Amex gets nod for $3.39b US govt package

Global payment service provider American Express said on Wednesday it has received preliminary approval to get about $3.39 billion from the $700-billion rescue package declared by the US government.

"United States Department of Treasury has provided preliminary approval for the company to participate in the Treasury's Troubled Asset Relief Program," the company said.

On November 10, the US Federal Reserve had approved the application of credit card major to become a bank holding company and the change in status facilitated American Express to explore various government funding and lending programmes.

In return to the said loan, American Express will issue and sell preferred stock of about $3.39 billion and warrants to purchase shares of common stock for up to 15 per cent of that amount to the Treasury.

"The preferred shares would pay dividends at a rate of five per cent annually for the first five years and then nine per cent annually thereafter," the statement added.

Other than American Express the other financial institutions like Goldman Sachs, Morgan Stanley and Citigroup (all bank holding companies) have approached TARP for funding.

Shares of American Express closed at $17.96, fell 2.50 per cent or 0.46 cents yesterday on the New York Stock Exchange.

How ICICI Bank discovered its new leader

Finally, the deed is signed. In May 2009, Chanda Kochhar will step into the corner office on the 10th floor of ICICI Towers in Bandra-Kurla Complex, a Mumbai suburb, to take over what is inarguably one of the biggest banking and finance jobs in the country. K V Kamath, its current occupant, will move across the hall to the office now used by his boss and mentor, N Vaghul.

When the decision was made public last Thursday, it almost seemed anti-climactic. The matter-of-fact tone which Kamath and Kochhar deployed to address the media belied the drama and suspense that marked one of the most closely watched CEO succession stories in recent history. For almost two years, Indian media has given it a billing of the kind usually reserved for similar events at marquee global firms like GE—or closer home, Hindustan Unilever (HUL).

The six heavyweights on the ICICI board—Chairman Vaghul, CEO & MD Kamath and independent directors Tinoo Puri (also a McKinsey director), M.K. Sharma (HUL legal eagle and former vice-chairman), Prof Marti Subrahmanyam (Charles E Merrill Professor of Finance and Economics at Stern School of Business, New York University) and P M Sinha (former Pepsico India chairman)- can now sigh with relief. Over the last two years, they had discussed, debated and pored over an impressive list of internal candidates, and a few from the outside. And yet, until the very end, a series of extraordinary events tested the board.

As the succession drama moved into its last lap, the global financial meltdown triggered stories of how susceptible ICICI Bank really is to the crisis. That, in turn, stoked a brief run on deposits at the bank. Worried investors wanted to know why Kamath had to exit at this hour. This was the biggest crisis the bank had seen since 2006 when it had a run-in with banking regulators in Hong Kong over permissions to sell securities.

The concern was understandable. “In a period of uncertainty and change, the impact that an individual leader has on a company can be very significant. So if the board of directors picks a wrong CEO, it could be very bad for the company,” says Professor Michael Useem, director of Center for Leadership and Change Management at the Wharton University of Pennsylvania. “The right successor can make a big difference in giving the company the vision, verve and energy for taking on for the next 5-10 years. So as the board, the person you pick as the incumbent CEO is going to affect the company for the next decade or so,” he adds.

What most investors did not know then was that almost a year earlier, Kamath had made it clear he wasn’t interested in staying on. At 61, he wanted to spend more time with his family and there was no way that he would accept another term. The board had to find a replacement - even if that evoked adverse reactions from investors.

On November 24, when the entire board assembled to arrive at a final decision, the crisis at Citibank was raging. The possibility of the world’s biggest commercial bank going under had spooked the global investor community. It wasn’t the opportune moment to make their decision public. So the board decided to buy some more time, a few weeks at least.

Meanwhile, there was intense speculation in media and banking circles about who would eventually be crowned Kamath’s successor. Sources in the board confirm that there was some talk of external candidates, but they declined to name who the contenders were. Forbes-Network18 learns that the name of Aditya Puri, managing director of arch-rival HDFC Bank, did come up. But whether or not Puri stood a chance could not be independently confirmed. Perhaps, the fact that ICICI has a strong leadership bench from within may have dissuaded the board.

“In large, complex organisations, knowledge of the ethos, internal processes and the people is very important," says Marti Subrahmanyam. "Often, it takes a newcomer a long time to understand them. Hence, in cases where there is large pool of talent available internally, my own bias is towards using internal people. Besides, there is another danger in going outside: no matter how hard you try, you always have less information on external candidates. So there is always an element of risk in a lateral movement, especially at the top.”

But for those in the know, there never was much doubt on who would get the nod, despite the impressive array of candidates. There weren’t too many candidates who could match up to Kochhar. Nachiket Mor, known to be Vaghul’s blue-eyed boy, unexpectedly dropped out of the race in October 2007 and chose to move to ICICI Foundation.

Shikha Sharma, the other formidable contender, had built an awesome reputation as CEO & MD of the life insurance business. But when she was asked to come back to ICICI Bank two years ago, she seemed reluctant. That, sources say, may have been a tactical mistake that cost her the top job. By the time the board drafted her into the shortlist of the final two, Kochhar was firmly in the saddle at the bank and cantered home in the last lap of the race.

SBI slashes lending, deposit interest rates

Setting the ball rolling for a fresh round of cut in interest rates, country's largest bank State Bank of India (SBI) on Saturday announced a 0.75 per cent cut in its prime lending rate which will be effective from January 1.

SBI's PLR now stands reduced at 12.25 per cent, the bank said in a press release on Saturday.

The rate cut came a day after India's largest housing finance company HDFC reduced its interest rates by 50 basis points for loans of more than Rs 20 lakh for both existing and new customers and introduced a new slab for sub-Rs 20 lakh.

Union bank of India, another leading public sector bank had reduced its deposit rates on Friday, while Bangalore-based state-run lender Canara Bank announced reductions in their deposit and MSME lending rates.

With the country's largest lender reducing the PLR, other leading banks are also expected to follow the leader in the next few days, banking sources said.

The bank also cut deposit rates by 0.25-1 per cent, which will again be effective from January 1, across all maturities.

With the revision, 1-2 year deposit rates will now attract an interest rate of 8.5 per cent as against the earlier 9.5 per cent while deposits having two years to less than 1,000 days maturity will attract a 8.75 per cent (nine per cent), the bank said.

Similarly, the 1000-day deposits special deposit scheme, which had offered 10 per cent rates earlier, will now give nine per cent to investors, SBI said.

How fake currency funds terror

Investigations into the Mumbai attacks have revealed that a large part of the money to fund the terror operation were obtained through fake currency rackets and hawala channels.

Intelligence Bureau sleuths say the menace of fake currency is on the rise and there is a specific information that this money is being used extensively for terror operations.

IB sources told this correspondent earlier that Pakistan's Inter Services Intelligence raises Rs 1,800 crore (Rs 18 billion) annually to fund terror operations and that a major chunk of this amount comes in through fake currency rackets.

IB officials say Rs 30 lakh (Rs 3 million) of the Rs 50 lakh (Rs 5 million) spent on the attack on the Indian Institute of Science, Bangalore, in December 2005 was obtained through the fake currency racket.

Investigating agencies claim that the amount of fake currency in India is a shocking Rs 170,000 crore (Rs 17 trillion).

Reserve Bank of India officials dispute this figure and say that as on July 2008, the total currency available with the Indian public was Rs 603,000 crore (Rs 63 trillion) and if what the IB is saying is true, then it would mean that 28 per cent of the currency in the country is fake.

The fact that fake currency is being generated with the ISI's blessings in Pakistan is no secret. IB dossiers suggest that the notes are printed in Pakistan and then transferred to Dubai. In Dubai, the money is collected by hawala operators and dumped in India.

All fake currency reaches Maharashtra first, according to investigators. This is because it is familiar terrain for fugitive gangster Dawood Ibrahim. His proximity with the ISI grew after he took over responsibility of pumping fake currency into India.

IB officials say while Dawood controls most of this racket, Aftab Bhakti, originally from Mumbai, and Babu Gaithan, from Hyderabad, take care of operations in Dubai. The duo are in charge of collecting the money and then transporting it to India. This money is transported through individuals travelling between Dubai and India.

Labourers, who go to Dubai in search of employment, are the usual targets. When they return to India to visit relatives, they are lured with incentives to carry the fake currency. The notes are covered in carbon paper and stashed in suitcases and covered with perfume, clothes and other goodies. IB sleuths say there have been instances where notes have been packed in photographic albums.

While a large chunk of the fake currency is sent from Dubai, a sizeable amount of money also comes in through India's borders with Bangladesh and Pakistan.

Majid Bilal, Harkat-ul-Jihad-al Islami terrorist Shahid Bilal's brother, during his interrogation, said that Pakistani agencies had made it compulsory for terrorists to carry fake currency into India each time they crossed the border. He said the point men were based in Uttar Pradesh, Rajasthan, Andhra Pradesh and Maharashtra. The fake money is exchanged for original notes on a 2:1 basis. The money generated is then passed onto various terror networks in India to fund operations.

Majid mentioned that Rs 5 crore (Rs 50 million) was spent on last year's Hyderabad blasts and all this money was generated through the distribution of fake currency.

Both RBI and IB sources say it is difficult to differentiate between real and fake currency notes.

But an RBI official says there are prominent differences between the real and fake notes.

In a fake note, the security thread or the silver bromide and the logo are hazy. The three watermarks on each note -- the Ashoka Pillar, Mahatma Gandhi's image, denomination and the words RBI -- are not as prominent compared to original notes. In the fake currency, the sprinkled blue dots are not visible when seen through ultra violet light. Lastly, the superimposed digits are not visible when seen horizontally.

RBI officials, who have closely observed fake notes printed in Pakistan, say:

• The distinctive numbers are smaller in size.
• The alignment of series prefix are not in line when carefully examined.
• Thick lettering is used to print the issuing authority's name.
• Continuity of the security thread is not maintained.
• Alignment of the register on the left hand side of the watermark is not proper.
• Watermark on the left hand side bears a thicker image of Mahatma Gandhi whose eyes and spectacles are thicker in size.
• Intaglio printing is absent.
• Optical fibre marks are present when exposed to ultra violet light, but these are few when compared to genuine notes.
• The security thread does not glow under ultra violet light.
• The paper used is made of wood pulp while compared to the security paper, cotton and special ink used in the manufacture of the notes by the RBI.

There is a growing concern that more and more fake notes make their way into the Indian banking system. A bank official, speaking on condition of anonymity, explained that there are two ways in which such fake currency reaches banks.

Business establishments are targetted by the counterfeiters and the fake notes passed on to such entities in the course of business. The unsuspecting establishments innocently deposit the fake notes in the bank.

In some cases the perpetrators of the racket themselves deposit the fake cash, usually during peak hours and during busy periods like the festive season. Bank tellers, who are under tremendous pressure at these times, accept the notes without authenticating them.

While the RBI says that banks ought to be more careful and should have a fool-proof screening process, bankers say it is extremely difficult to keep a tab on every currency note.

Although the fake currency racket is a huge threat to the Indian economy, the conviction rate is a mere 6 per cent across the country. Explains R G Sadashiv Reddy, a senior advocate, "Such cases are incomplete unless the person, who originally floated the note, is caught. Usually, the case comes to light only when the fake currency has changed hands several times and there is no point in convicting a man who was last in possession of the notes."

Another hindrance is the law relating to such cases. An amendment to the Criminal Procedure Code now seeks to resolve this problem. This amendment proposes for the inclusion of more scientific experts to give evidence in cases relating to fake currency notes, in addition to officers of the Indian Mint or India Security Press, Nashik. Section 292 of the Criminal Procedure Code is proposed to be amended to enlarge the list of offices whose expert opinion on counterfeit currency can be considered as evidence.

By January 2009, the RBI proposes to withdraw all currency notes printed from 1996 and 2000. The RBI says that counterfeit notes are largely in the 1996 and 2000 series and hence it would be best to withdraw this series and introduce a new series of currency notes. The RBI says the new series will have enhanced security features. RBI officials, while understandably refusing to divulge the features, say these notes would be hard to copy.

The Central Bureau of Investigation plans to develop a national data bank of fake currency notes to help identify its origins.