Friday, February 26, 2010

Karnataka Bank launched four new products & opened 10 ATMs

Karnataka Bank, Mangalore based private sector bank has expanded its services by adding four new products. The bank has launched student prepaid cards, mobile banking (mobile payment solutions), online payment through debit card and moneyplant international debit card.

Bank has also expanded its ATM network by opening 10 new ATMs across the country.

The statement released by the bank stated the student prepaid card can be reloaded and can be used all over the world where Visa cards are accepted. The card will be available in amounts ranging from Rs 1,000 to Rs 45,000.

People who have account in the bank can purchase the card for their children and in turn, students can use the card to meet their periodic requirements of funds for their academic purposes like tuition fees, hostel fees and other expenditure.

On card bank has set a daily limit of Rs 25,000 for the use at merchant locations and cash withdrawal limit of Rs 15,000 from ATMs.

To offer mobile banking service to the customers’ bank has tied up with Paymate India Pvt Ltd. Using mobile phone the customers will be able to make the payments for goods purchased, payment of utility bills among others.

After getting registered for mobile payment solution, the customers will be able to make secured payments directly from their registered mobile phone, authorized by using their ATM PIN.

Bank customers can make online payment using their debit card enabling them to do online transactions. Bank is offering Money Plant International Gold Debit Card with a daily cash withdrawal limit of Rs 25,000 and a daily purchase limit of Rs 100,000.

Bank has also opened 10 new ATMs taking the total number of ATM to 214.

Friday, February 19, 2010

Yes Bank offers Mobile Money Services in a tie-up with Nokia & Obopay India

YES Bank a private sector bank to offer Mobile Money Services has tied-up with Nokia and Obopay India. Through this facility bank customer using their mobile will be able to transfer money safely. Mobile Money Services works on US firm Obopay's payments platform in association with mobile network operators, banks, distributors and merchants.

Speaking in a conference YES Bank Transaction Banking Group President Suresh Sethi told reporters, "We have received the required regulatory nod from the Reserve Bank of India (RBI) as an issuer and custodian of funds. This tie-up will create an ecosystem of financial inclusion, which will be scaleable and sustainable."

Using their mobile customers can make person-to-person payments, merchant payments, payments for goods and services, person-to-person transfers and recharge of prepaid SIM cards.

Sethi added, "There are 200-million people in India that have access to banking and are financially inclusive. Nearly a billion people have no national ID and are constrained from accessing financial services. This service will reach places where bank branches do not have a physical reach".

He said, besides YES Bank account-holder others can also avail this service. Customers can start transferring funds through mobile using multiple channels like SMS, IVR, WAP, Java and FIRE. This service has been launched in Pune as a pilot project.

Banks request RBI to reduce savings deposit rate to 2.5 percent

The bankers in a post-monetary policy review meeting with Reserve Bank of India Deputy Governor Usha Thorat, have requested for the reduction of the savings bank deposit rates in order to protect their margins.

The bankers said after adopting the new way of calculating the savings bank deposit rate the cost of their deposits will raise by around 80 basis points. Under the new calculations the rate will be calculated on the daily average balance.

M.V. Nair, chairman and managing director, Union Bank of India, after the meeting said, "We requested them to either reduce the savings bank rate or postpone the implementation. It will affect our margins and profit."

From April 1, as per RBI instructions all the banks have to calculate interest of savings deposit of customers on a daily basis.

At present the interest on savings bank is calculated on the basis of the minimum balance on the eleventh day to the last day of the month, as a result customers got 2.5% on their savings deposit.

Another banker who had attended the meeting stated, "We suggested that the savings bank rate be reduced to 2.5 percent from 3.5 percent now. They said they will examine it."

Nair, who is also the chairman of Indian Bank’s Association, pointed out that in view of new base rates the home loan rates might be raised compared to the pre-crisis level.

Nair added, "I think on an average, base rate could be 8.5-9.0 percent. There is a point there. If we add the risk premium, tenure premium, and then home loan could be higher."

Earlier in late 2008 banks started offering special home loan at 8 per cent as there was sharp decline in credit growth due to global crisis. Under these special rates bank fixed the interest rate at 8 per cent for the first three years and after the end of the tenure the rate was linked to the benchmark prime lending rate.

Most of these special home loan schemes are going to end in March.

Bank loans will be based on base rate system from April 1

The Reserve Bank of India (RBI) wants to bring transparency and uniformity in pricing of bank loans therefore it has issued a draft circular in which it has stated that it plans to ban lending below the base rate. RBI plans to link lending rates to banks’ cost of deposits through a “base rate system” with the introduction of this system the existing benchmark prime lending rate (BPLR) will get replaced. It plans to introduce the new system from April 1.

At present 70% of loans given by banks are based on sub-PLR. According to bankers after the introduction of new system the difference between banks’ lending rates will be 25-50 basis points. Thus banks after taking into consideration their overheads, profit margin and risk premium they seek, and also the negative carry for maintaining cash reserve ratio and statutory liquidity ratio they will set the base rate linking it to their deposit rates.

Moreover banks plans to set their actual lending rates as a spread over base rate. RBI will be issuing separate guidelines for banks’ export credit - these usually have softer terms, as it will be banning lending below the base rate.

However RBI proposal has been welcomed by most of the banks. The banks say the new system will bring uniformity and bring end to predatory pricing. The base rate system will be based on the recommendations of an expert panel including bankers as its members. Panel was set up to review BPLR system.

Even the arbitrage advantage enjoyed by some top corporate borrowers will get reduced due to base rate system, say bankers. Recently the loans given to large companies were under-priced and the volume of loans was also very large.

The apex bank has also expressed concern over the extent of sub-PLR loans as it increases the transmission mechanism of its monetary policies.

“Banks will now be compelled to tap cost effective resources, improve operational efficiency, and include profit spread margin and risk premium along with the client’s credibility while determining the base rate. This will cut down on under-pricing of loans and bring uniformity in the system,” said M Narendra, executive director at Bank of India.

He added the occurrence of a “borrowers market especially in short term-lending to large corporates” will also get diminished as the rate will also be in accordance to level of liquidity and cost of deposits.

According to analysts public sector banks after the global slowdown have been trying to improve their CASA ratios and capital adequacy ratio are going to be benefited most from this new system as their cost of deposits will be lower

“The difference between banks base rate will not be more than 25-50 basis points so the borrowers cannot arbitrage between banks as rates almost common, bringing more stability into interest rates,” said M R Nayak, executive director at Allahabad Bank.

Under new system the actual lending rates charged from borrowers will be the base rate plus borrower-specific charges and will include product specific costs and credit risk premium and tenor premium.

Nayak said at present most of the lending is done below the bank’s effective base rate, which signifies that banks have been cutting their profit and pricing loans lower than the actual risk premium.

As per the RBI circular, after the introduction of the new system from April 1, the current condition of BPLR as the ceiling rate for loans up to Rs 2 lakh will come to an end.

Wednesday, February 17, 2010

Public sector banks trying to takeover retails loans from private banks

The Indian banking industry comprises of 70% of the public sector banks (PSBs). Earlier, before the economic slowdown in the wake of the collapse of US investment bank Lehman Brothers Holdings Inc. the public sector banks generally depended on corporate clients, but now they are changing their business strategy. More and more public sector banks in India are getting into retail loans.

At present the banking industry has surplus liquidity and loan demand from corporates is very low therefore PSBs are moving to retail loans. Recently State Bank of India (SBI), the country’s largest lender has claimed that it has overtaken Housing Development Finance Corp. Ltd, the largest mortgage firm, and in auto loans segment it has overtaken ICICI Bank Ltd. Other public sector banks are also trying hard to take over private banks, which are having hold over retail loan customers.

Punjab National Bank chairman and managing director K said, “Look at the number of new people coming into the bankable bracket. They are earning big, fresh after college.” R. Kamath. “There is a vast opportunity there.”

R.S. Reddy, chairman and managing director of Andhra Bank said the public sector banks are not doing badly in retail loan, but they are trying to take over the hold of retail loans again after the crisis. He said, “Everybody was looking at corporate loans. Yields have (been) squeezed there, but retail loans ensure a good return.”

SBI was the first bank to launch teaser rates to attract home and auto loan borrowers, on seeing the trick working efficiently, other public sector banks followed the suit. Under teaser rates the interest on loans is low for the first one or two years, but in future if there is any increase in the interest rate these rates can also increase.

However in the first eight months of the current fiscal year till 20 November, the corporate loans had grown by 14.2% as against 37% in the same period of the previous year. But, due to recession in jobs people held back their purchasing decisions which badly affected the retail loan growth. According, to public sector bankers, the retail loans had grew by at least 25% but now these are about 18% of their total advances.

Moreover in December there has been decline in the overall credit growth in the industry, bankers say if there had been no growth in home and auto loans, the loan growth would have been very bad. They also said that decline in loan growth can be seen in private and foreign banks also.

According to anonymous senior banker as per Reserve Bank of India data, “Public sector banks have lent Rs19,820 crore during the year despite property prices being on the rise in metros.”

Now many private and foreign banks are cutting down their retail loan exposure and shrinking their balances sheets including ICICI Bank, the largest private sector lender.

Andhra Bank, in the quarter ended 31 December had witnessed 40% growth in retail loan segment and now it want to focus on their own customer base. The other bank such as Central Bank of India is focusing on acquiring new customers to increase its low-cost current and savings accounts and also bring down their cost of capital.

According to Central Bank’s chairman and managing director S. Sridhar, with this the lender will become “truly a full bank—offering all range of products to the customers”. Currently Central Bank’s retail loans comprise 10% of its advances.

An anonymous SBI official informed that bank in a partnership with GE Capital India will continue to focus on retail banking operations. The official added, SBI is the first public sector bank to foresee the positive aspect of this area, and now the bank has the highest number of credit cards outstanding of around three million.
Even Union Bank of India main focus will be on retail loans, and in view of this the bank has opened several dedicated branches for retail loans, informed .L. Bansal, general manager (retail). in the quarter ended December bank’s retail advances had grown by 21.06% and advances grew by 14.6%.

In India home loans are still under control and the default in these loans is very low because, “defaulting on the home loan will be the last option to an Indian borrower”, said R.K. Bakshi, executive director of Bank of Baroda. The bank’s retail loans comprise 19% of its advances portfolio and in the third quarter there was no change in its growth pace.

Bankers said they have gained experience in retail activities during slowdown year and now they are taking retail as a “mainline credit avenue”.

In the quarter ended December SBI witnessed growth of 29.26% in its home loan segment in comparison to a year ago. The growth in auto loan accounted to 46.35% and education loans grew 31.9%.

According to lenders at present there is no need to introduce new products for retail customers and their existing products are more than enough to meet the requirements of retail customers.

Tuesday, February 9, 2010

Corporation Bank planning to launch multi-utility cash card

According to a top official of Corporation Bank, a state owned lender is planning to launch a multi-utility cash card which will make using card convenient as this card can be used as a debit, credit and pre-paid card. The official said, if every thing works according to the plan then Corporation Bank will the first Indian bank to take such initiative having one-stop technical solution through a combo card – a combination of three cards – credit, debit and pre-paid all in one card.

Corporation Bank's General Manager B R Bhat speaking on the sidelines of a Venture Infotek's event on future of pre-paid cards in India, "We are planning to launch the combo card this year. However, we are still fine-tuning our plans. There is this proposal and we will launch a pilot program first ... may be in Mumbai in the next six months."

Bhat said in developed countries the combo card is widely being used but in India it will take time to accept the combo card concept and its benefits.

He added to launch a new product there are certain challenges which need to be addressed like relating to infrastructure thus it will take sometime.

He said, "The bank has the infrastructure but the problem is there is no infrastructure at the user-end and we have to create that first. We can make the facility available at our ATMs but then there were the ATMs of other banks and Point of Sales. So, this may take some time".

Banks will not raise car, home loan rates till March end

Till the end of March the borrowers can take benefit of the loan rates as commercial banks are not going to raise their prime lending rates or the deposit rates. But large companies borrowing short-term money at sub-PLR rates might have to pay more as banks might raise interest rates on short-term loans. After RBI announcement of 75-basis point hike in the cash reserve ratio, or the proportion of deposits that banks have to park with RBI, CEOs of several commercial banks signaled about this. But seeing the increased competition in the car loan segment banks will not raise the car loan rates.

It is expected with the hike in CRR to 5.75% from 5% in two stages around Rs 36,000 crore will be sucked out from the banking system. AC Mahajan, CMD of Canara Bank said, “Despite the CRR hike, there is ample liquidity and thus in the near term, rates will not rise.” On the other hand DL Rawal, CMD of Dena Bank said, “However, rates will firm up only after March if credit disbursal shows signs of revival.” Currently banks are parking Rs 75,000-85,000 crore with RBI at 3.5% under the so-called reverse-repo window as not many companies are borrowing. In return, the central bank pays interest on the money deposited with it under the reverse-repo mechanism. After the hike in CRR, CEOs feel that their net interest margins distributed between cost of liabilities and profit on advances can shrink between 7 and 10 bps because the cash invested with RBI will not earn any interest after the hike in CRR, which, in turn, will impact NIMs. Unlike reverse-repo, in case of CRR, the RBI impounds the cash and it does not pay interest.

In an interview SBI official told ET that hike in CRR means an additional outflow of Rs 6,000 crore for the bank, but there will be marginal impact on its NIM. In the December quarter, SBI had surplus liquidity of Rs 75,000 crore. In case of PNB after hike in CRR around Rs 1,800 crore will be absorbed, shrinking its NIM by 10 bps whereas for HDFC Bank Rs 1,500 crore will be absorbed and NIM will shrink by 7-8 bps. For Canara Bank the outgo will be of Rs 1,600 crore and NIM will shrink by 7-8 bps.

However there will be no impact of CRR hike on car loan customers as there is increased competition in this segment. Early this month ICICI Bank had reduced its interest rates on car loans. Following this, other large players also reduced their car loan rates.

MV Nair, CMD of Union Bank of India and chairman of the Indian Banks’ Association said, “The hike in CRR has to be adjusted and the impact will have to be passed on to customers. Hence, the sub-PLR advances would be impacted and reduce over a period of time.”

TY Prabhu, CMD of Oriental Bank of Commerce pointed out, short-term rates are likely to go up but this will depend on the surplus liquidity that each bank has with them. Large banks surplus liquidity ranges between Rs 8,000-10,000 crore.

IndusInd Bank MD & CEO Romesh Sobti said, “With CRR hike, banks will lend more to corporates instead of parking funds with mutual funds. The hike will have little impact on margins but then loan growth will make up for it.” According to Dhanlaxmi Bank MD & CEO Amitabh Chaturvedi, “There may not be a hike in loans and deposit rates. Margins are unlikely to be hit as there is enough money in the system.”

Thursday, February 4, 2010

Banks prefer lok adalats for the settlement of bad loans

In Chennai banks are preferring to take their cases to lok adalat rather than going to court which is time-consuming process of fighting civil cases. The banks are lining up at the Tamil Nadu State Legal Services Authority (TNSLSA) for the recovery of their bad personal loans and credit card dues.

On January 6, the authority conducted an exclusive mega lok adalat for the Central Bank of India and on a single day the bank was able to dispose 226 cases and recover a whopping Rs 11.2 crore. For that day total of 1,430 cases were listed for hearing.

However, the State Bank of India will be holding its own special lok adalat at the TNSLSA premises on February 3. While the ICICI Bank a private sector bank will be holding its own special adalat on February 5.

T Mathivanan, member-secretary of the TNSLSA, said, “Encouraged by the hugely successful adalat of the Central Bank earlier this month, the SBI has decided to bring 1,693 pre-litigation cases before the special adalat. Six adalat benches will be created for the purpose.”

On the other hand the SBI deputy general manager, V Srinivasan said, “Together, these cases involve a claim amount of Rs 20.62 crore, and we hope that our customers as well as the bank itself would benefit from the exercise.” He added, the cases related to personal loans, home loans and education loans will be taken up.

Lok adalats are the most popular of all alternative disputes redressal (ADR) mechanisms have proved to be very effective in settling the disputes as the settlements are done after mutual consultation and consent. The settlement reached is final, and neither of the parties can appeal against the lok adalat ruling. There is no court fee for the exercise.

Although the Legal Services Authority Act had provisions to hear pre-litigation cases, Mathivanan pointed out it will help in reducing the burden on judicial forums, and in case there is any non-settlement in some disputes they would be taken up as civil suits in courts.

Regarding the nature of cases listed for hearing on Wednesday, Srinivasan informed they will take up personal loan cases of up to Rs 1.25 lakh and small business/trade loans up to Rs 1.5 lakh. He said personal loans alone have Rs 19.6 crore as claim amount. He added, “We have participated in several lok adalats in the past too. They were beneficial both to the borrowers and the bank.”

Last year up to the month of November alone, around 42,761 cases were resolved by the TNSLSA and settled an estimated claim amount of Rs 172.8 crore.