Tuesday, January 19, 2010

Private banks in the process of getting hold of rural India

India’s private sector banks are trying to take over public sector banks especially in rural India, in this process they are opening hundreds of new branches.

As per the Reserve Bank of India’s (RBI) norms the banks do not require to take permission for opening of branches in tier III to VI centers such as in smaller towns and villages, having population below 50,000.

The banks have also been permitted to open branches in rural, semi-urban and urban centers in north eastern states and Sikkim without its approval.

But the foreign banks have not been given the same relaxation in the norms for the opening of branches.

For Indian banks rural branches are very important as banks are able to generate cheap money. Moreover the rural people keep bulk of their money in savings account on which banks give 3.5% interest and this money is used in creating loan assets in urban centers.

There are around 79,933 bank branches in the country out of which 40% of the branches are located in rural and semi-urban centers. Around 31,666, are located in rural India and 19,057 branches are in semi-urban centers.

An anonymous senior HDFC Bank Ltd official informed, “The branch banking team is identifying locations.”

He added, “These branches will help us meet the priority sector requirements, conduct commodity and agriculture finance related business and also garner low-cost deposits.”

As per RBI norms, 40% of loans have to be given to the so-called priority sector or agriculture, small scale industries, etc.

The banks are able to generate such loans from rural branches.

Amongst the private sector banks majority of them have achieved the overall priority sector target of 40% but HDFC Bank, ICICI Bank Ltd, Axis Bank City Union Bank Ltd, Development Credit Bank Ltd, Federal Bank Ltd, Yes Bank Ltd and Kotak Mahindra Bank Ltd have been disburse around 18% of loans to the agriculture sector and 10% to weaker sections.

As per the RBI data, four banks - Bank of Rajasthan Ltd, Development Credit BankLtd, Karur Vysya Bank Ltd and South Indian Bank Ltd have not achieved the 40% target in 2009.

In rural areas HDFC Bank, India’s second largest private sector bank by assets has 1,500 branches and has got licenses to set up another 580. Axis Bank is having 941 branches.

At these branches apart from low-cost deposits, there are selling points of other financial products such as insurance and mutual funds and can add to banks’ fee income.

Romesh Sobti, managing director and chief executive officer of IndusInd Bank Ltd said, “There has to be low cost business model in place for these rural centers. They offer good market for sale of low value insurance products and garner small ticket size deposits.” The bank has 210 branches.

On the other hand Amitabh Chaturvedi, managing director and chief executive officer of Dhanlaxmi Bank Ltd, told he has instructed his team to prepare a list of under-banked centers Chaturvedi said. Dhanlaxmi has recently set up 66 new branches.

The bank has signed an agreement with A Little World, a technology company that provides financial services in remote areas through the use of mobile phones and biometrics, and Financial Information Network and Operations Ltd, a company that deals in micro banking industry by providing technologies to financial institutions that serves the rural sector.

All the private banks are working out plans to get hold of the vast potential of rural markets but they are not revealing anything about their plans as yet.

Rupa Rege Nitsure, chief economist, Bank of Baroda, pointed out as the cities have reached to the saturation point therefore it has become important for the banks to capture rural markets. “It is not necessary that one has to associate rural India with only agriculture there are many allied activities which banks can fund such as dairy, fishery, plantation and food processing.”

Nitsure informed, “The World Bank is also providing financial assistance to various state governments to improve agricultural productivity in rural areas through soil and water conservation and rain water harvesting. These projects also open up good business opportunity for the banks”.

As per RBI norms it is mandatory for the banks to open at least one-third of their branches in under banked areas.

This is one of the key criteria for the Indian central bank to give licenses to banks to for the opening of branches in larger centers.

Public sector banks, have about 70% of banking assets, are not much affected with the private bank plans but have plans to strengthen their hold on rural business.

J.M. Garg, chairman and managing director of Corporation Bank said, “We compete with them (private and foreign banks) in urban areas and still growing very healthily, why should their entry in rural areas worry us?”

A senior official of the country’s largest lender State Bank of India said, “They (private sector banks) are going there because we have established a business case there. They are following us”.

Anup Banerji, deputy managing director and group executive told State Bank plans to create 2,000 rural cadres who will stay in rural India for 10 years and take care of the rural business.

In view of this bank also plans to adopt hub and spoke model for the expansion of its branches in 300 districts. Through this, bank aims to cover every village in these districts through branches or business correspondents.

Corporation Bank has opened 60% of its branches in rural and semi-urban areas and the bank is planning to open more branches in rural areas. Garg pointed out, “The business growth from rural and semi-urban branches is 40% compared with 30% from urban area branches. This alone enthuse us to open more branches in rural areas.”

M.V. Nair, chairman and managing director Union Bank of India, has plans to open 500 new branches in the next 12-15 months and 50% of them will be opened in under-banked centers. At present bank is having over 2,750 branches. Nair, who is also the chairman of bankers lobby Indian Banks Association, said, “There is a lot of opportunity for both private and public sector banks in these unbanked centers as they are untapped.”

Monday, January 18, 2010

Canara Bank to open first branch in East Midlands town of Leicester

Canara Bank will be opening its branch in the East Midlands town of Leicester in the month of March, and will become the sixth major Indian bank to open a branch there. Leicester has a large population of Indian origin and has close business links with India.

The local business leaders staying in Leicester have welcomed bank’s decision of opening a branch as this will create 11 jobs.

In Leicester Canara Bank will be opening its first branch outside London.

In the town few of the Indian banks already have branches which include Punjab National Bank, ICICI, Bank of India, Bank of Baroda and the State Bank of India.

To grant a suitable location for Canara Bank branch a thorough research was done by the local economic development agency Prospect Leicestershire with East Midlands Development Agency (Emda) and the East Midlands India Business Bureau.

Nick Carter, chairman of Prospect Leicestershire, said: "It is very exciting that a significant international banking operation has chosen Leicester as the place to be."

He added, "This provides further evidence of the growing trade between Leicestershire and India and will give confidence to businesses to develop trade and investment opportunities".

Dhanlaxmi Bank revolutionized its look, launched new logo

Dhanalakshmi Bank, 82-year old lender one of the rising private sector bank of the country disclosed its new corporate identity by launching a new logo and its name spelt as 'Dhanlaxmi’.

In a press release the Kerala-based bank stated the new identity projects a modern, vibrant and contemporary look while the core values of trust and heritage built by the bank in all those years have been maintained.

In the New Logo fresh purple color has been used which indicates ‘Wealth’ and ‘Prosperity’ and has been designed in such a way to differentiate the brand from the clutter of financial services brands. The Bank’s name has not been changed but it will be spelled as ‘Dhanlaxmi’.

The bank has also added ‘established 1927’ as an integral part of its new identity to build on eight decades of its rich heritage and trust.

It has build up a high growth strategy, has recently achieved the Rs10,000 crore business mark and exponentially increasing its branch network and ATM’s offering financial services to the new age Indian.

Moreover bank is offering services into new areas of financial services like investment banking and is planning to launch mutual funds and start capital businesses.

Amitabh Chaturvedi, managing director and CEO, Dhanlaxmi Bank said, to establish one of the elite private sector banks in India, revolutionization of brand is the key area of focus.

Bank’s new identity has been designed by FITCH, leading international branding and design consultancy. The company was a simple briefing was done – to create modern design while maintaining the core value of trust.

Sheran Mehra, Head Marketing & Corporate Communication, Dhanlaxmi Bank, said 'The new identity reflects the Bank’s growth aspirations in the context of evolving demographics of the young India. Retaining the brands core strengths and values, the new identity is aligned to attitudinal position of today’s youth -- modern yet rooted in tradition”

David Blair, MD Fitch South Asia said, 'With the passage of time, the context in which a brand operates changes in terms of its customers’ mindsets and values. We are delighted to be associated with Dhanlaxmi Bank at this critical stage in the bank’s history, and are confident that the new identity will continue to appeal to the existing customer base while creating excitement among future customers of all demographics.”

The bank is also focusing on the advertisement part, for this it has appointed O&M as their advertising partner and will be launching its advertising campaign in the next financial year.

As of March 2009, Bank had achieved a total net worth of over Rs400 crore, total deposit worth Rs4,969 crore and advances worth Rs3,245 crore. In the last financial year bank had achieved a profit of Rs 57.45 crore.

Wednesday, January 6, 2010

PSU banks working hard to achieve 100% CBS by June 2010

The CEO’s of banks have decided to achieve 100% CBS by June 2010. In view of this the government-owned banks are working hard to get centralized banking software which will make possible for the customers to access their accounts from anywhere through a variety of channels. Moreover banks have to get networked so that they can facilitate the government’s unique identification project where banks will work as sub-registrar.

Through centralized banking software, banking industry term it as a core banking solution, the information of accountholder is transferred through computers in bank branches to a central server.

A CEO of a large commercial bank told ET, in a recent meeting held between the CEO of large commercial banks held meeting with RBI deputy governor Usha Thorat on financial inclusion, in the meeting banks had informally decided that they will try to achieve 100% CBS by June 2010. The aim of financial inclusion is to make possible for every family to access banking services from any where and to achieve this RBI’s key component is the unique ID project. This unique ID will help banks in identifying Indians barred from carrying out banking services and will give them an identification to acquire a bank account.

Nandan Nilekani, chairman of Unique Identification Authority of India (UIDAI), has been given UID project, has clearly told that the banks should inter-connect their branches to operate as sub-registrar. After the implementation of the UID project individuals can get UID number from a sub-registrar. For the registration of individuals the banks will be provided software by UIDAI. To operate as sub-registrar banks need to have CBS.

According to bankers if individual get registered through them for the UID, then they will offer support in an attempt towards financial inclusion, especially in rural India. Under financial inclusion rural people will be provided banking services at affordable costs to the weaker sections of the society.

Sometimes it is difficult for people living in slums and rural India to open bank accounts as per KYC norms identity proof like proof of address and electricity bills are required. Thus with UID number individual will be open a bank account quickly.

Till now, RBI has not marked any deadline for the banks to achieve 100% CBS. But the regional rural banks (RRBs), have been given a deadline, which is September 2011. Large commercial banks as State Bank of India and all its associate banks have achieved 100% CBS and other banks to achieve are Punjab National Bank, Bank of India, Bank of Baroda, Union Bank of India, Corporation Bank, Andhra Bank, Oriental Bank of Commerce and Indian Bank. However Canara Bank and Central Bank of India are among the big banks who have to still achieve 100% CBS.

The officials of both the banks have informed ET that will probably achieve 100% CBS before June. Along with anytime-anywhere banking they will provide facilities like instantaneous transfer of funds across accounts and allow PSU banks to extend their customers the same facilities that are provided by new generation private banks.

Also banks are planning to tie up with telecom companies for financial inclusion project. Around 10 Telecom Company and CEOs of large commercial banks will be meeting Mr Nilekani in New Delhi on January 6. In the meeting they are likely to discuss about the role of each of them can play for India to fully comply with financial inclusion.