Monday, March 31, 2008

RBI issues guidelines for ICAAP

Until now, banks were busy in calculating minimum capital they needed to take care of credit, operational and market risks. But there can be a change in the scenario with the Reserve Bank of India (RBI) asking banks also to internally assess how much additional capital they would need to manage risks from factors like interest rate, liquidity and reputation.

The capital requirement might exceed as compared to the minimum capital adequacy ratio.

The guidelines have been issued by the banking regulator for the Supervisory Review Process and Internal Capital Adequacy Assessment Process (ICAAP), which form the second pillar of the Basel-II capital adequacy framework. Both are appropriate for quantifying capital requirement and putting in place sound risk assessment and management systems.

The foreign banks operating in India and Indian banks with international presence, which have to be Basel-II-compliant by March 2008, will be required to submit their ICAAP plans by June 2008. While other banks, including regional rural banks, have time till the next March to submit their plans.

“The banks are advised to develop and put in place, with the approval of their boards, an ICAAP commensurate with their size, level of complexity, risk profile and scope of operations,” RBI said.

However RBI has already issued guidelines for the minimum capital adequacy ratio (pillar I) and market discipline (pillar III).

While the ICCAP will capture risks like reputation, interest rate, which are not covered by pillar I. Whereas, the SRP will ensure that the banks have adequate capital to support all the risks in their business, encourage them to develop and use better risk management techniques for monitoring and managing their risks.

Currently, there is no common approach for conducting ICAAP. These guidelines, are attempt to provide only broad principles for banks to develop their ICAAP.

SBH plans to start biometric, mobile ATMs

State Bank of Hyderabad (SBH) managing director Amitabha Guha said in the next financial year the bank has plans to start biometric and mobile ATMs.

In an interview given to the Business Standard he said, “We plan to launch our first biometric ATM in Medak district of Andhra Pradesh and a mobile ATM in Hyderabad on a pilot basis during the next financial year. We want to assess the acceptance of the illiterate and semi-literate people towards these initiatives before launching them across the country in a phased manner,”

In the next year bank also has plans to expand its network by opening 50 more new branches and network of 250 ATMs.

In Hyderabad SBH on Wednesday opened its 1,000th branch. The branch was inaugurated by 78-year-old Hari Shankar, its oldest customer in the city who holds an account with the bank since 1965.

Guha told the reporter that SBH’s entire branch network had been brought under the core banking solutions (CBS) umbrella, and in the next fiscal the bank will be expanding its network by opening 50 more new branches and network of 250 ATMs.

“We will be adding 50 more branches next fiscal. Our customers currently have access to 510 ATMs of the bank, which is expected to increase by another 250 during the year,” he said.

Speaking about the banks business for the current fiscal he said given the changing market dynamics at low interest rates among others, SBH is expected to end the current fiscal with a business of Rs 88,000 crore, with 27 per cent and 20 per cent growth in advances and deposits respectively. He added, “We are, however, hopeful of reaching the scheduled target of Rs 1 lakh crore next year”.

The gross non-performing assets (NPA) of the bank are expected to be at 1 per cent of gross advances by the end of March 31, 2008, and net NPA at 0.20 per cent of net advances.

Allahabad bank cuts BPLR by 25 basic points

Allahabad bank has cut the benchmark prime lending rate (BPLR) by 25 basis points. A statement released by the bank stated that it has brought down its BPLR from the 13.25% to 13% with effect from April 1, 2008. It further said that the reduction has been done in regard to the present market scenario and the need to provide credit to productive sectors at affordable rate.

In a statement given to Reuters Chairman and Managing Director A. C. Mahajan of the bank said the effective PLR will be 13 percent and the effective reduction on floating home loan rates will be 50 basis points after factoring in the PLR cut.

Referring to bulk deposits which comprise about 28 percent of its deposit base, which is expected to reach 700 billion rupees by the end of this financial year on March 31, he said, "The cost of incremental deposits has come down". The cost of deposits in the bulk segment has come down to around 9 percent as compared to 10.5-10.75 percent a year earlier.

He added the bank's bulk deposit base is positioned at 190 billion rupees now. It also plans to bring down the share of bulk deposits and wants to maintain it around 28 percent of its total deposit base.

Bulk deposits refer to high-value deposits, but the upper limit depends on the size of the banks and their deposit base.

Earlier the bank had announced a cut in the interest rate of fresh housing loans by 25 basis points in both floating and fixed term loans with effect from April 01, 2008 for loans up to Rs 20 lakhs on all maturities.

Therefore with the reduction in the BPLR, in actual terms, interest on housing loan up to Rs 20 lakhs in floating term loan will stand reduced by 50 basis points for all fresh sanction effective from April 01, 2008.

Thursday, March 27, 2008

SBI offers help to 13 Kids from Naxal-hit families

The State Bank of India considering its social responsibility towards society has taken an initiative of adopting girl child. Under this the bank takes full responsibility of education and financing of their marriages.

Working on the same line this time the SBI has adopted 13 kids from Naxal hit families.

Sixteenyear- old Shanti Jyotsna who lost her father Balaraju to a Naxal bullet way back in 1992 has given up hopes of pursuing further studies. But, help came in the form of a State Bank of India initiative. She is the student of Madikonda Government High School in Dharmasagar mandal of Warangal district is taking the SSC exams this year. It is an everyday battle with penury and hunger for her after the death of her father. After knowing about Jyotsna’s plight SBI gave her a helping hand by supporting her education.

In the same way the SBI is also helping Jampala Mounika of Komuravelli in Cheryal mandal, who too lost her father to Naxal violence in 1995 and Class VII student of Shivanagar S Maina.

SBI has adopted in all 20 children, Jyotsna, Maina and Mounika are among those adopted children. While 13 of them belong to families that had lost the bread-winners, the remaining are from extremely poor backgrounds.

The SBI came to know about the plight of these children from the police and have come forward for their help. The bank has formally adopted them in the presence of District Collector B Janardhan Reddy, SP Soumya Mishra and SBI regional manager PCJ Chakradhara Rao.

Speaking on the occasion, Chakradhar Rao said that so far the bank has adopted 92 children in the whole region. He said the bank will not only support their education, but even finance their marriage.

Wednesday, March 26, 2008

Bank of India to launch mobile banking

India has started its journey towards m-commerce — a world where you can make all payments by keying in instructions on your mobile phone. In developing countries especially in Europe mobile banking is being used very commonly. People do payments for even basic purchases at shopping malls or book train tickets by clicking on their mobile keypad.

Recently Barclay Bank has launched “Hello Money” a mobile banking service in India that enables one to do an entire range of things — enquiry, funds transfer, bill payments and requests for financial statements on just few clicks on keypad.

The Bank of India setup with a vision to provide cost effective developmental banking for small business, mass market and rural markets, is planning to launch its mobile banking services for its 25 million customers across the country.

The statement released by the bank states that mobile banking will allow a customer to check balance, verify transactions details, paying of utility bills such as electricity, telephone or gas, to shop around, buy a movie ticket and can even transfer and receive money from any where.

The bank added that its will make mobile banking service available in rural areas also.

Monday, March 24, 2008

MoU signed by CARE and State Bank of Bikaner and Jaipur

A memorandum of understanding (MoU) was signed between Credit Analysis & Research (CARE) and State Bank of Bikaner and Jaipur, according to which the bank may advise clients to get their facilities rated under Basel II framework. The ratings will be carried out after obtaining mandates from the bank’s clients / prospective clients, at a special discounted rate.

The Basel II framework specifies a system of graded risk weights for capital adequacy determination of banks. The Reserve Bank of India has recognized CARE as an eligible rating agency for this purpose.

A similar MoU has been signed by CARE with few other banks including State Bank of India, Indian Bank, Indian Overseas Bank, UCO Bank, Allahabad Bank.

State Bank of Bikaner and Jaipur is an associate bank of State Bank of India, and had an asset base of Rs 34,507 crore as on March 31, 2007.

Wednesday, March 19, 2008

SBI, DBS agree upon opening of the financial sector in their respective countries

The State Bank of India will be the first Indian bank to get the qualifying full bank status in Singapore.

The Reserve Bank of India (RBI) and the Monetary Authority of Singapore (MAS) have come to a settlement for the opening up of the financial sector of their respective countries with a formal finance ministry clearance which is set to come any day.

At present the DBS bank Ltd, the largest bank in Singapore in terms of assets is having two branches in India. With the getting of approval the Singapore bank will be able to open its eight new branches across India. It is being believed that the Reserve Bank will also be issuing a license to United Overseas bank Ltd (UOB) of Singapore to set up shop in India, making it the second bank from Singapore to have a presence here.

Sequentially, MAS will be giving the State Bank of India full bank (QFB) status. On getting approval India’s largest lender will be able to raise retail deposits and open 15 centers in Singapore, including automated teller machines (ATMs) and point of sales operations. Currently SBI is having only one branch in Singapore, but has no access to retail deposits.

According to banking analyst with a brokerage who do not want to be identified said, “I can’t recall single instances of a foreign bank getting eight branches at one go”. People closely related to the development said that four of the eight branch licenses had been pending since last year and the RBI approval is for all eight branches to be in tier II and tier III cities and not metros.

According to the confirmed figures available since October, 29 foreign banks from 19 countries were running 273 branches across India.

In August 2005, an Indo-Singapore Comprehensive Economic Cooperation Agreement (CECA) came into effect under which both countries agreed to open up their financial sectors to each other. So far, two Indian banks—Bank of Baroda and Axis Bank Ltd—have been allowed to set up operations in Singapore.

According to CECA agreement three Singapore banks will be allowed to open 15 branches in India, while three Indian banks will be given the QFB status. While, no other Indian bank has been given the status, the SBI will be the first one to get it.

Among Indian banks, Bank of India, Indian Overseas Bank, Indian Bank, UCO Bank, Bank of Baroda, SBI, ICICI Bank Ltd and Axis Bank have a presence in Singapore. Their status ranges from full banks to wholesale banks of offshore banks.

All other banks except for UCO Bank, which has two branches, have a single-branch presence in Singapore.

Singapore, being an important financial hub for South-East Asia, is a strategic money centre on the lines of London, Frankfurt, New York and Tokyo. It will play a very important role for Indian entities when the country opts for full convertibility of its currency.

On Monday the DBS Group, South-East Asia’s largest lender, in a statement it said that it is optimistic about obtaining approval for its expansion in India, and is waiting for the confirmation from India’s central bank.

“We are optimistic that we will receive the go-ahead to expand in India soon. However, as of now, nothing is confirmed,” said Karen Ngui, a spokeswoman for the Singapore bank.

According to the World Trade Organization (WTO) norms, the Indian banking regulator is required to offer 12 new licenses every year to all foreign banks but, RBI has been liberal when it comes to branch licensing.

For instance, between July 2006 and June 2007, the Indian central bank allowed seven foreign banks that have already been operating in India to open 20 new branches and an additional seven to enter India by setting up representative offices.

Between July 2006 and October 2007, six foreign banks: ABN Amro Bank NV., Barclays Bank Plc., Shinhan Bank, Deutsche Bank AG and Standard Chartered Bank, had set up 13 branches and four foreign banks, Banco Bilbao Vizcaya Argentaria, Banca di Roma, Depfa Bank Plc. and National Australia Bank opened four representative offices.

DBS, which has the largest retail network in Singapore with 83 branches and some 880 ATMs handling at least 50% of all ATM transactions in Singapore, made it first appearance in India in 1994 by setting up a representative office in Mumbai. In 1995 it was converted into a branch.

Ten years later it opened its second branch in New Delhi when it also acquired a controlling stake in Cholamandalam Investment and Finance Co. Ltd, a financial services firm with interests in consumer finance, asset management and securities.

By the end of the fiscal year March, it had a deposit base of Rs3,836 crore and advance portfolio of Rs1,229 crore. On a Rs225 crore income, it posted a net profit of Rs74 crore last year.

UOB, Singapore’s second-largest lender, is providing a range of financial services through its global network of 524 branches, offices and subsidiaries in 18 countries and territories in Asia-Pacific, Western Europe and North America. Currently it is having banking subsidiaries in Singapore, Malaysia, Indonesia, Thailand and the Philippines.

Monday, March 17, 2008

Before going to the bank try internet or phone banking

Banks are adopting new technologies in a wake to reduce the paperwork burden and customer rush at their branches. One of the methods is internet banking and phone banking. In order to promote these methods the banks like State Bank of India (SBI), HDFC Bank, ICICI Bank, HSBC Bank and Kotak Mahindra Bank are offering a slew of incentives to account holders opting for net or phone banking

There is a wide range of incentives being offered from lower charges on orders for duplicate statements, demand drafts and stop-payments to cash-backs on ticketing and utility bill or tax payments through net/ phone banking or ATMs, depending on the bank.

In order to penalize customers frequenting its branches one of the private sector bank has moved a step forward by charging RS 50 for every transaction made at a branch beyond the 12 permitted in a quarter.

This reason is more than enough for customers to transact through the alternative channels, over and above the benefits and convenience they offer.

The offers being given out by few of the banks to the customers to encourage them to use alternate channels:

SBI is offering cash-backs to customers opting to pay utility bills, purchasing air or train tickets and making tax payments through the net banking route till March 31, 2008. So much so, one can get a cash-back of Rs10 on a transaction worth Rs50, which amounts to a whopping 20%. There is a cap on the maximum cash-back one can earn, of course, at Rs500.

HDFC Bank charges Rs100 for each issuance of a duplicate account statement at the bank branch. Now the same can be obtained for Rs50 by going through an ATM or a phone (non-IVR) and for Rs30 if ordered via net banking or phone banking (IVR).

Whereas Kotak Mahindra Bank has same charge for branch and phone transactions, but the rate is slashed to half for ordering duplicate statements via ATM or internet.

While in case of ICICI Bank, a yearly (financial year) deduction of Rs200 is made for monthly delivery of physical account statements. Whereas for monthly statements through email there are no charges.

HDFC bank is offering a facility of stop payment order free of charge via phone banking whereas the bank charges Rs50 per cheque and Rs100 for a range of cheques.

However ICICI Bank has made stop-payments free for those opting for net banking.

HSBC bank is offering DD request facility free to online customers if being ordered online otherwise the bank charges 0.3% of the draft value if asked for at a branch. Likewise HDFC Bank offers a DD for Rs75 at a branch, Rs50 via phone and Rs30 through net banking. However, there could be limits on the DD amount that can be ordered via the alternate channels.

On being given all these offers it will help you cut down on your visits to the bank branch. So why go there, knowing you are not welcome, and when the same transactions could be done from the comfort of your home or at any of the ATMs. The banks have taken several security measures to make these channels safer than they used to be some time back so that customers concerned about the safety of their passwords and personal identification numbers need not worry about that and keep aback from using these facilities.

More and more public sector banks ready to implement Basel II norms

Basel II recommendations involve forming rigorous risk and capital management systems designed to ascertain that a bank holds capital reserves appropriate to its related risks. Therefore, it is very essential that a healthy risk management system like Basel II should be given its due in today's Indian banking scenario. This even becomes important if Indian banks are to scale up with the ever-changing economic trends and secure a competitive edge in the global market. In fact these recommendations are aimed at protecting the international financial system.

At the function organized by the Bankers’ Club Greater Kochi Mukesh Agarwal, director-business development, Crisil said many public sector banks are stepping up to implement Basel II norms.

He said several private sector banks had no strategy in place for adopting the norms. “If a bank has high quality credit exposures, it will save capital on account of credit risk. Conversely, a bank with relatively lower rated credit exposure will have to provide more capital.”

It is true, there are limitations that banks face while implementing Basel II. These include siloed technology, scarcity of skilled resources and limited scope of few rating agencies. In addition to this there is also a cost limitation.

Saloni Ramakrishna, principal architect, risk and compliance solutions and head, business development, Reveleus & Mantas (an i-flex business), Japan & Asia Pacific as she recommended the implementation of the revised international capital framework - Basel II, underlined the viewpoint that there is a need to identify it as a strategic initiative for competitive advantage rather than look at it as another compliance regulation.

Emphasizing on the need for upgrading the banking system she added, "Banks that cannot attain Basel need to merge with larger banks". This means a capital profile change.

Under the Basel II credit rating will not be mandatory. All the same, banks will be able to save capital if their loan portfolios are rated.

In case a bank chooses to keep some of its loans unrated, perhaps it may have to provide a risk weight of 150 per cent for credit risk on such loans.

After April 1, 2008 fresh unrated disbursals and renewals greater than Rs.500 million will attract a risk weight of 150 per cent after April 1, 2008. This minimum size will be further reduced to Rs.100 million bringing many more loans within the 150 per cent risk weight bracket from April 1, 2009.

According to Mukesh by getting loans rated, banks will be able to save capital on loans in the higher rating categories.

He said rating is not a precondition for a loan sanction or for renewal of working capital facilities.

Yet a bank can insist on a rating for the loan before sanction or renewal, as it will help the bank in saving capital.

A company will have the option to accept or reject the ratings assigned to it by the rating agencies like Crisil.

Once the rating is approved, a rating letter will be issued by Crisil which will be posted it on the website and carry it in its monthly ratings publication.

He added only ratings that are available in the public domain can be used by banks for calculating risk weights.

R.Ramachandra Warrier, president of the club, and K.Balakrishnan, secretary, also expressed their views on this.

Thursday, March 13, 2008

Indusind Bank to pay compensation to the consumer

Surjit Singh Sidhu, an advocate, filed a case before the Forum that his cheque, which was deposited for clearing, was lost by the bank. In his complaint he stated that he had deposited a cheque of Rs 40,000 in his account in Indusind Bank, Feroze Gandhi Market. The cheque was drawn on PNB Nabha.

According to Sidhu, Indusind Bank sent the cheque for realization to PNB Nabha on October 17, 2006. Sidhu said he repeatedly enquired about the proceeds of the cheque from his bank, but he did not receive the amount.

Learning about the lost of the cheque Sidhu later served a legal notice on Punjab National Bank, Nabha, the bank authorities said that they had not received the cheque. This was stated by PNB in the court too. The Hakeema street branch of PNB took the same appeal.

The counsel for Indusind Bank admitted to have received the cheque and stated that it was sent to PNB Nabha for collection, and that Indusind Bank had been reminding the branch about it. Later, the counsel of all the three parties did not appear before the Forum, and were proceeded against ex parte.

After hearing the arguments of both side the Forum president JS Chawla and member Daljit Singh Bakshi held that the complainant could not be termed as consumer of PNB. The Forum observed that there was proof that Sidhu had deposited the cheque with Indusind Bank. But in the absence of any documentary evidence of sending the cheque for collection to PNB by Indusind Bank, the only presumption was that cheque was never sent to PNB for collection by Indusind Bank, who was unnecessarily blaming Punjab National Bank.
In its decision the District Consumer Disputes Redressal Forum directed Indusind Bank, Feroze Gandhi Market, to pay Rs 10,000 to a city resident as compensation on account of loss of cheque, the mental tension and harassment caused to him and for the deficiency in its services.

Wednesday, March 12, 2008

Axis Bank launches high level secured credit card ‘Visa Platinum Credit Card’

Axis Bank launches a high level secured credit card ‘Visa Platinum Credit Card’. This card is first of its kind in India and is based on the EMV (Europay, MasterCard, Visa) Standard.

The Card has an embedded chip, which stores cardholder’s information in an encrypted format, thereby providing the highest level of security to the cardholder against possible misuse in form of counterfeiting and skimming.

On the occasion of the launch Dr. P. J. Nayak, Chairman & CEO, Axis Bank said, “We believe in offering our customers best-in-class products and services. The launch of the Platinum Credit Card in association with VISA is a proof of our commitment to innovation. The card, which is based on the EMV Standard, is the first of its kind in India. The EMV chip brings the benefit of the highest level of security to the card holder against all possible forms of misuse. At Axis Bank we have strongly believed in launching technology enabled, new generation products and our current offering is a prime example of this.”

Besides providing security by EMV certified chip, the Platinum Card also have attractive offers for the cardholders:

Definition: EMV Certified Chip card is a next generation technology payment card carrying an embedded microchip. Compared to existing magnetic stripe cards, the computing power of the chip means that cards can offer new payment options and services, greater security, and more convenience and choice.

Chip card provide security against ‘skimming’ or copying of the contents, whereas magnetic stripe cards are more vulnerable. When you use your card at the point of sale, the chip card sends a secret message to authenticate every transaction. This secret message changes for every transaction, making it harder for a fraudster to steal the information.

Functionality: EMV based chip card also ensures secure exchange of information between the Card and Bank’s Authorization system (because of presence of cryptogram in the online requests/responses). Higher data storage enables card to perform multiple functions e.g. Efficient Rewards Management by offering chip based loyalty solutions, instant reward redemption, multiple programs on single card.

Exclusive benefits of the card:

Sign up Gifts: Premium Wrist Watch: Platinum credit cardholders are entitled for premium watch from Esprit. The cardholder can choose between two variants.

Complimentary flight vouchers: Platinum credit cardholders are also entitled to a complimentary return flight voucher to one of the four most traveled destinations in Asia namely- Dubai, Bangkok, Kuala Lumpur & Singapore. The return flight voucher will be given to Primary as well as Add-on credit cardholders.

Fuel benefit: Platinum credit cardholders can avail a 5% saving on Fuel expenses in the form of a 2.5% surcharge waiver and 2.5% cash back. The benefit will be applicable across all fuel pumps in India.

Accelerated rewards program: The Platinum Credit Card offers a superior rewards program catering for high spenders and international travelers. Cardholder can earn up to 2 reward points on every Rs. 100 spent. Each Reward Point will be worth Re. 1 and accumulated rewards points can be redeemed against exciting gifts and vouchers given in exclusive Platinum rewards catalogue.

Concierge Service, any time: Platinum credit cardholders can enjoy round the clock concierge services. From delivery of flowers to seeking golf course referrals, personal help is just a call away.

Comprehensive insurance package: Platinum credit cardholders are entitled for an Insurance cover of Rs. 51 lacs. The insurance cover includes air accident insurance, personal accident policy, zero lost card liability, purchase protection and travel related insurance.

Access to over 500 airport lounges: Platinum credit cardholders will get a Complimentary Priority Pass Membership which will enable them to gain access to over 500 airport lounges across 275 cities across the World.

Stay connected the smarter way: With exclusive offers from Matrix Cellular, Axis Bank Platinum credit cardholders can stay connected in a much easier and economical way.

Wheels at your service: Platinum credit cardholders will get a 35% discount on chauffeur driven cars in India thru Hertz.

Shopping offers: Platinum credit cardholders can avail of great shopping benefits on their purchases at some of the leading partners such as Kaya Skin Clinic, VLCC, Hidesign, Saville Row, Trussadi, Pizza Hut, TravelGuru, and PVR Cinemas etc.

Monday, March 10, 2008

Core Banking Solutions extended to Dhanalakshmi banks 181 branches

Dhanalakshmi Bank extended its banking network by extending core banking solutions to 181 branches and 26 extension counters, spread across eight States in the country. To increase its technological competence bank has installed the Flexicube software of i-Flex Solutions.

While declaring publicly of the extension of CBS facilities, the Managing Director and CEO, P.S. Prasad, said that the operational performance of the bank has been improving on all fronts and that the total business volume is close to Rs 5,500 crore.

When all the branches will be completely migrated to CBS then it will be of great help for the bank to significantly improve the quality and range of its services to its growing clientele. All the bank customers will be ‘bank customers’ rather than ‘branch customers’, with the option of operating their accounts from any of the bank’s branches.

Prasad said converting the branches into core banking solution will enhance the bank’s capabilities to proactively introduce a new suite of products in according to the expectation of the customers’ needs. The bank is also working on IT-enabled financial inclusion. To increase the area of customer base the bank has launched two new products, a savings bank account product called Dhanam Platinum and a current account product called Dhanam Super Power.

Friday, March 7, 2008

Stan Chart completes acquisition of American Express after receiving all the required approvals

Standard Chartered Bank announced that it has completed the acquisition of American Express Bank after receiving all the required approvals including that of the Reserve Bank of India.

According to the statement released by the bank the total cash consideration for the acquisition is $ 823 million. The deal was announced in September last year.

The statement said the international acquisition has implications for India as well since both the banks have operations in the country, that AEB provides Standard Chartered with an opportunity to add capability, scale and momentum in the strategically important Financial Institutions and Private Bank businesses. It will bring 19 more markets under the Standard Chartered footprint.

"The acquisition of American Express Bank is strategically compelling as it significantly strengthens Standard Chartered Bank business in India, which is a key market for the Group," said Neeraj Swaroop, its Regional Chief Executive, India and South Asia.

"AEB deepens our presence in India, enhances our financial institutions business and fast tracks the private banking business, which we launched in 2007. The acquisition will help us to deliver economies of scale, a wider distribution reach and add new customers," Swaroop added.

The integration is expected to take approximately 2 years.

Wednesday, March 5, 2008

RBI gives approval to StanChart to buy American Express

The Reserve Bank of India’s (RBI) gave approval to Standard Chartered to acquire American Express Bank (AEB) from American Express Company (AXP) in a $823 million cash deal.

RBI gave the approval only when it permitted AEB to transfer its credit card business to American Express Banking Corporation (AEBC). As per the sources, “The RBI only gives one banking license. It is the bank’s prerogative to choose its line of business”.

AEB wanted to keep hold on its credit card and travel business in India by transferring it to a non-banking finance company (NBFC). But this did not find favor with the RBI as the regulator is not comfortable with an NBFC issuing credit cards without having partnering with a bank. Amex then requested for a restricted banking license the banking regulator to carry out credit card and travel-related businesses.

“The merger will add seven branches to our (Standard Chartered) network, in metropolitan areas such as Mumbai, Delhi, Bangalore and Pune. This will boost our private banking and financial institutions business. We will add close to 700 Amex employees to our existing staff. The integration is expected to take around 24 months,’’ said Neeraj Swaroop, regional chief executive, India and South Asia, Standard Chartered Bank.

The branch acquisition is being considered important as the RBI is permitting all foreign banks put together to set up an average 12 to 14 branches annually. Standard Chartered has around 81 branches in India, which is the largest network among foreign banks operating in the country.

Standard Chartered will also being entering into an option contract with American Express Company to buy American Express International Deposit Company 18 months from now at the cost prevailing then. American Express International Deposit Company is headquartered in the Cayman Islands and issues short-term, fixed-rate certificates of deposit to the AEB customers.

SIDBI reduced the annual service fee to 0.5% from 0.75%

SIDBI reduced the annual service fee to 0.5% from 0.75%. This has been done with a view to reduce the risk of loss following a default as well as the guarantee will also reduce capital requirement for banks.

Especially Small scale loans carry full risk weight age. Therefore if there is a guarantee banks will be required to provide capital only for the un-guaranteed portion which ranges from 20-25%.

Speaking to ET, SIDBI CMD RM Malla said that the institution was extremely underleveraged in terms of guarantee. “We propose to increase the size of the guarantee fund from Rs 1,600 crore to Rs 2,500 crore.

At present, the value of the guarantees is around Rs 2 500 crore, whereas the fund is enough to provide guarantee for loans up to Rs 10,000 crore.”

Tuesday, March 4, 2008

Symbiosis to start retail banking course in collaboration with Standard Chartered Bank

UK-headquartered global banking giant Standard Chartered Bank, largest foreign bank operating in India signed a memorandum of understanding with Pune-based business school Symbiosis Institute of Management Studies (SIMS) for a one year management course aimed at fostering talent for the retail banking space.

According to MoU, SCB’s Consumer Bank Academy and SIMS would jointly offer the Post Graduate Program in Retail Banking and Sales.

In a statement given by the bank said the students who will get enrolled in this program will be absorbed by the bank and also get on-the-job training. They will also get the opportunity to earn while working as they would be given stipend during the internship.

"The demand for talented people in the banking and financial services sector far exceeds the supply. In this partnership, the bank will bring its knowledge and understanding of the banking domain, and SIMS, the ability to nurture talent. Together, we aim to create professionals who are the best in the retail banking sector," Stanchart's Regional head of consumer banking (India and Nepal) Murali M Natrajan said.

For this year 300 students will be enrolled for the program..

Sunday, March 2, 2008

Govt. to review Banking Cash Transaction Tax

On June 1, 2005, a Banking cash transaction tax (BCTT) was introduced on every withdrawal transaction. On every withdrawal transaction on any a single day if it was withdrawal of cash from an account (other than savings account) or receipt of cash on encashment of term deposits there was 0.1 percent tax. The limit for individuals was Rs 25,000 and Rs 1 lakh for others, above which the tax became due.

In the Union Budget for the year 2008-09 the Finance Minister has proposed to withdraw the banking cash transaction tax (BCTT). The Finance Minister P Chidambaram had said while presenting budget 2007-08 last year as other instruments become more effective, it would be possible to review BCTT next year. The BCTT was introduced in June 2005. Therefore the government was likely to review this banking cash transaction tax in the budget. The main purpose for designing the BCTT was to keep an eye on unaccounted for money. There has been decline in the growth rate of cash withdrawals from banks so it had become necessary to review the BCTT and there is a possibility of expansion of transactions under the annual information report (AIR) system.

Industrial chambers, including FICCI, had given a proposal to the Finance Minister to withdraw this tax in view of the fact that all high value transactions have now to be supported by the Permanent Account Number for the purpose of identification. Apart from collection of vast information about transactions through AIRs, the Income Tax Department is also collecting information from banks on suspected transactions under the Money Laundering Act.

The other option before the Finance Minister could be to bring high cash withdrawals, say above Rs 50,000, under the limit of AIRs. He had earlier said the transactions under the AIRs would be extended at an appropriate time.

Earlier as part of measures to control tax evasion and unaccounted for money transactions, the finance minister had imposed a cash transaction tax of 0.1 percent on amounts in excess of specified limits that's withdrawn from bank accounts on the same day. According to this one had to pay Rs 10 for every Rs 25,000 he withdraws in a single day. But, now, many establishments accept cards.

Moreover, many places, if they accept card payments, levy an additional charge of 2-3 percent. Vendors of durables, hospitals and educational institutions either do not accept card/cheques or levy high charges on them. The burden comes on the shoulders of the consumer either way. Although the amount may look small, the charge is still there.

In turn this amounted to double taxation. An individual keeps his after-tax income in a bank. But when he withdrew the amount, he was again charged a tax. One had to withdraw less than Rs 25,000 over a period of time in order to avoid the extra burden.

Even the administrative difficulties were many for banks. It had created an additional workload as well as cost for the banks Also the bank would collect the tax on behalf of the government. The bank would then need to keep separate records for all these transactions. The move has been welcomed by all.