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Reserve Bank of India (RBI) is likely to increase liquidity infusion in the market, according to debt market sources.&nbsp;The quantum of open market operations (OMOs) may be increased to Rs 50,000 crore a month from December to March 2019 so that there is no deficit in the market during the peak credit growth season, according to treasury experts.

OMO is a process by which the central bank buys bonds from the banks and injects liquidity in the banking system.

“In the last three months, RBI has infused close to Rs 65,000 crore of liquidity through OMOs, but the banking system continues to be in a deficit mode so it is likely that the quantum of liquidity will be increased,” said an treasury official.

The RBI had earlier stated that the system liquidity will move into deficit in the second half of 2018-19 and the evolving liquidity conditions would determine its choice of instruments for both transient and durable liquidity management.

“We expect the RBI to step up OMO to Rs 50,000 crore a month between December-March to arrest further lending rate hikes,” Bank of America said in a report.

RBI after its Board meeting on Monday said it will inject Rs 8,000 crore into the system through the purchase of government securities on November 22.

“Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, RBI has decided to conduct purchase of the following government securities under Open Market Operations for an aggregate amount of Rs 8,000 crore on November 22, 2018,” the central bank said in a release on Monday.

RBI has also reduced the capital requirements, especially for the banks under prompt corrective action through its decision to extend the timeline for implementation of the last tranche of capital conservation buffer under Basel III. This, according to rating agency Crisil, is expected to reduce the burden on public sector banks in this fiscal by around Rs 35,000 crore.

This is also expected to give some relief to the government as the weak banks are wholly dependent on the government for their capital considering that PCA restricts their lending activities and hence their earning capacity.

Kotak Institutional Equities in a report said, “Our calculation suggests that the government has probably received a relief of $1.7 billion because of the delay in transition as they would have had to infuse this capital by FY2019.”

“The overall capital infusion to meet the guidelines now stands reduced (assuming the current CAR) to $2.7 billion as compared to $4.4 billion earlier,” it said.

This story first appeared in DNA Money: <a href="https://www.dnaindia.com/business/report-rbi-may-infuse-rs-2-l-cr-to-ease-crunch-2687656">RBI may infuse Rs.2 L cr to ease crunch</a>

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The RBI had earlier stated that the system liquidity will move into deficit in the second half of 2018-19 and the evolving liquidity conditions would determine its choice of instruments for both transient and durable liquidity management.


Liquidity infusion: RBI may infuse Rs 2 lakh cr during December-March to ease crunch  

The Reserve Bank of India (RBI) board ended its marathon nine-hour meeting on Monday on a conciliatory note — implying that the government and the apex bank will work together on transfer of reserves, easing of lending restrictions on weak banks, special schemes for the micro, small and medium enterprises (MSME) and liquidity issues.

With the RBI and the government stepping away from their extreme positions, the financial market is expected to react positively. Foreign investors, who have been closely following the power tussle between the government and the RBI, will also be happy with the meeting's conclusion. The next board meeting of the RBI will now be held in Delhi on December 14.

The RBI board members decided to meet the government halfway by setting up a joint expert committee to decide on the contentious issue of capital transfers from the apex bank to the government. Recently, the two had locked horns over the Centre's request to transfer part of the RBI's 9.69 lakh crore contingency reserve to its coffers, which the government will now have to wait for till the committee's recommendations are submitted.

Economic affairs secretary Subhash Chandra Garg also gave a presentation on the economic capital framework, according to sources.

"The board decided to constitute an expert committee to examine the ECF (Economic Capital Framework), the membership and terms of reference which will be jointly determined by the Government of India and the RBI," said the Central Bank in a late evening release.

On the contentious issue of the prompt corrective action (PCA) framework where 11 banks have lending restriction imposed on them so that they clean up the NPA pile on their balance sheet, the RBI said, "It was decided that the matter will be examined by the Board for Financial Supervision (BFS) of RBI." Sources said the RBI is likely to relent and lift lending restrictions, specially on banks showing signs of a turnaround.

On providing support to the micro, small and medium enterprises (MSME), the RBI said, "The board advised that the RBI should consider a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 250 million, subject to conditions to ensure financial stability."

The RBI also agreed to extend the period for banks to transition to Base III norms while maintaining that banks need to keep a capital adequacy ratio of 9 per cent, higher than the international requirement of 8 per cent.

However, sources say that the issue the RBI will not relent is on the norms it has set up for non-performing assets. In February this year, the RBI had come out with regulations that mandated all loans of Rs 2000 crore and above in the default status would have to be resolved under the National company law tribunal (NCLT).

The meeting on Monday was attended by all 18 members, including Governor Urjit Patel and four deputy governors — NS Vishwanathan, Viral Acharya, B P Kanungo and Mahesh Kumar Jain. Meanwhile, Subhash Chandra Garg, Economic Affairs Secretary, and Rajiv Kumar, Financial Services Secretary were the government nominees present at the meeting. Government nominees S Gurumurthy, Tata Sons chairman N Chandrasekaran, along with former Mahindra and Mahindra finance head BN Doshi were also in attendance.

LET-UP IN THE STAND-OFF 
The positive outcome will help comfort markets and foreign investors

MEETING HIGHLIGHTS

9hrs – Marathon meet ends on a conciliatory note&nbsp;&nbsp; 
Board not forcing any decision on RBI&nbsp;&nbsp; 
Board of financial supervision to look at merits of lending restrictions on 11 PSU banks with large NPAs

CONCESSIONS 
RBI, government meet half way to set up committee to decide on RBI’s excess capital transfer to government coffers&nbsp;&nbsp; 
Will consider easing credit terms for small and medium enterprises (MSME)&nbsp;&nbsp; 
PCA norms may be relaxed selectively

STANDS FIRM ON

NBFC liquidity to remain intact&nbsp;&nbsp; 
No special liquidity window for NBFCs&nbsp;&nbsp; 
Will only make concessions when necessary 
Rs 9.69 L cr – Contingency reserve that Centre wants transferred to its kitty

This story first appeared in DNA Money:&nbsp;<a href="https://www.dnaindia.com/business/report-rbi-strikes-softer-note-with-govt-at-board-meet-2687370">RBI strikes softer note with Govt at board meet&nbsp;</a>

&nbsp;

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With the RBI and the government stepping away from their extreme positions, the financial market is expected to react positively. Foreign investors, who have been closely following the power tussle between the government and the RBI, will also be happy with the meeting's conclusion. The next board meeting of the RBI will now be held in Delhi on December 14.

&nbsp;


RBI vs Centre: Urjit Patel to ease up pn MSME credit, but refuses to budge on this point

Financial markets, banks and corporate houses are eagerly waiting for Monday’s crucial Reserve Bank of India board meeting. It is likely to set the tone on sensitive issues like easier loan sanctions to micro, small &amp; medium enterprises (MSME), relaxation of prompt corrective action (PCA) on weaker banks, and fund transfer to the government. The central bank and the government have been warring over these issues for nearly a month.

RBI, which had taken a stern stance, is likely to relax the PCA norms only on those banks that are showing signs of a turnaround through faster resolution of non-performing assets (NPAs) and shedding of non-core assets. The other option being weighed is a committee being jointly set up by the government and the RBI to access the merits of the corrective action undertaken by the ailing banks. Last year, 11 public sector banks were brought under the RBI’s revised PCA framework which set tougher norms and banned them from lending.

Even on the issue of capital transfer to the government, the apex bank may be ready to discuss with an ‘open’ mindset. RBI is considering&nbsp; allowing&nbsp; the government to utilise a part of its reserves, a source said.

RBI’s total reserves stand at Rs 9.59 lakh crore. The bank’s contingency reserve is at 7.1 percent of the book. “This is well above the BRICS (Brazil, Russia, India, China and South Africa) average of 2 per cent.

Overall, reserves at 27 per cent of the book are far higher than the 18 per cent recommended by the 2004 Usha Thorat committee,” said Bank of America in a report. There is no legal bar as long as Delhi maintains Rs 5 crore of reserve fund under section 46 with the RBI in our view, the report added. Another Section 47 requires RBI to transfer its annual surplus to the government after provisions, but does not place any restriction on further transfers.

On November 9, the government said it was discussing an “appropriate” size of capital reserves that the central bank must maintain but denied seeking a massive capital transfer from the RBI.

“There is no proposal to ask RBI to transfer Rs 3.6 lakh crore or Rs 1 lakh crore, as speculated,” Economic Affairs Secretary Subhash Chandra Garg had tweeted. “Government’s FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15 onwards, the government has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3%. The government has actually foregone Rs 70,000 crore of budgeted market borrowings this year.” Garg said the only proposal “under discussion is to fix appropriate economic capital framework of RBI”.

However, if the board meeting turns turbulent and there is no accommodative approach, there is speculation that RBI governor Urjit Patel could resign. The expectation, though, is that both sides will arrive at a common agenda to go forward.

The RBI Act allows for cash transfers to the government kitty. If you strictly go as per the regulations section 7(2) and section 7(1) of the RBI Act, it gives the board full powers to do all the acts and things subject to government regulations. Section (3) also empowers the governor and deputy governors with similar powers, subject to the RBI board regulations.

The government is keen to push for faster credit to stressed sectors that would ensure higher economic growth rate. On November 17, finance minister Arun Jaitley said that growth must not be throttled by limiting credit and liquidity supply.&nbsp;

On the other hand, the RBI's stance has been more conservative on the NPA management by the banks. RBI also feels that capital transfers should be modulated as contingency reserves are necessary for the central bank.

RBI board will meet on Monday to wind up the inconclusive discussions that first began on October 23. The two-day board meeting which could not be concluded before Diwali, is meeting again to reach a consensus on issues like payment of dividend to the government and PCA imposition on 11 public sector banks that prevents them from sanctioning and disbursing loans.

ISSUES IN SPOTLIGHT

-Easier loan sanctions to MSME, relaxation of prompt corrective action on weaker banks, fund transfer to govt 
-Rs 9.59L cr RBI’s total reserves. Its contingency fund is at 7.1 per cent of the book

This story first appeared in DNA Money: <a href="https://www.dnaindia.com/business/report-crucial-rbi-board-meet-today-to-iron-out-differences-with-government-2687065">Crucial RBI board meet today to iron out differences with govt</a>

RBI, which had taken a stern stance, is likely to relax the PCA norms only on those banks that are showing signs of a turnaround through faster resolution of non-performing assets (NPAs) and shedding of non-core assets. The other option being weighed is a committee being jointly set up by the government and the RBI to access the merits of the corrective action undertaken by the ailing banks.


RBI vs Govt: Crucial RBI board meeting today to set the tone on sensitive issues 

MUMBAI: IDFC vs HDFC BANK vs Bandhan Bank vs Yes Bank vs ICICI Bank fixed deposit rates compared: Good news awaits bank depositors. Interest rates on fixed deposits (FDs) are expected to rise further, helping depositors to earn more from their savings. Most of the retail term deposits are concentrated in the one year scheme banks also offer higher rates for 3 to 5 year deposits.

IDFC offers up to 8.75 per cent in the 3 to 5 year category for senior citizens. The bank offers 8.25 per cent for general customers.

With the equity markets currently under a spell of turbulence, banks hope that investors would migrate their investments to bank deposits. The one-year deposit rates are the highest from HDFC Bank, which is offering 7.30 per cent to its general customers and 7.80 per cent to senior citizens. Bandhan Bank, however, gives the highest returns to senior citizens at 8 per cent in the one year category. In certain buckets, the current peak rate for YES Bank is at 8.25 per cent.

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With elections in several states around the corner and general elections in 2019, cash will be in deficit forcing banks to build up their resources.

ICICI Bank on Wednesday announced a 0.10 per cent to 0.25 per cent rise in its deposit rates. The one-year deposit of the bank has gone to 6.90 per cent and for senior citizens at 7.40 per cent.

Watch This Zee Business Video<iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/vG0MJqzMVMA" width="100%"></iframe>

“With the prevailing volatility in financial market, we see renewed interest by customers to invest in fixed deposits which offer a combination of attractive interest rates, liquidity and assured returns,” said Pranav Mishra, senior general manager &amp; head - retail liabilities group, ICICI Bank. In the 2 to 3 year tenure the senior citizens can earn up to 8 per cent, highest rate offered by the bank on its FDs.

This story was first printed in DNA: <a href="https://www.dnaindia.com/personal-finance/report-earnings-from-savings-interest-rates-are-expected-to-rise-further-2686206">Earnings from savings: Interest rates are expected to rise further</a>

Get rich fast! Fixed deposit interest rates set to soar; this bank offers highest on 1 year deposit

With liquidity in the banking system tightening, lenders are set to further raise interest rates in the coming months. Corporate credit picking up, funding costs rising, deposit rates climbing and cash set to get scarce further ahead of polls in several states and general elections next year are indications of impending hike in lending rates, say experts.

ICICI Bank on Wednesday announced a 0.10% to 0.25% rise in deposit rates, which is likely to translate into higher lending rates in the coming days.

The banking system currently has a liquidity shortage of Rs 80,000 crore. Reserve Bank of India (RBI) has been easing the liquidity through the open market operations (OMOs), wherein it buys government bonds from banks and releases money into the system. RBI is expected to conduct an OMO of Rs 40,000 crore this month.

ICICI Bank said the liquidity in the banking system is extremely tight. “So it is fair to assume that in the second half of the current financial year the funding cost will go up for all the banks, including us,” its chief financial officer Rakesh Jha told analysts in an earnings concall.

Banks are poised to raise lending rates irrespective of whether RBI increases the rate at which it lends to banks (considered to be the signalling rate in the system) in the next credit policy on December 5. The migration to higher lending rates is a natural consequence of a high demand for loans and slow deposit growth at just 9% over the previous year.

However, some lenders such as State Bank of India (SBI) say they are sitting on excess liquidity and there is no immediate need to hike deposit rates. “However, we will take a call depending on the quantum of credit growth, the competition in the market and the liquidity position in the bank,” Prashant Kumar, chief financial officer, SBI, said.

Watch This Zee Business Video Here:

<iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/Hwf4M_wpLg8" width="100%"></iframe>

The rate on Certificate of Deposit, instruments that banks use to raise deposits from the money market, has gone up by close to 0.50% in the October over the rates in September; in comparison the retail term deposits have moved up only by 0.25% to 0.30% in the last six months. So bankers say that retail deposit rates will rise as the money market rates are already rising.

This story first appeared in DNA Money: <a href="https://www.dnaindia.com/business/report-lending-rates-to-rise-as-bank-funding-costs-jump-2685789">Lending rates to rise as bank funding costs jump</a>

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Fixed deposit rates are on an upswing as banks grapple with liquidity crunch


Good news, bad news! Even as fixed deposit rates soar, loan rates set to rise too

The wall between the banking regulator and the central government started crumbling fast on October 23 as for the first time the Reserve Bank of India (RBI) Board meeting ended inconclusively and acrimoniously over certain sensitive touch points.

The RBI officials on the Board and the independent directors nominated by the government could not agree on contentious issues such as easing of credit flow to the micro and small medium enterprises (MSME) and extending liquidity to the non-banking finance companies (NBFCs) at a time when the central bank is on a drive to clean up over Rs 12 lakh crore of stressed assets sitting on the books of commercial banks in India. The other important sore point was RBI’s prompt corrective action (PCA) framework, under which 11 loss-making public sector banks were restrained from their core lending activities.

“The RBI Board meeting has never ended inconclusively. The Board members usually put forth their recommendations and RBI is allowed to function. But now there is too much of government interference through the Board. This is creating an atmosphere where RBI officials are unable to function without freedom,” said an RBI official.

The prevailing friction between the government and RBI led to a flashpoint in the Board meeting with the independent directors seen as usurping the cardinal regulatory powers of the central bank. While RBI wants to stick to its policy of cautious lending, government is insistent on the central bank diluting its stance on the stressed power sector companies and not pushing them for a resolution under the National Company Law Tribunal (NCLT).

Besides, the government wants banks to sanction collateral-free loans to the MSME in 59 minutes. On September 26, finance minister Arun Jaitley launched a portal, to be run by Sidbi,&nbsp; which would facilitate such loans. With a large number of MSME loans being in the stressed category, the possibility of a framework for such speedy sanctions has not gone down well with RBI.

The inconclusive Board meeting, spread over two days, will now be held on November 19. Though the rift between RBI and the government has gone beyond the cat-and-mouse game, the hope is that there may be room for patchwork and differences between the independent directors and RBI members could be ironed out. Not everyone, though, is convinced that the rift would end abruptly and smoothly. An RBI official said that the induction of independent directors with strong political leanings is blurring the line between the RBI and the government.

“Earlier, the government used to send signals through the bureaucrats to influence RBI. There used to be a buffer zone. Today, people with political leanings are directly on the RBI Board. This is risking erosion of RBI’s right to regulate,” the official said.

After a long interval, the 18-member Board of RBI is completely full, with 10 government-nominated members, four eminent personalities taken from various sectors and four RBI members (RBI governor and three deputy governors). One of the nominations in August this year was S Gurumurthy, who is the convenor of the Swadeshi Jagran Manch.

The stand-off between the central bank and the government is not a healthy sign and could upset the financial markets in India, which are already under pressure from global headwinds. The line of separation between the apex bank and the government provides comfort to foreign institutional investors, an analyst at a broking firm said.

The growing difference between the government and the banking regulator came under public glare when for the first time the RBI published on its website a dissent note, expressing its disagreement with the government in setting up a separate payments regulator. The fragile relationhip reached breaking point when the government asked the RBI to relax lending restrictions imposed on certain weak banks to tackle their non-performing assets (NPAs). Last week, RBI deputy governor Viral Acharya, a close confidante of RBI governor Urjit Patel, said undermining a central bank’s independence could be “potentially catastrophic”.

“The risks of undermining the central bank’s independence are potentially catastrophic,” said Acharya. Rash moves could trigger a “crisis of confidence in capital markets that are tapped by governments and others in the economy,” he said.

During the speech, Acharya had three of his fellow deputy governors in the audience. Reflecting unity among the RBI officials, Acharya thanked Patel for his “suggestion to explore this theme for a speech.”

Source: DNA Money

The prevailing friction between the government and RBI led to a flashpoint in the Board meeting with the independent directors seen as usurping the cardinal regulatory powers of the central bank. While RBI wants to stick to its policy of cautious lending, government is insistent on the central bank diluting its stance on the stressed power sector companies and not pushing them for a resolution under the National Company Law Tribunal (NCLT).


RBI-Govt rift: Reserve Bank Board felt interference on easy credit to MSMEs, other issues

Subdued prices of vegetables and fruits in summer, when prices normally tend to escalate, gave comfort to Reserve Bank of India (RBI) governor Urjit Patel to hold on to rates, but the higher oil prices forced him to change the stance from neutral to calibrated tightening.

The RBI kept the policy repo rate unchanged. “We are not obliged to increase the rate at every policy meeting,” Patel said in the Monetary Policy Committee (MPC) meeting.

The minutes of the MPC reveal that all the three members from RBI - governor Urjit Patel, deputy governor Viral Acharya and executive director Michael Patra - wanted a change in the monetary policy stance from neutral to calibrated tightening. Among the external members, academic Pami Dua also voted for a calibrated tightening.

RBI governor reasoned that the change in the central bank’s stance is due to the rising international oil prices that pose a challenge to inflation. He said in the current rate cycle “rate cuts are off the table”. RBI had maintained a status quo in its October policy after two consecutive rounds of rate hikes of 0.25% each.

“Calibrated tightening” means that in the current rate cycle a cut in the policy repo rate is off the table, revealed the minutes of the meeting released on the RBI website last week.

Michael Patra, an inflation hawk who batted for a rate hike in most earlier MPC meetings, justified the change in policy stance due to the tight corporate finances. “It is only a matter of time before firms pass through the heightened input costs more aggressively into selling prices,” Patra said.

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Most members were also influenced by the inflation expectations of both households and professional forecasters, which are market participants such as foreign banks. The professional forecasters expected inflation to come down and see the pass-through impact of the 0.50% rate hike that the central bank undertook during the financial year (April and June 2018).

Subdued prices of vegetables and fruits in summer, when prices normally tend to escalate, gave comfort to Reserve Bank of India (RBI) governor Urjit Patel to hold on to rates, but the higher oil prices forced him to change the stance from neutral to calibrated tightening.


No RBI rate cuts for now? See what monetary policy panel minutes revealed

Luxembourg-based ArcelorMittal and its consortium will cough up Rs 52,000 crore to take over Ruia-promoted Essar Steel and Odisha Slurry Pipeline Infrastructure, two sources close to the development said. While Rs 42,000 crore will be paid to the creditors of the debt-laden Essar Steel, about Rs 2,000 crore will be paid to take over Odisha Slurry Pipeline Infrastructure. The ArcelorMittal consortium will further invest Rs 8,000 crore in Essar Steel.

The negotiations to set up a resolution plan with the committee of creditors (CoC) took place over the weekend, a source said. The lenders to Essar Steel will vote on this resolution plan today.

Though the Supreme Court ruling made ArcelorMittal’s bid of Rs 35,000 crore for the Hazira-based Essar Steel plant eligible, an upped amount was necessary to keep the CoC appeased. The company has agreed to sweeten its offer to stave off possible conflicts among lenders, which may impact the voting slated for Monday.

This will be the first major case where the banks will be able to recoup more than 100% of the outstanding non-performing assets (NPAs) on their books. On most other occasions under the National Company Law Tribunal (NCLT), banks have taken a haircut anywhere between 30% and 80%.

“The negotiations are over and the resolution plan will be put for voting on Monday. With this deal, ArcelorMittal will be bringing in Rs 60,000 crore into the country. This includes the dues of Rs 7,500 crore the company has already settled for the NPAs of Uttam Galva and KSS Petron where Mittal is a shareholder,” said a member of the CoC.

Odisha Slurry, which runs a 253-km pipeline supplying raw material to Essar Steel’s Odisha plant, will also be part of the deal, the source added. This will put an end to months of anxiety that banks had while the two corporate giants, ArcelorMittal and NuMetal, bickered over grabbing Ruias’s steel business through litigations.

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In the second round of bidding in April, ArcelorMittal had offered an upfront payment of Rs 35,000 and further fund infusion of Rs 8,000 crore in staggered payments. Subsequently, the company said it would offer Rs 42,000 crore upfront. Vedanta had offered Rs 35,000 crore and a staggered fund infusion of Rs 6,000 crore.

Luxembourg-based ArcelorMittal and its consortium will cough up Rs 52,000 crore to take over Ruia-promoted Essar Steel and Odisha Slurry Pipeline Infrastructure, two sources close to the development said.


Rs 52,000 crore deal! Debt-laden Essar Steel set to be sold to ArcelorMittal

Public sector banks have raised more than double the capital infused by the government through equity and bond markets and from the sale of non-core assets between the financial years 2008-2009 and 2017-18.

While banks raised Rs 2.57 lakh crore, the government infused only less than half of this at Rs 1.32 lakh crore through the Indradhanush plan, according to a parliamentary committee audit report on recapitalisation.

But with markets down, bankers will have to depend more on the government this fiscal despite most of the bank Boards having approved equity fundraising programmes.

The capital support by the government will make banks more resilient, considering more than half of the Rs 121 lakh crore of bank deposits are retail deposits in the form of term deposits and savings bank accounts.

All lenders have to be compliant with the Basel III norms by March 2019. Basel III, which focuses on additional capital buffers, is an international regulatory framework for banks being implemented in India in phases since 2013.

Extra capital buffers under this regulation will be fully implemented by March 2019. Bankers say that government is toying with the idea of advancing the recapitalisation programme, which, if implemented, will lift the pressure of raising capital.

Praveen Kumar Gupta, managing director, State Bank of India, said, “We are focusing on selling some of our non-core assets. This financial year we have already sold 4% stake in SBI General and also exited from part of our investment in NSE. Earlier this week, we have taken an enabling provision from the Board to raise some Tier 2 capital from the market.”

Banks raised Rs 48,725 crore from the equity markets during this period and sale of non-core assets gave them Rs 18,364 crore. They also raised Rs 1.33 lakh crore of Tier 2 capital from the market and Rs 56,365 crore from AT-1 bonds.

Rajkiran Rai, managing director and chief executive officer, Union Bank of India, said, “With markets down, the situation has changed. Banks will have to depend on the government for the capital needs as we have to comply with the Basel III by March 2019. Post this compliance, the capital requirements will come down.”

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Union Bank of India also had got a Board approval to raise Rs 2,500 crore from the market, but it may be may just look at raising Tier 2 capital as the markets are down.

Source: DNA Money

Public sector banks have raised more than double the capital infused by the government through equity and bond markets and from the sale of non-core assets between the financial years 2008-2009 and 2017-18.


Bank fundraising: Market crisis puts onus on Modi government

Organised funding from banks to the real estate sector is gradually improving, especially in markets where developers are becoming more transparent and the Real Estate Regulatory Authority (RERA) has stabilised. Bank funding to developers is up 6.3% over the previous year, with outstanding loans to the sector at Rs 1,87,200 crore at the end of&nbsp; August 31, 2018. The loans had witnessed a de-growth of 3.1% at the same time last year.

While this is a small portion of the total outstanding bank credit at Rs 92,47,786 crore that is growing at 12.38%, the quantum of money flowing into realty is set to increase, according to bankers and developers. Arijit Basu, managing director in charge of corporate lending at State Bank of India (SBI), said, “Wherever RERA has stabilised we have a confidence to lend and we are looking at it.”

However, he said, the bank’s focus would remain on risk mitigation. “The past growth in the organised funding to the sector has nothing to do with SBI’s finance. We have been very conservatively growing our loans to the sector, but RERA will give us opportunities,” Basu said

In Maharashtra, for example, where RERA is well established, there is ample funding for builders, said real estate developers. On their part, developers are trying to fulfil all their commitments by keeping their debt levels low and being transparent.

From taking bookings at the drawing-board stage when no permissions were in place, developers are now looking at selling only after completion with no pre-launch sale.

DLF, one of the biggest builders in Gurgaon, is among the builders who have decided not to market any pre-launch properties. The company will sell only completed projects. DLF has unsold inventory of Rs 14,000 crore of residential property.

“The revenue generated from these sales will fund our future projects, helping in part to bring down our debt,” said Rajeev Talwar, chief executive officer of DLF.

The company said it had completed all its residential properties in December 2016 and fulfilled all its customer committments by handing over all the completed homes by December 2017.

Developers say that two big disruptions - demonestisation and goods and services tax - had set the sector back with stagnation in sales and unsold inventory.

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RERA is slowing turning in favour of the sector, at least in select markets. “The push for affordable housing by the government is also bringing in money and banks are more confident of lending to RERA approved projects, said Satish Magar, president elect of Confederation of Real Estate Developers Association (CREDAI).

State Bank of India is also looking at implementing a specialised scheme for developer financing, which look at select projects.

India has a shortfall of six crore homes, according to government data. Under RERA, developers have to file all the data on their projects, all approvals have to be in place, and the funds are kept in a separate escrow account so that there is no diversion of money.

“All this is giving confidence to both foreign investors and also the domestic lenders,” said Talwar. DLF got a $1.5 billion funding from Singapore’s sovereign wealth fund, GIC, in one of the biggest real estate transactions for a stake in its rental arm, DLF Cyber City Developers.

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In RERA-approved properties, the total outlay of the project has been ratified by chartered accountants, architects and engineers, and the cost and the funding is forecasted clearly. “Developers are more focused on bookings from end-users rather than on investors,” Sunil Bajaj, real estate consultant, said.

Source: DNA Money

In Maharashtra, for example, where RERA is well established, there is ample funding for builders, said real estate developers. On their part, developers are trying to fulfil all their commitments by keeping their debt levels low and being transparent.


Your dream home made easy now? Builders get big boost

Delays in resolutions at National Company Law Tribunals (NCLT) have forced 13 banks to auction off stressed corporate loans of Rs 33,949 crore to asset reconstruction companies or distressed funds with foreign funding. The non-performing assets (NPAs) have a carrying cost in the form of provisions (capital buffers) and tax implications, which the banks want to avoid.

This is the highest quantum of loans lenders have put out in the second quarter of the financial year. The momentum for the auctions, bankers said, is also because the government is pushing the banks, particularly the public sector ones, to clean up their balance-sheets. Large stressed corporate loans to telecom, steel and infrastructure companies are put on sale by the banks.

“We have selectively put up those accounts where it is time-consuming to resolve,” a senior banker said.

Major accounts in the auction include Rs 4,143 crore of loans extended to GTL Infrastructure, GTL Rs 2,874 crore, Wind World India Rs 2,940 crore, Orchid Pharma Rs 3,526 crore, Essar Steel Rs 1,978 crore, GMR Chhattisgarh Rs 941 crore and Alok Industries Rs 828.70 crore.

Many of these accounts including GTL, Binani Cement, Essar Steel are also in NCLT.

“These cases have got into litigations and are in various stages of resolution without a timeline, so we have decided to sell them off,” a banker said. “No one would like to wait for resolutions for too long as there is a carrying cost for the NPAs on our books.”

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Bank of India put the largest quantum of loans on the block. It has offered 47 accounts with loans of Rs 8,000 crore, State Bank of India has put 21 accounts with Rs 5,800 crore, Canara Bank 40 accounts with Rs 5,000 crore, Andhra Bank 53 accounts with Rs 1,553 crore. United Bank of India, which is under prompt corrective action, 26 accounts with Rs 1,107 crore while Indian Bank put 48 accounts with loans of Rs 953 crore.

Source: DNA Money

Delays in resolutions at National Company Law Tribunals (NCLT) have forced 13 banks to auction off stressed corporate loans of Rs 33,949 crore to asset reconstruction companies or distressed funds with foreign funding.


NCLT Delays force 13 banks to auction off stressed corporate loans of Rs 33,949 cr to ARCs

Banks are cherry-picking assets as non-banking financial companies (NBFCs) put out their loan portfolios on sale for discount. To ring-fence themselves, banks are putting the onus of a default on the NBFCs with a first loss guarantee. Under this, the seller agrees to compensate some part of the delinquencies, if there are any.

Lakshmi Narasimhan, executive director, Shriram City Union Finance, said, “We sold two vehicle loan portfolios of about Rs 250 crore to Rs 300 crore to a bank last week. But you must see it only as an additional funding strategy, especially for companies like ours where the weighted tenure is not more than three years. ALM (asset-liability mismatch) issues are not relevant.”

A senior banker said, “We have stopped funding based on ratings. We give fresh lines of credit only if ALM is not there. We are also keeping a first loss guarantee.”

Banks are also curtailing fresh lending to NBFCs based on the external ratings. Instead, they have stepped up purchasing their portfolio to meet targets for agriculture and other priority sector lending targets.

M&amp;M Finance, one of the largest financiers to tractor and auto finance in the NBFC space beside mortgage loans, said its funding costs have gone up in the last one month.

V Ravi, executive director and chief financial officer, M&amp;M Finance, said, “For well-managed companies like ours, there is adequate money available but at a higher cost. Before committing for&nbsp; higher cost, we will be careful to study the impact on our margins and take a calculated decision. For certain companies, the availability of long-term funding would be a challenge, even at a higher cost. We will consider all options of raising money, including the sale of portfolio within our internal prudential limits.”

With MFs curtailing their investments in the debt market as they are under redemption pressures, there are liquidity issues for certain NBFCs that give longer tenure loans such as housing and infrastructure loans. “Our corporate bond market is not deep enough to provide long-term funding. So the longest tenure is only five years to fund a 10-year asset, which creates funding mismatches. But for NBFCs like ours which deal in shorter tenure loans, this is not an issue,” Narasimhan said.

Meanwhile, SBI said in a statement that it is stepping up its target for purchase of a good quality portfolio of assets from NBFCs, as it believes that there is a good opportunity to expand its loan portfolio at attractive rates. The bank is looking for opportunities both in priority and non-priority sectors.

“The bank had initially planned for a growth of Rs 15,000 crore through portfolio purchase during the current year, which is now being enhanced. As per the bank’s internal assessment, there may be an opportunity to buy an additional portfolio in the range of Rs 20,000 crore to Rs 30,000 crore,” SBI said.

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Vinod Kumar, president of SME Forum, said, “There is a certain ripple in the market and the NBFCs are scurrying for cover. They are trying to infuse liquidity by selling the portfolios to tide over the tight liquidity conditions, and banks are trying to build their books, so that they do not have a shortfall in agriculture and other priority sector portfolios.”

Source: DNA Money

Banks are also curtailing fresh lending to NBFCs based on the external ratings. Instead, they have stepped up purchasing their portfolio to meet targets for agriculture and other priority sector lending targets.


Crisis hit NBFCs put loans on sale with discounts, but banks fearful

Reserve Bank of India’s (RBI) stance on the forex market will put pressure on the rupee. The central bank, in its monetary policy last week, made it clear that it will not try to defend the rupee through a rate hike. The monetary policy statement said that RBI is largely tolerant of the rupee depreciating and finding its market determined value.

On October 5, the rupee fell to a record low of Rs 74.23 against the dollar in the spot market before closing at Rs 73.74 to the dollar. The rupee so far has depreciated 15.84% (January to October 5, 2018).

Exchange rate concern would bother the central bank only if it feeds into the domestic inflation. But the base effect cushioning the actual inflation forecast until December would be a relief for RBI, which revised its inflation projections downwards.

“Now, it looks like the rupee is poised to fall below Rs 75. With the current account deficit (CAD) widening, RBI and the government would not mind the rupee depreciating further,” said a forex dealer. DBS Bank has also forecast the rupee to weaken to 75 per dollar levels.

CAD widened to $15.8 billion in the first quart of this fiscal, which is around 2.4% of the GDP. In the January to March quarter, the trade shortfall stood at 1.9% of GDP.

“There is no target or band around any particular level of the exchange rate, which is determined by the market forces of demand and supply,” RBI governor Urjit Patel said. He said RBI’s response would be to see the foreign exchange market remains liquid with no undue volatility. Last week, Brent crude oil crossed $85 a barrel with Organization of Petroleum Exporting Countries unwilling to raise production. The oil price has risen 27.68% from $66.57 in the beginning of the year.

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Abheek Barua, chief economist at HDFC Bank, said, “It is clear that RBI would let the market forces prevail and would not try to defend any particular level of exchange rate.”

Economists and treasury experts said RBI will not mind letting the rupee depreciate a bit more so that the current account deficit can be bridged to some extent, unless it becomes a threat to inflation.

“If the rupee depreciates further, the RBI will have to hike interest rates to control imported inflation. While that’s not a done deal yet, element of uncertainty around rupee and oil prices could keep the bond investors edgy,” Barua said.

Source: DNA Money

Reserve Bank of India’s (RBI) stance on the forex market will put pressure on the rupee. The central bank, in its monetary policy last week, made it clear that it will not try to defend the rupee through a rate hike.


Let the Rupee fall! Indian currency set to hit Rs 75 mark!

Tackling human resources issues will be the largest challenge while merging Dena Bank and Vijaya Bank with Bank of Baroda (BoB). But the over 50,000 employees of the bank owe their allegiance to their managing director and chief executive officer P S Jayakumar for implementing employee-friendly HR policies. In an interview, Jayakumar tells Manju AB how he plans to complete the merger process in six months, an ambitious target considering the cultural differences and geographical spread of the banks.

Were you surprised when the government announced the merger? Did the government discuss it with you? 
There were discussions with the government. We had discussions from time to time for a potential merger and the potential combinations for the merger.

So Vijaya and Dena Bank were the best fit for Bank of Baroda? 
Yes, it gives the combined vehicle a lot of advantages like strengthening the distribution network and the markets we operate in. For the customers, they get a broader set of products. BoB has got supply chain management, wealth management, cash management programmes. It has also got a global presence. Similarly, the more number of branches will help these businesses. So there is complementarity in the merger. The aggregate ratios that we have got remain undisturbed as far as the gross numbers are concerned. What this means is that if BoB was to continue as an institution, the growth opportunities that a customer would have had will be similar even after the merger.

You already had a plan for growth at BoB. Won’t that get derailed? 
That is a worry with any merger. But the management distraction needs to be managed. The positive thing is that now Dena Bank also has a managing director during this period leading to the merger. Even our executive directors who have retired have got successors. So it may be possible to continue to keep the growth momentum and focus on the merger at the same time. Once we see one quarter, then there will be a lot more confidence in this statement.

What do you foresee as the biggest challenge? 
In all schemes of amalgamation, the two things that stand out are the human resources integration and technology integration. The other challenge lies in framing a revised growth strategy. The amalgamation opportunity should bring in best practices. It is not necessarily an easy thing to do.

Will fitting in over 80,000 employees of all three banks in the new structure be a challenge? 
We need to work out an integrated HR plan. The compensations are reasonably aligned with minor differences, which may be equalised. Being a bigger bank, many opportunities will open up. Employees in Dena and Vijaya will have opportunities to work in overseas markets. We get an opportunity to go to southern markets where we are not present. The geographical expansion will give opportunities to relocate.&nbsp;

But there will be a big overlap of Dena and BoB branches. 
More than rationalising, we will see if we can move the overlapping branches to areas where we are underrepresented. It gives us an opportunity to redistribute the branches so that our market share is better and optimum distribution of our branches happens. Relocation is going to happen if branches exist with common pin code. Shutting down of branches does not look like a possibility at the outset. BoB has 550 branches in Maharashtra; the combined entity will have in excess of 1,000 branches. So will be the case in various geographies.&nbsp;

Growth, cleaning up of balance-sheet and merger. Your cup is brimming. 
We expect to maintain the growth momentum by ensuring that the merger processes are handled by specialised and dedicated teams. Normally, at such times, steering committees with select employees are carved out. Admittedly, senior management has to pay attention to it. But it is possible that a fewer number of people will be disturbed and the bulk of the people will focus on the growth of the bank. So in a 54,000 staff at BoB, it should be possible to set aside 300 to 500 people.

Steering committees will have employees of other banks also? 
Normally, it will be an inclusive committee that will bring in the ability to make decisions and work in the best interest of all.

So how will the top management of the merged entity look? 
It is a little early to discuss that. But in the near term, the organisational structures and management structures of all the three banks will remain exactly the same.

How long will you take to complete the merger? 
We are looking at a six-month horizon. From April 2019, we should be able to start as a merged entity. It is always good to close everything by the end of the financial year. The scheme of amalgamation has to be tabled in both the houses of the parliament with a reasonable amount of detail on the processes. We think that the winter session would be ideal.&nbsp;

BoB turned profitable in the first quarter of this fiscal. Will profits be impacted due to the merger? 
Between now and March, the reports of each of the banks will be published independently. We retain our guidance that we remain positive on growth and profitability. We should see a single-digit return on equity at the end of this year.

The combined entity will have Rs 85,000 crore of non-performing assets (NPAs). 
Dena’s problem is that if the balance-sheet does not grow, it is a challenge. The NPA numbers overlay the fact that the recovery cycle has begun to unfold. The coverage ratios are also fairly high. We are expecting to return to normalcy in the next fiscal unless there are some surprises we don’t know.

Have you reached out to your partner banks? 
Now we are working on information in the public domain only. When the due diligence is being carried out, we will get a greater degree of clarity on the accounting policies. The accounting rules will have to converge. I don’t know whether it will be for good or for the worse, but we will have to do it.&nbsp;

Sometimes, do you rue the fact that the NPA problem is essentially a legacy problem and now you have to deal with it? 
I am working hard to see that my successor does not have any problems. There were project delays due to the economic downturn. There have not been good decisions on credit, with bullish expectations from certain projects. At that time, when I came, there was no way I could have said that some accounts could have gone bad. Automation completed; processes strengthened; the consciousness of the customers to repay is strong with the IBC (Insolvency and Bankruptcy Code) in place. We have significantly controlled the lending environment by centralising a lot of functions. The operating environment is improving - take the road projects; the land and approvals come before the loan is sanctioned. So we have de-risked ourselves in a way.

Source: DNA Money

Tackling human resources issues will be the largest challenge while merging Dena Bank and Vijaya Bank with Bank of Baroda (BoB). But the over 50,000 employees of the bank owe their allegiance to their managing director and chief executive officer P S Jayakumar for implementing employee-friendly HR policies.

&nbsp;


Bank of Baroda merger with Dena Bank, Vijaya Bank in just months? Check out biggest challenge 

State Bank of India (SBI) has raised its lending rates by 0.05% ahead of the Reserve Bank of India’s (RBI) monetary policy which will be unveiled on October 5. The rates were hiked after the bank’s asset liability committee met on Thursday evening, and will be effective from October 1, 2018.

There is no change in the bank’s deposit rates. SBI’s move is expected to trigger revision of rates by other lenders, including HDFC Bank and ICICI Bank. With credit growth picking up and deposit growth slackening, banks are forced to revise lending rates, termed as the marginal cost based lending rates (MCLR).

On September 1, SBI had raised its lending rates by 0.20%. The bank has different lending rates for different tenures of loans. With this change, loan rates of the bank will range from 8.15% to 8.70%. The one-year tenure rate to which most loans are benchmarked will go up from 8.45% to 8.50%.&nbsp;

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Home loan rates of the bank range from 8.70% to 8.95%, with women borrowers getting a relaxation of&nbsp; 5 basis points.

SBI home loans up to Rs 30 lakh are available at 8.70%, loans between Rs 30 to Rs 75 lakh at 8.85% and all loans above Rs 75 lakh at 8.95%. If there is a reset clause, then the rates on the home loans also get revised.

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HDFC Bank, the largest private sector bank, had revised its lending rates on September 7, the date on which it reviews its rates every month. The MCLR for HDFC Bank is 8.25% to 8.90%. The one-year MCLR is 8.60%.

Source: DNA Money

SBI’s move is expected to trigger revision of rates by other lenders, including HDFC Bank and ICICI Bank. With credit growth picking up and deposit growth slackening, banks are forced to revise lending rates, termed as the marginal cost based lending rates (MCLR).


Manju AB