Indian Banking Scenario – 10

ramkey By ramkey, 12th Oct 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/44wendzw/
Posted in Wikinut>Money>Investing

Foreign banks are making use of currency swap to make more profits. Abolition of zero per cent interest schemes of banks by RBI is a right move as it will ensure more transparency in dealings. After all there is no free lunch. Debt ratings of major banks have been downgraded but it will not affect them. Finally, Indian Bank is more powerful than Reserve Bank of India because of its political influence.

Currency swap fetches handsome gains to foreign banks

MNC banks are cashing in on currency swaps to increase their profits in India. RBI has allowed them to swap their NRI dollar deposits of more than three years maturity through hedging exchange rate risk at a flat 3.5 per cent has invited the attention of MNC banks like Standard Chartered and Citi Bank. Citi Bank was planning to bring in over $2 billion through this way but I do not know whether they achieved their target. This permission was granted by the RBI last year and was valid upto November last. But now with the Indian rupee depreciating fast, it is doubtful whether the RBI will grant such a permission to the banks.

Zero per cent interest is not really so

Banks are disappointed over RBI’s ban of 0% interest rate to customers availing retail loans. Banks are questioning why not the RBI extend the same directive to NBFCs and captive financing units. Festival season consumer durable sales will dip because of the RBI move but more transparency will be ensured. After all there is really no free lunch and the so called zero per cent interest rate is not a real one. Appearances are deceptive and it was high time the RBI called the shots to rein in unscrupulous practices in the banking industry in collusion with the consumer durable dealers. RBI Deputy Governor K C Charkabarty has remarked recently that cheap loans plan could impact asset quality of the banks which could result in an increase in net NPA of the banks.

Debt ratings of major banks downgraded

Banks are scouting to tap dollar loans to the extent of $5 billion. They are utilising new concessional swap facility for raising funds in foreign countries. RBI has allowed offshore fund raising to protect the rupee which is being battered. But debt ratings of major banks have been downgraded by Moody’s and Fitch. Banks affected by this downgrading are SBI, Bank of Baroda, Punjab National Bank and Bank of Baroda. But this downgrading will not affect these reputed banks. The only bank which will find the going tough to raise money in foreign countries is Indian Bank whose reputation is at the rock bottom following wiping out of its entire net worth some time back.

Indian Bank more powerful than RBI

New generation private banks are setting an example and major players are following suit. The differentiator will be a bank’s innovation and efficiency. Risk management is also important. All these things will lead to higher profitability which is what matters ultimately. Private banks have already beaten public sector banks in asset maintenance. Former RBI Governor Y V Reddy remarked recently that some banking giants were more powerful than the central bank. He was having in his mind about Indian Bank which does not care for the RBI norms in its banking business. This is because of the political influence the CMD of Indian Bank enjoys.

Tags

Currency Swap, Downgrading Of Debt Ratings Of Major Indian Banks, Indian Bank Versus Rbi, Indian Banking Industry, Zero Per Cent Interest Rate

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author avatar ramkey
I am running a coaching centre and teach Mathematics, Physics and Chemistry for students appearing in competitive examinations like IIT, SAT etc I am interested in journalism as a pastime.

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