Banking News - Latest alerts - Part II

SBI says can raise upto Rs 120bn following bill amendment
 
The proposed move to bring down government holding in State Bank of India (SBI) to 51 per
cent from about 59 per cent now could help the lender raise around Rs 120bn, a top SBI
official said here today. "We now have a headroom to raise Rs 120bn," SBI Chief Financial
Officer, S S Ranjan said when asked to comment on reports that the government has cleared
a bill that seeks to lower government equity in the public sector bank to 51 per cent. The
government is the largest shareholder of the banking behemoth with a majority 59.41 per
cent stake. With the amendment to the SBI (Amendment) Bill, the government can now
reduce its ownership in the bank by around eight per cent to up to 51 per cent. The capital
infusion can either happen through a rights issue or by way of other financial instruments.
Insurance companies currently own 11.23 per cent stake in the bank while the FII holding, as
at September 30, stands at 9.87 per cent. (Business Standard)

SBI gets government nod to acquire State Bank of Indore

The government has given approval to State Bank of India (SBI) to initiate the process of
acquiring one of its associate lenders, State Bank of Indore, the junior finance minister told
lawmakers on Friday. SBI, India's largest bank, has already acquired one of its subsidiaries -
State Bank of Saurashtra. It has six other associate banks and plans to take over all associates
eventually. "SBI has already initiated the process," Namo Narain Meena told the lower house
of parliament in a written reply. (Reuters)

SBI General Insurance to be operational by H1 2010

The State Bank today said its general insurance foray, in a joint venture with Insurance
Australia Group (IAG), will commence operations in the first half of next year. Both the
companies have together invested over Rs 6.5bn into the venture. While SBI has put in Rs
1.11bn towards its 74 per cent share in the venture, IAG has invested Rs 5.42bn for 26 per
cent of the share capital of the joint venture, SBI General Insurance, SBI said. "The general
insurance subsidiary is expected to commence commercial operations in the first half of the
calendar year 2010, subject to final approvals from the Insurance Regulatory and
Development Authority (IRDA)," the SBI filing said. (Business Standard)

Deepak Parekh to step down as HDFC chief in January

HDFC's Chairman and Chief Executive Officer (CEO) Deepak Parekh will step down next
month after serving the housing lender for 31 years –– a period that saw the lender become
the numero uno in housing segment. The reshuffle will see Parekh continuing as nonexecutive
chairman of HDFC, the holding company of its group ventures including HDFC
Bank. Parekh is widely consulted by the government on a wide range of issues of national
importance and has been a member of various government appointed committees and
advisory panels, which includes financial services, capital markets and infrastructure sector
reforms. (Business Standard)

United Bank of India gets government nod for IPO - CMD

United Bank of India has received approval from the Indian federal government for an initial
public offering of its shares, chairman and managing director S. C. Gupta said on Friday. The
state-run bank plans to raise 3.5-4 billion rupees through the issue, which will result in a 15.5-
16 percent dilution in the government's 100-percent shareholding, he told Reuters over
telephone. "Right now we are in the process of preparing the draft and finalising the arranger
and we hope to hit the market by January-end or the first week of February," he said.
(Reuters)

Banking News - Latest alerts

RBI to review growth and inflation figures in Jan

The Reserve Bank of India (RBI) today said it would 'revisit' the growth and inflation
projection figures in January but side-stepped the question of its possible intervention to
contain soaring prices. "RBI's next policy review is scheduled towards end of January... Then
we will revisit the numbers for growth and inflation projections," RBI Governor D Subbarao
told reporters here without elaborating. Subbarao's statement on 'revisiting' the growth
projection indicates possible upward revision in the light of considerable rise in gross
domestic production (GDP) growth to 7.9 per cent during the July-September quarter.
Subbarao, however, declined to give an idea on whether RBI would intervene to check rising
prices of various articles, particularly food items. (Business Standard)

Performance-linked pay for PSBs from next year

The salary packages of employees of public sector banks could have a performance-linked
variable component from the next financial year, as the finance ministry has made it clear that
as the owner of public sector banks, the government is not willing to ignore the issue any
more. The Indian Bank Association (IBA) is still negotiating with employee unions to include
the performance variable pay in pay packages. This proposal will affect the compensation
structure of nearly 7 lakh employees of state-owned banks. “We are trying to take the unions
along with us on this (performance variable pay), but if the current employees are not willing
to accept a variable pay of 25-30% of salary, they will have to accept the performance
variable pay as part of the next hike,” said a senior finance ministry official. The government
is certain to include a variable component in the salaries of new recruits very soon. Nearly
one-third of the employees are set to retire in the next two fiscals.
The finance ministry has already appointed a panel headed by former Bank of Baroda
chairman AK Khandelwal to look at ways to professionalise the human resources practices at
public sector banks. Earlier, when IDBI bank board tried to implement performance variable
pay last year, the finance ministry had turned down the proposal. “We have stopped IDBI
board from implementing it as we wanted to listen to unions’ stand point and take them
along on the issue,” said the finance ministry official. The bank employees’ union objects to
performance variable pay on grounds that this will lead to harassment by the management.
Under the structure proposed by IDBI, 70% of the salary was fixed while the remaining 30%
was linked to the employee’s performance. (Economic Times)
DIPP seeks foreign origin stamp on banks breaching 74% sectoral cap
The department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce is
of the view that Indian private sector banks breaching the sectoral cap of 74 per cent under
the new Press Notes 2, 3 and 4 should be treated as Indian companies of foreign origin. “It
will be like any other Indian company of foreign origin. The issue is being looked into by an
inter-ministerial group, but DIPP thinks there is no need for a clarification to the Press Notes
related to the banks specifically, since there are so many such companies operating in India.
Any downstream investment by such companies in other ventures thus will be a foreign
holding. The Press Note cannot be changed for banks alone.” The mode of calculation of
foreign holding prescribed in new guidelines released under the mentioned Press Note have
made many Indian private sector banks to be classified as of foreign origin. Highly placed
sources said that though all banks are breaching the sectoral cap, the structures and nature
of the shareholding defining them as foreign differ from bank to bank. They added that this is
because various instruments through which foreign holding is defined may or may not have
voting rights or other clauses, which offer control. “Therefore, these cases will be treated
individually as and when they come for any downstream foreign investment depending on
whether or not these instruments have voting rights or other factors defining control,” they
said. (Business Standard)