Tides of 2.09.2015

1.  Banks could soon lose some of their freedom to fix lending rates. To ensure that lending rates are more sensitive to changes in monetary policy rates, the Reserve Bank of India on Tuesday issued draft guidelines, prescribing a uniform method by which banks will have to arrive at interest rates for loans. Although the proposed move could ring in transparency in the pricing of loans, banks are expected to oppose it.On its part, the RBI said it will encourage banks to move, in a time-bound manner, to the so-called marginal cost of funds-based determination of minimum lending rates.

2.  Fitch Ratings on Tuesday downgraded Punjab National Bank and affirmed ratings on nine other Indian banks.The long-term Issuer Default Ratings (IDR) on State Bank of India (SBI), Bank of Baroda, Bank of Baroda (New Zealand), Canara Bank, IDBI Bank, ICICI Bank and Axis Bank have been affirmed at ‘BBB-’.“PNB’s Viability Rating (VR) has been downgraded by one notch to ‘BB’ to reflect the growing risk to the bank’s capital position from its mounting stock of stressed assets, which has risen at a faster rate than its capital replenishment,” Fitch said in a statement.The downgrade also reflects Fitch’s expectation that capital buffers are unlikely to improve significantly even though the State is likely to inject capital into PNB in the financial year ending March 30, 2016 (FY16), with the bank’s large stressed assets stock potentially taking longer to resolve than that of its peers.Indian Bank’s rating has been affirmed at ‘BB+’ with the outlook being stable.

3.  In a redesigned organisation structure, YES Bank is looking to accelerate its retail and small and medium enterprises (SME) business in the next five years.In addition to branch, business and retail banking roles, Senior Group President Pralay Mondal will now also head the commercial and rural banking businesses, the bank said in a statement. The organisational re-design has been done along three pillars — expanding the sales distribution network; enhanced product offerings, such as credit cards and home loans for customer engagement with end-users; and customer service and operations. The urban branch banking business will be managed through a two-part regional management structure — with the northern and eastern regions being headed by Narendra Dixit, and the western and southern zones by Akshay Sapru.

4.  Corporation Bank has recorded a big increase in ATM income. “Income from ATMs has shot up 60 per cent over the last year,” the bank’s Chairman and Managing Director SR Bansal said.While stating that the bank has made its ATMs more vibrant now compared to the past, he said “despite being headquartered in Karnataka, we did not have an ATM at Chamundi Hills until recently.“No sooner had we installed an ATM than we realised there were as many as 245 hits a day, of which 230 were of other bank cards.”The CMD has since brought ATMs under his direct supervision and keeps a tab on the functioning of all ATMs.He has made branch managers caretakers of ATMs located at the respective branches and in the vicinity, as well as appointed IT officers stationed at zonal offices to function as channel managers.The ATM network, he said, is expected to reach 3,000 in a couple of days, up from 2,990 now.E-lobbies have also caught on in a big way. The first e-lobby at Dharmasthala will become operational by the end of this month, he added.The bank also plans to open two e-lobbies in Tirupur soon.

5.  IDFC Bank, a recent entrant into the Indian banking sector, plans to open 400 branches in the next three-four years, its Managing Director Rajiv Lall said. Three-fourths of the new branches will come up in rural India, he added.“We are convinced that with the combination of technology and changes in regulations, this business (banking) will give us the moral purpose of delivering on financial inclusion and will also be adequately profitable,” Lall said.

6.  Karnataka Bank is targeting Rs. 615 crs of MUDRA loans for the current financial year, according to P Jayarama Bhat, MD & CEO of the bank.Launching the MUDRA (Micro Units Development and Refinance Agency) card in Mangaluru recently, he said that Karnataka Bank is actively participating in the Pradhan Mantri Mudra Yojana (PMMY) scheme.To further ease credit dissemination, the bank has launched MUDRA card. He said that MUDRA card, which can be used on the RuPay platform, will be issued to micro-entrepreneurs who take working capital finance up to Rs. 10 lakh under PMMY.

Tides of 1.09.2015

1.  The RBI has designated State Bank of India and ICICI Bank as Domestic Systemically Important Banks (D-SIBs), which will put them under tougher monitoring to avoid any collapse. SIBs are perceived as banks that are ‘Too Big To Fail’. The RBI said the two banks have been selected due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness. SBI alone accounts for a fifth of the banking business in India. “The disorderly failure of these banks has the potential to cause significant disruption to the essential services they provide to the banking system, and in turn, to the overall economic activity. Therefore, the continued functioning of SIBs is critical for the uninterrupted availability of essential banking services to the real economy,” RBI said while announcing the framework for dealing with D-SIBs.Following their designation as D-SIBs, SBI and ICICI Bank must meet additional Common Equity Tier 1 (CET1) requirements from April 1, 2016, in a phased manner. The CET1 requirements will be fully effective from April 1, 2019. This means the banks will have to set aside more funds at a time when banks are battling a huge bad debt burden.The additional requirement as a percentage of Risk Weighted Assets (or loans) for SBI and ICICI Bank have been set at 0.60 per cent and 0.20 per cent, respectively. This will be in addition to the extra capital buffers already in place under Basel-III guidelines.Both banks said their capital base was higher than mandated. Arundhati Bhattacharya, Chairman, SBI, said, “SBI currently has a much higher level of Tier-I at 9.62 percent as opposed to 7 percent required under the current guidelines. We will adhere to the additional requirements as and when they become applicable.”Chanda Kochhar, MD and CEO, ICICI Bank, said, “ICICI Bank’s capital adequacy is well in excess of regulatory requirements and the Bank is not expected to require fresh equity capital for the next couple of years."If a foreign bank, having a presence in India, has been notified as Global Systemically Important Bank (G-SIB), it has to maintain the additional capital surcharge in India, proportionate to its Risk-Weighted Assets in India. HSBC, JP Morgan Chase, Barclays and BNP Paribas are among the G-SIBs in India as per the Financial Stability Board’s list of November 2014.

2.  Amid the slow credit offtake and lowering cost of funds in the banking system, HDFC Bank — the country’s second-largest private bank — slashed its base rate, or minimum lending rate, by a sharp 35 basis points to 9.35 per cent, effective September 1.This could set off a rate cut war among lenders to retain customers. HDFC Bank’s new base rate will be the lowest in the banking industry.Among public sector banks, Canara Bank also cut its base rate by 10 bps to 9.9%, effective September 3.

3.  At present, the base rate of country’s largest lender State Bank of India and ICICI Bank, the country’s largest private bank, are at 9.70 per cent each.

4.  Backed by strong macro fundamentals, the Finance Ministry on Monday pitched for a rating upgrade with global agency Standard & Poor’s (S&P). Currently, India has a rating of ‘BBB -’ with a stable outlook. Chief Economic Advisor Arvind Subramanian made a presentation to the team from the rating agency, comprising Paul Gruenwald, Managing Director & Chief Economist (Asia Pacific), and Kryan Curry Director (Sovereign & International Ratings). According to sources, during the presentation, the agency was told that inflation, the fiscal deficit, and current account deficit (CAD) are under control. “India has strong medium-term growth potential and therefore is exceptionally placed globally and reforms are persistent, cumulative, and creating an impact. Growth in the current fiscal will be better than fiscal 2015,” the CEA said in the presentation.

5.  JP Morgan Chase, the largest bank in the US, has an asset size of about $2,500 billion, which is nearly six times that of SBI’s. The lending operations of Indian banks are also much lower than that of their global peers.

6.  Industrial and Commercial Bank of China, has a loan book that is nearly seven times that of SBI’s.

Tides of 30.08.2015

1.  Four public sector banks have slipped in their compliance levels to ‘average’ from ‘above average’ owing to a missing boss. Without naming the banks, AC Mahajan, Chairman, Banking Codes and Standards Board of India (BCSBI), said: “Four banks have dropped in their extent of compliance…All are public sector banks. It shows also because there was no top boss. Although marginal, the banks have dropped on compliance on transparency & information dissemination.” BCSBI is an independent body tasked with monitoring and ensuring that banks adhere to the banking codes and standards adopted by them in the true spirit while delivering their services. According to a survey done in February, Mahajan said, “The compliance levels have improved from 50% in 2009 to 78.3% in 2015. It has been the lowest in transparency (76.7 %) and the highest in customer feedback (88%).” The survey will be in public domain after it is submitted to the RBI and banks. Last year, the RBI had received 85,000 customer complaints through the banking ombudsman. The single largest category of complaints, at 29%, has been on banks’ compliance levels, followed by grievances pertaining to ATMs and credit cards.The problems need to be corrected in public sector banks. The foreign banks are strong with their online mechanism and are performing the best. Some private and public banks are also doing well. Besides periodic revision of the Codes, the BCSBI undertakes thematic customer-centric studies, such as pertaining to retail loans, and banking services, among others, based on which it rates the banks. In the survey conducted by 100 retired RBI and bank officials, BCSBI sought feedback from about 4,100 customers from over 2,100 branches of 47 banks. It rates banks on five parameters — information dissemination, transparency, customer centricity, grievance redressal and customer feedback. Bank customers suffer from mis-selling of financial products, hidden charges, failure of customer service, no grievance redressal on fraudulent transactions or loss of ATM cards, among others.

2.  United Bank of India plans to bring down its gross non-performing assets to below Rs. 6,000 crs by the end of this fiscal. Gross NPAs for the quarter ending June 30, stood at Rs. 6,533 crs. The plan is to bring down gross NPAs to around 7.5-8 %. The bank’s current gross NPAs (as percentage of total advances) stands at 9.57%. The bank is also open to sale of sticky assets to asset reconstruction companies.

3.  Corporation Bank is striving to wean farmers away from money lenders by extending credit at affordable rates. Crop loans of up to Rs. 1 lakh are being extended to farmers, not necessarily for the crop but to pay off dues to money lenders.“Farmer suicides have been on the rise and we perceived that the best way to help the community is to free them from the clutches of money lenders. .It is across the country and not specific to any State or geography.

4.  The Reserve Bank of India said payment systems will not be operated on second and fourth Saturdays but would operate for the full day on working Saturdays. This move follows the Finance Ministry issuing a notification declaring that all scheduled and non-scheduled banks — public, private, foreign, cooperative, regional, rural and local area banks — will observe public holiday on second and fourth Saturdays from September 1 and will observe full working days on Saturdays other than second and fourth Saturdays. Payment systems typically include Real Time Gross Settlement (RTGS), National Electronic Fund Transfer (NEFT), Cheque Clearing operated by various Bankers' Clearing Houses in the country, including the grid-based Cheque Truncation System (CTS) and Electronic Clearing Service (ECS) suite, Regional Electronic Clearing Service (RECS) and National Electronic Clearing Service (NECS). Processing of future value dated transactions with value date falling on the second and fourth Saturdays will not be undertaken under RTGS and ECS suite. The financial market segments which are currently open for transactions on Saturdays will continue to remain open on all working Saturdays.

Tides of 22.08.2015

1.  The new payments banks are likely to impact commercial banks, say bankers. They echoed the fears expressed by Arundhati Bhattacharya, SBI Chairman, who felt that these new banks will pose a threat to the existing players with their ability to move money as well as compete for low-cost savings accounts. Terming it as a tricky game, N Kamakodi, CEO of City Union Bank, said that on the one side there are telecom companies that can virtually move currencies. On the other, some banks still have limitations in adopting technology.“While every customer of the bank has a mobile phone, not every individual has a bank account as yet. The last mile connect is still missing, but the mobile phone penetration is phenomenal,” he said.SR Bansal, CMD of Corporation Bank, said that the competition for savings bank portfolio, especially in the case of smaller-value accounts, will increase as far as public sector banks are concerned.

2.  The country’s largest lender SBI is “working on” its low-cost consumer touch points to take on payments banks.According to Arundhati Bhattacharya, Chairman, SBI, the bank intends to do this by strengthening the business correspondent (BC) model.The bank already has 56,000 business correspondents, and another 500 will be added to the unbanked gram panchayats in West Bengal soon.“The advantage which payments banks will have is lower cost of operations. So, we are also working on a low-cost model to increase our reach and compete with them,” she said on the sidelines of a Banking Conclave organised by FICCI.The RBI has granted 11 in-principle licences for payments banks, led by payment intermediaries, technology companies, mobile service providers and corporate entities.SBI has a 30% investment in the proposed payments bank to be launched by Reliance Industries.

3.  The All-India Bank Employees Association has criticised the RBI granting licence to private companies to open payments banks as a move to boost private sector banks at the cost of their public sector counterparts.AIBEA General Secretary Ch Venkatachalam said in a statement that the move would minimise the role of public sector banks and shrink their market share. In the name of banking reforms, he said, the government was trying to diminish the status of PSBs and boost private banks.“Because of the colossal private corporate delinquency, PSBs are saddled with huge bad loans of nearly Rs. 6 lakh crs,” Venkatachalam said. “All these are private corporate companies who had defaulted and it is strange that the RBI and the government want to encourage the very same private sector to start banks.”He pointed out that at the end of the last financial year there were 7,035 cases of wilful default involving bad loans of Rs. 58,792 crs. The top 30 borrowings from PSBs amounted to Rs. 1.21 lakh crs.

4.  The Institute for Development and Research in Banking Technology (IDRBT), an arm of the RBI, is conducting the first of its kind national competition to develop ‘apps’ for the banking and financial sector.Christened IDRBT Banking Application Contest (IBAC), the contest will be held in March 2016 at the IDRBT's premises here.“The competition is designed to enable development of application software to facilitate banking operations in the three broad areas of customers, managing business and managing technology,” the institute said in a release. Those intending to participate will have to register as a team of maximum three members. All members must be less than 25 years of age or affiliated to any recognised educational institution as a student. Any bank employee within the prescribed age limit can also try his/her luck. The last date for registration for IBAC is August 31, 2015.

Tides of 19.08.2015

1.  The venture capital being invested in Indian start-ups should be more balanced between foreign and domestic flows than it is right now, Minister of State for Finance Jayant Sinha said at the launch of two funding facilities by SIDBI. “The venture capital industry should be based in India,” he said. “Right now, 95 % of venture capital and private equity funding comes from outside India.”The Small Industries Development Bank of India (SIDBI) has announced the launch of its India Aspiration Fund — a fund of funds where the government will be an anchor investor in domestic venture capital funds — and the SIDBI Make in India Loan for Enterprises programme, that will provide loans on soft terms to small and medium enterprises.

2.  The State Bank of India has launched its mobile wallet — State Bank Buddy — in collaboration with Accenture and MasterCard. Customers of SBI as well other banks can download the mobile wallet application from Google Play Store and use it. It will allow users, among others, to send money to registered and new users, send reminders to settle dues, transfer additional cash into accounts of their choice free of cost, recharge and pay bills instantly, book movie tickets, flights and hotels, and shop. The mobile wallet app is available in 13 languages. The bank said the wallet will soon be available in the Apple App Store as well. B Sriram, MD, said State Bank Buddy is an online prepaid account which can be loaded for use when required.At a later stage it can also be linked to debit cards, bank accounts, etc. It will be a precursor to making mobile as the banking channel of choice.

3.  Banks have been speeding up loan sanctions and disbursals to borrowers in order to capture a larger share of the growing retail market.Major lenders, such as State Bank of India, ICICI Bank, HDFC Bank and Axis Bank have reduced their turnaround time to one day and, in some cases, to even as low as 10 seconds.Turnaround time is the time from the application of a loan by a customer till the final disbursal of the loan amount.A few months ago, giving digitised retail lending a push, HDFC Bank, the country’s second-largest private lender, had launched 10-second, almost real-time, loan approval and disbursement, with the customer only having to click/tap on his/her Net banking account.“It’s like having a real cheque in one’s virtual wallet…There is growing demand from digitally-savvy customers, to do away with paper work and to accelerate processes.

4.  Taking banking in India to the next level, ICICI Bank has  launched a new digital initiative — Smart Vault.Smart Vault is India’s first automated locker facility with high-end robotic technology. Launching this automated locker facility in the Capital, Chanda Kochhar, Managing Director and CEO, ICICI Bank, said this initiative marked a milestone in the Indian banking industry.This is because India has now joined a select group of countries that have access to the unique vault which uses state-of-the-art robotic technology.In this digital initiative, robotic technology is used to access the lockers from the safe vault. Customers get to conveniently access their lockers at any time of their preference, in the comfort of a secure lounge.Speaking to newspersons on the occasion, Kochhar highlighted that ICICI Bank had shaped the direction of technological progress in the banking industry and led the way in introducing path-breaking innovations, including internet, mobile, tab, touch banking branches, and banking on social media.The other important facet of the latest digital initiative is that ‘Smart Vault’ is an example of ‘Make in India’.Smart Vault has been both designed and manufactured by Indian partners, she said, adding that ICICI had (in 1990) provided seed funding to the company that designed the robotic arm. Pune-based Precision Automation & Robotics India had designed the robotic arm.