Monday, February 28, 2011

Economic survey 2011: Finally, some bonding with debt market




Short-Sell Govt Bonds

Development of bonds markets, which has been debated for nearly two decades, has got some attention. To develop the market, rules on short selling of government bonds have to be eased, says the Economic Survey . Bond holder rights need to be enhanced by making provisions in the Recovery Act, which is essential for investors to get attracted. The amendment of the Stamp Act to reduce the cost of transactions is also needed for transactions in bond markets to increase.

Better RBI Supervision

A new information management system, through which the Reserve Bank of India can access data from banks directly without manual intervention. This would be possible with banks increasing the implementation of complete banking solutions to as much as 90% by March from 79.4% a year earlier.

Fin Cos’ Overseas Investments

Non-banking finance companies wishing to invest overseas must obtain a no-objection certificate from the department of non-banking supervision of RBI before making such investments. This follows instances of violations by an unnamed NBFC, which invested without proper clearance that’s punishable.

HR Policies At Banks

State-run banks’ ‘daunting’ tasks in the coming years would be managing human resources that would meet customer requirements. “Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service level from banks.”

Credit cards, consumer finance and wealth management will dominate retail banking unlike just deposit-taking and small loans in the past. Private-sector banks are aggressive in luring talent and even the RBI governor D Subbarao had argued for pay rises in state-run banks.

Real Estate Focus

Macro-prudential regulation is essential for every aspect of the financial sector and especially the real estate, the root cause of collapse of many financial institutions in the West. “The advantage of such regulations is that they are concentrated in the targeted segment and are not embedded in the monetary policy so as to spread any negative impact over the entire economy,” says the survey.

Agri Loans Zoom

Banks that are normally reluctant to lend to agriculture were quite liberal. Loans to farmers went past the target by 18% to Rs 3.8 lakh crore in March 2010. More than 90-lakh new farmers were brought under bank lending during the last fiscal. Total loans to the agricultural sector is Rs 4.82 crore. The government’s aggressive push in social welfare schemes has led to vibrancy in rural economies.

Loan Recovery Stalls

Loan recovery by banks under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, or SARFAESI, fell and the gross bad loans in the system rose. Loans recovered and written off during the year was Rs 49,210 crore while total bad loans rose Rs 65,674 crore. Surprisingly, the biggest jump was among foreign banks to 4.3% from 3.8% as their consumer loans to all and sundry backfired.

State Loan Spreads Fall

Loans of state governments were at lower spreads than a year ago, as they borrowed lesser amounts. The spread between 10-year benchmark and an average state loans fell to 32-69 basis points from 45-129 basis points a year earlier. Their gross borrowings fell to Rs 74,104 crore from Rs 1,00,085 crore a year earlier.

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