission will happen. According to M Narendra, CMD of Indian Overseas Bank there is no scope to revise the rate for retail borrowers, small businessmen and farmers but the bank may consider revising spread rates for other category of borrowers. Hike in base rate is ruled out since there is limited opportunity to deploy loan to better rates corporates, he said. Depositors, on the other hand, may have some reason to cheer since some of the banks may raise rates for select buckets. Banks may be under pressure to mobilise funds to replenish deposits that are due to mature in last quarter, which may force them to pay higher rates to attract deposits. Deposit mobilisation is at its peak in the last quarter of the year since banks try to achieve their annual deposit target for the full year.
Posted on: Thu, 30 Jan 2014 04:56:21 +0000
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