ATMs that can detect fake notes are now here

Sachin Kumar, Hindustan Times
Mumbai, April 11, 2013


Automatic teller machines, or ATMs, that can tell fake from real are here. Manufacturers such as NCR Corporation and Diebold Systems are helping banks roll out new machines that not only deposit and dispense cash but can also detect counterfeit notes. State Bank of India, ICICI 


Bank and Axis Bank have already started installing these ATMs, also known as cash recycling machines. At present, these are being used as cash-deposit machines in which a customer can drop loose cash.

“Cash recycling machine is a full-function ATM which can detect counterfeit notes,” said Ashok Shankar, solutions deployment manager, NCR Corporation India. As of now, they were only accepting cash but later — when the banks and customers get accustomed to them — other features such as cash dispensing and utility bill payment would be switched on, he said.

NCR has already handed over 600 machines to SBI. ICICI Bank has the machines at its 26 electronic branches while Axis Bank has installed around 500 of these at various locations.

“Another feature of these machines is that the money is credited to depositors’ account instantly,” said Julius Samson, senior vice-president, Axis Bank.

Complaints of ATMs dispensing counterfeit notes are not uncommon. According to the Reserve Bank of India, close to 5.21 lakh fake notes were detected in India in 2011-12, much higher than 4.36 lakh in 2010-11.

“Cash recycling machines are already in use in developed countries... Their usage is bound to increase in India,” said Karthik Ganapathi, managing director (South Asia), Diebold Systems.

Syndicated loans offer lucrative business to investment banks

Apart from providing certainty of closure and immunity from market volatility, syndicated loans also provide an easy pitch for new banks in the country to start their business. Photo: Pradeep Gaur/Mint

Live Mint :Malvika Joshi :Wed, Apr 10 2013. 11 31 PM 

Disbursed by a group of lenders to spread their risk, 

syndicated loans have seen a steady rise over the past five years

Mumbai: Syndicated loans are steadily finding favour with many debt-laden Indian firms which want large sums of money to finance new projects but cannot raise funds through equities. Some cannot raise money through bonds for lack of a suitable credit rating.

The income generated from arranging syndicated loans now account for almost half of the country’s investment banking revenue, unlike in major economies where debt capital market and mergers and acquisitions (M&A) account for bulk of the fees.

Disbursed by a group of lenders to spread their risk, syndicated loans have seen a steady rise over the past five years, accounting for almost 50% of India’s investment banking revenue in 2012 despite a weak economy that is eating into the share of other businesses, according to Dealogic, a consultancy and data management firm.

In 2012, loan syndication contributed $343 million (Rs.1,886 crore) towards investment banking revenues, accounting for a 49.5% share against 30% in 2007. Income from syndicated deals have risen almost 60% in five years and 33% over the year-ago period.

In India, underwriting, typically carried out by investment banks, has been one of the highest paying activities in absolute terms but syndication business as a percentage of the overall fee income has also been rising sharply over the years owing to a poor equity market.

In the US, share of syndicated loans in the overall fee income is the least compared with other businesses, less than 25% most years. In Japan and Australia, the share of such lending in the total fee income is as low as 11% and 10%, respectively, according to Dealogic.

While fluctuations in income from other businesses, apart from loan syndications, are mainly due to volatility in the equity market, bankers attribute lower credit ratings of Indian firms to be one of the main reasons for higher demand for syndicated loans.

To be sure, firms that avail of syndicate loans also have to pay a higher fee to the bankers.

“Debt capital market products (primarily bonds) are limited to AAA and AA rated clients in India with very high credit quality, whereas syndicated loans are available to all clients with investment grade rating (BBB and above). Due to the above, the yields in syndicated loans are higher,” said Kingshuk Chakraborty, president and managing director, loan syndications at Yes Bank Ltd.

Credit rating agency Crisil Ltd, in its report released in April, said its portfolio saw 404 defaults in 2012-13 against 188 in 2011-12. The default rate reached 4.7%, surpassing the 10-year high of 3.4% in 2011-12.

Ashwini Kapila, managing director, head of financial institutional group at Barclays India, agreed that offshore debt capital market issues in India have historically been limited to investment grade (largely public sector undertakings), where fees have been low due to intense competition.

“Pricing plays a crucial role in the bond market overseas. In India, the all-in cost ceiling for borrowing through overseas bonds stands capped at Libor plus 500 basis points, which is within the reach of only those firms who have high ratings,” said Manmohan Singh, managing director and head of debt capital markets at RBS India.

One basis point is a hundredth of a percentage point. Libor, or London inter-bank offered rate, is a benchmark for pricing loans.

The method of charging a fee is another reason which makes loan syndication more lucrative for arrangers. There is a higher upfront payment charged by the investment banks on the portion of the loan syndicated.

In a scenario where acquisition and risk appetite among Indian firms is low and equity markets are volatile, the fee earned from these businesses has also seen a sharp drop, said bankers.

Sensex, the benchmark equity index of BSE Ltd, rose 25.7% in 2012. It has dropped 6.18% this year.

“Fees on equity capital markets are definitely under pressure, not so much on headline (total) number but on distribution among a larger number of banks per transaction. M&A transactions are taking longer to complete. M&A fees have also been low as all large international banks and some strong domestic banks compete in this space, while the opportunities are very limited.” said Kapila of Barclays.

The share of equity capital market in the total investment banking revenue dropped from 46% to 12% since 2007 and from $503 million to $85 million in 2012.

Companies also find syndicated loans an easier way of raising funds.

“Syndicated facilities bring businesses the lowest transaction costs in aggregate and spare companies the time and effort of negotiating individually with each bank,” Chakraborty of Yes Bank said, adding it helps companies get visibility in the market.

Kapila of Barclays pointed out that certainty of funds is assured from the anchor banks. “Loan syndication also helps borrowers diversify their funding sources as new banks join the general syndication. An added advantage is that a successful syndicated loan makes the loan market a viable and reliable source of future fundraising for borrowers,” he said.

Apart from providing certainty of closure and immunity from market volatility, syndicated loans also provide an easy pitch for new banks in the country to start their business.

According to Mahendren Moodley, chief executive and country head of FirstRand Bank in India, a global bank with strong distribution capabilities across key geographies may actually start with syndicated loans as one of the products.

In September, Tata Steel Ltd received approval for a Rs.35,000 crore loan from a consortium of banks led by State Bank of India, making it one of the largest exposures taken by Indian banks in recent times. The loan is for the company’s upcoming six-million tonne per annum (mtpa) steel plant in Kalinganagar in Orissa. State Bank’s investment banking arm SBI Capital Markets Ltd or SBI Caps is the arranger for the loan.

ONGC Petro Additions Ltd, a venture of ONGC and GAIL (India) Ltd, achieved financial closure in January. In this case too, SBI Caps was the sole financial advisor and arranger for the transaction.

Reliance Industries Ltd signed a syndicated loan facility worth $1.5 billion with a group of 28 international and Indian banks in October. The mandated lead arrangers and bookrunners for the deal include ANZ India, Bank of America Merrill Lynch, Bank of Nova Scotia and Bank of Tokyo-Mitsubishi UFJ, among others.

Banking sector's woes to continue in FY14: Jefferies

BT Online Bureau    New Delhi   Last Updated: April 8, 2013  | 22:22 IST

International investment bank Jefferies in a report said that the fundamentals of Indian banks are not likely to change much in FY14 in the segment.

"The fundamentals for the banking sector are unlikely to change much in FY14 given the "tepid" loan and deposit growth, "range-bound" net interest margins, and "weak" asset quality," Jefferies said in its report 'Initiating on India Banks: Going Nowhere', dated April 5.

Jefferies believes banks with strong branch networks like HDFC Bank, ICICI, and Axis could face smaller problems.

"Over the next 12 months, we believe the fundamentals of the domestic banking sector are unlikely to change much, with tepid loan and deposit growth, range-bound NIMs and weak asset quality," it says.

"Tight liquidity and weak deposit growth will be the banking sector's key challenges over FY14, much more than weaker loan growth, with the latter perhaps baked in the numbers. The strained balance sheet funding is reflected in higher loan-deposit ratios and could even create an ALM problems if growth are to be pushed," it warned.

Banks with strong branch expansion in recent times and ones that marry growth with matched funding such as HDFC Bank, ICICI and, to an extent Axis, could face smaller problems.

The report sees weaker loan growth given the falling capex sanctions and lower corporate sales growth, and the resultant stress on project financing and working capital.

"We believe retail growth will be unable to plug this gap, as aggressive growth may mar the asset quality in the long-run except for those banks that have expanded their franchise in recent times which would be able to report better growth numbers," it says. 

Though in a base rate regime banks are better protected from aggressive competitive under-pricing, SBI could play spoilsport, given its aggressive yield cuts in recent times, the report said.

On the NIMs front, it is wary of the numbers given the lower loan to deposit ratios and sharper repo rate cuts, resulting in asymmetric cuts in lending/deposit rates.

"We believe SBI is the most at risk here, but we are talking of a mere 20 bps (0.2 per cent) decline in the margins."

The report warns that "impaired asset formation has come off the Q4 of FY12 highs of 10 per cent to about 5.6 per cent in Q3 of FY13, but this is still beyond our comfort zone".

"With the window closing on regulatory forbearance for restructured assets (non-infrastructure), we foresee an increased rush for restructurings in the near-term.

"The massive pipeline of infrastructure projects that are facing huge delays makes the bottoming out argument equally shaky, adding zero sanctity to the true nature of the loan book and hence considerable difference exists as to the amount of prudential haircut required to adjust the book value," warns the report. (With Agency Inputs)