Banking

Can you guess the salary of the CMD of IDBI Bank?

Posted on July 8, 2008. Filed under: Banking |

I was reading through the balance sheet of IDBI Ltd., One interesting thing which caught my attention was the salary levels of the Chairman and Managing Director, Yogesh Agrawal. This poor guy, I literally mean that, is being paid a basic salary of Rs26,000/- pm and Dearness allowance of Rs13500/- pm. What is this measly salary figure for a person who is supposed to manage one of India’s largest bank. I was totally confused to know what kind of motivation or committment levels these kind of salaries can inspire.

The bank has two major divisions, Retail Banking Division and Corporate Banking Division. Each one of them is managed by a Deputy Managing Directors and they are also paid salary of similar nature.

The IDBI Balance sheet is bi-lingual. That is, it has a Hindi version and an English version side by side. It also proudly talks about the steps taken by the Bank to propogate Hindi in their administrative activities. I was immediately reminded of Central Government offices, Central Excise, Income Tax and Customs. There you can find a new Hindi word written on a slate (similar to one what is used by school going children) and hung at the centre of the hall with the meaning in vernacular language.

The other noteworthy thing which caught my attention in IDBI Balance sheet is the amount of investments held in its books. It is more than Rs33,000/- crores. Most of it would be Government securities for SLR and other purposes but surely there are hidden gems of investments in companies and corporations which would translate it into a goldmine, if at all, IDBI decides to monetise it someday. At the peak stock market valuations, the per share value of investments was stated to be somewhere close to Rs75/- per share.

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Citibank is on a selling spree

Posted on May 8, 2008. Filed under: Banking |

We all know how desperate is Citibank to shore up its capital and owned funds on account of the significant write-offs on their sub-prime portfolio. Vikram Pandit, CEO of Citibank is working on revitalising the company by selling off non-core assets in this hour of need. During this crisis period, Citibank may also let go, few of its prized assets which has taken years for it to build.

Citi Financial, the NBFC arm of Citibank is rumoured to be on the block. Economic Times carried a front page article a week ago in this regard. Citi Financial has also fired more than 400 staff in the last couple of months. It was also looking at selling many of its US assets to raise capital.

The latest sale by Citibank is the sale of prime real estate. Today’s edition of The Hindu carried an advertisement by CB Richard Ellis, property management consultant advertising about the sale of prime (really prime!!) commercial and residential properties in Chennai. Citibank is selling 5 flats ranging from 1700 to 2200 sq.ft each in posh areas of Chamiers Road, Alwarpet and Bishop Wallers Avenue, Mylapore. It is also selling more than 48,000 sq. ft of commerical space in Spencer Plaza, Phase III where the Citi’s back office processing entity, e-Serve operates.

Bad times for Citi.

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New entrant in the consumer finance business!

Posted on February 27, 2008. Filed under: Banking |

Reliance Capital has entered the consumer finance business in a big way. They have set up a company called Reliance Consumer Finance and you can acess the website here.

I came to know about the new venture of Reliance Capital through FM Radio advertisements. They are making high decibel advertisements in FM Radio in Chennai. They offer all kinds of loans from personal loans, car loans, home finance, loan against property and commerical property loans. One thing which immediately caught my attention when I visited their website is that they have clearly mentioned about the eligibility criteria, fees and charges in a very user friendly manner. Ofcourse, the charges mentioned are on the higher side compared to other players like PSU Banks and private banks, I guess the charges would be negotiable.

I personally believe there is lot scope for building the consumer finance business in India. Just like Reliance Money which expanded in a frentic pace in non-urban and non-metro cities, I guess Reliance Consumer finance would also concentrate outside metros to build business in the first place. Considering the pace at which Reliance grows its business, I think it would be a big name in this business in a couple of year’s time.

Watch out Reliance Capital stock!

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Latest Bank Merger – CBoP to merge with HDFC Bank!

Posted on February 25, 2008. Filed under: Banking |

The merger of Centurion Bank of Punjab with HDFC Bank has been announced couple of days back. I guess this a prelude to many other mergers which would happen in the next couple of years to come. The merger share swap ratio has been announced today. That is 1 share of HDFC Bank for every 29 shares of CBoP. (1:29) CBoP itself is an amalgamated organisation of Centurion Bank, Bank of Punjab and Lord Krishna Bank. HDFC Bank has also seen merger earlier when it acquired Time Bank.

What HDFC Bank gets out of this merger?

1. HDFC Bank gets licenses for 400 odd branches through this acquisition. Today morning, Mr BD Narang, former Chairman and Managing Director of Oriental Bank of Commerce who handled ther merger of Global Trust Bank with OBC, was saying that for HDFC Bank in the normal course would have taken 10 years to get these branch licenses. Then it is a good thing for HDFC Bank.
2. Centurion Bank has relationship with lot of two-wheeler borrowers who are typically in the lower middle income group. With the system driven approach and better product profile of HDFC Bank, it would be able to leverage the existing client relationships.
3. HDFC Bank gets access to branches in southern and northern India. CBoP is strong in Kerala due to the merger of Lord Krishna Bank and it is good break for HDFC Bank, I guess.

As of now, the merger seems to be in favour of HDFC Bank than with CBoP.

There are many other banks waiting to be acquired by a bigger bank like Lakshmi Vilas Bank, City Union Bank, Dhanalakshmi Bank, Catholic Syrian Bank, though none of them dont have any publicly demonstrated intention of selling it out.

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Credit card upgrades and direct debit authorisations!

Posted on February 19, 2008. Filed under: Banking |

We frequently come across offers for Credit Card upgrades from Silver to Gold and now more recently, Platinum cards based on the transaction history. Though going for a platinum card is useful from reward points and other benefits perspective, the point we need to be careful about is the migration of direct debit authorisations given to various utility bill payments like telephone bills, electricity bills etc.,
Recently I was offered a Platinum card by State Bank of India replacing my Gold card. I gleefully accepted the new card but failed to notify my mobile telephone company of the change in the credit card number. The mobile telephone company could not execute the direct debit authorisation and they started sending me SMS’s and made calls asking me to make the payment. I was very angry with the person who called from their call centre asking for payment since I had already given direct debit authorisation on my credit card, but I didnt realise that the credit card to which I have provided the direct debit authorisation was no longer valid. It stuck me suddenly couple of days after the call that I have upgraded my credit card and the credit card number would have got changed.
I have to now submit a new direct debit authorisation to the mobile telephone company with the new credit card details.
Is it not possible for the credit card issuing companies to provide the upgraded cards with the same credit card number to ensure continuity of direct debit payments?

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Fraud in Societe Generale Equity linked Index futures!

Posted on January 25, 2008. Filed under: Banking |

Societe Generale (SG) has reported yesterday one of the biggest dealer frauds in the history of Banking. The fraud, as reported, is committed by a trader in European Equity Index Futures based out of Paris. The amount of loss estimated is USD7.2 billions. When compared to other reported frauds by traders, this stands apart on account of losses reported by SG. SG has reported that the trader has been suspended and his managers’ have also been sacked. You can read the press report here.

This fraud exposes the need and importance of risk management and control in the banking industry. Over the last 3 years all banks and FI’s are reported record profits and probably it has induced the banks to be lethargic on their risk management. One wonders how such a big loss has been allowed to happen in an established global bank and how the trader has managed to hide losses for quite sometime.

It is also been reported that the trader has moved from the Middle Office to the trading floor and he is aware of the various checks and controls in the middle office and the back office and has devised ingenious ways to circumvent them and not get noticed. I expect that the worst thing to happen is to have some banking regulation which prohibits people moving from back/middle office to the trading desk. This would be a significant thing considering the fact that many aspiring youngsters take up roles within the operations and support group as they try to enter the lucrative trading world. Under normal circumstances, persons with experience in the operations or support role are considered favourably but with the present situation, it may become difficult.

In addition to the loss of USD7.2 billions on account of fraud, SG has also reported a write off of Euro2.1 billion on account of derivative transacations on Collateralised Debt Obligations.
The sub-prime meltdown has so far resulted in a write off of USD133 billion dollars by various banks and financial institutions and on its way it has dethroned four Chief Executive Officers of various banks and Financial Institutions. We still need to wait and watch for more write-offs in the coming quarters.

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Bank of India Internet banking site hacked by Russian criminal gang!!!

Posted on September 5, 2007. Filed under: Banking |

I am pasting below an email I got in this regard:

Quote

The Bank of India has been forced to shut down its Internet banking site after discovering it had been hi-jacked by fraudsters to download malware to customers’ PCs.

US security provider Sunbelt Software said last week that it had discovered a malicious IFRAME had been planted on the bank’s site which re-directed PCs to a hacker’s server. Malware was then downloaded to un-patched Windows machines.

In a blog on the firm’s Web site, Sunbelt CEO Alex Eckelberry says the server was primed to dish out over 22 pieces of malware, including a pinch Trojan variant which siphons personal data from a user’s PC. Eckelberry says fully-patched systems would not have been affected by this hack. Eckelberry claims that the attack emanated from the Russian Business Network (RBN) criminal gang.

IT staff at the bank have now cleaned the server, says Eckelberry, but online services are still unavailable to customers.
Unquote

When I logged into the site now, I saw a pop-up message saying the system has been cleaned and it is safe to transact now.

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Reserve Bank of India losses Rs.65,000/- crores in Foreign Currency Fluctuations!!

Posted on September 3, 2007. Filed under: Banking |

Last Sunday, Business Line carried an interesting article on the recent foreign currency losses suffered by RBI. This came to light when the annual report of RBI was made available. What staggers me is the amount of loss suffered by RBI in its Currency and Gold Revaluation Account – Rs65,000/- crores. Hold your breath!! I am not joking, this is the figure reported by RBI.

Ofcourse, this is not a cash loss, per se, but a notional loss in its books. The Revaluation account which had a balance of Rs86,000/- crores odd amount as of June 30, 2006 has come down to Rs21,724/- crores. You can read the entire Business Line article here.

As a layman, I have the following questions:

1. Does RBI follow any prudent hedging mechanism to cover/reduce the foreign exchange losses? If not, why we are not following a hedging strategy to safeguard our assets.

2. Who is to be held accountable for the staggering loss of close to Rs65000/- crores? Would it be RBI or the Government?

Anybody who has an idea/explanation/understanding of this subject can provide me with further inputs.

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Fee income charged by Public Sector Banks – Indian Bank!

Posted on August 23, 2007. Filed under: Banking |

Recently I heard that even public sector banks have started charging fees for some services which hitherto came free, atleast with public sector banks. In this case, it was for attestation of address proof which is the Bank Passbook.

My father went to the Indian Bank branch in which holds an Saving account and asked for the attestation of the photo address proof. The Manager obliged to attest subject to a charge of Rs35/- for this purpose. The amount got debited and my father got the attestation.

Even Public sector banks have started finding out ways to increase their fee based income. Good for the bank and their shareholders and bad luck customers!!

PS: I was informed that for the same service ICICI Bank charges Rs.100/-. So PSU Banks are keeping the interest of the customers at heart and charging a lesser fee for that!!!

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