State Bank of India, the country's largest lender, is on an outsourcing overdrive. After outsourcing the back-office work in foreign offices, the bank has now decided to rope in external agencies to set up automated teller machines to save on capital expenditure and reduce the rollout time. It plans to initially outsource 500 ATMs to vendors, including original equipment manufacturers.
A clampdown on fresh personal loans, credit cards and auto loans is taking a toll on direct selling agents hired by banks to push these products. According to estimates, banks have reduced the number of DSAs by 15-25 per cent, while marketing expenses are 35-40 per cent lower.
The yen may have depreciated to 110 against the dollar from a high of 96 earlier this year, but bankers are advising extreme caution in using the Japanese currency for raising resources and hedging risks.
Government banks have demanded that the amount eligible under the farm waiver scheme should continue to be considered lending to the farm sector till the government clears the dues to help banks meet the mandatory priority sector lending target.
Continuing the flow of home loans and accessing low-cost deposits are two key elements of the government's instructions to public sector banks.
Global crude oil prices have dropped 14 per cent in less than a fortnight, but the three public sector oil marketing companies could still end up borrowing more in the domestic market and put further pressure on liquidity. With the three OMCs still saddled with under-recoveries, estimated at Rs 820 crore (Rs 8.2 billion) a day, they have no option but to use bank credit lines in the coming days as they have run out of their stock of oil bonds.
Banks are reluctant about disbursing loans for aviation studies on fears that a slowdown will hamper the job prospects in the aviation sector. The move, say analysts, may affect the fortunes of aviation training institutes.
Sensing a correction in the real estate sector, commercial banks have become selective in lending to new residential and commercial real estate projects.
The oil marketing companies are driving credit growth. The banking sector -- which typically sees credit contraction in the initial months -- has managed to buck the trend and has added nearly Rs 16,000 crore (Rs 160 billion) of advances in the first seven weeks of the current financial year thanks to the demand from the two sectors.
The amount is almost double the Rs 220 crore (Rs 2.2 billion) that a consortium of Bank of Baroda and Andhra Bank earned for its life insurance tie-up with the UK-based wealth and investment company, Legal & General Group (see table). The entry premium is a result of regulations that require foreign insurers to tie up with Indian partners. SBI will hold 74 per cent in the non-life insurance company and IAG the remaining 26 per cent.
SBI's move may not have moved the farmers, who had stopped paying their monthly installments ever since Finance Minister P Chidambaram announced a Rs 60,000-debt waiver plan, but it did create a furore in political circles. Finally, Chidambaram, by his own admission, had to intervene and get SBI to roll back the move. For the 57-year-old SBI chief, who has earned an unprecedented five-year term, it proved to be a rare instance of being 'misunderstood'.
Leading Indian public sector banks State Bank of India, Bank of Baroda and Syndicate Bank are close to committing a part of the $3 billion bridge loan that Tata Motors has to raise to finance the acquisition of Jaguar and Land Rover from Ford.
Though the Reserve Bank of India decided to reduce the risk weight for home loans between Rs 20 lakh (Rs 2 million) and Rs 30 lakh (Rs 3 million) to 50 per cent, the possible benefit for banks seems to be more than neutralised by 75 basis point rise in cash reserve ratio and increase in the cost of resources, which is linked to yields on government bonds and competition, bankers said.
With little clarity on the list of companies that have mark-to-market losses on derivatives transactions, banks are now asking their corporate banking departments to scan the books of borrowers and also seek details of their foreign exchange exposure. Within this pie, banks are segregating companies with turnover of Rs 30-40 crore (Rs 300-400 million) to Rs 100 crore (Rs 1 billion) and those which are above this threshold.
A host of public sector banks had cut interest rates in the earlier part of this year following an advisory from Finance Minister P Chidambaram in January. Private and smaller state-owned banks, however, did not cut rates.
Basel-II mandates banks to set aside more capital for advances to unrated companies. From Apr 09, the problem will grow bigger since all loans above Rs 20 cr will require similar treatment unless companies get themselves rated. Basel-II is the 2nd of the global banking accords that provide banks with guidelines to measure various types of risk they take. Indian banks have to be Basel-II-compliant from this fiscal. Banks will have to assign 20% risk weight to AAA-rated firms.
Lenders ask RBI to ensure cheaper credit for infrastructure sector. Banks say while hardening of rates may be required to combat inflation, even a 50 basis point rise could render many projects unviable. In a meeting with RBI, bankers factored in the impact of higher interest rates on most sectors as a part of the inflation management drive but indicated that the government & the central bank should take steps to ensure cheaper credit for building roads, power plants & ports.
While banks are busy firming up business plans for 2008-09, some of them have already conveyed to the Reserve Bank of India about prospects of a moderation in the credit growth. In March, many banks held talks with RBI on resource conditions and growth prospects. In fact, Bank of India has already scaled down the estimate for the current financial year to 17-18 per cent compared with the 24 per cent rise it had targeted in the just-concluded financial year.
The move, if implemented, could change the way banks transact business. For starters, the loyal public sector bank customers could be the biggest gainers, with the Pay Commission recommending that government offices should stay closed only on the three national holidays -- Republic Day (January 26), Independence Day (August 15) and Gandhi Jayanti (October 2). All cheque clearances are expected to be faster and make money available in your accounts earlier than at present.
Rejects proposals by Bank of India, IndusInd, Kotak Mahindra and HDFC.
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