Banking & Finance Update

April 17, 2009: RBI Turns Net Foreign Exchange Buyer
For the first time since the global credit crisis intensified in September 2008, the Reserve Bank of India (RBI) has turned a net buyer of foreign currency. According to data released by RBI On april 17, 2009, on a net basis, RBI purchased foreign currency worth $230 million (or Rs 335.79 crore) as against net sales every month from September 2008 to January 2009. In February, RBI bought foreign currency worth $1.06 billion, while its sales were estimated at $833 million. During April-February, RBI sold foreign currency worth $31.53 billion (Rs 1,60,765 crore) on a net basis, as against purchases of $75.39 billion (Rs 3,00,874 crore) in the same period in 2007-08.

The RBI has followed a policy of buying or selling foreign currency to check steep volatility. After the credit crisis intensified, FIIs increased the sale of Indian shares, putting pressure on the rupee. This prompted RBI to sell foreign currency worth $20.63 billion in October. With global uncertainty on the wane, RBI has limited its role in the market, though the rupee touched a new all-time low of 52.18 against the dollar in early March.
source : Business Standard
April 18, 2009 : RBI widens scope of unsecured loans
The RBI on April 18, 2009 tightened the prudential norms for unsecured loans and asked banks to treat the value of all rights, licences and authorisations as unsecured advances and not as tangible securities.In a circular , RBI has asked banks to disclose the amount of such advances for which intangible securities such as charge over the rights, licences, and authorisations have been taken along with the estimated value of the collateral.

April 20, 2009 : IFC-backed funds to pick up equity in Indian infra projects
World Bank’s private sector lending arm, International Finance Corporation (IFC), has said two funds supported by it are ready to pick up equity worth $1.7 billion (about Rs 8,500 crore) in infrastructure projects in India, a move that will help the country’s economy arrest the impact of the global financial meltdown.
Note : Anita George is the IFC’s director for infrastructure (Asia and Africa).

April 20, 2009 : Meltdown hits Rs 5,500cr solar power project in Bengal
The global financial crisis has come as a roadblock to the Rs 5,500-crore integrated solar power complex, possibly the world's largest and the country's first polysilicon project, in Haldia in West Bengal. Bhaskar Silicon Ltd Managing Director Jyoti Poddar , who is the lead promoter of this project has said that " This project would be executed in phases. The financial closure for the first phase is yet to be achieved due to the global financial crisis. The proposed investment for the first phase was estimated at Rs 3,100 crore."The project would be funded in a mix of debt and equity. They are looking at foreign debt to meet our import component for the project's plant and machinery which would be around 250 million euros,"

April 21, 2009 : Economy to grow at 5.7% in FY10, as per recent RBI survey:
A survey conducted by the Reserve Bank of India (RBI) has estimated that the Indian economy would grow at less than 6 per cent during the current financial year, the slowest expansion since 2002-03. The median forecast of professional forecasters' survey estimated that the economy would grow by 5.7 per cent during the current financial year and also revised the growth projections for 2008-09. As per this survey agriculture is projected to grow at 3 per cent during the current financial year, while imports and exports are projected to contract by 4 per cent and 8.4 per cent respectively. This indicates that the manufacturing sector would continue to feel the impact of the global slowdown for some more time.

Note : In 2002-03 The Economy grew by 4%

April 23, 2009 : Banks to submit annual report on outsourcing
The Reserve Bank of India (RBI) has advised banks to submit an annual compliance certificate underlining the risk management practices adopted in overseeing and managing outsourcing arrangement of banking services. The new norms form part of a review of the guidelines issued to banks on managing risks and code of conduct in outsourcing financial services.

As per the guidelines issued in 2007, banks were advised to review the financial and operational condition of the service provider and to assess its ability to continue to meet its outsourcing obligations at least on an annual basis. Such due diligence reviews, which can be based on all available information about the service provider should highlight any deterioration or breach in performance standards, confidentiality and security, and in business continuity preparedness.

April 23, 2009 : Debt funds may bounce back on RBI's rate cuts
Debt funds may soon be back in vogue, because of recent rate cuts by the Reserve Bank of India (RBI). According to experts long-term debt fund returns would become more attractive going forward. RBI has slashed repo rate by 25 basis points to 4.75 per cent and reverse repo rate to 3.25 per cent.

April 28, 2009 : India, China lead Asian recovery: Barclays
Driven by India and China, the emerging Asian economies no longer witness a slump,as per UK financial services major Barclays. "The slump in activity in emerging Asia is over. We believe the region returned to positive growth of the aggregate level in the first quarter of 2009 — driven by China and India — and the recovery is broading to the more open industrial economies in 2009," Barclays Capital, the investment banking arm of Barclays, said.

Barclays Capital included 10 Asian economies — India, China, Taiwan, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand and Hong Kong — for the research. Global economy is expected to register growth rates of negative 1.4 per cent in 2009 and 2.9 per cent next year.

April 29, 2009: Banks give Rs 9,000 cr in loans to MSMEs
Banks have lent Rs 8,500-9,000 crore to the micro, small and medium enterprises (MSMEs) in the last few months as a part of the stimulus packages announced by the Union government. Of Rs 7,000-crore refinance facility extended to the Small Industries Development Bank of India (Sidbi), Rs 4,300 crore have already been released to the commercial banks, Dinesh Rai, secretary in the Ministry of Micro, Small and Medium Enterprises, said at an Assocham function on April 29, 2009. Sidbi is a state-run diversified refinancing agency, which lends mainly to the small scale sector. Rai said the government would continue to promote MSMEs, which contribute about 45 per cent of the country’s total industrial production. The ministry is on the verge of finalising a Rs 160-crore scheme for making the sector IT-enabled that gives employment to 42 million people.

April 30, 2009: Investment norms for New Pension Scheme finalised
Paving the way for the New Pension Scheme (NPS) from April 30, 2009, the Pension Fund Regulatory and Development Authority (PFRDA) has announced investment guidelines for contributory plans. Following recommendations from the Deepak Parekh-headed Expert Group and taking into account comments from the public, PFRDA has categorised NPS investments into three asset classes – E (equity), C (corporate paper) and G (government securities). PFRDA has appointed State Bank of India, UTI, IDFC, ICICI Prudential Life Insurance, Kotak Mahindra and Reliance Mutual Fund as the fund managers for NPS.
As per the guidelines, investments in E scheme would allocate assets into index funds that replicate the portfolio of a particular index, such as the BSE’s 30-share Sensex or the NSE’s Nifty 50 index.

The G scheme would allow investors to park money in Government of India and State Government bonds. For this category, the Expert Group had recommended liquid funds of asset management companies (AMCs) and fixed deposits of banks that have a net worth of over Rs 500 crore, a capital adequacy of at least 9 per cent and whose proportion of net non-performing assets against net advances is below 5 per cent.
The C scheme would allocate investments in liquid funds of AMCs with average total assets under management of at least Rs 5,000 crore over the last six months. The scheme would also park assets in fixed deposits of scheduled commercial banks that fulfil the given criteria suggested by the Expert Group. Further, the C class assets would also include debt securities with a maturity of at least three years. These instruments include debt papers issued by corporates, banks and financial institutions. PFRDA said that at least 75 per cent of the investment in this category has to be made in instruments having an investment grade rating from at least one credit rating agency. The C class investments also allow allocations for credit-rated municipal bonds, infrastructure bonds, PSU bonds and credit-rated public financial institutions.

April 30, 2009 : SC gives investment banker Nimesh Kampani no relief
The Supreme Court has refused to give immediate relief to investment banker Nimesh Kampani, who sought anticipatory bail in the Nagarjuna Finance (NFL) case. Kampani and the other executives of Hyderabad-based NFL, a non-banking financial company, are under investigation for the firm’s alleged failure to return around Rs 98.3 crore collected from 85,160 depositors in 1997-98.

May 2, 2009 : Govt staff earn 14.82% on NPS
Central government employees who joined as a part of the contributory New Pension Scheme (NPS) have earned a weighted average return of 14.82 per cent during 2008-09, the first year when three fund managers managed a corpus of around Rs 2,000 crore. This is in contrast to the annual 8 per cent returns between January 2004 and March 2008 when the government had not transferred the money to the three fund managers – SBI Pension Fund, UTI Retirement Solutions and LIC Pension Fund. The Centre moved all employees joining from January 1, 2004 to NPS, where they have to chip in with a contribution of 10 per cent of their basic salary with a matching contribution made by the government. While the money was being deducted, it was parked in a government account and earned a fixed rate of return.

May 2, 2009 : Forex reserves rise by $631 million
The country’s foreign exchange reserves increased by $631 million to $253.09 billion during the week ended April 24, mainly on account of revaluation of currencies. According to the data released by the Reserve Bank of India (RBI), foreign currency assets alone went up by $624 million to $242.53 billion at the end of April 24, 2009.

May 3, 3009 : SBI cuts deposit rates by 25 bps
RBI has reduced the interest rate on domestic term deposits by 25 basis points across maturities. This is because there is lot of liquidity, while credit off-take remains subdued. This has provided RBI the opportunity to revise deposit rates. The revised rate for its blockbuster 1,000-day deposit scheme will be lowered to 8 per cent from 8.25 per cent. Because of this scheme, and the high rates prevalent then, the bank was mopping up over Rs 1,000 crore a day by way of deposits in October and November 2008, which has now decreased to around Rs 500 crore a day.

The new rates will be effective May 4 and this is the second time in three weeks that the public sector lender has lowered deposit rates. On April 13, it had lowered term deposit rates by 25-50 basis points across maturities. While SBI had last reduced its benchmark prime lending rate in January, when it was cut by 75 basis points, it has lowered deposit rates by 100-150 basis points so far in 2009 to ensure that its net interest margin stays above 3 per cent. At the end of December, SBI’s net interest margin was around 3.15 per cent.

May 4, 2009: BoB replaces Canara as 3rd largest PSB
Bank of Baroda has pipped Canara Bank in terms of net profit and total business for FY09 to become the third largest public sector player in India. Mumbai-based BoB’s net profit for 2008-09 stood at Rs 2,227 crore, about Rs 155 crore higher than that of Canara Bank in FY09.