Friday, December 28, 2007

Using ATMs of third-party banks will become free of charge

The Reserve Bank of India (RBI) has posted suggestion paper in the public domain for discussion, the idea of allowing customers of one bank to withdraw cash from ATMs of other banks free of charge from April 2009. It said that the current charges for cash withdrawals from third-party ATMs should be limited at Rs 20 per transaction, from March 31, 2008. It has also instructed to stop the existing charges that are lower.

The RBI has to intervene because of the unwillingness shown by some larger banks to share their ATM networks with other banks and look for ways to allow bank customers free cash withdrawal across all ATMs.

According to the sources RBI’s aim to make cash withdrawals free for customers, at ATMs of banks with whom they do not maintain accounts, due to the reaction shown by State Bank of India and its associates banks of not joining the National Financial Switch (NFS), which is owned by the central bank.

“The idea is to create an all-India payment structure, which makes cash withdrawal at ATMs affordable for all sections of the population. State Bank of India’s reluctance to be part of the National Financial Switch is creating a hindrance of sorts in this process,” said a senior official from the banking industry.

According to a SBI official, the reason behind the country’s largest bank not joining the RBI-owned NFS network is that, this will result in it losing out on the competitive edge it has with their large ATM network. SBI has made huge investments to build the country’s largest ATM network, with a total of over 8,000 ATMs. The country’s largest bank, whose high net worth customers are being targeted by private players, has decided to use its ATM network as a selling point.

According to senior officials from the banking industry the customers in India are paying excessive charges as compared to international practice, wherein customers only need to pay for using ATMs set up by non-bank players.

Banking sources added that if customers were to be allowed free withdrawal after 2009, then banks with a high customer transaction to ATM ratio would need to compensate those banks with large ATM network. If a bank does not wish to pay others, it would have to ramp up its own network.

“The interchange fee, which banks pay each other, will have to be retained, and since the central bank’s mandate of not passing it on to the customers can not be bypassed, it will have to be worked out amongst banks,” said a banker with a large public sector bank. Senior industry officials acknowledged that banks could discuss with each other on what is the appropriate inter-change fee they could charge from the customers depending upon a host of factors.

The factors such as the location, the number of ATMs which the other party is bringing into the fold and the volume of transactions could be taken into consideration. At present banks do pay interchange fees to other banks, whose ATMs their customers have an access to, still it is the customer who ultimately bears this cost. Usually, smaller banks enter bilateral arrangements with larger players or join ATM-sharing networks to offer their customers access to a larger network.

Some banks are already offering this service free of cost. But because they are having a smaller customer base and the volumes of such transactions are quite low, they might not be shelling out huge interchange charges to other banks.
At present, at the higher end, the customer is charged anywhere up to Rs 57 for each withdrawal from a third-party ATM, and up to Rs 20 for the balance inquiries. According to the central bank sources as there is no transparency in these charges, and that they vary from bank to bank is a major restriction for customers to use other banks’ ATMs.

According to the sources it is almost impractical to have a uniform structure for this interchange fees which banks need to shell out in the event of transactions being made free to customers. This would be purely a joint arrangement, which depends on the two banks which are involved in the picture.

Thursday, December 27, 2007

Card-based remittance service by FINO

The microfinance institutions will be able to conduct remittance business which used to be conducted by post offices and major banks in India.

A new card-based remittance service has been introduced by a multi-bank promoted institution for microfinance, Financial Information Network & Operations Ltd (FINO this service would initially be provided to clients of the 121 microfinance institutions (MFIs) engaged with FINO.

“With a migrant population of 30.7 crore, domestic remittances contribute Rs 40,000-60,000 crore, while international remittance stands at Rs 1 trillion (one lakh crore) on annual basis,” said Rishi Gupta, CFO and president of sales and marketing with FINO.

Banks get more than 10% of commission on remittances whereas post office get 5%.

“We see a market worth Rs 3,000 crore as commission on remittances. Post offices do not accept money orders above Rs 5,000, while banks do not have a reach to the rural masses. With a direct access to the rural areas, we are better placed for remittances,” said Gupta.

With the introduction of card-based remittance service the person wanting to send money to his beneficiaries will have a choice, can do so via a smart card or cash. Another smart card will be available with the beneficiaries of the emigrant. “The person based in the rural area can withdraw money through the microfinance institutions’ agent who has the card reader,” said Manish Khera, CEO of FINO.

FINO will be launching kiosks which are similar to automated teller machines (ATM) called micro-deposit machines, having an in-built finger-print reader. With the launch of this machine the smart card will find another use. For commercial use the machine will be available by June 2008.

“These machines would be located at the residence of the MFIs’ agents, who cater to rural and urban poor,” Gupta said.

The micro-deposit machines do not permit direct cash withdrawal as ATMs do. In this machine one has to enter the amount to be withdrawn and collect the receipt. The receipt then has to be given to the agent, who in turn provides the cash to the smart cardholder.

“We have observed that 90% people deposit money while very few withdraw. During the past year, amount deposited per transaction improved from Rs 50 to Rs 1, 000,” Gupta said.

In the next 3-5 years FINO will be installing 10,000-15,000 machines. “The cost of this machine is lower than an ATM machine. Various banks have shown interest in setting up these machines at their rural branches as they are cost-effective,” Gupta said.

With the installment of MDM the number of agents and the work of the agents will reduce. One MDM can replace four MFI agents thus saving a total of around Rs 6 lakh as agent, savings and loan commission. The project will be funded by IFC, while NCR will be manufacturing and developing the MDMs for FINO.

Wednesday, December 26, 2007

Indian Banks have 1.03cr inactive accounts with Rs 1,000 cr is lying unclaimed

In the bank if the money is lying in accounts which has been inactive for over 10 years it is termed as unclaimed deposits. At present more than Rs 1,000 cr is lying unclaimed with banks in India in 1.03cr inactive accounts.

According to the latest figures as of December ’06, released by the Reserve Bank of India, Rs 1,018.8 crore is lying unclaimed in 1.03crore accounts with all bank groups. Bankers claim that the amount could be even higher this year as claims on such deposits hardly ever get settled in a short period.

It’s amazing that a big amount of money is lying in savings deposit accounts. It accounts for more than 75% (77.4 lakh) of the number of accounts and over 60% (Rs 629.94cr) in terms of value of unclaimed money. The build up interest on these deposits is Rs11.5crore. In fixed deposit the unclaimed amount is around Rs232 crore in 8.3lakh accounts.

Alone Public sector banks accounts for more than 90% ( Rs 941crore) of such deposits. Canara Bank with (Rs 178crore) is at the top of the list with accounting for more than a third of unclaimed deposits among public sector banks, followed by Punjab National Bank (Rs 128 crore) and State Bank of India (Rs 95 crore).

If the money is left unclaimed in the fixed deposits for more than 10 years or if money in savings account and current account is left unutilized for the same period of time then the money is transferred to the banks head office from a branch office.

The Reserve Bank yet, does not have any clear accounting policy on such deposits; they are shown as current and contingencies in their balance sheets. These resources prove to be useful at times of a boom in long-term credit demand. But, at the same time attract a cash reserve requirements (CRR) — parking a stipulated portion of bank deposits with the central bank — and entails an outgo when CRR is hiked.

According to the sources a decade ago RBI has issued a circular to the banks in which the central bank has asked the banks try to get in touch with the customer if an account is not operated for over a year. If in any case account holders fail to respond or communications bounces back, efforts should be made to locate the new address.

Only after 10 years, the account is not operated then only an account is classified unclaimed. According to the Bankers much of the money lying in unclaimed accounts is by individuals or Hindu Undivided Family accounts. It is in rare cases that the accounts own by businesses, corporates and trusts go unclaimed in time, they add. This is largely because may of these accounts belong to individuals who have been deceased without leaving a will.

At times the legal heirs are not aware about the accounts owned by their predecessors and often come to light many years later. Hence the things are, changing slowly with banks making nomination almost compulsory at the time of opening an account.

Monday, December 24, 2007

Banks offers innovative products to lure NRI into real estate

Currently there is a boom in the real estate market in the country so the industry players are trying to allure people by offering a slew of innovative products to people who are willing to pay the price. If the deal gets stuck on the right point then from real estate developers to real estate fund managers, from banks to housing finance companies it will be a party time for all.

According to sources behind those exhilarated times, some banks, with operations in India and outside, are offering innovative products to non-resident Indians (NRIs), which could turn tricky in case Indian real estate market falls into a trough.

This process in turn involves the foreign and Indian operations of the same bank, the NRI and his friends, relatives and associates based in India. To begin with, NRI, with the help of his friends and others, establishes an Indian company that could do business in the real estate sector. The bank in India gives some loan to the company to buy land in India.

However, the NRI keeps a fixed deposit with the wealth management division or private banking arm of the same bank’s overseas operation. Unofficially, the foreign branch of the bank, with FD in its record, gives guarantee for the loan given by the bank’s Indian operation to the company set up by the associates of the NRI. But the same is not officially shown as a guarantee in the records of the two branches involved.

But as per current FDI rules in real estate, on any residential project foreign money can be invested, on a land measuring 25 acres or more. For commercial properties, the minimum stipulated area should be 50,000 square metres.

But, market players say with the realty boom, NRIs are still finding tough to get land at market rate because whenever the seller gets to know foreign money is involved, they demand prices higher than the market rates. If the buyer wants to buy adjoining plots which should aggregate at least 25 acres the rates are increased further.

In such a situation, the the associates of NRI buys smaller plots of adjoining land to establish the company without raising the rates much or even raising suspicion of the sellers that an aggregation is on play or even foreign money is involved. Like this NRI is able to get the plots at market rate and once enough number of plots are bought, those are aggregated (to at least 25 acres) and the company then transfers the same to the NRI to comply with FDI rule. While the NRI pays back the bank in India, his FD kept in the bank overseas is also released at the same time.

Saraswat Bank takeover Nashik Peoples Co-operative Bank

Nashik Peoples Co-Operative Bank has shown an accumulated loss of Rs 40 crore. To save the bank from going in further loss the country’s largest co-operative bank, Saraswat Co-Operative Bank, has announced to acquire this bank.

This is the fifth acquisition by Saraswat bank in the past two years and with the acquisition of Nashik bank there will be 141 branches across the country.

Saraswat Bank director Eknath Thakur told the existing 12 extension counters are being converted into full-fledged branches; with this the number is expected to go up to 153.

In the next four years the bank has plans to buy two-three more banks. “We have a target to acquire 10 lakh more customers by 2011. For this, the bank will have to acquire a few more banks and we are in talks with 2-3 troubled banks,” Mr Thakur said.

In the next 10 years the bank has set a mark of achieving Rs 1 lakh crore business. There have been rumors that bank might convert into a private sector but the bank has denied the rumors and said its board has no plans to convert the bank into a private sector one in the near future. “We will be maintaining the co-operative status until we reach that size (of a private sector bank),” Mr Thakur said.

Friday, December 21, 2007

Banks’ cash conditions further strain due to rise in call rates

The banks’ cash conditions come under the further strain due to ongoing festive season, an extended weekend, coupled with banks’ needs to meet reserve requirements. Earlier this month there was outflow of advance taxes and a hike in the cash reserve ratio announced by the Reserve Bank of India (RBI) in October, liquidity in the money market all these factors contributes to the tightening of the cash conditions.

Banks, which were depositing funds worth Rs 20,000-30,000 crore with the central bank on a daily basis in October, have now begun borrowing funds from the central bank through the repo window by parking surplus government securities held under the SLR basket.

In advance of a five-day extended weekend, banks have borrowed more than Rs 20,000 crore from the Reserve Bank of India (RBI) at its daily repo window. The demand for cash usually rises during the festive and holiday season, call money rates have crossed the 8%-mark, reflecting a severe crisis in cash conditions as markets will be closed on Friday for Id and will also be closed on Tuesday for the Christmas celebration.

If the banks go for other alternative for borrowing money other than RBI is the inter-bank call money market. Call rates were found quoting at over 8%-levels in the morning. Whereas it is cheaper to borrow from RBI as it charges at 7.75% levels. But the banks with an excess SLR can borrow from RBI and the rest have to resort to the call and CBLO markets. According to traders, some banks did start lending in the call and CBLO markets, in an attempt to leverage high rates there. But with the declaration of the LAF results the rates on these markets dipped. Rates in the CBLO market went as low as 1%, while call rates touched the 4%-mark.

Given that this weekend was also a reporting fortnight; banks were also forced to borrow from the central bank because they had to maintain reserves to meet cash reserve ratio provisions. Axis Bank president of treasury Partha Mukherjee said, “The tightness in cash conditions has increased recently, mainly due to the advance tax payouts that took place last week. Earlier, the effect of such payouts would be neutralised within a couple of days, but now it takes a relatively longer duration. Also, the long weekend ahead is contributing to the tightness, with players building up positions. Call rates may not come down soon. As long as they are stable, the markets will be able to cope with the present rates.”

Looking at the bond market, gave way to some comfort in the lower inflation figures and eased by a few basis points. The bond market saw trading volumes of around Rs 4,000 crore. Of which, the benchmark paper saw trades of around Rs 1,300 crore.

A senior treasury manager at a bond house said, “The signs of a rally at the shorter end of the curve are getting more visible. Much of the trade on Thursday was concentrated in the 9-10 year segment, where yields dipped by around five basis points. Once cash conditions improve, these securities would be the most preferred lot.”

The capitulation on the 10-year benchmark bond, the 7.99% bond maturing in 2017, ended at 7.87%, a notch below the previous close of 7.88%. Liquidity conditions in the banking system are expected to prevail under pressure at least till the end of this year. Treasury managers are of opinion once the New Year begins, the situation may see some improvement. “This is on the back of the government beginning its spending exercise and some inflows on account of interest payments (worth around Rs 22,000 crore) on special deposit schemes (SDS) to superannuation funds,” said IDBI Gilts head-fixed income S Raghavan.

Betfred and ESI Entertainment Systems Inc sign agreement for rapid bank transfer

ESI Entertainment Systems Inc. announced that its auxiliary, Citadel Commerce Corp. has signed an agreement with Betfred, one of the UK's most recognized gaming brand, According to the agreement it will provide real-time bank transfer solutions via myCitadel World Wide Wallet to help drive Betfred's expansion in the European online gaming market.

myCitadel World Wide Wallet is a personal web-based cash account from there consumers can fund directly from their bank account. Consumers can immediately use the funds to make purchases on a merchant's site or can transfer them to friends or relatives. myCitadel Wallet is simple and secure and currently accepts Bank Transfers, Visa, MasterCard, and Electronic Funds Transfers in many countries using local currencies.

Some of the European markets provide payment challenges to online merchants because consumers are ethnically more used to using of direct bank payments and credit card usage on the internet is low. Betfred will now provide its customers a cost effective means of making Rapid Bank Transfers via near real-time international bank transfers into their myCitadel Wallet. The customer just logs onto their bank account and it takes a few minutes to clear funds and shows in their myCitadel account. This provides Betfred's customers with the ability to fund their wallet to play and bet almost instantly.

Currently Betfred is providing a 200% deposit bonus, double the incentive which it normally gives to promote myCitadel to its customer base. In addition to this as of Sunday 9th December 2007, for every successful deposit a player makes into their Betfred Poker account using myCitadel, that player will be given a tournament entry token. This token can be used to register to play one of ten Betfred/myCitadel European Poker Tour (EPT) German Open Freeroll Qualifiers running between Sunday 16th December 2007 and Wednesday 16th January 2008.

Then top ten players from each of the ten qualifiers will be awarded a seat at the Betfred/myCitadel EPT German Open Final, scheduled to take place at Betfred Poker on Sunday 20th January 2008 at 18:45 GMT (19:45 CET).

The winner of the Betfred/myCitadel tournament will get an all expenses paid seat at the European Poker Tour German Open Main Event which is taking place at the Casino Hohensyburg in Dortmund, Germany between Tuesday 29th January and Saturday 2nd February 2008, the buy-in for which is (euro)8,000.

myCitadel is authorized as a large e-money issuer by the UK Financial Services Authority, and currently have consumer support from Austria, Belgium, Bulgaria, Canada, Switzerland, China, Cyprus, Czech Republic, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Iceland, Italy, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Sweden, and Slovenia, with additional countries constantly being added

Thursday, December 20, 2007

Banks get alert against money mules

A couple of other private sector banks have also come across the use of some of their account-holders as money mules for inward and outward transfer of fraudulently obtained money.

HDFC Bank is one of them who had noticed instances of overseas fraudsters who are posing as global payment companies luring innocent people into joining them as “money transfer agents” and using their bank accounts to route ill-gotten money, including through phishing.

One of its customer, who was a victim of phishing, told him to file a police complaint and also helped the police nab another accountholder who was recruited as a money mule by some overseas fraudster.

Now bankers have got alert against money mules. Banks have decided to make their customers aware against phishing and money mules.

In a meeting held at the Indian Banks’ Association (IBA) the leading banks, including ICICI and HDFC, have decided to send communications to customers in this regard.

A banker informed, “Banks will post advisories on their websites. It is very important as gullible people are being duped. An individual acting as a money mule is breaching the law unknowingly and could be booked for money laundering.”

The bank got one of its customers, who was a victim of phishing, to file a police complaint and also helped the police nab another accountholder who was recruited as a money mule by some overseas fraudster.

Money mules use bank accounts to transfer funds via phishing Phishing is an internet-based fraud that steals information like account numbers and net-banking passwords to siphon off money from bank accounts.

The accountholders are hired as money transfer agents who unknowingly work as money mules. Funds are transferred in their accounts and instructions are given on forwarding the money minus their commission to some accounts in foreign countries, which are closed after short periods.

In order to make quick bucks these accountholders act as money mules, unaware of the criminality involved in this.

“Customers should also be vigilant. They should delete spam mails and not accept offers from any unknown company, particularly if it is a global one. They should protect their details like they do to their house keys,” said a senior banker.

There are some do’s and don’ts which customers should follow to avoid such incidence

· Delete spam mails

· Don't accept luring offers on the Internet

· Don't share bank details in the cyber world

· Inform one's bank of any suspicious emails

Wednesday, December 19, 2007

Money mule enter into Indian shores

Even India has not been spared by the fraudsters based overseas. The money mule scam has reached Indian shores According to a senior banker; India is on the fraudsters’ radar because of its liberalization of outward capital flows. Money mule scams are common in countries like the US and the UK.

Recently it has money mule scam has come into notice of the banks that the fraudsters based overseas, posing as global payment companies, luring gullible people into joining them as “money transfer agents” and using their bank accounts to route ill-gotten money.

HDFC bank the country’s second largest private sector bank has filed a complaint on the basis of which the cyber crime cell of the Mumbai police has begun investigations.

Some other private sector banks have also noticed that some of their account-holders are being used as money mules for inward and outward transfer of fraudulently obtained money, but the names could not be confirmed.

HDFC Bank’s chief information security officer, Vishal Salvi, said the bank had helped nab the money mule following a complaint by a customer that he has been a victim of phishing.

Mainly the bank accounts of money mules are used to transfer funds via phishing, an internet-based fraud that steals information like account numbers and net-banking passwords.

“The police are now investigating the case to find the fraudsters behind the fraud who are the ultimate beneficiaries,” Salvi said.

The account-holders, unintentionally working as money mules, regularly receive funds in their accounts and receive instructions on forwarding the money received minus their commission to some accounts in foreign countries, which are closed after short periods. These account-holders fall for quick and easy money but are unaware that acting as a mule is illegal.

RBI has issued a notice a week ago in which it has advised the people not to fall prey to fictitious offers for release of cheap funds claimed to have been remitted by overseas entities to banks in India or RBI. Following this warning the HDFC bank filed a complaint.

The central bank has advised members of the public not to make any payment towards participation in such schemes or offers from unknown entities.

Automated updating of pass books

Now it will become easy to get the pass book updated, no waiting in long queue at the branch counter. You have to just punch a few keys at the ATM. Public sector banks are ahead from their private sector counterparts in installing the ATM for updating pass book. Banks are interested in offering passbook updating through ATMs this would free staff for marketing of other products.

In countries like Spain, UK, Canada and Argentina this facility has proved popular in these countries and will reach in India by April next year, said Mr Manjunath Rao, Country Manager, Sales of Financial Solutions for NCR Corporation India.

Company is providing ATM machines and offers management services to banks such as SBI, HDFC and HSBC.

Amongst the customers pensioners are the most satisfied with this facility. Mr Rao said, “In Spain, where our ATMs have this, pensioners have been very happy with the results. In fact, passbook is like an identity and most of them want it synchronized with their banking transactions.”

The cost of ATMs will increase by about 25 per cent from the current levels, which are upwards of about Rs 6 lakh, depending on the kind of the machine. The technological changes have to be done for updating passbooks like changing the interface of the ATM (the ATM screen), bar coding in the paper or match stripe to identify the customer, thermal printing and good quality paper.

As service providers can remotely manage the ATMs, it is possible to predict beforehand when the stock of paper is diminishing or report similar other glitches, Mr Rao said.

Mostly the private banks have been one step ahead of their public sector counterparts when it comes to technology. But not in this time Mr Rao said, “We have had enquiries from some large public sector banks. For them passbook is a social responsibility. They cannot do away with it.”

For public sector banks, automated updating of pass books through ATMs would free up staff for cross selling and other marketing activities, said a senior official in charge of personal banking at a large public sector bank. This becomes critical in today’s scenario, as most banks are focusing on increasing their fee-income, the official added.

Private Banks give passbook only when customers ask for it. But they do send regular quarterly or monthly statements and additional statements as required by their customers.

Mr Aspy Engineer, Vice-President, Alternate Channels, Retail Banking, Axis Bank, said, “If we offer statement printing at the ATM it is an additional interactive feature for the customer. It is quite a cost to have an additional printer and to ensure that papers are stacked and so on. Also, unless it is a paid service, it may get misused.”

It is also possible to install a standalone machine in the ATM kiosk for updating the passbooks. NCR is exploring both possibilities jointly with some banks, Mr Manjunath added.

Tuesday, December 18, 2007

Private Banks not participating in agricultural activities

The 102th meeting of the State-Level Bankers’ Committee, Haryana was convened by the Punjab National Bank, the lead bank for Haryana, in Chandigarh. In this meeting issue of private banks not participating in agricultural activities was discussed.

PNB Executive Director J M Garg stated that 1,000 farmers’ clubs has been formed in Haryana since September, but the contribution of private banks has been negligible. In order to meet the targets of priority sector lending, the private banks were lending to progressive farmers and not small and marginal farmers.

Garg, who was also chairperson of the meeting, said in his keynote address in order to provide much-needed relief to farmers and a large section of the rural poor during 2006-07, the RBI had asked the banks to give production credit up to Rs 3 lakh at 7 per cent and claim financial support at 2 per cent from the apex bank. This will continue in 2007-08 also.

He informed out of 20 districts in Haryana 11 had been covered under financial inclusion and 100 per cent financial inclusion will be achieved by March next year.

About 60 percent of the households from the remaining districts have been covered and all the households in the state will have access to credit in a few months.

From September last year to September this year, in Haryana Garg said 124 branches of commercial banks and regional rural banks were opened in the state, thus raising the number of branches from 1,750 to 1,874.

Monday, December 17, 2007

Online bank accounts hackers nabbed by CCPS

Mistakes made by people while doing transaction of their account online is giving rise to hacking of accounts. One of such incident has come into notice the accused initiated into cyber crime when he chanced upon an online bank account which was not logged out at a cyber cafe.

The cyber crime police station (CCPS), CoD, Karnataka busted a major racket of hacking into online bank accounts of people across the State, using key logger software. The detectives arrested seven people, who allegedly hacked various bank accounts on Internet and siphoned off close to Rs 12 lakhs (Rs 1.2 million).

The main accused, Joseph, an unemployed techie is from Virudunagar in Madurai district of Tamil Nadu, was nabbed from a cyber cafe in Mahadevapura near Whitefield by the police on November 29. Six of his associates have also been nabbed.

The police had tracked the accused by tracing the IP address of the PC from where the accounts were being hacked.

"A raid on Joseph's house revealed that he had information relating to the user names and passwords of 100 bank accounts belonging to HDFC, Axis Bank, Citibank and ICICI Bank. The banks have confirmed the authenticity of 70 accounts. The accused has hacked 17 of these 70 internet bank accounts. Investigations are on," Cyber Crime Superintendent of Police B A Mahesh told reporters on Friday.

According to the police, Joseph visited the cyber cafes during the first week of every month. Mahesh told the reporters, "He installed the software -- Keylogger -- a freely available solution that tracks and records the key stroke of every PC user. He would then use this recorded data to hack the internet bank accounts."

After hacking the accounts, the accused transferred money to his associates' accounts. "For every transfer, his associates received commission. We have nabbed six of them. This could be a major racket," Mahesh added.

Joseph diverted the money to recharge cell phones from whose owners he collected money at discounted rates. Some of the money was also transferred to bank accounts of Joseph’s accomplices and beneficiaries.

The police started inquiry about the case after four account holders of Axis Bank, HDFC Bank and Citibank lodged complaints.

"One particular complaint was filed by Carl Braganza, a HR Manager of an IT firm. The accused had siphoned off Rs 1,27,000 from his Citibank account on a single day. While Rs 87,500 was paid towards mobile currency re-charge, Rs 46,000 was transferred to other Citibank accounts," the police official said.

The accused worked for various companies before taking to hacking internet bank accounts.

Thursday, December 13, 2007

Only 5-10 percent customer opt for passbook facility

Private sector and foreign banks believe in online banking funda for this they have, provided the internet banking, net banking and mobile banking facility to their customers free of cost and if there are charges that are very minimal and are not keen on issuing passbooks. Moreover people are tech savvy and are in a habit of using internet and mobile phones they do most of their transactions through these sources.

But Reserve Bank received several complaints from the customers for not getting the passbook facility. Taking an action on the complaints the central bank issued a circular in October last year and asked banks to offer the passbook facility to their customers.

Though several private and foreign banks have started offering the passbook facility to their customers the response has not been great. Only 5-10 per cent of the customers have opted for the facility.

In view of this Harpreet Singh, business director for wealth management and distribution of loans, Centurion Bank of Punjab (CBoP said, "We are not seeing good demand for passbooks. While senior citizens are more inclined on getting passbooks, the younger generation prefers statements issued by the bank." The bank offers the passbook facility across all its branches, but only 10-15 per cent of the customers have opted for the same.

Customers do not have to pay any additional charges for getting the passbook it only needs to call up the bank and ask for the same.

Some of banks are also asking customers to choose between a passbook and a statement. HDFC Bank sends mails to saving account customers asking them to a fill a form indicating their choice.

"Customers have to make a choice. They cannot ask for both," said an official from HDFC Bank. According to bank figures only 5 per cent of its customers have opted for passbooks.

Even mid-sized private sector banks like Kotak Mahindra Bank are witnessing little demand for passbooks.

"The younger generation finds it much more convenient to download their statements from the Internet. While we started this facility six months ago, just about 1 per cent of our customers have opted for passbooks," said KVS Manian, group head of retail liabilities & branch banking with Kotak Mahindra Bank.

Currently Axis Bank is offering a passbook as well as a statement to the customers. But as this creates duplication of work, so the bank is planning to discontinue this method shortly.

Manju Srivatsa, senior vice-president, Axis Bank, says the bank is seeing a small amount of people, mainly senior citizens, asking for a passbook. "Just about 5 per cent of our accountholders are keen on passbooks. People who have the time and are willing to go to the bank branch for updating transactions go for it," Srivatsa added.

In public sector banks, there is still a reasonable demand for passbooks. "There are lots of people approaching us for passbooks. The demand for passbooks is more than statements," said an SBI official.

Tuesday, December 11, 2007

Certificate of deposits — debt instruments issued by banks — are back in fashion

Certificates of deposits, CDs in short, are used by banks to surge over tight liquidity situations. Corporates usually issue commercial papers for a similar purpose.

Banks have again started issuing certificate of deposits — debt instruments, with banks making a way for raising short-term deposits from the money market. In the first week of December alone banks were able to raise nearly Rs 1,500 crore via issuances of certificate of deposits, as against a total mop-up of Rs 3,115 crore in entire November.

Prakash Subramaniam managing director-South Asia capital markets Standard Chartered Bank said, “Banks do not want to run into an asset-liability mismatch in the first quarter of the new financial year.

Typically, the period between January and March is the busy season for credit and it has always been the case that rates end up spiralling by February-March. Banks have begun building up their books by issuing certificate of deposits for a period of 6 months to an year, in a bid to avoid shelling out higher rates at a later date.”

Treasury managers stated as only four months are left for the financial year to end, the pressure to meet their current year deposit mobilization targets could be a key trigger to force banks for issuing CDs. Banks also deploy this strategy to avoid an asset-liability mismatch at the close of the year.

Despite the fact that CDs are expensive for the issuer-banks, as it has a stamp duty connected such issuances are on the rise. A senior treasury manager explained that when a bank issues a CD directly to an asset management company, the stamp duty works to around 20 basis points of the coupon. If it is routed through another bank, the issuer may have to shell out an additional 5-10 bps.

CDs are flexible and tradable instruments, and hence have greater investor demand. A year ago bulk deposits was a much favored route by the banks. However, these are not tradable instruments and hence, prove to be a costly affair for banks.

A senior dealer from a bond house explained that past one month has seen very few corporates hitting the market with their long-term bond issues, due to the crisis in cash conditions. So, this is one of the reasons why CDs manage to attract investor interest, in the absence of corporate bond issues.

The Reserve Bank of India (RBI) had hiked the cash reserve ratio (the proportion of deposits banks need to maintain as cash with the central bank) by 50 basis points in its mid-term policy review which led to severe strain of cash flows in the banking system.

Further, this month, liquidity could have come under further pressure, due to the outflows on account of advance tax payments. Other entities, which invest in CDs on a regular basis, include bond houses, insurance companies and mutual funds, especially liquid funds which invest purely in money market instruments.

Yields on CDs, which were stable around 7.92% in October, have now risen to 9% levels for one-year tenure, while a three-month CD fetches anywhere between 8.25% and 8.75%.

Interest rate on term deposits will fetch upto 9.25%

State Bank of Bikaner & Jaipur decided to revise rate of interest on domestic term deposits with effect from December 10. The bank informed BSE.

According to the revision of interest rate the deposits tenure of 15-45 days will fetch five per cent, 46-90 days 5.50 per cent, 91-179 days six per cent, 180 days to one year seven per cent, one year to two years 8.50 per cent and 2-10 years 9.25 per cent respectively.

Monday, December 10, 2007

Banks fear more defaults and pass on cost to customer

Already the automobile companies are fighting with impact of high interest rates on sales. The companies have been working on different strategies and making way out to increase their sales. A further hike in interest rates by banks and lending institutions on loans for cars and two-wheelers is on the cards and this is going to add to their woes.

ICICI Bank, the largest player in the vehicle loans segment, has already gone ahead and has hiked interest rates on two-wheeler loans between 100 and 200 basis points and on cars between 25 and 50 basis points. This move will have direct impact on other banks like HDFC and Kotak to follow suit.

A cross-section of banking officials informed that the banks are taking this step in view to the stricter regulations on recoveries of auto loans imposed by the Reserve Bank of India that is compelling banks towards such a move. As a result, banks expect higher default rates for which they would like to pass on the cost to customers.

“Tightening of norms on collection is going to show stress on the quality of the retail assets portfolio. In the fear of a deteriorating portfolio, banks are trying to find ways and means to fight the tight control on the collection mechanism. This might force banks to hike rates,” said Mr Rajan Pental, Senior Vice President, Auto Loans, HDFC Bank.

Mr Udit Bagga, who has dealerships for two-wheelers and Maruti Suzuki cars, said, “ICICI has hiked interest rates on two-wheeler loans by one and one-and-a-half percentage points and on cars by half a percentage point. However, UTI has reduced it by 0.25 percentage points on cars.”

For car makers, it would be more challenging to push their sales as the hike would add on to the increase in interest rates that the industry has seen in the current year.

“A hike in interest rates always affects sales. While half a percentage point in itself is not a big jump, if one sees the cumulative hike that has happened over the previous months, it will have an impact,” said Mr Jnaneshwar Sen, Senior General Manager, Honda Siel Cars India.

Saturday, December 8, 2007

Borrower’s boldness making banks change their recovery methods

Before the employee of a bank, a tele-caller used to call the customer for reminding him to repay his loan. Slowly they changed their method and started threatening the borrowers on the phone about the dire consequences they will do not repay their loan installment on time.

Now the borrowers have become bold after the RBI has become strict against the banks. Now banks fear that the boldness of some defaulters exposes their and also their recovery agencies’ employees to the risk of getting embroiled in a criminal case that takes upwards of four to five years to be disposed of.

Recently, a new recruit at a large private sector bank was called to a police station and made to sit there the whole night on a complaint made by the borrower. The borrower had filed an FIR (first information report) alleging that he was threatened with dire consequences by the bank employee.

A few days into the job, he had just done his duty of calling up a borrower urging him to clear the overdue amounts but found himself in the police station.

The intentionally contemptuous attitude of some borrowers has forced banks to become cautious about pursuing their normal recovery efforts.

The focus on instances of excesses by banks in their attempts to recover money has had the unintended effect of encouraging some borrowers to dare banks to take steps to recover loans.

The first step the bank would normally have to take possession of a car it has financed after the borrower defaults on payments. That’s not the case any longer. Repossession of car has become the last option now.

According to senior HDFC Bank official, “The entire process of repossession of vehicles has become difficult and tedious after the recent incidents of abuse of recovery agents. But we have not stopped the process. If we stop we will have to shut the business.”

The watchfulness following a reaction against reported instances of abuse by recovery agents and the threat of regulatory action by the Reserve Bank of India (RBI) has acted as a dampener on collections, with a 10 to 15 per cent dip across personal loans and auto loans.

According to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, banks can approach debt recovery tribunals only for asset-backed loans of Rs 10 lakh and above. For loans less than Rs 10 lakh, banks can send advance notice to the defaulter and take possession of the asset.

If banks were to take recourse to courts, the process of a court receiver taking possession of a vehicle and auctioning it would take really long.

The collection head of a private sector bank said, “The legal process would take at least six months. By then, the resale value of the car would have fallen significantly making it an unviable option.”

On the scrutiny of the borrower profile with a Mumbai-based recovery agency reveals that defaults are higher among over-leveraged borrowers.

Almost half of the defaulting borrowers have taken loans from more than one lender and one in every four of such borrower’s defaults on multiple loans at the same time. Around fifteen per cent of the personal loan defaulters are from the age group who less than 25 years old.

“Two years back we saw a trend of rising defaults among 23-24-year-olds on mobile phone bills. These individuals used credit cards to pay cell phone bills and then to pay credit card dues, availed of personal loans. Defaults are now surfacing on these (personal) loans too,” said Pankaj Joshi, director of Omega Alliance Recovery Solutions, and a former banker.

According to the collections head of another large private sector bank, “One trend that is common to all defaulters is of over-leveraging even up to 120 per cent (of total monthly income). An equated monthly installment of 40 per cent of monthly income is a serviceable ratio. However, some lenders consider even 60 per cent indebtedness acceptable.”

Thursday, December 6, 2007

HSBC bank recovery agents bash up 58-year-old professor

Two days back RBI had put on its website guidelines for the bank’s recovery agents and in it has warned the banks about strict actions would be taken against them and even penalize the license of the bank but it seems still the warning is falling on deaf ears.
Again an incident of unruliness by recovery agent of the bank has come into limelight. It is HSBC bank in news. This time the victim is a professor of a reputed engineering college, Prof J.S. Kalra. He has charged a multinational bank which allegedly sent a pack of intimidating loan recovery agents to hound him.

Kalra had taken a loan of Rs 4.5 lakh to buy a Santro from the Noida branch of HSBC last year.

The incident took place in September but the 58-year-old professor. He is hopeful of justice, encouraged by the recent strict guidelines issued by the RBI against banks intimidating customers to recover loan. Even the Finance Minister P. Chidambaram too has iterated that “strictest action” will be taken against banks stooping to strong-arm methods.

Prof J.S. Kalra of the Delhi College of Engineering has filed his complaint against the bank. In his complaint he told the police that the agents abused and beat him up outside the Indraprashta University campus in north Delhi for delaying monthly installments of a loan. They did not care to stop even after he told them that he was a heart patient and that he had developed chest pain. “They even threatened to kill me,” Kalra said in his complaint.

The police said they have registered a case of criminal intimidation against the loan recovery agents, allegedly hired by HSBC bank. Devesh Chandra Srivasatava, deputy commissioner of police (north) told the press “They got into Kalra’s car and refused to leave till he paid the loan installments immediately. They hurled abuses, and beat him up. When they saw Kalra developing heart problem, they left him.”

A senior police offer said, “We have registered a case but further investigations are on. When we approached the bank they told us that they had not hired any agent to recover the loans from the complainant. Yet no arrests have been made into the case and we are verifying the details.”

A HSBC spokesperson, Malini Thadani, when contacted by HT, said she was not aware about the incident and would comment on it after getting details of the case.

Indian banks to install deposit automation machines

Indian banks are updating themselves to improve their services and customer satisfaction.

The first step taken in this direction was installing of ATMs at the bank premises and now they are installing at railway stations and in some rural locations.

Working on the same line the banks are now introducing automatic deposit machines on the lines of ATMs at select branches. At least three banks, including one in the public sector, will be first to install the machine.

The deposit automation is a prevalent practice in the developing countries but is unheard of in Indian banking. Only ICICI bank is the one amongst the private sector which has already put in place an unmanned deposit system in the premises of a branch. That, however, is not automated.

Though many banks offer automatic deposit services through ATMs, but there is no scope for authentication of notes and can be done only through an envelope.

The 'deposit automation' system is US-based manufacture of dispensing and securities of valuable items, Diebold. By using this machine the customers will be able to deposit notes in different denominations and in numbers without using envelope. It could also check fake notes and return them to the customer who bears it.

Diebold Indian subsidiary is mainly into selling Automated Teller Machines (ATMs). It is now planning to come out with the sophisticated 'deposit automation' machines as well.

"We are in talks with three Indian banks to supply the technology and machines for automated deposits. We hope at least one private sector bank would adopt the deposit automation in the first few months of next year and three by the end of that year," Diabold Systems Director (Sales and Marketing) Rupinder Anand told PTI on the sidelines of a banking congress held here.

Tuesday, December 4, 2007

Indian Bank to deploy e-ticket kiosk and portable ATM centres at railway stations to tap new customers

Indian bank is expanding its reach across the country. It has partnered with NCR Corporation, is a technology company specializing in products for the retail and financial sectors, for launching its first e- ticket kiosk and portable ATM centre. NCR Corporation is engaged in designing and deploying portable ATM centers for many Indian banks.

According to a statement with the installation of the ATM at the Egmore Railway Station in Chennai will mark the Indian bank's 500th ATM operation.

It further stated that the banks are trying to expand their networks to the unbanked rural sectors and millions of individuals commute by trains, NCR will install and deploy its Personas ATMs at 156 locations identified by Indian Bank on a turnkey basis, of which 51 units will be deployed at railway stations.

The Chairman and Managing Director of Indian Bank M.S. Sundara Rajan, said.

"We have been the pioneers in bringing the best banking technology in India and this unique deployment of e-ticketing kiosk and portable ATM centre at a railway station is yet another step in this direction."

The portable ATM centre, has been identified as a preferred option by banks in India which make sure faster roll-outs and can be deployed at any unconventional location to support the objective of 'Inclusion Banking', and this will also help in expanding reach and tapping new customers

Monday, December 3, 2007

RBI’s guidelines for the banks recovery agents to help both banks and the borrowers

The banks specially the private sector banks were using unlawful methods for recovering loans and RBI has been from time to time warning banks against taking the law into their own hands while carrying out recoveries. The warnings fell on deaf ears. RBI found it has been enough of it and finally it had come out with draft operational guidelines.

IN ITS MID-TERM review of the Annual Policy for the year 2007-08, RBI announced that it would issue an operational circular by November 15, 2007 with regard to recovery agents engaged by banks in India. RBI has placed on its website the operational guidelines that it intends to issue for adoption by all banks (vide DBOD.No.Leg. 6723 /09.07.005/2007-08 dated November 30, 2007). It has asked all the scheduled commercial banks to give their suggestions and comments on the proposed guidelines within a period of one month from November 30, 2007.

Some of the operational guidelines are examined in the following paragraphs:

Banks are required to have a due perseverance in the process for engagement of recovery agents, which should be so structured as to cover, among others, the individuals involved in the recovery process.

This is going to be difficult for banks as there are individuals and individuals. The agent himself may be a jail-bird of which the bank has no knowledge or the individual engaged by the agent may be a jail-bird of which the agent has no knowledge. In the latter case, the agent is still responsible because the scope of the definition of ‘agent’ is vast. It includes agents as well as employees engaged by the agents! Thus, for the bank, it is going to be difficult and costly to screen the potential agent; for the agent, it is going to be even more difficult to screen his agent or employee because he has to be forthright for the purpose. Not many may qualify as agents in the process. Agents may become scarce almost overnight just as ‘independent directors’ became scarce after corporates were obliged to adhere to the corporate governance code.

To ensure due notice and appropriate authorization on their part, banks should keep the borrower informed of the details of recovery agents engaged for the purpose, while entrusting default cases to the recovery agents. The details should include the telephone numbers of the agent. The agent should call the borrowers only from the telephone numbers conveyed to the borrower by the bank.

This is a welcome provision but is not very clear it has a missing part in it. The agent may perhaps furnish wrong telephone number may by to the bank may by mistake or by design or the bank may have furnished the telephone number incorrectly to the borrower or the telephone may have gone out of order when the agent attempts to contact the borrower obliging the agent to use another phone number for the purpose. In fact, the ‘out of order’ excuse may be misused and abused by the agent to justify using other telephone numbers for the purpose. To go wrong on the side of caution, deliberately the agent may furnish even five or ten telephone numbers to the bank! RBI therefore would do well to advise the banks not to permit the agent to furnish more than two telephone numbers for the purpose.

Each bank should have a ready formula to address borrowers' grievances with regard to the recovery process. The details of the mechanism of solving the grievances should also be conveyed to the borrower. This is a welcome provision since there is generally a huge communication gap between the bank and the agent himself as to the status of the loan account.
Many a times a borrower receives phone from the recovery agent without confirming the bank whether the borrower have any pending dues against the bank. In such cases the bank should have cell or any mechanism to help the borrowers and the recovery agent should also get proper feedback from the banks about the pending dues and the borrowers.

Another guideline disapproves of banks setting very stiff recovery targets or offering high incentives to recovery agents. These have, in turn, induced the recovery agents to use intimidatory and questionable methods for recovery of dues. RBI has therefore advised banks to ensure that their contracts with the recovery agents do not induce adoption of uncivilized, unlawful and questionable behavior or recovery process.

It is better that the RBI should draft the said contract itself for adoption by all banks or it can ask the Indian Banks’ Association (the Bankers’ Club) to do this. This is important since what is uncivilized or unlawful or questionable behavior may be supposed differently by different banks.

Circular DBOD.Leg.No.BC.104/09.07.007/2002-03 dated May 5, 2003 on Guidelines on Fair Practices Code for Lenders and Master Circular DBOD.FSD.BC.17/ 24.01.11/2007-08 dated July 2, 2007 on Credit Card Operations of the RBI advises banks that in the matter of recovery of loans, (a) the lenders should not resort to undue harassment, viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. (b) banks should ensure that agents engaged by them for debt collection refrain from action/s that could damage the integrity and reputation of the bank (c) their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude into the privacy of the borrowers' / credit card holders' family members, referees and friends, making threatening and anonymous calls or making false and misleading representations. The 'Code of Bank's Commitment to Customers' (BCSBI Code) obliges banks to strictly abide by the codes pertaining to collection of dues. RBI Circular DBOD.NO.BP. 40/21.04.158/2006-07 dated November 3, 2006 on guidelines on managing risks and code of conduct in outsourcing of financial services by banks, advises banks to ensure that, among others, the recovery agents are properly trained to handle with care and sensitivity, their responsibilities, in particular aspects like hours of calling, privacy of customer information etc. Therefore RBI wants the Indian Banks’ Association to formulate, in consultation with Indian Institute of Banking and Finance (IIBF), a certificate course for Direct Sales Agents / Direct Marketing Agents / Recovery Agents with at least 100 hours of training. Once the course is introduced by IIBF, banks should ensure that over a period of a year all their Recovery Agents undergo the said training and obtain the certificate from the said institute. Further, service providers engaged by banks should also employ only such personnel who have undergone the said training and obtained the certificate from IIBF.

This is a welcome provision and will go a long way in ensuring that recovery is handled in a civilized and lawfully manner. All the same one wonders why RBI did not pull the banks up when they did not stick to its numerous circular instructions.

RBI has advised banks to rely only on legal remedies available under the relevant statutes which allow them to enforce the security interest without intervention of the courts, when they take possession of property mortgaged / hypothecated to them. This is necessary in the light of a recent Supreme Court observation that ‘we are governed by rule of law in the country and the recovery of loans or seizure of vehicles could be done only through legal means’. The guideline also says that ‘where banks have incorporated a re-possession clause in the contract with the borrower and rely on such re-possession clause for enforcing their rights, they should ensure that such repossession clause is legally valid, is clearly brought to the notice of the borrower at the time of execution of the contract, and the contract contains terms and conditions regarding (a) notice period to be given to the customers before taking possession (b) the procedure which the bank would follow for taking possession of the property and (c) the procedure which the bank would follow for sale / auction of property. This is expected to ensure that there is adequate upfront transparency and the bank is effectively addressing its legal and reputation risks’.

But here again, bias could creep in because most such contracts prescribed by banks are one-sided and when challenged in a court of law, this demerit will show up. RBI should mandate banks to file with it a copy of all contracts banks require the borrower to execute for sanction by it.

RBI has done well to caution that banks, as principals, are responsible for the actions of their agents. Hence, they should ensure that their agents engaged for recovery of their dues should strictly adhere to the above guidelines and instructions, including the BCSBI Code, while engaged in the process of recovery of dues.

Let’s wish banks in general and the ICICI Bank in particular pay attention to this caution from RBI. Recently the Delhi State Consumer Commission ordered ICICI Bank to pay Rs 50,00,000 by way of fine for employing goons to recover loans form its consumers. The Commission deplored the practice of the bank threatening the consumers to collect the loan installments. The Commission also ordered ICICI Bank to pay Rs 5,00,000 to a consumer who was allegedly beaten up by its recovery agents who also took away the complainant’s car. The victim sustained injuries on the skull and other parts of the body. But ICICI Bank’s impudence has led it to refuse to own up the act on grounds that agents were employed separately by the recovery agency and it could not be held culpable of any such act as it had asked the agency to conduct itself in accordance with the law. In the light of RBI’s caution, will ICICI Bank’s argument sustain?

Fed up with the banks’ unwillingness to adhere to its instructions the RBI has finally come up with the guidelines and any complaints received by it regarding violation of the proposed guidelines and adoption of abusive practices on the part of banks’ recovery agents would be dealt strictly. Reserve Bank might consider of imposing a ban on a bank from engaging recovery agents in a particular area, either judicially or functional ban, for a limited period. In case of constant breach of the guidelines, Reserve Bank may consider extending the period of ban or the area of ban. Similar supervisory action could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any bank or its Directors/ Officers/ agents with regard to policy, practice and procedure related to the recovery process. RBI’s leniency was taken for granted by the banks now they will not be spared for their unruly actions.

Friday, November 30, 2007

Big players of private sector banks and foreign banks skip high-risk lending

The banks have been facing widespread activism from the customers, regulatory pressures and over leveraging by customers, on the issue of loan recovery, so they have back out themselves from high-interest small- ticket personal loans(STPL). The segment of STPL is the subprime category in India. With this the good olden days are back for the money lenders who charge at least twice the rate of these institutions.

The interest charged on the loans to the STPL segment range anywhere between 30-60% and the average ticket size of these loans is in the range of around Rs 25,000. Before the arrival of private sector banks in this segment, NBFCs were the bigger players in the formal segment.

Many of the big players of private sector banks and foreign banks- ICICI Bank, HDFC Bank, Centurion Bank of Punjab, Development Credit Bank and IndusInd Bank. Foreign NBFCs, including Citi Financial and others like Prime Credit of StanChart, which had in the recent past aggressively lent in this segment, have either pulled out or changed their lending strategies.

One of the major Indian NBFCs, which had made a big-bang entry, has also stopped lending STPL to this segment.

The big players like HDFC Bank have stopped giving oans above 30%, while others like ICICI Bank are now giving loans at only sub-20%. CBoP, which was testing the market trend for launching of its product, has also stepped back from it. Earlier, others like DCB and IndusInd Bank have also quit from the market.

Citi Financial, one of the oldest players in lending has seen a slowdown of around 20%. It has tightened credit norms and started credit counseling, consolidating loans even though it has increased its ticket sizes to around Rs 40,000 in metros. Others like Prime Credit are now offering loans of above Rs 50,000 only.

The negative stances on collection agents against the loan defaulters have affected most of these players. In some cases the bank employees have been charged for such stances with the result that employees are not very comfortable in going out to deal with customers. “Employees have been charged under IPC. This has, in fact, tainted their records,” points a senior banker.

In recent months consumer activism has resulted in rise in delinquency in some of the northern and southern markets like UP, Bihar, and Andhra Pradesh. A senior banker pointed out, “In some geographies, posters have been put up asking customers to call up senior police officials in case they feel banks are harassing them.

Some of the customers on the fringes have taken advantage of this change and are refusing to pay. Delinquencies, which were at around 7%, have now moved up to as high as 15%.” After such a widespread activism by the customers in cities like Mumbai, collection agents refused to do collection work in August and September. Though the situation improving now.

Some officials from regulatory agencies believe that banks are also responsible for such situation as they have doing aggressive lending and using unapproved methods for recovery. The higher margins enjoyed by some of the players led to the entry of a host of new players aggressively in the system.

A senior banker stated that players can make profit in this segment once they build up a strong and huge base along with delinquencies under control. As most of the customers do not have proper documentation, newer players used the payment history with existing players as a surrogate.

Customers started over leveraging themselves as they started to borrow from multiple players, thus leading to defaults.

In some of the cases, collection agents went overboard to recover these loans, which resulted in the recent backlash. Most banks have started offering loans above Rs 40,000 only. In other cases, senior bankers say that they have brought down interest rates, but have tightened credit norms.

Tuesday, November 27, 2007

RBI sees sub-prime woes raising interest rates

The Reserve Bank of India (RBI) believes that any uncontrollable adjustments in the global financial markets may result in a sharp increase in interest rates.

This in turn will affect the repayment of the loans as it will result in an increase in defaults in home loan collection and mark-to-market losses on investments by banks in India.

The report released on trends and progress of banking in India during 2006-07, RBI, said, “Banks are exposed to some degree of market risk in the near term. The major source of such risk is the financial markets. Recent developments in the US sub-prime mortgage market have caused volatility and uncertainty in financial markets.”

RBI said though global financial imbalances had slide down, but they continue to be a cause of concern. Any uncontrollable changes in financial markets would lead to changes in interest rates and liquidity shifts. The market risk could shape up into credit risk in banks’ books.

RBI stated, “Sharp rise in interest rates may result in marked to market losses on the investment portfolio of banks. Sharp rise in interest rates would also have some impact on housing prices and may expose the balance sheet of households to interest rate risk. This may have adverse impact on the balance sheet of banks through increase in loan losses.”

RBI proclaimed that the interest rates in India had toughened and the spread between AAA-rated corporate bonds and government bonds had widened.

However, the investment portfolio of banks as a percentage of total assets declined sharply to 27.5 per cent at the end of March 2007 from 31.1 per cent at end-March 2006 and 36.9 per cent a year earlier.

Banks might experience higher default rate in the coming years on account of rapid growth in credit of the past three years. The slowdown in credit during 2007-08 possibly will result in banks reporting higher NPA ratios.

The high credit offtake and increased supply for bad loans had so far helped banks report lower levels of non-performing assets to advances, despite a rise in misconduct.

Though the NPAs, ratios of banks showed a decline, the fresh slippages for the year ended March 2007 were more than the recovery of NPAs.

RBI stated, “Owing to rapid credit expansion of the last few years, it is possible that banks experience high delinquency rate in the near future. This, combined with the slowdown of credit, might lead to rise in the NPA ratios of banks in the coming years. However, such rise is not expected to be significant and, on the whole, credit risk environment would continue to be benign.”

A decline in the equity market might show some default on loans given for investment in the equity market.

But the impact of a fall in equity market would not be serious for banks as they have only meek direct and indirect exposure to the equity market.

“However, sharp adjustments in the real estate prices might have some implications on the balance sheet of the banking sector,” said RBI. The banks however have flexibility to withstand any adverse development in financial markets.

Banks’ profitability has improved and their capital position continues to remain strong.

According to the reports the banking system has the ability to cope with the situation arising out of any adverse development and a strong domestic growth will continue to have a positive impact on the balance sheet of the banking sector.

Monday, November 26, 2007

New private sector banks and foreign banks have more complaints

The Reserve Bank of India (RBI) affirm though the new private sector banks and foreign banks are getting affluent customers but there are more customer complaints than old private- and public-sector banks.

The number of customer complaints per 1000, the new private sector banks and foreign banks account to be higher at 0.61 and 0.33 in comparison to the old private- and public sector banks at 0.05 and 0.07 excluding credit cards.

Usha Thorat, deputy governor, RBI stated, "New generation private sector banks and foreign banks have got a share of affluent and high net worth individuals (HNIs). These are higher negative moments of truth for them."

Thorat said that the complaints are related to delays in clearing of outstation cheques, high charges, and entries not being properly recorded. In case of home loan borrowers the majority of complaints are related to a lack of transparency of interest rates.

Thorat stated, "When you have a floating interest rate, and the customer signs a document, he does not know the benchmark rate and the spread over the benchmark rate. When it is a fixed rate loan, the customer does not know whether or not the bank has a right to refix the rate after 2-3 years."

The deputy governor stressed banks should make sure while selling their products to the customers, they are given complete and proper information about the product so that the customer knows what he is getting into.

To prevent over-leveraging of customers banks need to take on responsibility of providing good and efficient banking services and lending facilities along with credit counseling and educating customers.

"There is a consciousness among banks. We are sensitizing banks. Look at your agents that they are trained properly. There should be responsible banking and customer education. Customer is also responsible,” said Thorat.

Credit card segment have the highest number of complaints with one out of every five customer complaint is related to a credit card.

If we see the ratio of complaints regarding credit card issuing the old age private – and public sector banks respectively per 1000 credit cards issued. Where as the new private banks and foreign banks have a lower complaint ratio at 0.20 and 0.26 respectively.

Thorat stated, "These banks have issued many more credit cards so the ratio is lower. There is a lot of variation among public sector banks."

Centurion Bank of Punjab to provide Rs 1,200 crore for the agriculture sector in the north region

More and more banks are coming forward to help the farmers, major portion of the population of the country. Following this the Centurion Bank of Punjab (CBoP) has allocated about Rs 1,200 crore for the agriculture sector in the states of the north.

The bank has funded about Rs 600 crore and the rest would be disbursed by March 2008. The bank financed Rs 419 crore last year under agriculture loan. This leapfrog under the agriculture credit was the result of commercialization of agriculture in the region. This will also help in eliminating middlemen who cheat the farmers.

Managing Director and CEO of the bank Shailendra Bhandari informed the bank have a team of 250 agriculture graduates to explain the farmers about the modern techniques of farming, which could get them better returns.

He further added that the stagnation in the agricultural incomes in the past few years could be overcome if the agricultural funding was joined with technological upgrade. He told that by March 2008 the bank would be hiring 100 more agriculture graduates to meet the target of higher agriculture lending.

The small and marginal farmers who will not be able to take loan, the bank is considering to boost cooperative farming to help them.

At present the bank has funded about 20,000 farmers in north and is expected to add around 20,000-25,000 more farmers in the next year.

Bhandari said over 1,000 SMEs were financed by the bank in Punjab, Haryana and Chandigarh and Rs 430 crore was disbursed in the last one year.

According to him the direct bank lending is being introduced to eliminate the middlemen who fleece the farmers.

He informed the bank has 20 licences to open new branches. And it is open to both organic and inorganic growth. The bank registered a growth of 70 per cent from March 06 to March 07.

He said the low frill saving account is being introduced for the weaker sections of society and would be simplified further to make it more users friendly.

HDFC Standard Life country’s first life insurance company on Indian bourses

According to press reports HDFC Standard Life Insurance the country’s private sector life insurer is planning to dilute over 10% equity through an initial public offer (IPO).

HDFC Standard Life Insurance is a joint venture between HDFC and UK-based insurer-Standard Life, will utilize the proceeds of the company for capital requirements.

The public issue will make HDFC Standard Life the country’s first life insurance company to be listed on the Indian bourses.

Speaking on the sidelines of IIM-A Confluence, Deepak Satwalekar, managing director and CEO, HDFC Standard Life Insurance, confirmed that the company would be hitting the capital market very soon. Satwalekar said that the company was planning an IPO and its nitty gritty was yet to be sorted out.

Regarding the equity’s percentage to be diluted, Satwalekar said, “The Company would be diluting over 10 per cent of its holding in the insurance company.”

Standard Life has 18.1% stake in the JV. Recently Standard Life Insurance Company was listed on the London Stock Exchange. “We need to raise funds for our capital requirement for the life insurance business,” he said.

Currently, the insurance regulation allows an Indian insurance company to dilute only up to 26% to any foreign partners.

According to him, the life insurance business will need capital of around Rs 600 crore for the current year. He added that the IPO size would be above Rs 100 crore.

He informed “If the regulation allows further dilution of equity stake, we will go for dilution of equity above 10 per cent”.

Satwalekar said his company is confident that the regulation for equity dilution would be further increased to enable the insurance sector to raise more capital through equity dilution.

Friday, November 23, 2007

Syndicate Bank extends e-network to Mysore and plan to open rural branch at Yelwal

Syndicate Bank introduced CBS five years ago. It was the first public sector bank to introduce CBS and today its 93 per cent of branches are networked, enabling its customers to transact through any of the networked branches.

Adopting a ‘Consumer-friendly, IT-savvy’ face, the nationalized Syndicate Bank has extended its networking to the remaining 7 per cent of its branches too under the core banking solution (CBS) to be able to provide online facility for its customers to all its branches, across the country.

Assistant General Manager K L N Joshi said, “Ours is the first bank to implement CBS among the public sector banks. The five-year experience has put us in a superior position. This has enabled us to introduce several technology-flavoured products like online booking, internet banking, telebanking, e-gateway and ATM sharing. As a result of this technology drive, Syndicate Bank has been awarded the best core banking project for large banks award in 2006 and the Asian Banker IT Implementation Award, also in 2006.”

Chief Manager G Anatharaman added that 35 of the 42 branches in the region, covering Mysore, Mandya, Chamarajanagar, Hassan and Madikeri districts, are now under CBS networking. The rest will be covered by December.

Joshi further added “We have also become the first bank to offer online loan application filing facility. After an encouraging response for the initial two products introduced two weeks back, this facility was extended to cover four more products in Mysore region on November 16, covering education, SME, housing, traders, professionals, and self-employed.”

Chief Manager K Ramesh Pai informed further that “This covers almost all loans, except corporate financing. We want to bring in agriculture too also under online facility. Once that is done, we will be the first bank in the country to introduce the facility for farmers among the nationalized banks.”

Joshi informed that Syndicate Bank is planning to add five ATMs to the existing 21 in the region and open a rural branch at Yelwal, outskirts of Mysore.

“Our two other products, educational loans (Synd Vidya and Synd Vidyarthi) and agricultural loans (Synd Jaikisan) is becoming very popular. Students can obtain Rs 10 lakh loan without guarantee and Rs 20 lakh with guarantee for studies in India and Rs. 7.5 lakh for studies abroad, apart from OD facility up to Rs 10,000. The hassle free investment credit scheme for agriculturists enables loan up to Rs 15 lakh,” said Ananatharam.

Joshi told that as against the banks target of Rs 30 crore, the bank disbursed Rs 18.5 crore farm loans last year and Rs 14.5 crore so far this year.

Banks might adopt self-regulatory loan recovery practices

Recently there have been cases of harassment by recovery agents of the banks. An increase in the infiltration of personal loans in their collection has resulted in banks employing agents for recovering bad debts. The complaints are increasing in number and Reserve Bank of India and courts have raised questions over the practices of banks employing recovery agents after the case of a borrower being driven to suicide by these agents.

The Reserve Bank of India is making new guidelines to keep check on the methods of the banks in view of which the banks are responding by going slow on small-ticket personal loans. Before giving loans banks are checking the financial status of the people and their loan pay back ability due to which the middle class people are facing problem.

The IBA working group studied the recovery practices in the UK and the US. In US and UK, where the lender can take back the security (say a car) if the borrower has defaulted over three times. The only situation the lenders are barred from doing so is when it is in the customers’ own premises.

The Indian Banks’ Association (IBA) have been looking for the fast- track remedial approach and a legal method for the recovery of loan as the legal route takes a very long time years to settle disputes specially in the cases of small loans. The IBA is in favor of self-regulation by banks with respect to practices adopted by lenders for recovering personal loans.

In India, there is no proper law to deal with the recoveries of small-ticket loans. Even under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFESI) that gave some flexibility to recover securities, there is a provision of recovery of securities of only over Rs 1 lakh.

RBI, in its recent monetary and credit policy review, had asked the banks to urged their policies, practices and procedures used in engaging recovery agents by them because the litigations against banks for engaging recovery agents, is getting them adverse publicity which could lead to reputation risk for the banking sector as a whole.

BOB, IBA will be hosting this year’s annual bankers’ conference in Mumbai on 26th November. It will be a two-day event, in which there will be five sessions revolving around the theme, ‘Indian Banking: Towards global best practices’.

The discussions are expected to tackle various issues concerning all the stakeholders in the banking system, including employees, shareholders and bank customers with presentations also from academia, other industries as well as banks.

Thursday, November 22, 2007

Banks are advised to rely upon the Guardianship Certificate for opening and operating bank accounts of disabled persons

The National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 was passed by Parliament to provide for appointment of legal guardians for persons with disability that is covered under the said Act. The Act was made to help the disable persons to open accounts in the bank.

The Trust also suggested that the legal guardian could open and operate the bank account as long as he remains the legal guardian.

A notification was passed by the Reserve Bank of India that the banks and banking sector have been asked to accept the Guardianship Certificate issued either by the District Court under Mental Health Act or by the Local Committees under the above Act for the purpose of opening and operating accounts for people with disabilities such as autism, cerebral palsy, mental retardation and multiple disabilities, among others. The person who is showing himself as a guardian of the disabled person has to submit the certificate as the proof in the bank for opening and operating an account on behalf of the disabled person.

The notification stated that “Banks are therefore advised to rely upon the Guardianship Certificate issued either by the District Court under Mental Health Act or by the Local Level Committees under the Act for opening and operating bank accounts.”

Wednesday, November 21, 2007

MasterCard to tap unbanked population using mobile phone to widen reach

Mastercard is planning to catch hold of the unbanked population in the country using the mobile phone customer base which has been seeing a rapid growth. The sharp domestic growth has made India a focal point for Mastercard, even as international banks like Standard Chartered, HSBC and Citi see it as a growth driver.

MasterCard Worldwide (South Asia, Middle East & Africa Region) president Sonny Sannon says the banking penetration in India is fewer than 30% while that in Malaysia is 98%. There are more people in the country with mobile phones than bank accounts. There are many options available, but the system needs to be inter-operable and not a closed loop system. It should also be secure.

India is a very important geography for MasterCard and its growth is twice that of the SAMEA region. India has witnessed a 40% annual compounded growth in credit cards for the past few years. The total credit card in the country is the region of 35 million, while the debit card market is estimated at over 70 million. The average card spend per annum is now at Rs 20,000. This is against Rs 16,000 a couple of year ago.

Recently a report was published by Boston Consulting Group according to which about 135 million households in India do not have access to basic banking services and this constitutes around 65% of the total population. In October 2007, India had a total of 213 million mobile subscribers. The number of banking customers is supposed to be much lesser.

In Africa, MasterCard had implemented a project, where customers could use a debit card which could also be used offline. The plastic had a chip in it, which would record the offline purchases. This can also be used online in main cities and also in ATMs. According to Mr Sannon, similar solutions could also be implemented in India.

The company is also looking at launching MasterCard Advisors, a wholly owned subsidiary of the company, which is engaged in consulting services. India is one of the most important markets for the company.

Mr Sannon stated, “India accounts for one-fifths of the card spends in the SAMEA region. The SAMEA region is the fastest growing geographies for MasterCard internationally and is home to the emerging markets in the world. The SAMEA region includes 16 countries which have less than 200 million plastics and a population of two billion.

What is common across the region is that people are aspiring for a better future and there are aspiration needed from governments of these countries.” He said that India is moving up because of its large population, the economy doing well and changes in lifestyle.

UCO Bank describes reports of takeover bid by SBI as baseless

There was news that the State Bank of India (SBI) had evinced interest in acquiring UCO Bank and another nationalized bank, Dena Bank, in a bid to acquire their businesses.

A statement was realized from Kolkata based public sector lender, UCO Bank describing the acquiring process as baseless.
UCO Bank Executive Director, Virendra Kumar Dhingra said, "There haven't been any talks with SBI in this regard. Everything that has come out in the media about the takeover bid is baseless. We came to know about the 'takeover' from newspapers."

Dena Bank's chairman, P L Gairola, however, was not available for comments on the issue.

UCO Bank showed a significant improvement in its bottom line, which has a total business of Rs 1,18,000 crore, as on September 30, 2007, with nearly 1,880 branches across the country and an ATM network of 235.

The bank's total advances as on September 30, stood at Rs 47,000 crore while its deposits were quoted at around Rs 71,000 crore.

UCO bank showed a year-on-growth of 17 per cent in credit and 22 per cent growth in deposits in FY07.

Dhingra informed that at present government has 75 per cent of stake in the UCO Bank which is likely to come down to 59-60 per cent after a proposed Follow-on Public Offer of the Bank, probably early next year.