Read to lead 02/01/2009
The challenge before RBI
S. S. TARAPORE
The challenge for the RBI should be to resist monetary expansion as the need for tightening will be inevitable in the ensuing few months and the task should not be made more difficult by profligate policies at the present time, says S. S. TARAPORE.
The RBI Governor, Dr Duvvuri Subbarao… If the authorities recognise that the worse is yet to come, would it not be prudent to allow the central bank to retain some ammunition in its arsenal?
For the first time in the history of the Reserve Bank of India, it has had to face overt pressure from the Government to ease monetary policy. One recognises the fact that the RBI has only limited autonomy on monetary policy. The dialogue between the RBI and the Government has all along been a private matter. In recent months, even this fig leaf has been brutally destroyed.
These pressures have now moved into the public domain. The Government has set up a Liquidity Monitoring Committee consisting of government officials and market players (banks). The Committee has been overactive in making public its conclusions. The “calculated leaks” from the Government set out the precise details of the measures which are to be announced by the RBI. Invariably, the calculated leaks are released before the RBI announces the measures.
Govt holding sway
One only hopes that this recent sequence will be broken. For instance, the calculated leaks in the newspapers on December 27 were: “Inflation is coming down sharply, and it should also give the RBI reason to cut rates in the next few weeks”.
The Ministry of Finance official who did not wish to be named indicated “that the RBI could cut the repo, reverse repo and the cash reserve ratio (CRR) by 50 basis points each…There is scope for further cut in policy rates and reserve requirements. It is possible that CRR may even come below 5 per cent”.
The Chief Economic Adviser, Ministry of Finance, Dr Arvind Virmani, speaking at the annual session of the Punjab, Haryana and Delhi Chamber of Commerce and Industry said: “When the trigger is an external financial crisis, monetary steps are the primary defence…My own view is that monetary policy (of the country) should have been much more proactive and aggressive than perhaps it has been”.
The Chairman of the Prime Minister’s Economic Advisory Council, Dr Suresh Tendulkar, has said: “It is desirable to reduce the repo and reverse repo rates by 100 basis points but the call has to be taken by the RBI Governor.”
Declining growth
In the 2008-09 mid-year review of the Indian economy it is indicated that: “A proactive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing.” It is not clear whether the word “depression” is infelicitously used or whether it means what it says.
If the Government’s view is that the global economy is going through a depression, it is universally acknowledged that this situation calls for a fiscal policy response.
Let us examine the Government’s stand that monetary policy has not done enough. It is not generally appreciated that the RBI has, since the end of August 2008, released Rs 385,000 crore by way of reserve requirement reductions, enhanced refinance facilities and drawdown of the Market Stabilisation Bonds, equivalent to a reduction of over 9.5 per cent of reserve requirements.
Could it still be argued that the RBI should have been more proactive? Surely, if the authorities now recognise that the worse is yet to come, a prudent policy would be to retain some ammunition in the RBI arsenal.
While commentators have been going gaga over the recent decline in inflation and some eager beavers are even talking of a 2-3 per cent inflation rate by March 2009, it is necessary to appreciate that, apart from international commodity prices declining, the monetary tightening prior to August 2008 would have had salutary effects.
On the other hand, the unprecedented wild release of liquidity since August will, over the next 18 months, earn the wages of sin in the form of an unprecedented high inflation rate.
It is now clear that we, in India, are going to go through a period of declining growth with accelerating inflation in 2009-10 and even in the immediate subsequent years.
Some percipient international analysts feel that the international slowdown could be much sharper than what the authorities are willing to accept in the major industrial countries. The fear is that we could see a decade of very slow growth or even an absolute decline. This should be of concern to the Indian authorities.
The Government is already conceding that the Centre’s visible fiscal deficit in 2008-09 could exceed 5 per cent of GDP. The Prime Minister’s Economic Advisory Council had earlier estimated the quasi-fiscal deficit at around 5 per cent of GDP.
The decline in crude oil prices would no doubt reduce the quasi-fiscal deficit, but with the pressure to keep down the deterioration in the visible fiscal deficit, there could be a tendency to push more expenditures into the quasi-fiscal deficit.
Since the monetary-fiscal spigots have been opened wide, inflation in the next 12-18 months is inevitable. The effective measure in the current context would be to undertake a well thought out strategy of selective labour-intensive government spending which would have strong backward and forward linkages and also have a short gestation lag.
Dos and Don’ts
Now what should be the stance and measures for the January 27 monetary policy review? The RBI would be well advised not to be too euphoric about the decline in the inflation rate, but should flag the possibility of a resurgence in inflation in 2009-10 and, therefore, stress the need for a cautionary monetary policy.
The RBI’s stance as far as monetary policy measures should be that enough is enough, and that there is merit in conserving the ammunition. The central issues which need to be considered are more on what the RBI should not do rather than what it should do! These are:
(i) In the ensuing period there should not be any further reserve requirement reductions.
(ii) The present repo rate of 6.5 per cent should not be reduced. The real growth rate in India is still high, though lower than in earlier years but it bears repeating that our growth rate would be the second highest in the world.
(iii) The reverse repo rate of 5 per cent should not be raised. In fact, there is a case for reducing it to the level of the savings bank deposit rate of 3.5 per cent. The widening of the corridor is a fact of life that the RBI will have to live with.
(iv) The reduction in the MSS outstandings should be calibrated not only to the borrowing programme but the overall liquidity position.
(v) The RBI refinance facilities against the general lending by banks should be priced above the repo rate and in any case be quickly phased out.
(vi) The RBI should peremptorily reject any pleas that interest be paid on CRR balances.
Le defi RBI (the challenge to RBI) should be to resist monetary expansion as the need for tightening will be inevitable in the ensuing few months and that the task should not be made more difficult by profligate policies at the present time.
Andhra Bank ties up with Citibank for funds transfer
‘Soft launch of US office draws good response’.
Mr R.S. Reddy
G. Naga Sridhar
Hyderabad, Jan. 1 Andhra Bank has tied up with Citibank to offer online money transfer facility for remittance of money from abroad.
The product, which has not been named yet, is undergoing a technology check and will soon be launched, Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, said.
“This is a white-labeled product which will carry only the name of Andhra Bank on the portal while Citibank would provide vital support including technology,” he said.
The main objective of the remittance product is to attract the large number of non-resident Indians in the US.
It would coincide with the launch of Andhra Bank’s representative office in New Jersey. “We have already soft-launched our operations in New Jersey and the initial response is very encouraging,” Mr Reddy said.
A foothold in New Jersey is strategic for the 84-year-old bank as it has a large number of NRIs from Andhra Pradesh. At the initial stage, the main function of the representative office will be liaison with the large numbers of (NRIs) living there.
It would also consider upgradation of the representative office into a branch in a short time and expansion to other parts of the US.
“The focus of our New Jersey office is not just on remittances, but also on enabling the NRIs to start own ventures back in India by providing liaison between them and those in India,” he said.
Focus on NRIs
The business strategy of the Hyderabad-based bank for the US will be fund transfer, deposit mobilisation through liaison, with a strong focus on NRI businessmen.
Due to current economic turmoil in the US, some wealthy NRIs are keen to come back to India to start ventures.
“In fact, we have created a data bank on such people, mapping their requirements and expectations. We will facilitate execution of their plans by identifying suitable partners from among our customers,” he added.
The bank would take up an aggressive promotional campaign on the remittance product in the US in conformity with the regulatory framework in the US, he added.
Maruti, GM post drop in Dec sales
Press Trust Of India / New Delhi January 02, 2009, 0:24 IST
Car makers Maruti Suzuki and GM India today reported a drop in sales in December, compared to the corresponding period last year.
The country's largest car maker, Maruti Suzuki, reported 9.95 per cent decline in sales during December last year at 56,293 units against 62,515 units in the same month of 2007.
The domestic sales stood at 52,029 units, compared to 58,401 units in the same month a year ago, down by 10.91 per cent, the company said in a statement.
General Motors India reported a 35.95 per cent decline in its domestic sales at 4,041 units in December last year, against 6,309 units in the same month in 2007.
The sales comprised 509 units of multi-utility vehicle Chevrolet Tavera, 867 units of sedan and hatchback Chevrolet Aveo and Aveo U-VA, 248 units of the luxury sedan Chevrolet Optra, 2,382 units of its small car Chevrolet Spark and 35 units of Chevrolet Captiva, the company said in a statement.
For Maruti, exports, however, grew by 3.65 per cent at 4,264 units against 4,114 units in the corresponding month the previous year.
Sales of its M800 dipped by 59.57 per cent at 2,907 units against 7,190 units in 2007.
The A2 segment (comprising A-Star, Alto, Zen Estilo, Swift and WagonR) sales stood at 36,831 units against 39,575 units a year ago, registering a decline of 6.93 per cent. The company, however, managed to post a robust growth of 98.24 per cent in the A3 segment (consisting of SX4, Swift DZire and Esteem) at 6,524 units against 3,291 units last year.
Continuing with southward trend, Maruti's total passenger car sales dipped by 11.15 per cent to 51,612 units in December 2008, against 58,090 units in the previous year.
For the last calendar year, GM India posted 9.44 per cent growth in sales at 65,702 units, compared with 60,032 units in 2007.
"Since the market has slowed down completely, we could not meet our target although we have registered a marginal growth this year," GM India Vice-President P Balendran said. The company expected the market to improve in the coming months because of the various measures taken by the government to stimulate the economy, he added.
Yamaha bucks trend, records 3-fold rise
Press Trust Of India / New Delhi January 02, 2009, 0:25 IST
Two-wheeler maker Yamaha today reported a nearly three-fold increase in its domestic sales during December last year at 16,000 units, compared to 5,524 units in the same month in 2007.
The company witnessed a growth of 13.32 per cent in 2008, at 1,36,468 units as against 1,20,428 units in the previous year, the company said in a statement.
"The year 2008 has been a turnaround year for Yamaha. We have made efforts to replicate Yamaha's global brand image by launching two new models — YZF-R15 and FZ16," Yamaha Motor (India) Managing Director CEO Yukimine Tsuji said.
These two models received good response from experts and helped the company to achieve higher sales as against last year, he added.
"We are aware that these are challenging times for the industry as the economy passes through a slowdown," Tsuji said, adding the company was confident to do well with its current range of products.
The losersDecember sales for Hero Honda Motors, India’s biggest motorcycle maker, fell 10 per cent. Hero Honda sold 215,931 motorcycles and scooters last month, compared to 240,532 a year earlier, the company said in a statement today.
Other two-wheeler maker Bajaj Auto also reported 33 per cent decline in two-wheeler sales during December last year at 119,215 units against 177,249 units in the same month previous year. The company said its motorcycle sales also declined by 33 per cent at 118,510 units against 176,441 units in December 2007.
Three-wheeler sales during the month grew by three per cent at 22,948 units against 22,221 units in the same month of the previous year.
The sharp reduction in two-wheeler primary sales reflects the continuing effort to reduce dealer inventories, Bajaj Auto Managing Director Rajiv Bajaj said in a statement.
"In keeping with its objective to stimulate demand through a major product offensive, Bajaj will, in January 2009, launch an all-new motorcycle," he added.
The first of several models to be introduced in 2009, the new bike will target 'Sport Commuter' segment and is intended to further Bajaj's leadership in the 125 cc+ segment, he said.
For the April-December 2008 period, total motorcycle sales were down eight per cent at 1,534,149 units against 1,660,182 units in the corresponding period previous year.
Govt, RBI start work on new mechanism for financing NBFCs
Anindita Dey / Mumbai January 2, 2009, 0:47 IST
The government is considering setting up a special purpose vehicle (SPV) for financing of non-banking finance companies (NBFCs) following the reluctance of banks and mutual funds to make available funds for the sector.
During a recent meeting of the high-level co-ordination committee on capital markets (HLCC), the proposal was discussed as an alternate mechanism for financing NBFCs, primarily those that may pose systemic risks .The scheme is similar to the commercial paper (CP) rediscounting mechanism of the US Federal Reserve.
Sources close to the development said that RBI is currently working out the modalities. They added the NBFCs with systemic risks are mostly those which are promoted by large corporate houses and those that have diversified interests across sectors. Domestic resources have become critical for such companies as overseas funding is not only expensive but also scarce.
The proposed move follows reluctance of banks and mutual funds to roll over CPs issued by the NBFCs, fearing default in recovery of dues. Once the move goes through, NBFCs will issue fresh CPs at the prevailing market rate of interest and pledge them with the proposed SPV.
HELPING HAND
* The government is considering the move following the reluctance of banks and mutual funds to make available funds for the sector
* The scheme is similar to the commercial paper rediscounting mechanism of the US Federal Reserve
* The proposed move follows reluctance of banks and mutual funds to roll over CPs issued by NBFCs, fearing default in recovery of dues
* Commercial papers are floated by companies and NBFCs to raise short-term funds up to one year
The SPV, which will get direct financing from RBI, can lend to the finance companies. The SPV in turn will pledge the CPs, as collateral, with RBI. The regulator for banks and NBFCs, will settle the accounts once the money is paid back by the finance companies to the SPV and it gets its dues.
Commercial papers are floated by companies and NBFCs to raise short-term funds for up to one year. On maturity, these papers are usually rolled over by banks and MFs at the prevailing interest rate. The economic slowdown and the fear of defaults have increased the perceived risk for the NBFCs, which are finding it tough to access capital.
Earlier, the repo facility opened by the RBI for banks to on-lend to NBFCs failed to take off. This financing facility is available if banks use government securities as collateral.
The proposed mechanism will not directly impact the fiscal deficit or hurt government spending since RBI may print money directly to fund the SPV. The move has, however, been debated internally since it will increase reserve money and money supply. Those opposed to the move have argued that higher money supply may fuel inflation, especially if global crude oil prices or commodity prices shoot up.
Banks for loan recast flexibility
Abhijit Lele / Mumbai January 2, 2009, 0:52 IST
Banks and financial institutions are seeking more flexibility in dealing with commercial and industrial loan accounts, which are seeing pressure due to cash flows and repayment.
Lenders take up loan recast proposals through the corporate debt restructuring (CDR) mechanism. At the last meeting of the core group of CDR, earlier this week, bankers said that real estate cases could soon come to the forum as companies were facing problems.
A recent decision by the Reserve Bank of India allowing cases related to the services sector to CDR has opened the doors for many companies to approach banks for restructuring of loans. “There is need for clarity on how to go about restructuring these cases since service sector companies did not come to CDR earlier,” a banker said.
In addition, the forum is trying to work out a mechanism that provides flexibility in decision making at all levels.
PRE-EMPTIVE STRIKESteps taken by RBI and banks to keep NPAs under check
* RBI allowed restructuring of real estate loans withoutdowngrading status to NPA category
* Permitted second restructuring for viable units facing temperory cash flow problems
* Banks have agreed to provide additional working capital of up to 20 per cent of the credit limit for SMEs
* Also relaxing margins on letters of credit, guarantees based on assessment of needs
The core group comprising bank chiefs also undertook a sectoral review. The units in sectors such textiles, steel and metal - ferrous and non ferrous - are seen to be emerging as pressure points and may be referred to CDR this year, bankers present at the meeting said. They added that there may be more work needed to deal with a higher number of cases and sectors such as real estate.
But there are two issues which they intend to take up with the Reserve Bank of India for facilitating restructuring activity, said the chairman of large bank.
The CDR ensures timely and transparent mechanism for restructuring the corporate debts of viable entities facing problems. It looks at accounts which are outside the purview of forums like BIFR and DRT and other legal proceedings. In particular, CDR works to preserve viable corporates that are affected by certain internal and external factors and minimise the losses to the creditors.
One senior executive heading CDR unit at a public sector bank said RBI has issued revised guidelines on CDR in the third quarter of 2008, which are broad and help to take effective steps. At present CDR units is dealing with just over 200 cases involving exposure of close to Rs 90,000 crore.
After a five-year spell which saw banks clean up their books thanks to buoyant sales and high profits in the corporate sector, lenders are suddenly seeing pressure build up in some of the loans as demand for goods and services has declined in local and overseas markets amid the economic slowdown.
Sensing the difficult times, RBI has extended the concessions like second time restructuring for viable units facing cash problems and permission to revamp real estate account without downgrading the client status of the NPA category.
Bank lending surges 76% during Apr-Nov2 Jan 2009, 0327 hrs IST, Niranjan Bharati, ET Bureau
NEW DELHI: Lending by banks rose more than 76% during April-November period this financial year from the same period a year ago, according to the
data available with the Reserve Bank of India (RBI). Banks lent about Rs 2,80,000 crore during the period. The increase in bank credit was made possible by an uptick in bank deposits and an increase in the incremental credit to deposit ratio (CDR) of banks which was at an all-time high of 93.7% on November 21. This means banks are lending Rs 93.7 against a deposit of Rs 100. The growth in bank loans goes against the belief that there is a liquidity crunch in the banking system. “There was a liquidity crunch for a very short period. The problem got solved by a series of measures by the RBI and the finance ministry. This is getting reflected in the consolidated eight-month data,” said an official with the finance ministry who asked not to be named. The increase in incremental CDR has also resulted in a huge increase in the total CDR of banks. “Our CDR has gone up to 76.1% for the period ending October 10, against 64.1% a year ago. This has been a result of our prudent lending and marketing strategy. Our bank has registered a phenomenal growth in credit to all sectors,” said R P Singh, chairman and managing director of Punjab and Sind Bank. The incremental CDR of all commercial banks was 84.3% at the beginning of the last financial year. It slipped to 73.6% at the beginning of the current year due to the moderation in credit growth and strong growth in deposits. Bank credit to the commercial sector expanded by 27% year-on-year as on November 21, 2008 compared with 23.1% a year ago. Non-food credit expanded by 26.9% compared with 23.7% a year ago. Industry’s share in total non-food credit was 48%, while that of agriculture was 9%. Personal loans accounted for 14% of all non-food credit for the period.
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Citi Bank likely to slash interest rates1 Jan 2009, 1925 hrs IST, PTI
MUMBAI: After majority of Indian banks slashed their interest rates taking a cue from Reserve Bank's recent policy signals, leading foreign lender,
Citi Bank is likely to follow the suit by cutting its lending and deposit rates in near future. Citi is considering an upto 0.5 per cent cut in its deposit rates and a similar reduction in its benchmark prime lending rates, a top Citi Bank Official said. "We may look at an upto 0.5 per cent reduction in our deposit rates across different tenures. With the cost of funds in the banking system coming down, there is a clear downward pressure on interest rates," the official said. Citi had slashed its BPLR by 0.75 per cent in November last year. Its PLR presently stands at 15 per cent. "Once the deposit rates are lowered, there is an increased scope for effecting a reduction in our lending rates," the official said. Many banks including the largest Indian lender, State Bank of India (SBI) and ICICI Bank had cut their lending and deposit rates in the recent past to translate the recent cuts in RBI key rates. In order to improve liquidity in market and to prompt banks to lower their rates, the RBI has cut its cash reserve ratio to 5.5 per cent, repo rate to 6.5 per cent and reverse repo to 5 per cent since October last year.
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S. S. TARAPORE
The challenge for the RBI should be to resist monetary expansion as the need for tightening will be inevitable in the ensuing few months and the task should not be made more difficult by profligate policies at the present time, says S. S. TARAPORE.
The RBI Governor, Dr Duvvuri Subbarao… If the authorities recognise that the worse is yet to come, would it not be prudent to allow the central bank to retain some ammunition in its arsenal?
For the first time in the history of the Reserve Bank of India, it has had to face overt pressure from the Government to ease monetary policy. One recognises the fact that the RBI has only limited autonomy on monetary policy. The dialogue between the RBI and the Government has all along been a private matter. In recent months, even this fig leaf has been brutally destroyed.
These pressures have now moved into the public domain. The Government has set up a Liquidity Monitoring Committee consisting of government officials and market players (banks). The Committee has been overactive in making public its conclusions. The “calculated leaks” from the Government set out the precise details of the measures which are to be announced by the RBI. Invariably, the calculated leaks are released before the RBI announces the measures.
Govt holding sway
One only hopes that this recent sequence will be broken. For instance, the calculated leaks in the newspapers on December 27 were: “Inflation is coming down sharply, and it should also give the RBI reason to cut rates in the next few weeks”.
The Ministry of Finance official who did not wish to be named indicated “that the RBI could cut the repo, reverse repo and the cash reserve ratio (CRR) by 50 basis points each…There is scope for further cut in policy rates and reserve requirements. It is possible that CRR may even come below 5 per cent”.
The Chief Economic Adviser, Ministry of Finance, Dr Arvind Virmani, speaking at the annual session of the Punjab, Haryana and Delhi Chamber of Commerce and Industry said: “When the trigger is an external financial crisis, monetary steps are the primary defence…My own view is that monetary policy (of the country) should have been much more proactive and aggressive than perhaps it has been”.
The Chairman of the Prime Minister’s Economic Advisory Council, Dr Suresh Tendulkar, has said: “It is desirable to reduce the repo and reverse repo rates by 100 basis points but the call has to be taken by the RBI Governor.”
Declining growth
In the 2008-09 mid-year review of the Indian economy it is indicated that: “A proactive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing.” It is not clear whether the word “depression” is infelicitously used or whether it means what it says.
If the Government’s view is that the global economy is going through a depression, it is universally acknowledged that this situation calls for a fiscal policy response.
Let us examine the Government’s stand that monetary policy has not done enough. It is not generally appreciated that the RBI has, since the end of August 2008, released Rs 385,000 crore by way of reserve requirement reductions, enhanced refinance facilities and drawdown of the Market Stabilisation Bonds, equivalent to a reduction of over 9.5 per cent of reserve requirements.
Could it still be argued that the RBI should have been more proactive? Surely, if the authorities now recognise that the worse is yet to come, a prudent policy would be to retain some ammunition in the RBI arsenal.
While commentators have been going gaga over the recent decline in inflation and some eager beavers are even talking of a 2-3 per cent inflation rate by March 2009, it is necessary to appreciate that, apart from international commodity prices declining, the monetary tightening prior to August 2008 would have had salutary effects.
On the other hand, the unprecedented wild release of liquidity since August will, over the next 18 months, earn the wages of sin in the form of an unprecedented high inflation rate.
It is now clear that we, in India, are going to go through a period of declining growth with accelerating inflation in 2009-10 and even in the immediate subsequent years.
Some percipient international analysts feel that the international slowdown could be much sharper than what the authorities are willing to accept in the major industrial countries. The fear is that we could see a decade of very slow growth or even an absolute decline. This should be of concern to the Indian authorities.
The Government is already conceding that the Centre’s visible fiscal deficit in 2008-09 could exceed 5 per cent of GDP. The Prime Minister’s Economic Advisory Council had earlier estimated the quasi-fiscal deficit at around 5 per cent of GDP.
The decline in crude oil prices would no doubt reduce the quasi-fiscal deficit, but with the pressure to keep down the deterioration in the visible fiscal deficit, there could be a tendency to push more expenditures into the quasi-fiscal deficit.
Since the monetary-fiscal spigots have been opened wide, inflation in the next 12-18 months is inevitable. The effective measure in the current context would be to undertake a well thought out strategy of selective labour-intensive government spending which would have strong backward and forward linkages and also have a short gestation lag.
Dos and Don’ts
Now what should be the stance and measures for the January 27 monetary policy review? The RBI would be well advised not to be too euphoric about the decline in the inflation rate, but should flag the possibility of a resurgence in inflation in 2009-10 and, therefore, stress the need for a cautionary monetary policy.
The RBI’s stance as far as monetary policy measures should be that enough is enough, and that there is merit in conserving the ammunition. The central issues which need to be considered are more on what the RBI should not do rather than what it should do! These are:
(i) In the ensuing period there should not be any further reserve requirement reductions.
(ii) The present repo rate of 6.5 per cent should not be reduced. The real growth rate in India is still high, though lower than in earlier years but it bears repeating that our growth rate would be the second highest in the world.
(iii) The reverse repo rate of 5 per cent should not be raised. In fact, there is a case for reducing it to the level of the savings bank deposit rate of 3.5 per cent. The widening of the corridor is a fact of life that the RBI will have to live with.
(iv) The reduction in the MSS outstandings should be calibrated not only to the borrowing programme but the overall liquidity position.
(v) The RBI refinance facilities against the general lending by banks should be priced above the repo rate and in any case be quickly phased out.
(vi) The RBI should peremptorily reject any pleas that interest be paid on CRR balances.
Le defi RBI (the challenge to RBI) should be to resist monetary expansion as the need for tightening will be inevitable in the ensuing few months and that the task should not be made more difficult by profligate policies at the present time.
Andhra Bank ties up with Citibank for funds transfer
‘Soft launch of US office draws good response’.
Mr R.S. Reddy
G. Naga Sridhar
Hyderabad, Jan. 1 Andhra Bank has tied up with Citibank to offer online money transfer facility for remittance of money from abroad.
The product, which has not been named yet, is undergoing a technology check and will soon be launched, Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, said.
“This is a white-labeled product which will carry only the name of Andhra Bank on the portal while Citibank would provide vital support including technology,” he said.
The main objective of the remittance product is to attract the large number of non-resident Indians in the US.
It would coincide with the launch of Andhra Bank’s representative office in New Jersey. “We have already soft-launched our operations in New Jersey and the initial response is very encouraging,” Mr Reddy said.
A foothold in New Jersey is strategic for the 84-year-old bank as it has a large number of NRIs from Andhra Pradesh. At the initial stage, the main function of the representative office will be liaison with the large numbers of (NRIs) living there.
It would also consider upgradation of the representative office into a branch in a short time and expansion to other parts of the US.
“The focus of our New Jersey office is not just on remittances, but also on enabling the NRIs to start own ventures back in India by providing liaison between them and those in India,” he said.
Focus on NRIs
The business strategy of the Hyderabad-based bank for the US will be fund transfer, deposit mobilisation through liaison, with a strong focus on NRI businessmen.
Due to current economic turmoil in the US, some wealthy NRIs are keen to come back to India to start ventures.
“In fact, we have created a data bank on such people, mapping their requirements and expectations. We will facilitate execution of their plans by identifying suitable partners from among our customers,” he added.
The bank would take up an aggressive promotional campaign on the remittance product in the US in conformity with the regulatory framework in the US, he added.
Maruti, GM post drop in Dec sales
Press Trust Of India / New Delhi January 02, 2009, 0:24 IST
Car makers Maruti Suzuki and GM India today reported a drop in sales in December, compared to the corresponding period last year.
The country's largest car maker, Maruti Suzuki, reported 9.95 per cent decline in sales during December last year at 56,293 units against 62,515 units in the same month of 2007.
The domestic sales stood at 52,029 units, compared to 58,401 units in the same month a year ago, down by 10.91 per cent, the company said in a statement.
General Motors India reported a 35.95 per cent decline in its domestic sales at 4,041 units in December last year, against 6,309 units in the same month in 2007.
The sales comprised 509 units of multi-utility vehicle Chevrolet Tavera, 867 units of sedan and hatchback Chevrolet Aveo and Aveo U-VA, 248 units of the luxury sedan Chevrolet Optra, 2,382 units of its small car Chevrolet Spark and 35 units of Chevrolet Captiva, the company said in a statement.
For Maruti, exports, however, grew by 3.65 per cent at 4,264 units against 4,114 units in the corresponding month the previous year.
Sales of its M800 dipped by 59.57 per cent at 2,907 units against 7,190 units in 2007.
The A2 segment (comprising A-Star, Alto, Zen Estilo, Swift and WagonR) sales stood at 36,831 units against 39,575 units a year ago, registering a decline of 6.93 per cent. The company, however, managed to post a robust growth of 98.24 per cent in the A3 segment (consisting of SX4, Swift DZire and Esteem) at 6,524 units against 3,291 units last year.
Continuing with southward trend, Maruti's total passenger car sales dipped by 11.15 per cent to 51,612 units in December 2008, against 58,090 units in the previous year.
For the last calendar year, GM India posted 9.44 per cent growth in sales at 65,702 units, compared with 60,032 units in 2007.
"Since the market has slowed down completely, we could not meet our target although we have registered a marginal growth this year," GM India Vice-President P Balendran said. The company expected the market to improve in the coming months because of the various measures taken by the government to stimulate the economy, he added.
Yamaha bucks trend, records 3-fold rise
Press Trust Of India / New Delhi January 02, 2009, 0:25 IST
Two-wheeler maker Yamaha today reported a nearly three-fold increase in its domestic sales during December last year at 16,000 units, compared to 5,524 units in the same month in 2007.
The company witnessed a growth of 13.32 per cent in 2008, at 1,36,468 units as against 1,20,428 units in the previous year, the company said in a statement.
"The year 2008 has been a turnaround year for Yamaha. We have made efforts to replicate Yamaha's global brand image by launching two new models — YZF-R15 and FZ16," Yamaha Motor (India) Managing Director CEO Yukimine Tsuji said.
These two models received good response from experts and helped the company to achieve higher sales as against last year, he added.
"We are aware that these are challenging times for the industry as the economy passes through a slowdown," Tsuji said, adding the company was confident to do well with its current range of products.
The losersDecember sales for Hero Honda Motors, India’s biggest motorcycle maker, fell 10 per cent. Hero Honda sold 215,931 motorcycles and scooters last month, compared to 240,532 a year earlier, the company said in a statement today.
Other two-wheeler maker Bajaj Auto also reported 33 per cent decline in two-wheeler sales during December last year at 119,215 units against 177,249 units in the same month previous year. The company said its motorcycle sales also declined by 33 per cent at 118,510 units against 176,441 units in December 2007.
Three-wheeler sales during the month grew by three per cent at 22,948 units against 22,221 units in the same month of the previous year.
The sharp reduction in two-wheeler primary sales reflects the continuing effort to reduce dealer inventories, Bajaj Auto Managing Director Rajiv Bajaj said in a statement.
"In keeping with its objective to stimulate demand through a major product offensive, Bajaj will, in January 2009, launch an all-new motorcycle," he added.
The first of several models to be introduced in 2009, the new bike will target 'Sport Commuter' segment and is intended to further Bajaj's leadership in the 125 cc+ segment, he said.
For the April-December 2008 period, total motorcycle sales were down eight per cent at 1,534,149 units against 1,660,182 units in the corresponding period previous year.
Govt, RBI start work on new mechanism for financing NBFCs
Anindita Dey / Mumbai January 2, 2009, 0:47 IST
The government is considering setting up a special purpose vehicle (SPV) for financing of non-banking finance companies (NBFCs) following the reluctance of banks and mutual funds to make available funds for the sector.
During a recent meeting of the high-level co-ordination committee on capital markets (HLCC), the proposal was discussed as an alternate mechanism for financing NBFCs, primarily those that may pose systemic risks .The scheme is similar to the commercial paper (CP) rediscounting mechanism of the US Federal Reserve.
Sources close to the development said that RBI is currently working out the modalities. They added the NBFCs with systemic risks are mostly those which are promoted by large corporate houses and those that have diversified interests across sectors. Domestic resources have become critical for such companies as overseas funding is not only expensive but also scarce.
The proposed move follows reluctance of banks and mutual funds to roll over CPs issued by the NBFCs, fearing default in recovery of dues. Once the move goes through, NBFCs will issue fresh CPs at the prevailing market rate of interest and pledge them with the proposed SPV.
HELPING HAND
* The government is considering the move following the reluctance of banks and mutual funds to make available funds for the sector
* The scheme is similar to the commercial paper rediscounting mechanism of the US Federal Reserve
* The proposed move follows reluctance of banks and mutual funds to roll over CPs issued by NBFCs, fearing default in recovery of dues
* Commercial papers are floated by companies and NBFCs to raise short-term funds up to one year
The SPV, which will get direct financing from RBI, can lend to the finance companies. The SPV in turn will pledge the CPs, as collateral, with RBI. The regulator for banks and NBFCs, will settle the accounts once the money is paid back by the finance companies to the SPV and it gets its dues.
Commercial papers are floated by companies and NBFCs to raise short-term funds for up to one year. On maturity, these papers are usually rolled over by banks and MFs at the prevailing interest rate. The economic slowdown and the fear of defaults have increased the perceived risk for the NBFCs, which are finding it tough to access capital.
Earlier, the repo facility opened by the RBI for banks to on-lend to NBFCs failed to take off. This financing facility is available if banks use government securities as collateral.
The proposed mechanism will not directly impact the fiscal deficit or hurt government spending since RBI may print money directly to fund the SPV. The move has, however, been debated internally since it will increase reserve money and money supply. Those opposed to the move have argued that higher money supply may fuel inflation, especially if global crude oil prices or commodity prices shoot up.
Banks for loan recast flexibility
Abhijit Lele / Mumbai January 2, 2009, 0:52 IST
Banks and financial institutions are seeking more flexibility in dealing with commercial and industrial loan accounts, which are seeing pressure due to cash flows and repayment.
Lenders take up loan recast proposals through the corporate debt restructuring (CDR) mechanism. At the last meeting of the core group of CDR, earlier this week, bankers said that real estate cases could soon come to the forum as companies were facing problems.
A recent decision by the Reserve Bank of India allowing cases related to the services sector to CDR has opened the doors for many companies to approach banks for restructuring of loans. “There is need for clarity on how to go about restructuring these cases since service sector companies did not come to CDR earlier,” a banker said.
In addition, the forum is trying to work out a mechanism that provides flexibility in decision making at all levels.
PRE-EMPTIVE STRIKESteps taken by RBI and banks to keep NPAs under check
* RBI allowed restructuring of real estate loans withoutdowngrading status to NPA category
* Permitted second restructuring for viable units facing temperory cash flow problems
* Banks have agreed to provide additional working capital of up to 20 per cent of the credit limit for SMEs
* Also relaxing margins on letters of credit, guarantees based on assessment of needs
The core group comprising bank chiefs also undertook a sectoral review. The units in sectors such textiles, steel and metal - ferrous and non ferrous - are seen to be emerging as pressure points and may be referred to CDR this year, bankers present at the meeting said. They added that there may be more work needed to deal with a higher number of cases and sectors such as real estate.
But there are two issues which they intend to take up with the Reserve Bank of India for facilitating restructuring activity, said the chairman of large bank.
The CDR ensures timely and transparent mechanism for restructuring the corporate debts of viable entities facing problems. It looks at accounts which are outside the purview of forums like BIFR and DRT and other legal proceedings. In particular, CDR works to preserve viable corporates that are affected by certain internal and external factors and minimise the losses to the creditors.
One senior executive heading CDR unit at a public sector bank said RBI has issued revised guidelines on CDR in the third quarter of 2008, which are broad and help to take effective steps. At present CDR units is dealing with just over 200 cases involving exposure of close to Rs 90,000 crore.
After a five-year spell which saw banks clean up their books thanks to buoyant sales and high profits in the corporate sector, lenders are suddenly seeing pressure build up in some of the loans as demand for goods and services has declined in local and overseas markets amid the economic slowdown.
Sensing the difficult times, RBI has extended the concessions like second time restructuring for viable units facing cash problems and permission to revamp real estate account without downgrading the client status of the NPA category.
Bank lending surges 76% during Apr-Nov2 Jan 2009, 0327 hrs IST, Niranjan Bharati, ET Bureau
NEW DELHI: Lending by banks rose more than 76% during April-November period this financial year from the same period a year ago, according to the
data available with the Reserve Bank of India (RBI). Banks lent about Rs 2,80,000 crore during the period. The increase in bank credit was made possible by an uptick in bank deposits and an increase in the incremental credit to deposit ratio (CDR) of banks which was at an all-time high of 93.7% on November 21. This means banks are lending Rs 93.7 against a deposit of Rs 100. The growth in bank loans goes against the belief that there is a liquidity crunch in the banking system. “There was a liquidity crunch for a very short period. The problem got solved by a series of measures by the RBI and the finance ministry. This is getting reflected in the consolidated eight-month data,” said an official with the finance ministry who asked not to be named. The increase in incremental CDR has also resulted in a huge increase in the total CDR of banks. “Our CDR has gone up to 76.1% for the period ending October 10, against 64.1% a year ago. This has been a result of our prudent lending and marketing strategy. Our bank has registered a phenomenal growth in credit to all sectors,” said R P Singh, chairman and managing director of Punjab and Sind Bank. The incremental CDR of all commercial banks was 84.3% at the beginning of the last financial year. It slipped to 73.6% at the beginning of the current year due to the moderation in credit growth and strong growth in deposits. Bank credit to the commercial sector expanded by 27% year-on-year as on November 21, 2008 compared with 23.1% a year ago. Non-food credit expanded by 26.9% compared with 23.7% a year ago. Industry’s share in total non-food credit was 48%, while that of agriculture was 9%. Personal loans accounted for 14% of all non-food credit for the period.
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Citi Bank likely to slash interest rates1 Jan 2009, 1925 hrs IST, PTI
MUMBAI: After majority of Indian banks slashed their interest rates taking a cue from Reserve Bank's recent policy signals, leading foreign lender,
Citi Bank is likely to follow the suit by cutting its lending and deposit rates in near future. Citi is considering an upto 0.5 per cent cut in its deposit rates and a similar reduction in its benchmark prime lending rates, a top Citi Bank Official said. "We may look at an upto 0.5 per cent reduction in our deposit rates across different tenures. With the cost of funds in the banking system coming down, there is a clear downward pressure on interest rates," the official said. Citi had slashed its BPLR by 0.75 per cent in November last year. Its PLR presently stands at 15 per cent. "Once the deposit rates are lowered, there is an increased scope for effecting a reduction in our lending rates," the official said. Many banks including the largest Indian lender, State Bank of India (SBI) and ICICI Bank had cut their lending and deposit rates in the recent past to translate the recent cuts in RBI key rates. In order to improve liquidity in market and to prompt banks to lower their rates, the RBI has cut its cash reserve ratio to 5.5 per cent, repo rate to 6.5 per cent and reverse repo to 5 per cent since October last year.
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