It is mission damage control and ICICI Bank is pulling out all the stops. Weighed down by persistent rumours over its health, the bank's top management will meet senior employees on Monday to reassure them about their future.
Some banks decide not to roll over short-term loans; others will do it only at higher interest.
Bankers have suggested that the Reserve Bank of India lower the statutory liquidity ratio and the cash reserve ratio as the present liquidity crunch is affecting their business. During the mid-term resource management discussion with the RBI team led by Deputy Governor Rakesh Mohan, the country's top bankers said the tight liquidity condition was pushing up the cost of funds and putting further pressure on margins.
The regulator wants to know if banks deploy the money to meet lending needs. Sources close to the development said that the central bank was checking if banks used the liquidity adjustment facility (LAF) for raising resources to meet short-term lending needs or pay off high-cost bulk deposits. Bankers said the central bank might be worried that the steps taken by it so far had not eased the liquidity situation and that call rates remained high.
A senior SBI official said bank branches and controlling offices face a piquant situation where the top management expects prompt action, including filing of a first information report, while the local police is reluctant to register complaints often due to political pressure. Of late, investigative agencies have raised concerns over the large circulation of counterfeit notes.
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.
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