Banks plan to further cut lending rates in December

People who are looking forward to purchase a car or home there is good news for them as public sector banks will be further cutting the lending rates in these two segments. During December public sector are planning for the second round of cut in the benchmark lending rates by up to 50 basis points.

Some of the banks have already started reducing the deposit rates as more liquidity has been instilled by the Reserve Bank. Thus, according to a senior banker the scope for cutting lending rates has increased and this will spur demand.

Banks have started assessing asset liability situation in the light of the cuts in deposit rate coming into effect from next week, he said.

Another senior banker informed that in December further cut in Benchmark Prime Lending Rate (BPLR) in between 25-50 basis points by various banks is possible.

Earlier several public sector banks had reduced their BPLR by 75 basis points on the request made by the Finance Minister P Chidambaram earlier in the month.

Chidambaram had added that cut in the lending rates by the state-owned banks will also increase competitive pressure on their private sector counterparts which in turn will also announce similar cuts.

"Competition from public sector banks will force private sector banks to reduce their lending rates sooner than later. It will happen sooner than later," Chidambaram had said.

As usual Punjab National Bank, country's second largest lender has taken lead in reducing BPLR and has decided to reduce by 100 basis points to 12.5 per cent, which will automatically reduce PLR-linked loans by the same margin.

PNB spokesperson said the new BPLR will be applicable to all existing and new accounts. The authorities have taken decision to reduce rate "in response to monetary measures taken by RBI in November such as reduction of repo rate from 8 to 7.5 per cent, CRR (Cash Reserve Ratio) from 6 to 5.5 per cent and SLR (Statutory Liquidity Ratio) from 25 to 24 per cent."

Previously Punjab National Bank had cut its lending rates in the first week of November. The rates were then revised downward by 50 basis points to 13.5 per cent.

At present most of the banks have BPLR around 13 per cent.

PSU banks reducing interest rates is the result of number of steps taken by the RBI to introduced into the banking system Rs 2,70,000 crore since October and cuts in the short-term (repo) rates, signaling soft interest rate regime.

PNB launched its pilot project of branchless banking in Daringibadi

The Punjab National Bank (PNB) as a pilot project launched mobile or branchless banking service at Daringibadi in tribal dominated and backward Kandhamal district. Recently the district has been in news for prolonged ethnic and religious strife.

PNB’s project aims to reach out to people in remote areas where banking services have not reached till now and bring them under the cover by opening no frills account in their name. “It is a technology based financial inclusion (FI) project and aims to cover vast number of un-banked rural people", said chairman-cum-managing director of the PSU bank, K.C. Chakrabarty.

Before the launch of the pilot project Chakrabarty told the reporters at Gopalpur, about 15 kms from here that the bank selected Kandhamal district in the state to launch its pilot project because large number of people in this tribal district are unaware of the benefits of banking. About 80,000 out of 6.50 lakh people of the district are using banking services.

"Initially the project will cover Dringibadi area, the biggest block of the state and gradually it will be extended to other parts of the district”, BP Sharma, the head of the bank, Orissa circle, said. He added that the New Delhi headquartered bank main aim is to extend the services to other backward districts of the state including Gajapati.

At Daringibadi Chakrabarty also inaugurated the bank’s new and 62nd branch in the state along with a bio-metric ATM. It is the eleventh project of PNB in Orissa, which aims to cover 30,000 villages, 15 million households and 75 million people by 2010 next under the rural financial inclusion program. He maintained till now the bank has already covered 10,886 villages and opened 5.32 lakh no frills accounts.

Earlier PNB has launched such pilot projects at Neemrana in Rajasthan, Patna and Gaya in Bihar, Sharanpur in Uttar Pradesh, Chandigarh, Ranchi in Jharkhand, Dehradun in Uttarakhand, Taran Trana in Punjab and Kullu and Mandi in Himanchal Pradesh.

For mobile banking the bio-metric cards, thermal filter and near filed communication ((NFC) mobile handsets are required to operate this unique banking service in the rural areas where such facilities of modern technology far from the reach. The chairman of the bank said, “The system is very cost effective and requires less manpower. It also helps in providing banking service at the doorstep of the people in far flung areas without opening new branches".

PNB to cut rates after cut in CRR, others yet to think

After the cut in cash reserve ratio (CRR) by the Reserve Bank of India (RBI), Punjab National Bank (PNB), the country’s third-largest lender, is planning to cut down the lending rates for home, auto and education loans.

After the reduction the new auto loans will be 50 basis points cheaper, moreover lending rates on new and existing auto and home loans will also fall by the same margin. PNB Executive Director JM Garg informed at present no decision on corporate loans has been taken.

Punjab & Sind Bank is to take up the matter on revising rates tomorrow while other banks are adopting a wait-and-watch strategy.

The central bank has cut the CRR for the third time in the last two weeks and brings the combined cut to 2.5 percentage points. After this, the CRR will be 6.5 per cent.

Bankers pointed out lenders such as PNB and State Bank of India, which had raised interest rates by 100 basis points three months ago, might go for reduction now.

On the other hand private lenders like HDFC Bank and Standard Chartered Bank said they will not lower rates. An ICICI Bank source said the lender will decide only after assessing the cost of funds.

“The steep rise in cost of resources was not passed on the customers and it will be status quo now, perhaps indicating that customers may not get the benefit of any drop in the borrowing costs,” said HDFC Vice-Chairman & Managing Director Keki Mistry.

Standard Chartered Bank’s CEO for India and South Asia, Neeraj Swaroop, said: “We have been lending, and we will continue to lend. But lending will be lot easier for us with these cuts. It is too early to say if this CRR cut will lead to any cut in our lending rates.”

While Bank of Baroda Chairman and Managing Director MD Mallya said the bank will first watch the situation before deciding the course of action. His counterpart at UCO Bank, SC Goyal, said the Kolkata-headquartered bank is not planning an immediate rate cut, yet.

“We are not in a hurry as there are larger issues to be handled at this point. We are going slow on retail lending and had avoided a steep rise in rates earlier,” said Allahabad Bank Chairman & Managing Director KR Kamath.

Bank account portability will make change of bank simple

It is very difficult to close and open a new account as there are many procedures required for this. Due to this customers find it painful to switch bank accounts even though they are not happy with their current bank’s service.

Think if it’s become possible for you to simply change the bank without changing your bank account number. This can become a reality if in India bank account portability process is adopted. Same is the case with the mobile number portability concept, the customer and not the bank will own the account number. In the countries like South Africa, Scandinavia and Europe people have already adopted the bank account portability.

“Along with technology it may happen. Today it may not be possible but tomorrow it will be. Within the bank today it is possible. You need to have only one ID and bank account can be taken anywhere. In fact bank account remains at one place only. You can get the service from anywhere,” says K.C. Chakrabarty, the chairman and managing director of Punjab National Bank.

This service will enable the account holders who want to move their payment relationship from one bank to another, therefore increasing customer mobility and lowering switching costs for their current accounts. This service will also help consumers who are mostly ignored after becoming a customer of the bank and fail to get benefit from privileges like lower interest rates on loans to new customers and sloppy service on phone banking. Though this service is yet to be implemented in India, banks say they have taken steps in the right direction.

Gunit Chadha, Managing director and chief executive officer of Deutsche Bank, said, “I think customers have the choice right now. You can in-operate an account and move to another account. And you can have no frills account with transaction account portability. So in effect there is already bank account portability because a customer can make a choice.” Chadha said although many banks have not put bank account portability high on their priority list.

It will still take few years for bank account portability to get implemented in India. Its not only the regulator will have to push for it but also all banks will have to equally come forward and technologically compatible for the flawless transfer of bank accounts.

PNB and Mitcon signed MoU for carbon credit finance

Punjab National Bank and MITCON Consultancy Services Limited (MITCON) will be working together in the area of carbon credit financing. An agreement was signed between both the groups for co-operation in the area of carbon credit financing.

According to statement released by PNB under the MoU, the bank and MITCON will be working together for producing the business for services linked to carbon credit business.

The statement stated MITCON will be offering services related to identification of project, its registration with the Clean Development Mechanism Executive Board and recurring verifications, while PNB will be looking after banking related services.

Carbon credits or Certified Emissions Reductions are certificates which are issued by CDM Executive Board to projects in developing countries. These certificates are issued to certify that they have reduced green house gas emissions by one tonne of carbon dioxide per year.

These carbon credits are bought by developed countries to attain their targets under the Kyoto Protocol.

Dividend chasing not for the faint hearted!

As the dividend season draws to a near close, for those investors who had been chasing stocks for dividend earnings, it is a time of stock taking as to whether it was a worthy strategy.. It is true that investing in high dividend paying companies is sensible since dividend paid is tax free at the hands of the investors, but what should be given greater importance is preservation of capital. If a company consistently pays high dividend, that is a reflection of its financial health and this could also indicate its future growth potential.

In earlier days, investors took a fancy for the MNC stocks because of their generous dividend payouts. But the domestic companies had caught up with them and the liberal tax treatment could be another reason for the large payouts since in many of the companies, the promoters’ shareholding is substantial.

Many investors assume that the percentage of dividend declared is per share basis and not on the basis of the face value of shares. The dividend announced is on the assumed face value of share of Rs 10. For instance when Hero Honda announced 950 per cent dividend, it was not Rs 95 per share, as it would have been if the share’s face value is Rs 10. But it is Rs 19 per share since the face value of Hero Honda’s share is Rs 2. To Hero Honda’s credit, it should be said that it made clear the dividend amount per share and face value of the share in its published results. With face value of shares ranging from Re 1 to Rs 10 and in some cases even Rs 100, it may be time for SEBI to tell all the companies emulate the example of Hero Honda.

While the tax free status of the dividend definitely makes them a big draw, that alone does not make investment sense if one takes into consideration the actual investment yield. For instance, Punjab National Bank (PNB) had paid a dividend of 130 per cent (Rs 13 per share of Rs 10 face value). At current prices, 100 shares of PNB would cost about Rs 50,000 and for 100 shares, the dividend received would be Rs 1,300, which works out to a yield of a mere 2.6 per cent. (13 divided by 500(share price) x 100). There are traditional favourites for high dividends – the PSU banks, the PSU oil companies, other public sector companies, MNCs, FMCG companies etc. The PSU companies pay high dividend because the majority shareholder happens to be the Government. But the continuous increase in crude oil prices and the un-remunerative local retail petro prices have eroded the profitability of the PSU oil giants – IOC, BPCL and HPCL and the dividend declared this year by them is just a fraction of what they used to pay. It would be wise for an investor to spread the risk while hunting for high dividend payers. Instead of investing in a few high value stocks that pay substantial dividend, it would make investment sense to opt for a basket of mid-value stocks across different segments that pay reasonable or same dividend. For example, Asian Paints (share FV Rs 10) that trades around Rs 1,240 a share, paid a dividend of Rs 17/share. Balmer Lawrie, which had an EPS of Rs 53.37, paid the same dividend but its share quotes around Rs 400 (face value Rs 10). If one invests in the latter the same amount as in Asian Paints, his dividend income is three times more. External factors also could undermine a stock’s value. Dredging Corporation of India, which was believed to be main beneficiary of the Sethusamudram ship canal project, saw its value skyrocket to Rs 1,300 + levels (year’s high). But it has been steadily on the decline and has come now to Rs 500 + levels after the project was caught in controversy. Though a good dividend play, the stock is not expected to improve till the picture becomes clear about the future of the project and it would be risky for the investors to take a bet on it.

Mr Hitesh Agrawal, Head-Research, Angel Broking, Mumbai, says that investing in high dividend yield stocks is one of the strategies adopted by a section of the market participants and “there is nothing inappropriate” in it as far as the fundamentals of the company are thoroughly researched. But in the ongoing market meltdown a large number of even high dividend paying blue chip companies had lost a significant percentage of their share value and even if these companies had paid huge dividend, it would not compensate the loss sustained by the investors. Chasing dividend paying stocks is not for the faint hearted and investors should dig into the stocks and hold on to them during their ups and downs to ride out the storm.

As Mr Agrawal says, only if the fundamentals of the company were sound, the investors should consider them for their high dividend yield.

PNB, Axis Bank raise rates

A day after the Reserve Bank of India’s (RBI) monetary-tightening measures, banks on began raising interest rates, effecting the hike for the second time in a month.

Punjab National Bank (PNB), the country’s second-largest public sector lender, today announced a percentage point increase in the prime lending rate (PLR) to 14 per cent, while raising deposit rates by 75-100 basis points. The maximum deposit rate on offer will be 9.75 per cent a year.

Axis Bank, the third-largest private sector lender, however, opted for a more moderate PLR increase of 50 basis points. In a statement, the bank said its PLR will increase from 15.25 per cent to 15.75 per cent with effect from today. PNB’s rate hike will take effect from August 1.

The big boys — State Bank of India (SBI), ICICI Bank, HDFC Bank and HDFC — have, however, so far, remained silent on how they will respond. SBI’s asset-liability committee (Alco), which met within hours of RBI’s decision to raise the repo rate, or the rate at which it lends to banks, by 50 basis points and the cash reserve ratio (CRR), or the proportion of capital banks set aside, by 25 basis points, is expected to reconvene tomorrow.

Since April, the central bank has increased CRR by 150 basis points and the repo rate by 125 basis points to tighten money supply and combat inflation, which was estimated at 11.89 per cent in the first half of July.

PNB official dupes bank of Rs 2 lakh

A case of fraud amounting to Rs 2 lakh has been reported in the Kurali branch of the Punjab National Bank (PNB) involving a cashier-cum-computer operator. According to the investigating officer, Ravindar Pal Singh, the accused, Baldev Singh Kurali, first defrauded the bank of Rs 1.87 lakh; but when he was caught, he duped 2 customers of Rs 1.1 lakh to clear the bank’s liability.

The head of PNB, Chandigarh Circle, lodged a complaint with the Kurali police that the bank had given Rs 8 lakh in cash to Baldev Singh to disburse payments as cashier-cum-computer operator on March 10. He disbursed Rs 6,12,700 but failed to deposit back the remaining amount of Rs 1,87,300.

The bank authorities initiated an enquiry against the accused and he agreed to pay back the defrauded cash.

However, on March 15, he siphoned off Rs 1,00,500 from the account of customer Balveer Singh. He also duped another customer, Beant Singh, of Rs 10,000 as he withdrew Rs 15,000 from Beant’s account when the latter came to withdraw Rs 5,000.

PNB hits 52-week low after hike in lending, deposit rates

Punjab National Bank dropped 1.80% to Rs 396 at 10:16 IST on BSE after the bank said on Saturday, 28 June 2008 it has raised its benchmark prime lending rates by 50 basis to 13% per annum with effect from 1 July 2008.

The bank made this announcement on Saturday, 28 June 2008.

Meanwhile, the BSE Sensex was down 22.81 points, or 0.17%, to 13,779.41.

On BSE, 10,531 shares were traded in the counter. The scrip had an average daily volume of 1.51 lakh shares in the past one quarter.

The stock hit a 52-week low of Rs 395.20 in the counter so far during the day. The stock hit a high of Rs 406 so far during the day. The stock had a 52-week high of Rs 721 on 3 January 2008.

The mid-cap bank stock had underperformed the market over the past one month till 27 June 2008, declining 19.46% compared to the Sensex’s decline of 15.41%. It had also underperformed the market in the past one quarter, declining 23.60% compared to Sensex’s decline of 15.69%.

The bank has an equity capital of Rs 315.30 crore. Face value per share is Rs 10.

The current price of Rs 396 discounts its Q4 March 2008 annualised EPS of Rs 68.98, by a PE multiple of 5.74.

The bank has also increased interest rates by 50 basis points on housing loans, car loans and personal loans. It also decided to increase its deposit rates ranging from 25 basis points to 50 basis points in some of the time slabs.

Punjab National Bank (PNB) raised lending rates after the Reserve Bank of India (RBI) gave a strong signal that interest rates in the economy are headed north when it on Tuesday, 24 June 2008, raised repo and cash reserve ratio (CRR) by 50 basis points each on control over 11% inflation.

The double-stroke anti-inflationary measures are expected to tighten the liquidity in the system, as the CRR hike would suck out around Rs 16,000 crore. CRR is the proportion of deposits mobilised by banks and parked with the RBI for statutory requirement. Banks do not earn any interest on the cash reserves. Repo rate is the rate at which RBI lends money to banks.

PNB’s net profit rose 128.8% to Rs 543.76 crore on 19% increase in operating income to Rs 4417 crore in Q4 March 2008 over Q4 March 2007.

The state-run bank provides treasury and banking operations. The activities include accepting deposits, lending loans and to provide other financial related services.

PNB to walk out of Principal fund JV

Punjab National Bank (PNB) has decided to exit Principal Asset Management Company.

"They were not performing at all, so we have decided to sever all ties with them," PNB Chairman and Managing Director K C Chakrabarty said today. Both the entities are currently negotiating the exit price.

"We are negotiating the exit price, which will be at par with the shareholding. Hopefully, it will be settled soon," Chakrabarty said. PNB Principal AMC is a joint venture between the Principal Group, PNB, Vijaya Bank and Berger Paints.

Under the JV, the Delhi-headquartered bank holds a 30 per cent stake, the Principal Group has a 26 per cent shareholding, Berger Paints 25 per cent and the remaining 19 per cent is with Vijaya Bank.

The second largest public sector bank is set to start its credit card business by October.

"We have roped in Visa as the facilitating partner. Initially, it will be available for the existing customers of the bank and in the first year, we are targeting 1-2 lakh cards," he told Business Standard during a visit to Chakla, around 60 km from Kolkata.

The visit was a part of the spot assessment of the implementation of the debt waiver scheme, announced in the Union Budget 2008-09. For the bank, the total outstanding farm loan is estimated at around Rs 18,000 crore.

PNB to start credit card business soon

State-owned Punjab National Bank (PNB) is likely to launch its credit card business in the second-half of this fiscal and would enter into an agreement with Visa or Mastercard for the venture, a top bank official said.

"We expect the credit card business to get operational in a period of six months and would tie-up with Visa or Mastercard for the business. We have finalized the business strategy for the proposed card business, PNBs Executive Director," J M Garg, told reporters on the sidelines of a seminar here today.

PNB also has plans to divest around 26 per cent stake in its subsidiary, PNB Gilts, sometime this fiscal and is in talks with a few potential players, Garg said.

We are looking at a better pricing for the deal and are engaged in talks with a few players. I expect to close the deal sometime in the present fiscal when market conditions are conducive for that (the deal), he said.

On its overseas operations, Garg said that the bank plans to set up a subsidiary in Canada and a representative office in Singapore besides upgrading its existing representative office in Dubai.

PNB hikes interest rates on non-resident deposits

Punjab National Bank on Tuesday announced hike in interest rate on Foreign Currency Non-Resident (B) deposit schemes for dollar, British pound and euro with effect from June 1.

The interest rate on US dollar deposits has been raised to 2.41 per cent for a maturity of one year from 2.33 per cent. For the maturity of 2-3 years, the rate is revised to 2.71 per cent against 2.43 per cent, PNB said in a release.

For tenure of 3-4 years, the interest rate has been increased to to 3.06 per cent from 2.70 per cent and on 4-5 years term deposit the new rate is at 3.30 per cent and the fixed deposit for five years it is 3.47 per cent.

On NRE Term deposits, the applicable rate of interest for June is 3.16 per cent for maturities of one year to less than two years compared to 3.08 per cent last month and 3.46 per cent for maturity in between 2-3 years, it said.

The interest rate is pegged at 3.81 per cent for the maturity of 3-5 years against 3.45 per cent earlier, it added.

PNB posts 17.31% growth in Kerala

The Punjab National Bank (PNB) has registered 17.31 per cent growth in business in the Kerala Circle last fiscal. The bank did business to the tune of Rs.3,022 crore, excluding high cost deposits.

The increase in business elevated PNB to the 14th position among banks in the State. “Our aim is to improve our position further,” Krishnan Ramaiah, head, PNB Kerala Circle, said at a press conference in Kozhikode on Wednesday. PNB, the third biggest bank in the country in terms of business, had already improved its position compared to last year, he said.

To speed up growth PNB would open 12 more branches in Kerala this year, Mr. Ramaiah said. PNB’s performance shows an improvement on many counts. Its credit-deposit ratio in the State was an impressive 82.24. Last year, it was only 77.30 per cent. Deposits in the Kerala Circle at the end of March 2008 came to Rs.1,661.21 crore. It was 1,369.52 crore at the end of March 2007.

Lending to priority sector also rose to Rs.863.19 crore which is 20.66 per cent more than the previous fiscal. Volume of agricultural loans went up by as much as 44.18 per cent to Rs.179.25 crore.