RBS to put problem loans in internal "bad bank"

LONDON (Reuters) - Royal Bank of Scotland is to create an internal "bad bank" to manage the run-down of its riskiest assets after the government stopped short of ordering a full break up of the state-backed bank.

The government, which owns 81 percent of RBS, wants the bank to lend more to small businesses and said the new structure should help that.

RBS said on Friday it would put 38 billion pounds of loans into a new 'capital resolution division' next year, which would free up 10-11 billion pounds of capital.

The bank said Britain's financial watchdog has made it clear in recent months it expects banks to hold more capital, making it more important to sell or run down its bad assets.

The faster run-down of assets will accelerate and increase losses on the loans, and the bank expects to take an extra impairment charge of between 4 billion and 4.5 billion pounds in the current quarter, it said.

"Under this new direction RBS will deal decisively with the problems of the past by separating out the good from the bad, and putting the bad loans in a bad bank," British finance minister George Osborne said.

RBS said it now plans to hold a core capital ratio of about 11 percent by the end of 2015 and 12 percent a year later, which is 3 percentage points above its current position.

It will accelerate the divestment of Citizens with a partial IPO planned for next year.

RBS said it was co-operating with various governments and regulators investigating foreign exchange trading activities by several banks and is reviewing communications and procedures "relating to certain currency exchange benchmark rates as well as foreign exchange trading activity". (Reporting by Matt Scuffham and William James; Editing by Steve Slater)

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Indian banks' loans, deposits grow slower vs RBI's FY14 estimate

MUMBAI (Reuters) - Indian banks' loan and deposit growth continues to be slower in the current fiscal year compared with the Reserve Bank of India's (RBI) full-year projection, according to data released by the central bank.

Banks' loans grew about 10 percent to 57.94 trillion rupees, while deposits rose 11 percent to 75.09 trillion rupees from March 22 to October 18, data released on Wednesday showed, mainly due to the overall slowdown in GDP growth in Asia's third-largest economy.

The RBI projects loans to grow at 15 percent and deposits by 14 percent in the current fiscal year ending in March 2014.

(Reporting by Aditi Shah; Editing by Anupama Dwivedi)

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RBI hikes rate to tame inflation; loans to get costlier

Mumbai, Oct 29 (IANS) The Reserve Bank of India (RBI) Tuesday hiked a key policy interest rate by 0.25 percent in less than two months to contain inflation, but eased some rupee support measures. The move would make home, auto and other loans costlier.

In its second quarter review of the monetary policy for 2013-14, the RBI hiked repo rate by 25 basis points or 0.25 percent to 7.75 percent. Repurchase or repo rate is the rate of interest that banks pay when they borrow money from the central bank to meet their short-term funds requirement.

This is the second increase in the policy rate in less than two months. The central bank hiked the repo rate by 0.25 percent in its previous review announced Sep 20.

Rate sensitive stocks rallied following the RBI's rate decision, leading to 359 points jump in the benchmark Sensex of the Bombay Stock Exchange. Snapping five sessions of losses, Sensex ended the day at 20,929.01 points, just 75 points away from its record closing high of 21,004 points hit in 2008.

Taking a cue from the stability in the currency markets, the RBI rolled back some of the measures put in place to support the rupee. The Marginal Standing Facility (MSF) rate is reduced by 0.25 percent to 8.75 percent. The move will ease liquidity in the banking system. MSF is a window for banks to borrow from the RBI.

"With the reduction of the MSF rate and the increase in the repo rate in this review, the process of re-aligning the interest rate corridor to normal monetary policy operations is now complete," RBI Governor Raghuram G. Rajan said in the policy statement.

The RBI generally maintained a 100 basis points gap between repo and MSF rate. But this gap was altered recently to support the battered rupee. With the changes now the gap is back to the usual 100 basis points.

Rajan said the policy stance and measures in the review were intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

Annual wholesale price index-based inflation jumped to a seven-month-high of 6.46 percent in September, while consumer price index-based inflation was recorded at 9.84 percent, largely due to higher food and fuel prices.

Rajan, who took charge as the RBI governor Sep 4, said both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting an appropriate policy response.

"The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.

Rajan's statement gives indication that the RBI would hike rates again if inflation remained high.

"The message from RBI is clear, as long as inflation is around, asking for a rate cut would remain a wish list," said Rana Kapoor, president of industry body Assocham.

Kapoor, who is also managing director of Yes Bank, said: "All efforts must be made through coordinated efforts by the centre, states and the RBI to fight price rise so that the economy can be brought back to the growth trajectory."

The RBI has cut economic growth forecast for the current financial year to 5 percent from its earlier projection of 5.5 percent.

"While industrial activity has weakened, strengthening export growth, signs of revival in some services along with the expected pick-up in agriculture could increase the real GDP growth from 4.4 percent in the first quarter to a central estimate of 5 percent for the year as a whole," Rajan said.

Reacting to the RBI move, the Confederation of Indian Industry (CII) said the hike in repo rate has come as a disappointment to industry especially as the investment climate continues to be weak and growth outlook remains muted.

"The RBI could have refrained from effecting a hike in repo rate as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation," CII said.

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RBI hikes rate to tame inflation; loans to get costlier

Mumbai, Oct 29 (IANS) The Reserve Bank of India (RBI) Tuesday hiked a key policy interest rate by 0.25 percent in less than two months to contain inflation, but eased some rupee support measures. The move would make home, auto and other loans costlier.

In its second quarter review of the monetary policy for 2013-14, the RBI hiked repo rate by 25 basis points or 0.25 percent to 7.75 percent. Repurchase or repo rate is the rate of interest that banks pay when they borrow money from the central bank to meet their short-term funds requirement.

This is the second increase in the policy rate in less than two months. The central bank hiked the repo rate by 0.25 percent in its previous review announced Sep 20.

Rate sensitive stocks rallied following the RBI's rate decision, leading to 359 points jump in the benchmark Sensex of the Bombay Stock Exchange. Snapping five sessions of losses, Sensex ended the day at 20,929.01 points, just 75 points away from its record closing high of 21,004 points hit in 2008.

Taking a cue from the stability in the currency markets, the RBI rolled back some of the measures put in place to support the rupee. The Marginal Standing Facility (MSF) rate is reduced by 0.25 percent to 8.75 percent. The move will ease liquidity in the banking system. MSF is a window for banks to borrow from the RBI.

"With the reduction of the MSF rate and the increase in the repo rate in this review, the process of re-aligning the interest rate corridor to normal monetary policy operations is now complete," RBI Governor Raghuram G. Rajan said in the policy statement.

The RBI generally maintained a 100 basis points gap between repo and MSF rate. But this gap was altered recently to support the battered rupee. With the changes now the gap is back to the usual 100 basis points.

Rajan said the policy stance and measures in the review were intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

Annual wholesale price index-based inflation jumped to a seven-month-high of 6.46 percent in September, while consumer price index-based inflation was recorded at 9.84 percent, largely due to higher food and fuel prices.

Rajan, who took charge as the RBI governor Sep 4, said both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting an appropriate policy response.

"The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.

Rajan's statement gives indication that the RBI would hike rates again if inflation remained high.

"The message from RBI is clear, as long as inflation is around, asking for a rate cut would remain a wish list," said Rana Kapoor, president of industry body Assocham.

Kapoor, who is also managing director of Yes Bank, said: "All efforts must be made through coordinated efforts by the centre, states and the RBI to fight price rise so that the economy can be brought back to the growth trajectory."

The RBI has cut economic growth forecast for the current financial year to 5 percent from its earlier projection of 5.5 percent.

"While industrial activity has weakened, strengthening export growth, signs of revival in some services along with the expected pick-up in agriculture could increase the real GDP growth from 4.4 percent in the first quarter to a central estimate of 5 percent for the year as a whole," Rajan said.

Reacting to the RBI move, the Confederation of Indian Industry (CII) said the hike in repo rate has come as a disappointment to industry especially as the investment climate continues to be weak and growth outlook remains muted.

"The RBI could have refrained from effecting a hike in repo rate as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation," CII said.

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Home, auto loans to get costlier as RBI hikes policy rate

Mumbai, Oct 29 (IANS) The Reserve Bank of India (RBI) Tuesday hiked a key policy interest rate by 0.25 percent in less than two months to curb inflation, but eased some rupee support measures. The move would make home, auto and other loans costlier.

In its second quarter review of the monetary policy for 2013-14, the RBI hiked repo rate by 25 basis points or 0.25 percent to 7.75 percent. Repurchase or repo rate is the rate of interest that banks pay when they borrow money from the central bank to meet their short-term funds requirement.

This is the second increase in the policy rate in less than two months. The central bank had also hiked the repo rate by 0.25 percent in its previous review announced Sep 20.

Taking a cue from the stability in the currency markets, the RBI rolled back some of the measures put in place to support the rupee. The Marginal Standing Facility (MSF) rate is reduced by 0.25 percent to 8.75 percent. The move will ease liquidity in the banking system. MSF is a window for banks to borrow from the RBI.

"With the reduction of the MSF rate and the increase in the repo rate in this review, the process of re-aligning the interest rate corridor to normal monetary policy operations is now complete," RBI Governor Raghuram G. Rajan said in the policy statement.

The RBI generally maintained a 100 basis points gap between repo and MSF rate. But this gap was altered recently to support the battered rupee. With the changes now the gap is back to the usual 100 basis points.

Rajan said the policy stance and measures in the review were intended to curb mounting inflationary pressures and manage inflation expectations in a situation of weak growth.

Annual wholesale price index-based inflation jumped to a seven-month-high of 6.46 percent in September, while consumer price index-based inflation was recorded at 9.84 percent, largely due to higher food and fuel prices.

Rajan, who took charge as RBI governor Sep 4, said both wholesale and consumer price inflation are likely to remain elevated in the months ahead, warranting an appropriate policy response.

"The Reserve Bank will closely monitor inflation risk while being mindful of the evolving growth dynamics," he said.

Rajan's statement gives indication that the RBI would hike rates again if inflation remained high.

"The message from RBI is clear, as long as inflation is around, asking for a rate cut would remain a wish list," said Rana Kapoor, president of industry body Assocham.

Kapoor, who is also managing director of Yes Bank, said: "All efforts must be made through coordinated efforts by the centre, states and the RBI to fight price rise so that the economy can be brought back to the growth trajectory."

The RBI has cut economic growth forecast for the current financial year to 5 percent from its earlier projection of 5.5 percent.

"While industrial activity has weakened, strengthening export growth, signs of revival in some services along with the expected pick-up in agriculture could increase the real GDP growth from 4.4 percent in the first quarter to a central estimate of 5 percent for the year as a whole," Rajan said.

Reacting to the RBI move, the Confederation of Indian Industry (CII) said the hike in repo rate has come as a disappointment to industry especially as the investment climate continues to be weak and growth outlook remains muted.

"The RBI could have refrained from effecting a hike in repo rate as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation," CII said in a statement.

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ICICI bets on consumer loans; Q2 profit up 20 pct

By Swati Pandey

MUMBAI (Reuters) - ICICI Bank Ltd , India's largest private-sector lender by assets, is betting on consumer lending to help drive earnings growth this year after car and home loans helped it post over 20 percent profit gain for the third straight quarter.

ICICI is trying to emulate the success of rival HDFC Bank Ltd with a renewed push into consumer loans as corporate investment bears the brunt of economic slowdown as well as bureaucratic bottlenecks.

The bank's retail book, or loans for cars, homes and credit cards, is likely to grow 22-23 percent in the financial year ending March compared with overall credit growth of 17-18 percent, CEO Chanda Kochhar told reporters after the company released earnings results on Friday.

Net profit rose to 23.5 billion rupees in July-September from a year earlier. That compared with a 21.9 billion rupees estimate of 23 analysts polled by Thomson Reuters.

Shares of ICICI, which the market values at $19 billion, ended 0.13 percent higher compared with the benchmark's <.bsesn> 0.2 percent decline.

"We are increasing our penetration in India. We added to our number of geographies from where we do home loans, from where we do auto loans, our branch network is also increasing, and all this will continue," Kochhar said.

Car sales are projected to decline, but a wider branch network and strong dealership connections will help ICICI grow in the segment.

"Major growth for ICICI is coming from mortgages and autos. They are actually gaining back their lost market share, but they have a long way to go," said Manish Ostwal, banking analyst with Mumbai-based brokerage KR Choksey.

Consumer lending in 2007 accounted for more than 65 percent of ICICI's assets. It reduced that by almost half after the 2008/09 financial crisis intensified but has since changed track. Its corporate loan business grew just 11 percent in the quarter ended September 30 compared with overall growth of 16 percent.

"Going forward, it will be important to see how they are able to maintain this (retail) growth and manage asset quality pressures," said Jignesh Shial, banking analyst with Mumbai-based IDBI Capital.

Indian economic growth languished near its slowest in three years at 5.5 percent in the quarter that ended in June but was slightly better than expected, signalling the worst may be over for Asia's third-largest economy.

Earlier this month, HDFC Bank ended its record of posting 30 percent on-year profit growth every quarter for the last decade due to investment losses and a squeezed net interest margin.

ICICI's net interest margin, a gauge of profitability for banks, expanded to 3.31 percent during the quarter from 3.00 percent a year earlier. It raised its guidance for the fiscal year to about 3.3 percent.

Net interest income, or the difference between interest earned and paid, rose about 20 percent to 40.4 billion rupees.

Net non-performing loans, as a percentage of total assets, rose to 0.85 percent from 0.82 percent in the prior quarter. Debt restructuring, or steps to ease payment terms for stressed borrowers, grew 15 percent on quarter.

It has a debt restructuring pipeline of 20 billion rupees so far, Kochhar told reporters, adding asset quality pressures are likely to continue.

Prolonged economic slowdown is impairing borrowers' ability to repay loans. Non-performing loans for Indian banks account for nearly 4 percent of total assets compared with a global average of 2.6 percent, according to Thomson Reuters Starmine. (Reporting by Swati Pandey; Editing by Christopher Cushing)

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Rise in Indian banks' bad loans "unacceptable" - FM

NEW DELHI (Reuters) - The rise in bad loans at Indian banks is "unacceptable," the finance minister said, adding he expects their non-performing assets (NPAs) to come down when the pace of economic growth picks up.

Indian state-run banks' credit growth has been "satisfactory" and is expected to remain so for the rest of the fiscal year, while housing loans have shown a "very healthy" growth, P. Chidambaram told reporters on Tuesday.

A slowing economy has adversely affected the demand for credit and led to a rise in bad loans at Indian banks. Net NPAs to net advances ratio of state-run lenders slipped to 1.8 percent at end-March 2013 from 1.5 percent a year earlier.

Rising bad loans have made banks more wary in lending, impeding the supply of domestic credit.

(Reporting by Rajesh Kumar Singh; Editing by Malini Menon and Anand Basu)

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'CAG/RBI should audit educational loans interest subsidy'

Chennai, Oct 18 (IANS) The Comptroller and Auditor General (CAG) or the Reserve Bank of India (RBI) should audit the manner in which the banks operate the interest subsidy scheme for their education loans, says K.Srinivasan, convenor of Education Loan Task Force (ELTF).

"Based on the complaints received by ELTF, many students have not been getting interest subsidy from many banks. There are bank managers who even fob off the borrowers denying any such interest subsidy scheme," Srinivasan, a former banker, told IANS.

ELTF guides students on rules and regulations governing the education loans offered by nationalised banks.

He said Canara Bank is the nodal agency for setting the bank's claims under the interest subsidy scheme for a fee and it would claim the amount from the human resource development ministry.

Srinivasan said under the interest subsidy scheme, the centre would reimburse the banks the interest due on the loan amount till the end of one year from the date of completion of the course, or six months from the date on which the student lands a job after his course -- whichever is earlier.

The centre would reimburse the interest to those students whose parental income is less than Rs.450,000 per annum, and on loans which are available only for professional and technical courses and not for arts/science, and students of diploma course, Srinivasan said.

Citing union budget documents, he said during 2011-12, Rs.697 crore was allotted for the loan's interest subsidy. Between 2012-13 and 2013-14, Rs.800 crore and Rs.1,100 crore have been allocated.

"I understand the Rs.1,100 crore allocation for this fiscal has already been exhausted," he added.

According to him, the total education loan portfolio for the banking sector as on March 31, 2013, is around Rs.53,000 crore in around 25 lakh accounts.

Under the Indian Bank's Association (IBA) guideline loan repayment could be done over a 10-15 year period.

"But banks force the students to pay within three/five years. With the poor economic situation and the lack of employment opportunities, the students are not able to pay huge monthly dues. The banks then classify the accounts as non-performing and give a negative public image about this portfolio," he said.

Banks also shame the students by pasting their pictures on the branch notice boards when they default on dues.

"We appreciate the interest subsidy scheme, but the way in which the interest subsidy is managed needs to be thoroughly audited by CAG or RBI," said the ELTF convener.

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Bank of America posts profit as fewer loans go bad

By Peter Rudegeair

REUTERS - Bank of America Corp on Wednesday posted a quarterly shareholder profit of $2.22 billion, reversing a year-earlier loss, as fewer loans went bad.

The bank's loan portfolio performed better, but results deteriorated in three of its five major businesses - consumer real estate, commercial and investment banking, and sales and trading.

Chief Executive Brian Moynihan has been struggling to put the bank's legal problems behind it and start building revenue. Excluding gains and losses from changes in the value of the bank's debt, revenue in the third quarter fell 1.5 percent to $22.19 billion.

The second-largest U.S. bank earned 20 cents per share, beating analysts' average estimate of 18 cents, according to Thomson Reuters I/B/E/S.

In the year-earlier quarter, the bank recorded a net loss attributable to common shareholders of $33 million due to accounting adjustments, litigation expenses and tax charges.

In the latest quarter the bank was helped by the improved performance of its loan portfolio. It wrote off $1.69 billion of loans, down from $4.12 billion a year earlier.

With loans performing better and delinquencies falling across all consumer portfolios, Bank of America set aside $296 million to cover bad loans, compared with $1.77 billion in the same quarter last year.

Sales and trading revenue for the bank's fixed income, currency and commodities business, excluding an accounting adjustment, fell by $501 million to $2.0 billion due to lower bond-trading volumes for much of the quarter.

Fixed-income traders were inactive for several weeks leading up to the Federal Reserve's meeting in mid-September in the expectation that the central bank would announce that it was starting to wind down its bond-buying stimulus program.

Bank of America sold its remaining stake in China Construction Bank Corp for $1.47 billion in September, contributing $750 million pre-tax to the bottom line.

Bank of America shares have risen 23 percent this year, in line with gains in the KBW index of bank stocks <.bkx>. The shares were little changed in premarket trading after closing at $14.24 on Tuesday.

(For a graphic comparing the share price performance of BofA, Citigroup and JPMorgan, click http://link.reuters.com/hyj83v)

(Reporting by Peter Rudegeair in New York; Additional reporting by Anil D'Silva in Bangalore; Editing by John Wallace)

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Banks' loans, deposits grow slower so far vs RBI's FY14 estimate

MUMBAI (Reuters) - Banks' loan and deposit growth has been slower so far in the current fiscal year than the Reserve Bank of India's full-year projection, according to data released by the central bank.

Banks' loans grew about 11 percent to 58.46 trillion rupees, while deposits rose 12 percent to 75.64 trillion rupees from March 22 to October 4, data released on Tuesday showed, mainly due to the overall slowdown in GDP growth in Asia's third-largest economy.

The RBI projects loans to grow at 15 percent and deposits by 14 percent in the current fiscal year ending in March 2014.

Banks' investments in government securities rose 12 percent to 22.47 trillion rupees in the same period.

(Reporting by Suvashree Dey Choudhury; Editing by Prateek Chatterjee)

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Retail loans for festive season to be announced soon: Rajan

RAIPUR, India (Reuters) - Reserve Bank of India (RBI) governor, Raghuram Rajan, said the government was in talks with the bank to decide the contours of a package for retail investors for the festive season, which would be announced soon.

Rajan was speaking in Raipur after the RBI's board meeting on Friday.

Indian banks will offer cheaper loans to stimulate demand for two-wheelers and other consumer durables as Finance Minister P. Chidambaram tries to pull the economy out of the worst slowdown in a decade ahead of national elections due by next May.

(Reporting by Suvashree Dey Choudhury; Editing by Subhranshu Sahu)

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