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.

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.”

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.

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.”

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.