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India Banking
Finance Tracker – Vol. 21/FY11
Deposits growth improves. The latest fortnight, ending 31 Dec ’10, saw
a yoy increase in both credit growth rates and deposits growth rates.
Deposits growth for the fortnight increased yoy to 16.5%, compared with
14.7% the previous fortnight.
Credit growth continues to nudge higher. Credit growth for the latest
fortnight continued to improve yoy to 24.4%, compared with 23.7% the
previous fortnight.
Sharp fall in growth in SLR investments, decline in non-SLR
investments. SLR investments growth decelerated sharply yoy to 2.3%,
from 6.9% the previous fortnight. Non-SLR investments declined 24.6%
for the fortnight ending 17 Dec’10, as banks continued to withdraw
investments in mutual funds which plunged 83.1% yoy
Extension in deadline for change in base-rate method. The Reserve
Bank of India gave banks an additional six months till June 30, 2011
to adopt the new method for computing the base rate.
SBI raises base rate by 40bps to 8%. The State Bank of India, the
country’s largest bank, has raised its base rate by 40bps to 8% .SBI has
already hiked deposit rates and is offering a peak rate of 9% for
deposits under `1.5m, with maturities of between one and three years.
Banking flows
Deposits
Deposits growth for the fortnight ending 31 Dec ’10 increased to 16.5% yoy compared
with 14.7% the previous fortnight. Demand deposits growth, at 11.6% yoy, continues
to lag term deposits growth of 17.2% yoy for the current fortnight.
Credit
Credit growth increased yoy to 24.4% for the latest fortnight, compared with 23.7% for
the previous fortnight. The credit-deposits ratio remains above 75%, with the current
fortnight at 75.7%, compared to 75.8% the previous fortnight.
Fresh developments
Regulatory changes
Extension in deadline for change in base-rate method
The Reserve Bank of India gave banks an additional six months, till 30 Jun’11, to adopt
the new method for computing the base rate, below which lenders are not allowed to
extend loans. Banks are permitted to change the benchmark and methodology used in
computing the base rate. Earlier, banks were given till 31 Dec’10 to adopt the new
method for computing the base rate.
Investment in Non-Convertible Debentures (NCDs) of maturities up to one year
The RBI has allowed banks to invest in NCDs with original or initial maturities up to
one year issued by corporates (including NBFCs). Guidelines on listing and rating
requirements pertaining to non-SLR securities would not be applicable to banks’
investments in NCDs.
Business initiatives
State Bank of India raises base rate by 40bps to 8%
The State Bank of India, the country’s largest bank, has raised its base rate by 40bps to
8%. SBI has already hiked deposit rates and is offering a peak rate of 9% for deposits
under `1.5m with maturities of between one and three years. Several other large public
sector and private sector banks have also raised their lending as well as term deposit
rates as the liquidity squeeze continues, with growth in deposits (16.5% yoy ) lagging
credit growth (24.4% yoy) according to the latest data available.
IDFC to issue tax-free infra bonds from 17 Jan’11
The Infrastructure Development Finance Co. will issue tax-free infrastructure bonds of
`5,000 each from 17 Jan’11, raising up to `29.3bn. The issue, the second such bond sale
by the IDFC in the last six months will close on 4 Feb’11 and would aid the NBFC to
diversify its liability mix and lower its cost of funds.
Axis Bank launches online trading platform
Private sector lender Axis Bank has launched its online trading platform, marking its
foray into retail broking.
Union Bank plans to raise $200m through medium-term notes (MTN)
Union Bank is planning to raise $200m through medium-term notes in the next two
months, which would be utilized to fund its overseas business. Management states that
the bank has raised $400m from MTNs and $175m from bonds in the last four months.
RBI allows 7 more banks to import gold, silver
Karur Vysya Bank, Punjab and Sind Bank, South Indian Bank, State Bank of Bikaner
and Jaipur, State Bank of Hyderabad, State Bank of Mysore, and State Bank of
Travancore are the new banks that have been given permission by the RBI to import
gold and silver. This would assist them in improving their fee incomes.
PNB on the lookout for partners in insurance business
State-run Punjab National Bank has invited expressions of interest (EoI) from Indian
and foreign companies for strategic partnerships in insurance, in both life and non-life.
Banking outlook
Based on the latest available data, our basic model estimates 17.9% yoy deposits growth
and 23.5% yoy credit growth by end-FY11.
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