The head of the Reserve Bank of India (RBI) has warned about the risks of easy money, urging the United States to raise the cost of borrowing sooner rather than later regardless of the jolt this may give markets. Speaking at an event with the head of Germany's Bundesbank, who sent a similar message, Raghuram Rajan said that low borrowing costs and money printing were a threat to financial stability and would lose effectiveness over time. Rajan, who is worried that shrinking returns on investments in Europe prompt a flood of investment and inflation in India, said "extremely aggressive monetary policy ... eventually may have tremendous consequences for financial stability". "If everyone is doing it, you won't get much benefit out of it," he said. Speaking on the same podium, Jens Weidmann, the head of Germany's central bank, backed Rajan's warning. "I share the concerns regarding monetary policy that is too loose for too long," he said. Rajan said that the Federal Reserve's likely increase in interest rates in December could upset markets but that it was nonetheless necessary. "The liftoff has been one of the most widely advertised factors," he told an audience of students. "I think there will be volatility but I think we have to bear it. I worry more about the consequences of staying in the ultra accomodative ... world," he said. (Reuters)
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There will be volatility when the Federal Reserve increases interest rates, the Reserve Bank of India Governor said on Tuesday (10 November), arguing, however, that the consequences of inaction would be more severe. "The liftoff has been one of the most widely advertised factors," Raghuram Rajan told an audience in Frankfurt. "When it happens, there will be volatility. I worry more about the consequences of staying in the ultra accomodative ... world. I think there will be volatility but I think we have to bear it," he said. (Reuters)
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Bank of India, the nation's third biggest state-run lender, sank to a quarterly net loss as bad loans spiked, forecasting difficult months ahead while it tightens efforts to claw back debt. The bank, which had been expected to report a modest profit, instead on Monday reported a 11.26 billion rupee ($169.6 million) net loss for the second quarter to the end of September. Much of the damage was caused by what it termed "spillover" provisions, which should have been accounted for in the last fiscal year. "We'll definitely have a challenging time over the next 2 to 3 quarters," said Melwyn Rego, who took over as the bank's chief executive in August. Rego is one of a group of new bosses appointed to India's largest state-run banks. Investors have been looking for signs that India's state banks are getting to grips with their worst bad debt burden in a decade. But while there have been signs of improvement in some banks' second quarter earnings -- including at the country's largest lender State Bank of India -- others point to a more uneven recovery. "With the improving macroeconomic scenario and the fact that we have taken already a large portion of the hit, I do not see any major risks coming up," Rego said. But he said corporate loans in the portfolio were often bulky, meaning one sour loan could offset other improvements. Like its rivals, Bank of India hopes to boost retail loans, tapping India's bubbling consumer sector. Rego said he wanted retail loans to account for 55 per cent of the portfolio in two years' time, compared to 45 per cent now. He said the bank would also boost home loans "in a big way", growing in a segment which is responsible for only a sliver of current bad debt. "There are certain areas we need to address, asset quality being one of them," Rego said. "Part of the strategy is to put all our efforts into recovery and also to stop further slippage." Bank of India's gross bad loans as a percentage of total loans climbed to 7.55 per cent in the second quarter, compared with 6.8 per cent in the previous quarter, and 3.54 per cent in the same three months a year ago. Bad loans climbed to 298.9 billion rupees, against 268.9 billion at the end of June. "The bank made provisions for bad and doubtful debt worth Rs 3,036 crore in Q2 against Rs 792 crore a year ago," Rego said. The bank is planning to sell its non-core assets. "From a medium term perspective, we would be examining selling of non-core assets and diluting strategic investment. In the medium term we will be closely looking at our subsidiaries and associates," Rego said. "The credit growth of the bank stood at a negative 0.88 per cent in the period under review. But Rego said the bank is looking at credit growth at 10 per cent on annual basis by March," he said. (Agencies)
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Race for many days of disruptions, says Raghu Mohan About a month ago, bank unions decided that bang in the midst of the Winter Session of Parliament , a demonstration is to be held in front of North Block over the proposed privatisation of IDBI Bank -- but there is a slight change in programming. Unions have decided to concentrate their fire power on creating a bigger din. As per the itinerary, on the 24th of this month -- three days before the winter session kicks in -- the All India Industrial Development Bank Employees’ Association (AIIDBEA) under the banner of United Forum of IDBI Officers and Employees; and the All India IDBI Officers’ Association (AIIDBIOA) will hold a “dharna” at North Block. While this will not affect bank transactions in the way a strike does, it will trip banking transactions as clearing house operations may not be as smooth as it should be if the unions put their heart in to it. If you are an IDBI Bank customer, you will have reason to be peeved. Next on the menu is a two-day strike call on the 1st and 2nd December which will by far be the most serious one if not handled properly. It’s over State Bank of India’s (SBI) Career Progression Policy in its `Associate banks’ -- State Bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Hyderabad and State Bank of Patiala. SBI’s management (of the mother bank, SBI) has asked the associate bank to adopt the policy. But the State Sector Bank Employees Association (SSBEA) is to have none of it as they want to maintain the distinct identities of SBI’s associate banks. SSBEA sees in this a plot to merge to associate banks into SBI. And, therefore, the strike call; other banks unions are to extend support even as there is chatter of an indefinite strike at end-December If you go by the current itinerary, what you have is almost seven days (not in a row though) of disrupted banking. The 24th of November is a Tuesday; the next day is off for Guru Nanak Jayanti (a bank holiday). You then get to the two-day strike call on the 1st and 2nd of December (Tuesday and Wednesday), but it’s preceded by a weekend (28th November) and the weekly off (29th, Sunday). You also have been promised an indefinite strike towards the end of the calendar year. The belligerence of the unions will get a fillip with the changed political turf – the Bihar verdict and the rout of the BJP by the Nitish Kumar-Lalu Yadav combine. Now whatever may be your political orientation and the merits or otherwise of the Bihar outcome, what you can’t get away from is bank unions are set to raise the ante against Messrs Jaitely & Co. Bank unions have been on a warpath ever since the BJP-led government took charge. The first real test came over the Bilateral Wage Settlement. It did not blow up even when the United Forum of Bank Unions’ called for a four-day bank strike (from the 25th to 28th February 2015); or threat of an indefinite strike from 16th March onwards. But this winter may be rather hot!
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State-run Andhra Bank is seeking to sell bad loans worth about 13.88 billion rupees ($209 million) to asset reconstruction companies, according to a newspaper advertisement on Monday. The bad loans are in 29 accounts, the bank said in the advertisement. Andhra Bank on Saturday reported a 74 per cent increase in its second-quarter net profit to 2.51 billion rupees from a year earlier. Its gross bad loan ratio eased to 5.71 percent from 5.75 per cent in the first quarter.
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An Indian-origin former Goldman Sachs banker has pleaded guilty to the theft of confidential information from the Federal Reserve Bank of New York and then using it to further his employment at the investment bank. Rohit Bansal, 30, pleaded guilty before US Magistrate Judge Gabriel Gorenstein to one count of theft of government property and faces a maximum sentence of one year in prison. He is scheduled to be sentenced by in March next year. US Attorney for the Southern District of New York Preet Bharara said that between July and September of 2014, at the direction of Bansal, another individual Jason Gross, without authorization, took confidential information from the Federal Reserve and sent it to Bansal. Bansal then used the confidential information in an effort to further his employment at Goldman, where he had been employed as an associate. From about August 2007 to March 2014, Bansal was employed as a supervisory manager at the Federal Reserve where he had responsibility for supervising certain banks. He left the Fed to join Goldman which provided advice on regulatory issues to certain client banks, including banks supervised by the Fed. During the relevant time period, Gross was employed by the Fed and, prior to April of 2014, both had worked together at the Fed. At the direction of Bansal, Gross e-mailed confidential documents to Bansal without authorization from the Board or the Fed. Upon receiving the documents from Gross, Bansal used some of them in an effort to further his employment at the investment bank. In particular, Bansal disseminated certain of the confidential documents to other employees at Goldman for the purpose of assisting with the bank s work for its client banks. Bansal once sent Gross a text message asking Gross to send to him particular confidential documents regarding two banks to his personal e-mail account. Prosecutors said even though Bansal knew that he was not entitled to receive or disseminate any confidential documents, he sent them from his e-mail account to other individuals employed by Goldman. They said in a cover e-mail attaching a confidential document, Bansal told the employees that "with respect to certain supervisory issues, confidential document gives you [an] idea of what [the] Board was looking at . . . Please don t distribute." (PTI)
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RBI governor Raghuram Rajan has said that he was comfortable with current interest rates of 6.75 per cent but would stay "accommodative". Rajan was speaking in a televised debate with the government's chief economic adviser Arvind Subramanian, who prodded the RBI governor to take into account wholesale price inflation in monetary policy decisions. Wholesale inflation fell for an 11th consecutive month in September, leading to calls for the RBI to cut interest rates even further after already easing them by 125 basis points to 6.75 per cent so far this year, including a larger-than-expected 50 bps cut in late September. In a friendly exchange between the two on the NDTV news channel, Rajan reiterated his view that consumer inflation was a more appropriate measure given its higher weighting of food prices and services. He also noted he was "comfortable with where we are" in terms of interest rates. Subramanian interceded, gently pressing Rajan to do more on rate cuts. "What he's saying is that RBI is open to more (rate cuts)," Subramanian said, turning to Rajan. "He's open, and as more data comes along on prices and how the economy is doing he will consider it, but he's basically accommodative." To which Rajan quipped: "I agree with the word accommodative." Rajan and the government have enjoyed a respectful relationship, although there have been differences between the two sides. The RBI is not statutorily independent from the government, although its central bankers enjoy broad autonomy. Subramanian and Rajan also expressed differing views on foreign capital, with the chief economic adviser saying India needed to be "much more careful" of "speculative capital." The RBI governor, however, responded by saying he was "much more open to the idea that foreign capital is beneficial." Subramanian also prodded Rajan to be "watchful over the competitiveness of India's economy and the exchange rate." Rajan, in turn, called on Subramanian and the government to pass the goods and services tax bill through parliament, saying it would send "a strong signal" that India can overcome its political differences. At the same time, they agreed on issues such as establishing a monetary policy committee to set interest rates as well as the need for "tolerance" of views in political debates. Both men had worked together at the International Monetary Fund where Rajan was chief economist.(Reuters)
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Punjab National Bank, India's fourth-biggest state lender by assets, missed forecasts with an 8 percent rise in quarterly profit on Friday, but cheered investors with a quarter-on-quarter improvement in its bad loans.Net profit rose to Rs 6.2 billion ($94.2 million) for its second quarter to 30 September, from Rs 5.75 billion a year earlier. Analysts on average had expected a net profit of Rs 8.98 billion, according to data compiled by Thomson Reuters.Gross bad loans as a percentage of total loans fell slightly to 6.36 per cent from 6.47 per cent in the previous three months, though higher than 5.65 per cent a year earlier.Shares in the bank climbed on the numbers, trading up 4.2 per cent by around 0700 GMT.(Reuters)
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State Bank of India, India's largest lender, beat expectations with a 25 percent rise in second quarter profit on Friday, boosted by increased income from its advances and a drop in its closely monitored bad loan ratio. Analysts in the sector have been watching for signs that credit quality is stabilising in India. State-owned banks that dominate the industry have been grappling with their worst bad debt burden in a decade, after years of liberal lending and slow credit growth. Friday's earnings provided room for optimism. SBI, a bellwether which has been tightening scrutiny of borrowers and increasing fund recovery efforts, said gross bad loans as a proportion of total loans dipped to 4.15 percent in July-September from 4.29 in the previous three months. Punjab National Bank, India's fourth largest, echoed the dip with a ratio of 6.36 percent versus 6.47 percent. The news sent SBI shares up over 4 percent on the day and PNB more than 3 percent, against a near flat market. "SBI and PNB's asset quality has been stabilising for the past few quarters," said Vaibhav Agarwal, analyst at Angel Broking. "Large state-run banks that have slowed down lending are seeing improvement in asset quality: you have to be conservative in a bad environment." Yet in an illustration of the sector's uneven and fragile improvement, Bank of Baroda Ltd, India's second-biggest, posted a spike in bad loans and provisions that pushed quarterly net profit down almost 90 percent - a fraction of expectations. Bank of Baroda was one of the first state-owned lenders to appoint a boss from the private sector: P. S. Jayakumar, former head of a real estate firm, joined in October, and analysts said the just-ended quarter would mark a transition. On Friday, Jayakumar said the bank had at least two "tough" quarters ahead. "Managing NPAs and enhancing credit quality is one big, immediate goal," he told reporters. Bank of Baroda's high exposure to large infrastructure groups and steel and mining companies, all badly hit by cheap Chinese imports and low prices, has been weighing on asset quality in recent quarters. Its gross bad loan ratio was 5.56 percent from 4.13 percent in the previous three months and 3.32 percent in the same quarter a year earlier. The bank said provisions for problem loans more than doubled to 18.9 billion rupees, which included 25 percent of a credit account worth 3.74 billion rupees that was declared fraudulent.
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Bank of Baroda Ltd, India's second-biggest state-run lender by assets, posted on Friday an unexpectedly sharp 89 percent tumble in its quarterly net profit, hit by a spike in bad loans and higher provisions for impaired assets. The numbers cast a shadow over hopes of an improvement in the asset quality of India's banks, helped by a pickup in Asia's third-largest economy. State Bank of India, the country's top lender will report earnings later on Friday. Slower credit growth and a surge in bad loans in the past three years has hobbled the country's lenders. Despite some signs of a pick up in the economy, bank loan growth in the three months to September was less than 10 percent. Lenders including State Bank of India, the country's largest, however, have been able to rein in the pace of rise in bad loans in the last few quarters, by tightening scrutiny and increasing recovery efforts. Net profit at Bank of Baroda, which in August became one of the first state-owned lenders to appoint a boss from the private sector, fell to 1.24 billion rupees ($18.9 million) in the quarter ended September 30, from 11.04 billion reported a year earlier, the Mumbai-based lender said in a statement. The bank's gross bad loan ratio for the quarter rose to 5.56 percent, a jump from 4.13 percent in the previous three months and 3.32 percent in the same quarter a year earlier. Bank of Baroda's provisions for problem loans in the July-September quarter more than doubled to 18.9 billion rupees, which included 25 percent of a credit account worth 3.74 billion rupees that was declared as fraud by the bank, it said. That number, seen by analysts as a partial "clean up" effort by the bank's new boss, includes a provision to cover a probe into suspected money laundering of about 60 billion rupees through one of its branches. Shares in the Mumbai-based bank tumbled almost 10 percent at the market open, but by 0530 GMT had erased most of the losses to be down just 0.6 percent. (Reuters)
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