CREDIT-DEPOSIT GROWTH GAP BEHIND LIQUIDITY CRUNCH, SAYS GOKARN

The faster growth in bank credit than deposits is behind the present cash crunch, the Reserve Bank of India (RBI) has said.

Year-on-year credit growth was 23 per cent till December 3, while deposit growth was only 15 per cent, as compared to RBI’s projection of 20 per cent and 18 per cent, respectively, for 2010-11.

WIDENING GAP CREDIT AND DEPOSIT GROWTH (IN % Y-O-Y)*
Bank	Credit growth	Deposit growth
Corporation Bank	32.74	19.82
SBI	19.47	10.67
PNB	26.70	18.40
Union Bank of India	25.28	19.26
Allahabad bank	36.83	30.15
Bank of India	23.00	21.00
Canara Bank	20.20	21.50
UCO Bank	21.84	19.77
Bank of Baroda	26.90	30.10
Source: Banks , * as on 30 Sep, 2010

The liquidity deficit, indicated by banks’ borrowing from the repo tender of RBI, has been over Rs 1 lakh crore on an average since November. Low government spending, coupled with slack deposit growth and advance tax outflows, has resulted in the crunch. On 22^nd December, banks borrowed a record Rs 1.7 lakh crore from RBI.

“Our concern when we did the liquidity calculation and on the basis of which we did the SLR action (cut statutory liquidity ratio) is that (tightness) is structural. There is a mismatch between growth of credit and deposits and that is more of an enduring factor in liquidity constraints,” said RBI Deputy Governor Subir Gokarn.

‘Watching the response’

“We should see deposits increase as people respond to higher interest rates and we will watch over the next few weeks if there is a substantial response,” he said, referring to the recent increases in these rates by banks.

The central bank reduced SLR– the proportion of liabilities which banks need to invest in government securities – to 24 per cent from 25 per cent last week. It also announced buyback of government bonds through open market operations, which could infuse up to Rs 48,000 crore in the system.

Gokarn said the permanent cut in SLR was in response to the structural liquidity tightness caused by low deposit growth.

“As we move ahead, particularly in this quarter, the gap between growth in credit and deposits widened and that, too, was reflective of a longer-term persistence of this process (liquidity tightness), with the government finance issue padding on to that. We felt that required more of a long-term view and therefore the decision to cut SLR on a permanent basis,” Gokarn said.

With measures in the mid-quarter review of the monetary policy last week, RBI expects the liquidity tightness to come down over time to its comfort zone, which is plus-minus one per cent of the net demand and time liabilities, or Rs 50,000 crore.

“We do have a trajectory which will take the liquidity situation close to the one per cent boundary as we go along. Obviously, that is something we expect to happen over a period of time. It is not something we expect to see overnight,” he said.

“A lot of that will start coming back to the system in the first round of year-end, month-end payments. SDS (state development) interest coupons are also due in January and redemptions by end-January and February. Scaling down of government balances is something that we have a clear horizon for,” Gokarn said.

Call money rates

RBI is monitoring the impact of the tightness on overnight call money rates and government bond yields and has not noticed any instability.

“We are watching for instability of rates, which are a direct manifestation of severe constraints. Call rates are a little higher than perhaps they should be from the corridor, but they are stable. Ten-year rates (yield) are quite stable,” he said.

The 10-year benchmark 7.80 per cent, 2020 bond yield retraced sharply to touch a 11-week low yesterday after touching a 26-month high of 8.21 per cent on December 6, while the call money rate has breached the seven per cent mark in the past few weeks.

Govt not to relax norms to infuse liquidity

A senior finance ministry official said on Wednesday the government quarterly spending was on track and it would not relax any norm to infuse liquidity into the system.

He added the government would adjust cuts in weekly gilt auctions for the remaining sessions till February and would meet the gross borrowing size at the revised target of Rs 4.47 lakh crore for 2010-11.

The government had reduced the size of its December 10 and December 24 auctions by Rs 10,000 crore to ease the prevailing cash crunch in the banking system.

“Salary payments, capital expenditure and even transfer to states have a definite pattern and time frame. We can’t artificially release money in an ad hoc manner,” the official said. The overall government borrowing size will also remain unchanged. “Our borrowing is scheduled to end on February 11. We can hold an auction on February 18. We can also raise the weekly borrowing size by Rs 100-200 crore in any of the remaining weeks till February. It will remain under the overall borrowing cycle,” he said.

SOURCE: http://www.business-standard.com/india/news/credit-deposit-growth-gap-behind-liquidity-crunch-says-gokarn/419216/

CENTRAL BANK PLANS 3 MORE BRANCHES IN VIZAG

According to Mr. D.A. Joseph, Chief Manager, Central Bank of India is planning to open three more branches in Visakhapatnam, in addition to the existing six, as a part of its branch expansion.

He was speaking to reporters at the main branch here on 21^st December after the inauguration of an on-site ATM by Dr S. Gopala Sastry, a freedom-fighter and customer of the bank. Mr Joseph said the three new branches would be located at Sabbavaram, Balayyasastri Layout and Sujatanagar. He said the ATM here was one among the 100 inaugurated today as a part of the centenary celebrations of the bank.

He said one more branch would be opened in Vizianagaram district at Garividi. All the 3,621 branches were networked as core banking solutions had been introduced, he added.

The deposits of the bank as on September 30 amounted to Rs 1,67,812 crore and the advances Rs 1,13,737 crore.

He said the bank was laying stress on financial inclusion and offering the latest technology-based services to the customers.

SOURCE: http://www.thehindubusinessline.com/2010/12/22/stories/2010122251371900.htm

UNION BANK INKS MOU WITH BSNL, MTNL

Union Bank of India (UBI) signed an agreement with its public sector peers from the telecom space, BSNL and MTNL , under which the lender will get access to telecommunication technologies at competitive rates.

The memorandum of understanding ( MoU )) signed entitles the bank to access latest network technologies and preferred services at highly competitive prices.

The bank has already been using the services of Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) for its wide area network ( WAN )) across the country.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/union-bank-inks-mou-with-bsnl-mtnl/articleshow/7141121.cms

CASH CRUNCH: BANKS BORROW RS 1.57 LAKH CRORE

Reflecting a big cash crunch in the system, banks made huge borrowings from the Reserve Bank on 21^st December amounting to Rs 1,57,625 crore.

Banks had borrowed all-time record of Rs 1,59,210 crore from the RBI on 20^th December through the repo window, which is a one-day facility from the central bank against government securities.

These figures are on net basis, since banks lent money as well to RBI through the reverse repo route.

Huge borrowings by banks continue even as the RBI, in its second mid-quarterly review recently, announced plans to buy up to Rs 48,000 crore of bonds from the secondary market over the next four weeks. The first tranche of Rs 12,000 crore would be purchased on 22^nd December.

The tight liquidity condition has prompted banks to seek the repo route increasingly to deal with their requirements.

On December 16 as well, banks had borrowed to the tune of Rs 1,43,930 crore.

The extent of liquidity crunch can be gauged from the fact that banks have been borrowing Rs 1 lakh crore on an average daily through the repo window since quarterly review in November.

The system is facing shortage of cash because of busy credit season, coupled with advance tax payments. Top 100 companies have paid Rs 27,531 crore in advance tax this month.

In its mid-quarterly review, RBI had said that while overall liquidity in the system has remained in deficit consistent with the policy stance, the extent of tightness has been beyond the comfort level.

The central bank blamed it on persistence of large government cash balances which have averaged Rs 84,000 crore since the quarterly review of November.

The Government garnered over Rs 65,000 crore more than the budget estimates through auction of spectrum for high speed mobile and broadband services. It also got Parliament nod to spend close to this much amount, over the Budget estimates, in two supplementary demands for grants.

The RBI has also blamed sluggish growth in bank deposits for aggravating the shortage in money supply. This could partly be attributed to negative returns these deposits fetch for people, compared to inflation rate.

Recently, prompted by RBI, banks have hiked deposit rates.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/cash-crunch-banks-borrow-rs-157-lakh-crore-from-rbi-today/articleshow/7140691.cms

LIQUIDITY LIKELY TO EASE IN 15-20 DAYS, SAYS BOB CHAIRMAN

According to Mr. M.D. Mallya, Chairman and Managing Director, Bank of Baroda, liquidity in the system is likely to soften in the next 15-20 days.

Liquidity has been tight in the banking system for sometime now with banks borrowing more than Rs one-lakh-crore from the Reserve Bank of India prompting it to announce liquidity easing measures.

The Reserve Bank of India in its December policy review had announced certain liquidity infusing measures by reducing the SLR by 1 per cent and an OMO buyback programme of Rs 48,000-crore of G-Secs.

RBI would also be doing an assessment of the inflationary situation in January and it is assumed that the liquidity in the system would then move the bond and money markets.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/liquidity-likely-to-ease-in-15-20-days-says-bob-chairman/articleshow/7140389.cms

IDBI BANK ON CONSOLIDATION DRIVE

To reinforce its standing as a commercial bank, IDBI Bank has drawn up a strategy that entails going all out to mop up low-cost current account, savings account (CASA) deposits, going slow on fund-based exposure to infrastructure projects even as syndication and advisory services for such projects are actively pursued, and stepping up priority sector lending.

The urgency to grow CASA deposits is underscored by the fact that in the case of IDBI Bank such deposits constituted a mere 14.5 per cent of the total deposits (of Rs 1,54,305 crore as of end-September 2010) whereas in the case of public sector banks the average is 35-45 per cent.

To catch up with peer banks on CASA, the bank has assigned four executive directors with additional responsibility to ensure CASA growth in their respective zones. Each ED will be assisted by a Chief General Manager.

IDBI Bank has set a target to improve CASA to 18 per cent of total deposits by March-end 2011 and 22 per cent by March-end 2012.

Assets, liabilities

On the assets side of the balance sheet, while the bank expects complete drawdown of sanctioned loans aggregating around Rs 11,000 crore (of which Rs 6,000 crore is fund based and the balance is in the form of letters of credit and bank guarantee) to infrastructure projects in the next couple of years, it will go slow when it comes to fresh exposure to such projects in view of the low CASA base.

“On the liabilities front, all our energies will be devoted to ramping up CASA deposits over the next couple of years. To sustain our net interest margin, which is currently at 2 per cent, we plan to garner more CASA deposits. To improve our fee income, we will focus more on syndication and advisory services. However, we will not aggressively grow our infrastructure lending portfolio,” said Mr P. Sitaram, Chief Financial Officer, IDBI Bank.

The bank's corporate vertical has been assigned additional task of marketing to companies its cash management services, opening current and salary accounts, and winning dividend payment mandates, he added.

On the priority sector front, the bank wants to break fresh ground in agriculture lending in States beyond Maharashtra. The erstwhile, United Western Bank's portfolio forms a chunk of IDBI's agriculture lending portfolio of around Rs 3,300 crore. IDBI Bank took over UWB in 2006.

The bank, according to Mr Sitaram, is focusing on opening more branches in the semi-urban and rural areas so that CASA deposits can come up to the industry average and the mandatory priority sector lending target can be met. The bank plans to ramp up its branch network to 930 by March-end 2011 (from 760 now) and 1200 by March-end 2012.

SOURCE: http://www.thehindubusinessline.com/2010/12/21/stories/2010122152830600.htm

ALL VILLAGES TO GET ACCESS TO BANKING IN NEXT 5 YRS: RBI

RBI's outreach programme under financial inclusion would be implemented in villages across India and all people would be covered in the next five years, the apex bank's Deputy Governor K C Chakraborty said.

"All the banks have been asked to bring the technology, including the back-end technology and hand-held machines to link up the UIDs(Unique Identification Number)... to support this programme. This will be done in the next 5 years", he said.

When asked about the success of the programme at places where it has already been implemented, he said, "Financial inclusion was successful in South Indian states, especially, Andhra Pradesh. In Sikkim, the Government was helping in the implementation of (this) programme."

He added,"I will not gloat over the success as it is in the initial stage. But, definitely, there had been pockets of success wherever they had been implemented efficiently.

So far five crore people have non-frill accounts, though some of them are not functioning."

Under the government's financial inclusion programme, business correspondents are being appointed in villages lacking access to banks, to provide them banking services by linking their UIDs with the banks through the hand-held machines.

Chakraborty, who was inaugurating the distribution of smart cards to the people of Vendhoni Village near here, said 35,000 villages out of six lakh villages in the country had bank facility, while the rest would be covered by business correspondents.

He said that the RBI would monitor implementation of the outreach programme, and that implementation and success of the programme was a collective responsibility of Panchayat presidents, Self-help groups and NGOs.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/all-villages-to-get-access-to-banking-in-next-5-yrs-rbi/articleshow/7134159.cms

UNION BANK OF INDIA REVISES LENDING, DEPOSIT RATES

Union Bank of India has increased its benchmark prime lending rate by 50 basis points to 13.25 percent effective from 20^th December.

The bank has also raised retail term deposit rates across various maturies between 75 and 100 basis points and interest rate on one-year deposits to 8 per cent from 7.25 per cent.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/union-bank-of-india-revises-lending-deposit-rates/articleshow/7132399.cms

INAUGURATION OF “CENTRAL BANK OF INDIA – COMMONWEALTH SECRETARIAT (LONDON) YOUTH ENTERPRISE FINANCING PROGRAMME” PROJECT DEVELOPMENT WORKSHOP

Central Bank of India (CBI) and Commonwealth Secretariat, London (ComSec) have launched Youth Enterprise Financing Pilot Programme to develop an end-to-end small enterprise financing programme that will act as a replicable model for economic and social inclusion of  youth in enterprise development activities across the Commonwealth countries. The MoU was signed between NGO Partner and CBI Branch Manager, Sawai Madhopur district in the presence of Mr. S Sridhar, (CMD-CBI) and Mr. Jose Maurel (Director-ComSec). Shri. R.K Dubey (ED-CBI) and Shri. Ram Venuprasad (Advisor –ComSec) were also present

SOURCE: https://www.centralbankofindia.co.in/upload/news/Press_Editors_Press_Release_20_Dec.pdf

CENTRAL BANK COMPLETES 100 YRS, TO OPEN MORE BRANCHES

The Central Bank of India plans to open branches in some Asian and African countries as it begins its centenary celebrations.

The bank plans to open branches in Hongkong, Bhutan, Tanzania and Mozambique, Central Bank of India's Executive Director Rajeev Kishore (rpt) Kishore Dubey told PTI.

"Opening foreign branches is a part of getting more international business and providing banking facilities to the Indians settled abroad," Dubey said.

He said the bank also aimed at enhancing its core banking operations at its existing branches.

Besides, the bank also plans to include wealth management and asset management services, installing 500 on-site ATMs, IPO/FPO financing and thrust on financial inclusion, he said.

He added that Central Bank, which is the country's third largest public sector bank in terms of branch network, has already achieved 100 per cent CBS (core banking solution) coverage.

"The bank will provide banking services to 3,000 villages in the country having less than 2,000 population by 2012 as a part of government's directives on implementing Financial Inclusion programme using mobile telephone technology," Dubey said adding "the bank will develop a software in local languages so that it becomes easier for people to get banking facilities."

Central Bank has targeted to achieve a total business turn over of Rs 3,00,000 crore by the end of this fiscal year, as compared to Rs 2,46,000 crore target which it achieved last fiscal.

Dubey also gave details on steps taken in increasing the bank's business per employee to Rs 8 crore from less than Rs 5.50 crore per employee last year, reducing the NPAs and recovering a total of Rs 600 crore from NPA accounts before March 31, 2011.

SOURCE: http://www.business-standard.com/india/news/central-bank-completes-100-yrs-to-open-more-branches/119690/on