Real Estate Intelligence Report, Thursday, June 11, 2009

FM asks PSBs to lower lending rates further

FM asks PSBs to lower lending rates further
The Economic Times, June 11, 2009, Page 9

BORROWERS YET TO GAIN FROM RBI CUTS: PRANAB

Our Bureau NEW DELHI

FINANCE minister Pranab Mukherjee urged state-run banks on Wednesday to cut lending rates further to ensure inclusive growth and rapid recovery in the economy.

Mr Mukherjee, who met chiefs of state-run commercial banks in the Capital, said the sharp rate cuts by RBI are yet to reflect in the borrowing costs of consumers. The central bank has cut its main lending rate by 425 basis points since October to 4.75% and its main borrowing rate by 275 basis points since December to 3.25%.

Chiefs of various banks, who attended the meeting, said they would take a call on the quantum of cut in lending rates in the coming weeks. “Our bank will decide on lowering interest rates by the end of this month,” OP Bhatt, chairman of SBI, told reporters after the meeting.

The overall business of public sector banks has grown by about 26% at a time when credit growth of both private sector and foreign banks has been declining and resources from non-banking financial sources are contracting.

The finance minister pointed out that consolidation of banks is desirable to improve competitiveness and mitigate financial risks. “Public sector banks should look at consolidation as a serious option in order to reduce the risk to financial stability, and to face competition... Any consolidation initiative in the banking sector would be viewed positively and the government, as a majority shareholder, would continue to play a supportive role in this process,” said Mr Mukherjee.

Smaller government-run banks are lagging behind their larger peers not only in terms of size, but also in consistency and efficiency. While the top five state-owned banks (SBI, Punjab National Bank, Canara Bank, Bank of Baroda and Bank of India) posted an average growth of over 40% year-on-year in their net profit last fiscal, none of the smaller players could touch that mark.

In many cases, the profit growth nose-dived. The profit of Allahabad Bank declined 19% in FY09 after growing 30% in FY08 while profit growth of Dena Bank fell to 18% in FY09 compared to 79% a year earlier. A similar trend was visible in the case of Bank of Maharashtra, Corporation Bank, Indian Overseas Bank and Karnataka Bank.

Bank interest rates set to come down

Bank interest rates set to come down
Times of India, June 11, 2009, Page 19

NEW DELHI: Interest rates on home, other retail loans and corporate loans offered by PSU banks are likely to come down by 50 basis points in the near future. Chiefs of PSU banks on Wednesday have promised to ‘‘explore the possibility'' to cut interest rates in a meeting with FM Pranab Mukherjee.

In the meeting, Mukherjee expressed his concern over the fact that banks have not passed on the benefits of reduction in key rates by RBI in recent past by cutting benchmark prime lending rates (BPLR). ‘‘I would urge banks to address these concerns expeditiously and in adequate measure,'' Mukherjee said, adding, rate cuts would help restore the environment for rapid growth.

Mukherjee said: ‘‘As a financial intermediary, the banks have to stand-by to provide credit at reasonable rates. This is an area of concern in many quarters both within the government and outside.''

‘‘SBI will decide on lowering interest rates by month-end,'' said its chairman O P Bhatt. He said that interest rates could come down, as the cost of incremental deposits has gone down. Taking a similar view, Canara Bank, IDBI Bank and Corporation Bank said their committees would also meet by month-end to take a final view on the rate cut.

A reduction in BPLR will benefit the existing home loan and car loan borrowers at floating rates. If the BPLR is cut by 50 basis points, their interest burdens will go down by the same amount.

However, this will not benefit new borrowers as banks are already lending at below BPLR-linked rates to them. Take for example SBI's home loan rate. According to the BPLR-linked rate, it is in the range of 9.75% and 11%. But, it gives home loan to new customers at 8%. Similarly, banks are giving loans to good companies at below BPLR. Therefore, any cut in BPLR will not benefit the new customers.

However, PNB CMD KC Chakravarty said that it was not in the position to revise the rates downwards as its BPLR is ruling at 11%, the lowest level of the industry. CMD of another large public sector bank said it would also not be able to cut rates immediately as cost of funds has not gone down substantially.

In the meeting, bankers suggested that government should cut rates on small savings like PPF and post office deposits to discourage movement of funds from bank deposits to other small savings schemes, after banks cut deposit rates. However, it is learnt that FM rejected the idea, saying that this would affect the overall savings rates in the country, which, in turn, would affect the growth rate.

Mukherjee also urged banks to provide cheap loans to agriculture and other labour intensive sectors to ensure inclusive growth. He said PSU banks should look at consolidation through M&As to emerge stronger financially.

Pranab sees merit in bank consolidation for stability

Pranab sees merit in bank consolidation for stability
The Hindu Business Line, June 11, 2009, Page 1

Wants banks to provide credit at reasonable rates to push growth.

Ramesh Sharma

Our Bureau, New Delhi

The Finance Minister, Mr Pranab Mukherjee, has put his weight behind consolidation of banks, stating that this may be necessary to improve the state of competitiveness of Indian banks globally and also to reduce the risk to financial stability.

The stock market cheered the Finance Minister’s talk on consolidation with many public sector bank (PSB) stocks recording a surge and closing the day with more than 3 per cent gains over the previous day’s close.

Easing credit

In his first meeting with chief executives of PSBs after taking charge as Finance Minister, Mr Mukherjee also nudged the banks to “explore the possibility” of bringing about a further reduction in their lending rates.

“As a financial intermediary, the banks have to standby to provide credit at reasonable rates,” he said.

He observed that the reduction in key policy rates by the Reserve Bank of India was not getting adequately reflected in the reduction of benchmark prime lending rate (BPLR) of banks.

The PLR of banks had come down to 12-12.5 per cent against 13.75-14.25 per cent six months ago.

Stating that providing credit at reasonable rates was an area of concern in many quarters both within the Government and outside, Mr Mukherjee urged banks to address these concerns expeditiously and in adequate measure.

This would help restore the environment for rapid economic growth, he said.

In its Annual Credit and Monetary Policy statement for 2009-10, the RBI had noted that there was more room for banks to cut deposit and lending rates.

Cuts in the offing

Indications are that after today’s meeting, many public sector banks may go in for 50-75 basis point cut in lending rates.

The Finance Minister also hoped the economy would turnaround soon on the back of various pro-growth measures and the three stimulus packages.

On the issue of merger of PSBs, Mr Mukherjee pointed out that the Government had always maintained that the initiatives for consolidation in the banking sector had to come from the managements themselves. The Government would only play a supportive role as a common shareholder, he added.

Merger support

“At the meeting today, I had emphasised that the PSBs should look at consolidation as a serious option in order to reduce risk to financial stability and to face competition.

“Any consolidation initiative in the banking sector would be viewed positively and Government, as a majority shareholder, would continue to play a supportive role in the process,” Mr Mukherjee told reporters here.

In the earlier UPA regime also, the Government had stressed the need for consolidation among public sector banks.

The only transaction that happened at the ground level was State Bank of India’s acquisition of State Bank of Saurashtra, which was the smallest of SBI’s associate banks.

Although the SBI top management has been hinting that it could push further consolidation within the SBI Group, such efforts may face resistance from bank unions, which have been opposed to this idea. However, the SBI Chairman, Mr O.P. Bhatt is confident of driving consolidation within the SBI Group once there is a signal to do so from the new Government.

FM gives banks three weeks to slash rates

FM gives banks three weeks to slash rates
The Financial Express, June 11, 2009, Page 1

Economy Bureau, New Delhi

Finance minister Pranab Mukherjee told the public sector banks they must cut their interest rates within the next three weeks to spur investment, ignoring the banks’ plea for some more time to take a call. “You have your constraints, I have my compulsions”, the minister said in his summing up notes to chiefs of the public sector banks on Wednesday, according to a source who attended the meeting.

In his opening speech at the meeting, Mukherjee said, “The banks have to stand by to provide credit at reasonable rates. This is an area of concern in many quarters both within the government and outside.”

According to him, the reduction in key rates by RBI has not been reflected in the reduction of prime lending rates of the banks. “I would urge the banks to address these concerns expeditiously and in adequate measure. This will help restore the environment for rapid growth, and ensure that the growth process benefits all our people.”

To help the banks meet the required rate of credit delivery without running short of capital, he promised them of additional infusion of capital to ensure their capital adequacy ratio stayed at 12%. While the banks at the meeting said they had already cut rates, twice in April and earlier in February, the minister told them that the current economic situation warranted a further round of rate cuts. He left the decision on the quantum of cuts to the bank managements. The banks also explained that over 70% of their loans were made at sub-BPLR rates.

RBI data shows costly credit and a fall in demand have pulled down credit growth to a five-year low of 15.9% year-on-year as of May 22. The latest weekly statistical supplement of RBI shows deposits were up 22.6% from a year earlier. Bankers said as the signals from the government were clear, they would honour the ‘commitment’ sought by the FM on a ‘more benign plan of action’.

OP Bhatt, CMD of State Bank of India, the country’s largest lender, said the bank would decide on a cut by the month-end. “We expect credit to expand 20% in the first half. Our bank will decide on lowering interest rates by the end of June,” Bhatt said. Other banks such as Uco Bank, Canara Bank, United Bank of India and Central Bank of India said they would pursue a cut in rates by this month.

“As always, we expect interest rates to go down,” finance secretary Ashok Chawla said after the meeting.

Mukherjee endorsed the consolidation process among the public sector banks saying that would make them more efficient and competitive.

Prime lending rates of the banks have come down to the range of 12.00-12.25% against 13.75-14.25% six months back, Mukherjee said, while expressing hope that pro-growth measures taken by the government would ‘turn the economy around soon’. “We would continue to focus on public spending in employment-oriented growth sectors,” he said.

While promising adequate capital infusion into banks, Mukherjee also pressed the banks to improve the credit expansion in priority areas like agriculture, infrastructure, micro-, small and medium enterprises, and education.

Uco Bank CMD SK Goel said, “We have already called a meeting of our asset-liability committee on June 19 to take stock of how much deposit rates can be reduced, and accordingly, how much lending rates can be reduced. By a rough estimate, I think we would be able to reduce deposit and lending rates by 100 basis points.”

UBI’s CMD SC Gupta said his bank would first cut lending rate by up to 50 basis points in the next 2-3 weeks. Punjab National Bank CMD KC Chakrabarty said, “PSU banks have been reducing interest rates but non-PSU lenders have not. If we reduce our rates further, it would be difficult for us to compete.”

However, Corporation Bank CMD JM Garg said an across-the-board reduction in rates is likely only by March-end 2010. He added that a further reduction in rates would put pressure on public banks’ net interest margin, which ‘is already declining slowly.’

“I think deposit rates would come down across bank only by March 2010. Banks are lending below PLR and effectively rates are low. We have already reduced the PLR by 50 bps, effective April 1, even though the cost of funds has come down only by 17 bps to 6.85%. The cost of funds should come down before we reduce our lending rate further,” Garg said.

The FM also said banks should pursue the business correspondent model to give a fillip to ‘financial inclusion’. “The branchless banking initiatives and the model of business correspondents and business facilitators need to be pursued vigourously to enable the country to achieve inclusive growth.”

BSE Sensex jumps 60% in 2009

BSE Sensex jumps 60% in 2009
The Hindu Business Line, June 11, 2009, Page 10

Sensex jumps 340 points, closes at 10-month high

Sensex jumps 340 points, closes at 10-month high
Times of India, June 11, 2009, Page 19

MUMBAI: The Bombay Stock Exchange benchmark Sensex on Wednesday surged by nearly 340 points to close at a 10-month high as funds remained aggressive buyers on expectations of higher spending in the Budget to boost economic growth.

The 30-share index, gained 339.81 points, or 2.25%, to settle at 15,466.81 points, a level last seen around mid-August 2008. It touched the day's high of 15,580.81 points.

The wide-based National Stock Exchange index Nifty soared by 104.30 points, or 2.29%, to 4,655.25, after touching the day's high of 4,688.95.

Marketmen said that expectations of high spending in the Budget to boost economic growth and the firming global stock markets remained a positive factor for the market.

Stocks in power, capital goods, consumer durables and banking segment were the major supporter to the rally. Metal shares spurted after the base-metal prices firmed up in global metal markets last night.

FII infusion tops $60bn

FII infusion tops $60bn
Times of India, June 11, 2009, Page 19

Kumar Shankar Roy TNN

Chennai: Total investments by FIIs in domestic equities have crossed the $60 billion mark — the first time since June 2008 — in what could be gauged as renewed commitment by overseas investors to the Indian stock market.

Since March this year, foreign investors have once again started aggressive buying as they have pumped in nearly $7 billion in just 60 days, according to Sebi data. Extrapolating the numbers would mean that the FIIs have invested (net) of around $120 million every day since March 9. This has led to the net investment position of FIIs increase from $53.3 billion in March 9 to over $60.3 billion till June 10.

The data pertains to all the activities undertaken by FIIs in Indian securities market, including trades done in secondary market, primary market (IPO) and activities involved in right/bonus issues, private placement, merger & acquisition. As on date, the number of registered FIIs is 1,660 and the number of registered sub-accounts has crossed the 5,000 mark.

The sheer pace of incoming foreign money has made FIIs net buyers to the tune of $5.2 billion in 2009 even as they were net sellers of nearly $12 billion in 2008, Sebi data showed.

Re rises over 10% from March

Re rises over 10% from March
Times of India, June 11, 2009, Page 19

Rupee ended at 47.24/25 per dollar, about 0.5% stronger than 47.48/49 at close on Tuesday. Foreign institutional investors inflows of nearly $7 billion since early March have helped the rupee climb about 10.5% from its low of 52.2 recorded at the same time.

Oil breaches $71 mark:

Oil breaches $71 mark:
Times of India, June 11, 2009, Page 19

Oil prices soared above $71 a barrel on Wednesday in Asia, reaching a 2009 high, as investors poured money into the commodity as a hedge against a weakening US dollar and inflation. PTI

Cement production up 12%, despatches grow 11%

Cement production up 12%, despatches grow 11%
Times of India, June 11, 2009, Page 19

Rajesh Chandramouli, TNN

CHENNAI: The new fiscal has begun on an optimistic note for the cement industry. Driven by residential and infrastructure construction, cement production and despatches maintained a higher clip in April and May.

While cement production grew by 11.9% in May 2009 to touch 166.7 lakh tonnes as against 148.9 lakh tonnes the industry produced in May 2008. Despatches grew by 10.7% at 164.5 lakh tonnes, according to CMIE data. In April, production was up by 9.9% over April 2008 and despatches increased by 10.5%for the same period.

The demand is still driven by individual houses in tier II and III cities and infrastructure projects. "The builder segment (which is constituted by developers and builders) continues to be tepid, largely because of tight liquidity conditions. But, with many developers raising funds through QIPs, liquidity situation might improve and half finished projects could get completed, thereby stoking up demand further," industry sources said.

The increased demand, has not translated into higher prices for the consumers, thankfully.

"Prices are stable. Thats probably because fresh capacities have come in the past few months. In Tamil Nadu, Madras Cements Ariyalur plant and Chettinad Cements' plant also from the same location started production. In Andhra Pradesh, Dalmia's Cuddappah plant and UltraTech's Tadapatri unit have gone on stream," Rakesh Singh, senior president (marketing), The India Cements, said. According to industry sources, cement demand in north and east is very strong and robust.

Container traffic rises 3.8% in May

Chennai: Container traffic handled by major ports is showing signs of stabilisation. There has been a moderate 3.8% rise to 538 twenty-foot equivalent units (TEU) as compared to April's 518 TEU, according to a report by Angel Broking which has collated figures of the Indian Port Association.

Experts say May data indicates that container traffic is stablising at current levels post bottoming out, in absolute terms, in January and February 2009.

Govt to build 10L affordable houses at Rs 5000cr

Govt to build 10L affordable houses at Rs 5000cr
Times of India, June 11, 2009, Page 11

Mahendra Kumar Singh TNN

New Delhi: With President Pratibha Patil setting up an ambitious target of making India slum-free in five years, the housing ministry has launched a new scheme — Rajiv Gandhi Awas Yojana with an initial budget of Rs 5,000 crore. It aims to construct 10 lakh affordable houses.

The scheme, which envisages extending financial support under JNNURM to states “that are willing to assign property rights” to people living in slums, will dovetail existing schemes for affordable housing.

Under the scheme, being vigorously pushed by housing minister Kumari Selja, Centre will encourage states to increase the supply of land and construct 10 lakh affordable houses in the first phase by giving a grant of Rs 50,000 for every dwelling unit (EWS/LIG and MIG) or bearing 25% of the cost of all civic services proposed in the housing project.

“The central allocation will be partly to implement the project as well as an interest subsidy to enable people to actually buy these houses,” an official said. In order to get central funds, projects should have houses ranging from 300 sq ft to 1,200 sq ft plinth area built at affordable rates on land provided by state governments. A minimum of 25% houses of 300 sq ft will be compulsory for economically weaker section in each project to be allotted by the government.