Bullish on growth prospects of his group's financial services businesses, industrialist Anil Ambani on Wednesday (30 September) said Japanese major Nippon Life is in an advanced stage of talks to hike stake in Reliance Life Insurance and Reliance Mutual Fund units within this financial year.In Reliance Life, Nippon plans to hike the stake from 26 per cent to 49 per cent, while it would increase its holding in Reliance Capital Asset Management Company from 35 per cent to 49 per cent.Besides, Reliance Capital is targetting to more than double its housing finance business loan book to Rs 10,000 crore this fiscal and is aiming to become one of the top three players from the private sector in this business, he said.Addressing the shareholders at its Annual General Meeting here, the Reliance Capital Chairman also reiterated that the company would set up a new bank in India in collaboration with Japan's Sumitomo Mitsui Trust Bank as and when RBI's policy permits.He further said that the company would continue to unlock value at appropriate stages through stake sales in different businesses and also liquidate its financial investments in non-core areas, such as media, to book attractive returns.The proceeds from asset monetisation will substantially be utilised to further reduce debt and strengthen Reliance Capital's already conservative financial ratios, he said.Stating that he was looking forward to Reliance Capital's future with great optimism, Ambani said the company is in active discussions with Nippon Life Insurance to enhance collaboration for mutual benefit.Pursuant to the government allowing higher FDI in insurance sector, Ambani said Reliance Capital is now in an advanced stage of discussions for Nippon Life to increase its stake from 26 per cent to 49 per cent in Reliance Life Insurance."Nippon Life Insurance is also actively engaged in the process of raising its stake in Reliance Capital Asset Management from 35 per cent to 49 per cent, at a higher valuation as compared to the last round," he added.Ambani said these proceeds will flow to Reliance Capital and will be utilised to further reduce our overall debt levels.Both these transactions with Nippon are expected to be completed within the current financial year, he added.On home loan business, Ambani said, "Reliance Capital will more than double its housing finance book to over Rs 10,000 crore during this year, and rank among the top 3 players in the private sector in India within the next 3 years."On other businesses, he said Reliance Capital is now at an advanced stage of preparations for relaunching ICEX, and expect to grow the business in a significant manner, so as to attain leadership rankings in this space within 3 years.Reliance Cap currently holds 20 per cent stake in ICEX.He also said that Reliance Capital plans to set up a host of emerging businesses in GIFT City facility in years to come, and will be starting with Alternate Investment Funds business.GIFT City, located near Ahmedabad, is being developed as the first international financial services centre in India and would also be the first Smart City of the country.(PTI)
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Reserve Bank Governor Raghuram Rajan on Tuesday (29 September) sprang a surprise by effecting a more-than-expected interest rate cut of half a percent to boost the economy and bring down cost of home, consumer and industry loans, a decision that was matched by market leader SBI slashing lending rate by 0.4 per cent. Leading private bank ICICI and Axis Bank also indicated that they would bring down the lending rates while public sector Andhra Bank was first off the block, cutting interest rate by 0.25 per cent. While the RBI action will benefit borrowers, it will also lead to reduction in deposit and savings rate. The government also disclosed that it will review the interest rate on small savings, PPF and Post Office deposits, to bring them in line with market. Heeding to clamour from government as well as industry, Rajan effected the fourth cut in repo rate in 2015, the biggest in three years, on back of moderating inflation and favourable global commodity and oil prices. In its fourth bi-monthly monetary policy for the current fiscal, RBI cut benchmark repurchase (repo) rate from 7.25 per cent to 6.75 per cent, lowest in four-and-half-years. Rajan justified the reduction saying consumer inflation was likely to be at 5.8 per cent, below the 6 per cent target for January. The focus should now shift to bringing inflation to around 5 per cent by March 2017, he said, adding that RBI will be vigilant for signs of monetary policy adjustments that are needed to stick to the "deflationary path". RBI lowered its economic growth forecast for the current fiscal to 7.4 per cent from its previous projection of 7.6 per cent. Government and industry welcomed the RBI decision and nudged banks to transmit the benefit to borrowers to boost investments and economy. "This decision of the RBI will significantly provide policy support to the real economy and help in the recovery process. "We are looking forward now to the transmission of these cuts which will effectively help to boost confidence and investment. They will also help to realise the economy's medium term potential growth rate," Finance Minister Arun Jaitley told reporters here. Quick to act on RBI cue, State Bank of India (SBI) reduced lending rate by 0.4 per cent to 9.3 per cent per annum, setting a trend for a benign rate regime. .(Agencies)
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Banks will find it tough to pass on RBI rate cuts, argues Raghu Mohan At long last, the Reserve Bank of India (RBI) has obliged with a repo rate cut of 50 basis points (bps) to 6.75 per cent -- a four-and-half-year low. It left the cash reserve ratio or CRR (the proportion of deposits banks’ park with Mint Road) and the statutory liquidity ratio or SLR (the proportion of deposits to be invested in government securities) unchanged at four per cent and 21.5 per cent, respectively. Will you and I get to borrow cheap from here on? Will India Inc., go the whole hog and invest big time? Unlikely. Just read this line from RBI governor’s Raghuram Rajan’s policy text: “While the Reserve Bank’s stance will continue to be accommodative, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 bps points cut in the policy rate are removed”. The reference to a 125 bps cut is to those in the calendar plus today’s 50 bps. And what exactly are the impediments? What’s The Context Here…That Mint Road has gone in for a deep 50 bps cut in the repo rate – the price at which banks borrow funds from RBI – is a clear indication of the quagmire we are in. Let’s also get this clear: a repo rate cut does not lead to an infusion of funds into the banking system unlike a cut in the CRR or SLR (to the extent that banks have to invest less in government paper). On the latter, you also need to remember that given the times we are in, banks have taken the option to invest more under SLR. The RBI’s Annual Report for 2014-15 says banks continue to hold around 28 per cent by way of SLR despite a slash in it over time to 21.5 per cent (from 23 per cent). Mint Road’s reasons: “… the buffer providing access to collateralised borrowings from the wholesale funding market and the Reserve Bank. Maintaining excess SLR securities also helped banks to weather the impact of the current slow phase of the economic cycle on their balance sheets and earnings”. That’s why a 75 bps cut in the repo rate between January and June 2015 saw only 30 bps pass-on to you and I by banks. Lower bond yields mislead. Mint Road captures this reality when it notes that the financial markets have transmitted it’s past policy actions (lower yields on commercial paper and corporate bonds), but banks have done so only to a limited extent (as in lending rates have been stubborn). On Tuesday, the point was repeated: “The median base lending rates of banks have fallen by only about 30 bps despite extremely easy liquidity conditions. This is a fraction of the 75 bps of the policy rate reduction… even after a passage of eight months since the first rate action by the Reserve Bank. Banks’ deposit rates have, however, been reduced significantly, suggesting that further transmission is possible”, observes RBI. Will Banks’ Oblige From Here On?A month from now, Mint Road will come out with a new base rate (BR) calculation – marginal cost of funds from weighted average cost of funds; RBI intends to implement it from 1 April, 2016. Dhananjay Sinha, Head-Institutional Research at Emkay Global, is of the view that if implemented in its current form, these norms are likely to be negative for banks' NIMs (net interest margins) until the average cost of funds catches up with the marginal cost of funds. Why so? Bank deposits were contracted at a higher rate (only a relatively small portion of it were contracted at a lower rate after and during the cumulative repo rate cuts of 125 bps in the calendar so far; of which 50 bps happened only today). Therefore, a cut in the BR will only mean banks will have less to pocket for themselves. A way out, as Sinha says, is for banks to either increase the spread over the BR or let NIMs get impacted. Of course, in a rising rate environment, the proposed BR regime will work in favour of lenders as banks would pass on higher rates immediately. “Hence, we expect movements in BRs, and hence NIMs, could likely be volatile and frequent, which is likely to make banks' balance sheets more vulnerable to sharp interest rate movements””, adds Sinha. The essence of the above is banks have two options: either let NIMs dip and crib. As Pawan Agrawal, Chief Analytical Officer-CRISIL Ratings noted when RBI came out with its BR draft norms: “Our base-case is that profitability of banks will have a one-time impact of around Rs 20,000 crore in fiscal 2017, which would be equal to 15 per cent of the total estimated profit of the banking system for that year. The actual impact will depend on whether the banks will be given a leeway to make this shift over a longer timeframe in the final guidelines.” Agrawal says returns of banks that lend mostly on a floating rate basis will be significantly impacted in an environment of falling interest rates – as floating rate is pitched over the BR. As the BR falls (and along with it the floating rate), so will the interest income of banks. And that banks with low levels of current and saving accounts, or relatively longer tenure-term deposits, will also be majorly affected. That’s because their cost of funds will not come down soon enough -- as they will continue to pay interest to depositors at the old rate (before a policy rate cut). Or banks up the spread over the BR itself (which they are legally allowed to have anyway). If this happens, you will see a peculiar situation. Banks will publicly state they have dropped their BRs – not in proportion to the current repo rate cut, but a cut by a small margin – but when you actually go to borrow, the rate will more or less be at what they were before the current repo rate cut. Lower lending rates will be an illusion – that’s what most likely to happen anyway. What’s not to be lost sight here is that liquidity has not been issue at all; it sloshes about, but there have no takers for it at the banks’ credit window. Mint Road’s inter-bank money market numbers are reflective of the deeper rot in the economy. Liquidity conditions eased considerably during August to mid-September. Sure, in addition to structural factors such as deposit mobilisation in excess of credit flow, there was lower currency demand and pick-up in spending by the government which contributed to the surplus liquidity. The point is that the average net daily liquidity absorption by RBI (or what banks gave to the RBI) went up from Rs 12,000 crore in July to Rs 26,000 crore in August and to Rs 54,400 in September (up to September 15). Money market rates generally remained below the repo rate. It changed subsequently (as in RBI injected money), but that’s due to technical reasons -- quarterly tax collections went out of the system from mid-September, deficit conditions returned and the Reserve Bank engaged in average net injections of the order of Rs 54,400 crore (September 16th to 27th) which kept call rates close to the repo rate. Governor Rajan has pleased all and sundry with a repo rate cut – the shrill cries for it will taper off for a while now. The “focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 bps points cut in the policy rate are removed”. Let’s see how that part pans out!
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Saru Kaushal, Country Business Head of Global Corporate Payments, joined American Express Banking Corp in September 2014. According to Kaushal, the business climate in India has improved over the years and in the next few years, India will lead the world in economic confidence and investment. In an interview with Arshad Khan of BW|Businessworld, Kaushal talks about how India is one of the biggest markets for corporate cards in the world.
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Soon after reduction in repo rate by the Reserve Bank, country's largest lender State Bank of India (SBI) slashed minimum lending or base rate by 0.4 per cent to 9.3 per cent, setting the trend for benign interest rate regime. With the reduction in the base rate, all loans, including home, auto and corporate, would become cheaper by at least 0.40 per cent. The bank has decided to reduce the base rate by 0.40 per cent to 9.3 per cent with effect from October 5, SBI said in a statement. "RBI has cut interest rate by 0.50 per cent, we have reduced it by 0.40 per cent," SBI Chairperson Arundhati Bhattacharya said. The bank will also be cutting fixed deposit rates by 0.25 per cent across various maturities from October 5, she added. "We will definitely keep looking at ways and means of bringing down rate further. Going ahead, weakening of rate will add to growth of credit," Bhattacharya said. With the reduction, SBI's base rate is the lowest in the market. The reduction by the largest lender is likely to be followed by others. Meanwhile, Andhra Bank also reduced its base rate by 0.25 per cent to 9.75 per cent effective today. Base rate is the minimum rate below which a bank can't lend to consumers. On cost of fund, Bhattacharya said "on monthly basis, the fall is quite good, also the fact that there are more of retail deposits now than savings." RBI cut benchmark repurchase (repo) rate from 7.25 per cent to 6.75 per cent, lowest in four-and-half-years. The reverse repo rate, at which it accepts banks' excess liquidity, will be 5.75 per cent, while the cash reserve ratio has been kept unchanged at 4 per cent. Soon after the RBI policy announcement, Finance Minister Arun Jaitley expressed hope that banks will transmit the benefit to borrowers so as to boost investments and the economy. "We are looking forward now to the transmission of these cuts which will effectivEly help to boost confidence and investment. They will also help to realize the economy's medium term potential growth rate," Jaitley said.(PTI)
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E-commerce in India, with over 250 million internet users and 900 million mobile subscribers, is witnessing an unprecedented growth and is only set to expand further. Thousands of brands and companies are today selling their products through e-commerce platforms available in India. In the recent past, we have also witnessed the introduction and rise of hyperlocal commerce. These developments have led to creation of a new commercial ecosystem in India, with hundreds small traders, merchants and manufacturers have joining the booming e-commerce bandwagon every day.E-commerce marketplaces are placing focus on onboarding new vendors and adding product lines to offer variety and choice to the customers. Online business is a lucrative option for entrepreneurs but to manage the cost of setting up shop online with the top shot e-commerce marketplaces like Flipkart, Snapdeal or Amazon, any first-generation entrepreneur requires a work capital loan. Access to capital at the right time and price often becomes the biggest roadblock for the SMEs. According to a recent study by the Union MSME ministry, only 6% small businesses get finance from organised lenders, indicating the difficulty of small businesses to get loans. Meanwhile, a report collected by the International Finance Corporation (IFC) showed around 41% of SMEs in India do not have access to bank loans or other related products offered by financial institutions. IFC reports a financing demand gap of ?2.93 trillion in the SME sector.In the absence of conventional loans for this segment, such entrepreneurs have been reaching out to new age digital lending players. Many e-commerce giants are partnering with Digital Lenders and Non-Banking Finance Companies to extend quick and hassle-free short term loans to ambitious merchants. The advent of these new-age online platforms is emerging as a boon not just for the sellers, but also the e-commerce players. Traditionally, many of these sellers have stayed small and unorganised to avoid taxes and regulation and hence, it became impossible for a bank or traditional finance organisation to understand and meet their funding requirements. Digital Lenders have developed comprehensive algorithms to use social footprint and other proxies for credit comfort to assess credit worthiness of the borrowers. The use of technology enables such platforms to service entrepreneurs in the remotest corners of the country.Amazon and Flipkart aim to double the sellers on their respective websites to 1 lakh by the end of 2015. Timely allotment of loans to these small businesses will eventually be important for creating and fostering the e-commerce ecosystem. India is already witnessing a change in the way we shop; a revolution in how we look at finance is not far behind.The author, HarshVardhan Lunia, is Co-founder & CEO of Lendingkart
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The ball is in the bank's court now to reduce base rate and pass on the benefit to borrowers. Rejig, however, is required for bank fixed deposit investors, writes Sunil Dhawan Markets always look for triggers. For months, it kept waiting for the big rate cut to happen. It came albeit at a time when the global markets were at a turmoil. On 29th when Reserve Bank of India (RBI) was announcing its monetary policy statement, global indices were down by over 2 per cent on average including BSE and Nifty. On the back of inflation data and the slowing growth rate, RBI cut the repo rate by 0.5 per cent while keeping the CRR unchanged. Repo rate is the rate at which banks borrow from RBI while CRR refer to quantum of fund to be parked mandatorily with RBI. Both of these measures along with several other tools are used by RBI to infuse or suck out liquidity from the market. Base cut by banksFrom 7.25 per cent, the repo rate stands at 6.75 per cent now. In September 2014, it stood at 8 per cent. Overall, the repo rate has been reduced by 1.25 per cent over the last 12 months. However, the base rate is hardly lower by 0.25 for majority of banks. This leaves room for a base rate cut to happen soon. Andhra Bank was the first to hit the block by reducing its base rate (rate below which banks cannot lend) by 0.25 per cent within an hour of the announcement. Early in September, HDFC Bank had already cut its base rate by 0.35 per cent thus reducing the base rate from 9.70 per cent to 9.35. This appeared to be an aggressive move by the country's largest lender and had certainly taken the market by surprise. With festive season nearing, SBI, ICICI and Axis bank too are expected to lower the rates. Rishi Mehra, Co-Founder, Deal4loans.com says, “Home loan and Car loan rates should fall by 0.50 basis points and expect Home loan rates to come at 9 per cent.” Borrowers of all kinds including corporates and retail individual stands to gain if rates fall further. The previous base rate reduction happened in June when Axis bank, SBI, ICICI and HDFC all of them cut their base rates. SBI's current base rate is 9.70 per cent, for ICICI its 10 per cent, while for Axis its 9.85. Such variation may not sustain longer and soon a cut may be witnessed in these institutions. The ImpactA 0.25 per cent reduction may not appear to be a big advantage but over period of time if rates keep falling and banks continue passing on the benefit, the cumulative impact could be huge. Let' assume, outstanding amount on a home loan is Rs 10 lakh, with 20 years remaining and at an interest rate of 10.50 per cent at an EMI of Rs 9,983. If rate falls by 0.25 per cent, keeping the EMI constant, the tenure falls by about 13 months. If the rate is reduced by 0.5 per cent, the effect translates into nearly 24 months and you would end your loan much earlier. New home loan takersFor those waiting for home loan rates to fall, the right time has come. With high level of unsold inventory with builders, it's time to bargain with them. A lower rate of interest further brings the cost of owning the house down. On a 9.85 per cent home loan for 15 years for Rs 40 lakh, the total interest burden can be less by Rs2 lakh if base rate is less by 0.5 per cent. Existing home loan holdersWhen bank base rates fall, those holding home loan on flexible interest rates benefits as against those holding fixed home loans. Most banks have passed on the benefit of lower base rate to their home loan customers. For someone with an existing a home loan, the benefit can be availed in two ways — either EMI's may be reduced or the tenure may be reduced. Banks on their own typically reduce the tenure automatically and thus transfer the benefit of lowering base rate to their customers. Ask your banker, how has the adjustment been done or log on to your home loan account online to see if the benefit has been passed on to your account. If you wish to lower your EMI, you need to contact your banker and may have to submit revised ECS mandate. Switching overIf the existing loan is nearing completion, the impact of base rate change may not be much. So, if your exiting loan is around three years old, consider switchover or refinancing the loan from another lender if the rate differential is high. The negative impactWith RBI cutting repo rate by 50 basis points, the banks might not pass on the benefits to borrowers by the same margin. This is because the cost of funds for a bank is also dependant on what rates it offers to its depositor. To lower the cost of funds further, the deposit rates are also expected to fall. This directly impacts all those investors who rely on regular and fixed income from bank deposits. Fixed deposit investorsLowering of interest rates understandably are favoured by corporates, markets and anybody who is a borrower. The biggest casualty are the fixed income investors especially the retired citizens who rely on fixed income for their regular income needs. Presently, banks are offering interest rates around 8 per cent or even lower across most tenures on the bank fixed deposits. For all those investing in bank FD's for their regular income needs or otherwise too, using the 'Laddering' approach will help. In Laddering, instead of putting the entire sum in a certain term-deposit, the sum is spread across term -deposits of varying maturities. For example, instead of putting Rs 5 lakh in 3-year deposit, one may spread across 1 lakh each in 1-year, 2-year…5-year deposits. What this approach does is to manage the interest rate risk. Laddering also helps in keeping your funds liquid. Higher amount can be put into the deposit offering the highest rate. In doing so, there is always a re-investment risk associated with any fixed income product of a fixed tenure. But then, predicting interest rate movement is always an impossible tasks even for banks and corporates. Laddering strategy helps in minimizing the risks but cannot be the ideal approach. One may even have to look at post office instruments for their fixed income needs. PO monthly income scheme is still at 8.4 per cent providing monthly income.
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Finance Minister Arun Jaitley welcomed the Reserve Bank of India's 50 basis points cut in interest rates on Tuesday (29 September), saying it would boost confidence and economic growth. The decision would also provide policy support, Jaitley told reporters, adding that the government was committed to meeting its fiscal deficit targets. Earlier, the RBI cut its policy interest rate to a 4-1/2 year low of 6.75 per cent, in a bigger-than-expected move that, with inflation running at record lows, could help an economy in danger of slowing down. Meanwhile, former Finance Minister P Chidambaram also welcomed the 0.50 per cent cut in interest rate announced by the RBI saying it was overdue. "I welcome the decision of RBI to reduce the repo rate by 50 basis points. This was perhaps overdue. "Nevertheless, it signals a movement towards a lower interest rate regime and it is therefore welcome," he said. He said more policy steps by RBI were possible if the government stayed firmly on path of fiscal consolidation. "If government stays firmly on the path of fiscal consolidation and fiscal prudence, we can look forward to more policy steps by the RBI," he said.(Reuters / PTI)
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