SBI tops ATM expansion in non-metros: Assocham

Mumbai, September 19: Country's largest lender State Bank of India (SBI) is more aggressive in expanding its ATM (automated teller machine) network in the non-metro and semi-urban centres as compared to its peers, according to a study by Assocham. "Unlike other banks, the State Bank of India (SBI) is expanding its ATM network in non-metro and semi-urban centres, faster than expansion in the metros," the study based on the recent Reserve Bank data said. As compared to the 5,783 ATMs in metro cities, SBI has 7,511 and 6,419 ATMs in non-metro urban areas and semi-urban areas, respectively, the Assocham statement said.
SBI's peer in the state-run banks space, Punjab National Bank is the only other bank which has more ATMs in non-metro cities than the metros, it said. The objective of financial inclusion can be better achieved by the usage of technological interventions, including ATMs, and public sector banks have an important role to play in the objective, Assocham Secretary General D S Rawat was quoted as saying.
Overall, the private sector banks, led by Axis Bank have gone about expanding their network through ATMs in a much more aggressive way than their public sector peers.  Be it, ICICI Bank, Axis Bank or HDFC their bias and preference for ATMs is for the metro cities, followed by tier two cities.Among the private sector banks, Axis Bank has the largest (10337) ATM network, followed by HDFC Bank with 9709 such machines and ICICI Bank - 9366 ATMs.
Excepting the SBI, the other banks have to go a long way before achieving the financial inclusion in the semi-urban and rural areas.
“The Finance Ministry is rightly very keen of achieving the financial inclusion of a large number of people in rural areas.  This can best be achieved by leveraging of technology and use mobile telephony and ATMs. Somehow, the public sector banks will have to take a lead in these areas. Even their brick and mortar branch network is wider in the rural and semi-urban areas than the private sector banks,” ASSOCHAM Secretary General D S Rawat said.
He said while a good beginning has been made, pooling of technology resources like the ATMs should be encouraged so that optimum use can be made to the advantage of the people. The ASSOCHAM quoted honourable Finance Minister Mr P Chidamabaram who recently noted how even the trade has not been fully brought into the banking network.
“As was pointed out by the Finance Minister, today traders are not able to deposit their cash of sales proceeds at night in any bank. In the process, they have to keep it either in the shop premises or at home taking the risks of theft and other insecurity issues. We must have technology-driven day and night banking so that a wider section of the informal economy is brought into the banking network,” Mr Rawat said. While the RBI has been expressing concerns over regulatory issues over the mobile banking, sooner or later different technology platforms have to converge and the regulators need to equip themselves to deal with new challenges and opportunities.
The ASSOCHAM said a large number of Indians still remain outside the banking network.  It is because of lack of the organized banking that the gullible people in semi urban and rural areas fall prey to unscrupulous money-lenders. “The institutions of micro-finance did make a good beginning. However, because of certain corporate governance issues, the entire experiment has become rather overshadowed by controversies. The use of technology to reach out to the bottom of the pyramid promises a lot of scope,” the ASSOCHAM Secretary General said.

SBI to cut processing and conversion fees on home loans

With the advent of festival season India’s largest lender – SBI has embarked upon a special campaign to ramp up its home loan book. It is going to reduce the processing fee for home loans to Rs.1,000 per loan irrespective of the size. The offer would be made available from September 1 onwards, a senior bank official told.
With the advent of festival season India's largest lender - the State Bank of India (SBI) has embarked upon a special campaign to ramp up its home loan book. It is going to reduce the processing fee for home loans to Rs.1000 per loan irrespective of the size. The offer would be made available from September 01 onwards, a senior bank official told.
Currently, loan processing is at 0.25% of the loan amount subject to a cap of Rs 6,500 for loans upto Rs.75 lakhs. For any higher loan amount, the maximum fee ceiling is Rs.10,000.  For example, if you apply for a loan of Rs. 20 lakhs, you need to pay a processing charge of Rs.1000/- With the new offer, it will be uniform at Rs.1,000 for a home loan. However, the offer would end on 30th November, 2012.
At the same time, the banking behemoth is actively mulling reduction in conversion fee which is presently at 1%. For all banks, conversion fees are in the range of 0.50-2%. This move, if implemented, will help the existing (SBI) home loan customers, who are not entitled to get the benefit of reduced interest rates to avail of the lowered interest rates. Let’s assume the loan size is Rs.30 lakhs and a customer has already repaid Rs.10 lakhs. Therefore, he has to pay Rs.20,000/-(i.e. 1% of 30-10 lakhs) one-time upfront for the conversion.
Earlier, SBI cut the interest rates on home and auto loans by over 50 basis points, effective from August 07. However, it did not change the base rate (remains at 10% p.a), the benchmark rate below which the Reserve Bank of India does not allow any bank to lend. Now, a home loan borrower can avail of a home loan with interest at 10.25% as against 10.75% prior to the rate cut, for a ticket size of Rs 30 lakhs. The interest rate will be 10.40% for loans above Rs. 30 lakhs. The EMI on Home Loan tenor of 30 years is Rs.897 per lakh which is the lowest in the market.
However, the new rates are available only to the new customers. So, a customer who had taken a loan at a higher floating rate viz. 11.25% will be keen to avail the benefit of the current lower rate. So, he can convert his loan to the new rate by paying the conversion fee. "Those proposed moves by RBI will certainly benefit customers, who should tap opportunities right in time. However, the bank cannot just keep on doing this beyond a point as it may hurt their margins," said Anil Rego, CEO and founder, Rights Horizons, a Bangalore based advisory firm.
With 26% market share, SBI continues to be the leader in home loan market followed by the privately held housing finance company- HDFC.  "We have got some surplus funds after RBI cut statutory liquidity ratio by 1% to 23%. We have decided to utilize it in expanding our retail business. The Bank is aiming at 20-25% growth in its home loan portfolio. As the country's largest bank, we have a vital role to play in supporting the economy", said the official.
As of July, SBI's home loan portfolio stood at around Rs 1.06 lakh plus crores. Total retail loans stood at Rs 1.86 lakh crores in the April-June quarter. To facilitate home loan borrowers, it is planning to upload the list of housing projects, approved by the bank shortly.  The bank has tied up with 1,046 such projects across India till July in 2012-13. In order to enlist its projects, a builder has to meet certain norms prescribed by SBI. For listed projects, the bank sanctions home loans in 4-5 days while it takes around 14 days to approve a home loan for other housing constructions. The lender offers a loan to value (LTV) of 90% for home loans upto Rs 20 lakhs and upto 80% for loans above Rs 20 lakhs.

Chakrabarty had same views on CRR as a banker: SBI chief

Mumbai, August 28: State Bank of India Chairman Pratip Chaudhuri on Tuesday took a gentle dig at the Reserve Bank of India Deputy Governor K C Chakrabarty, who had advised him yesterday to “find out some other place” if he didn’t agree with the current regulatory environment insofar as cash reserve ratio was concerned.
Speaking on the sidelines of an investor conference on Tuesday, Chaudhuri said he hadn’t read the complete media reports, but what he remembered was that Chakrabarty had the same views when he was a banker.
“What I want to say is that it’s just a view. When he (Chakrabarty) was a bank chairman, he was also of the same view (reducing the CRR),” Chaudhuri said. He made the remarks with a big smile, but the message was loud and clear.
Before joining the central bank, Chakrabarty was the chairman and managing director of Punjab National Bank and before that, of Indian Bank.
However, while speaking to NewsWire 18, Chaudhuri clarified his intention was not a complete abolition of cash reserve ratio (CRR) overnight, but to ignite a public debate on the merits of CRR. “My comments are in sync with the views of most of the bankers today,” he said.
Chaudhuri had earlier suggested that CRR should be phased out in a time bound manner or at least RBI should consider a paying an interest on it equivalent to the savings bank account rate if not the repo or the reverse repo rate.
CRR is the proportion of deposits that banks need to park with the regulator. While RBI used to pay interest on CRR funds, but that system was withdrawn a few years back. As a result, banks do not earn anything for keeping CRR with RBI but the negative carry for CRR and also SLR (statutory liquidity ratio) is considered while calculating the benchmark lending rate — the Base rate.
At present, CRR is 4.75 per cent. The central bank had reduced CRR by 125 bps to improve liquidity situation during January-February. CRR is not only used a liquidity tool but also indicates the monetary policy stance of the central bank.

Capital infusion
Regarding fund raising, Chaudhuri said SBI was in talks with the government for capital infusion and he expected the government to infuse about Rs 4,000 crore this financial year in the bank.
The government is committed to infuse capital in the PSBs and retain its stake, financial services secretary D K Mittal had told reporters on a sidelines of an event last year in Mumbai. However the Rs 8,000 crore capital infusion for SBI came only at the end of the last financial year after from the government after dilly-dallying on the issue for the whole year.
Capital adequacy ratio for the SBI at the end of the first quarter stood at 13.17 per cent.
On associate banks’ merger, Chaudhuri said that it was currently not on the priority list of the bank and he could not say if any associate bank would be merged this financial year. The SBI board has already cleared the merger of one associate bank this year.

SBI chief gets taste of RBI's tongue-lashing

Chennai, Aug 27: His predecessor, O P Bhatt, had spent the better part of his five-year tenure in a bitter war of words with the Reserve Bank of India over teaser home loans and sundry other things. State Bank of India Chairman Pratip Chaudhuri obviously didn’t want that to continue — so his first public statement after taking over in April last year focused on why SBI should not get into a state of perpetual conflict with the regulator.
Chaudhuri’s best efforts apparently have not been enough to soothe the RBI’s nerves and to stop it from seeing SBI as a problem child. A week after he suggested the abolition of the cash reserve ratio (CRR) — the proportion of deposits banks need to park with the regulator — RBI Deputy Governor K C Chakrabarty bluntly said on Monday — Chaudhuri “has to find some other place” if he could not work as per the central bank’s regulatory environment.
Chakrabarty was responding to a question from the audience at a conference on systemic risk here. The tongue-lashing took many by surprise, as it was probably the first time that a top RBI official resorted to such a public reprimand for the chairman of the country’s largest bank. Chaudhuri had said keeping the CRR balance with the RBI was costing the banking system Rs 21,000 crore. He had questioned why the CRR was not applied to insurance companies, non-banking financial companies and mutual funds, which were also mobilising public deposits. “CRR doesn't help anybody and it is unfairly put on the banks,” Chaudhuri had said.
While the RBI used to pay interest on CRR funds, that was withdrawn a few years back. Interestingly, SBI has reduced the lending rate on some segments such as retail and small and medium enterprises and said the reduction was due to a cut in the CRR and not due to a policy rate or repo rate cut. The RBI had reduced the repo rate in April by 50 bps to eight per cent.
Meanwhile, to another query as to “which banking tree needed to be protected”, Chakrabarty, drawing a forest fire analogy, said: “Obviously, it is SBI. It is too big a tree. If you fail to protect the SBI tree, it (the fire) may spread to other banks and it will turn out to be a systemic failure.”

20% rise in fake notes in a year, says RBI

Mumbai, August 26: Fake notes are rising at an alarming rate. According to the RBI, the number of counterfeit notes detected in India jumped by 20% in the period between 2010-11 (435,607) and 2011-12 (521,155).
Total banknotes in circulation grew by 7% during the same period. But along with the problem, countermeasures have also increased. “Increased awareness among individuals and more note sorting machines in banks have led to detection of more fake notes,” said a senior Reserve Bank of India (RBI) official. Of the total counterfeits detected, 93% were in bank branches.
The number of note sorting machines, capable of detecting counterfeits, jumped from 4,000 at the end of April 2011 to 10,394 at the end of December 2011. RBI has advised banks to ensure that all notes received by them are processed on such machines before being re-issued.
Companies, too, are working on machines that will detect fake notes and the NCR Corporation is testing Bunch Note Accepting machines that function like ATMs, but have additional features of accepting cash from individuals and detecting counterfeits.

SBI, BoI allowed to operate in Pak

India and Pakistan have agreed to allow two banks each from both the countries to set up branches across the border, Governor of the State Bank of Pakistan, Yaseen Anwar said on Wednesday.
“We have held discussions with the Reserve Bank of India and both sides have agreed to issue a full banking licence to two banks of each country,” Anwar told PTI on the sidelines of a conference organised by Institute of South Asian Studies.
The two Indian banks that will be allowed to operate in Pakistan are State Bank of India (SBI) and Bank of India (BoI). On the other hand, quasi-state owned National Bank of Pakistan and privately-owned United Bank Ltd will be running full-banking operations across the border, once licensed by India. “It will take few months to approve Indian banks’ licences on receiving them,” he said. “We are ready to go tomorrow to India” to set up banking operations, Anwar said.
Discussions have been held with RBI Governor D Subbarao to issue banking licences, he said, adding that the process will help normalise trade relations between India and Pakistan. Officials from the Bank of India in Singapore recently visited Karachi for setting up an office in Pakistan, said Syed Hasan Javed, Pakistan High Commissioner to Singapore.

There is room for rate reduction: SBI chief

Citing State Bank of India’s example, finance minister P Chidambaram on Saturday prodded other banks to reduce EMIs to boost demand. The daily loan sanctions of the country’s largest lender have increased from 400 cars to 1,200 after EMIs were reduced from Rs 1,766 a lakh a month to Rs 1,699 a lakh a month.
Taking a cue from the minister, SBI chairman Pratip C Chaudhuri told TOI in an interview that there is scope for a further reduction in rates but the bank will be selective. Instead of an across-the-board reduction, SBI will look at sectors where lower EMIs would help push demand. Excerpts:
The FM used SBI’s example to ask other banks to reduce EMIs…
Our decision on consumer durables is the result of what the Reserve Bank has done. We decided that we will share the benefit of whatever excess SLR we are sitting on. Today, if you look at the loan demand from the corporate sector, there are very few projects that are taking off and investment is also low in power, steel or cement. As far as working capital is concerned, people are borrowing below the base rate, and they are borrowing through commercial paper. So, you can’t just push loans in this space. So, we have decided to focus on the retail side and try to push whatever demand is possible.

But why not home loans too?
In case of auto loans, the response is quicker. You sanction a loan today and the person purchases a car in two days. In case of home loans, it takes a while — if I sanction a loan today it will take a few months, if not more, for the entire amount to be disbursed.
Is there further room to reduce rates, even if it’s on the retail side?
Yes, there is room for reduction. We will reduce rates wherever there is the possibility of increasing demand. You look at the retail outlets, there is an immediate increase in demand whenever there is a discount. That’s been our experience too. We cut interest rates for SMEs and now we have done it for cars, where the demand has increased. The only way to improve sentiment is to get people to buy and get people to invest.
The FM also said that he will try to resolve problems related to environmental clearances and land acquisition. What else needs to be done?
Public sector companies and some core sector players are sitting on cash, which needs to be deployed. For instance, the railways can be asked to invest in adding new lines and capacity. Similarly, NTPC and other PSUs need to accelerate capacity addition so that others also join later.
But there are sectors such as roads where companies are unable to take up new projects as they cannot raise fresh equity…
The problem is not due to their ability to raise equity. Agencies such as NHAI, state PWD and state electricity boards are delaying payments. NHAI is invoking guarantees which is making it difficult for companies and creating uncertainty. We have flagged this issue too.
Will lending also get a boost once some of the sectoral issues such as those in power, textiles, and telecom are sorted out?
We do not have much exposure to discoms. But the fact is that they cannot run up losses and delay payments. It will certainly help if the problems are resolved. In other sectors, such as textiles, companies have suffered due to exchange rate-related problems and some of them were over leveraged. In case of telecom, there is no problem with companies that had got licences prior to 2007. They are very strong, enjoy good ratings and have the ability to put more capital. Now that spectrum can be used as a collateral, we will be in a better position to lend.
What about your own problems with NPAs? How much was it due to loan restructurings in 2008?
The worst is over and in the next two quarters, things will look better. Some of it is due to 2008. The outlook then was so buoyant that people lined up huge capital expansion and some of the demand did not materialize.
Is there any progress on capital infusion given that there are suggestions that the government may delay it due to tight fiscal position?
We will get it soon. Last year too, we received capital and the government is keen to demonstrate that it is behind banks and expanding the economy. Our internal generation is quite good and we have taken steps to use capital more efficiently. So, there is no rush at the moment.

Proposed guidelines of RBI on Banks' exposure State Bank of India, ICICI Bank to be affected

New Delhi, August 20: The SBI and ICICI Bank are among those that would be affected if RBI implements its proposed guidelines on banks' exposure to their group entities, global credit rating agency Moody's said today. Last week, the Reserve Bank released draft guidelines to limit banks' exposure to their own group non-financial and financial entities.
As per Moody's, the proposed rules would hurt companies that depend on parent banks for capital and brand support, particularly those with large international operations, or those that operate insurance, securities or asset management businesses that need capital and liquidity support to meet their business needs.
"If the RBI adopts them, the new guidelines would be credit positive for India's banks, but credit negative for group companies that rely on parent banks for capital and brand support," Moody's Investors Service said in a report. It said the "affected banks" include ICICI Bank, State Bank of India, Bank of India, Bank of Baroda and Kotak Mahindra Bank.  "The guidelines would lead these banks to re-examine the financial support they provide to group businesses as anything exceeding the stipulated limits would be detrimental to their standalone capital calculations and thus their business growth," Moody's said.
The rules, it said, would benefit India's banks because they would reduce their concentration and contagion risks from group activities. The guidelines, if implemented, would limit to 5 per cent of paid-up capital and reserves a bank's exposure to a single group non-financial entity, while the maximum exposure to regulated financial services companies would be 10 per cent. However, Moody's said that for the time being, these draft guidelines do not help the banks in any way cope with their immediate asset quality challenges owing to the difficult environment.

Banks offer festive bonanza to customers

Mumbai, August 18: With an eye on getting business in the festive season, banks have started offering discounts on interest rates and waiving processing fees to attract retail customers. Mumbai-based Union Bank of India on Saturday announced it has waived processing fees on home and auto loans from August 15 to January 26.

State Bank of Bikaner and Jaipur, an associate of the State Bank of India, has found an innovative way to attract customers. While the bank is giving a discount of 25 basis points on retail loans across the board, customers who are applying for a car loan above Rs 10 lakh on line will get an additional rebate of 25 basis points, thus making the effective interest rate at 10.5 per cent which is the base rate of the bank, said Shiva Kumar, managing director, SBBJ. He added, the bank was offering 10.75 per cent for home loan customers, and those who apply on line will get a rebate of 10 basis points.

With credit growth slowing down in the current financial year amid high interest rate, banks are seeing the festive season as an opportunity to boost their credit portfolio. State Bank of India, for example, had said that it expected growth in retail credit to offset the impact of slowdown in corporate credit. The country's largest lender had earlier announced the cut in the interest rates for home and auto loans, immediately after Reserve Bank of India announced a one per cent SLR cut in July. SBI's home loan rates stand at 10.25 per cent for home loans up to Rs 30 lakh and 10.4 per cent for the loans above Rs 30 lakh. It also slashed its interest rate on car loans by 50 basis points to 10.75 per cent across the tenors.

Another public sector lender Andhra Bank is expected to take the decision about cutting interest rates on retail products. “We will be taking a decision soon” said, K K Misra, executive director of Andhra Bank.

Central Bank of India has already launched some products and is in the process of launching few more schemes both on asset and liability side. It has launched a special 555 days fixed deposit product in which the interest rate is higher by 50 basis points that the normal deposits of that tenor. It has also launched a recurring deposit account where the customer has the flexibility of putting the money according to his/her adjustment. Normally in the recurring accounts one has to put a fixed sum every month. “We will be waiving the processing fees on the retail loans, and where there is scope of reduction of interest rates we will cut the rates” said Ram Sangapure, general manager (retail), Central Bank of India.

Lok Sabha to decide on Banking Act changes

New Delhi, August 19: The almost seven-year wait for amending the Banking Regulation Act is likely to end on Wednesday, when the Lok Sabha will take up amendments in the Banking Regulation Act for consideration and passage. This is one of three financial sector Bills aimed at ushering in a new phase of reforms.
The Lok Sabha’s list of business for August 22 states that Finance Minister P Chidambaram will move the Banking Laws (Amendment) Bill 2011 to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.
India Inc is keenly awaiting passage of this Bill as this will push the Reserve Bank of India to issue new banking licences.
Enactment of this Bill will provide new powers to the central bank. It proposes to confer upon the Reserve Bank the power to call for information and returns from the associate enterprises of banking companies, and also to inspect the same, if necessary. The Bill also proposes to empower the Reserve Bank to supersede the board of directors of a banking company for a total period not exceeding 12 months, and appoint an administrator to manage the banking company during the said period. The RBI feels that such power will help it in regulating new as well as existing entities in a better manner.
Another key feature of the Bill is increasing the voting rights. The Bill had originally proposed raising the ceiling on voting rights of shareholders of nationalised banks to 10 per cent from 1 per cent.
For private sector banks, the Bill talked about removing the existing restriction on voting rights limited to 10 per cent of the total voting rights of all the shareholders. However, it is believed that the Government has accepted the Standing Committee’s recommendation of increasing the limit of voting rights to 26 per cent from the existing 10 per cent.
It is expected that higher voting rights will give investors more leeway. The present Bill contains some provisions of the previous Bill. The previous Bill for amendment in Banking Regulation was introduced in the Lok Sabha on May 13, 2005. Even after the Standing Committee’s recommendation, strong opposition from its then allies the Left Parties forced the Government to allow the Bill lapse in 2009 when the term of the 14th Lok Sabha ended.

Banks begin reviving special schemes

Special schemes are back in focus as bank deposits continue to grow only at a sluggish pace. With no relief in sight for further monetary policy easing, banks have also increased interest rates on long-term deposits, to garner much needed liquidity.
State-run Bank of Baroda on Monday revised deposit rates upwards by 25-65 basis points (bps). M D Mallya, chairman and MD, said it had realigned the rates, keeping in view the sticky inflation and entrenchment of inflationary expectations. The bank has introduced a term deposit scheme of 1,111 days, offering an interest rate of 9.15 per cent. This is 15 bps higher than the normal term deposit of similar tenors.
Other public sector lenders and small private banks are also offering such schemes, where depositors would have to lock-in funds for an exact number of days. "The only attraction in such schemes is a higher rate of interest as compared to normal deposits of the same tenor bracket," said a general manager of a large public sector bank (PSB).

Central Bank of India raised rates on special deposit schemes by 20-25 bps, effective August 6. UCO Bank extended its schemes till September and also increased the maximum deposit cap to Rs 5 crore. In the past fortnight, PSBs have also realigned the rates offered on deposits up to Rs 15 lakh, on Rs lakh to Rs 1 crore and for Rs 1 crore and above.
In October 2007, the Reserve Bank of India (RBI) had asked banks to withdraw special schemes, as the rates of interest offered on these deposits were not in tune with those on normal deposits.
"No bank should discriminate in the matter of interest paid on deposits, between one deposit and another, accepted on the same date and for the same maturity, whether such deposits are accepted at the same office or at different offices of the bank," it had told banks.
To stay within regulatory limits, some banks exclude the special scheme tenor from the normal deposit bucket. For instance, a bank might offer 50 bps more on a tenor of 1,000 days, as compared to tenors of up to 999 days.
Akeel Master, partner, KPMG, said the trend might not sustain for long, as higher interest rates will have an impact on banks' margins in the absence of a corresponding growth in advances. "Banks that are under pressure from mismatch in asset-liabilities for certain tenors must have been compelled to tweak interest rates accordingly," he said.
RBI’s latest data shows bank advances, as of July 27, had grown 17.2 per cent over a year, while deposit growth lagged at 13.8 per cent .
The central bank has projected deposit growth of 16 per cent in the annual monetary and credit policy for 2012-13.
"Concerns that deposit growth has significantly been slower than credit growth for a prolonged period of time is something we have been watching closely and that was one of the issues we discussed with bankers on Monday," RBI Deputy Governor Subir Gokarn had told Business Standard in an interview after the first quarter policy announcement last month.
He said RBI might put out a projection in the second-quarter policy review to be announced on October 30. It is slated to announce the mid-quarter policy review on September 17.

Finance ministry wants RBI to pay 7% interest on CRR deposits

New Delhi, August 12: The finance ministry has suggested that the Reserve Bank of India pay 7% interest on the mandatory deposits parked with it by banks, one among several measures proposed to lower rates even if the central bank does not ease the monetary policy. Finance minister P Chidambaram will take a call on the proposal, which would eventually go to the RBI.

“This is one among the many measures we have suggested to bring interest costs down,” a senior finance ministry official told ET on condition of anonymity. Chidambaram had last week indicated that the government was aware of the high interest rates and said “carefully calibrated risks” could be taken to stimulate investment, suggesting some innovation from the government to lower rates.

Banks have to mandatorily park a percentage of their deposits, called the cash reserve ratio, or CRR, with the RBI. The central bank had stopped paying interest to banks on CRR in 2007. Finance ministry officials are of the view that if the RBI were to pay interest at the reverse repo rate, or the rate at which banks park their surpluses with it, then banks will be able to lower their deposit rates, and eventually, lending rates will fall. At present, the CRR rate is 4.75%.

If the RBI were to agree to the proposal, banks will earn 7%, the reverse repo rate, on this portion of funds, helping them lower the cost of funds that can be passed on to borrowers. The RBI had not cut rates in its June 18 policy review because of the high inflation and lack of fiscal consolidation from the government. An RBI official said the move may not bring down interest rates, as effective cuts in policy rates have not yet been transmitted by banks to borrowers.

“We have not seen any real transmission in spite of a 100 basis points SLR (statutory liquidity ratio) cut in July, 75bps CRR cut in March and 50 bps rate cut in April,” the official said. “So how will this (paying interest on CRR) help is still a mystery to us.”

PM plays down Moody's forecast

Prime Minister Manmohan Singh, talking to reporters at Rashtrapati Bhavan, where he was attending the swearing-in ceremony of Vice-President Hamid Ansari, today played down the Moody’s forecast of 5.5 per cent gross domestic product (GDP) growth in the current financial year. He expressed hope that it would be better than the 6.5 per cent recorded in 2011-12.

Earlier this week, Moody’s Analytics, the research unit of ratings agency Moody’s Investors Service, had cut India’s growth forecast to 5.5 per cent, citing a lack action from the government or the Reserve Bank, despite a broad-based slowdown and a poor monsoon.

The government is already under pressure of a looming ratings downgrade to junk, following the Standard & Poor’s April 25 revision of the long-term rating outlook of the country to negative from stable.

Asked to comment on Moody’s analysis of the Indian economy, Singh said: “It is a cause of concern, but one should not draw unwarranted conclusions.”

“The fundamentals of the Indian economy are strong. Investments and savings are among the highest in the world. I am hopeful we will do even better than the 6.5 per cent growth performance of last year,” he added.

Moody’s Analytics Senior Economist Glenn Levine had said: “There has been little policy response from either the Reserve Bank of India or the government and, with global uncertainty dragging on, we see nothing on the horizon to lift the economy from its funk.”

While releasing its outlook on India’s investment scenario, S&P Credit Analyst Takahira Ogawa had said in April: “The outlook revision reflects our view of at least one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political set-up.”

The government, on its part, has been trying to improve its record on the reform front since then, but it is yet to make a headway.

Keen to prevent a downgrade of India’s sovereign rating by S&P, which could trigger an exodus of foreign investors, Singh had told the Congress party last month that there was no option but to raise diesel prices by at least Rs 5 a litre after the Presidential election.

Prime Minister’s Economic Advisory Council Chairman C Rangarajan had also said yesterday that the overall growth rate for the current year could be slightly better than last year’s 6.5 per cent. He said industrial production should pick up in the second half of the year and agriculture activities’ contribution to GDP should also be higher.

RBI wants banks to cut base rates, not select lending rates

Mumbai, August 6: With banks led by the country’s largest lender State Bank of India (SBI) choosing to cut spreads on certain categories of loans instead of the base rate, deputy governor Anand Sinha today said the Reserve Bank would like the banks to cut the minimum lending rate to better carry forward its monetary policy measures.

“The base rate is supposed to be responsive to the changes in monetary conditions Reserve Bank would definitely want the responses to be through the base rate,” Sinha said at an IDBI Bank event here. Sinha further said an RBI committee on interest rates, headed by him, is looking into these aspects.

The committee, supposed to come out with report last month, has made progress and will be submitting it soon. Replying to a question, Sinha said banks are unable to cut their base rates as per the monetary policy changes, because they carry the burden of fixed rate deposits and fixed costs to service that over a longer-time.

“Banks are not able to respond quickly to the changes in monetary conditions or monetary policy signals because they carry a fixed cost over an extended period of time,” he said, flagging this as a subject of discussion with bankers during deliberations on floating deposit rates.

On asked if the RBI which has been discussing floating rate deposits but also stressing fixed rate loans is concerned over potential asset liability mismatches, Sinha replied in the affirmative. “Asset liability concern, in the long-term, yes,” he said, adding that so far banks have been successful in managing the longer gestation infrastructure projects.

Though, since January, the RBI has cut repo rate by 50 bps and CRR by 125 bps, and a 100 bps SLR cut last week, the effect of the same has not been passed on to the customers by banks by lowering interest rates as a whole. Instead, banks have been cherry-picking interest rates reduction, and have not lowered their base rates, which would automatically lead to a similar reduction in interest rates for both existing as well as the new customers.

Some banks like State Bank and Union Bank of India, among others, have slashed interest rate on certain loan products like home loans and lending to SMEs, but have not cut the base rate, or the minimum rate of lending.

Cutting fuel subsidy can cause 2.6% spike in inflation: RBI

New Delhi, August 6: Reserve Bank ofIndiaGovernor D Subbarao has said the proposed elimination of fuel subsidy can lead to a massive 2.6% spike in inflation, an assessment that makes it even more difficult for the government to bite the bullet.

While a hike in diesel and cooking gas prices may be long overdue, the government is hard-pressed to contain inflation ahead of crucial assembly polls inGujaratand Himachal Pradesh later this year. A hike in the price of diesel, which is used as fuel for transporting goods, immediately leads to a spiral in the wider economy.

Subbarao, who shared his assessment with Parliament’s standing committee on finance on Monday, pitched for a healthy single-digit growth coupled with low inflation. The RBI governor‘s approach was in stark contrast to the former economic advisor to the government, Kaushik Basu, who has said that the country can settle for an 11% inflation in the event of 10% growth. “The ideal situation would be a 7% growth and 5% inflation,” the RBI governor told the panel, as he appeared to emphasise on the need to contain price rise.

However, the government is not completely convinced with the central bank‘s approach. A recent note from the government to the parliamentary panel expressed its disquiet over the central bank’s decision to keep money supply tight. At the meeting of the standing committee, the panel’s chairman, Yashwant Sinha, said there was a difference in the approach of the government and RBI. The high subsidy bill and lower tax revenue have resulted in the government’s fiscal projections for 2011-12 going awry. The fiscal deficit during the fiscal was 5.8%, wider than the initial target of 4.6%.

In his presentation before the panel, Subbarao said that while liquidity was not an issue there was lack of appetite for investment. He agreed that deficient monsoon, high fiscal deficit, food inflation, suppressed inflation and rising global commodity prices posed a major challenge to the government. According to a member of the standing committee, the governor conceded that there was a sharp decline in investments. “It has now gone into the negative territory,” said a member, who did not wish to be identified.

What is adding to the problem is the reluctance of the banks to pump funds into the economy. “The banks have large exposures in depressed sectors such as power, fertiliser, civil aviation and real estate. How long can the banks go on extending loans to these sectors,” asked a member, who participated in the deliberations. Members of the opposition parties on the panel said the risk-averse approach of the banks was hurting critical sectors that require large investments.

Recruitment for the post of managers in RBI

Applications are invited for the posts mentioned below in Reserve Bank of India (RBI/Bank) from Indian citizens, citizens of Nepal and subjects of Bhutan, Tibetan refugees (who came over to India before 1st January 1962) and persons of Indian origin who have migrated from Myanmar and Sri Lanka with the intention of permanently settling in India and in whose favour Eligibility Certificates have been issued by Government of India.


 Manager (Technical – Civil): NO. OF POST: 02
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Knowledge helpline for SBI staff launched

Reserve Bank Governor D. Subbarao launched a ‘knowledge helpline’ for the staff of State Bank of India. The Web-based service, will be useful to the employees to get their doubts clarified about banking and in turn be more helpful to the customer in their service. The RBI Governor, who also inaugurated the “Swarn Udyan” and the renovated hostel blocks was the chief guest at the golden jubilee celebrations of the State Bank Staff College here on Friday. Speaking on the occasion, he said banks have to regain the trust and confidence of people. Banking sector is going to be involved and engaged in financial inclusion. It is required to understand the psychology and economy of poor people to enhance financial inclusion. There is a need for innovative infrastructure financing in India as we are supply constraint economy. SBI Chairman Pratip Chauduri and other dignitaries from the SBI, the RBI, other banks and educational institutions took part in the event. The State Bank Staff College set up in 1961 has emerged as a premier training institute for the banking industry. The college trains more than 6,000 officers every year, mostly middle- and senior-level executives, in credit management, international banking, leadership development, marketing skills, negotiation skills and communication skills etc. Several public and private sector banks in India as well as banks from developing countries like Sri Lanka, Ethiopia, Ghana, Maldives, etc., also send their officers for training. Several Govt. officials of revenue intelligence, enforcement directorate, CBI, income tax, central vigilance commission etc., are also trained in banking related areas at the College.

Trying to increase coverage in retail space: Pratip Chaudhuri

Mumbai, August 2: In an interview with ET Now, Pratip Chaudhuri, Chairman of State Bank of India, gives his views on the RBI monetary policy and rate cuts. Excerpts:

 

ET Now: Firstly, how much of a benefit will SBI get from the cut in SLR announced by the RBI in this policy?

 

Pratip Chaudhuri: We thank the RBI. The policy had become two-dimensional. People used to only talk about the repo rate and a possible CRR cut. But the RBI added a third dimension of injecting liquidity beyond these two instruments, i.e. repo rate and CRR cut. Last time they increased the refinance component on export credit from 15% to 50%. This has given us an additional Rs 5000 crore.

 

The SLR cut has released about Rs 10000 crore for SBI. So what it means to my mind is that Rs 10000 crore which was locked up in low-yield SLR security, we would have greater urgency to deploy that in productive sectors.

 

ET Now: How much is your present SLR holding and would you look at taking benefit of the SLR reduction limit which was announced by the Reserve Bank of India on Tuesday?

 

Pratip Chaudhuri: Our SLR holding is currently about 28%. With this 1% reduction, it would become about 4% surplus. So you can either sell, depending on where that particular scrip is trading. Even if you don't sell, you can always put it into LAF and get liquidity. So roughly we have Rs 40000 crore of extra liquidity.

 

ET Now: Is the cut in your base rates as well in the pipeline then?

 

Pratip Chaudhuri: Not a broad-base rate cut. Only car loan and home loans are being targeted because we think that the instrument of interest rate should be used for increasing the credit flow.

 

So we think that the impact of cutting interest rates would be highest in these 2 segments -- home and car loans. No matter what is the interest rate for the corporate sector, there is hardly any demand for term loans. Working capital loans are also not in high demand because currently the commercial papers are going at about 9.3 to 9.7, which is below the base rates of all banks. So we are trying to increase our coverage in the retail space.

SBI reduces interest rate for deposits over 5 years from Aug 7

Mumbai, August 2: State Bank of India (SBI) on Thursday reduced interest rates for deposits with a term of more than five years to 8.5%, effective August 7. The bank currently offers 8.75% for deposits of up to Rs. 1 crore and 9% for deposits above Rs. 1 crore in this basket. “This is purely an asset-liability mismatch decision,” said SBI Deputy Managing Director and Chief Credit Risk Officer Atanu Sen. “Honestly speaking, we found that the portion of depositors in this basket is quite small. We have not touched other maturity baskets.”

 

SBI’s selective deposit rate cut comes a day after the country’s largest lender reduced its home and auto loan rates, citing extra liquidity support through the Reserve Bank of India’s decision to pare banks’ mandatory bond holding limit to 23% of total deposits from 24% earlier. The bond holding limit is called the Statutory Liquidity Ratio (SLR). SBI said the SLR cut gives it additional liquidity of about Rs. 10,000 crore and the management had decided to pass this on to customers and expand the balance sheet.

 

SBI reduced home loan rates from 10.75% to 10.25% for loans up to Rs. 30 lakh while loans above that will be offered at 10.40%. Auto loan rates were reduced from 11.25% to 10.75%.

 

While the reduced rates are for new customers, existing borrowers can switch to them by paying 1% of the outstanding loan amount to the bank as fees. It said this was not an early payment penalty. “Cost is a factor of time,” said P. Pradeep Kumar, deputy managing director and group executive for global markets at the bank. “We are offering the new rates now based on the existing cost. Even then, our rates are the most competitive in the industry.”

 

PTI reports: The bank said that sluggish growth in the property market prompted it to cut its annual home loan growth target. The bank, which cut its home loan rates on Wednesday, was earlier targeting a 25 per cent growth in its home loan book. Such loans are expected to grow by only 15-20 per cent, the bank said. “There has been a drop in home registrations and we want to be realistic and now expect that the home loan segment will grow by only 15-20 per cent,” Mr. Atanu Sen, Deputy Managing Director said, while addressing a press conference.

SBI cuts interest rates on Home & Car loans from August 7

Mumbai, August 1: The country's largest lender State Bank of India will cut rates on its home and auto loans. The move comes close on the heels of the Reserve Bank of India cutting the statutory liquidity ratio for banks in its policy statement on Tuesday.

 

SBI will cut rates on home loans by 25 bps and on auto loans by 50 bps, the bank's chairman Pratip Chaudhuri told ET NOW in an exclusive interview. The new rates will be effective from August 7. The bank, however, is not in a position to cut its base rate at present.

 

"We need to use interest rates as an instrument to increase credit flow. We are targeting home and auto loans because the pass through in both these segments will be the fastest," Mr Chaudhuri said. SBI's asset liability committee met on Wednesday evening to take a call on interest rates following the RBI's policy.

 

According to Mr Chaudhuri, "there is very weak corporate demand and it won't make business sense to cut rates for corporates at this juncture." However, he added that a pick-up in demand from corporates may lead to the bank looking at reducing rates for corporates.

 

SBI has in the recent past cut rates on its SME and auto loan portfolios but this is the first home loan rate cut by the bank in a few quarters.

 

Though the bank hasn't taken any call on deposit rates yet, Mr Chaudhuri mentioned that SBI is seeing a surfeit of deposits at a time when the rest of the banking industry is starved of deposits. The bank will declare its Q1 earnings on August 10.

 

PTI Reports:  New Delhi, August 1: State Bank of India today slashed lending rates on car and home loans by up to 0.5 per cent, a day after one per cent cut in SLR by the Reserve Bank. SBI has reduced interest rate on home loans of up to Rs 30 lakh to 10.25 per cent from existing 10.50 per cent (after 0.25 per cent concession over the card rate), a senior bank official said.

 

On the home loans of beyond Rs 30 lakh but less than Rs 75 lakh, the new rate will be 10.40 per cent against the existing 10.75 per cent, down 0.35 per cent.

 

The new rates will be effective from August 7, the official added. The base rate or minimum lending rate of SBI stands at 10 per cent. Base rate is the benchmark rate below which a bank cannot lend.

 

With regard to the car loan, the reduction is to the extent of 0.5 per cent. The new car loan would be 10.75 per cent against the existing rate of 11.25 per cent for a seven-year loan. Now for every Rs 1 lakh, a customer has to pay Rs 1,699 EMI against Rs 1,725 per month earlier. SBI claimed this as the lowest EMI. With the reduction, a borrower would end up saving Rs 312 per year on every one lakh.

 

Yesterday, RBI in its quarterly monetary policy review reduced Statutory Liquidity Ratio (SLR), the amount of deposits that have to be invested in government bonds and other liquid assets, by 1 per cent. RBI Governor D Subbarao cut the SLR to 23 per cent, thereby releasing around Rs 68,000 crore of additional liquidity into the system, even as he left all the key interest rates unchanged in the anti-inflationary stance.