Canara Bank slashed interest rates by 75 basis points

After Finance Minister P. Chidambaram asked the state-run banks to consider reducing interest rates, on Wednesday slashed its benchmark prime lending rates by 75 basis points.

A spokesperson of bank informed that bank will be reducing home and auto loan rates by 25 basis points.

After the reduction the prime lending rates (PLR) would set at 13.25 per cent down from 14 per cent. The rates will come with effect from November 10.

The bank official informed bank has reduced the interest rates on deposits of 500 days to two years from 10.5 per cent to 10 per cent with effect from December 1, 2008.

Hero Honda ties-up with Andhra Bank to offer finance to buyers

Hero Honda Motors is country’s largest two-wheeler manufacturer has tied-up with Andhra Bank to provide financing support for buyers of their products.

Hero Honda and Andhra Bank have signed an agreement in order to offer financial support to the two-wheeler buyers, including the ones living in the rural parts of the State.

The company claimed that buyers will be able to avail loan up to 90 per cent of the road price of the vehicles. The main aim behind the tie-up is to offer financial support to those in the farm sector, salaried employees and institutional customers.

Andhra Bank is having 1,389 branches across the country and an extensive network of over 980 branches in the state. Hence the company plans to take advantage of the large network of bank branches.

While Hero Honda Motors has a network of 51 dealerships and over 280 customer contact points in Andhra Pradesh.

Canara Bank & CARE sign MoU

Canara bank, a public lender signed a Memorandum of Understanding (MoU) with Credit Analysis & REsearch Limited (CARE), a premier credit rating agency.

CARE has been endorsed by Banks and Financial Institutions, provides credit rating, financial and advisory services to various corporate and financial bodies in India.

With this signing of MoU Canara Bank will certain the fulfillment of the guidelines for Standardized approach of RBI's New Capital Adequacy Framework (Basel-II). According to these guidelines, the capital requirement for a corporate exposure is based on the credit rating assigned by the recognized rating agencies such as CARE.

This MoU will allow clients of Canara Bank to approach CARE for getting their facilities with the Bank rated. The bank clients will get benefited from the rating exercise at a discounted rate. All these ratings will be carried out after obtaining authorization from the Bank’s clients/prospective clients.

CARE carry out objective and independent assessment of borrower’s credit quality, and share logical approach on various industries and evolving economic environment with the Bank.

Canara Bank increases term deposit rates by 50bps

Canara Bank a Bangalore-based public sector lender has raised its interest rates on domestic term deposits by 50 basis points for the period ranging from 91 days and above to 2 years. The new rates will come into effect from October 10

As per revised interest rate for the tenors of 91 days and above to 179 days the increase has been done from 7 per cent to 7.50 per cent, 180 days to less than 1 year has been raised from 8.25 per cent to 8.75 per cent. On the deposits of one year and above to 499 days the raise has been done from 9.75 per cent to 10 per cent and 500 days to 2 years the increase has been done from 10 per cent to 10.50 per cent.

According to bank press release the bank will be offering 0.50 per cent more for senior citizens on the revised rates.

CanBank, BoI soft on raising rates

Though worried about defaults but then taking in consideration that interest rates will soften in the next one year some to the state-owned banks are not willing to pass on the rate hike to existing customers.

Canara Bank one of the state owned bank is considering of a one-year freeze on interest rates for existing home loan and personal loan borrowers at the existing level. Another large nationalized bank, Bank of India (BoI) is also planning not to pass on the rate hike to its home loan customers.

Currently, Canara Bank is offering personal home loans at floating rates linked to prime lending rates (PLR). Therefore this time, home and personal loan borrowers might not have to give out extra money towards interest payment even though bank hikes its PLR. Canara Bank CMD AC Mahajan, said: “We are considering the option of freezing interest rates on personal and home loans at current the level for one year.”

“The new rates will be effective after a year. The asset liability committee will take a final view on this when they meet next week,” he added Mr Mahajan informed bank also has plans to give borrowers a one-time option of converting floating rate loans into fixed rate. However the fixed rate is much higher and few of the borrowers might opt for this, even though the bank might take customary charges for conversion from floating to fixed rate loan.

Canara Bank’s floating home loan rates ranges from 10 to 10.75%. According to Mr Mahajan, the move taken by the bank to freeze the interest rate at the current level is not because bank is hoping that the interest rate cycle will turn over one year — which means rates are close to the peak and will start moving southward.

Further, Mr Mahajan said, “Even as new measures may hurt our margins in the near future, it will prevent delinquencies. We have to structure the hike in a way that it does not affect the payer’s ability.” On the other hand, BoI’s chairman & managing director TS Narayanasami, said they might also not increase their PLR for all borrowers. He further added that the decision to revise rates will be taken within a week to ten days time.

“The hike in interest rate will depend on the paying capacity of borrowers. We have some leeway because not all our rates are linked to PLR,” said Mr Narayanasami, is also the chairman of the Indian Banks Association — the lobbying arm of local banks. Though, he did not specify the category of borrowers to be spared. Explaining his stand, Mr Narayanasami said definitely rising interest rates will make it difficult for borrowers to absorb higher payments and quality of the portfolio too can get impaired.

While big banks including ICICI Bank, Punjab National Bank, Axis Bank have raised their benchmark PLR, on the other hand State Bank of India and Canara Bank are yet to take a decision on the rate hike. Mr Narayanasami pointed out that margins will come under pressure, but banks will have to learn to live with lower margins. On interest rates, he said, “Rates will not soften in the near future. It will depend on how inflation moves.”

Canara Bank will be getting into venture capital business

Soon Canara Bank India’s second largest public sector bank will be getting into venture capital business. The bank has taken the required approval fro a venture capital fund from the Securities and Exchange Board of India (Sebi). The fund won’t be sector specific.

Earlier in 1989 bank had floated a venture capital subsidiary, now this fund will be the largest on (Rs 500 crore) from the bank. Till now the VC arm has floated four funds, the total amount of which is Rs 112 crore and has been invested in around 80 companies.

Senior officials of the bank have confirmed that they have taken necessary approvals from the regulatory body, after which they have plans of hard-selling this product to other government-owned institutions for participation.

Canara bank sources said Allahabad Bank, Corporation Bank, Indian Overseas Bank, Oriental Bank of Commerce, Vijaya Bank, Andhra Bank and Small Industries Development Bank of India had earlier participated as investors in its earlier fund, the amount of which was around Rs 60 crore.

This new proposal from Canara Bank is the outcome of a series of measures started in the last six months. This financial institution first divested 49 per cent in its asset management business to Rebecco, and then moved to a massive rebranding exercise in an effort to connect to young investors.

During the past three quarters the bank during has also been aggressive in lending to the GMR Group. As per Venture Intelligence report, a venture and private equity research firm, India-focused PE /VC funds have been able to raise $4 billion during the first half of 2008 and it is expected that this number is likely to cross the $10 billion-mark.