Axis Bank ups lending rate

Private sector Axis Bank raised benchmark lending by 0.25% to 10.25% making costlier the home, auto, corporate and other loans linked with base rate or the minimum lending rate. Earlier this month, the country’s second largest private sector lender HDFC Bank had raised the base rate to 9.80 per cent from 9.60 per cent. Many public sector banks like Andhra Bank have also raised base rate. State Bank of India has, however, gone public saying it will not cut its rates as it is flush with fresh deposits and its reliance on retail deposits. Meanwhile, Dena Bank raised interest rates on NRI deposits of over three years by 1 per cent, days after the Reserve Bank deregulated interest rates on such deposits.

Kolkata

The spurt in bond yields to 9% on the 10-year gilt is expected to hurt the banking sector by Rs 40,00045000 crore due to depreciation in bond portfolios, reports PTI.

The benchmark 10-year government bond yield zoomed to a five-year high of 9.25 per cent, a level not since August 2008 before the Lehman Brothers collapse, after the rupee plunged below 63-mark and on the concern that liquidity tightening steps by Reserve Bank will continue for some more time.

Treasury officials said higher supply of debt into the market every week has also led to tepid demand for bonds by the market.

The bonds closed trade at 9.23%. The currency fell to an intra-day low of 63.30 before closing at 63.13.

"The rise in bond yield is a combination of fall in the rupee, over-supply of debt and RBI's liquidity tightening measures," said Ananth Narayan, co-head, wholesale banking, Standard Chartered Bank India and South Asia.

Union Bank of India Chairman and Managing Director D Sarkar said he expects a 'market to market loss' (MTM) will be around Rs 40,000 crore for the banking industry in the July- September quarter. MTM is valuing a financial asset at their market value and not the price at which they are bought.

"At this moment huge depreciation is coming in the bonds and there will be impact on margins," he said on the sidelines of FICCI organised Banking Conclave 2013.

According to estimates for one basis point of rise in yield, depreciation impact will be of Rs 300 crore for the industry. The rise in yield had jumped by close to 150 basis points in the 10-year paper which mean the impact could be even Rs 45,000 crore.

The Reserve Bank will be selling Rs 22,000 crore of cash management bills, Rs 15,000 crore of government bonds, Rs 12,000 crore worth of T-bills this week.

"Given the huge supply of debt, there is less demand from banks which are sitting on huge mark-to-market losses and also from foreign institutional investors," Narayan said.

Dealers said the apex bank's stand to keep short-term rates higher at 10.25% will continue for some more time and hence there is lack of interest in market.

With bond yields shooting up following regulatory measures to squeeze liquidity, lenders are knocking at the Reserve Bank of India’s door for help to avoid depreciation losses.

Sarkar said the Reserve Bank of India was expected to take some measure to protect their interest. "RBI has taken statistics and may be in 10-15 days they will take som action," he said.

Sarkar said banks were asking for allowing movement of AFS (available for sale) bonds to HTM (held to maturity) category and this would offer some temporary relief. Banks would need to book depreciation for the bonds kept in the AFS and held for trading (HFT ) categories but bonds that are part of heldto-maturity (HTM) would not require to do the same.

Sarkar also urged that RBI should allow provisions for mark to market losses to be spread across more than one quarter, to avoid a "one-time shock".

Overseas investors have pulled close to USD 11 billion from debts since May 22 when the US Fed indicated that it would turn the tap on easy money sooner than anticipated.

There are reports that banks had increased their AFS bonds from their portfolio when yields had dropped in April-May period but now this has exposed them to interest rate and depreciation risk.

New Delhi The country's ten leading business houses, including Reliance Group, Vedanta, Essar and Adani, have seen their total debt levels soar by 15 per cent to over Rs 6 lakh crore during the last fiscal while profitability continues to remain under pressure, a research report said today. The cumulative debt of these groups, which also include Jaypee, GMR, GVK, JSW, Lanco and Videocon, is likely to further increase in the current fiscal because of rupee depreciation and delays in projects being undertaken by many of them, Credit Suisse said its annual House of Debt report for India. The collective debt of these ten groups rose to Rs 6,31,025 crore at the end of last fiscal ended March 31, 2013, from Rs 5,47,361 crore a year ago. "For most of them the debt increase has outpaced capex and asset sales are yet to take off. The rising stress is visible with some loans of Lanco, JPA, and (Anil Ambaniled) Reliance groups already being restructured," it said. The report also warned of additional asset quality stress of banks because of growing debt levels of big business houses. While large corporate NPLs (non performing loans) are still low, the overleverage in the large corporate segment is high and is a potential source of additional asset quality stress for banks, it said, while adding that corporate asset quality issues are likely to persist for the banking sector.

Observing that the rupee weakening could cause further "pain" going further, the report said that delays in power projects being undertaken by many of these groups could result in more of their debt being restructured. "Many corporates' loans are 40-70% foreign currency denominated; therefore, the sharp depreciation in the rupee is adding to their debt burden. Adani Enterprise and Reliance Comm have the largest percentage of borrowings through forex loans," it said.