The idea behind differentiated banking licences is to be imbibed The days of state-run banks being all things to all comers may well be nearing its end. Even as the Reserve Bank of India (RBI) prepares to issue differentiated banking licenses, Governor Raghuram Rajan made it clear that there is no reason why the concept can’t be applied to the universe of state-run banks. “The government is certainly focussed on that… you shouldn’t be able to walk into a branch (of state-run bank) and not know which bank it is. You should be able to walk in and know `this is different from the previous one I walked into", said Rajan. Say Bye To One-size-fit-all BankingBank nationalisation in 1969 and 1980 saw the spread of banking to unbanked areas. Despite that a large swathes of the country’s population continue to be out of its ambit. Differentiated banks are seen a way to bridge the gaps efficiently rather than license scores of full-service banks with a pan-Indian footprint – the costs of such a model are significantly high when compared to a niche “differentiated bank”. The differentiation could be on account of capital requirement, scope of activities or area of operations. While Mint Road will soon issue “differentiated bank licences”, Rajan was of the view that the idea behind it can be adopted by state-run banks too. “The first stage is to pick boards (professional) and find ways to differentiate”, said Rajan. The Governor’s statement should be seen in the context of the capital requirements that state-run banks would need on account of Basel-111. RBI estimates have put it at Rs 5-lakh crore, but it is not a constant and would vary on the basis of credit offtake, bad-loans provisioning and the like. The truth is that fisc can’t support fund infusion into state-run banks as they have in the past. As the M. Narasimham Committee-2’s (1998) report on banking reforms noted: “Given the dynamic context in which banks are operating, further capital enhancement would be necessary for the larger Indian banks. Against the background of the need for fiscal consolidation and given the many demands on the budget for investment funds in areas like infrastructure and social services, it cannot be argued that subscription to the equity of state-run banks to meet their enhanced needs for capital should command priority.” A view has been expressed that perhaps it’s time for state-run banks, especially the weaker among them to focus on niche areas. While it does not legally make them “differentiated bank license” holders, operationally they become such an entity. What Governor Rajan has in effect articulated to state-run bank is: decide what kind of a bank you want to be.
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The United States Department of Justice is investigating trades worth billions of dollars that Germany's Deutsche Bank AG made on behalf of its Russian clients, Bloomberg reported, citing people familiar with the matter. The probe investigates so-called mirror trades, where the bank's Russian clients bought stocks in rubles, and through simultaneous transactions in London, bought the same stocks in U.S. dollars, thereby moving funds out of Russia without informing authorities, Bloomberg reported. Last month, The New York State Department of Financial Services (DFS) sought detailed information from Deutsche Bank on possible money-laundering transactions by some of its clients in Russia that could exceed $6 billion in total, a source familiar with the matter told Reuters. Deutsche Bank declined to comment on this development and referred to its earlier statement published on the issue along with its annual report on July 30.
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Banco Bradesco SA agreed to buy HSBC Holdings Plc's Brazilian unit for a surprisingly high 17.6 billion reais ($5.2 billion), narrowing the gap with larger rivals while boosting its base of affluent customers in Latin America's largest economy. The deal between Bradesco and Europe's largest bank includes the latter's Brazilian retail banking and insurance units. The agreement, which still requires regulatory approval and was sealed on July 31, could close by June. The all-cash acquisition will allow Bradesco to close the asset gap with larger rivals Itaú Unibanco Holding SA and state-controlled banks Banco do Brasil SA and Caixa Econômica Federal. HSBC Brasil's focus on high-income customers fits well into Bradesco's plan to ramp up sales of specialised financial services for the wealthy and larger corporations. The purchase price, which could change to reflect the net asset value of both businesses, is equivalent to 1.8 times book value, far above what analysts expected and above Bradesco's own valuation. Reuters reported on July 20 that Bradesco had entered exclusive talks with HSBC after offering to pay about 12 billion reais, or 1.2 times book value. Shares of Bradesco posted their steepest drop since July 23, shedding as much as 4.4 percent in São Paulo on Monday. The bank's American depositary receipt lost 3.5 percent in New York. "Too expensive," said Frederico Mesnik, a partner with Humaita Investimentos in São Paulo. "They bought the bank in order to keep the competition from taking it and they are paying a high price for it." The takeover, Bradesco's first since the 2009 purchase of Banco Ibi SA, will increase its assets by 16 percent, number of branches by 18 percent and staff by 23 percent. Bradesco expects the purchase to contribute to earnings starting in 2017. "The transaction makes strategic and financial sense for Bradesco and represents an opportunity to deploy more effectively the excess capital it was prone to accumulate in light of Brazil's poor credit growth outlook in the years to come," said Marcelo Telles, an analyst with Credit Suisse Securities. Strategy MisstepsBradesco paid 10.4 billion reais for HSBC Bank Brasil, 4.7 billion reais for the HSBC Serviços insurance unit and 2.5 billion reais for a measure of future additional revenues or scale gains, it said in a presentation. Following the acquisition, Bradesco's capital regulatory ratio, a measure of solvency strength, will decline to 9.9 percent from 12.8 percent currently. Chief Executive Officer Luiz Carlos Trabuco, speaking on a conference call, promised to integrate HSBC Brasil fully into Bradesco's retail banking insurance platform within the next three to four years. Analysts, who estimated that Bradesco could deduct as much as 6.5 billion reais in goodwill from the HSBC acquisition, were sceptical of the goal. Francisco Kops, an analyst with J Safra Corretora, said it will take at least five years for HSBC assets to be fully integrated into Bradesco. On the other hand, HSBC's sale of its Brazilian business represents a retreat from the second-largest emerging market economy after years of disappointing performance. HSBC, which arrived in Brazil late in the 1990s, never gained enough size to pose a real threat to Itaú, Bradesco or Banco do Brasil, the nation's top lender by assets. HSBC Brasil has 854 branches and 21,000 employees. Its assets of about 170 billion reais represent about 2.3 percent of the total for Brazil's banking system. HSBC, Europe's largest bank by market value, was advised on the deal by its own investment banking unit and Goldman Sachs Group Inc. Bradesco was advised by its Bradesco BBI investment banking unit, as well as JPMorgan Chase & Co and NM Rothschild & Sons Ltd. (Reuters)
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Facing a probe by Indian authorities into accounts held by Indians in Switzerland, global banking giant HSBC today said it is cooperating with the authorities. The bank also disclosed a number of other investigations in various countries for "alleged tax evasion, money laundering and unlawful cross-border banking solicitation" and said it is cooperating with the relevant authorities in each of the ongoing matters. "In February 2015, a public prosecutor in Switzerland commenced an investigation of HSBC Swiss Private Bank, and the Indian tax authority issued a summons and request for information to an HSBC company in India," the bank said in its interim report 2015. The public prosecutor's investigation in Switzerland was closed in June 2015, the bank said, while adding that "with respect to each of these ongoing matters, HSBC is cooperating with the relevant authorities". It said, "There are many factors that may affect the range of outcomes, and the resulting financial impact, of these investigations and reviews, which could be significant." A leaked list of over one lakh account holders in HSBC's Swiss banking unit, including 1,195 Indians, became public early this year, prompting authorities in India and many other countries to launch their investigations to ascertain whether these accounts had illicit money stashed abroad. Separately, the UK-based bank said it has also received "subpoenas and requests for information" from the US and other authorities including with respect to US-based clients of an HSBC company in India. This case relates to some NRIs facing investigation in the US for alleged violation of the American tax laws. On Swiss unit-related tax matters, HSBC said, "Various tax administration, regulatory and law enforcement authorities around the world, including in Belgium, France, Argentina and India, are conducting investigations and reviews of HSBC Swiss Private Bank in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation." It further said that "in light of the recent media attention regarding these matters, it is possible that other tax administration, regulatory or law enforcement authorities will also initiate or enlarge similar investigations or regulatory proceedings. (PTI)
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IDBI Bank has launched its first self service Mini Branch Kiosk at its Cuffe Parade, Mumbai Branch.Kiosk will address the customer’s request of personalised cheque leaves dispensation and issue of Demand Draft & Pay Order on 24X7 basis. These Kiosks will also have the functionalities of ATM.IDBI Bank would be the first bank in the country to make available these services on 24X7 basis.B.K. Batra, DMD, indicated that the bank will install more such 24x7 banking facilities so that its customer can do banking at their own convenience and time.(BW Online Bureau)
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HSBC Holdings said its first-half profit climbed a better than expected 10 percent, driven by a strong performance in Hong Kong that comes as the bank considers moving its headquarters to the Asian financial hub. HSBC also announced on Monday the sale of its Brazil unit to Banco Bradesco SA, the country's second-biggest private-sector bank, for a higher than expected 17.6 billion reais ($5.2 billion), as HSBC seeks to cut underperforming businesses. Europe's biggest bank reported that pretax profits in the six months to the end of June were $13.6 billion, up from $12.3 billion a year earlier and well above analysts' average forecast of $12.5 billion according to a poll conducted by the bank. HSBC has become increasingly reliant on its former headquarters of Hong Kong for profits as its businesses in Europe, the United States and other emerging markets slow. The bank's improved profits were driven by an investing frenzy in Hong Kong among individual customers amid China's soaring markets earlier in the year, the bank said. "HSBC's wealth management revenues in Hong Kong from equities, mutual funds and asset management increased significantly," Chairman Douglas Flint said in the earnings statement. China's stock markets have been a boon for the lender, driving profits for the bank's broking business in Hong Kong via the Stock Connect trading link with Shanghai as mainland shares soared prior to their June crash. The market turmoil in recent weeks could mean a gloomier outlook for the second half for the bank, however, if investors' souring on Chinese stocks curbs their buying of shares and related investment products. "The bank's profits benefited from the boost from Stock Connect before the market turned, so I wouldn't extrapolate the same level of performance into the third quarter and beyond," said Ian Gordon, analyst at Investec Securities in London. Asia now accounts for two-thirds of HSBC's profits, and Chief Executive Stuart Gulliver has pinned the lender's fortunes on a 'pivot' to the region and its fast-growing economies. The bank is speeding up a cull of unprofitable units and countries by cutting almost 50,000 jobs - half of them from selling businesses in Brazil and Turkey. HSBC also said it had increased to $1.3 billion from $550 million the sum set aside to cover costs from various regulatory probes into banks' rigging of foreign exchange markets worldwide. The lender's shares were unchanged in Hong Kong on Monday early afternoon, against a 1 percent drop in the city's benchmark Hang Seng index. (Reuters)
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Will Reserve Bank of India (RBI) governor Raghuram Rajan spring a surprise by cutting the repo rate 25 basis points in its monetary policy review on Tuesday (04 August)? The last rate cut was announced on 02 June after two back-to-back inter-meeting rate cuts in January and March.A large section of economists maintain that the central bank may leave the repo rate unchanged at 7.25 per cent. However, a few expect a surprise from Rajan in the form of a 25-basis-point cut in the policy rate.A lower repo rate will bring down banks’ borrowing costs, which in turn, may prompt them to slash their “base rates”, the floor interest rate on which lending rates for final home, auto and corporate borrowers are fixed. It can lead to lower floating home loan rates, which move in tandem with base rates, and bring cheer to consumers, who have been paying large chunks of their income as EMIs towards repaying housing loans.Here are top seven reasons on why it's time for another rate cut 1) Consumer price inflation (CPI) accelerated to an eight-month high of 5.4 per cent in June. But going ahead, the base effects will come in play, and at least till August, retail inflation will remain low, below 5%, creating space for RBI to cut its policy rate. Incidentally, wholesale price inflation (WPI) has been in negative territory for seven months in a row. In June, it was at minus 2.4 per cent.Chief economic adviser Arvind Subramanian has said focusing on retail inflation may not be the right thing to do at a time price indicators are pointing in different directions.2) The corporate sector asserts that tepid industrial production numbers and the continuous fall in wholesale prices merit a repo rate cut. The WPI is in the negative territory for seven months. Many believe that this shows the loss of pricing power in the manufacturing sector and the central bank should not only focus on the CPI. A lower rate will help prop up growth in Asia’s third largest economy—at least, that’s the popular belief.3) Poor demand also took a toll on corporate profits in the second quarter. So, circumstantially speaking, there is a case for a rate cut. Corporate profits are hurting. An analysis of 70 companies with a market capitalisation of at least $100 million showed net income fell by 5 percent in April-June, the second consecutive quarterly decline, according to Thomson Reuters data.4) So far, the monsoon rainfall in the country has turned out to be better than the forecast made by the India Meteorological Department (IMD) in early June. The monsoon’s revival from mid-July has boosted rice and soybean crops, curbing food price gains and easing concerns of shortages.Good rainfall this year is key to boosting a rural economy hit by delayed and lower rains last year, as well as keeping a lid on food inflation and giving India's central bank more scope to cut lending rates.5) Another area where the RBI governor can take comfort is a decline in global crude oil prices. Currently, the Brent crude oil prices are trading $54 per barrel compared to $65 a barrel in early June. This will ease pressure on inflation as well.6) In the current economic scenario, a repo rate (the rate at which banks borrow from the RBI) cut and government spending are likely to revive corporate investments in the infrastructure space and is likely to trigger credit pick-up. It is further expected to come as a booster for capital-intensive sectors that have been deferring investments due to high costs and low capacity utilisation.7) Finally, the uncertainties surrounding the timing of the proposed rate hike by the US Federal Reserve (Fed) still loom large and, hence, RBI should pare its policy rate now as the Indian central bank may find it difficult to do so when the Fed bites the bullet. Many believe this could happen as early as September, writes Tamal Bandyopadhyay in the Mint.
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The Hong Kong central bank said on Friday (31 July) it has fined State Bank of India's Hong Kong branch HK$7.5 million ($1 million) for breaching the city's anti money-laundering and counter terrorism financing rules. The fine marks the first time the Hong Kong Monetary Authority (HKMA) has taken disciplinary action under Hong Kong's Anti Money-Laundering Ordinance brought into force in 2012. The HKMA said between April 2012 and November 2013 State Bank of India (SBI) Hong Kong failed to perform a series of key anti money-laundering checks, including doing due diligence on 28 corporate customers, monitoring existing business relationships, and verifying whether its customers were politically exposed persons. Besides paying the fine, the bank must also submit an independent report to the HKMA, which is Hong Kong's banking regulator, outlining the remedial action it will take to tackle these internal control failings, it said. "It is important to note that neither the HKMA nor the external consultants found any instances of problem accounts or suspicious transactions during the period in question, or the years following," SBI said in a statement. "We fully support the HKMA’s efforts to ensure high standards of due diligence and monitoring among Hong Kong’s financial institutions. As noted by the HKMA, we have undertaken very positive and intensive remediation work to address their findings, which refer to procedures and policies in place during 2012 and 2013.” The HKMA has stepped up efforts to crack down on money laundering in recent years following fears raised by international regulators that the city's controls were not strong enough.(Reuters)
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