PSU Banks approve credit proposals up to 400 crore

The government has quadrupled the limits on loans that a bank's internal committee can approve, a move that could quicken credit clearance at 26 state-run banks, including the Bank of Baroda and PNB.
The government has directed banks to set up a credit approval committee - comprising chairman, executive directors and three chief general managers who handle credit, finance and risk management functions. This group can approve credit proposals up to 400 crore. Currently, any loan above 100 crore has to be vetted by the management committee of the board, which met once a month, or 20 days.
"The new initiative will help in facilitating credit disbursement at a much faster pace," said KR Kamath, CMD of PNB. "This would take care of a substantial part of the lending business."
The chairman, through a credit approval committee, can now lend up to 400 crore to an individual borrower. Under the old regime, a management committee of the board, which included a RBI nominee and two independent directors appointed by rotation, the bank's chairman and managing director and executive directors, took these decisions.
This limit is applicable on Category 'A' banks with a business of 3 lakh crore, while smaller public sector banks can use the same structure to approve loans up to 250 crore. If a loan under consideration is higher than these limits, it would be taken to the management board.
"The government decision would enable the management to take operational decision and the board could focus on policy matters," said S Ravi, shareholder director at Union Bank.
Over the past few years, the project size has increased many folds and the restriction of 100 crore was seriously affecting the lending business, said one of the person quoted above. "At least 60-70% of the loan size is above 100 crore, which used to be referred to MCB. Now less than 10% cases would be referred to MCB," he added.
"Though a credit approval committee has replaced the board's management committee, the two are significantly different. The MCB has outside members such as RBI nominee and independent directors; the new committee comprises two EDs and chief general managers, who report to the CMD," said another retired chief of a nationalised bank.
SBI, the biggest, already follows such a practice where loans of up to 500 crore are approved by such a committee and loans bigger than this are referred to the board's committee.

SBI won't make unique home-loan provisioning

With the finance ministry’s economic survey backing State Bank of India’s (SBI) controversial yet popular home loan scheme, bank chairman O P Bhatt said SBI will not have to make any special provisioning for such loans.
SBI home loans, which offer a lower interest rate in the initial years and rate increases in the later years, were termed teaser loans by the Reserve Bank of India (RBI). RBI is not comfortable with banks offering such products and had increased the standard provisioning requirement for such loans by five times, to two per cent in October.
The increase in provisioning would have put a huge burden on SBI, as most of its home loans were disbursed after February 2009, when the scheme was launched. After RBI increased the provisioning requirement, SBI has tweaked the scheme by offering a fixed discount in the initial years, instead of charging a fixed rate. All floating-rate home loans will be linked to the bank’s base rate.
“The economic survey has said it is far better than I ever said it before. They have sort of reinforced and reiterated what we have said and I am glad that it has happened. We did not ask for an exception, we are totally compliant with what the regulator wants,” Bhatt said today.
Bhatt said SBI’s loans cannot be termed as teaser loans, a view supported by the finance ministry, and hence no extra provisioning is required.
“It is not about compliance, it is about clarity on the nature of the product that RBI labelled teaser loans. The government has called it terraced loans. According to the definition by RBI, we do not have a single teaser loan. In our opinion, we will not have to make any special provision,” Bhatt said.
On interest rates, the SBI chairman said interest rates are expected to go up, but not more than 25-50 bps. SBI, which raised its rates last month, is not contemplating a rise in both deposit and lending rates immediately, he said. Bhatt also said the bank was comfortable on liquidity.
“We have three per cent excess SLR currently. We have enough liquidity in SBI, partly because retail deposits grew at a good pace, and partly because we picked up bulk deposits quite early and also because of the response we got on the retail bond issue,” Bhatt said.
On the proposed rights issue, Bhatt said it may happen in the early part of the next financial year.

SBI head sees interest rates hardening soon

There could be some hardening in interest rates in the days to come, according to Mr O.P. Bhatt, Chairman, State Bank of India.
“There continues to be surplus liquidity in the system and credit offtake has not picked up, in fact it has been negative and by the end of June it could be flat. Capital inflows also look good for now, so there is no pressure on liquidity, however, if RBI takes steps to control inflation, liquidity could dry up, and there could be an upward bias in interest rate,” he said.
The bank aims to raise Rs 15,000-20,000 crore, preferably by way of a rights issue by the end of this fiscal.
“We have adequate capital at present. But we are in talks with the Government for seeking their approval for a rights issue, which would help us maintain the Government's stake at the present level of 59 per cent,” he said.
The bank also had the option of raising funds by diluting government's stake from 59 per cent.
“Though rights issue will be the preferred route, in case government does not agree for that, then we have the cushion of bringing down government's stake to 55 per cent (59 per cent). There is also a Bill in the Parliament, which will enable us to bring down government's stake further to 51 per cent so we can dilute up to eight per cent and can raise about Rs 20,000 crore,” he pointed out.
The bank also plans to come out with a retail bond issue of about Rs 200 crore in the first half of this year. The bonds would have a duration of 15 years, with a call option for 10 years, or duration of 10 years, with a call option of five years, he said.
The bank also wanted its life insurance venture, SBI Life, to be listed, he said. “We are not in need of capital for the company, but we would like it to be listed, so that there can be some price discovery. We are in touch with IRDA for that,” he said.
On the overseas front, the bank plans a foray into the Latin American countries.
“There are places where we already have licenses. For example, in Botswana we already have licenses and we have not utilised that so far,” he said.
The bank would also consider foraying into countries where there is business from India but the bank has no presence so far – such as in Africa, where Indian companies might go for energy, metals or minerals, he observed.
SBI Card may break even
SBI Cards, the credit card venture of the bank is likely to break even by the end of this fiscal, he said and added, “The losses have been coming down, we have been able to issue about 25,000 fresh cards on a monthly basis; we are hopeful of breaking even by this fiscal.” The net loss was down by 17 per cent at Rs 154 crore (Rs 185 crore) during the present fiscal.

Top taxpaying foreign bank in India

UK-based Standard Chartered Bank has pipped Citi Bank and HSBC Bank to become the top taxpayer among foreign banks operating in India during fiscal 2009-10.
With advance tax payment of Rs 1,405 crore, up 14.2 per cent from previous fiscal, StanChart stood as the 16th highest taxpayer in India among all corporates, banking and otherwise, according to advance tax figures made available to PTI.
Standard Chartered Bank was followed by HSBC Bank, which paid an advance tax of Rs 835 crore for FY'10 and American lender Citi Bank that paid Rs 800 crore during the year.
While StanChart saw a rise of 14 per cent in its tax payment, Citi Bank and HSBC Bank saw fall of 53 per cent and 39 per cent (from Rs 1,710 crore and Rs 1,375 crore in the year-ago period), respectively, in tax payment.
Among all bankers in the country, foreign as well as local, StanChart stands behind only three big names -- State Bank of India, Punjab National Bank and ICICI Bank.
While SBI with Rs 6,552 crore advance tax payment leads the corporate segment, PNB paid Rs 2,018 crore and ICICI Bank Rs 1,502 crore as advance tax.
Among other major lenders, HDFC Bank, Bank of Baroda and Union Bank of India paid Rs 1,375 crore, Rs 1,277 crore and Rs 767 crore, respectively as advance tax.
Among the foreign bankers, Deutsche Bank comes in at the fourth slot with an advance tax payment of Rs 413 crore. This, too, saw a decline of about 13 per cent over fiscal 2008-09.
Next in line is Bank of America with Rs 298 crore, up 23 per cent compared to last year, followed by Barclay's Bank (Rs 275 cr) and DBS Bank (Rs 220 cr).

SBI Hike Home Loan Interest Rates

State Bank of India (SBI), the largest bank in India and one of the leading players in the housing finance market, has raised interest rates on home loans. Although the bank will continue with its 8% teaser rate — which the SBI had introduced more than a year ago — for the first year, it has increased rates for the subsequent years, effective April 1. The hike in home loan rates by SBI was triggered by the recent increase in its cost of funds.
Till March 31, SBI had two schemes — The Easy Home Loan (up to Rs 50 lakh) and Advantage Home Loan (above Rs 50 lakh). ‘‘From April 1, both the schemes have been merged and extended for a month,'' an SBI spokesperson confirmed to TOI. ‘‘The rates applicable for new loans sourced from April 1 till April 30 are 8% for the first year, 9% for the second and third years and floating rate at 1.75% below SBAR (SBI's equivalent of prime lending rate, or PLR) thereafter,'' the spokesperson added.
So in effect, the home loan rates for the second and the third years have gone up by 50 basis points (100 basis points=1%), from 8.5% earlier to 9% now. While fourth year onwards, at the current structure, the interest rate will be at 10% per annum, since currently SBAR is at 11.75%. Earlier, from the fourth year onward, the floating rate was at 2.75% below the SBAR and the effective rate was 9%.
Under the new rate structure (assuming a 10% rate from the fourth year), on a 20-year loan of Rs 30 lakh, a customer would have to shell out about Rs 3.9 lakh over the tenor of the loan. Thus the effective rate that the customer would be paying over the 20-year period is 9.5%.
Explaining the rationale for hiking rates on home loans, the SBI spokesperson said it mainly reflected ‘‘the increased cost of funds from April 1 stemming from the new methodology for paying interest in savings bank accounts on daily balances.'' In April 2009, Reserve Bank of India (RBI) had mandated all the banks in India to move to a new methodology of calculating interest rates on savings bank accounts that would add interest on a daily basis. This is a significant departure from the earlier practice of calculating interest rate on minimum balance after the tenth of every month.
For sometime now, with the annual rate of food inflation hovering around 20% level and the yields on benchmark 10-year government securities around the 8% mark, bankers and home finance veterans were talking about the possibility of a hike in interest rate in the economy. And now with SBI, the country's largest bank, hiking housing loan interest rates, industry players are almost sure that interest rates have bottomed out in the current cycle.
Lately a number of banks and financial institutions, including the country's home loan pioneer HDFC, have withdrawn their home loan products at 8% or at a slightly lower rates, and are moving to a more sustainable interest rate structure.

Overseas acquisition might be considered by SBI

It has appeared that the State Bank of India, which is India's biggest lender, has opened its doors for overseas acquisitions, if in case there is synergy in business.
O P Bhatt, Chairman explained that if they meet an opportunity for foreign acquisition they will see it but it should fit in their environment, public sector culture, business, our clientele.
Bhatt further said that the bank has an enormous international network itself and also informed that presently its global operations contribute nearly 14 pct to the top line.
A hike by 54 per cent to Rs 86,267 crore was seen in the SBI's international credit portfolio during 2008-09, against Rs 56,196 crore in the previous year.
SBI had a network of 92 offshore offices spread over 32 countries covering all time zones at the end of March 2009.
It should be noted that 37 branches, five sub-offices, 8 representative offices, 35 branches of subsidiaries, three managed exchange companies and four joint ventures are included in the 92 offices.
Nine outlets were opened last fiscal by the bank along with its subsidiaries and joint ventures abroad. These outlets also had full-fledged retail operations, in Singapore.
Apart from this, it also launched three new branches and seven ATMs with the aim of enhancing retail operations in Singapore.
It network was added with one branch and a sub-office in Male and a representative office in Tianjin in China was made operational.

25bps BPLR cuts by HDFC Bank

HDFC Bank, The country's second largest private sector lender slashed level prime lending rate (BPLR) by 25 basis points to 15.75% per annum with effect from July 20. A senior bank official said the HDFC bank has cut the lending rate as liquidity condition has improved substantially in the last couple of months. The bank had also reduced its fixed deposits rates effective from June 19 by half a percentage point, indicative of better liquidity circumstances.

This was the second cut in BPLR by the bank, In the past six months. in total, it has cut its BPLR by 75 basis points since December 2008. This rate cut shows that easy liquidity condition persist despite government has increased borrowing target in the first quarter to 2.97 lakh crore. Earlier, State Bank of India and ICICI Bank had expressed apprehension that huge government borrowing requirements may push the interest rates up.

On the other hand, this BPLR cut by HDFC Bank will not affect the lending rates of the bank much as it gives only 10% to 15% of the total loan at the rates linked to BPLR. All the retail loans like personal loans and auto loans are not linked to BPLR and are offered at fixed Deposits rate. So, this cut in BPLR will not benefit existing players.

However, some of the Business loans are linked to the benchmark rate. As the BPLR has lost its relevance in the changed scenario, RBI had constituted a six-member working group last month to review the BPLR system and suggest a mechanism for pricing of floating rate loans, a move that will improve transparency in fixation of home loan interest rates on housing loans by banks.