Airtel Payments Bank- a joint venture between Bharti Airtel and Kotak Mahindra Bank  offers you an interest rate of 7.25 per cent on their savings account. The rate looks very attractive when one compares it with 4-6 per cent offered by commercial banks. In such a scenario should you open an account with the payments bank to earn high returns? What if you are already have a bank account? Does it makes sense to go for the second or third account? Well, there are few factors to consider before you make the final decision.
First, the rate of 7.25 by Airtel is just a welcome offer to bring more and more customers in its fold. Don't expect it to hold on to these rates for very long considering that interest rates are on downward trajectory. Currently, on an average the 10-year benchmark bond yield is ranging around 6-7 per cent, which means the rates offered by the payments banks needs to be lowered to earn a margin as they are not allowed to lend. According to the RBI guidelines, payments bank have to deposit 75 per cent of their money in Statutory Liquidity Ratio(SLR) eligible government securities, with maturity up to one year and hold maximum 25 per cent in fixed deposits with other scheduled commercial banks for operational purposes and liquidity management.
How does Airtel manage to pay such high interest rate? Well, for the time being Airtel is subsidising the difference from its own pocket to attract more people for opening an account. Once it reaches the critical mass expect a decline in interest rates by the payments bank. There is a target within Airtel to convert at least 100 million of their 270 million customers with Airtel payments bank accounts.
Second, it is not free of cost to withdraw and transfer money from the payments bank. For withdrawal of less than Rs 4000 the Airtel Payments Bank charges you in the range of Rs 5 to Rs 25. For the amount above Rs4000 you are charged at 0.65 per cent of the withdrawal amount, which means higher the amount the higher will be the charges. Similarly there are charges ranging from 0.5-1 per cent of amount transferred from the payments bank to another bank. Compared with commercial banks, it is bit costly as NEFT allows you to transfer money at just Rs 2.5 . Similarly, there is no fees in for transferring money through UPI.
However, there are no charges on transfer of money from the payment bank to the payment bank through internet and USSD. Also, there is no fees for transfer of funds from Airtel Payments Bank to another bank for transactions of less than Rs 1000. So, if you do not have to make large transactions (You can maximum deposit upto Rs1 lakh in the payments bank) it might not cost you much to transfer and withdraw money.
Third, if you are already having a wallet don't worry as it will eventually get merged with the payments bank. Moreover, whatever discounts and offers you offered with wallets will continue to be offered under the bank.
The Reserve Bank of India main objective behind payments banks is to achieve financial inclusion of millions of people, particularly in the remote areas of the country. It is to serve the need of transaction and savings account in rural areas. But with transfer and withdrawing charges so high, it might not attain the desired purpose. In 2015, the Reserve Bank of India gave approval to 11 applicants including Paytm to set up these banks. Soon Paytm is expected to come out with its payments bank. Reach of Payments banks is sure going to be more than the number of bank branches in the country but unsustainable rates and high cost of transaction should not be deterrent in its expansion.

Tides of 19.11.2015

1.  Around 17,000 employees of the Reserve Bank of India (RBI) will be on “mass casual leave” on November 19 to demand improvement in pensions and to protest against the Union Government’s move to dilute the central bank’s autonomy. The strike in the form of mass leave is the first in over six years and threatens to disrupt settlement activities and the bond and foreign-exchange markets. A walkout staged by RBI employees in 2009 hampered bond trading and agency reports suggest that investors have been informed to be prepared about a similar possible disruption. However, according to a source, the RBI is trying to ensure that the public is not inconvenienced and will try to run the RTGS facility.

2.  In a rare intervention, the finance ministry has asked the insurance regulator to reconsider its order directing SBI Life to pay Rs. 84.31 crore to its group insurance members/ beneficiaries.In June 2008, the Insurance Regulatory and Development Authority (IRDA), during an onsite inspection at SBI Life, found that the company had paid Rs. 204.71 crore to 14 ‘Master Policyholders’ in contravention of its regulations. The master policyholders, in this case, were the banks that sold SBI Life’s home loan product. In 2011, the regulator had levied a fine of Rs. 70 lakh on SBI Life, reserving its rights to take further action in the matter. SBI Life paid the penalty. Later, in 2012, the regulator ordered the life insurer to distribute Rs. 84.31 crore to members/beneficiaries of the respective group insurance policies. Following this order, SBI Life appealed to the regulator, which rejected the petition. SBI Life then filed an appeal with the Finance Ministry, which heard both parties in February this year.

3.  Private sector insurer Shriram Life Insurance aims to increase its branch network across India by opening about 30 branches by the end of this fiscal year.The network expansion is likely to boost new business revenues by 30 per cent from about Rs. 500 crore last fiscal year to around Rs. 650 crore this year.The company had sold over 1.9 lakh policies last year, which it expects to cross 2.5 lakh by the current fiscal year.“We cater to the bottom of the pyramid. And that’s where we expect the maximum growth to come. We provide insurance to truck customers and gold loan customers. Our average premium is one of the lowest at Rs. 12,000 per annum,” said Manoj Kumar Jain, CEO & whole time director, Shriram Life Insurance Company Ltd.In Gujarat, the company has tied up with SEWA Bank n Gujarat to offer Pradhan Mantri Jeevan Jyoti Yojana to cater to the rural population and provide cheap life insurance.“In a tie-up with SEWA Bank, we have sold more than 5,000 policies across Gujarat. The average premium for these customers is just Rs. 360,” he said.Jain added that the company will open four more branches in Gujarat during this fiscal year to increase its presence from the existing 28 branches in the state.

Tides of 7.11.2015

1.     Expressing concern at the growing volume of non-performing assets, Rajan hoped that banks would take “responsible and prudent decisions” while funding major projects. He said the RBI and banks would have to work together with the government and Parliament to find a solution to the banks’ burgeoning non-performing assets. In his submission before the PAC, Rajan said banks would have to finance major infrastructure projects and loans to such projects cannot be compared with personal loans. He hoped that banks would be careful while processing big loans. The RBI note to the PAC members said the domestic and global economic slowdown, delays in approvals, aggressive lending practices during the upturn, laxity in credit risk appraisal and loan monitoring, lack of appraising skills and wilful default were the key reasons for the non-performance of loans. Rajan told the PAC that the RBI has given guidelines to all banks on formulating a loan and loan recovery policy with the approval of the board of directors. Members also took up individual cases with him.

2.    The much-awaited September quarter results of the top three public sector banks — State Bank of India, Punjab National Bank and Bank of Baroda — packed a fair punch, with all the three stocks rising 2 to 4 % on Friday. Among the biggies, SBI scored better on the asset quality front, with its gross non-performing assets (GNPAs) as a percentage of loans falling marginally over the previous quarter on account of lower slippages. BoB, on the other hand, saw a sharp rise in slippages; PNB’s performance was a mixed bag. While PNB’s GNPA fell marginally to 6.36 per cent in the September quarter, from 6.47 per cent in the previous quarter, it is still higher than its peers. Moreover, PNB’s restructured loans, which can slip into the NPA category are also a cause for concern. Restructured loans as of September 2015 stood at about 10 per cent of loans. For BoB, there was no substantial reduction in bad loans, either on account of recovery, upgradation or write-offs that could offset the sharp rise in slippages.The bank’s slippages has been the highest in many quarters at Rs. 6,816 crs, up from Rs. 1,685 crs in the previous quarter.

3.    Punjab National Bank (PNB) is “shifting gears” to change itself into a retail bank in a big way, Usha Ananthasubramanian, MD & CEO, said on Friday.As part of its risk-diversification strategy, the public sector lender will focus on expanding the share of “small value loans” in its balance sheet, she said at a press conference while announcing the bank’s second quarter results. The general perception is that PNB’s lending is heavily focused on large corporates and medium enterprises. Special focus will now be laid on retail loans. There is ample room for PNB to expand its retail loan book and this would be the way forward, she said. This was Ananthasubramanian’s first press conference after assuming charge as CEO of PNB in August this year.

4.    Reeling under two frauds, one relating to bill discounting and the other to outward forex remittance, Bank of Baroda plans to centralise many of its processes and also set up a transaction monitoring unit to ensure that such incidents do not recur.

Tides of 3.11.2015

1.      Rating agency Moody’s has changed its outlook for India’s banking system to stable from negative due to an improvement in the operating environment for banks. The outlook was negative for the past four years. The problem of bad loans has impacted the ratings outlook in the past. Srikanth Vadlamani, Vice-President and Senior Credit Officer at Moody’s, said that 11 of the 15 rated banks had added about Rs. 1.2 lakh crore of bad loans during each of the past four years. But now, the improved operating environment will result in slower pace of additions to problem loans, leading to a more stable impaired loan ratio.

2.      Financial services major Edelweiss has not given up on its plans to enter the banking sector. It may in the next three to four years renew efforts for the banking foray, Rashesh Shah, Chairman and CEO, Edelweiss Group, said.Shah expects Edelweiss’ asset base to cross Rs. 50,000 crore in the next three-four years. He felt that achieving this milestone cou ld be the right stage to set up a universal bank.“There is no hurry. Our current asset base is Rs. 30,000 crore. Up to Rs. 50,000 crore, we don’t have to be a bank. If we want to go above Rs. 50,000 crore, then we may have to become a bank. After three-four years, we will do it (achieve Rs. 50,000 crore asset base and set up a bank),” Shah told BusinessLine .Edelweiss had not made the cut when the Reserve Bank of India had invited applications for of universal bank licences.

3.      Indian Bank’s net profit for the second quarter of this fiscal has jumped 17 per cent over the comparable quarter last year.It reported a net profit of Rs. 369.31 crore ( Rs. 314.33 crore in the year-go quarter) on a total income of Rs. 4578.65 crore ( Rs. 4340.32 crore) for the quarter ended September 30, 2015.The bank benefited from treasury operations, which contributed Rs. 194.18 crore ( Rs. 80.72 crore) to the profits. Corporate banking brought in Rs. 282.23 crore ( Rs. 361.62 crore), retail banking Rs. 239.61 crore ( Rs. 303.34 crore), and other banking operations Rs. 19.47 crore ( Rs. 19.23 crore).On the assets front, the slippages were marginal with gross non-performing assets (NPAs) standing 4.61 per cent ( Rs. 5,772.77 crore) of gross advances as of September 2015, against 4.21 per cent ( Rs. 5,003.41 crore) in the year-ago period.Likewise, net NPAs were 2.60 per cent ( Rs. 3,187.53 crore) of net advances during the quarter under review, up from 2.55 per cent ( Rs. 2,975.85 crore) in the same quarter of the previous fiscal.In the first quarter of the current fiscal, gross NPAs stood at 4.65 per cent ( Rs. 5,815.14 crore) and net NPAs 2.62 per cent ( Rs. 3,193.29 crore).Mahesh Kumar Jain, Managing Director and CEO (Additional Charge), Indian Bank, told media persons that the bank has managed to contain slippages in sequential quarters with enhanced recovery and containing big-ticket exposure.

Tides of 31.10.2015

1.     India’s largest private lender ICICI Bank’s net profit grew by 12% to Rs. 3,030 crs for the July-September quarter, compared with Rs. 2,709 crs in the corresponding quarter last year. “Growth was lower due to subdued corporate activity…We expect NPA (non-performing asset) additions to be lower than the total additions last year and we are on track,” said Chanda Kochhar, MD and CEO of the bank. Net interest income (difference between interest earned and expended) increased to Rs. 5,251 crs, up 13% from last year. Other income grew 10% to Rs. 3,007 crs, driven by fee and treasury income. ICICI Bank’s asset quality deteriorated as gross NPAs increased to 3.77% of total loans as against 3.12% a year ago and 3.68% in the previous quarter. Year-on-year, net NPAs also worsened to 1.65% from 1.09 % in the September last year.

2.    Private sector lender Kotak Mahindra Bank’s standalone profit grew 28% year-on-year to Rs. 569.5 crs for the July-September quarter. The earnings included ING Vysya Bank’s figures. Net interest income (difference between interest earned and expended) jumped to Rs. 2,278 crs, up 44% compared with Rs. 1,584 crs a year ago. Other income grew 35% to Rs. 970 crs from Rs. 720 crs. Asset quality deteriorated as gross non-performing assets (NPAs) increased to 2.08% of total loans from 1.59% a year ago and 2.04% in the previous quarter. Net NPAs also worsened a tad to 0.93% from 0.84 % in September last year. Sequentially, net NPAs remained flat. As of September-end 2015, total advances jumped 65% to Rs. 1.35 lakh crs on account of ING Vysya Bank’s loan book. Similarly, total deposits almost doubled to Rs. 1.20 lakh crs. Consolidated profit rose 31% to Rs. 942 crs during the quarter compared with Rs.718 crs in the year-ago period. Consolidated numbers include banking and other businesses, such as broking, insurance and investment banking, among others.

3.    With some of its peers embarking on a journey to transform themselves into small finance banks over the next 18 months, Hyderabad-headquartered SKS Microfinance has decided to do more of what it is already doing. India’s only listed microfinance company will go about strengthening its market share in the rural markets, expand loan portfolio, reduce cost of borrowing, reduce operating costs, and bring down lending rates to below 20 per cent, President S Dilli Raj told BusinessLine in an interview. Though the MFI did not bag the coveted small finance bank licence, that has not dampened Raj’s spirit to grow his company’s business and prepare it for a bank licence, as and when the RBI puts the licensing process on tap.

4.    Lower provisioning helped Karnataka Bank register a 15.6% growth in net profit during the second quarter of 2015-16.The bank’s net profit stood at Rs. 102.25 crs during the quarter against Rs. 88.46 crs in the corresponding quarter of the previous fiscal. Gross NPAs fell to 3.18% (3.53%), and net NPA to 1.96% (2.37 %). The quantum of gross NPAs came down from Rs. 1,060 crs in Q2 2014-15 to Rs. 1,043 crs in Q2 2015-16. The net addition to the NPA was Rs. 10 crs sequentially. In the June quarter, the gross NPA was Rs. 1,033 crs.

Tides of  17.10.2015

1.  Bank of Baroda has conferred poet, lyricist and advertising guru Prasoon Joshi with Maharaja Sayajirao Bhasha Samman. The bank said in a statement that the award, in memory of Bank of Baroda’s founder Maharaja Sayajirao Gaekwad-III, was given to Joshi for his outstanding contribution in promoting Hindi.

2.  South Indian Bank today reported 22.38 % increase in net profit at Rs. 93.38 crs in the second quarter ended September 30, helped by lower provisions for bad loans. The bank had clocked a net profit of Rs. 76.30 crs during the same quarter in the previous fiscal. Total income of the private lender increased to Rs. 1,526.19 crs during the quarter under review, up 8.55% from Rs. 1,405.95 crs a year ago, the bank said in a BSE filing. The bank’s provisioning and contingencies were at Rs. 67.47 crs in the second quarter of 2015-16 against Rs. 95.71 crs in the year-ago period.

3.  China Reinsurance (Group) raised $2 billion after pricing its Hong Kong initial public offering at the top of expectations, sources with direct knowledge of the plans told Reuters.The company priced the 5.77 billion new shares, equivalent to 13.7% of its enlarged share capital, at HK$2.70 each, after marketing the deal in an indicative range of HK$2.25 to HK$2.70, added the sources, who declined to be named because details of the IPO aren’t yet public.China Re’s IPO would be the largest in Hong Kong since property developer Dalian Wanda Commercial Properties Co Ltd raised $4 billion in December. It should be surpassed next week when distressed debt manager China Huarong Asset Management Co Ltd prices its listing, worth up to $2.8 billion.

4.  The Central Bureau of Investigation is investigating top officials of a Chennai-based company and two firms of chartered accountants on allegations of cheating IDBI Bank to the tune of ₹274 crore. According to a CBI press release, available on its website, a case has been registered on complaint by IDBI Bank that between 2005 and 2013 these individuals have cheated it using forged documents and falsified accounts. Searches are being conducted at eight places, including seven in Chennai and one in Hyderabad, in the offices and residences of the accused which led to recovery of incriminating documents. Further investigation is in progress.

5.  Axis Bank has internally started looking into the forex scam unearthed by the Enforcement Directorate (ED) involving a total of eight banks involving Bank of Baroda, Axis Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, IndusInd Bank, DCB Bank and Dhanalaxmi Bank. In a statement, Axis bank said, “We have taken note of the recent media reports involving our Bank along with 8 other banks relating to a probe by the Enforcement Directorate (ED).”

6.  India Post will soon be a force to reckon with. Until now India Post was seen as a slumbering giant. Not anymore. It has woken up. This time it will not give it up, as payments bank presents a historic opportunity for India Post. “It’s very exciting for us as the payments industry is going to be like skating on thin ice. We don’t know who will fall by the wayside, when there will be a bloodbath, and what kind of pricing/revenue models will emerge,” Mr.Ramanujam  said, adding that this will be a game of high volumes and wafer-thin margins. India Post is among the 11 successful applicants that recently got in-principle nod for a payments bank licence from the RBI. The new entity will be registered as a company and will be called ‘India Post Payments Bank’. It will have an initial capital of Rs.300 crs, much more than the minimum of Rs.100 crs stipulated by the RBI. “We will soon approach the Cabinet for approval,” Ramanujan told Business Line here.