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Banking News 23.02.16

 

 

Banking News: February 23, 2016

 

Here is an endeavour to bring you in one folder all banking related unedited news/columns/articles/opinions/analysis etc appearing in major business dailies The compiler assumes no responsibility for the authenticity and reliability of the news. Readers are requested to go through the official instructions before acting upon any news articles and views appearing herein.

 

Compiled by: Anup Sen

 Salt Lake City, Kolkata 700 064

 

 From E-Group, Banking-News

 

 

Rupee is seen crossing 70 a dollar in four months

 

The Business Standard

Published on February 23, 2016

 

 

Mumbai, February 22: The Indian rupee has inched towards its record low of 68.91 a dollar in the one month rate segment in the non-deliverable offshore market.

 

The rupee closed at 68.61 a dollar in the onshore Indian spot market and in the offshore market also; the spot rate remained in and around the same level. However, the offshore traders are expecting the rupee to breach its record low of 68.87 a dollar, hit on August 27, 2013, in the Indian market.

 

However, currency analysts pointed out, the expectation could be nothing more than how the forward rates are calculated. The forward premium is currently at 6.5 to seven per cent.

 

Melting Down

v          The Indian rupee has inched towards its record low of 68.91 a dollar in the one month rate segment in the non-deliverable offshore market

v          The rupee closed at 68.61 a dollar in the onshore Indian spot market and in the offshore market also, the spot rate remained in and around the same level

v          However, the offshore traders are expecting the rupee to breach its record low of 68.87 a dollar, hit on August 27, 2013, in the Indian market

v          However, currency analysts pointed out, the expectation could be nothing more than how the forward rates are calculated

 

Adding one month’s forward premium, the dollar-rupee exchange rate crosses the record low of rupee. Going by the same calculation, rupee is seen crossing Rs 70 in four months.  The rupee dropped on renewed demand for the American currency from banks and importers on the back of higher greenback abroad amid sustained foreign capital outflows.

 

Even the persistent rise in equity market failed to restrict the rupee's fall, a foreign-exchange dealer said. It hovered in a range of 68.70 and 68.50 during the day. The dollar index was up by 0.53 per cent against a basket of six currencies in the late afternoon trade. The yen was weaker against its rivals during Asian trade on Monday, as investors opted to sell the safety of the Japanese currency amid Tokyo stocks' steady gains.

 

Oil prices recovered in Asia today after a steep fall in the previous session, with the US crude oil back above $30 a barrel as traders mulled the impact of a potential freeze by key producers. Pramit Brahmbhatt of Veracity Financial Services said, "The rupee started on a negative note and we saw the rupee depreciating as day progressed thus by strengthening the dollar. Despite positive cues from the domestic equity market, where Nifty gained 24 points, a surprising rally in the dollar kept the rupee under pressure.

 

Thus, to end the day, rupee closed with a loss of 15 paise at 68.61 levels. Trading range for the spot dollar/rupee pair is expected to be within 68.20 to 68.80 levels. Meanwhile, the benchmark Sensex ended higher by 79.64 points or 0.34 per cent. In the forward market, the premium for dollar firmed up further on sustained paying pressure from companies.

 

The benchmark six-month premium July contract moved up to 196-201 paise from the last weekend's level of 196-198 paise and far forward January 2017 contract also moved up further to 422-424 paise from 416.5-418.5 paise previously.

 

The RBI (Reserve Bank of India) fixed the reference rate for the dollar at 68.5517 and for the euro at 76.1952. In cross-currency trades, the rupee recovered sharply against the pound sterling to end at 96.97 from 98.34 on last Thursday and also firmed up against the euro at 75.85 as against 76.08 previously. However, the home unit dropped against the yen to finish at 60.54 per 100 yen from 60.13.

 

 

From E-Group, Banking-News

 

 

PSB Mergers Top Priority under Banking Reforms

 

Dheeraj Tiwari

The Economic Times

Published on February 23, 2016

 

 

New Delhi, February 22: Consolidation of state-run lenders has climbed to the top of the banking reforms agenda as the cleaning up of their account books gets under way. Mergers have been accorded the highest priority at the second Gyan Sangam, the government's annual banking conclave that's scheduled to be held in the first week of March.

 

Gross non-performing assets (NPAs) of many banks have climbed to nearly 10% after the Reserve Bank of India cracked the whip, forcing them to set aside large sums to cover bad loans. Most have reported a sharp drop in third-quarter profit or posted losses. RBI wants the clean-up to be completed by March 2017.

 

"After the Reserve Bank of India asset quality review, we know where they stand in terms of bad loans," said a senior government official. Transparent balance sheets allow valuations to be determined fairly amid a growing consensus that this is the right time to get weaker banks absorbed by the stronger ones.  The idea has found support among some lenders that have evinced interest in consolidation by way of merger or acquisition. "Some banks are open to the idea," said another government official.

 

The government is also hoping the proposed bank board bureau, which will start functioning from April 1, will help strengthen the developing accord on consolidation. "The bank bureau can also come out with some suggestions and act as a mediator between banks to work out various issues," said one of the officials cited above. The government has said it will follow up public sector bank reforms by setting up a Bank Investment Committee.

 

Punjab National Bank is open to acquiring other state-run lenders, said managing director Usha Ananthasubramanian. "Somewhere you have to bite the bullet," she said, adding that the idea was to create large entities of global stature that will also alleviate concerns on capital adequacy.

 

The government hasn't pushed banks toward mergers, leaving them to come up with proposals. But that's unlikely to happen given the opposition of bank unions in general to mergers. Last year, after the government Indra Dhanush revamp plan for state-run banks, finance minister Arun Jaitley had said that the idea was to first strengthen the lenders. "After this, if there is a fragile bank, we are looking at consolidation with stronger banks," he had said.

 

The government is also expected to revive an old report that had suggested merger options based on various criteria such as geography, business mix and information technology systems. The last transaction in the public sector bank space was the takeover of State Bank of Indore by State Bank of India in 2010. SBI took over State Bank of Saurashtra in 2008. A similar exercise involving Bharatiya Mahila Bank and SBI has been on hold for some time.

 

 

 From E-Group, Banking-News

 

 

Bank officers to strike work on Budget Day

 

The Business Line

Published on February 23, 2016

 

 

Kochi, February 22: The Bank Employees Federation of India (BEFI) has extended its support to the February 29 nationwide strike announced by the All-India Bank Officers Confederation (AIBOC).

 

The AIBOC, the largest officers’ union in the banking industry, has asked its members to go on a day’s strike to press for the reinstatement of PV Mohan, its all-India vice-president, who was dismissed by Thrissur-based Dhanlaxmi Bank. The bank management had dismissed Mohan, a senior manager, last year for alleged indiscipline.

 

Mohan is also the General Secretary of the Dhanlaxmi Bank Officers’ Organisation. Following a 32-day strike by Dhanlaxmi Bank officers, the management had agreed, in the presence of the Kerala Home Minister, to take Mohan back.

 

However, union leaders say that the bank management went back on their commitment and refused to reinstate Mohan. A sit-in protest has been going on in front of the bank’s head office since January 1.

 

CJ Nandakumar, General Secretary of BEFI, Kerala, said the members would participate in all protest marches and sit-ins to demand the immediate reinstatement of Mohan.

 

 

From E-Group, Banking-News

 

 

Bad loans: Overreaction will do more

harm than good: Assocham tells RBI

 

The Daily News & Analysis

Published on February 23, 2016

 

 

New Delhi, February 22 (ANI): Concerned over a high level of non-performing assets in the banking sector, ASSOCHAM today impressed upon the Reserve Bank of India and the government to handle the situation in an extremely prudent and cautious way since any over-reaction can be more damaging to the country's vulnerable financial system.

 

"It is not correct to assume as if the entire NPA problem has arisen because of the corporate promoters. While this is not time to apportion blame, the fact of the matter is that in the heady years of 8-9 percent growth and exaggerated valuation across different classes of assets, be it commodities, real estate, equities, crude oil, almost everyone got it wrong," said ASSOCHAM Secretary General, D S Rawat.

 

"After all, there are well established global brokerage and financial majors which along with the rating agencies which had projected the Sensex to touch 33,000 -35,000 levels," added D S Rawat.

 

He said if the corporate promoters were going over-board in project expansions on high leverage, the banks were equal partners with a huge financial stake while the regulator too had glossed over the inherent risks which would have crept in the system.

 

Besides, during the period 2010-14, the policy paralysis arising out of over-reach of the judiciary and the government auditor had crippled the project implementation across different industry segments.

 

Licenses were cancelled and spectrum scam was making the headlines while the government auditor was going over-board smelling foul play in project after project. The end result was that a large number of projects got stalled with banks' resources getting blocked.

 

Over and above, the meltdown in the Chinese economy has dealt a crippling blow to the entire commodity basket. Just about a few years ago, China was giving us a sense of insecurity when it was buying out crucial assets in steel, aluminum, coal and other metals across the world, particularly in Africa. Now that these commodities have lost valuations, there was a blessing in disguise that the Indian PSUs did not show as much urgency in acquiring strategic assets abroad as was done by the Chinese firms.

 

On the issue of the RBI laying tough provisioning norms for the banks, the ASSOCHAM said, "it must be ensured that no irreversible loss is done to the banks' valuation and the public faith is not eroded. The government should enhance its commitment towards recapitalization. After all, the same banks have been rewarding the government with handsome dividends as well".

 

 

 From E-Group, Banking-News

 

 

Budget to focus on ‘Bad Bank’,

Recapitalisation: SBI Research

 

The Press Trust of India

Published on February 22, 2016

 

 

New Delhi, February 22: The forthcoming budget is likely to set out a clear agenda for revival of banking sector, including setting up of a ‘bad bank’ and an aggressive roadmap for recapitalisation, SBI Research said in a note on Monday.

 

State Bank of India in the research note said it is "time for a bad bank" as lenders are dealing with close to Rs. 6.5 lakh crore of stressed assets, which do not include write-offs of bad debt.

 

A bad bank purchases or takes over troubled loans and then attempts to restructure and manage these assets in a way that maximises their value.

 

The report noted that the agenda for revival of banking sector must also include an aggressive roadmap for recapitalisation, bringing down government ownership in PSU banks, incentivising public savings, tax breaks for IFSC banking units and making wilful default a criminal offence.

 

The government must amend the tax system to ensure the country evolves into a vast integrated domestic market thus reducing its dependency on rest of the world for growth, the report added.

 

It further said the government should make a clear communication that it is committed to the path of fiscal consolidation and added that the effective fiscal deficit for financial year 2016-17 may be set at 3.8 per cent of GDP.

 

Regarding the Reserve Bank of India's monetary policy stance, it said, "We expect an aggressive monetary policy accommodation by RBI after budget and it could be more than 25 bps."

 

Meanwhile, RBI Governor Raghuram Rajan on February 2 left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy on government's budget proposals.

 

 

 From E-Group, Banking-News

 

 

A monetary policy for and by the people

 

D Sampath Kumar

The Business Line

Published on February 23, 2016

 

 

The face-off between the RBI and the government on who

 may influence whom only leaves everyone feeling tense

 

“When we speak about monetary policy, it is interference in the independence of the central bank, when he (Rajan) speaks about fiscal policy, its fine”.

 

This is an extract from a news report from one of India’s business dailies quoting an unnamed senior official in the finance ministry. The story may or may not be true, or, for that matter, the official in question may or may not be senior enough to warrant a perception that it represents the official view of the government.

 

But it nevertheless serves to highlight a larger issue, namely, the nature of interconnectedness between the monetary and fiscal policies of a national economy, and the case for autonomy in the functioning of the monetary authority of a national economy. More specifically in the Indian context, the question revolves around the role and the respective domains of the finance ministry and the Reserve Bank of India (RBI).

 

Should the monetary policy of the RBI be accommodative of the concerns of the finance ministry on growth and distribution of national income, however flawed that such a recommendation may be, in the former’s opinion? Every finance minister and senior officials in the ministry would like to believe that they have a clear idea of the contours of a monetary policy that, while ensuring price stability, would also deliver for the economy a level of output that makes the size of fiscal deficit look more palatable to the investment community.

 

Unfortunately, those views do not always find resonance in the mind of the occupant of the corner suite at the Shahid Bhagat Singh Marg office of the RBI, to wit, the governor! There is a chorus of protest from the policy community saying that any suggestion from the government on interest rates or liquidity in the system smacks of an attempt to undermine the autonomy of the RBI, with potentially adverse consequences for capital flight. Expectedly, this is soon followed by ritualistic obeisance on the part of officials of the finance ministry to the notion of supremacy of the RBI in fashioning the monetary policy. The controversy is put to rest, at least for the time being.

 

Strained relations

 

But such assertions notwithstanding, it must be said that the relationship between the finance ministry and the RBI over policy formulation is beset by strain. The RBI, too, does its bit to keep the tension simmering by weighing in with observations on the Centre’s conduct of fiscal policy, from time to time.

 

A recent case in point is that of the speech delivered by Governor Raghuram Rajan at the CD Deshmukh memorial lecture last month. He said, “Deviating from the fiscal consolidation path could push up government bond yields, both because of the greater volume of bonds to be financed and because of the potential loss of government credibility on future consolidation.”

 

Is it possible to argue that the RBI should have a say in the formulation of the nation’s fiscal policy while simultaneously preserving its exclusive role in the crafting of the monetary policy? Can we take the quote attributed to a senior official in the finance ministry mentioned at the beginning of this article and (stripping it of sarcasm) take it as a sincere articulation of where the RBI stands on the formulation of macro policies for growth and price stability in the economy?

 

In order to do so, it is necessary to start from the first principles. What are the policy objectives of an emerging economy such as India? Clearly, it is to ensure a certain rate of growth in output/incomes that over time will lift still vast sections of the population from a degrading state of deprivation concerning the most basic needs of food, clothing and shelter. It can be nobody’s case that such growth can be achieved in the face of rampant inflation. So there must be growth, and at the same time the economy should operate with a modicum of price stability.

 

That sets the stage for delineating the roles of both the government of elected representatives of the people and the technical arm of the government in the form of the RBI. The possibilities are: Both these entities are collectively responsible for growth and price stability; the government will be exclusively responsible for achieving economic growth while the RBI is tasked with ensuring that prices remain stable or, at worst, rise within a moderate range; a third possibility is that the RBI should be responsible for both growth and price stability and the government merely takes care of the distributional aspects through income/wealth taxation.

 

A narrow view

 

But such a narrow, technocratic view of executive authority is out of sync with the democratic structure of India’s body politic. Certainly no one in India would argue for a sharply restricted role for the elected representatives of the people. We are thus left with only the first two of the three options. In the first case — joint responsibility — it is difficult to see how the government’s perspectives on monetary policy in so far as they have a bearing on what the monetary authority is expected to do either with regard to promoting growth or stable prices in the economy, could be ignored in the name of preserving the central bank’s autonomy.

 

In the second case, where the monetary authority takes care of price stability while economic growth is managed by the government, we have to reconcile the division of responsibility with the initial construct: that while the monetary authority should be left to manage the price situation without any interference from the government, it should also be granted the freedom to weigh in with its comments and suggestions to the government on how the fiscal affairs ought to be managed.

 

However, that would be reasonable only if we accept that while fiscal policy can affect both growth and price levels in the economy (hence the freedom to the RBI to tell the government what it should do), monetary policy can only influence prices in the economy. Stated differently, things such as ‘repo’ rate, limits on commercial banks’ access to reserve funds, and such other tools of monetary policy do nothing to change the output levels in the economy.

 

Running into rough weather

 

The question is whether the proponents of RBI autonomy are prepared to accept such a narrow view of what it or for that matter, any monetary authority, can achieve with the policy options available to them. Mind you, recent experiences in Japan and the European Union suggest that efforts at boosting growth through monetary policies have run into rough weather if not quite hitting a brick wall of resistance.

 

Even in the US, which has seen unprecedented levels of monetary tools being deployed to pump prime the economy over extended periods of time, questions are being raised about the quality of growth that such policy options have engendered.

 

So the moral is this. The RBI has to make its stance clear as to whether its policy tools impact growth or not. If it is the former, then it must take the government on board with regard to its own plans. Alternatively, it must concede to the rest of the world that the policy tools are effective only for price stability and that too, only when they are in accord with its own vision on fiscal policy, imposing, in the process, a situation of policy forbearance on the part of the government. It can’t be both.

 

 

 From E-Group, Banking-News

 

 

Will bank bad assets affect your deposits?

 

Lisa Pallavi Barbora, The Mint

Published on February 23, 2016

 

 

The RBI has been conducting asset quality reviews across banks and governor Raghuram Rajan has stressed on better NPA recognition to ensure that the problem is addressed well in time rather than stretched or swept under the carpet

 

Non-performing assets (NPAs) have become the new scare term for the Indian capital markets and for the economy. A global and domestic slowdown has meant declining demand across many industries like steel, power, infrastructure and construction . As a result, cash flows have slowed down too. Banks are lenders to most of these businesses and when cash flows slow down, the interest payments to banks can suffer. As a result, bank profitability suffers.

 

These are the same banks in which you hold your savings accounts or a fixed deposits. So what happens when a bank doesn’t receive money from its assets? Will it be able to pay for its liabilities (money from depositors)? This might be the question that some of you are thinking about.

 

But the equation isn’t that linear. Mint Money looks at the problem and ascertains to what extent you should be worried.

 

What is the problem?

 

The rise in NPA levels is a cause for worry because unless a bank has good assets (loans and advances), which pay up on time, it might face trouble in paying its lenders or deposit holders. The focus is largely on public sector banks because traditionally they have had heavy corporate loan books. However, large private sector banks with exposure to corporate loans are also affected. Stock prices of private and PSU banks in this category have corrected 30-60% in the last one year. Hence, it’s not ownership that matters, rather it is asset quality.

 

Let’s try to qualify the problem slightly more by looking at the details. What is an NPA? An NPA is an asset that stops generating income for a bank. According to a master circular issued by the Reserve bank of India (RBI) in July 2015, banks should classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. NPAs can be recovered and don’t always amount to a loss.

 

In a recent interview to Mint, chairman of Bank of Baroda (BoB), P.S. Jayakumar, had said of the total fresh slippages (NPA assets) in the third quarter of financial year (FY) 2015-16, around 48% came from clients that are still paying the Bank of Baroda but may not be paying some other banks (http://bit.ly/1OcnxmE). This classification was a result of RBI’s asset quality review. According to its third quarter result presentation, for the nine months ended December 2015, the total write-offs amounted to `413 crore, whereas recovery and upgrade of assets earlier classified as NPAs amounted to `1,493 crore for the same period. Hence, an NPA isn’t always a loss.

 

In a note this month, rating agency Crisil issued a credit alert as it saw heightened asset quality stress. The note went on to say that the pace of deterioration had increased. According to a CARE Ratings report on NPAs, the gross NPAs across all banks has increased to 8.1% in third quarter FY16 from 4.4% in fourth quarter FY15.

 

The RBI has been conducting asset quality reviews across banks and governor Raghuram Rajan has stressed on better NPA recognition to ensure that the problem is addressed well in time rather than stretched or swept under the carpet. As a result of this review and the worsening global demand situation, the net NPAs in the banking system in third quarter FY16 shot up by 30%, compared with second quarter FY16 (according to data from Capitaline).

 

This isn’t the worst that the Indian banking sector has seen in this century. In 2001, the average net NPAs for public sector banks were 7-8% of total advances in the system. It took 6-8 quarters then for the cycle to unravel and net NPAs to move lower. Lastly, are the banks adequately capitalised? After BoB’s results were announced, in an interview with Mint, Jayakumar said the bank wasn’t in need of more capital at the moment. This, despite having recognised a large chunk of their assets as NPAs in the third quarter. He alluded to alternate methods of shoring up capital and was confident growth would not suffer.

 

The Tier I capital adequacy ratio (as per Basel III norms) of some of the larger public sector banks is between 7.7% and 9.6% for the third quarter of FY16, which is higher than the prescribed RBI (Basel III) lower limit of 7%. A senior executive of a private sector bank, who preferred not to be named, said, “While banks are identifying NPAs as per RBI’s requirements, there is no systemic risk.”

 

For smaller public sector banks, the problem is greater.

 

Should you worry?

 

From the available data it appears that large public sector banks, despite their high level of NPAs, are adequately capitalised. Moreover, the issue of NPAs is cyclical—sectors most affected are the ones suffering from a demand slowdown—rather than a structural problem. The chief investment officer of a private asset management company said, “The government has recently announced the minimum import price for steel, which should enable domestic steel manufacturers to improve their sales and, hence, cash flows. The steel cycle was also depressed in 2001 but it recovered. Similarly, power and infrastructure companies, too, are likely to see better times in a year or so.”

 

While there is little room to hide in case of fraud, for regular lending there is an asset backing or collateral. Secured loans that are defaulted can be made good to an extent by selling the collateral and don’t amount to a loss for the banks.

 

For public sector banks, the government can provide additional capital. Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services LLP, said, “For bank lending, the first line of defence is the asset backing a loan and then for public sector banks the capital is important. Given that the government is in a position to capitalise banks if needed, depositors shouldn’t be concerned.”

 

The bigger concern is around smaller banks—capital adequacy isn’t as healthy and recapitalisation is required. A chief investment officer at a private, mid-sized asset mana

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