THURSDAY THOUGHTS: SHARING BANKING NEWS OF 04.09.2014 COMPILED BY SHRI.D.S.GANESAN 1. Jan Dhan cover: LIC says no to premium Business Line / New Delhi / September 3: Life Insurance Corporation wants the Government to bear the premium cost involved in providing ₹30,000 life cover for each beneficiary of the Pradhan Mantri Jan Dhan Yojana (PMJDY), the flagship financial inclusion scheme launched by Prime Minister Narendra Modi. While the insurance behemoth has agreed to extend life cover, it has conveyed to the Finance Ministry’s top brass that it is in no position to bear the premium cost, sources close to the development said. Even a premium as low as ₹100 for every life insurance contract with a sum assured of ₹30,000 would mean an outgo of at least ₹750 crore, a rough calculation shows. This is because the Government wants to open at least 7.5 crore basic bank accounts for un-banked families by January 26 next year. The Modi administration is keen that each un-banked family has at least two accounts (including one for a woman member of the family). Apart from a basic bank account, a beneficiary will get accident cover of ₹1 lakh under the programme. The premium bill for the accident cover will be borne by the National Payments Corporation of India and the cover, by HDFC Ergo. Meanwhile, Financial Services Secretary GS Sandhu on Wednesday reviewed the implementation of the scheme with top executives of all the public sector banks. Good start The scheme got to a flying start with 2.5 crore accounts opened on the launch date of August 28 and subsequent few days. The main draw to this financial inclusion project has been the free accident cover that was being bundled with the Rupay debit card. The Prime Ministers move to add life cover for the beneficiaries sweetened the deal for the un-banked families, say bankers. Moreover, the Finance Ministry’s “camp mode” strategy paid rich dividends. About 78,000 camps were organised across the country on August 28 to enable enrolments. 2. Financial inclusion makes business sense for banks, says RBI official Business Line / Mumbai / September 3: When foreign investors are attracted by the return on investment generated by microfinance institutions, which cater to the credit needs of those at the bottom of the pyramid, then there is definitely a business case for banks to go the whole hog on financial inclusion under the Prime Minister’s Jan Dhan Yojana, according to a top Reserve Bank of India official. “Why are foreign investors willing to come into the country in the microfinance segment? This is because they can get returns on their investment. So, the business case has been built up. What we need to build up in financial inclusion is also a similar business case. You do have profit at the bottom of the pyramid,” said Deepali Pant Joshi, Executive Director, Reserve Bank of India, on the sidelines of a recent financial inclusion conclave. Basic accounts Under the Yojana, which was launched on August 28 by Prime Minister Narendra Modi, banks collectively have to open 7.5 crore basic savings bank deposit accounts by January 26, 2015. These accounts come with benefits including a RuPay debit card, a ₹1-lakh accident insurance cover and an additional ₹30,000 life insurance cover. On satisfactory performance of an account in the first six months, the account holder will get an overdraft facility of up to ₹5,000. Joshi observed that under the Yojana there would be a steady stream of small deposits for banks. So, they will have a large corpus to depend upon. The RBI has advised banks to leverage the Government’s Direct Benefit Transfer (DBT) initiative to link all individuals to the banking system and to utilise the large amounts likely to be credited in these accounts to promote deposit and credit products. Direct transfers “It is a win-win proposition for banks if they manage to build a business case. And such a business case is emerging, because if you have direct benefit transfers and you have a revenue stream, then a lot can be achieved. If 50 per cent of the country’s population, which is marginalised, comes into the mainstream as producers and consumers of goods, you can imagine what strength of the economy would then be,” said Joshi. The RBI official said the central bank is monitoring implementation of the Yojana at the State and district levels. “It is a question of putting your shoulder to the wheel and being in the trench along with the troops,” she added. 3. Prudent banks don’t write cheques to everybody: CSB chief Business Line / Thiruvananthapuram / September 3: A bank should not be too aggressive, said Rakesh Bhatia, Chairman and Managing Director of Thrissur-based Catholic Syrian Bank (CSB). “A bank should be sensible, conservative and growth-oriented. It is not as if I will write cheques to everybody,” he told BusinessLine in an interview. “Too aggressive a lending approach will definitely come back to bite. A well capitalised bank, a calibrated strategy and a willingness to look beyond the cycles. This is what we would like to achieve with CSB,” Bhatia said. Bhatia is excited about the forthcoming initial public offering which, he said, would be a prestigious event for Kerala. This could be the last instance of a home-grown bank in the State going for a listing, he said. Banks of scale He is confident that there will be a lot of interest in the IPO and expects support for the event from the bank’s customers and stakeholders in Kerala, in particular, as well as in South India, in general. Bhatia said that countries such as India, set to become one of the top five markets in 2025, should have banks of scale. If these banks need to support the domestic economy and also have their rightful place in the international banking system, scale is crucial, he said. “If the best way to achieve scale is through mergers, that is the way to go. But we should also look for organic growth, wherever possible,” he said. If there is a possibility of institutions coming together and creating strong synergies, to effect cost-saving and efficiency improvement, that is a logical step to be considered seriously. Consolidation “If you look at the US, the UK and the European markets, such consolidation happens on a regular basis. You can argue that there is a point at which some banks become too big to manage at an international level,” said Bhatia. “But our institutions are still a way away from those. So there is a huge gap between where we are and where some of the top international institutions are, and enough scope to grow.” As for the issue of too-big-to-fail, every regulator is concerned about it, Bhatia feels. “After the Lehman incident regulators have become very sensitive to that aspect,” he said. The initiative to identify such banks domestically is sensible. Too big to fail Every major country is trying to identify banks that are too big to fail, and making sure there are safeguards to protect such banks. “I don’t find inconsistencies in these decisions. I think they are perfectly consistent with a large economy that is continuing to grow and, at the same time, protecting itself from internal and external shocks,” he added. 4. Dhanlaxmi Bank keen on moderate growth; to focus on NIM, asset quality Business Line / Mumbai / Sep 3: Private sector lender Dhanlaxmi Bank, which returned to profitability in the June quarter after years, is looking at moderate growth this fiscal by focusing on branch-level profitability, improving net interest margin and asset quality and better recoveries. “Things are looking up finally. I believe the worst is almost over and we can expect improvement in earnings performance in the coming quarters. There is tremendous support from our investors, the public and more importantly from the staff for the measures we have taken in the past two years to stabilise the operations and come out of the crisis. “We are lending carefully, mostly against collaterals, and monitoring our asset quality closely. We are trying to improve operating efficiencies, cut costs and grow our low-cost deposit base,” Dhanlaxmi Bank MD & CEO P G Jayakumar told PTI. For the three months to June, the 85-year-old lender had reported net profit at Rs. 3.03 crore. It had reported Rs. 252 crore net loss for the full fiscal ending March 2014, which was attributed to a Rs. 100-crore hit on treasury operations. In FY 2013, it had reported a marginal profit of Rs. 2.6 crore while in FY 2012 a net loss of Rs. 115.6 crore. He also said, “Going forward we are not looking at a break-neck growth, which had brought us down in the past, but a moderate, say 10-15 per cent growth. My focus is to improve the NIM (net interest margins) to at least 3 per cent by March and aggressively go about recovery. Another key area of focus is asset quality.” In June quarter, Thrissur-based bank had a NIM of 2.4 per cent, he said, but noted this was only 1.8 per cent earlier. Branch-level profitability means putting a full-stop to branch expansion, he said, adding new branches may begin only from next fiscal. Currently, the bank has 280 branches and close to 400 ATMs at 160 centres in 14 states, serving 1.6 million. However, he was quick to add that no branches will be shut. This strategy also involves tapping the potential of operations in Mumbai and Delhi, where it had opened many branches during 2010-12, he said. Blaming the unbridled expansion for the present situation, Jayakumar, who took charge in May 2012, said: “We have high levels of non-performing assets because of the old loans. We have been making provisions affecting our profitability.” During the past two years, the bank had slashed its employee strength to 2,500 from 4,500 and also massively cut salaries. During the previous management under Amitabh Chaturvedi, the bank had given huge salary hikes and increased the head count to 4,500 from 1,250, which increased the operating expenses by over five times, he said. 5. RBI curbs banking operations of Choundeshwari Sahakari Bank Business Line / Mumbai / Sept 3: The RBI has issued directions to The Choundeshwari Sahakari Bank Ltd of Kolhapur, Maharashtra that will require the bank to seek prior approval for its banking business. “In particular, depositors of the bank will be able to withdraw a sum not exceeding Rs. 1,000/- (Rupees one thousand only) of the total balance held in every savings bank or current account or any other deposit account by whatever name called, subject to the conditions stipulated in the RBI Directions,” RBI said in a statement. As per the directions a copy of which is displayed on the banks premises for perusal by interested members of the public, the bank, from the close of business on August 30, 2014, cannot, without prior approval in writing from the RBI i) grant or renew any loans and advances, ii) make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits, iii) disburse or agree to disburse any payment whether in discharge of its liabilities and obligations or otherwise, iv) enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except as notified in the RBI Directions dated August 28, 2014. The central bank added that the issue of directions should not per se be construed as cancellation of banking licence by the Reserve Bank. The bank will continue to undertake banking business with restrictions till its financial position improves. The Reserve Bank may consider modifications of these Directions depending upon circumstances. 6. RBI sets up supervisory college for Axis Bank Business Line / Mumbai / Sept. 2: The Reserve Bank of India sets up supervisory college for Axis Bank in Mumbai, as part of supervision of cross border operations of Indian banks abroad. RBI has set up supervisory colleges for banks which have good international presence. Previously, it has set up such a college for ICICI Bank and State Bank of India in December 2012 and for Bank of Baroda and Bank of India in February 2014. The main objectives of supervisory college are to enhance information exchange and co-operation among supervisors, to improve understanding of the risk profile of the banking group and thereby facilitate more effective supervision of internationally active banks. It is expected that the colleges would enhance the mutual trust and co-operation among the supervisors. Nine supervisors from five overseas jurisdictions participated in the Supervisory College for Axis Bank. Some of the Indian banks have started touching the lives of people and enterprises in overseas jurisdictions and have assumed a certain degree of relevance for the host nations’ economy. It casts upon the Reserve Bank as the home country supervisor an immense responsibility culminating in the setting up of supervisory colleges, through which exchange of supervisory information and perceptions becomes easy, said RBI’s Deputy Governor R Gandhi, who inaugurated the College on Wednesday. During the day-long event, the host and home supervisors deliberated on many issues of mutual concern and the host supervisors shared their views on the presence and operations of Axis Bank Ltd. in their respective countries with the Reserve Bank. The top management of Axis Bank led by Shikha Sharma Managing Director and Chief Executive Officer, made a presentation to the College about the bank in general and its international presence in particular and took questions from the host supervisors, RBI said in a statement. P.R. Ravi Mohan, Chief General Manager-in-Charge, Reserve Bank of India, Department of Banking Supervision, presided over the deliberations of the college and gave a presentation about the supervisory role of the Reserve Bank with an insight into the new approach in supervision, that is, Risk Based Supervision. Sudharshan Sen, Chief General Manager in-Charge, Department of Banking Operations and Development gave a presentation on the regulatory set up in the country. 7. RBI stipulates conditions for acquiring UCBs by commercial banks Business Line / Mumbai / Aug 03: The Reserve Bank of India has stipulated two conditions to ensure that the acquisition of a weak urban co-operative bank by a commercial bank does not affect the latter. The central banks stipulations are: the acquiring bank should not incur any loss arising out of the said merger/ transfer of assets and liabilities and big depositors, holding deposits in excess of Rs. 1 lakh, will be required to sacrifice in proportion to the deposit erosion of the target bank. The RBI has introduced the above mentioned stipulations to ensure that the process of consolidation by way of non-disruptive exit of weak entities by a scheme of transfer of assets and liabilities of urban co-operative banks (UCBs) to commercial banks is undertaken in a transparent manner without affecting the financial health of the acquiring entities and the banking system as a whole. 8. Bank credit growth slows to Dec 2009-levels Business Standard / Mumbai / September 4, 2014 On a y-o-y basis for the fortnight ended Aug 22 bank credit grew by 10.94% while it was 10.61% on Dec 4, 2009 The economic slowdown has led to the bank credit growth falling to its lowest level in about five years. The growth is near the levels last seen at the time when the economy was reeling under the global financial turmoil. Reserve Bank of India (RBI) data showed that on a year-on-year basis for the fortnight ended August 22, the bank credit grew by 10.94 per cent. Bank credit grew by 10.61 per cent in the fortnight ended December 4, 2009. Banks hope the credit growth would pick up in the coming festive season. Banks have even announced various schemes for this. These schemes are for retail loans and offer discounts on interest rates and processing fees for consumers. Apart from discounts, banks have also increased tie-ups with retailers to boost credit card sale also. Typically, banks say that during the festival season, credit card spends increase by 20-25 per cent, as compared to the previous quarter. Now that the credit growth is at a four-and-a- half-year low, banks are hoping that these schemes and offers might be able to woo consumers and result in a better credit off take. Usually, credit growth starts picking up in the second half of every financial year. Even during the last festive season, credit off take was slow. However, with the economy showing signs of improvement and the markets also inching up, lenders are hoping that credit off take also might bounce back this year. Deposits, on the other hand, grew 13.57 per cent year-on-year for the fortnight ended August 22. Over the fortnight, the credit growth fell by 0.18 per cent, while deposits growth dropped 0.11 per cent, the data showed. 9. Jan Dhan Yojana: Clarity awaited on insurance Business Standard / Mumbai / September 4, 2014 So far, more than 25 million bank accounts have been opened under the Jan Dhan Yojana and all these individuals will be eligible for life covers of Rs 30,000 by LIC It might take time to offer life and accident insurance covers under the Pradhan Mantri Jan Dhan Yojana to those opening bank accounts under the scheme, as various issues in this regard are yet to be resolved. Under the scheme, which seeks to open 75 million accounts by January 26, 2015, an accident insurance cover of Rs 1 lakh is provided with every RuPay debit card offered by the National Payments Corporation of India (NPCI). NPCI officials said HDFC Ergo General Insurance would provide the accident cover under the scheme. This will cover accidental deaths, provided the debit card is swiped within 45 days of its issuance and is in an active state. HDFC Ergo did not respond to a mail seeking details of the cover. There is also a proposal for an additional accident cover of Rs 1 lakh for opening bank accounts within a stipulated period. While general insurance executives said state-owned general insurers would provide this, no official announcement or communication has been sent by the finance ministry to the companies concerned. “Though this proposal was discussed in meetings with the finance ministry, it hasn’t issued any letter on when it would be launched and whether it would be completely free for customers,” said a senior insurance executive. Sources said the general insurers selected for these covers were yet to receive any official communication from the ministry saying they had been selected for this and would have to make payments during receipt of claims. While debit cards and insurance covers (at least a Rs 1-lakh accident cover) will be provided to all accountholders under this scheme, insurance officials say this might not be done immediately. An official said as the volumes were huge, they would be provided the complete kit within the next few weeks. Further, the life insurance cover of Rs 30,000 is still being worked out, in terms of the premium collection, amount and the mode of payment. Life Insurance Corporation of India (LIC), which will offer the cover to all individuals who open bank accounts under the financial inclusion scheme by January 26, 2015, has held a series of meetings with finance ministry officials on the collection of premia and administration of the scheme. A decision on the premium amount and the mechanism to pay claims is still awaited; a clarification is expected in the next three days. So far, more than 25 million bank accounts have been opened under the Jan Dhan Yojana and all these individuals will be eligible for life covers of Rs 30,000 by LIC. There have been talks of a minimal payment for this scheme by individuals. Also, the claim settlements could be through the Aam Aadmi Bima Yojana (AAMY), a social security scheme administered by LIC. A life insurance cover wasn’t part of the Jan Dhan Yojana announced in Prime Minister Narendra Modi’s Independence Day address; it was announced on August 28, when the scheme was officially launched. The scheme is expected to boost insurance penetration in India. Insurance penetration (premia, as percentage of gross domestic product, fell to 3.9 per cent in 2013-14, compared with four per cent in 2012-13, according to a Swiss Re sigma study). On the life insurance front, insurance penetration in India was 3.1 per cent; for non-life insurance, it was 0.8 per cent. 10. Finmin sets up panel on unclaimed PPF, small deposits Financial Express / New Delhi / Sep 04 2014 The government has approved setting-up of a committee under RBI deputy governor HR Khan to look into unclaimed amount in PPF, Post Office and Savings Schemes and recommend how this amount can be used to protect and further the financial interest of the senior citizens. The committee will submit its report by December 31. It has to make an estimation of such amount lying unclaimed and suggest the procedure for bringing such unclaimed deposits to a common pool as well as changes required to be made in the legal framework. It should also recommend if such a pool should be placed within the government account or outside it. Finance minister Arun Jaitley in his Budget Speech 2014-15 had announced a large amount of money was estimated to be lying as unclaimed amounts with PPF, Post Office and Savings Schemes. 11. All India Bank Employees Association to stage protests on September 15 and 20 Economic Times / Puducherry / Sep 4 All India Bank Employees Association today said it would go on a two-phase nation-wide agitation on September 15 and 20 demanding that the Centre ensures public sector banks were strengthened and that no attempt be made to privatise them. AIBEA General Secretary C H Venkatachalam told reporters that it was indeed sad that the Centre was making moves to encourage privatisation of banks. There was also attempt to bring in merger of banks in the country, he charged. AIBEA opposed these moves tooth and nail and to highlight the demand, it would stage agitations in two phases, he said. Venkatachalam said the Association welcomed the Pradhan Mantri Jan Dhan Yojana to provide bank accounts to every household. This would be of help to ensure the countrys fast economic development, he said. Venkatachalam, however, cautioned that there should be no scope for private players to make inroads into banking sector as they would only pamper the big capitalists. There should be, on the other hand, steps to strengthen public sector banks and branches of public sector banks should be opened district wise to ameliorate the poor. Banks should be under government control, he asserted. He also asked the Centre to take stringent measures to recover bad loans and wilful default of loans should be declared a criminal offence. 12. Customers facing hardships in transactions as banks brace for ATM fee switch Economic Times / Mumbai / Sep 4 Ganesh Pavaskar, a retired public servant in Mumbai, was annoyed when an ATM machine would not allow him to withdraw Rs 10,000 at one go for his Ganapati shopping and forced him to take out the money in multiple transactions. Retail bank customers using the automated teller machines (ATMs) of banks where they do not have accounts are facing hardships as software glitches in banks migration towards payment for ATM transactions have led to many machines rejecting the demand for withdrawal, or dispensing less than half of what is sought, increasing the number of transactions. In a recent circular, the Reserve Bank of India said that from November 1, banks will be free to charge a fee if a customer transacts more than five times a month at its own ATMs. The number of free transactions on other banks ATMs would also be reduced to three from the five now, though this is applicable only in the six metros of Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Hyderabad. Although no bank is yet to notify how much they would charge per transaction, bankers privately said it could be as high as Rs 20 a transaction. The new system could probably lead to higher cash withdrawals per transaction by consumers, especially the lower middle income ones, to avoid paying the fees. Justifying the fee, Romesh Sobti, managing director and chief executive officer at IndusInd Bank, said, Replenishment of cash at ATMs is a cost to banks. He, however, hoped the charges would stabilise and would not act as a disincentive. Every time a customer of a particular bank uses the ATM of a different bank, the customers bank has to pay an interchange fee of Rs 15 per transaction to the other bank. Kumar Karpe, chief executive officer at payment solutions provider TechProcess Payment Services, said the cost to set up an ATM is the range of Rs 50,000 to Rs 60,000, plus theres an operating cost that could increase based on the locality. The cost per transaction in the range of Rs 15 to Rs 20 is justified. This would encourage customers to use alternative channels like cards and Internet, said Karpe, whose company runs leading electronic bill payment site billjunction. Indian consumers, on an average, conduct 5-8 transactions every month on an ATM, though there are some who make as many as 80-85 small transactions per month. Consumer banking head of a private sector bank said consumers would rarely face the kind of hardships Pavaskar had to go through last week and can withdraw any amount within ones daily cash withdrawal limit set by the bank. At times, when the ATM is running short of cash, the ATM tends to limit the size of withdrawal, he said. Like
Posted on: Thu, 04 Sep 2014 04:43:45 +0000
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