VisVoice

Banking Never Change The period was mid 1990s. (I don't remember the exact FY). Rs.730 cr. bulk deposit (name for high cost whole sale deposit) was canvassed by a branch of a PSB (public sector bank) in New Delhi in the last week of March from a PSU. The deposit was for five years and the interest cost was 100 bps more than the normal rate for a retail deposit for a similar period. Mr. X, the branch manager became a super hero overnight, as the entire bank could achieve its top lines (business levels) by a comfortable margin as well as that the cost impact will be felt in the future years only. But there were voices of dissent   at the lower levels and in circles normally perceived as the 'negative bunch', within the bank. Some notable remarks were 1. A BM need to achieve the target growth for his branch only and not for the entire bank (that is left to the head office and zonal offices) 2. The bank may lose out on bottom line (operating/net profit) to sustain the...

  High Interest Rate Regime High Interest Rate Phenomenon, post pandemic, globally:  Since March 2022, Central Banks across the globe tightened their monetary policies, with huge increase in the policy interest rates in their scheduled monthly/ bi-monthly meetings. Unlike in 2008, when the central banks were increasing the interest rates, if at all, in fits and starts, the increase in interest rates, in the last one year, appears to follow a pattern set by the systemic central banks US Federal Reserve, ECB and BoE.  As hitherto, FED takes the lead and the other countries align themselves (45 central banks are said to have responded with an increase in their rates after FED announcements), though the pace of increase is not uniform. After increasing the fed fund rate consecutively four times by 75 bps each since May 2022, FOMC reduced the pace with an increase of 50 bps in Dec 22 followed by an increase of 25 bps. in Feb 23. While UK and ECB have reacted with an ...

  Lessons from SVB I. SVB (Silicon Valley Bank) meltdown:   1. Wholesale deposits did it in: Major portion of its deposits/liabilities were demand and callable deposits, which were payable immediately/ on short notice. 2. Deployment of funds in long term assets: Such deposits were invested in the long term mortgage backed securities and treasury bonds, both in the 10 year plus bracket, in the belief that the stimulus package rolled out and low fund rates introduced during the COVID period might not be reversed all at once.  3. No Provisions created from revenue to meet asset price decline: The bank never thought it prudent to make provisions to meet emergencies, that may arise as the liabilities were fixed in amount and payable on demand while the long term assets, were cashable but the value is marked to market (MTM). Even after FED started raising the rates aggressively and took  consistent hawkish stances, the bank did not seem to have brought in/succeeded in it...

  SVB Shutdown:  LCR report not effecively used?  Story So far:  From the news reports, Silicon Valley Bank (SVB) was the 16th largest Bank on the date of its shutdown by the regulator. Its assets included mortgage backed securities (MBS), which is said to have increased from a level of USD 12 billion in 2019 to USD 90 billion in 2021.  Due to the increase of fed fund rates by more than 400 bps last year, the average yield in MBS increased to 5% plus, with a consequential fall in the value of MBS. (the price and yield on bonds are inversely proportional). When the demand from the depositors for withdrawal/redemption mounted, mainly start-ups, the bank had to sell MBS valued at USD 21 billion by booking a loss of USD 1.8 billion. With the sequence of events that followed shortly, the regulator shut down the bank's operations and appointed FIDC (Federal Deposit Insurance Corp) as receiver.  Strange indeed:  Interestingly, the bank reportedly faile...

  International Women’s Day 2023 International Women’s Day, officially celebrated on 8th March, from1977 onwards (adopted by United Nations), completes 46 years today, an age normally considered middle age by the human race. As a nation, we had our moments of pride in women occupying the first position in various fields including as a constitutional head of independent India. Mrs. Sarojini Naidu, Nightingale of India, had the privilege of occupying the first prestigious seat in free India by being President of Indian National Congress and also the  first Governor of United Provinces. Smt. Suchetra Kriplani was the first Chief Minister, Smt. Indria Gandhi, the first PM, Smt. Fathima Beevi, the first chief justice in Supreme Court, Smt. Prathiba Patil, the first President of India and Smt. Droupadi Murmu occupying the said coveted position, now, are to name a very few in the political space. Women led us in the other fields also. Dr. Shanta in Cancer Care, Mother Teresa, Sm...