from the sify business line
Mumbai: Indian manufacturing industry has taken off on a good note from 2002, but export-oriented companies need to exercise caution due to the rising rupee, said K V Kamath, chief executive officer and managing director, ICICI Bank.
He said the Indian currency would continue to appreciate further in future. “If I were in company management, I would allow at least Rs 2 per year or Re 1 a year strengthening,” he told corporates and industry representatives, implying that companies should be prepared for a Re 1 rise in the Indian unit against the dollar per year. The rupee has risen 13.7 per cent over a year.
Speaking at a manufacturing summit organised by the Confederation of Indian Industry, Kamath said the manufacturing sector, which clocked a growth rate of 12.5 per cent in 2006-07, is a star.
“From 1997-2002, manufacturing reinvented itself in terms of processes, quality, cutting costs thereby becoming a good industrial machine. Anybody who grows is a star (according to the Boston Consulting Group growth-share matrix) and manufacturing is surely a star as it is growing by leaps and bounds,” he said.
He said that increase in demand for products has played a major role in this upsurge with consumers from the service sectors like IT, ITeS, telecom, financial services and media driving this demand.
On the economy, Kamath said that 10 per cent gross domestic product growth is a given. “I have been saying this right through that we are set for a long period of growth and we need to only think of 10 per cent plus in future.”
He cautioned export-oriented manufacturers to brace themselves for the rupee appreciation and chalk out a strategic plan for facing the rupee-dollar matrix. Rupee appreciation increases the dollar price of Indian goods in global markets; thereby squeezing the margins of exporters, many of them belonging to sectors like textiles, leather and handicrafts.
Hence, many small-scale companies have gone on a retrenchment drive in order to fight increasing costs.
Kamath advised companies to invest largely in human resource to make it industry ready.
“Financial capital in not a challenge anymore as our markets are strong. What we are facing is the severe dearth of talented human capital and hence we need to enter into tie-ups with universities and customise programmes to suit the industry’s requirements.”
ICICI Bank has an agreement with Manipal Academy for Banking and Insurance to train people in banking.
Wednesday, November 21, 2007
ICICI Bank cuts interest rate on home loans
From the hindustan times
After State Bank of India, country's largest private sector lender ICICI Bank has cut floating home loan rates by 0.5 per cent to 11 per cent.
The new rates, implementable with immediate effect, will be applicable on new loans till October 31, an ICICI spokesperson said in Mumbai on Thursday.
The reduction follows the Finance Minister P Chidambaram asking banks to have a re-look at the interest rates to stimulate demand in the economy.
SBI had yesterday reduced interest rates on home and other retail loans by 0.5-1 per cent for different maturities as part of its festival offer.
The proposed rates are applicable for all new loans sanctioned on or after October 8 and is valid up to December 31, SBI had said in a statement.
SBI home loans are now cheaper by 0.50-1 per cent depending on loan maturities and amount of loan. The bank also gives discount if the salary account is with the SBI and further discount if a higher margin is available.
RBI cautions banks over project financing
From The Business Standard
| Concerned over the high level of defaults in the project finance portfolio of banks, the Reserve Bank of India (RBI), has asked banks to ensure that funds for projects are released in such a way that the decided level of debt-equity ratio (DER) for the project is maintained at all times. |
| The central bank has suggested that banks could release funds sequentially so that they are not required to fund the equity portion of projects. |
| “To contain this risk, banks are advised, in their own interest, to have a clear policy regarding the debt-equity ratio (DER) and ensure that the infusion of equity or fund by promoters should be such that the stipulated level of DER is maintained at all times. Further, they may adopt funding sequences so that possibility of equity funding by banks is obviated,” said RBI in a circular to all banks. |
| RBI noted that while decisions for financing projects were to be taken by banks’ boards, there was a greater equity-funding risk in allowing promoters of a project to bring in their equity portion proportionately as banks released finance. |
| “If the borrower is unable to bring in his portion, the banks may ask the borrower to bring in another promoter or acquire equity in the project. However, as the investment is locked up, banks are forced to release funds to keep the project going as a delay could result in the project becoming a non-performing asset,” said a senior banker. |
| Banks could also ask the promoter to bring their entire contribution upfront before the bank started disbursing the sanctioned amount or to bring in a certain percentage of their equity (40-50 per cent), upfront and bring the balance in stages. |
| RBI had earlier asked the Indian Banks’ Association (IBA) to consider advising banks to introduce a system wherein the borrower would be required to first spend the portion of the finance being brought in by him and the bank would release funds thereafter. |
| The banking regulator had observed that banks were forced to lend more to keep the project going as delays could result in the project becoming a non-performing asset (NPA). |
| IBA suggested that RBI could reiterate to banks that promoters’ portion should be brought in such a way that the stipulated level of DER was maintained at all times to ensure commitment of the promoters to the project and reduce the equity-funding risk. |
P-Note imbroglio benefits $, future tense for Re
Source : Moneycontrol.com
The initial reaction was very negative for the rupee and positive for the dollar, analysts said.
The initial reaction was very negative for the rupee and positive for the dollar, analysts said.
In early morning trade, the rupee had to react to Sebi’s P-Note move before stock markets opened. For that one-hour, we saw the rupee dwindle by about 1%. This 50 paise fall in early morning trade was largely triggered by the NDF, or non-deliverable forwards, market.
The offshore market for the rupee is really those constituents that are really being hurt by the P-note clampdown. They are the people who are coming in and buying dollars, analysts said, in anticipation that they may have to exit.
Banks followed by taking similar position because the expectation was that it is going to be rupee negative, analysts said. Therefore, banks and FIIs were buying NDF, the offshore market was also buying. When the stock market opened, it crashed and FIIs and banks continued to buy, they added.
After the recovery, there was a semblance of sanity, analysts said. The rupee came back quite smartly by about 20-30 paise and ended down about 0.25%. The stability is coming from the fact that exporters are coming in and selling at higher levels for the dollar, but this does not mean that stability will reign. The rupee markets are very much watching what the stock market regulator is saying and what the stock market participants are doing.
What will it mean if FIIs can’t issue fresh P-notes and all top P-notes issuing FIIs have pretty much reached the level of 40% which Sebi has allowed for total investments in the form of P-notes. Since they have hit that limit, fresh P-notes can’t be issued so that worry is hitting them. Once that starts impacting the stock market and plays it self out in the next few days, the rupee impact will come and the forex market is extremely confused now, analysts said.
A bank wouldn’t know whether it should go long or short on the dollar at this point in time. They are only watching for signals and for clarifications from the stock market, analysts said. You are seeing some kind of recovery in the stock market but you can’t mistake this for any long-term direction, they added.
Subprime defaults pinch Indian banksFrom The Business Standard
From The Business Standard
| Unbridled lending to subprime borrowers by banks in the past few years is now biting. The loan-loss ratio in loan portfolios in this segment has touched as high as 15 per cent in the case of some private sector banks. |
| Subprime borrowers belong to economically weaker sections with monthly income of around Rs 5,000 and pay interest rate as high as 45-50 per cent on loans ranging up to Rs 50,000. |
| Defaults in this segment have climbed up to double digits for banks and non-banking finance companies active in this market, which has become a cause of major concern among bankers. The rising defaults in the last six months or so are getting more magnified with the base (loan portfolios) remaining stagnant during this period. |
| In an investor conference about two months ago, ICICI Bank had said “.....if you look at for example, credit card, the credit losses have been running at about 8 per cent or so, personal loans in the region of 3.5 per cent to 4 per cent, and for small ticket personal loans, while it is lower currently, the loss will be in the region of about 15 per cent or so.” |
| ICICI Bank’s personal loans portfolio, including subprime loans, was about Rs 11,200 crore at the end of June 2007. |
| Default rates on retail loans, particularly unsecured loans, is on the rise. Within unsecured loans, defaults on subprime (small ticket size loans) are much higher though they vary from bank to bank. |
| “Non-performing assets in personal loans portfolios of banks have increased to about 5 per cent now from 3 per cent last year and on credit cards to around 11 per cent from high single digits,'' a senior official with a private sector bank, who did not want to be quoted, said. |
| The loan defaults in the subprime segment have increased beyond banks’ tolerance limits. Considering the high interest rates charged on small ticket loans, banks would be comfortable with maximum defaults of 9-10 per cent in the portfolios, the head of recovery of a bank active in this segment said. |
| However, the size of subprime loans provided by banks and NBFCs was not available, with none of the lenders providing any breakup of such loans. Banks are also witnessing a sharp rise in defaults in their motorcycle loans portfolios, where the average loan size is less than Rs 50,000. |
| HDFC Bank too is present in the business of providing small ticket loans, but details on the level of defaults were not available. HDFC Bank has always maintained that its “retail NPAs are in line with the product mix.” |
| “The default rate is always higher in unsecured lending, hence, we charge a higher rate of interest. Banks factor in a little higher loss in this segment, which is called the tolerance level. We are seeing a slowdown in the retail growth. If the denominator is not growing and the non-performing loans are on a rise, then bank is in for some trouble,’’ said an official of another private sector bank, who also did not want to be named. The rise in defaults to intolerable levels had also seen banks getting very aggressive with their recoveries, which led to some instances of deaths allegedly due to excesses by recovery agents. ICICI Bank had to pay Rs 15.50 lakhs in the form of fixed deposit and insurance covers to the family members of a borrower in Mumbai, who committed suicide leaving behind a note implicating recovery agents. |
| Bankers said such incidents have happened only in the case of borrowers from the weaker sections as this class of defaulters are easy targets for forcible recoveries. |
Thursday, June 28, 2007
Banks
A bank [bæŋk] is a business which provides financial services for profit. Traditional banking services include receiving deposits of money, lending money and processing transactions. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for example: selling insurance products, investment products or stock broking.
Currently in most jurisdictions the business of banking is regulated and banks require permission to trade. Authorization to trade is granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide banking services without meeting the legal definition of a bank (see banking institutions).
Banks have a long history, and have influenced economies and politics for centuries.
Traditionally, a bank generates profits from transaction fees on financial services and from the interest it charges for lending. In recent history, with historically low interest rates limiting banks' ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft fees and riskier investments.
The name bank derives from the Italian word banco, desk, used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth.
Services typically offered by banks
Although the basic type of services offered by a bank depends upon the type of bank and the country, services provided usually include:
- Taking deposits from their customers and issuing checking and savings accounts to individuals and businesses
- Extending loans to individuals and businesses
- Cashing cheques
- Facilitating money transactions such as wire transfers and cashiers checks
- Issuing credit cards, ATM cards, and debit cards
- Storing valuables, particularly in a safe deposit box
- Cashing and distributing bank rolls
- Consumer & commercial financial advisory services
- Pension & retirement planning
Financial transactions can be performed through many different channels:
[edit] Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses, and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit making.
Central banks are non-commercial bodies or government agencies often charged with controlling interest rates and money supply across the whole economy. They act as Lender of last resort in event of a crisis.
[edit] Types of retail banks
- Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital markets activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
- Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners
- Community development banks: regulated banks that provide financial services and credit to underserved markets or populations.
- Postal savings banks: savings banks associated with national postal systems.
- Private banks: manage the assets of high net worth individuals.
- Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
- Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach and by their socially responsible approach to business and society.
- Building societies and Landesbanks: conduct retail banking.
- Ethical banks: banks that prioritize the transparency of all operations and make only social-responsible investments.
[edit] Types of investment banks
- Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions.
- Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.
[edit] Both combined
- Universal banks, more commonly known as a financial services company, engage in several of these activities. For example, First Bank (a very large bank) is involved in commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Other large financial institutions are similarly diversified and engage in multiple activities. In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance, hence the term bancassurance.
[edit] Other types of banks
[edit] Islamic Banking
- Islamic banks adhere to the concepts of Islamic law. Islamic banking revolves around several well established concepts which are based on Islamic canons. Since the concept of interest is forbidden in Islam, all banking activities must avoid interest. Instead of interest, the bank earns profit (mark-up) and fees on financing facilities that it extends to the customers. Also, deposit makers earn a share of the bank’s profit as opposed to a predetermined interest.[citation needed]
[edit] Banks in the economy
[edit] Role in the money supply
A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers.
However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This behaviour is called fractional-reserve banking and it is a central issue of monetary policy. Note that under Basel I (and the new round of Basel II), banks no longer keep deposits with central banks, but must maintain defined capital ratios.[citation needed]
[edit] Size of global banking industry
Worldwide assets of the largest 1,000 banks grew 15.5% in 2005 to reach a record $60.5 trillion. This follows a 19.3% increase in the previous year. EU banks held the largest share, 50% at the end of 2005, up from 38% a decade earlier. The growth in Europe’s share was mostly at the expense of Japanese banks whose share more than halved during this period from 33% to 13%. The share of US banks also rose, from 10% to 14%. Most of the remainder was from other Asian and European countries.[citation needed]
The US had by far the most banks (7,540 at end-2005) and branches (75,000) in the world. The large number of banks in the US is an indicator of its geography and regulatory structure, resulting in a large number of small to medium sized institutions in its banking system. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy had more than 30,000 branches each—more than double the 15,000 branches in the UK.[1]
[edit] Bank crisis
Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those that owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others.
Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.[citation needed]
[edit] Regulation
The combination of the instability of banks as well as their important facilitating role in the economy led to banking being thoroughly regulated. The amount of capital a bank is required to hold is a function of the amount and quality of its assets. Major banks are subject to the Basel Capital Accord promulgated by the Bank for International Settlements. In addition, banks are usually required to purchase deposit insurance to make sure smaller investors are not wiped out in the event of a bank failure.
Another reason banks are thoroughly regulated is that ultimately, no government can allow the banking system to fail. There is almost always a lender of last resort—in the event of a liquidity crisis (where short term obligations exceed short term assets) some element of government will step in to lend banks enough money to avoid bankruptcy.
Public perceptions of banks
In United States history, the National Bank was a major political issue during the presidency of Andrew Jackson. Jackson fought against the bank as a symbol of greed and profit-mongering, antithetical to the democratic ideals of the United States.[citation needed]
Currently, many people consider that various banking policies take advantage of customers. Specific concerns are policies that permit banks to hold deposited funds for several days, to apply withdrawals before deposits or from greatest to least, which is most likely to cause the greatest overdraft, that allow backdating funds transfers and fee assessments, and that authorize electronic funds transfers despite an overdraft.[citation needed]
In response to the perceived greed and socially-irresponsible all-for-the-profit attitude of banks, in the last few decades a new type of banks called ethical banks have emerged, which only make social-responsible investments (for instance, no investment in the arms industry) and are transparent in all its operations.
In the US, credit unions have also gained popularity as an alternative financial resource for many consumers. Also, in various European countries, cooperative banks are regularly gaining market share in retail banking.[citation needed]
[edit] Profitability
Large banks in the United States are some of the most profitable corporations, especially relative to the small market shares they have. This amount is even higher if one counts the credit divisions of companies like Ford, which are responsible for a large proportion of those companies' profits.[citation needed]
In the past 10 years in the United States, banks have taken many measures to ensure that they remain profitable while responding to ever-changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). Second, they have moved toward risk-based pricing on loans, which means charging higher interest rates for those people who they deem more risky to default on loans. This dramatically helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and extends credit products to high risk customers who would have been denied credit under the previous system. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, pre-paid cards, smart-cards, and credit cards. These products make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with under-developed financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience there is also increased risk that consumers will mis-manage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and companies that accept the cards.
The banks' main obstacles to increasing profits are existing regulatory burdens, new government regulation, and increasing competition from non-traditional financial institutions.
[edit] Bank size information
[edit] Top ten banking groups in the world ranked by Shareholder equity ($m)
The 2006 bank atlas was compiled from commercial banks’ annual reports and financial statements for 2006 and 2005.[2] Figures in U.S. dollars
| Country | Company | Shareholder equity ($m) |
|---|---|---|
 United States | Citigroup | 112537 $mln |
| United States | JPMorgan Chase | 107211 $mln |
| United States | Bank of America | 101224 $mln |
 United Kingdom | HSBC | 98226 $mln |
 Japan | Mitsubishi UFJ Financial Group | 83281 $mln |
 France | Credit Agricole Group | 65137 $mln |
| United Kingdom | Royal Bank of Scotland Group | 64453 $mln |
| France | BNP Paribas | 56610 $mln |
 Spain | Banco Santander Central Hispano | 53640 $mln |
| Japan | Mizuho Financial Group | 52243 $mln |
[edit] Top ten banking groups in the world ranked by assets
At the end of 2006 HSBC had 1738 billion while Mitsubishi UFJ Finl. had 1700 and citigroup 1630 billion assets. Figures in U.S. dollars, and as at end-2004[3]
- UBS — 1,533 billion
- Citigroup — 1,484 billion
- Mizuho Financial Group — 1,296 billion
- HSBC Holdings — 1,277 billion
- Credit Agricole Group — 1,243 billion
- BNP Paribas — 1,234 billion
- JPMorgan Chase & Co. — 1,157 billion
- Deutsche Bank — 1,144 billion
- Royal Bank of Scotland — 1,119 billion
- Bank of America — 1,110 billion
[edit] Top ten banks in the world ranked by market capitalisation
Figures in U.S. dollars, and as at 26 July 2006[4]
- Citigroup — 275 billion
- ICBC — 250 billion
- Bank of America — 230 billion
- HSBC — 200 billion
- JPMorgan Chase — 150 billion
- Mitsubishi UFJ — 145 billion
- Wells Fargo — 120 billion
- UBS — 110 billion
- Royal Bank of Scotland — 100 billion
- China Construction Bank — 100 billion
[edit] Top ten bank holding companies in the world ranked by profit
Figures in U.S. dollars, and as 2006
- Citigroup — 22.13 billion
- Bank of America — 21.13 billion
- HSBC — 14.55 billion
- JP Morgan Chase — 14.44 billion
- UBS — 9.79 billion
- Royal Bank of Scotland — 12.1 billion
- Goldman Sachs — 9.34 billion
- Wells Fargo — 8.48 billion
- Wachovia — 7.79 billion
- Morgan Stanley — 7.45 billion
[edit] Top ten banking groups in the world ranked by Tier 1 capital
Figures in U.S. dollars, and as at end-2005[5]
- HSBC — 79 billion
- Citigroup — 75 billion
- Bank of America — 73 billion
- JP Morgan Chase — 72 billion
- Mitsubishi UFJ Financial Group — 64 billion
- Credit Agricole Group — 60 billion
- Royal Bank of Scotland — 48 billion
- Sumitomo Mitsui Financial Group — 40 billion
- Mizuho Financial Group — 39 billion
- Santander Central Hispano — 38 billion and 26 million
History of banking
- Florentine banking — The Medicis and Pittis among others
- Banknotes — Introduction of paper money
- Bank of Amsterdam
- Bank of Sweden — The rise of the national banks
- Bank of England — The evolution of modern central banking policies
- Bank of America — The invention of centralized check and payment processing technology
- Swiss bank
- United States Banking
- History of Money and Banking in the United States by Murray N. Rothbard.
- Imperial Bank of Persia — History of banking in the Middle-East
Subscribe to:
Comments (Atom)