Kotak fears bad loans may put pressure on bank margins

HDFC Bank, ICICI Bank and IndusInd Bank are expected to be among the better performing banks in the private sector, and SBI, Bank of India and IOB among PSU banks, according research by Kotak Institutional Equities

A recent report released by Kotak Institutional Equities (Kotak) has highlighted that the performance of the Indian banking sector this quarter would largely depend on banks ability to restructure loans. The report said, "Large-ticket restructuring (primarily of SEB loans) will be the key highlight of the quarter for public banks. Recovery trends for banks are likely to be mixed. Overall earnings growth is likely to be driven by State Bank of India and large private banks." It expects HDFC Bank, ICICI Bank and IndusInd Bank to be among the better performing banks in the private sector, and SBI, Bank of India and India Overseas Bank among Public Sector Unit (PSU) banks. It expects private banks' earnings to grow by 23% year-on-year (yoy)

One of the key issues that banks face today is the quantum of toxic loans that they are sitting on, especially the PSU banks. It has been a recurring issue for quite some time, but now the problem has grown by leaps and bounds. One area of particular concern is the inability of State Electricity Boards (SEBs) to pay off their debts. It is reported that they're sitting on Rs300 thousand crore of losses and bad loans combined - not a small number by any means. It is also a big number for banks to start pulling up their socks. According to the report, "We expect banks, specifically PSU banks, to report higher restructured loans as they complete select SEBs that were pending to be restructured (only 35% of the overall SEB exposure was restructured in 4QFY12). Select mid-corporate restructuring is likely to continue, as corporate balance sheets continue to remain under stress." However, it is a different story for private sector banks as their exposure to SEBs is minimal though their exposure to retail assets is significant.

One of the more important metrics for banks is net interest margins, which is an indicator of profitability and health of the banks. Ability to maintain NIM at these levels is becoming difficult for banks as downward re-pricing of loans has begun while the same is yet to begin for retail deposits, said the report. In other words, as banks restructure their loans (i.e. make it easier for SEBs or potential defaulters to settle loans) their income get revised downwards in form of lower interest rates charged for restructured loan. When the Reserve Bank of India (RBI) cut interest rates, so too will deposit rates go down. However, there is a time lag before deposit rates reflect underlying interest rates. Thus in the interim, which is to say the current quarter, the banks are likely to face margin squeeze. Even more so, it is learnt that banks are resorting to short-term borrowings, or repo, to manage the shortfall between deposits and loans, wherein the latter is more than the former. This increases the costs of funds and results in higher cost, but not much. Nevertheless, Kotak expect net interest margins to remain stable.

A weak economy has taken a toll on banks' fee income, which is their core business. The report said, "We expect overall non-interest income to grow 20% yoy (14% qoq decline) primarily on the back of higher contribution from treasury income. Core fee income growth would be muted primarily due to weak business activity."

The infrastructure vertical, as expected, has taken a hit due to policy paralysis, red tape and poor implementation. The report stated, We note that there is a visible slowdown in the growth to the infrastructure vertical. As of May 2012, overall loans to infrastructure grew 13% yoy as compared to overall loan growth at 17-18% yoy". The bottom-line is that it will be tough for banks to make good profits for a sustained period of time. Unless there is a fillip to economic activity and a consolidation in the banking sector, it will be difficult to play the sector for the medium term.
 

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Axis Bank ties-up with Xpress Money for mobile fund transfer

Under the tie-up, people can send money through any agent location of UAE Exchange and Financial Services called Xpress Money to a registered mobile number in India

 

Mumbai: Private sector lender Axis Bank said it has entered into a tie-up with UAE Exchange and Financial Services to launch inward remittances through mobile.

Under the tie-up, people can send money through any agent locations of UAE Exchange and Financial Services called Xpress Money to a registered mobile number in the country, the bank said in a statement issued.

Xpress Money has 1.35 lakh agent locations operational in 125 countries.

The recipient has to register at any Axis Bank branch once and can withdraw the money sent from any Axis Bank ATMs with the help of codes sent to their registered mobile number, the statement said.

“This solution will help customers eliminate the need to visit physical agents and provide documentation every time they receive a money transfer,” the bank's president and head of treasury and international banking P Mukherjee said.

A beneficiary can receive a maximum of 30 transactions in a calendar year and the maximum amount one can receive is presently capped at Rs18,000, per remittance transaction, it said.

Meanwhile, Federal Bank, also announced a tie-up with Saudi Arabia-based Samba Bank for inbound remittances which can be collected by the beneficiary through any of the bank's 976 branches in the country, it said in a statement.

This is the 68th such tie-up the bank has stitched with financial institutions in the Gulf region having significant population from the diaspora, it said.

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SBI launches eFile service for filing I-T returns

For salaried individuals the fee starts as low as Rs150, inclusive of taxes, which can be paid by the customer through SBI internet banking or debit card, SBI said

 

New Delhi: State Bank of India (SBI) launched a new service that will facilitate filing Income Tax returns online, reports PTI.

This service is currently available only to the bank's customers, at a discounted price, SBI said in a statement.

For salaried individuals the fee starts as low as Rs150, inclusive of taxes, which can be paid by the customer through SBI internet banking or debit card, it said.

“Considering that it is mandatory for individuals earning an annual income in excess of Rs10 lakh to file their returns online from the current financial year, there is a growing demand for online tax filing services which SBI is trying to meet and provide for its customers through its eFile service,” it added.

Apart from salaried individuals, the service is available to individuals who are self-employed, professionals, etc., it said.

For a higher fee, it said, the facility provides enhanced features such as professional review, tracking of tax refund, an online tax vault to store and access tax related documents, online filing using digital signature etc.

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