Indian Banks

Bangalore-headquartered public sector lender Vijaya Bank has launched its financial inclusion plan at Sunaganahalli village in Mandya district of Karnataka.

According to the financial inclusion plan, the bank envisages providing banking service to all unbanked villages under its service area with a population of over 2,000 by March, 2012.

“Our bank is geared up to achieve the goals spelt out under the financial inclusion plan for villages with a population of over 2,000 by March, 2012. The service area villages with a population of less than 2,000 will be covered under the financial inclusion plan in the next three years,” Albert Tauro, chairman and managing director of Vijaya Bank, said.

The bank already provides Electronic Benefit Transfer (EBT) through ICT-based model to the Social Security Pension beneficiaries and Nrega beneficiaries in Mandya district under ‘one bank, one district’ model, he added.

The bank also distributed the ‘Vijaya Vikas Smart Cards’ to select no-frills account holders of the village.

These smart cards, which will be used through ‘business correspondents’, will enable account holders to deposit cash or withdraw cash, remittance of interest and payment of installment into the loan account among others.

Meanwhile, the bank has also entered into an agreement with the Dubai-based UAE Exchange to offer easy and instant money transfer facility to the expatriates across the world.

“The Xpress Money service is aimed to add a significant value to Vijaya Bank’s customer segments spread over its 1,172 branches across the country,” a statement from Vijaya Bank said.

UAE Exchange, which has a presence in 26 countries across five continents, will enable the bank to provide faster, easier and hassle-free money transfer to its customers, the release added.

Vijaya Bank posted a net profit of Rs 173 crore, up 21 per cent during the April-June period this fiscal on the back of falling cost of deposit with higher core earnings.

Total income rose 3.8 per cent to Rs 1,520.20 crore from Rs 1,463.42 crore during the same period last year.

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Telecom, FMCG firms to be looked at, plans need some work on details.
Banks have welcomed the Reserve Bank of India’s (RBI’s) decision to allow banks to choose companies as business correspondents (BCs).
A BC assists a bank in identifying borrowers and liaising with them on products and recovery of loans. Till now, only specified individuals, cooperative societies and non-government bodies were eligible to act as BCs.

State Bank of India, the nation’s largest, may finalise the names of companies within a few weeks. Others who welcomed the RBI decision included IDBI Bank, Corporation Bank, Vijaya Bank and Karntaka Bank.

“Banks will definitely prefer a company that’s active in rural areas,’’ said a senior SBI official, who declined to be identified as he is not authorised to speak to the media. “Companies in the telecom industry will be the most likely ones. It will bring (only) small revenue, so it may not be a priority for some.’’

So far, state-run banks are the ones mainly active in the central bank’s initiative to promote financial inclusion, that is, taking financial services to remote and rural areas. RBI is pushing banks to extend banking, currently available in just about five per cent of the 600,000 habitations across the country. Less than half of Indians have a bank account. RBI has made rural expansion a condition for allotting banking licences to new entities in the private sector.

As part of the move, RBI yesterday approved ‘for-profit’ companies to operate as BCs of banks to take financial services to the poor, elderly, infirm, disabled and those with poor access to banks. RBI also allowed a variety of individuals, co-operatives, microfinance institutions and post offices to operate as retail agents.

FMCG, telecom offer prospects
“Companies in FMCG (fast moving consumer goods) and telecom have sound marketing muscle and distribution channels in rural areas. So, a tie-up with them will definitely increase the velocity of financial penetration in rural areas,” said Albert Tauro, chairman & managing director of Vijaya Bank.

BCs will help people open bank accounts, accept small amounts as deposits and give small loans, besides selling micro insurance, mutual funds and pension products, apart from remittance of funds across the nation. They would also spread financial literacy.

“Remittances seems to be the most preferred service that’ll be first introduced by most banks,’’ said a banker. “Opening of savings accounts and giving loans will follow. Banks may also consider giving cheque facilities, but that can happen only after the systems are developed.”

Among individuals permitted to act as BCs are retired bank employees, retired teachers, retired government employees, former soldiers, public call office (PCO) telephone operators, agents of government small savings products and self-help groups, besides registered non-government bodies, micro-finance institutions and co-operative societies.

A for-profit company operating as a BC can tie up with more than one bank. However, any retail outlet will be a sub-agent for just one bank. Public sector banks are also helping in the government’s unique identification, or Aadhaar, project by registering individuals.

Plan needs work
“We have made a plan for 4,800 villages. This is an evolutionary process. We need to see how to coordinate the existing system with the new one, as the existing technology provider already has own business correspondents,’’ said K R Kamath, chairman and managing director of the New Delhi-based Punjab National Bank. “We signed an agreement in regard to Aadhar about two months back.”

PNB first plans to assess the risks involved in appointing for-profit companies as BCs. ICICI Bank, the biggest private sector lender, was finalising plans, said a spokesman from Mumbai.

Corporation Bank plans to extend financial services in 212 villages by the end of the current financial year, of which it has already covered around 80 per cent villages, says Executive Director Asit Pal. The bank’s tie-up with Aadhaar would help it in the ‘Know Your Customer’ provisions, he said.

Adding: “There are many corporate houses having significant penetration in rural areas and this decision is likely to boost the financial inclusion plan. Cheque services will take some time as the inter-bank money transfer facility needs to be evolved under this scheme.’’
Karnataka Bank planned to cover 75 villages under the financial inclusion plan in 2010-11 and would decide on a tie-up with a corporate house in due course, a director of the bank said.

Financial inclusion was a huge task and RBI’s decision would help, said J P Dua, chairman and managing director of Allahabad Bank. “The task is so huge that no single entity can handle it. At Allahabad Bank itself, we need to adopt 2,618 villages in the next two years, and about 15,500 villages below the population of 2,000,’’ said Dua. “We will sign an agreement with Aadhaar next week.”

IDBI Bank has done some initial work to engage for-profit companies as BCs, said Chief Financial Officer P Sitaram. The arrangement with BCs that meet regulatory norms will would help to expand reach, he said. The clarity about the nature of arrangements would emerge in the next three months.

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The government will pare its borrowing in the second half of the financial year, thanks to higher-than-expected revenues from the auction of telecom licences and buoyant tax receipts. It now plans to borrow Rs 1,63,000 crore in the six months beginning October 1, Reserve Bank of India (RBI) said on its website. This is Rs 10,000 crore less than scheduled.

The 7.8 per cent government bonds maturing in 2020 gained 29 paise today, pushing down the yield by 4 basis points to 7.90 per cent over Wednesday.

Government borrowing is lower because of projected higher cash flows and current requirements, Finance Secretary Ashok Chawla was cited by Press Trust of India as saying in New Delhi. Second-half borrowing is likely to be completed by the second week of February, 2011, at an average of Rs 10,000-11,000 crore a week, RBI Deputy Governor Shyamala Gopinath said.

In its annual Budget, the government had planned gross borrowings of Rs 4,57,143 crore, or 4.98 per cent of GDP, in FY11, which is slightly higher than the Rs 4,51,000 crore, or 6.46 per cent of GDP, in the previous year. It has completed borrowing Rs 2,84,000 crore this year so far.

The government raised almost Rs 1,00,000 crore through the auction of 3G telecom and broadband licences, which was far higher than projected. Revenues are also picking up as the economy rebounds after the 2008-09 global economic slowdown. GDP grew 8.8 per cent in the first quarter, reflecting a pick-up in economic activity.

“The government’s borrowing programme is on expected lines. Yields may have a downward bias, but the market will watch the FII inflows, inflation and any future RBI action,’’ said a treasurer with a foreign bank in Mumbai.

Advance tax receipts in the June 15 and September 15 instalments were also up by 16.4 per cent. Up to the second tranche, collections stood at Rs 38,107.25 crore, against Rs 32,737 crore in the first six months of FY10, according to data compiled by the income-tax department.

“Government borrowing for Oct-Mar is lower on account of robust tax revenues,’’ Chawla was cited as saying. “Tax revenues are rising and non-tax revenues are also good.” Variable-rate securities may be issued depending upon market conditions, RBI said.

The government today also increased the limit for overseas investors to buy government bonds and corporate debt by $5 billion each to $10 billion and $20 billion, respectively. The measure is likely to ease the pressure on local sources to fund India’s growing needs for projects in the infrastructure sector, among others.

“The government has raised the ceiling on foreign institutional investments in bonds. FIIs have been active in government bonds,’’ said Ashish Ghiya, managing director, Derivium Capital & Securities. “Their increased participation will lower yields, making it cheaper for the government to raise funds.’’

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SBI has also hinted that it may retain its teaser rate scheme beyond September 30.

Teaser home loan rates are likely to become a permanent fixture, with no bank willing to withdraw them soon.

Housing Development Finance Corp (HDFC), the country’s largest mortgage lender, would continue its teaser rates as long as other banks offered similar schemes, HDFC Chairman Deepak Parekh said. “At the moment, it seems that it is a product that can stay, even permanently, unless all banks remove it,” he said on the sidelines of an AIMA summit here on Thursday.

Recently, HDFC launched a repackaged dual rate home loan scheme, which is part fixed and part floating. Under this offer, loans will be available at a fixed rate of 8.5 per cent till March, 2011, 9.5 per cent for the period between April 1, 2011 and March 31, 2012, after which the applicable floating will apply.

State Bank of India, the country’s largest lender, hinted early this month that it might extend its teaser home loan scheme beyond the stipulated expiry date of September 30. “Our home loan scheme has been immensely successful and why should we not continue it. It is a good scheme.Till now we have not taken any decision (on extending the scheme). The final decision will be taken at the asset-liability management (ALM) meeting in September,” said S K Bhattacharyya, managing director, SBI. The scheme was originally supposed to end in April, but it was extended till June, and then again till September, owing to huge demand. Under the scheme, the interest rate is eight per cent in the first year and nine per cent in second and third years. From the fourth year, home loans up to Rs 50 lakh will be charged 9.25 per cent, while higher loans will attract an interest rate of 9.75 per cent.

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HDFC may raise deposit rates by 0.25-0.5 per cent next month.

Speaking on the sidelines of an AIMA summit here on Thursday, HDFC Chairman Deepak Parekh said there was a possibility of lending rates going up, as the cost of deposits was rising.

“If one has to pay more on deposits, the lending rates have to be increased, whether it is auto, housing or cash credit. But the rates will rise marginally, by a quarter or half per cent,” he said.

On being asked if there was any possibility of a further rise in deposit rates in October, Parekh said, “Yes.. by a quarter or half per cent.”

According to recent data by the Reserve Bank of India (RBI), deposits grew 14.78 per cent year-on-year during the fortnight ended September 10, whereas credit grew 19.76 per cent.

Parekh said the liquidity situation was expected to improve by October-November. “In September-October, we will see some borrowing by banks. But by October-November, it (liquidity) will come back,” he said.

He added the government borrowing in the second half would not be hampered due to robust advance tax collections and funds from 3G and broadband auctions.

RBI increased repo rate and reverse repo rates by 25 and 50 basis points to six per cent and five per cent, respectively, in its mid-quarter policy review last week.

“RBI is also aware that among the emerging economies, we have one of the highest interest rates. We just can’t keep on increasing rates. But inflation is worrying India more than the other countries,” said Parekh.

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Shyam Srinivasan, formerly of the Standard Chartered Bank, on Thursday took charge as the new managing director & CEO of the Aluva-based Federal Bank.

An alumnus of IIM Kolkata and Regional Engineering College Tiruchi, Srinivasan was responsible for strategy, development and management at Stanchart and was the country head of its consumer franchise in Malaysia, according to a bank release.

He was also the head of Stanchart’s unsecured products business post its merger with Grindlays Bank.

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