On the one hand FM says banks are free to decide their rate structure, on the other he does not hesitate in prescribing rate cut all the time to banks as well as to RBI. He suggests for accelerated lending and gives target for credit growth which is not achievable but he can do nothing to strengthen and to make effective his administrative and legal machinery to help poor bankers in recovery of their dues from defaulters. .
Mr. FM is ready to allow Banks To offer Higher Rate For Bulk Deposit and indulge in avoidable rate war to attract bulk deposits in their fold and at the same time he wants rate cut on loans sanctioned by banks to corporate sector and to retail sector. He does not want to allow banks to increase lending rate on home because he is interested to serve the interest of real estate builders who provide fund for political elections.He is not ready to take against corporate houses crying for rate cut knowing very well that these corporate houses are earning thousands of crores or rupees as profit by exploiting consumers through reckless marketing even though common men are to bear the burden caused by price rise.
Great FM is not ready to curb imports of at least those goods which are domestically available in profuse quantities and which are avoidable to contain current account deficit. Neither he knows the art of promoting exports nor he is applying tools to restrict imports.He is ready to increase the price of diesel and petrol but not ready to restrict use of fuel and restrict sale of car to reduce cost of import on fuel purchase . He is not ready to stop or put restriction on import of gold because he is in the grip of jeweler's lobby. Neither does he want to put blanket ban on banks selling gold which in turn affecting adversely savings portfolio of banks.
Obviously the great FM is confused and will damage the economics of banks as well as that of the country due to his greed to remain in power and his party's directive to keep BJP away from power .On the one hand he says that the government cannot afford subsidy burden due to Current account deficit , on the other, his government is ready to bear the burden arising out of Food Security Ordinance.
I therefore do not hesitate in saying that the learned FM will fuel current account deficit and the depreciation of Indian rupee will be beyond the control of such Finance Minister . He is crying with begging bowl in this hand and ready to do all what is needed for calling foreigners to invest in India. This is why India is slowly going in the hands of FII and this is not therefore astonishing that FIIs control Indian economy , Indian stock market and Indian politics.
''Barbad Gulista Karne ko ek hi ullu (MMS) kaphi tha,
Har dal par Ullu baithe hai Anjame Gulista Kya Hoga''
Why FII selling should worry you--Business Standard 8th July 2013
Foreign institutional investors hold 43.4% of the publicly held shares or free float in Indian markets.
Selling by FIIs, who have been the biggest buyer of Indian stocks in the last decade, could hit sectors which have experienced high inflows, according to an India Strategy report by Motilal Oswal Securities.
“If FII selling were to continue in coming months, we believe that sectors that saw high allocations earlier, will be impacted,” said the July report authored by Navin Agarwal, Rajat Rajgarhia and Dipankar Mitra.
The report noted that FII have bought $124 billion in the last ten years, over half of which came in since 2010. Foreign institutions have bought $67 billion since January 2010.They were net sellers by $1.6 billion in Indian equities during June. A combination of fears over the US central bank scaling back its liquidity injections into the market as well as domestic issues in India have affected sentiment according to analysts.
If the selling in June develops into a major trend at a time when FII free float holding is over 40% and overall holding is at an all-time high of 20.5%, a number of sectors which were beneficiaries of the flows could be impacted, according to the trio.
The report noted that Financial excluding public sector banks accounted for 25% of flows. Utilities accounted for 12%, Consumer for 11%, Technology for nine% and Autos for 8%.
P Chidambaram wants to lift cap of 15% on bulk deposits for PSU banks--ET--8th Jule 2013
MUMBAI: Finance minister P
Chidambaram has instructed his ministry to lift the cap of 15% on bulk
deposits for PSU banks, a move that would help them raise more deposits, but
may at the same time, increase their cost of funds.
When
Chidambaram raised the issue of slow deposit growth at a meeting with bank
chiefs on Wednesday, some bankers said that the 15% cap has been a stumbling
block. Last year, the finance ministry had asked banks not to
mobilise more than 15% of their total deposits in the form of bulk deposits,
which is over 1crore.
"If interest rates are
a hindrance to deposit growth, they have to be addressed," Chidambaram
told bank chiefs, said a banker present at the meeting. However, some bankers
feel that banks may once again indulge in rate war to attract deposits,
resulting in a higher cost of funds and lower margins.
"Attracting
deposits at a reasonable price will be a massive challenge," said a bank
chief. The average cost of deposits for State Bank of India stood at
6.29% as on March 2013.
Bankers
say that if a rate war were to indeed emerge to attract deposits, smaller to
mid-sized banks would find it hard to reduce their lending rates.
According
to the formula laid down by the Reserve Bank of India, base rate - the floor
rate at which banks lend to the best customers - should be the function of cost
of deposits. Higher cost of deposits would, therefore, make if difficult for
banks to cut lending rates.
In 2012,
the finance ministry had asked banks to refrain from raising more than 15% of
their total deposits as bulk deposits in the backdrop of a fierce competition
among banks to attract deposits. Banks were offering as much as 11-12% for a
three-month bulk deposit, against 9% for one-year retail deposits, which was
corroding their margins.
Over the
past year, most banks have pruned their share of bulk deposits, but at the same
time, failed to attract deposits. Deposit growth in 2013 for PSU banks was
14.9%, slightly higher than 14.4% in the previous year.
Read my views submitted in Blog in last month______________Freedom given to public sector banks may prove fruitful only when majority of top bankers are honest, devoted , skilled and effective.It is sad that the environment in these banks is not conductive to growth but only promote flattery and bribery.
Under the same reformation era and under same freedom granted to banks, it is pertinent to point out here that private banks are prospering year after year, their profit is on increasing trend, their gross NPA ratio is much less than their counter part in government sector, their business has grown and has posed a challenge to hundred year old bank like SBI, their share value is more, their earning per share is more , their PE ratio is more, their client base is more and productive and so on ......................... Why " Only because majority of officials and workers in these private banks are sincere, devoted, loyal ,honest and performer unlike their counter part in public sector banks.
Click on following link to read more
http://importantbankingnews.blogspot.in/2013/06/how-to-reduce-interest-rate.html
Battle against bulk deposits continues: Vijaya Bank CMD--Business Standard
- ANIL URS
- N.S. VAGEESH
Depositors must be given a real interest rate that is ‘100-200 bps higher than inflation rate’
Upendra Kamath, as Chairman and Managing Director, has steered Vijaya Bank through a difficult two years. During this period, he focussed mainly on rebalancing the portfolio — both on the assets and liabilities sides. Vijaya Bank was excessively reliant on bulk business — whether on the corporate lending side or on deposits.
The need to change the mindset of officials to focus more on the retail side consumed much of his energy during his first year in this office. Kamath has achieved considerable success in bringing the important financial parameter within a safe range, although he says this is a continuing battle and makes clear that it is not yet won.
He spoke to Business Line on these and other banking issues at his office in Bangalore. Excerpts:
Why have you not cut your interest rates although the RBI has cut its repo rate thrice over the last year?
When the RBI cuts its repo rate (the rate at which banks borrow from RBI against the pledge of surplus government securities), it affects us very little. The portion of such borrowings in my total borrowings is abysmally small.
Almost 95 per cent of my resources are from deposits. If the RBI tweaks the repo rate, there is hardly any cost implication, because my costs are not going to go down dramatically. I don’t think you can expect banks to react in a manner similar to the RBI.
Repo rate cut is a signal from the RBI, and banks should look into it and explore possibilities of transmission. But the base rate decision is a function of cost. If cost undergoes a change, yes, there is a case for transmission.
Also, if the consumer price index is 9.31 per cent and if I quote 9 per cent rate for deposits, are the savers getting anything? Can I still mobilise resources?
We have seen how people were diverting their income to gold and real estate. That is why our deposit growth has lagged behind.
My ability to cut rates is limited. We have to give savers a positive real interest rate that is between 100 and 200 basis points higher than the inflation rate to persuade them to keep money in the bank.
Any unilateral cut will lead to loss of income for the bank, and, in the current scenario, where profits are under pressure, one needs to take a call on whether we can afford to do this.
Has the non-performing assets problem peaked?
The velocity with which they went up has come down now. This is reflected in the numbers coming down a bit for the industry as a whole. But is the worst behind us? The answer is, no. As long as the economy is not doing well, there is always the risk of delinquencies coming up to the surface with a lag. We need to be cautious.
The third and fourth quarters of last fiscal were better than the first two quarters. We brought down our gross NPA from 2.95 per cent to 2.17 per cent and net NPA from 1.7 per cent to 1.3 per cent. We also did some substantial cash recoveries as well as prudential write-offs in the small-loan category.
How is credit growth likely to be this year?
I expect we will grow at around 18 per cent this fiscal. I have set a business target of Rs 2.10-lakh crore to be achieved by the fiscal year-end. We were at Rs 1.67-lakh crore in March 2013, so we plan to add Rs 43,000 crore of business during the year. It is difficult but not impossible.
Where will this growth
come from?
All of us have pipeline sanctions that should provide us incremental business of 7-8 per cent. Projects that take 3-5 years for execution will draw down funds.
We have attempted to rebalance our credit portfolio and reduce reliance on corporate credit. We have focussed more on the retail, agriculture and MSME (micro, small and medium enterprise) segments.
So, over the last year, retail has grown 20 per cent, MSME at about 27 per cent, and agriculture advances, 31 per cent. These have become our main growth drivers.
Apart from these, we saw growth in road projects, renewable energy, engineering, auto components, NBFCs and real estate last year. This trend has continued so far in this year too.
Have you been able to bring down your bulk deposits component substantially?
We have been only partially successful. This is a bank that was over-reliant on bulk business. On the resources side, our bulk deposits were at 46 per cent when I took charge. I spent the first 6-9 months trying to change the mindset towards retail.
In the first year, I did not succeed. The level of bulk deposits went up a bit to 47 per cent. But last year, we took a decision to change this system. And because everybody was convinced, the level of involvement in this makeover was fairly high.
Our CASA (current account and savings accounts) grew at 11.5 per cent compared to a decline in growth in the previous fiscal. Our retail term deposits started growing well.
The cumulative result was that we brought our bulk deposit from 47 per cent to nearly 21 per cent of deposits. Even that is not enough. Banks should ideally have only 10 per cent in bulk deposits.
That is why I qualified myself by saying we have only partially succeeded. The battle is not yet over. It continues.
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