AIBOC CIRCULAR NO. 168 DATED 31.12.2010

AIBOC issued its circular No. 168 dated 31.12.2010 on the year 2010. We are reproducing the same here for our readers.

CIRCULAR NO.168                                            DATE: 31.12.2010

TO AFFILAITES/MEMBERS

                                     GOODBYE- 2010

We are at the end of the year 2010, which witnessed many epoch making events as well as disasters of very high magnitude. The year was designated as the “International year of Bio-diversity” and the “International year of Youth”. The concerns on Bio-diversity and ecological issues including global warming dominated the debates in the International Conference on preservation of the global bio-diversity and ecological balance at Cancun, Mexico. With advancement in healthcare and medicine, the number of young people is increasing and in our own country the percentage of young people below the age of 30 years being almost 30% of the total population.

The beginning of the year saw the dark shadow of global recession, still gripping the European and American continents. Greece’s sovereign rating was down graded sending shock waves throughout Europe. The financial markets across the globe saw their worst ever low. Amidst a pal of gloom, the Indian Financial Market continued to grow steadily with stability.

The Wikileaks expose sent shock waves through out the world and the hypocrisy; double standards followed by many world leaders were exposed. The expose showed the true colour of many political figures across the globe.

The year saw many African countries entering golden jubilee year of their liberation from colonial rule.

The year had its share of natural disasters. The Chilean mining employees’ trapping in the mines for 69 days and their miraculous escape, stand out as a  testimony to the indomitable spirit of human endeavour. Their miraculous escape was received with rejoicing all over the world. 

A devastating earthquake in Haiti, Chile, Qinghai, China, heavy flooding in Pakistan, led to loss of lakhs of lives and displacement of millions. The volcanic ash in Iceland posed a big threat to air traffic. There were darker moments of air crash in the Mediterranean sea, Libya, Cuba and Mangalore.

The 2010 FIFA World Cup was held in South Africa, with Spain emerging as champion. In India the big XIX Commonwealth Games held in Delhi, showed to the world our ability to hold events of such colossal nature. India emerged as the second in medal tally with 38 golds and overall 101.

In Asian Games held in China, Indian Athletes, Tennis, Badminton Players, Kabaddi, Boxing, Archery Teams and shooters made the country proud by their extraordinary performance.

The Cricket legend Sri. Sachin Tendulkar, slammed the 50^th Test hundred to emerge as the only player to achieve this feat, in the history of Cricket.

Our country once again received  the global attention with the visit of Prince Charles of UK, Mr. David Cameroon, Prime Minister of England,  Mr. Barrack Obama, President of USA, Mr. Nicholas Sarkojy,  President of France, Mr. Dimitri Medvedev, President of Russia and  Prime Minister of China Mr. Wen Jiabao.

Our neighbour, Myanmar was in the spotlight, when the pro- democracy icon Aungsan Suukyi, was released from the house arrest by the military Junta.

The year continues to haunt the conscience of the honest Indians who have been a witness to the huge scams and frauds, reports on corruption by the politicians and people in power. Blocking the Parliamentary sessions for almost 17 days without any transaction, remains a black spot on our democracy. The year held the promise of a more matured democracy when the people of Bihar dislodged sectarian, communal politicians and voted in favour of development and progress of the state.

The following are few of achievements of Confederation during the year:

a.         The struggle for Salary Revision with highest ever increase of 17.5% of wage bill and realizing the dream of achieving another option for Pension to CPF optees  fructified with the signing of the 9^th Bipartite settlement/Joint Note on 27. 04.2010, bringing joy, happiness and cheers to a large number of employees /officers in the Banking Industry.

b.         As a result of our concerted efforts with the Labour /Finance Ministry, the ceiling of gratuity was enhanced from Rs. 3.50 lac to Rs.10.00 lac  w.e.f. 24.05.2010. under the payment of Gratuity (Amendment) Act 2010.

c.         A brain storming conclave of the General Secretaries of the affiliates of the Confederation was held at Vagamon on 15^th & 16^th, May 2010, during which “Vision, Mission and Value” statements were adopted.

d.         Following a decision taken during Vagamon conclave, two “AI- Power” programmes were conducted by “NATURE” a wing of AISBOF, for three days each during August 2010 to motivate and guide second line of leadership.

e.         Consequent upon introducing 2^nd Option on pension, in order to educate office bearers regarding fixation of pension, family pension, two workshops programmes were concluded by “NATURE” during September-2010.

f.          Conclave of Presidents of the affiliates of AIBOC was conducted  on 5^th & 6^th October, 2010 at Sehore.

g.         The  NATURE celebrated its 100^th programme in Bangalore on 12^th and 13^th December -2010 in a grand manner. It was a high profile programme and the participants have appreciated the function in very high words as it was a unique programme of its kind.

h.         Two days’ seminar on the “Role of Officer Directors”, was held at Mumbai on 22^nd and 23^rd November-2010. A futuristic agenda for our representatives was set during the seminar.

i.          The Silver Jubilee Celebrations of AIBOC were held in a very meaningful manner, by undertaking many social activities to commemorate the occasion. We expressed our concerns to the problems of the society, the poor, the underprivileged, deprived through our social activities. The National Seminar on “The Impact of globalization on Trade Union Movement” showed to the world our concern for the contemporary social and economic problems. AIBOC’s emergence as a force to reckon with in the Trade Union movement in the country remains the hallmark.

Time has come for all of us to introspect on our achievements and look forward to future which unfolds many challenges, opportunities and threats to all of us in the Banking Industry, and to work out strategies to encounter the same with courage of conviction. These developments have strengthened our belief in the best things that are yet to be. The past will be the lodestone to our hearts and lodestar to our eyes and the future unfolds with many achievements, successes when all of us move together, with common purpose, with bonds of unity and  solidarity.

Goodbye 2010 and Welcome 2011.  We wish all our Affiliates, Members, Well wishers, a Happy and Prosperous New Year.

With Warm Greetings

Sd/-

(G.D. NADAF)

GENERAL SECRETARY

AIBOC CIRCULAR NO. 167 DATED 30th DECEMBER 2010

AIBOC issued its circular No. 167 dated 30^th December 2010 on 2^nd option on pension to Exit Option Retirees in Associate Banks of SBI. We are reproducing the same here for our readers.

CIRCULAR NO:167                                     30^TH DECEMBER, 2010

TO ALL AFFILIATES/MEMBERS:

2^ND OPTION ON PENSION -  “EXIT OPTION” – RETIREES IN ASSOCIATE BANKS OF SBI

The 2^nd Option on Pension is not made available to the retirees in Assoicate Banks, who retired under “Exit Option” during 2006 – 2007. The facility is denied, although the “exit” scheme was approved by Govt. of India and which was similar to the special VRS – 2001 extended in the Banking Industry. 

We have today sent a communication to IBA, urging upon them to reconsider the matter and extend the 2^nd Option on Pension to the retirees under the said “Exit” scheme, if otherwise they are eligible for the same.  Text of the communication is appended. We will keep you posted of the developments in the matter.

With seasons greetings,

Sd/-

(G.D. NADAF)

GENERAL SECRETARY

No./1452/484/10                                              29.12.2010

To,

The Chairman,

The Indian Banks’ Association,

World Trade Centre Complex,

Centre 1, 6^th Floor, Cuffe Parade,

MUMBAI – 400 005.

Dear Sir,

2^ND OPTION ON PENSION

One of the terms and conditions of MoU dated 27.04.2010 on 2^nd Option on Pension is to offer the Pension Scheme to the existing CPF Optees in Nationalised Banks and Associate Banks, and also those retired after 1995/96. It also covers, CPF Optees under voluntary retirement special scheme of Govt. of India.

In case of Associate Banks, during 2006, State Bank Management, came out with another Special Scheme “Exit Option” with exgratia amount linked to the remaining service of officers with a maximum 36 months salary. This Scheme is in addition to existing voluntary retirement provision under Associate Banks Officers Services Regulations. The Scheme was offered to officers between the age group of 45 and 58 years. The Pension Optees, with 20 years of pensioable service were eligible for pension.  The ‘exit’ scheme was approved by the Govt. of India.

We understand that, for want of clarification from the IBA, 2^nd Option on Pension to CPF Optees in Associate Banks, retired under the Special Retirement Scheme “Exit Option” are not extended the offer.  The “Exit Option in Associate Banks is similar to that of Special Voluntary Retirement Scheme of 2001.

The retirees under the said, “Exit Option” who had put in 20 years of pensionable service will be eligible to opt for Pension, under the 2^nd Option on Pension.  Hence, we request you to please arrange to issue necessary clarifications to the Associate Banks to extend 2^nd Option on Pension to CPF Optees retired under “Exit” Scheme.

With greetings,

Yours sincerely,

Sd/-

(G.D. NADAF)

GENERAL SECRETARY

AIBOC CIRCULAR NO. 166 DATED 28th DECEMBER 2010

AIBOC issued its circular No. 166 on AIBOC Silver Jubilee Celebrations. We are reproducing the same here for our readers.

CIRCULAR NO:166                        28^th DECEMBER, 2010

TO ALL AFFILIATES/MEMBERS:

AIBOC SILVER JUBILEE CELEBRATIONS – SOCIAL SERVICE ACTIVITY BY AIBOC, KARNATAKA STATE UNIT

                                                        TEXT

Tumkur is a growing town, seventy kilometers from Bangalore. As we pass through the Picturusque six lane highways, we see rows of rocky hills on either side. We take a deviation at Kyatsandra Village, go into the hills through a winding narrow road and bump into a sleepy hamlet called ‘Kondanayakana Halli”.  Further down is a very small remote village called ‘Ramadevara Betta’. At the foothill is the ‘Shri Shiva Shaikshanika Seva Ashram’ and within the one-acre campus is the Annapoorneshwari School.  It is an Orphanage and a School run on the ancient Gurukul Style, which houses 88 poor students of all ages.

As we enter this screne campus we pass through the positive vibrations created by the environment and the pious nature of Shri. Lepakshappa and his wife Lakshmi Devi who run the Orphanage cum School.

Sri.Lepakshappa.E, who himself was as a boy, a bonded labourer, brought up by good-natured people. He worked as a coolie, doing odd jobs and did his graduation in the evening college. He was a disciple in a religious mutt and served the Guru and the devotees. Later he got the job as a forest guard in the Forest Dept.  He went on to become the General Secretary of the Karnataka State Forest guards Association. Instead of staying in a Bunglow amidst the high echelons of power politics, he chose to buy land and build the Ashram with his own funds. He did not have children. He prayed God blessed him with three. Today in his Ashram, he has eighty-eight Children.  His wife cooks for all the Children. His entire family has dedicated themselves for this orphanage cum school.  It was a pleasure to watch small children, playing happily, brought in a Cultural, religious and disciplined environment.

It was here that the AIBOC, Karnataka State Unit decided to conduct its Silver Jubilee activity.  The entire flooring of the girls dormetory room was redone with granite. The girls and the boys toilet which was in a very bad shape was renovated with granite. The entire cost was more than eighty thousand, which was met by AIBOC, Karnataka State Unit, Central Office AIBOC, and contributions made by the State Affiliates.

Inspired by this, the OMR’s of SBI, Karnataka, (Officers Marketing and Recovery) who wanted to express  their gratitude to the SBIOA(K) and the AISBOF on account of their absorption on a permanent basis, donated 100 steel plates, tumblers and 2 steel push carts to carry the plates, costing around Rs. 40,000/-.

Com.Shankar.N.Joshi, the Zonal Secretary of SBIOA(K) Tumkuar Zone who was instrumental in planning executing the activity welcomed the gathering. Com.B.S.Ravindra, Secretary AIBOC who identified the project and inspired his team in his preliminary remarks congratulated all the comrades who strived to make this programme a success.  He said that this was a pious activity and a god given opportunity for the officers of ‘Banks to give back to the society what they got from it’. 

Later Com.G.D.Nadaf, the General Secretary of AIBOC and AISBOF spoke about the year long Silver Jubilee Celebratons and said that it is in such places that we intend to conduct Social Service activities, as they are the real temples of humanity.  He said that, the child will remember for life, what it has learnt in the formative years of Childhood.  Therefore, these values, which have been imparted by Shri. Lepakshappa will make the Children good citizen and they will give back to the Society in abundance he said. He also said that many amongst these could be great Scientists, Leaders, Doctors and serve the country in the years to come. This activity is wonder gift for Christmas that we can give to the Society he said.

Later Shri.Lepakshappa spoke about the difficulties he faced in bringing the Ashram to this shape and sought help from all the like-minded people in the Society. In a very fluent style, quoting from scriptures and slokas he mesmerised the entire audience, highlighting what a man could do single handedly, if he is determined.

“I asked god for a Child’.  He gave me hundred,” he said amidst tears of joy. Later Shri. Lepakshappa and his wife Lakshmi Devi were honoured for their yeomen service to the society. The function ended with vote of thanks by Smt.Anita Lakshmi SBI, LHO.

The State Unit arranged a sumptuous lunch for the invitees and inmates.

‘A¦ddTe´d£d:’

The programme was ably compered by Shri.Nagaraj Shastry, Treasurer of AIBOC(Karnataka State Unit). Lunch was arranged for all the guests and the Children.  ‘Children are the greatest assets of the Nation’. ‘True education converts a normal child into a Vishwa Manava’. There are many people who work silently, not for name, fame or money, but dedicate themselves and all that they have for the welfare of humanity. Shri.Lepakshappa and his wife belong to that tribe.                                          meaning Anatha or orphans are protected by god. True, God come in the form of a human to serve mankind. His life and tale should inspire all our affiliates to conduct more and more such activities. 

Kudos to the Karnataka State Unit of AIBOC, the Tumkur Unit of SBIOA (K), the OMR’s of SBI, Bangalore Circle and the entire team who made the event a memorable one.

With greetings,

Sd/-

(G.D. NADAF)

GENERAL SECRETARY

AIBOC CIRCULAR NO. 165 DATED 24.12.10

AIBOC issued its circular No. 165 on pensionary benefits to employees who were in service of the banks as on 27.04.2010 and died thereafter. We are reproducing the same here for our readers.

CIRCULAR NO. 165                                                           DATE: 24.12.10

All affiliates/members

JOINT NOTE WITH AIBOC AND OTHER OFFICERS’ ORGANIZATIONS DATED 27.04.2010 PENSIONARY BENEFITS TO EMPLOYEES WHO WERE IN SERVICE OF THE BANKS AS ON 27.04.2010 AND DIED THEREAFTER.

In the wake of the historic settlement on Pension Issue dated 27.04.2010 a query  was raised with the IBA as to the modalities for payment of pension to the officers who were in service of the Banks on 27.04.2010 and died thereafter, including whether the family of officers are eligible for commutation of Pension in the case of officers who are eligible to exercise  the option. We are happy to inform that the IBA has clarified that the families of the officers are eligible to exercise the option, i.e. officers who died on or after 27.04.2010 are entitled for full pension from 27.11.2009 or from the date of retirement, whichever is later till the date of death and family pension thereafter.

Such officers’ families will be eligible for commutation of pension subject to complying with the terms of settlement.

A copy of the Circular issued by the IBA is annexed for your information.

With season’s greetings

Sd/-

(G.D.NADAF)

GENERAL SECRETARY

Encl: as above

Text of IBA Circular:

HR & INDUSTRIAL RELATIONS

No. CIR/HR & IR/G2/665/90/2010-11/2076             December 21, 2010

Designated officers of banks which are parties to the

9^th Bipartite Settlement /Joint Note dated 27.4.2010

Dear Sirs,

Pensionary benefits to employees who were in service of the banks as on 27.04.2010 and died thereafter

Reference is invited to the Clause 2(i) of Pension Settlement dated 27.4.2010 and Clause 2(a) of Joint Note dated 27.4.2010 by which employees who were in service of the banks prior to 29.9.1995 / 26.3.1996 and continue in service as on 27.4.2010 are eligible for another option for joining the existing Pension Scheme upon their agreeing to transfer the PF balance to Pension Fund and additionally contribute an amount equal to 2.8 times of the ‘pay’ of November, 2007 in the case of serving employees and refund of entire amount of the bank’s contribution to provident fund and interest accrued thereon received by them at the time of retirement together with additional contribution of 56% of the provident fund and interest thereon mentioned above in the case of retired employees.

We have been receiving queries from banks as to whether the family of employees are eligible for commutation of pension in the case of employees who are eligible to exercise the option in terms of Settlement / Joint Note dated 27.04.2010 but died on or after 27.4.2010.

we advise that the family of the employee eligible to exercise the option who died on or after 27.4.2010 shall be entitled for full pension from 27.11.2009 or from the date of retirement which ever is later till the date of death and family pension thereafter.  They will also be eligible for commutation of pension; provided they comply with the terms of the settlement / Joint Note as mentioned in Para 1 above.

Banks may please be guided as above.

Yours faithfully,

Sd.. K. UNNIKRISHNAN

DEPUTY CHIEF EXECUTIVE 

SBI, ICICI, HDFC BANK, OTHERS HIKE INTEREST RATES BY UP TO 1%

State Bank of India (SBI), ICICI Bank and HDFC Bank, raised their lending and deposit rates by up to one percentage point on the eve of the new year.

While the hike in lending rate would make auto, home and commercial loans expensive, increase in deposit rates will ensure better returns for depositors.

In line with market trend, SBI announced increase in its base rate or the minimum lending rate by 40 basis points to 8 per cent.

The fixed deposits with SBI would fetch high interest. The bank would give highest return of 9 per cent for deposits of 555 days and 1,000 days, up from 8.5 per cent.

The highest increase of one per cent was in fixed deposits with maturity between 7-14 days. The short term FDs would fetch an interest rate of 4 per cent from the existing 3 per cent.

SBI also raised the benchmark prime lending rate by 25 basis points to 12.75 per cent. This will make EMIs for the existing loan dearer by at least 25 basis points.

The new rates would be effective from January 3.

Meanwhile, HDFC Bank has decided to increase its Base Rate by 25 basis points to 7.75 per cent.

Besides ICICI, Kotak Mahindra Bank and Dhanlaxmi Bank also increased base rates by up to 75 basis points.

ICICI Bank has announced an increase of 0.5 per cent in the Base Rate with effect from January 3, 2011. The revised rate will be 8.25 per cent as against 7.75 per cent at present.

ICICI Bank has also announced an increase of 0.25 per cent in its benchmark prime-lending rate (BPLR) and in its Floating Reference Rate (FRR) for consumer loans (including home loans) with effect from January 3, 2011.

The BPLR is used for determining interest rates on loans and advances sanctioned up to June 30, 2010.

ICICI said the fixed rate customers will not be impacted by the above increase and their contracted rates will remain unchanged.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-icici-hdfc-bank-others-hike-interest-rates-by-up-to-1/articleshow/7198215.cms

SBI UPS BASE RATE BY 40 BASIS POINTS TO 8%

SBI hiked its base rate by 40 basis points to 8 per cent from 7.60 per cent per annum effective from 3^rd January 2011 in line with peers and also increased its deposit rates by up to one per cent.

However, the fate of the teaser home loan scheme, an innovation by SBI in days of high liquidity to lend at low rates for retail customers, was not immediately known. A majority of banks who had followed SBI and introduced teaser rates have withdrawn lending under the scheme with the liquidity scenario getting tighter.

With the move to hike the base rate, both retail, including home and auto, and corporate loans will be dearer to new borrowers. SBI's move to hike its base rate comes the same day as ICICI Bank , Kotak Mahindra Bank and Dhanlaxmi Bank announced similar moves, driven primarily by a jump in cost of deposits.

Other banks which have tightened their base rates this month include Union Bank, Punjab National Bank , Bank of India, IDBI Bank , Indian Bank , Indian Overseas Bank , Allahabad Bank , Dena Bank and Standard Chartered Bank .

Besides the Base Rate, which was introduced in July to bring transparency in lending, SBI also upped its Benchmark Prime Lending Rate by 0.25 per cent to 12.75 per cent. The BPLR system preceded the base rate and many older accounts continue to operate under the system. 

In another move, the bank raised its deposit rates by 0.50 per cent to 1 per cent depending on the maturity. This is the second time in the last month that the bank has hiked its deposit rates. 

Under the new rates which will be effective January 3, a 1000 day deposit will fetch an interest of 9.50 per cent per annum as against 8.50 per cent earlier.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-ups-base-rate-by-40-basis-points-to-8/articleshow/7198109.cms

INDIA BANKS' LOANS UP 23.7 PCT ON YEAR AS ON DEC 17

Indian bank loans rose 23.7 per cent on year as of Dec. 17, the central bank's weekly statistical supplement (WSS) showed on Friday.

Deposits were up 14.7 per cent from a year earlier. Outstanding loans rose by 453.07 billion rupees to 36.40 trillion rupees in the two weeks to Dec. 17.

Non-food credit rose by 442.74 billion rupees to 35.77 trillion rupees and food credit rose by 10.33 billion rupees to 625.21 billion rupees in the period, the bank said.

Bank deposits fell by 381.17 billion rupees to 48 trillion rupees in the two weeks to Dec. 17, the WSS showed.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/india-banks-loans-up-237-pct-on-year-as-on-dec-17/articleshow/7196783.cms

KOTAK MAHINDRA BANK HIKES BASE RATE BY 0.25 PC TO 8.25 PC

Kotak Mahindra Bank hiked its minimum rate of lending or base rate by 0.25 per cent to 8.25 per cent, in line with peers across the industry.

Many banks, including Union Bank, Punjab National Bank , Bank of India , IDBI Bank , Indian Bank , Indian Overseas Bank , Allahabad Bank , Dena Bank and Standrad Chartered Bank have hiked their base rates in the recent past.

The base rate is the lowest rate below which banks cannot offer loans and was introduced in July to bring in more transparency, replacing the Benchmark Prime Lending Rate (BPLR).

Kotak Mahindra Bank also hiked its BPLR by 0.25 per cent to 17 per cent for the old borrowers.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/kotak-mahindra-bank-hikes-base-rate-by-025-pc-to-825-pc/articleshow/7196232.cms

GOVT TO UP ITS STAKE IN UNION BANK OF INDIA TO 58 PER CENT

According to Mr. M.V. Nair, Chairman and Managing Director, Union Bank of India is expecting Rs 1,150 crore capital infusion from the government by March 2011, which will increase the Centre's stake to 58 per cent. Currently, the government holds 55.43 per cent stake in Union Bank of India. This will help to increase tier I capital of the bank to 8.37 per cent from the current 7.9 per cent.

The infusion will raise the government's state in the bank to 58 per cent.

The Cabinet has already approved the capitalisation plan of the Union Bank, which received Rs 111 crore about four months back as first tranche.

The bank is expecting a deposit growth of 20 per cent and credit growth of 23-24 per cent during the current fiscal.

Earlier this week Union Bank of India raised its base rate to nine per cent.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/govt-to-up-its-stake-in-union-bank-of-india-to-58-per-cent/articleshow/7184781.cms

BANKS MAY FACE MARGIN PRESSURE, EVEN AS LENDING REVS UP

The dream run that banking stocks have enjoyed over the last couple of years may not continue next year, even as lending to companies revs up.

Apart from the fact that stock valuations have climbed significantly, margin pressures, low treasury income, higher provisioning for asset quality and pension liability (in case of public sector banks), are expected to exert pressure on bank profits. With the infrastructure exposure of banks also nearing its maximum limit, some banks may even be forced to miss out on a part of the credit growth opportunity.

Competition is also set to heat up, as new bank licenses are expected to be handed out, albeit with high entry barriers. If inflationary pressures do not subside, further monetary tightening may also put pressure on bank margins.

Private banks to score

Private banks' stocks, which lagged public sector banks (PSBs) in terms of returns, are expected to do better this time around. Private banks enjoy strong fee income base, have low proportion of restructured loans and no AS-15 (pension liability) burden.

This will place them at an advantage to PSBs in 2011, even as all banks may have to contend with margin pressures. Select old private banks may also outperform on the back of consolidation and M&A activity.

Over the last one year, banks, apart from dealing with monetary tightening which increased borrowing costs and sucked out the liquidity, had other problems, too.

Asset quality slippages, especially from restructured assets, increased provisioning (asset quality and mark-to-market). Implementation of base rate paving way for disintermediation had also taken a toll on their business. Despite these negatives, banks were able to tide over unscathed as the margins expanded.

However, during December quarter, there are signs of the re-pricing effect of deposits beginning to wane, even as deposit inflows started to dry up. Additionally, concerns over microfinance and telecom exposure, loan bribery cases also pulled down the stock prices of banks. Over the past year, the majority of PSBs got capital infusion with Government pumping in more capital than promised in the Budget. The Government has till date provided Rs 21,000-crore equity, as against the budgeted Rs 16,500 crore.

Capital support may continue next year also, as SBI, Central Bank of India and UCO Bank are expected to come up with their rights issues. These infusions will support strong rate of credit growth.

Credit growth, currently at 23 per cent, as against RBI's March 2011 projection of 20 per cent, is indicative of the improving business outlook. With GDP expected to grow at 8.6 per cent during the current fiscal and may go up to 9 per cent the next, the banking sector may continue to witness sustained demand for credit. Improved fiscal outlook next year would also help banks focus on corporate loans.

However, while the credit growth has been very encouraging, it is deposit growth which continues to be a concern, deposit growth rate was 15 per cent as against RBI projection of 18 per cent.

According to RBI, as of March 2010, 49 per cent of the deposits in the banking system had a residual maturity of less than one year. Assuming the majority of the incremental deposits also have been shorter term deposits their re-pricing at lower rates has already happened. Therefore, incremental cost of funds may create margin pressures.

Risks to margins

Lending rates have been lagging deposit rate hikes, probably due to shift to market borrowings and high competition. The fall in credit-deposit ratio from current levels of 74.3 per cent also poses risks to margins. The current ratio is stiff and may come back to 70 per cent in the long-term.

SOURCE: http://www.thehindubusinessline.com/2010/12/28/stories/2010122850770600.htm