credit policy, same old wine in new bottle - however fis can turn to banks and
banks can enter insurance
mumbai: come april end and it is time for the governor
of the reserve bank of india (rbi) to make the half yearly announcement called
"credit policy" that will affect the ways banks and corporates function.
this year was no different than the previous years.
the rbi governor seems gung-ho about the state of the economy. at least, on the
surface: inflation is down, industrial production is picking up, gdp growth is
expected to be around 6.5-7 per cent, and he has made it very clear that the central
bank will do what it can to keep things this way.
there is an inherent fear that inflation rate has begun to rise. the drought in
gujarat and rajasthan and the state of the fiscal deficit is still cause for concern.
in keeping with these concerns, the new monetary and credit policy for 00-01
continues to have the usual measures relaxing rules for markets, tightening prudential
norms further in line with global requirements and laying down the
roadmap for future reforms. with specific reference to prudential norms, rbi is
moving towards international benchmarks, in a serious attempt to make the indian
banks more globally competitive. it is asking banks to consolidate their subsidiary
balance sheets with their own accounts.
the foreign exchange market, the government securities market and the money markets
didnt react at all to the policy statements. but remember one thing: liquidity
taps will remain fully open for some more time. translation: easy money conditions
will continue and interest rates signals are only southwards.
to his credit, his experiments with monetary policy have paid off some dividends:
despite easy liquidity during 99-00, inflation stayed low and there was
a distinct softening of interest rates. even the monetised deficit net
rbi credit to the government showed a negative growth this year. but despite
this, the governor is not taking any chances and he has warned banks to maintain
continuous vigilance and caution on the inflation front. banks and other financial
institutions should make adequate allowances for unforeseen contingencies in their
business plans, and take into account the implications of changes in the monetary
and external environment on their operations.
is the recurrent theme in the policy. banks have been allowed some flexibility
in how they maintain their fortnightly cash balances with the central bank in
the form of crr an elbow-room of around rs 13,000 crore a day! theres
more. financial institutions have been freed from rate restrictions on term deposits
so far they had to kow-tow to sbi rates. not any longer.
has introduced another major change in the financial sector landscape. the rbi
has agreed to allow financial institutions to turn into commercial banks. institutions
have been demanding that they be allowed to turn into banks. in short, they also
need access to short term funds. they have now been allowed to move into the space
occupied exclusively by commercial banks, provided they conform to all the relevant
in another path-breaking
decision, strong banks have also been allowed to hold majority control in insurance
joint ventures. so far, banks stakes in insurance jvs was restricted to
only 50 per cent.
chartered leapfrogs into big league with grindlays acquisition
mumbai / melbourne : it has finally happened. after weeks of denying
the move, the australia and new zealand banking group said on thursday it would
sell its grindlays unit to standard chartered (stanchart) for us$1.3 billion in
cash, in an attempt to further cut its exposure to emerging markets. in addition
to the cash payment, stanchart will also pay the anz group us$ 500 m as dividends
on retained earnings at grindlays' operations in south asia and middle east. it
is said that the indian operations of the anz banking group have alone been valued
with this transaction, the
anz group will still get a net profit of a$400m, even if it had to pay out more
than a$460m in possible claims in a dispute between grindlays and national housing
bank in india.
despite the big price
it has had to pay, standard chartered believes that the acquisition would be earnings
positive after amortisation of goodwill in the first full fiscal after the deal.
stanchart expects annual cost savings of us$110m after three years.
acquisition will ensure that stanchart in india will catapult to the number one
position among foreign banks in the country, leaving its closest competitor, citibank,
at a distant second. apart from giving stanchart a huge network of 39 branches
spread across 15 cities in india, the acquisition will also bring it a retail
customer base of 700,000 and a corporate customer base of 900. this will only
add to the 19 branches that stanchart has and the retail customer base of 650,000.
in india, however, the takeover of
anz grindlays bank does not make stanchart liable for the rs 1,500-crore securities
related scam case anz is fighting with the national housing bank. the case is
pending in the supreme court of india and is expected to come up for hearing in
october this year.
the acquisition is
likely to see some amount of rationalisation of the branch network and other operations
of the two banks in india.
new policy to allow icici and idbi to transform to banks
mumbai : following the reserve bank of india's watershed
announcement that development financial institutions can convert themselves into
banks, the two giants of the financial sector icici and idbi have
decided to set the ball rolling to convert themselves into banks.
which has always wanted to become a bank, will thrash out the route it wants to
adopt to achieve this goal. on the other hand, idbi will be appointing a consultant
to look into the modalities of how to go about the conversion. a lot will, however,
depend on the final guidelines of the central bank.
options for icici are many. icici could merge icici bank into it post-conversion
or icici could go for a reverse merger into icici bank or both entities could
co-exist as banks. but whatever the route, it will fit into icicis strategy
to become a one-stop, one-click outfit.
while the strategies of these
two institutions are likely to take some time to formulate, icici already has
a lead as it has been working towards the goal of universal banking for some time
now. icici sources said that conversion of icici into a bank fits perfectly into
its strategy of combining the retail and corporate functions of the group with
its overall e-commerce strategy. on the other hand, idbi is getting its act together
whatever be the conversion strategy, both the giants know that
conversion is not going to be any easy task. there are huge regulatory issues
involved in the form of what type of prudential norms should be in place once
the conversion takes place. for one, reserve requirements is an issue. while banks
have to maintain cash reserve ratio (crr) and special liquidity ratio (slr) on
liabilities, development financial institutions (dfis) do not.
the priority sector would also need to be addressed. banks have to lend 40 per
cent of their advances to this sector. a converted dfi could do that on an incremental
basis or its infrastructure lending could be treated as priority sector.
arthur andersen report states that
infrastructure gap in telecom unbridged
new delhi: according to a recent report by the accounting
major, arthur andersen, india's telecom sector is going through an identity crisis
and needs to cover some ground before it can move towards dynamic competition.
the crisis revolves around the fact
that telecom-spend in india is amongst the lowest worldwide. to illustrate: indian
telecom revenues are one-tenth the revenues of at&t, and revenues from telecom,
as a percentage of gdp, are just 1.2 per cent as compared with over 3 per cent
in the developed world, the report says. coupled with this, investment in telecommunications
is low with low penetration levels and the government focus to increase infrastructure,
hasnt helped. this is definitely a gap that needs to be bridged, the report
the report also comments that
the entry fee for the existing cellular and basic service providers at $1.2bn
till july 31, 1999 which was the licence fee arrears which operators had
to pay for a shift to revenue sharing is probably amongst the highest licence
fee pay-outs in the world. the report suggests that the government should look
at the licence fee only to recover only the administrative costs involved in the
issue and administration of a licence. this suggestion is similar to that put
forward by the trai recently.
recommends that in the indian context of a smaller market size ($5bn), lower purchasing
power, vast geography and a skewed market, competition should be introduced in
a gradual manner if infrastructure development has to take place.
report also advises that the government should move faster towards converting
the department of telecom services into a corporate entity to ensure a level playing
field for the private operator to expand the market and build world class infrastructure.
to finance diary index page