Borrowings decline, but deposits pick up in July
Collected from Economic Times
MUMBAI: Banks are continuing to see a slowdown in loans, while deposits have picked up in July, the latest RBI data shows. While loans or non-food credit have dipped by close to Rs 50,000 crore in July to Rs 46 lakh crore as of July 27, 2012, term deposits increased by Rs 72,000 crore, though total deposits including demand deposits increased by only about Rs 14,000 crore to 62.44 lakh crore as of July 27. At the current levels, the annual or year-on-year growth in bank credit works out to 17%, well within RBI's comfort level. However, deposit growth works out to 14%, way below the central bank's comfort level of 16%.
Bankers have been maintaining that they are seeing weak demand from corporates as not many new projects have come up due to policy paralysis at the centre. "The large term loan proposals are very few." said SBI chairman, Pratip Chaudhuri, in an interview with ET now last week. The latest data on sectoral deployment of bank credit released by RBI also indicates a low pick up in loans to industries including large and medium-sized enterprises during the first quarter. The only sector that saw a steep rise in loans was loans to NBFCs.
As for deposits, bankers as well as RBI policymakers and the government have voiced their concern about the slow pace of deposit growth with a lot of savings finding its way into physical assets such as gold and residential property.
Overseas Borrowings Fall in June
MUMBAI Indian firms have gone slow on overseas borrowings in June. However, the number of firms which have sought to borrow overseas has gone up.
Aggregate borrowings from the external commercial borrowings (ECB), and foreign currency convertible bonds (FCCB), route amounted to $1.99 billion in June compared to $3.33 billion in the same period a year ago and $3.37 billion in the previous month.
However overseas borrowing during the quarter this year, at $8 billion, was almost the same as last year. A weak and volatile rupee has pushed up borrowing costs as even hedging costs have gone up, nullifying the benefit from low overseas rates.
Major firms to tap the overseas market include JBF Petrochem, JSW Steel, Rajasthan Sun Technique Energy,Mercedes-Benz , Azure Solar, Ranbaxy Labs, Indian Synthetic Rubber and Subex were among the major companies that borrowed money from foreign sources during the month.
Corporate Debt Restructuring may force banks to raise equity
9 AUG, 2012, 04.25AM IST, ANITA BHOIR,ET BUREAU
Demand for loan recasts at banks was at the highest ever in the June quarter raising fears that banks may be short of Rs 6,500 crore of capital.
Ind-Swift Laboratories, C&C Constructions, Totem Infrastructure, Neesa Infrastructure, Victory Transformers & Switchgears and Surya Vinayak Industries are among companies that are seeking loan restructure of Rs 16,000 crore.
"We have received 48 debt recast requests between April and June 2012," said a person in the know, requesting anonymity. "These are largely from small and medium enterprises on account of the slowdown and mindless expansion by companies."
Debt restructuring cases are soaring in a slowing economy where the gross domestic product is expected to expand less than 5 per cent this fiscal if drought conditions worsen, from as high as 9 per cent a few years ago. But the regulator is tightening norms for admission into CDR programme and is making it expensive for banks to blindly restructure instead of recovering them.
The restructured standard assets at the end of March 2012 have increased by 46 per cent to Rs 1,55,000 crore and are poised to go up to Rs 2 lakh crore, forecasts Crisil, a rating company.
Corporate Debt Restructuring cell refers to the forum for lenders to ease loan terms for companies in financial trouble. A loan account is eligible for CDR provided the initiative to resolve the case under the CDR system is taken by at least 75 per cent of the creditors by value and 60 per cent by number. This mechanism has to be availed by firms which are hurt due to developments beyond their management control.
A Reserve Bank of India working group that has recommended changes in the debt restructuring norms has assumed that in the most pessimistic and stressful scenario, slippages of restructured standard accounts to substandard could to be around 25-30 per cent.
"If the RBI is correct, banks would thus have to raise at least Rs 6,500 crore of fresh equity if 30 per cent of Rs 1,55,000 crore of standard restructured assets deteriorate,'' said a banker who was part of the RBI committee but did not want to be identified. The capital that banks would have to raise is higher than what companies raised in initial offering last year at Rs 5,966 crore.
"The new norms for loan restructuring will have a negative impact on profitability, but will increase discipline among banks while restructuring loans. If these guidelines are followed, net profit of public sector banks will likely decline by 6-18 per cent. For private banks the impact will be much lower at 0.2-2 per cent,'' saidStandard Chartered Bank in a recent report.
Ind-Swift Laboratories, C&C Constructions, Totem Infrastructure, Neesa Infrastructure, Victory Transformers & Switchgears and Surya Vinayak Industries are among companies that are seeking loan restructure of Rs 16,000 crore.
"We have received 48 debt recast requests between April and June 2012," said a person in the know, requesting anonymity. "These are largely from small and medium enterprises on account of the slowdown and mindless expansion by companies."
Debt restructuring cases are soaring in a slowing economy where the gross domestic product is expected to expand less than 5 per cent this fiscal if drought conditions worsen, from as high as 9 per cent a few years ago. But the regulator is tightening norms for admission into CDR programme and is making it expensive for banks to blindly restructure instead of recovering them.
The restructured standard assets at the end of March 2012 have increased by 46 per cent to Rs 1,55,000 crore and are poised to go up to Rs 2 lakh crore, forecasts Crisil, a rating company.
Corporate Debt Restructuring cell refers to the forum for lenders to ease loan terms for companies in financial trouble. A loan account is eligible for CDR provided the initiative to resolve the case under the CDR system is taken by at least 75 per cent of the creditors by value and 60 per cent by number. This mechanism has to be availed by firms which are hurt due to developments beyond their management control.
A Reserve Bank of India working group that has recommended changes in the debt restructuring norms has assumed that in the most pessimistic and stressful scenario, slippages of restructured standard accounts to substandard could to be around 25-30 per cent.
"If the RBI is correct, banks would thus have to raise at least Rs 6,500 crore of fresh equity if 30 per cent of Rs 1,55,000 crore of standard restructured assets deteriorate,'' said a banker who was part of the RBI committee but did not want to be identified. The capital that banks would have to raise is higher than what companies raised in initial offering last year at Rs 5,966 crore.
"The new norms for loan restructuring will have a negative impact on profitability, but will increase discipline among banks while restructuring loans. If these guidelines are followed, net profit of public sector banks will likely decline by 6-18 per cent. For private banks the impact will be much lower at 0.2-2 per cent,'' saidStandard Chartered Bank in a recent report.
Bank scandals tarnish London's reputation
Associated Press, 08 Aug 2012 | 08:15 AM
It's been a tense summer in the City of London as one bank after another has faced allegations of massive misbehavior.
Bankers in the British capital, which has for centuries been a center for global business, fear its reputation has been tarnished indelibly and that a heavy-handed regulatory crackdown is looming.
First came U.K. bank Barclays. Its chief executive, Bob Diamond, was forced to step down last month after U.S. and British authorities fined the bank $453 million for manipulating a key market interest rate. Other banks are being investigated for their part in the scandal.
Then there was HSBC, another big London-based bank. It faces fines of up to $1 billion after the U.S. Senate issued a damming report last month alleging it had failed to stop the laundering of Mexican drug money.
Back in May, JPMorgan Chase & Co. disclosed a surprise $2 billion trading loss — later upgraded to $5.8 billion — racked up by its London office in a portfolio designed to hedge against risks the company takes with its own money.
Bankers in the British capital, which has for centuries been a center for global business, fear its reputation has been tarnished indelibly and that a heavy-handed regulatory crackdown is looming.
First came U.K. bank Barclays. Its chief executive, Bob Diamond, was forced to step down last month after U.S. and British authorities fined the bank $453 million for manipulating a key market interest rate. Other banks are being investigated for their part in the scandal.
Then there was HSBC, another big London-based bank. It faces fines of up to $1 billion after the U.S. Senate issued a damming report last month alleging it had failed to stop the laundering of Mexican drug money.
Back in May, JPMorgan Chase & Co. disclosed a surprise $2 billion trading loss — later upgraded to $5.8 billion — racked up by its London office in a portfolio designed to hedge against risks the company takes with its own money.
"It seems to be that every big trading disaster happens in London," U.S. Representative Carolyn Maloney told the House Financial Services Committee as it investigated JPMorgan's losses.
And now Standard Chartered, that most predictably profitable of British banks, has been accused by a regulator in New York of laundering Iranian oil money for years.
David Buik, an analyst at brokerage firm BGC Partners, says he's never seen a worse summer in the City.
"Never, not in 50 years in the marketplace. I don't recall anything like it at any time," he said. "Our banking sector is probably under greater stress than in 2008," he said, referring to the year when a global credit crunch caused several banks around the world to collapse.
"We will get out of it, but it is a blow that means regulators will have a greater say in life, which means that economic growth will be slower."
The City's current banking culture began in 1986, when Margaret Thatcher's government introduced the "Big Bang" deregulation that ended the earlier, clubby atmosphere based on individual relationships. That brought investment banking to Britain, with its culture of risk-taking, big bonuses and a focus on short-term returns.
Since the financial crisis broke out in 2008, that culture has come under attack for costing taxpayers billions in bank bailouts and for resisting reform of executives' huge bonus schemes.
An informal survey of 314 global finance professionals by the London-based Chartered Institute for Securities & Investment on Tuesday found that two-thirds have little or no trust in the British banking industry. Only 2 percent rated the banks totally trustworthy.
"The scandals and greed never stop," was one comment. "The actions of a few have ... undermined the reputation of the U.K. as a global standard-setter," said another.
The Barclays scandal in particular damaged the reputations of both the British regulator, the Financial Services Authority, and the Bank of England.
Barclays admitted in June that some of its traders had made false submissions of interbank borrowing rates, which are used in calculating LIBOR (London interbank offered rate), a key index for pricing some $500 trillion in global financial contracts, including mortgages.
One Barclays executive, Jerry Del Missier, said he had thought the Bank of England had ordered them to submit false data on those interest rates in order to appear financially healthier. The Bank of England refuted that claim, as did Barclays' CEO Diamond, who said it was due to a miscommunication.
Timothy Geithner, the Federal Reserve chairman, said he warned British officials of problems in the way the LIBOR is calculated back in 2008, a claim disputed by British officials.
The scandal that has engulfed Barclays could widen to other firms, both in London and elsewhere. HSBC and Royal Bank of Scotland, 82 percent owned by British taxpayers, are targets of similar rate-fixing investigations as are several non-British firms.
London bankers now worry that the government and regulators could double down their efforts to control the financial sector to clean up its image and appease public outrage. Boasts of London's "light touch regulation," which stopped only after the credit crisis of 2007-2008, have given way to a determination to tighten oversight.
The scandals and excesses of the financial sector are not confined to London, of course. New York was hit by the Bernard Madoff incident — the largest Ponzi scheme in history — in late 2008. In Paris, Societe Generale trader Jerome Kerviel was found guilty of covering up bets worth nearly €50 billion between 2007 and 2008.
But the increasing frequency of scandals in British banking over the past months has raised questions over the country's ability to manage its huge financial sector.
In July, Prime Minister David Cameron announced a Parliamentary inquiry into the culture and practices of the industry to help decide what new regulations and structures are needed.
"We are very bad at prosecuting financial crime in this country," Kenneth Clarke, Britain's justice secretary, said recently. "I suspect financial crime is easier to get away with in this country than practically any other sort of crime."
One problem with financial oversight is that it is costly. It requires hiring many finance professionals, many of whom command big salaries, to perform detailed checks and audits on a vast number of companies.
That's doubly difficult when the government is trying to save money — along with other government agencies, the Serious Fraud Office, the prosecuting agency, has seen its budget cut.
Britain's main effort to overhaul financial regulation is centered on replacing the current structure — which sees the Bank of England, the Treasury and the Financial Services Authority share responsibilities — with a new authority headed by the Bank of England.
Bank of England Governor Mervyn King has been particularly keen to push for new laws to force banks to separate their retail banks from the racier and riskier investment banks.
"What I hope is that everyone — everyone — now understands that something went very wrong with the U.K. banking industry and we need to put it right," King said in late June, as Barclays' market-fixing scandal was erupting.
And now Standard Chartered, that most predictably profitable of British banks, has been accused by a regulator in New York of laundering Iranian oil money for years.
David Buik, an analyst at brokerage firm BGC Partners, says he's never seen a worse summer in the City.
"Never, not in 50 years in the marketplace. I don't recall anything like it at any time," he said. "Our banking sector is probably under greater stress than in 2008," he said, referring to the year when a global credit crunch caused several banks around the world to collapse.
"We will get out of it, but it is a blow that means regulators will have a greater say in life, which means that economic growth will be slower."
The City's current banking culture began in 1986, when Margaret Thatcher's government introduced the "Big Bang" deregulation that ended the earlier, clubby atmosphere based on individual relationships. That brought investment banking to Britain, with its culture of risk-taking, big bonuses and a focus on short-term returns.
Since the financial crisis broke out in 2008, that culture has come under attack for costing taxpayers billions in bank bailouts and for resisting reform of executives' huge bonus schemes.
An informal survey of 314 global finance professionals by the London-based Chartered Institute for Securities & Investment on Tuesday found that two-thirds have little or no trust in the British banking industry. Only 2 percent rated the banks totally trustworthy.
"The scandals and greed never stop," was one comment. "The actions of a few have ... undermined the reputation of the U.K. as a global standard-setter," said another.
The Barclays scandal in particular damaged the reputations of both the British regulator, the Financial Services Authority, and the Bank of England.
Barclays admitted in June that some of its traders had made false submissions of interbank borrowing rates, which are used in calculating LIBOR (London interbank offered rate), a key index for pricing some $500 trillion in global financial contracts, including mortgages.
One Barclays executive, Jerry Del Missier, said he had thought the Bank of England had ordered them to submit false data on those interest rates in order to appear financially healthier. The Bank of England refuted that claim, as did Barclays' CEO Diamond, who said it was due to a miscommunication.
Timothy Geithner, the Federal Reserve chairman, said he warned British officials of problems in the way the LIBOR is calculated back in 2008, a claim disputed by British officials.
The scandal that has engulfed Barclays could widen to other firms, both in London and elsewhere. HSBC and Royal Bank of Scotland, 82 percent owned by British taxpayers, are targets of similar rate-fixing investigations as are several non-British firms.
London bankers now worry that the government and regulators could double down their efforts to control the financial sector to clean up its image and appease public outrage. Boasts of London's "light touch regulation," which stopped only after the credit crisis of 2007-2008, have given way to a determination to tighten oversight.
The scandals and excesses of the financial sector are not confined to London, of course. New York was hit by the Bernard Madoff incident — the largest Ponzi scheme in history — in late 2008. In Paris, Societe Generale trader Jerome Kerviel was found guilty of covering up bets worth nearly €50 billion between 2007 and 2008.
But the increasing frequency of scandals in British banking over the past months has raised questions over the country's ability to manage its huge financial sector.
In July, Prime Minister David Cameron announced a Parliamentary inquiry into the culture and practices of the industry to help decide what new regulations and structures are needed.
"We are very bad at prosecuting financial crime in this country," Kenneth Clarke, Britain's justice secretary, said recently. "I suspect financial crime is easier to get away with in this country than practically any other sort of crime."
One problem with financial oversight is that it is costly. It requires hiring many finance professionals, many of whom command big salaries, to perform detailed checks and audits on a vast number of companies.
That's doubly difficult when the government is trying to save money — along with other government agencies, the Serious Fraud Office, the prosecuting agency, has seen its budget cut.
Britain's main effort to overhaul financial regulation is centered on replacing the current structure — which sees the Bank of England, the Treasury and the Financial Services Authority share responsibilities — with a new authority headed by the Bank of England.
Bank of England Governor Mervyn King has been particularly keen to push for new laws to force banks to separate their retail banks from the racier and riskier investment banks.
"What I hope is that everyone — everyone — now understands that something went very wrong with the U.K. banking industry and we need to put it right," King said in late June, as Barclays' market-fixing scandal was erupting.
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