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RBI hikes CRR, Repo Rates, loans may become dearer

New Delhi, June 24: In what may be described as an attempt to put a check on the spiraling inflation, which zoomed to a record 11.05%, the highest in 13 years last week, the Reserve Bank of India hiked the key rates on Tuesday evening. While the Repo Rate was raised by 50 basis points to 8.5%, the highest since 2000, the Cash Reserve Ratio too saw a 50 basis point increase to 8.75%. Repo Rate is the rate at which RBI lends money to other banks.

The apex bank has said that the CRR hike will be implemented in two stages-the first of 25 basis points will be effective from July 5 and the remaining half from July 19.

Announcement of hiking the rates comes close on the heels of RBI Governor Y V Reddy discussing with Prime Minister Manmohan Singh and Finance Minister P Chidambaram the prevailing inflation scenario.

The RBI’s attempt to suck liquidity from the market by increasing the cash reserve will have a direct impact on the interest rates on home and retail loans, which are expected to rise. While the apex bank described it as a painful measure “forcefully” taken due to rise in oil prices, it also expressed hope that the measure would rein the galloping inflation.

In a precursor to raising the CRR from 8.25 per cent to 8.75 per cent in two installments beginning July 5 and the Repo Rate from 8.0 per cent to 8.5 per cent with immediate effect, Reddy had said on Monday that the apex bank would do every thing to ease the inflationary pressures.

Expressing concern over rising inflation, RBI said, "Besides oil prices there are some underlying inflationary pressures impacting inflation in India."

Tatas to acquire majority stake in South African Telco

New Delhi, June 24: Tata Communication is all set to acquire a majority stake in South African network operator Neotel, in which, currently it holds about 26 per cent stake.

The company has entered into an agreement with two South African Companies -- Eskom and Transnet -- to acquire their 30 per cent stake in Neotel, the second telecom network operator in the Southern African nation.

After the completion of the acquisition Tata Communication along with Tata Africa would have an effective 56 per cent stake in Neotel.

The value of the acquisition was not disclosed by Tatas.

The shareholders of Neotel are Nexus, Communitel and two telecom consortium, the company statement said.

The agreement is subject to fulfilment of certain conditions, some of which have a period of upto six months to be fulfilled.

Banks see lending rate rising by up to 1% on RBI move

New Delhi/Mumbai, June 24: Loans will become dearer for housing, car, personal expenses as well as for industry with banks all set to increase the interest rates by between 0.5-1.0 per cent on RBI's decision to hike its short-term lending rate and mandatory cash reserve for banks.

"Prime lending rate would go up by up to 50 basis points with the hike in CRR and Repo Rate," the country's second largest public sector lender Punjab National Bank chairman K C Chakrabarty said.

"All the loans linked to the PLR like consumer loan, home loan, personal loan are bound to go up. At the same time, deposit rates would also be increased," he added.

The quantum of increase in each segment would be decided by asset liability committee of the bank in the next few days, the PNB chairman said.

United Bank of India CMD P K Gupta said that the banks may have to go in for a hike on interest rates even before the monetary policy scheduled next month.

The quantum of increase will be decided after assessing the situation and the need of the individual banks, Gupta said.

The country's second largest private sector lender HDFC Bank Md Keki Mistry said that if the cost of funding is raised, the bank would pass it on to the borrowers.

"I expect no further action from RBI immediately," he said. HDFC Bank has recently raised its prime-lending rate.

Faced by unrelenting inflationary pressure, RBI today announced hiking its short-term lending rate to banks and their mandatory cash reserve by 50 basis points each with an aim to suck up an estimated Rs 15,000-20,000 crore of liquidity.

While the CRR has been raised from 8.25 per cent to 8.75 per cent in two installments beginning July 5, the Repo Rate has been increased from 8.0 per cent to 8.5 per cent with immediate effect.

Indian Banks Association (IBA) chief M B N Rao said that increase in CRR is justified... Because of inflation being at a high level and the market was somewhat expecting it."

Rao, however, said that with the rise in Repo Rate, it is definitely an indication that if inflation does not come down, the interest rates are likely to go up.

Expressing concern over rising inflation, RBI said, "Besides oil prices there are some underlying inflationary pressures impacting inflation in India."

The banks would wait for some time before increasing home loan rates, said Rao, who is also CMD of public sector Canara Bank.

Bank of Baroda CMD M D Mallya said, "We have to evaluate the situation. The final decision on the rate hike will be taken after the ALCO meeting."

"It is a continuation of the RBI's tight monetary policy and on expected lines," IDBI's chairman and managing director, Yogesh Agarwal told reporters here today.

Describing the hike in both the Repo and CRR as a "drastic signal", Agarwal said that people were talking of an either/or option but the RBI has moved on both.

IDBI would take a call on its lending rates at its ALCO meet "which would meet shortly", he said.

Bank of Baroda's chairman, M D Mallya, said that the CRR hike would result in an outgo of around Rs 50 crore for his bank.

"The RBI's move is aimed at combating spiraling inflation and is a strong signal that money supply would have to be curtailed," he said.

Lending rates across segments would go up, he said, adding that BoB's ALCO meet would meet during this week to review its rates.

Public sector lender, Bank of India's chairman and managing director T S Narayanasami said that with this RBI move, interest rates were clearly headed northwards.

"We will be raising our lending rates," Narayanasami said, adding that "what remains to be decided is the quantum of the raise."

Bank of India would be holding its board meeting on June 30 and a decision on its rates would most likely be taken then, he said.

Another public sector lender, UCO bank chairman and managing director S K Goel of said that the RBI move was aimed at curtailing demand and rein-in the runaway inflation.

"There would be a heavy upward pressure on both short-term lending and deposit rates," Goel said.

UCO Bank's ALCO meet was scheduled for June 29 and the bank might hike its short-term lending and deposit rates by 0.25-0.50 per cent, he said,

"However, we might not alter our Benchmark Prime Lending Rate (BPLR)," Goel said.

Profits seen off more than 10 percent: report
Tuesday June 24, 12:35 pm

NEW YORK - The U.S. corporate profit outlook is deteriorating rapidly, with S&P 500 earnings for the second quarter now seen falling at a double-digit pace from a year earlier, according to Thomson Reuters Proprietary Research released on Tuesday.

Second quarter profits are expected to fall at a rate of 10.2 percent, compared with the Monday estimate for a drop of 9.6 percent. At the end of May, analysts expected a 7.3 percent drop.

A worsening outlook for consumer discretionary and financials was behind the bleaker earnings view.

Soaring gasoline prices and a limping economy have hampered the outlook for consumer discretionary companies such as General Motors (NYSE:GM - News) and electronics retailer Circuit City an Stores (NYSE:CC - News). Among the most recent of major victims reporting impact from soaring crude oil, United Parcel Service Inc(NYSE:UPS - News), the world's largest package-delivery company cut its second-quarter profit outlook citing high fuel costs and a slack U.S. economy.

At the same time, the credit crisis brought on by subprime mortgage failures has left the banking sector searching for new ways to create revenues now that several of their most profitable businesses have been all but shutdown.

The financial sector was hit by heavy selling most recently as Goldman Sachs & Co strategists told investors it had changed its previously positive view to "underweight" for U.S. financial, while also giving a negative outlook for consumer shares, saying weakening consumer demand and deterioration in the credit markets will weigh on profitability.

UPS's announcement came just a week after main rival Memphis-based FedEx Corp (NYSE:FDX - News) posted a quarterly loss and gave a weak profit outlook for its fiscal 2009. The two companies are seen as bellwethers of the U.S. economy due to the large volume of commercial and consumer goods they transport

Idea buys Spice to gain market share

New Delhi, June 25: In a major consolidation in the country`s booming telecom sector, Idea Cellular the fifth-largest mobile operator in terms of subscribers will acquire B K Modi-owned Spice Group`s 40.8 per cent stake for Rs 2,716 crore.

Idea would acquire the stake at Rs 77.30 a share. In the late afternoon trade, Idea shares were trading at Rs 101.70, up 2.57 per cent while Spice Communication shares were up 32.75 per cent at Rs 72.15.

The deal would catapult Idea Cellular`s market share to 11.1 per cent and more importantly would get the crucial spectrum on 900 mhz band.

Spice currently operates in two circles of Karnataka and Punjab and has been allotted a license for operations in four more circles including Andhra Pradesh, Tamil Nadu, Delhi.

The Birla Group company today said it would merge Spice with itself through a share swap where spice shareholders would get 49 Idea shares for every 100 Spice shares held. It will also pay an additional Rs 544-crore as non-compete fee.

The long-drawn acquisition give Idea straightaway two existing circles of Punjab and Karnataka with a subscriber base of 4.4 million.

Idea is present in 11 circles and has a customer base of over 26 million.

India, the world`s fastest-growing mobile services market and the second-largest market after China, has lured foreign firms like Vodafone and Maxis. The partner of Spice Communications Telekom Malaysia would now be a significant shareholder in the company, Idea Cellular Chairman Kumar Mangalam Birla said.

Idea along with TMI would now make an open offer for additional 20 per cent stake in spice at the same price in which idea has bought B K Modi`s Spice Group`s share.

Idea would also make a preferential allotment to TMI for 15 per cent stake in the merged entity. "Idea will make a preferential allotment to TMI of 464.73 million equity shares at a price of Rs 156.96 a share representing 14.99 per cent of idea`s equity capital post allotment," an Idea statement said.

In Spice Communications, TMI held 49 per cent which translated into a five per cent corresponding stake in the merged entity. When preferential offer would be complete, the stake of TMI in the merged entity would be 20 per cent.

"Idea will benefit operationally by leveraging synergies with TMI which will be a significant shareholder of our company," Birla said.

"The strategic move travels beyond Punjab and Karnataka. By the end of the year, the Idea Yellow would increasingly colour the Indian landscape," Idea Cellular Ltd Managing Director Sanjeev Aga said.

The Deal brings synergistic benefits for Idea as Idea Cellular said, "the company would consolidate its position with its all-India subscriber market share increasing from 9.5 to 11.1 per cent.

India has 269.30 million wireless users at end-April, up 57 per cent from a year earlier, according to the Telecoms regulator. Idea Cellular currently operates in Andhra Pradesh, Delhi, Gujarat, Haryana, Himachal Pradesh, Madhya Pradesh, Chhattisgarh, Maharashtra, Goa, Rajasthan and UP.

According to Trai figures, Idea Cellular, has a 12.72 per cent of the Indian GSM telecom market. It added 1.1 million customers in May to take its total subscriber base to 26 million at the month-end. The total GSM subscriber base climbed up to 205 million users by May end.

SBI & Union Bank take lead, up PLR by 50 bps
27 Jun, 2008, 0333 hrs IST,
MUMBAI: The country’s largest bank, State Bank of India (SBI), and Union Bank have taken the lead among PSU banks to raise lending rates by 50 basis points following the hike in repo rate and cash reserve ratio.

SBI has increased its prime lending rate (PLR) to 12.75% from Friday while Union Bank has raised its rate to 13.25% from July 1.
Union Bank on Thursday also raised deposit rates by 25-100 bps.

SBI officials said they do not plan to hike deposit rates at the moment since rates were raised a month ago. “But we don’t have a closed mind. If the need arises, we may revise rates,” an official said.

Other banks may also be preparing for the inevitable. The asset liability committee of Punjab National Bank is set to meet on Friday, while the panels of Bank of India and Kotak Mahindra Bank will meet on Monday.

Canara Bank on Thursday said it would examine market conditions before taking a call on revising interest rates. “Banks should consider whether they can absorb the impact of the CRR and repo hikes instead of passing on the burden to customers,” Canara Bank CMD MBN Rao said, adding the bank’s liquidity position was comfortable.

“A 0.5% hike in repo rate need not necessarily translate into a 0.5% hike in lending rates,” he said.

Taking a cue from SBI, small and mid-sized banks are expected to increase lending rates within a week.

Most banks may raise rates by 50 bps

Sources said most banks are likely to raise the lending rates by 50 bps. Among bigger banks, Bank of India, Bank of Baroda and Canara Bank’s PLR stands at 12.75%, while PNB’s rate is 12.5%.


Many other PSU banks are charging 13.25%. Over 70% of loans are given at sub-PLR rates—a negotiated rate between the borrower and the lender which is below a bank’s PLR.

Since most loans are disbursed at a floating rate linked to the PLR, existing corporates and retail borrowers will have to pay a higher interest rate on loans. In case of SBI, about 15% of loans are fixed rate while 85% are on floating rate.

Most PSU banks had reduced lending rates by 50 basis points in February after the FM called upon them to lower lending rates.

Meanwhile, Union Bank will continue to offer 9% for 400-day deposits. It has, however, hiked rates for all other maturities. It will offer 7.5% for deposits more than 180 days and less than one year against 6.5%. For 399-day deposits, it will offer 8.75%. From 400 days to three years and above, the bank will now offer 8.75%.

N-deal fallout: Prepare for polls, says Sonia

New Delhi, June 28: With the political reality dawning on the Congress that it can either save the Indo-US nuke deal or the UPA government, its president Sonia Gandhi on Saturday asked Congressmen to prepare for general elections. The latest decree from Sonia clearly indicates that the party is willing to risk elections – even when inflation is skyrocketing – but ‘cannot’ put Prime Minister Manmohan Singh’s reputation on the table.

Sonia’s call for preparing for elections came during a meeting convened by her of top party functionaries. And, going by the stand taken by her, it seems the party has taken the 'political call' on the N-deal issue – they will go forward with it.

Interestingly, the nuke deal issue did not figure on the agenda during the hour-long discussions.

"The issue has already been discussed at two working committee meetings," a senior leader said, indicating that no further discussion was required at the party level on the nuclear deal.

On poll preparedness, Sonia Gandhi directed senior leaders to draw up time-bound programmes and strategies to re-energise the party in all states.

The Congress president also assigned tasks to party general secretaries and incharges of states asking them to organise the party "everywhere" at all levels for five assemblies and the next Lok sabha elections.

"This meeting was about poll preparations. The Lok Sabha elections were also discussed, the party has to get ready for polls and everybody has been asked to draw up programmes and submit the same at the next meeting," AICC general secretary Janardan Dwivedi told reporters here.

The Congress president has given partymen a time-table for building the party at all levels, Veerappa Moily, chairman of the AICC Media Cell said.

Though the UPA constituents strongly favour the nuclear deal, they hold almost equally strident views against holding of early elections.

As prices of essential commodities continue to rise, the situation is no different in the Congress party and not many favour early polls. A section of the party leadership also feels that nuclear deal is not an issue to fight elections.

Gandhi has been holding informal consultations with partymen on the issue before convening a meeting of general secretaries today.

The report of the A K Antony committee set up to suggest ways and means to revitalise the party also came up for discussion. However, details of which are yet unknown

A senior party leader said that the government was facing a "warlike situation" on the economic front indicating that it would not be a wise decision to go for elections now.

There was talk about Gandhi expected to begin consultations with groups and sub-groups of the Congress Working Committee, instead of convening a meeting of the top decision making body of the party.

N-deal: Left unmoved by PM’s ‘will go with Parliament’ offer

New Delhi, June 30: Prime Minister Manmohan Singh's offer to come to Parliament before operationalising the Indo-US nuclear deal did not cut much ice with the Left parties today, which said they would withdraw support the moment it goes ahead on the agreement.

The common refrain of the four Left parties -- CPI(M), CPI, RSP and Forward Bloc -- was that there was "nothing new" in Singh's statement and that he was trying to present a "fait accompli" before the parliament by pleading for permission to complete negotiations with IAEA and NSG.

In the morning the Prime Minister Manmohan Singh broke his silence over the nuke deal imbroglio saying there was nothing new in Left’s stand. Later in the day, it was the turn of Left to hit back- that too in the same coin. CPM’s Sitaram Yechury said, “There is nothing new in what the PM has said.”

Singh told senior journalists here that he was only seeking a nod to go to IAEA and NSG and after all processes are completed, he would come back to Parliament to get its approval before operationalising the agreement.

Reinstating the Left Front’s stand on the civil Indo-US nuclear deal, Yechury said they will pull out support from the UPA is t he Govt went to IAEA. “Our decision is final,” he added.

Earlier in the day, Prime Minister Manmohan Singh played down the Left’s threat to withdraw its support by saying that there is “nothing new” in the Left’s stated position. The PM also hoped that government is able to work out an arrangement taking into account all concerns adding that he was willing to face Parliament before operationalising the deal.

Undoubtedly, a crucial week lies ahead for the UPA government, as the standoff between the Congress and Left continues.

With the Left on Sunday threatening to withdraw its support from the government, Prime Minister Manmohan Singh clarification today indicates that the government will go ahead with the deal -something he sees as one of his most important diplomatic achievements.

With time running out for the deal to be approved before US President George W Bush leaves office, there are increasing signs that the Congress wants to go ahead with the deal even if it leads to the collapse of the UPA coalition and early elections.

Govt didn't reveal all on nuclear deal: CPM

"At the UPA-Left Coordination Committee meeting in October-November on the deal, what was stated by the government side did not represent the whole truth. They did not say at that meeting that it was mandatory for the government to go to the IAEA as it is saying now," CPM Politburo member and party's state secretary Biman Bose said.

"This showed that certain things were not disclosed to the Committee," Bose told reporters after the ruling Left Front meeting.

"The Manmohan Singh government did not do the right thing."

The Left coordination Committee, Bose said, would be meeting in Delhi on July four to take stock of the situation.

"The meeting can be held a day earlier," he said. Before that meeting, Bose said, the CPM would hold consultations with the Left parties.

The meeting had already been held with the CPI, he said, adding the CPM-Forward Bloc meeting of central leaders was likely on Monday.

"Our meeting with RSP is likely tomorrow". The CPM leader said that the UNPA would meet in Delhi on July three.

The CPM leader said that at the Left Front meeting he had briefed the partners on the CPM Politburo decision on the nuclear issue that general secretary Prakash Karat had explained in Delhi on Sunday.

Criticising the Centre, Bose said, "Instead of being serious about tackling price rise and high rate of inflation which is a 13-year high, the Manmohan Singh government is busy pushing the nuclear deal.

"This is not good for the country, or for the government and Congress party."

Bose said that the Left parties had decided to organise campaigns against the UPA government's failure to arrest price rise and inflation.

"The government has been ignoring vital issues like countering growing communalism in the country. This has led to the growth of such forces in Karnataka, MP, Rajasthan and some other states," he said.

"By its inaction, the UPA government has been helping the communal forces to grow," the CPI-M leader said.

Idea offers to buy 20% stake in Spice

Mumbai, June 30: Aditya Birla Group firm Idea Cellular on Monday made an open offer to the shareholders of Spice Communications for acquiring additional 20 percent stake in the telecom services provider for about Rs 1,066.63 crore.

Idea Cellular along with Persons Acting in Concert (PACs), including Telekom Malaysia International (TMI), TMI Mauritius, TM International Berhad and Green Acre Agro Services have made the open offer for a further 20 percent stake in Spice Communications.

Idea cellular along with the PACs have made the open offer for acquiring up to 137,985,050 equity shares representing 20 percent of the paid-up equity share capital of Spice Communications at Rs 77.30 each.

The open offer would start on August 22, and would close on September 11, the company said in a filing to the Bombay Stock Exchange.

Earlier on June 25, Idea Cellular, the fifth-largest mobile operator in terms of subscribers, said it would acquire 40.8 percent stake in B K Modi-owned Spice Group for Rs 2,716 crore.

The deal would catapult Idea Cellular's market share to 11.1 percent and more importantly would get the crucial spectrum on 900 mhz band.

The Birla group company had said it would merge Spice with itself through a share swap, where spice shareholders would get 49 Idea shares for every 100 Spice shares held. It would also pay an additional Rs 544 crore as non compete fee.

The long-drawn acquisition would give Idea straightaway two existing circles of Punjab and Karnataka with a subscriber base of 4.4 million.

In the morning trade, Idea shares were trading at Rs 97.10, down 0.36 percent, while Spice communication shares were up 0.62 percent at Rs 72.50.

SBI ups interest rates on home loans

Ghaziabad, June 30: Home loans and auto financing from public sector State Bank of India would be dearer as the lender has decided to hike interest rates by 50 basis points on all credit linked to Prime Lending Rates.

Speaking at a function here on Monday, State Bank Chairman-cum-Managing Director O P Bhatt said the bank has decided to raise the interest rate by 0.5 percent on all loans such as home loans and auto loans which are linked to PLR.

The revision in PLR came after SBI raised its PLR from 12.25 percent to 12.75 percent last week following Reserve Bank's increasing its key short-term lending rate to banks and the mandatory cash deposits that banks need to keep with the apex bank (CRR) by 0.5 percent each.

Referring to the impact on bank's profit margins, Bhatt he hoped to maintain the net interest margin at 3 percent this fiscal.

SBI had earlier announced to hike interest rate on fixed deposit rates by up to 75 basis points effective from June 30.

State Bank of India in which government has about 60 percent stake is targeting 40 percent growth in non-interest income in 2008-09, compared to 28 percent last fiscal.

The bank had lowered its PLR twice in February to 12.25 percent but decided to raise by 50 basis points last week.

"The net profit of the bank is likely to be affected next quarter though there is not much on first quarter profits ending today," he said.

He also indicated the bank is expected to set aside at least USD 10 billion to provide for depreciation in