International banks and most insurers are likely to steer clear of dealing with Iran for some time, fearing they could face more fines from U.S. regulators despite this week's nuclear deal between world powers and Tehran. With almost 80 million people and annual output of some $400 billion, Iran will be the biggest economy to rejoin the global trading and financial system since Russia emerged from the ruins of the Soviet Union over two decades ago. But while Iran is trying to come in from the cold, many of the sanctions imposed over its nuclear programme are likely to stay for months and those that are lifted can be rapidly restored if the deal falters. U.S. and European banking restrictions, for example, will be lifted only when the International Atomic Energy Agency has verified that Iran is keeping to its side of the bargain. The layers of sanctions also include U.S. anti-money laundering legislation, and any breaches could lead to banks being cut off from the U.S. dollar clearing system. "There’s a real hesitancy for the right reasons," said Washington lawyer D.E. Wilson, former acting general counsel at the U.S. Treasury, whose Office of Foreign Assets Control (OFAC) enforces the legislation. "The banks don’t want to get into trouble." There are tentative signs of a financial thaw. In one of the first steps to normalise trade between Britain and Tehran, the UK's export credit agency told Reuters on Thursday it was planning to review Iran's creditworthiness. But Germany's largest bank by assets, Deutsche Bank, said it would consider doing business in Iran only when sanctions disappear. "Deutsche Bank will continue to adhere to all U.S. and EU sanctions against Iran," it said in a statement. "The bank closely monitors the implementation of the nuclear agreement and related sanctions and will reconsider its position if sanctions are lifted in areas of relevance to the bank." Deutsche has yet to reach a settlement with U.S. officials over suspicions that it may have breached sanctions in dealings with Iran. The bank has already paid about 9 billion euros ($9.8 billion) in U.S. and European settlements and fines in the past three years, and faces more U.S. penalties in the Iran case. Germany's second biggest lender Commerzbank declined to comment. In March, Commerzbank agreed to pay U.S. authorities $1.45 billion after it joined the ranks of European banks to acknowledge moving funds through the U.S. financial system for countries such as Iran and Sudan. British banks will also be cautious given past experiences, industry sources said. They are generally pulling out of business likely to stir controversy and slimming their international operations in response to recent scandals. HSBC was fined $1.9 billion in 2012 by U.S. regulators for violations including doing business with Iran, while Standard Chartered paid $667 million in 2012 for violating U.S. sanctions and a further $300 million after more compliance shortcomings were uncovered. "Global banks are unlikely to rush in until the ground rules are clearly laid out by the U.S," an executive at a major bank based outside the United States. U.S. banking groups JPMorgan Chase & Co and Citigroup declined to comment. Lenders further afield are also playing safe. "Some banks that can operate lawfully beyond the reach of the OFAC sanctions have chosen as a matter of bank policy not to engage in any Iran dealings ... The juice isn’t worth the squeeze," said Les Carnegie, who specialises in international trade and national security matters at law firm Latham & Watkins. Global transaction services organisation SWIFT said on Tuesday current European Union sanctions remained in place which included "measures prohibiting companies such as SWIFT from providing specialised financial messaging services to EU-sanctioned Iranian banks". First StepsStill, parts of Britain's financial services industry - which includes the Lloyd's of London insurance market - will be vying for business in Iran. Government department UK Export Finance (UKEF), which provides banking and insurance guarantees to support British exporters, said on Thursday it would initiate "a review of Iran to assess creditworthiness, in light of the new agreement, and the expected positive effect on the Iranian economy". However, it added that Iran had to clear arrears with UKEF "to a large degree" before full cover could be restored. Nigel Kushner, a director with the British Iranian Chamber of Commerce association, said trade prospects would depend on Iran complying with a "multitude of obligations". "The reality is that there will be no tangible change in the EU or U.S. sanctions regime for at least six to nine months at best," said Kushner, a London-based sanctions lawyer. Industry sources said that while some insurers were gearing up for a resumption of business, they were unlikely to make any moves yet. Helen Dalziel, senior market services executive at the International Underwriting Association, said the British Treasury had issued a notice to insurers saying its previous guidance remained in place. "They’re not recommending trade with Iran at present," she said. "Essentially, nothing's changed for our members and won’t change for several months, we believe." Insurer Allianz said it would adjust its business "if and when the steps specified in the political agreement have been implemented". A similar message was given by CityUK, a trade association working to promote UK financial services overseas. "Our focus will be on the need for a clear and consistent policy on sanctions and their operation," said Gary Campkin of CityUK. Under interim accords reached between Iran and world powers, Iran was allowed to secure insurance cover to transport oil cargoes - Tehran's main revenue earner - for approved business. The interim agreement was renewed on a six-month basis and most ship insurers - known as P&I clubs - remained wary of entering into contracts. The International Group of P&I clubs, whose members provide liability cover to 95 percent of the world's tanker fleet, said it was difficult to say when EU and U.S. legislation would be repealed or rolled back. "In the meantime clubs should advise members with an interest in trading to Iran to proceed with extreme caution and continue to seek independent advice before committing to trade contracts," it said in a note this week. (Reuters)
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India has simplified rules for foreign investment in companies by clubbing together different categories, Finance Minister Arun Jaitley said on Thursday (16 July), effectively giving equal treatment to global capital entering Asia's third largest economy.The move, flagged by Jaitley in his budget in February, will make it easier for banks like Yes Bank and Axis Bank to raise capital up to a foreign ownership limit of 74 percent, say analysts."One of the most important decisions in relation to the investment is the introduction of composite caps for simplification of foreign direct investments," Jaitley told reporters after a cabinet meeting.Jaitley said foreign direct investment, foreign portfolio investment and investments by non-resident Indians would be "clubbed together under a composite cap".Banking stocks rose after the announcement. Axis Bank shares rose nearly 5 percent, while Yes Bank gained 3.6 per cent in a Mumbai market that was up 0.8 per cent.Previously, foreign capital had been subject to varying restrictions - a legacy of India's socialist past and its lingering reluctance to allow capital to move freely across its borders.The Department of Industrial Policy and Promotion (DIPP), part of the Commerce Ministry, proposed simplifying the investment rules after Prime Minister Narendra Modi won an election last year by pledging to boost investment and jobs.For banks, the shift will lead to an increase in their effective free float - or the number of shares that can be easily traded. That in turn would lead to an increase in their weighting in benchmark indexes tracked by many fund investors.India has also allowed 100 percent investment in pharmaceuticals and railway infrastructure under a so-called automatic route that does not require official approvals.Sectoral foreign investment caps have been raised in the insurance and defence sectors to 49 percent. No major deals have yet been announced, however, reflecting a lack of clarity over how India treats different types of capital.(Reuters)
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Pre-paid cards to be issued by mass transit system (MTS) operators to cover road-tolls, metros, bus stations and airportsThe Reserve Bank of India (RBI) has set the stage for the introduction of pre-paid cards to be issued by mass transit system (MTS) operators. Simply put, it covers road-tolls, metros, bus stations and airports.As on date, MTS operators have to tie-up with banks to issue pre-paid plastic which enables a customer to swipe for transit rather than queue up to buy tickets. It will not only help cut down on time, but will reduce cash in circulation. As we go along, an MTS pre-paid card issuer can customise offerings and even jointly issue them – like in a metro operator joining hands with a bus-services player; the options are many.As a sub-category of plastic, prepaid continues to grow around the world and is expected to reach $822 billion by 2017. According to MasterCard’s 2012 Global Prepaid Sizing Study (forecasts up to 2017), the popularity of prepaid is driven by its unique and practical ability to solve for almost any payment need. It democratises electronic payments for those outside the traditional banking system and provides a transparent, cost-effective alternative to cash and checks for both governments and businesses. Prepaid also serves the needs of banked consumers who find it an ideal payment tool for segmenting spend such as travel and online shopping.Main Features Of Prepaid Plastic For Mass Transit· Semi-closed PPIs will be issued by mass transit system operator (PPI-MTS)· The PPI-MTS will necessarily contain the Automated Fare Collection application related to the transit service to qualify as PPI-MTS· Apart from the mass transit system, such PPI-MTS can be used only at other merchants whose activities are allied to or are carried on within the premises of the transit system· The PPI-MTS issuer will ensure on-boarding of merchants (only those permissible as under (iii) above) following due procedure applicable to any other PPI issuer· The PPI-MTS will have minimum validity of six months from the date of issue;· The issuer may decide upon the desired level of KYC, if any, for such PPIs;· The PPI-MTS issued may be reloadable in nature and at no point of time the value / balance in PPI can exceed the limit of Rs. 2,000/- (Rupees Two Thousand Only);· No cash-out or refund will be permitted from these PPIs;· Funds transfer under the Domestic Money Transfer (DMT) guidelines will also not be applicable to these PPIs
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Yes Bank has received approval from RBI to set up IFSC Banking Units (IBUs) in Gujarat International Finance Tec (GIFT) city. Establishing the IBU will propel the bank's growth plans further by providing it access to international financial markets, as well as provide a comprehensive product suite to its corporate clients requiring foreign currency funding, Yes Bank said in a statement on Tuesday (14 July). It will also allow the bank to raise foreign currency funding through MTNs and other routes as appropriate, Yes Bank MD Rana Kapoor said. He added, it will help in further diversification and expansion of cross border asset products as well as widen the scope and depth of liabilities base.(PTI)
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Indian banks should consult each other and jointly decide on the timing to raise fresh capital from the market, Reserve Bank of India Deputy Governor R. Gandhi said on Tuesday (14 July)."What we are telling banks (is) that simultaneously all of them should not be coming together (to raise capital). There will be a problem," Gandhi said on the sidelines of an industry event.He said lenders should space out fresh capital raising from the market to avoid a liquidity crunch.Ratings agency Fitch estimates Indian lenders need more than $200 billion in fresh capital to prepare for the full implementation of the new Basel requirements in the next four years."What we are suggesting, that well in advance if banks are able to shore up ?their capital it should be good for their sound management," Gandhi added.(Reuters)
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Former ICICI Bank chairman K.V. Kamath has said the bank is in "great hands" under the leadership of its current CEO Chanda Kochhar. "ICICI Bank is in great hands. Chanda will take it to greater heights and I have no doubts about it," said Kamath, who relinquished his position as the bank's chairman earlier this month to take up the responsibility as the first president of the BRICS nations' $100-billion New Development Bank (NDB). "It (ICICI Bank) is a great bank and it will keep scaling new heights every passing day," Kamath told PTI in Ufa, Russia. He was in Ufa for the BRICS Summit, attended by the heads of state of the five leading emerging economies (Brazil, Russia, India, China and South Africa). The ratification process for setting up of NDB was also completed during the summit. On India, Kamath said he is very optimistic about the growth prospects of the country. "I have always been sure that India will realise its dreams of being a global power," he said. Kamath is the first president of NDB, which will provide infrastructure loans to emerging nations, rivalling multilateral lenders such as the World Bank and the IMF. Kamath will largely operate from China in his new role at Shanghai-based BRICS Bank - taking him back to one of his favourite countries where he spent a good amount of time during his tenure at Asian Development Bank, between 1988 and 1996, when he returned to ICICI Bank as its CEO. The 67-year-old banker began his career in 1971 at ICICI, the erstwhile financial institution that was incidentally set up at the initiative of another multi-lateral development institution, the World Bank. ICICI Bank was later set up as a subsidiary of ICICI Ltd in 1994, while the parent later merged into it in 2002. He led the group's transformation into a diversified, technology-driven financial services group that has leadership positions across banking, insurance and asset management in India and abroad. Back in 2008, when ICICI Bank was hit by widespread rumours of 'run-on-the-bank', Kamath led from the front and brought everything back into order, even as bank customers were queueing up before its branches to withdraw funds. He retired as managing director and CEO in April 2009 and became its non-executive Chairman. He was succeeded by Kochhar as MD and CEO. Kamath, a mechanical engineer and an MBA from prestigious IIM-Ahmedabad, was also on board of several other companies, including that of IT giant Infosys where he served as a non-executive Chairman. In an earlier interview, Kamath had said if there was an 'Ivy League' of banks across the world, he expected ICICI Bank and a few more from India to join that elite club.
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British lender Barclays has ousted Chief Executive Antony Jenkins after three years in the post, saying on Wednesday (8 July) it had decided new blood would help accelerate strategic change at the bank and boost shareholder returns.Shares in the bank jumped in early trade and were up 2.6 per cent at 258.80 pence by 0735 GMT.The surprise move comes weeks after John McFarlane took over as chairman of the bank and signalled his intention to speed up its turnaround plan. McFarlane is to take over executive duties until a permanent successor is appointed.Barclays said Jenkins, who had been promoted from head of retail at Barclays following the departure of Bob Diamond as the bank sought to scale back its investment banking activities, would receive a year's salary of 1.1 million pounds ($1.7 million) plus 950,000 pounds worth of shares, a pension allowance of 363,000 pounds and other benefits.He will also remain eligible for a pro-rata performance bonus for the current year.McFarlane, appointed from insurer Aviva having overseen a radical turnaround there, faces a host of challenges as the British bank sector grapples with regulatory pressures such as a demand to separate domestic retail banking operations from riskier investment banking operations.The decision to axe the CEO follows a period of lacklustre results and uncertainty about the bank's future structure."This announcement was not something that we have expected, but given John McFarlane’s history as a ‘hands-on’ chairman, it is perhaps not a big surprise," said analysts at brokerage Shore Capital in a note which repeated a "buy" rating on the stock."If this move does indeed act as a catalyst for an accelerated improvement in Barclays’ financial performance, then this can only be a good thing," the note added.While lauding Jenkins' role in steering the bank through a period of rapid change, Deputy Chairman Michael Rake said the board had decided Jenkins did not have the blend of skills required to take the company forward."We are leaving value on the table and a new approach is required. As a group, if we aspire to bring shareholder returns forward, we need to be much more focused on what is attractive, what we are good at, and where we are good at it," he said in a statement."We therefore need to improve revenue, costs and capital performance. We also need to become more externally focused and deal with the internal bureaucracy by becoming leaner and more agile," Rake added.In a statement Jenkins said: "It is easy to forget just how bad things were three years ago both for our industry and even more so for us. I am very proud of the significant progress we have made since then."($1 = 0.6487 pounds)(Reuters)
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The Reserve Bank of India aims to drain money markets of excess liquidity to counter inflationary pressures arising from higher government spending, according to policymakers, though it could hamper chances of banks lowering lending rates. Commercial bankers say it would be easier to reduce lending rates, as the RBI has urged them to do, if surplus liquidity prevailed for some months. The liquidity surplus - now around 350 billion rupees - has dragged the average call money rate down to close to 7 percent this month. Some analysts expect it to reach 300 billion to 500 billion rupees ($4.7 billion to $7.88 billion) by August. A senior policymaker aware of central bank's thinking, who requested anonymity, said the RBI wanted to nudge the call rate up to nearer the 7.25 percent policy repo rate. "Overall the overnight rate has to be in alignment with the monetary policy stance," he told Reuters late on Friday. The policymaker said the RBI would stick with its current approach of draining excess cash largely through variable reverse repos. "As long as the market is able to come and give the funds back to the RBI, it should not be a problem," he said. The policymaker did not rule out the RBI selling bonds through open market operations if a longer-lasting approach was needed. The last time the RBI sold bonds on the open market was in December. Another official aware of the developments concurred with those views. Hesitant BanksThe RBI has lowered its policy rate by a total 75 basis points with three cuts this year, hoping that banks would do more to pass on the benefits to the broader economy. But banks say tight liquidity had stayed their hand earlier, and want liquidity to remain ample before making further moves. "The longer this cash surplus stays, the greater will be our confidence to bring down long-term deposit and lending rates," said a senior official at a large state-run bank. RBI Governor Raghuram Rajan said in April that hopes of a sustained surplus were "just nuts", given the inflation outlook. Consumer inflation rose to 5.01 percent in May from 4.87 percent in April. The RBI has targeted 6 percent inflation by January and 4 percent by March 2018. The RBI's priority is meeting those targets, and a seasonal surge in government spending - expected to total $45 billion in the September quarter along with the RBI's annual dividend payout to the government of around $8 billion at least - will add to inflationary pressures unless cash is drained. "If rates fall below where they are intended then that will hinder RBI's inflation target," said A. Prasanna, economist at ICICI Securities Primary Dealership, who expects cash conditions to remain broadly in surplus until September. "It will have to use instruments other than reverse repo if the surplus liquidity persists," he said. (Reuters)
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