Global meltdown affects banks in Bric nations

Banks globally have found their bottoms ripped off by the global meltdown Bank in emerging economies have have also suffered. It has, in fact, been an eye-opener for these countries’ banking fraternity.

ICICI whose market capitalisation fell by8.6% and HDFC Bank,which fell by 6%, were among those Indian firms listed on American bourses that incurred loss to the tune of $10 billion during the past one week alone. Now the most important lesson to be learnt for the Bric countries’ banking community is be conservative in that follow strict rules while disbursing sub-prime loans and have thorough due diligence before finalising the loans. Another message for these countries from the US credit crunch may be to go aggressively for mutual cooperation.

Yet another major positive development for highly populous countries like India and China can be focus more attention to the domestic consumerism and generate more employment to their skilled youth which is coming up in the form of demographic dividend.

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Fearing meltdown, Fed bails out American International Group Inc with $85-billion package

The US government took control of American International Group Inc (AIG) in an $85-billion bailout to prevent the bankruptcy of that nation's biggest insurer and the worst financial collapse in history. The Federal Reserve will provide a two-year loan, take 79.9% of the New York-based company's stock and replace its management because " a disorderly failure of AIG could add to already significant levels of financial market fragility",according to a statement by the US central bank late on Tuesday.

The dollar fell against the yen as the Fed's bailout of AIG failed to quell concern that credit losses will deepen. AIG unravelled as the worst housing crisis since the Great Depression led to more than $18 billion in losses over the past year. A meltdown could have cost the financial industry $180 billion, according to RBC Capital Markets, because AIG provided insurance on more than $441 billion of fixed-income investments held by the world's biggest institutions, including $57.8billion in securities tied to sub prime mortgages.

The government is lending AIG the money at 8.5 percentage points above the three month Libor, or a current rate of about 11.5%.

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Rupee slide persists

The rupee fell the sharpest in a decade on speculation that the trouble on Wall Street would lead to emerging-market asset sell-offs by jittery global investors.The currency hit its lowest level against the dollar in more than two years. The Sensex also fell for a sixth day in tandem with equity markets world wide. It lost a marginal 12.47 points to end at 13,518.80, heading for its first annual loss since 2001.

The rupee may come under more intense pressure as FIIs continue to hawk Indian equities. The Indian currency ended at 46.89/90 against the dollar, off a trough of 46.99-its lowest since July 24, 2006-as banks arbitraged with a weaker overseas market. Dealers suspected RBI intervened to halt the slide just short of 47 against the greenback. JPM organ forecasts the rupee to drop to 47 by the end of the year. The rupee was the second biggest loser among the ten most active currencies in Asia outside Japan on Tuesday.

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Finance Minister calls for banking reforms to push financial inclusion

Union finance minister P Chidambaram made a strong plea on Thursday to let the stalled banking reforms proceed in order to make financial inclusion a reality for India’s poor. Speaking at a top-notch gathering of India’s bankers, industry leaders and politicians at The Financial Express Best Banks Awards, the minister pitched for the passage of the Banking Regulation (Amendment) Bill, 2005 to make the voting rights of shareholders in private sector banks equal to their voting shares. Currently, voting rights of the shareholders are capped at 10%, irrespective of their actual holding.

“A bill is pending in Parliament on just this one clause,” Chidambaram said, adding the bill to amend the Banking Regulation Act of 1949 could go through Parliament within the tenure of this government if the national level bank unions and the bank managements were to hold deeper dialogue to remove misapprehensions. “What is missing is communication between the management (of banks) and the unions at the national level,” said Chidambaram.

The minister’s eloquent appeal in his speech made a deeply persuasive case as to why banking reforms was critical for India. He said the passage of the banking regulation bill will not impact the ownership pattern of public sector banks, as it was applicable only for private sector banks. Chidambaram said financial inclusion can be a reality in five years if banking reforms were pushed. Four years ago, the term “financial inclusion” was not popular.

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Indian Oil Corporation plans Rs 80k crore war chest

Indian Oil Corporation is preparing a war chest of Rs 80,000 crore to fund a major acquisition in the exploration & production (E&P) sector. The country's largest oil refining & marketing company will ask its board to approve a doubling of its borrowing limits on Tuesday.

IOC can currently borrow up to Rs 20,000 crore from the domestic market through loans and credits, besides foreign currency loans of up to Rs 18,000 crore ($4,500 million). The company's paid-up capital and free reserves, as on December 31, 2007, works out toRs41,341crore.

"IOC keeps exploring the possibility of acquisition, particularly in the field of E&P. The additional funds (following the increase in borrowing limits) may also be required in case of (any) acquisition," states an IOC note for consideration by its board. IOC holds E&P assets in Libya, Gabon, Iran and Nigeria."It is on the look out for an oil producing company, mainly in Africa or in CIS countries," said a senior company official.

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Rs 10k-Crore Farmers Debt Fund Set Up

The UPA government on Wednesday set up a Rs 10,000 crore Farmers' Debt Relief Fund as the first allocation to its debt waiver scheme. The sum was part of the Rs 43,059-crore cash expenditure of the government in the third supplementary budget for 2007-08, tabled in Parliament by finance minister P Chidambaram.

A banking industry official involved in the policy told FE that farmers who repaid their outstanding agriculture loans in January and February this year would also be eligible under the Rs 60,000-crore debt relief programme. They will be clubbed with farmers that have taken loans before March 31, 2007 but were defaulters as on December 31, 2007 and continue to remain so.

However, farmers who repaid their outstandings prior to December 31, 2007 would not qualify for any refund or incentive. But sections of bankers have urged the government to offer incentives to those who have repaid their debts.

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