Auction Sale of Properties by Indian Bank - December 2009

A Cry For Help &Credit Consumers Association of India 's Response

A cry for help and our response 

November 24, 2009

by vinodchand 

Dear Mr. Kambli
I read about you in one of the news papers and was really happy to know that someone is voicing against these MNC banks who are charging exorbitant ROI and really sucking the blood of poor middle class who is un organised.

RBI has also added to woes of middle class by creating CIBIL which will again hamper the middle class only. One really wonders why these banks need any protection when they are charging such a high rate of intrest.

The govt of India is also hand in glove with these banks as nothing is done against the recovery agents of these banks.CIBIL must be banned as it will kill the middle class in long run.

I have lost my job due to recession and now finding it very difficult to pay back as the amount is huge and there is no regular income for me and a family to look after. These cards have really messed up my life and I am totally frustrated . I have already informed all the credit cards co about the settlement but HDFC and ICICI bank are trying muscle power.

what is way out of this if you could guide me on this that will be a great help and what is right amount one can pay towards full and final settlement I am pursuing them for 30% of the total outstanding towards the full and final settlement as that s all i can manage at this jucture.looking forward for your response.

Regards
Jai

Our Response

Dear Sir,

Many thanks for sharing our concern vis-a-vis foreign and indian private banks. These banks are the modern version of Shylock.

Banks get protection because they are cleverly using the SYSTEM from the inside. They have deep pockets which are being used to grease some palms at the right places, common man be dammed.

Someone aptly defined a banker as a person who will lend you his umbrella while the sun is shining and take it away the moment it begins to rain! Our bankers are no different, they are indeed fair weather friends unless the sum involved runs into thousands of crores in which case they will give you still more in the hope of protecting their earlier exposure.

We empathize with your loss of job and the fact that credit cards have made your life miserable. Using credit cards is one of the worst thing that one can do in a crunch situation, it is better to borrow from friends and relatives to help you tide over tough times. But then often our ego gets the better of us.

We agree that CIBIL will systematically destroy the middle class and the banks will then have no one to lend to. The banks will not lend to the poor because they do not have the repayment capacity, the rich will not borrow and the middle class would have been made in-eligible by CIBIL!

A settlement of 30 to 40% can be negotiated for stressed assets. In your case too, take time to find out your principal outstanding with the banks(the amount you have actually spent, minus the interest, late fees, penalties, etc.). Banks will normally agree to settle on this amount.

If harassed or threatened, please approach your nearest police station and file a criminal complaint of intimidation against the person/ persons/ organizations that are indulging in this.

Please do not hesitate to write to us or call us for further help.

Regards

Vinod Chand
General Secretary
Credit Consumers Association of India

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Indian Banks' Exposure To Dubai

 November 30 2009, 11:46:


 MAHRUKH ADAJANIA & SREEKANTH AKULA, NOMURA ASIA RESEARCH

This note highlights the exposure of India banks to Dubai.

Bank of Baroda's exposure to Dubai accounts for 2% of its
total assets and 7% of its international assets.
For all other large banks exposure is not significant.

Summary

Except for Bank of Baroda,
no bank has provided quantitative details of its Dubai exposures.
Among non-banks, Kotak Mahindra Bank has insurance policies
generated from Dubai, runs an offshore mutual fund and has
 other investments and broking revenuescoming out of Dubai.

ICICI Bank

ICICI Bank management provided the following details
• Loans for the UAE region are booked at the Bahrain branch.
The Bahrain balance sheet is US$6bn. Separate Dubai exposure is
not available.
• Non-India corporate exposure in Dubai is not material.
• India exposure to Dubai is with recourse to the parent’s balance sheet.
• The bank does not see any material impact from the current environment.

Valuation Methodology:

We value ICICI Bank's core business at 1.7x P/BV FY11F.
 We have valued life insurance at 20x one-year forward
 new business profit, asset management at 7% of equity
funds and 2% of debt funds, ICICI Ventures at 18x one-year
 forward earnings, general insurance at 10x one-year
forward P/E, ICICI Securities at 18x one-year forward P/E
and I-Sec PD at 5x one-year forward P/E. We have applied
a 15% subsidiary discount to arrive at our final
consolidated subsidiary value.

Risks Which May Impede the Achievement of the Price Target: 

Upside risks to our estimates from faster-than-expected growth:

 we build in 5% loan growth for FY10F and 15% for FY11F.
We believe the bank could review its strategy of slow growth
 in certain segments, especially mortgages if there are
favourable policy changes, such as tax sops in the budget.
Downside risks to our earnings estimates: slower-than-expected
 economic growth, a rapid rise in bond yields owing to rising
fiscal deficit and increasing global stress that will hurt ICICI's
international book, are key downside risks to our estimates.

State Bank of India

SBI only has a representative office in Dubai.
The bank was granted a full-fledged banking license
 at end-September 2009. It is trying to build out
business and has no significant exposure to Dubai yet.

Valuation Methodology:

 We value SBI using a sum-of-the-parts (SOTP) valuation,
 valuing the banking and non-banking businesses separately.
 Our 12-month price target of INR2,590 for SBI comprises
 INR2,356 for the banking business and INR231 for subsidiaries.
Our price target for the core bank is derived using a target
RoE of 17.1% and CoE of 12.0% arriving at a multiple
of 1.8x P/BV. Our fair value of INR231 for the subsidiaries
 comprises insurance and asset management business.
We have valued life insurance at 18x oneyear
forward NBAP (New business acheived profit).
We have valued SBI's asset management business
 at 3% of debt funds and 7% of equity funds.

Risks Which May Impede the Achievement of the Price Target:

 A faster than expected rise in rates or slower than expected
loan growth are key risks to our ratings and price targets
 for Indian banks.

Bank of Baroda

• BoB's total exposure to Dubai is US$833mn or
INR40bn, which is 7% of total international
assets and 2% of total assets as of September 2009.
 Total exposure to UAE is INR100bn or US$2bn.
The numbers provided by management are lower
than street estimates.
• BoB's exposure to Dubai World is US$200mn and
the first repayment is due only in 2011 and the
next one in 2013.
• Over and above Dubai World, BoB has an exposure
 of US$120mn to other Gulf properties. We estimate
that at least 60% of this would be to Dubai.
• BoB does not have exposure to Nakheel.
• The exposure to both Dubai and UAE is diversified
between local and trade finance exposure but no
 proportion has been made available.
• The gross NPLs on the total Dubai balance sheet
are low at 0.3% and net NPLs are zero.
• All property exposures in Dubai are standard
 accounts as of now.
• BoB stopped lending to Dubai real
 estate 1.5 years ago.
• BoB has said that it will revert on the size
 of the Dubai balance sheet.
• Other than Dubai, BoB has exposure to other Emirates
nations, including the Abu Dhabi government.
• UAE operations account for 12% of BoB's earnings but
the proportion of earnings from Dubai is not known.

HDFC

• HDFC has a representative office in Dubai
 to finance India property. HDFC does not have Dubai exposure.

Valuation Methodology:

 We value the core business at INR1,264 and
subsidiaries at INR702, which gives us our
consolidated fair value of INR1,970.
 We have valued the core business on a sustainable
 RoE of 22.9% and CoE of 11.4%, which yields a P/BV multiple
of 3.2x. We have valued life insurance at 18x FY11E NBAP.
 We have valued HDFC’s stake in its asset management company
at 7% of equity funds and 2% of debt funds.

Risks Which May Impede the Achievement of the Price Target: 

(1) Subsidiary valuations have moved up sharply in the
recent past, driven by strong business performance.
 In our valuations, HDFC's subsidiaries account for
more than 30% of the fair value. Hence, stronger-than-expected
performance by the subsidiaries could provide upside to our
valuation. The two largest subsidiaries are the life
insurance business and HDFC Bank. We estimate taht a
life insurance premium CAGR of 58% over FY07-FY10,
compared with our current assumption of a 48% CAGR,
would add INR50, or 2%, to fair value.

(2) Continued strong performance in a period of
prolonged sector weakness would warrant a premium,
 in our view. (3) The current strong performance
 has likely been driven by HDFC's ability to deliver
in a severely weak mortgage market in the past
two quarters. If the housing market were to witness
prolonged weakness in the
next quarters as HDFC sustained its growth rates,
we believe the market would likely ascribe a premium
 to the franchise value of HDFC, which is a potential
upside risk too.

Axis Bank

• The Dubai balance sheet is 1.3% of Axis
 Bank’s total balance sheet.

Other banks operating out of South India,
 such as Federal Bank and South Indian Bank,
could be sourcing a lot of their deposits from
Dubai.

Valuation Methodology:

We value Axis Bank at 2.5x P/BV FY11 (sustainable
RoE of 19.4% and growth rate of 7%).

Risks Which May Impede the Achievement of the Price Target:

 A faster-than-expected rise in interest rates and higher
delinquencies are key risks to our rating and price
 target for Axis Bank.

RBI WILL ASK BANKS TO PROVIDE DETAILS OF THEIR DIRECT AND INDIRECT EXPOSURE TO DUBAI

NOV 30, 2009



The Reserve Bank of India (RBI) on Friday said it would
 ask banks to furnish details of their direct and indirect
exposure to Dubai World, the beleaguered Dubai government-owned
 holding company which asked for more time to repay its debt.

While RBI played down the issue, it emerged that Bank of Baroda (BoB)
had an exposure of around $200 million (Rs 928 crore at Friday’s rates)
to Dubai World, a senior bank executive said. “The amount is due for
 repayment only after 2011. It is paying interest and there are no
overdues. So, we have absolutely no immediate concern,” a senior
bank executive said.

The bank’s total exposure in the United Arab Emirates (UAE)
 was estimated at around Rs 10,000 crore, of which, the share
 of Dubai was around Rs 4,000 crore, the executive said.
Though the public sector player had an exposure of
 around Rs 600 crore to real estate companies in the UAE,
 the executive added that the lender was not exposed to Nakheel,
 Dubai World’s real estate arm, which has borne the brunt of an
almost 50 per cent drop in real estate prices.

Investors reacted negatively to news of BoB’s exposure to Dubai
 World. The bank’s scrip fell 4.64 per cent on the Bombay Stock
Exchange (BSE) to close the day at Rs 521.40.

Axis Bank, ICICI Bank and Indian Overseas Bank (IOB), among others,
 have exposure to companies operating in Dubai and the UAE.

While IOB said its exposure was to the tune of $15-16 million
(around Rs 70 crore), a senior executive at Axis Bank said the
 lender had an exposure of less than $10 million (around Rs 46 crore)
to the Dubai arm of an Indian real estate developer,
 “but no significant exposure otherwise”.

When contacted, a spokesperson for ICICI Bank said,
“ICICI Bank has no material non-India linked
exposure to Dubai companies.”

A senior Bank of India executive said the public sector
player neither had branches in West Asia, nor and any direct
exposure to real estate companies in the region.

It had two Indian clients with interests in real estate
and construction in Dubai. The total exposure to these
companies, whose names he refused to disclose, was pegged
at $21 million (around Rs 100 crore). “These are performing
assets and we do not expect much problem in repayments,” he added.

“We will ask banks to furnish the details regarding their
 exposure in Dubai World,”
RBI Deputy Governor Shyamala Gopinath told reporters in Ahmedabad.
RBI Governor D Subbarao said, “We should not react instantly.
 We must first study the development and measure the strength
of the problem,” when asked about the impact of
the developments in Dubai on India.

KPMG TO REPRESENT BANKS WHO LENT MONEY TO DUBAI WORLD

DEC 1, 2009



Banks who lent money to Dubai World, the debt-laden
 state investment group, reportedly plan to appoint
auditors KPMG to represent them in talks over recovering
their money.

British newspaper The Independent reported that
the banks include HSBC, Royal Bank of Scotland,
 Lloyds Banking Group, and Standard Chartered.
The banks’ total loans to Dubai World
 exceeds US$ 30 billion.

It added that KPMG will be formally appointed
once the creditor banks have created a steering
committee comprising five or six of the main
lenders to lead the negotiations.

KPMG was not immediately available to comment.

Dubai said last week that it would delay payment on
 debt issued by Dubai World and property developer
 Nakheel, igniting fears over sovereign debt
defaults and sending global markets sharply lower.

Dubai World and Nakheel have oustanding debt of US$ 59 billion.

Source:The Independent

RBI TO SET UP WORKING GROUP TO REVISIT THE DRAFT GUIDELINES ON CREDIT DEFAULT SWAPS (CDS)

NOV 27, 2009



The Reserve Bank plans to set up a working group to
revisit the draft guidelines on credit default swaps
 (CDS) in view of the changed market scenario,
deputy governor Shyamala Gopinath said here today.

“We are setting up a group in the RBI and they will
interact with market participants,” Gopinath said at
a banking seminar here. A credit default swap is a
swap contract in which the buyer of the CDS makes a
series of payments to the seller and, in exchange,
receives a payoff if a credit instrument goes into default.

The apex bank placed the draft guidelines on CDS on
its website for public comments in October 2007,
much before the financial crisis hit the world economies.

Later, she told reporters the central bank has a capital
account management framework and is monitoring developments
closely. “We have a capital account management framework.”

Indian banking makes U S jealous

Nov 28, 2009

After 31st March 2010 Indian banks will have to adhere to the Basel
 II norms. India had adopted Basel I guidelines in 1999.
Later on in February 2005 the RBI had issued draft guidelines
 for implementing a New Capital Adequacy Framework, in line with
 Basel II.

The deadline for implementing Basel II, originally set
for March 31, 2007, has now been extended. Foreign banks in India
and Indian banks operating abroad will have to adhere to the guidelines
 by March 31, 2009.

So let us dig what is this Basel II al about and
how it will affect the Indian

Banking sector.

What is Basel II?

Basel II is the second of the Basel Accords,

which are recommendations on banking laws and regulations issued by

the Basel Committee on Banking Supervision. The purpose of Basel II,

which was initially published in June 2004, is to create an internationl

standard that banking regulators can use when creating regulations

about how much capital banks need to put aside to guard against

the types of financial and operational risks banks face.

Basel II uses a “three pillars” concept – (1) minimum capital

requirements (addressing risk), (2) supervisory review and

(3) market discipline – to promote greater stability in the financial system.

Let’s dig out how all the three above pillars will bring 

changes in the Indian banking segment.

The first concept deals with minimum capital requirements.

This is one of the most important and prime tool which makes our Indian Banking Sector jealous.

Banks have to keep aside 9 % capital againstØ various risks.

The risk consist of interest rate risk in the banking book,

foreign exchange risk, liquidity risk, business cycle risk, reputation

risk, strategic risk. This rate is expected to increase after much

talked about Basel II norms come into place. So all the above

risk will makethe Indian banking sector more secured and more

stable just like the one during the US financial crisis.

In other words it can be described as the minimum amount

of capital a Bank should maintain to cover its various business risks.

This might affect the credit growth of banks since in first place

Indian Banks are basically born skeptical which also acts as

a boon in times of crisis. Banks will have to increase their

margins for providing loans and moreover may reduce the

rate of percentage of sanctions they make in usual conditions.

Now a question might come up in the mind that what will

be the affect on loans-this will be answered after 31st March 2010

when Basel II comes in to play.

The second pillar of Basel II is supervisory review.

Banks have been given the power by which they will not o

nly maintain the minimum capital requirements but will also

be able to have a process by which they can assess their

capital adequacy themselves. This process, and its assessment

by the supervisory authority, is central to the second pillar

of the Basel II Accord.

This also ensures that banks will be able to make

arrangements to ensure that they hold enough capital to

cover all their risks. The prime responsibility will lie on

the individual banks to compile with the norms.

This review process will provide benefits when another

financial crisis will hit in the future. We should not forget

that when the US banks were getting sold out the

Indian Banking segments stood still as if nothing has happened.

That’s why we can go off to sleep when our prime wealth

is being safely preserved inthe Indian banks.

It works in this frame work shown below.

The last but the most important one of Basel II is market discipline.

The recent financial crisis in US and the bailouts of the

Century old Banks have raised the voice of market discipline.

This is one of the most important pillar of any financial process.

Market Discipline in banking and financial sector is highly

required in coming days as more globalization will expand.

Market discipline as per Basel II focuses on:

To achieve increased transparency through expanded

disclosure requirements for banks.

This will make sure that the banks are well positioned

to handle the complex business process.

This will bring transparency in the process followed

with adequate updating to the banking regulators on

the involved process of the various banks in dealing

complex products.

So over all it can be concluded that with the advent

of Basel II, banks with a risk appetite, i.e. high

risk – high return lending strategy or lending without

proper appraisal merely to generate additional business

will find the going tough. We believe that such business

models, which take disproportionately high risks, will not

survive. The business models, which should survive,

will be where risks are within acceptance levels for the

banks backed by adequate returns.

After implementing Basel II our Indian Banking

will feel more jealous.

by: Indranil Sen Gupta, Research Analyst

UAE banks risk credibility loss on Dubai exposures

DUBAI: The credibility of the United Arab Emirates finance sector will suffer unless the authorities and lenders move quickly to assuage fears

| Burj Dubai: The tallest tower | Dubai's metro | Dubai's mega projects

that Dubai's debt trouble are spiraling out of control, analysts and bankers say.

Dubai, one of the seven emirates that make up the UAE, said on Wednesday it planned to restructure one of its holding companies, a shock announcement that triggered global concerns about the emirate's ability to meet its debt obligations.

International banks' exposure related to Dubai World amounts to $12 billion in syndicated and bilateral loans, banking sources said.

"I would say it is a huge shock for the UAE banking sector, and until we have some clarity the current situation will continue to cause damage," said Raj Madha, banking analyst at EFG Hermes.

Regional banks such as Emirates NBD and Mashreq Bank, which play a pivotal role in funding the UAE economy, have not made public statements yet on their exposure.

"Dubai World and its entities account for a very large chunk of the Dubai economy and its indebtedness and we expect Emirates NBD to have a full share of that," Madha said.

Officials at the Dubai-based bank could not be reached for comment.

UAE banks are exacerbating the situation by remaining silent on their exposures, said another banking analyst at a large international bank, who requested not be named.

"Unless there is clarity from banks, people will just make up numbers, which is worse," he said. "On the whole, the reputation has been damaged."

TRANSPARENCY

The region's financial services sector has already drawn criticism for its lack of disclosure and transparency but some analysts expect the Dubai debt crisis to spark a change.

"The way in which the UAE authorities handle the problem will clearly be important for investor confidence, as it will set a precedent for Dubai," Goldman Sachs analysts said in a note.

"Taking into view the huge reputational risks involved and also the amount of leverage that currently exists in the emirate we believe that the UAE authorities will be more likely to try and secure an orderly restructuring of outstanding liabilities of the two firms," the Goldman analysts said.

As a result of Dubai's debt struggle, banks will continue to face difficulties in the coming quarters.

"We expect asset quality to continue to deteriorate in the coming quarters and this trend could be exacerbated by the direct and indirect impact of a debt restructuring by Dubai World, which represents a major pillar of the Dubai economy," said Standard & Poor's credit analyst Mohamed Damak.

The UAE banks, however, will continue to be supported by the authorities, analysts said.

"I very much doubt that banks will be expected to bear the full burden of their exposure. I think at some level the assets would be or should be bought out by the federal government," EFG's Madha said.

Ratings agency Moody's also said it had no reason to believe that the federal government would abstain from supporting banks in Dubai or in other emirates.

Source: REUTERS