Indian Banks

 The Reserve Bank of India (RBI) on Monday said it is not logical for banks to charge similar interchange fee on debit cards as levied on credit cards.

An interchange fee is the amount per transaction that is shared among various stakeholders, such as issuer bank, acquirer bank and the payment gateway. Presently, the charge is 1.1-1.2 per cent for both debit and credit cards.

Lower fee on debit cards will help in larger acceptance of electronic payments by merchants across the country.

“We are saying that the debit card interchange fee should be lower because credit cards get paid after sometime, whereas in debit cards, there is an instantaneous debit into my account. Hence, logically debit cards charges should be lower,” said G Padmanabhan, executive director, RBI, who is in-charge of the payments and settlement system.

He said the central bank’s thumb rule is to keep the payments systems ubiquitous and it does not support exclusivity. In terms of regulatory intervention in pricing, he added RBI allows the market to fix its own price till the time pricing becomes illogical.

There are 268 million debit cards in India, according to the latest RBI data. The payment channel has picked up faster than credit cards because of lower risk advantage for banks.

However, there is more scope in the under-banked and unbanked areas for banks to expand the usage of debit cards, Padmanabhan said.

“Why can’t banks issue debit cards to no-frills account-holders as one can withdraw only up to the amount in his account,” he said.

He urged banks to consider foregoing the concept of a “home branch” as all have moved to core banking solution. Padmanabhan pointed out that it is the bank’s responsibility to upgrade infrastructure and make sure that customer requirements, especially on the first 10 days of a month, are met.

He said customers are facing enormous problems in accessing ATMs in interior parts of the country. It is the bank’s responsibility to replenish the cash in the ATMs adequately.

Padmanabhan said banks must be cautious while selecting business correspondents as they represent them in financial inclusion.

He was speaking at the launch of RuPay debit cards, which is promoted by National Payments Corporation of India (NPCI).

RuPay aims to capture 50 per cent of the debit card market by March 2015. NPCI’s managing director and chief executive officer A P Hota said banks should be able to roll out 10 million RuPay cards by the end of next financial year. NPCI is offering services to banks at 40 per cent lower cost in order to achieve the targets and to increase acceptance of RuPay card.

“International schemes charge 20-30 basis points per transaction to acquirer and issuer banks put together, while RuPay will charge only 10-15 bps,” said Hota.

There is no participation fee in RuPay, unlike amounts close to $50,000 charged by international rivals, he said. Hota said he expects all public sector banks to join in by the end of this calendar year. “Banks will save Rs 200-300 crore each financial year if they shift to RuPay,” said Hota.

He said NPCI will aim to channelise payments under government schemes such as MNREGA and Kisan Credit Cards. RuPay will also be issued internationally by end of next financial year.

Source: http://www.business-standard.com/india/news/banks-should-cut-transaction-chargedebit-cards-rbi/469143/

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The Reserve Bank of India (RBI) is expected to finalise a quarterly Housing Startup Index (HSUI) by the end of this year, to track construction in the sector. It is to be patterned on the Index of Industrial Production (IIP), which indicates industry numbers in the gross domestic product.

HSUI would track growth and decline in construction of new houses. It would serve as an indicator of economic growth, a person in the know said. An increase in the number of houses getting started will indicate an increase in investments, business and consumer optimism, he added.

RBI is learnt to have given the contract for this project to property research firm PropEquity. The latter is to collect the data on housing starts by visiting sites across cities. Samples will be drawn from the permits issued for new residential buildings during two reference years, 2009 and 2010.

RBI did not respond to a questionnaire sent by Business Standard on the subject. PropEquity, too, declined comment.

The index is aimed at helping developers ascertain the risk of building houses in a particular area. The HSUI is likely to cover new residential projects in a mix of Tier-I, II and III cities.

America, Britain, Germany, Canada and Australia have indices on the lines of HSUI. In India, the National Housing Bank (NHB) comes out with a quarterly index called Residex, which indicates the demand, supply and prices of residential real estate across major cities. NHB has been gradually increasing the coverage of cities for this index.

Source: http://www.business-standard.com/india/news/housing-start-up-indexiip-lines-soon/468858/

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 The busy tax saving season failed to bring cheer to the life insurance market as policy issuance continued to head south, pushing down sales or premium collection by 14 per cent in the current financial year.

While lack of products continued to be one of the key reasons for this fall in collection, the volatile equity market also took its toll. The worst sufferers were the private life insurers, as the number of policies issued by them is down nearly 28 per cent in the current financial year.

Premium collected by writing new policies between April and February nose-dived 19.25 per cent to Rs 24,835.65 crore from Rs 30,756.02 crore a year ago. The number of policies issued by the largest life insurer, Life Insurance Corporation (LIC) of India, too, declined 4.63 per cent in the same period.

As a result, the first year premium collection was down nearly 11 per cent to Rs 64,820.5 crore as against Rs 73,121.61 crore in the corresponding period last year. According to data collected by the Insurance Regulatory and Development Authority (Irda), the life insurance industry collected Rs 89,655.83 crore during this 11-month period by writing new policies.

The general insurance industry continues to clock steady growth as the gross written premium grew 24.03 per cent during 2011-12 against the year-ago period.

In the same period, the life insurance industry sold close to 35.12 million policies, 10 per cent lower than the 39.2 million sold a year ago. For the private players the number of policies issued came down to seven million from 9.7 million.

There is a dearth of new plans in the market — be it pension or Ulips — hence sales are down,” said a private life insurance official.

Source: http://www.business-standard.com/india/news/life-insurance-premium-collection-declines-14-since-april/468859/

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Punjab Gramin Bank (PGB) Sponsored by Punjab National Bank invites Online application from Indian Nationals for the post of Office Middle Management, Office Junior Management and Office Assistant, willing to work in Punjab and have language of Punjabi.

How to Apply: Candidates are required to apply online through official website form 22nd March 2012 to 10/04/2012.

For Detailed Information click here:  http://www.pgbho.com/Recruitments.html

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Banks are on the brink of exhausting the held-to-maturity (HTM) cap, which protects them from mark-to-market losses, and may approach the regulator for some relaxation, in order to support the government’s high borrowing programme.

According to norms, banks can keep government securities up to 25 per cent of net demand and time liabilities in the HTM category. Securities kept under the HTM category are protected from yield fluctuations and need not be marked-to-market, unlike available-for-sale (AFS) portfolio.

Senior officials from some mid-sized government banks indicate they have already exhausted 24 per cent.

If bonds are kept in the AFS portfolio, banks will incur trading losses as yields are expected to rise during the course of the year. As a result, banks may request the Reserve Bank of India (RBI) to allow them to increase the HTM cap.

Banks are allowed to shift securities to the HTM categories once a year. This exercise is generally done at the beginning of the financial year, after taking into account the borrowing calendar. In April 2011, most banks had shifted bonds to the HTM category on expectations of rising yields. “Yields are expected to go up next financial year. Hence, the situation remains the same,” said a senior treasury official of a large public sector bank. “Banks may wish to shift securities from AFS to HTM again.”

The borrowing calendar for the next financial year, 2012-13, will be announced early next week. The government has pegged Rs 4.79 lakh crore of net market borrowing for next financial year, higher by about Rs 40,000 crore compared with the net amount raised in 2011-12.

Bankers said that open market operations (OMOs) by RBI conducted this year helped create room for excess supply. However, OMOs may not be sufficient next year given the borrowing. In 2011-12, RBI purchased illiquid government securities worth more than Rs 1 lakh crore to offset the impact of higher-than-budgeted borrowing on yields and liquidity.

“RBI has clearly linked OMOs to liquidity conditions. We can expect OMOs only if liquidity situation warrants,” said a bond dealer with a domestic brokerage.

In addition, slower deposit growth in the financial year has compounded the problem as fresh bond issuances may exceed the deposit growth (or net demand and time liabilities) in 2012-13. “Deposit growth will be crucial for banks. Yields could shoot up in absence of substantial inflow of funds,” said a senior official at the State Bank of India.

According to RBI data, deposit growth slumped to 13.7 per cent as on March 9.

Following the Budget announcement, yields on government bonds have risen by 15 basis points on expectation of a lesser magnitude of policy rate cut in 2012 on the back of uncertain fiscal consolidation. The central bank has maintained that to have lower inflation, fiscal prudence is a must and has asked the government for a credible road map to bring down the deficit.

Fiscal deficit for 2011-12 is estimated at 5.9 per cent against the Budget estimate of 4.6 per cent. For 2012-13, the fiscal deficit is pegged at 5.1 per cent.

This is not the first time such a situation has cropped up. In 2009, when the government announced fiscal stimulus to counter the trickle-down effects of the global financial crisis, banks had to subscribe to government securities arising out of a huge borrowing programme, which stood at Rs 4.5 lakh crore (gross borrowing) or 6.8 per cent of GDP.

(BS)

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Lending a helping hand to the government in recapitalising public sector banks may have brought Life Insurance Corporation (LIC) of India in the good books of the finance ministry, but the move has irked the Insurance Regulatory and Development Authority (Irda). The insurance regulator is opposed to LIC’s decision to increase its stake in state-run banks to more than the regulatory cap of 10 per cent. It has asked the country’s largest life insurer to give the details of its shareholding in companies.

Irda chairman J Hari Narayan said, “There is a cap for equity exposure. This limit has not been fixed for nothing. There is a question of stability in the system. We have asked for the details from LIC, we will examine these.”

Over the last two months, LIC, the largest domestic institutional investor in the country, has picked up five per cent stakes in a dozen state-run banks and invested more than Rs 7,500 crore, thus helping the government recapitalise these lenders. Accordingly, it has been allotted preferential shares in state-run lenders such as Punjab National Bank, Bank of Baroda, Bank of India, Union Bank and Central Bank of India. After the allotment of shares, LIC’s stakes in all these banks would exceed 10 per cent.

According to the Insurance Act, equity exposure in a single entity is capped at 10 per cent. Thus, LIC can invest up to 10 per cent of the capital employed by the investee company, or 10 per cent of the fund size in a corporate entity, whichever is lower. The capital employed includes share capital, free reserves and debentures or bonds.

“It is not good for banks to have a single large shareholder. This is risky for the system,” Narayan said on the sidelines of a seminar organised by the Insurance Institute of India.

The insurance regulator is worried about LIC’s exposure in banking stocks and other state-run companies, as this may lead to concentration risks. Nearly 26 per cent of LIC’s equity investment is in banks, while nearly 39 per cent of its equity exposure is in stocks of public sector units.

As on March 31, 2011, LIC’s investment corpus stood at about Rs 11 lakh crore, of which 20 per cent, or Rs 2.2 lakh crore, was equity. Of this, investments in state-run stocks stood at Rs 85,031 crore, while exposure in banks stood at around Rs 59,586 crore.

PNB-MetLife deal under lens
The bancassurance deal between Punjab National Bank (PNB) and private life insurer MetLife Insurance has come under Irda’s scanner. Narayan today said the deal was not consistent with the Indian Accounting Standards.

He said, “Under the Indian Accounting Standards, self-generated assets can’t be valued. Brand is a self-generated asset. Hence, this cannot be valued. It will create a bad precedent for the life insurance industry.”

PNB, the country’s second-largest lender, wanted to acquire a stake of 30 per cent in MetLife Insurance for Rs 1. Sources in the insurance industry said the New Delhi-based lender had said the transaction value was determined after taking into account its brand, its 5,000 branches across the country and the future business MetLife would bring in. According to the deal, the lender’s branches would be used to sell MetLife’s insurance products. PNB would earn fees for this. The new company was proposed to be named PNB MetLife India Ltd.

The deal has had an impact on the banking industry, as prospective entrants are flexing their muscles to get the most of insurance companies, owing to the declining growth due to stringent regulation. Manipal-based Syndicate Bank, with over 2,500 branches, plans to better the PNB-MetLife deal and is asking for a premium (about Rs 350 crore) for a minority stake in Birla Sun Life Insurance. Private sector lender IndusInd Bank is also in talks with Aviva Life to pick up a minority stake with a premium.

Source: http://www.business-standard.com/india/news/lic/s-move-to-raise-stake-in-psbs-to-more-than-10-irks-irda/468492/

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 Microfinance institutions (MFIs) in Andhra Pradesh can now breathe a sigh of relief. The deadline for new provisioning and asset classification norms, which threatened their existence, has been extended by a year. This allows non-banking finance company microfinance institutions (NBFC-MFIs) more time to get their act back together.

“Taking into account the difficulties faced by the MFI sector and the representation received from these, it has been decided to defer the implementation of asset classification and provisioning norms for NBFC-MFIs to April 1, 2013,” the Reserve Bank of India (RBI) said.

On December 2, 2011, the banking regulator had created a new category of finance companies — NBFC-MFIs — and released operational guidelines for these firms. These norms, RBI had said, would be effective from April 1, 2012.

According to the new guidelines, NBFC-MFIs must make 100 per cent provisions on aggregate loan installments overdue for 180 days or more. So far, MFIs maintained 10 per cent provisions on loan amounts for which the repayment was due for more than 180 days.

For Andhra Pradesh-based micro-lenders, it was impossible to make such provisions, as almost all their receivables were due for over 180 days, following a crisis in the sector. The state government had curbed micro-lending by private players in the state, and this had plunged the sector into a crisis and affected loan recoveries of local MFIs.

Industry players said if they made provisions, it would wipe out their net worth. In other words, these firms would not be able to meet the guidelines relating to minimum net worth of Rs 5 crore and a capital adequacy ratio of at least 15 per cent.

The microfinance companies, through their representative body Micro Finance Institutions Network, had sought more time from RBI to meet the provisioning norms. “It is a huge relief for us. If RBI did not allow us more time, we would have to close our operations,” said the chief executive of a Hyderabad-based micro-lender.

RBI, however, said the NBFC-MFIs must meet all other guidelines mandated by the regulator from April 1, 2012.

Source: http://www.business-standard.com/india/news/rbi-offers-breather-to-mfis/468486/

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The government has earmarked Rs 15,888 crore for capital infusion into banks in the next financial year, considerably higher than what was allotted in the previous Budget. This apart, it’s planning to set up a financial holding company that will raise funds for public sector banks.

“For 2012-13, I propose to provide Rs 15,888 crore for capitalisation of public sector banks, regional rural banks and other financial institutions, including Nabard (National Bank for Agriculture and Rural Development),” Finance Minister Pranab Mukherjee said while presenting the Budget for 2012-13. “We are committed to protecting the financial health of public sector banks and financial institutions.”

Last year, the government had provided Rs 6,000 crore for public sector banks. However, according to the revised estimates, the total outgo would be more than three times of the initial estimate at Rs 19,540 crore.

The provision for higher capital comes after state-run banks gave their capital requirement plans for the next eight-10 years, after taking into account the capital requirement under the new Basel-III framework. The holding company structure, on the other hand, is in line with the government’s plan to maintain a minimum stake of 58 per cent in public sector banks. Otherwise, it may find it difficult to infuse large sums of money, as this would affect the country’s fiscal position.

The capital infusion would enable public sector banks to maintain a minimum Tier-I capital adequacy at eight per cent, and also meet their capital requirements in the coming financial year. The regulatory capital adequacy ratio (CAR) requirement is six per cent, with an overall CAR of nine per cent.

T M Bhasin, chairman and managing director of Indian Bank, said the fund allocated for state-owned banks would help them achieve the target of 18 per cent credit growth next financial year.

In 2011-12, government also roped in Life Insurance Corporation of India (LIC) to infuse capital into mid-size state-run lenders. A dozen state-owned banks like Punjab National Bank, Union Bank of India, Indian Overseas Bank and Bank of Baroda allotted shares to LIC. The largest institutional investor in the country, LIC, infused Rs 7,560 crore by subscribing to those shares. In total, taking LIC into account, Rs 27,100 crore was infused into 13 state-run banks.

According to sources, the funds would be raised by the holding company, which would be an investor in the bank. The government would continue to hold on to its control of the bank’s management, while inducting external capital into the holding company.

The government has 54-56 per cent in large banks like Bank of Baroda, Union Bank of India and Punjab National Bank. It would not be possible for the government to raise additional funds without diluting its stake.

Source: http://www.business-standard.com/india/news/govt-to-infuse-rs-15888-cr-into-banks/468005/

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