BANKS WANT CAP ON INDIRECT FARM CREDIT HIKED

With over half of the 49 public and private sector banks not meeting the total agriculture credit (comprising direct and indirect credit) target in the financial year ended March 31, 2010, banks have moved the Reserve Bank of India to allow them greater leeway in indirect agriculture credit so that the target can be achieved.

Banks are having a problem meeting the direct agriculture lending target – which among others includes crop loans, advances up to Rs 10 lakh against pledge/ hypothecation of agricultural produce for up to one year, and loans granted for pre- and post-harvest activities – due to a host of factors.

These include the lurking fear among field staff that they could be held accountable if farmers do not repay loans on expectation of the Government announcing a debt waiver and relief scheme, difficulty encountered during recoveries and shortage of specialist agriculture officers.

The total agricultural advances target is linked to Adjusted Net Bank Credit (ANBC) (net bank credit plus investments made by banks in non-Statutory Liquidity Ratio bonds held in the ‘held to maturity' category) or credit equivalent amount of off-balance sheet exposures (OBE), whichever is higher, as on March 31 of the previous year.

This target is currently pegged at 18 per cent of ANBC or OBE, whichever is higher.

Of the total agricultural advances target of 18 per cent, direct agricultural lending is pegged at 13.5 per cent and indirect lending is capped at 4.5 per cent.

So, if a bank's ANBC works out to Rs 1 lakh crore in the previous year, its agriculture credit target in the current year will be Rs 18,000 crore (direct advances: Rs 13,500 crore and indirect advances: Rs 4,500 crore).

The penalty for not achieving the agriculture lending target is that banks have to invest the shortfall in low yielding Rural Infrastructure Development Fund of the National Bank of Agriculture and Rural Development.

Underscoring the fact that indirect agriculture finance creates infrastructure such as warehouses/ cold storages, irrigation facilities, and agro-processing units and that credit to this segment is rising, banks have mooted that the cap of 4.5 per cent for indirect agriculture lending should be upped to six per cent within the overall agricultural lending target of 18 per cent.

Pointing out that production credit being cyclical in nature does not contribute much for increasing the outstanding level under agriculture as of March-end, banks want disbursements under the Special Agriculture Credit Plan to be reckoned for calculation of the benchmark 18 per cent achievement.

Under the SACP banks are required to fix self-set targets for disbursement during a year.

They fix the targets showing an increase of about 20 to 25 per cent over the disbursement made in the previous year.

The laggards

According to the RBI, among the public sector banks that have not met the direct agricultural advances target as of March-end 2010 are: IDBI Bank (6.6 per cent), United Bank of India (7.5 per cent), Corporation Bank (7.8 per cent), State Bank of Travancore (9 per cent), Oriental Bank of Commerce (9.4 per cent), and Bank of Maharashtra (10 per cent).

Among the private sector banks that have not met the direct agricultural advances target as of March-end 2010 are: SBI Commercial & International Bank Ltd (1.1 per cent), HDFC Bank (6.4 per cent), Karnataka Bank (7.1 per cent), ING Vysya Bank (7.5 per cent), Jammu & Kashmir Bank (8.1 per cent), City Union Bank (9.8 per cent) and Axis Bank (10.1 per cent).

SOURCE: http://www.thehindubusinessline.com/2010/11/17/stories/2010111752691000.htm

CANARA BANK TO OPEN 105 BRANCHES AND 105 ATMS ON NOV 19

Canara Bank would launch 105 branches and ATMs each, across the country on November 19, its founder's day, to commemorate the bank's 105th year of service to the nation.

Finance Minister Pranab Mukherjee would inaugurate them in New Delhi.

Out of 105 branches being opened, 93 are in semi-urban and rural areas. These branches are spread across 22 States and 10 of them are micro-finance branches.

To support inclusive growth and drive financial inclusion, the bank would also issue one lakh General Credit Cards (GCC), 50,000 Smart Cards and open 10 Financial Literacy and Credit Counselling Centres (FLCC) pan India.

With the nation-wide opening of 105 branches and 105 ATMs, the bank's domestic network would be expanded to 3,167 branches and 2,122 ATMs.

The bank has set a target of adding 1,000 branches and doubling the ATM network to 4,000 within the next two-three years. The bank also plans to open branches in Bahrain, South Africa, Qatar, Germany, Oman, the USA, Brazil, Tanzania and Japan.

November 19 also marks the birth anniversary of its late founder Ammembal Subba Rao Pai, who founded the bank in 1906.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/Canara-Bank-to-open-105-branches-and-105-ATMs-on-Nov-19/articleshow/6943782.cms

RBI, BANKS WARMING UP TO FINANCIAL FITNESS

RBI’s going great guns with its financial inclusion plan. Banks have roped in business correspondents to give the project a big push, but structural problems may play spoil sport.

The biggest fad in the financial sector now is ‘financial inclusion’ with almost everyone worth his salt talking about it — be it in seminars, press conferences, contributory articles to newspapers, television debates, parliament, and whenever they find time beyond scam debates.

If four decades of banks’ nationalisation, hundreds of co-operative banks, thousands of regional and rural bank branches, non-banking finance companies, chit funds, lead area banks, foreign banks, private banks and, of course, the crisis-hit micro finance institutions, could not take banking to more than half the population, then there is something vital that is lacking with those people. Money. Why would anyone with no money operate a bank account?

“While no-frills accounts have grown phenomenally, an important challenge before the banking system is to keep these accounts operational, as many such accounts are found to be dormant since the poor often find it difficult to save and deposit money into these accounts,” said the RBI report released on November 8.

The financial inclusion in 2005 was defined as the provision of affordable financial services — access to payments and remittance facilities, savings, loans and insurance services by the formal financial system with no pre-condition or low-minimum balance maintenance.

Just a month before the release of this report, the central bank made yet another attempt to take banking within the reach of the majority of the population, by permitting profit-making companies to be business correspondents (BCs). This is an expansion of a list released previously that did not achieve its objectives. The RBI last year allowed many non-bank entities and individuals, like retired bank and government employees, including ex-service men, to act as BCs.

It also allowed not-for-profit organisations, popularly known as Section 25 companies and self help groups. It expanded the list by adding owners of kirana/medical/FairPrice shops, PCO operators, agents of small savings schemes of the government and insurance companies.

But only the Section 25 companies are active. Though it may be difficult to estimate the active, they typically operate through technology-enabled devices, such as point of sales machines or through mobile banking. Some business facilitators also operate through laptops, through what is popularly known as kiosk banking.

Popular BCs, who have tied up with major banks, include Fino, Seed Enterprises and A Little World among others. Another technology provider Oxigen has tied up with State Bank of India for kiosk banking.

“We conduct transactions worth Rs 5,000-10,000 every day,” says Anriban Roy, co-founder and managing director of Seed Enterprises, whose firm has opened about 1.5 million accounts. While the ultimate onus on the safety of the funds is with the bank, the BC is responsible till he deposits the cash at the nearest local bank branch.

About 130 business correspondents were appointed till last year who opened 90 lakh accounts, according to latest available data. Most of them were by state-run banks. ICICI Bank , Federal Bank and Axis Bank were active among the private sector.

“Though the statistics are disturbing, it may not be fair to totally write off efforts by banks,” says Jayanta Sinha, chief general manager in charge of rural business at State Bank of India.

But whether the admission of more entities into the BC list will lead to more people coming under the financial fold is doubtful, given that they may continue to face the same hurdles that the existing ones faced.

“As almost all BC transactions are cash based, the flow of cash with BCs has been highlighted as the biggest issue,” says a report prepared for RBI in August 2009 to enhance the BC coverage. “Besides the logistics of handling large volumes of cash, it leads to increased costs and added operational risks,” the report says.

“Beneficiaries of BC services are mostly illiterate and susceptible to misguidance. Further, at times, clients tend to perceive the BCs themselves as banks,” the report adds. “The viability of the BC model has remained the most critical issue that has led to the model not taking off as envisaged,” says the report.

With this experience, it may be too early to assess the corporate interest in the central bank’s offer as banks are still awaiting worthwhile intents. Doubts arise given the fact that post offices, with the biggest reach anyone could dream of, has not succeeded in it so far.

Some believe that post offices did not succeed since they lacked technology and others said it was due to their own products competing with banks’. That makes little sense as it does not matter if one is financially included under the post office or a bank.

Will this time be different?

A good portion of the banking system is now under the core banking solution. As a result, technology is playing a bigger role in the efforts to increase financial inclusion.

RBI has enlarged the list of BCs, but the same old problems remain. Those who have the money don’t trust many of these intermediaries and those who trust them do not have the money. When both these things happen, there are a different set of problems.

“The reason we are apprehensive about appointing individuals as BCs is that we fear they may seek permanent employment with the bank,” said a senior official with Punjab National Bank (PNB), requesting anonymity. Moreover, in case of retired bankers, incentives may not be attractive enough.

With this chicken-and-egg situation, there is little hope that the lives of millions would transform with the slogan getting louder, than action.

“In 2009, deposits mobilised in rural bank branches was a mere 9% of the total deposit mobilised by banks and the share of rural credit in total credit of banks was even lower at 7%,” said Mr Meena. “The percentage of people having any kind of insurance cover is just 10%, while the percentage of non-life insurance is a measly 0.6%.” he added.

Mr Meena may be aware that this statistics have remained more or less the same for decades, like the Gharibi Hatao slogan of Indira Gandhi. Will financial inclusion be Manmohan Singh’s legacy? 

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/RBI-banks-warming-up-to-financial-fitness/articleshow/6938933.cms

BANK OF MAHARASHTRA LAUNCHES E-BANKING LOUNGE

Bank of Maharashtra has launched its ‘e-banking lounge', a Third Generation (3G) technology-enabled self-banking option at three branches in the country.

3G technology

The new facility was introduced in the bank's branches at Connaught Place in Delhi, Gadkari Chauk in Mumbai and Deccan Gymkhana in Pune.

The ‘e-banking lounge' enables customers to do selected banking transactions online through 3G technology-enabled computers.

These include depositing cheques through cheque deposit machines and printing of the account statement without the help of branch staff.

SOURCE: http://www.thehindubusinessline.com/2010/11/16/stories/2010111650890600.htm

BANK OF BARODA EYES GLOBAL EXPANSION

According to Mr. M.D. Mallya, Chairman and Managing Director, Bank of Baroda (BoB) expects to operationalise its New Zealand subsidiary as well as its Malaysian joint venture company in January next year as part of its global expansion plans.

Plans are afoot to open as many as eight-to-nine branches abroad in the next six months, taking the total number of international offices to 90 by end March 2011 from the current level of 81.

Africa, Gulf regions

Primarily these branches will be located in the African sub-continent, he said, adding that there could be couple of branches in the Gulf region.

Mr Mallya also said that BoB's foray into New Zealand will be through a wholly-owned subsidiary and that all regulatory approvals have been received from both the sides. As regards the Malaysian venture — India International Bank (Malaysia) Bhd — Mr Mallya said that most regulatory approvals are in place and that it should take off from January next year.

BoB has 40 per cent stake in the Malaysian joint venture company with Indian Overseas Bank (IOB) and Andhra Bank being the other equity partners.

400 domestic branches

BoB has licences to open 400 branches in the country during 2010-11, of which 125 braches have already been opened till date.

On how the global financial crisis of 2008 had impacted the bank, Mr Mallya said that the crisis had helped BoB and that its international business operations had grown in the last two years.

SOURCE: http://www.thehindubusinessline.com/2010/11/16/stories/2010111650870600.htm

BANKS TOLD TO DISCLOSE ALL LOAN LEVIES

Banks are required to disclose “all in cost” (inclusive of all charges) involved in processing/sanction of loan application in a transparent manner to enable customers to compare the rates/charges with other sources of finance, the Reserve Bank of India said in a notification.

With a view to bringing in fairness and transparency, banks have to disclose to borrowers all information about fees/charges payable for processing the loan application, the amount of fees refundable if loan amount is not sanctioned/disbursed, pre-payment options and charges, if any, penalty for delayed repayments if any, conversion charges for switching loan from fixed to floating rates or vice versa, existence of any interest reset clause and any other matter which affects the interest of the borrower.

Processing fees

In its guidelines on Fair Practices Code for Lenders, the RBI said that all information relating to processing fees/charges should also be displayed in the Web site of the banks for all categories of loan products.

The RBI has flagged the issue of transparency and fairness in lenders' dealings with borrowers as it has come across cases wherein some banks had levied in addition to a processing fee, certain charges that were not initially disclosed to the borrower. Levying such charges, subsequently, without disclosing the same to the borrower is an unfair practice.

SOURCE: http://www.thehindubusinessline.com/2010/11/16/stories/2010111650780600.htm

BANK LENDING TO REALTY SECTOR JUMPS FIVE-FOLD

Bank lending to real estate developers seems to have jumped in recent months after a slump until June 2010.

Net credit flows to the real state sector from banks jumped to Rs 9,604 crore in this financial year up to September 24, a five-fold jump compared with a similar period a year ago. 

Lower debt on balance sheets and possible repayment of restructured loans post June (when many of them fell due) may have improved banks' confidence to lend to the sector.

In fact, real estate is the sector to receive maximum credit inflows from banks for this financial year so far, next only to the education industry.

Increase post May

That much of this leap in lending has happened in recent months is clear when one compares recent numbers with the Macro Economic and Monetary Development First Quarter Review (June) of the RBI.

According to the June policy review, annual inflows into realty for a 12-month period ended May 21, were Rs 1,115 crore. As against this, the first six months of this fiscal have seen inflows eight times this figure.

Clearly, it is between May and September this year that credit to the sector picked up.

This could be due to a couple of reasons: one, a number of real estate companies have reduced their high leverage by raising equity, either by way of qualified institutional placements or through private equity funding. Real estate players raised about Rs 12,000 crore through QIPs last year and have lined up quite a few issues in 2010 as well.

Private equity and venture capital funding of the sector too has brought in fresh equity. According to Venture Intelligence, a research service focused on Private Equity & M&A, investments in real estate through the private equity/VC route stood at $1,338 million or about Rs 6,000 crore between January and October.

Clearly, the higher infusion of equity has ensured de-leveraged balance sheets for real estate companies. Top listed players such as Unitech and DLF now have their net debt to equity ratio between 0.5 and 0.75.

Two, a number of bank borrowings to corporates underwent restructuring under the economic stimulus window that was open until June 2009.

A good number of those loans were said to be due for repayment post the first quarter of this fiscal when the moratorium ended. Repayments of these loans by real estate players may also have provided leeway for banks to offer fresh loans.

In fact, while the debt for companies such as HDIL or Unitech is lower than a year ago, they have seen an increase compared with their March outstandings.

While lending to the sector has been improving, NPA provisioning by loans in the September quarter has seen an increase. It is not yet clear as to which sectors have resulted in higher provisioning by banks.

That said, if the recent tightening of risk weights and asset provisioning of home loans is anything to go by, the RBI may be subtly tightening the screws on the real state sector once again.

SOURCE: http://www.thehindubusinessline.com/2010/11/16/stories/2010111650920600.htm

ICICI BANK SEEING UPWARD BIAS IN INTEREST RATES

According to Ms. Chanda Kochhar, Chief Executive, ICICI Bank is seeing an upward bias in interest rates.

The Reserve Bank of India (RBI) has raised policy rates six times since March.

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/ICICI-Bank-seeing-upward-bias-in-interest-rates/articleshow/6936402.cms

NPAS OF PUBLIC SECTOR BANKS OVER RS 57K CR: MOS FOR FINANCE

Public sector banks in India had combined gross non-performing assets (NPAs) of Rs 57,301 crore during 2009-10, up 30 per cent from the previous fiscal, Parliament was informed.

NPAs comprised 2.27 per cent of public sector banks' (PSBs) gross advances in 2009-10, Minister of State for Finance Namo Narain Meena said in a written reply to the Rajya Sabha.

PSBs had NPAs worth Rs 44,039 crore in 2008-09 which was 2.09 per cent of their gross advances. In 2007-08, the total was Rs 39,749 crore or 2.34 per cent of gross advances.

In another reply, the minister said special term loans worth Rs 9,913.59 crore were written off by the centre between 1984-85 to 1993-94.

"There is no move to shift the financial year to January- December from the current April-March cycle," Meena said, adding that there is also no proposal for the merger of the Railway Budget with the Union Budget.

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/NPAs-of-public-sector-banks-over-Rs-57K-cr-MoS-for-Finance/articleshow/6935630.cms

RATES MAY GO UP SOON: OP BHATT

According to Mr. O.P. Bhatt, Chairman, State Bank of India, tight liquidity and increased credit offtake may push up interest rates in the near future.

SBI has so far restrained from hiking interest rates and has only gone for a token increase in its base rate—the lowest rate at which a bank can lend—of 10 basis points or 0.1% in October this year. The existing base rate for SBI is 7.6%.

Mr Bhatt said that the cost of funds for SBI has been stable during the last one month. “Over a period of time, they have come down,” he said, adding that tight liquidity combined with the loan growth could push of interest rate in the coming days.

Liquidity position in the banking system has come under pressure due to payment towards advance taxes, the highly successful public issue of Coal India and spending during the festival season. Mr Bhatt, however, said that the current liquidity situation is comfortable.

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/Rates-may-go-up-soon-OP-Bhatt/articleshow/6932960.cms