VOTING RIGHTS CAP IN PRIVATE BANKS AT 26% NOW

The Union Cabinet has allowed private banks to raise voting rights to 26% as recommended by a parliamentary standing committee. However, for buying equity stake of above 5%, approval of the central bank will be mandatory.

It has been decided that cap on voting rights of shareholders in private sector banks, which is currently at 10%, would be raised to 26%, confirmed a finance ministry official. The amendments are part of changes approved by the Cabinet in the proposed Banking Laws (Amendment) Bill which was introduced in the Lok Sabha in March 2011.

"The cabinet has cleared banking laws (Amendment Bill 2011). It also approved increase of voting rights from 10% to 26% for private-sector banks," Information and Broadcasting Minister Ambika Soni told reporters after a cabinet meeting . At present, the voting right is restricted to 10%, irrespective of the share holding pattern in the banks.

The standing committee in December last year, had suggested raising the limit in a phased manner while stating that it was crucial for the Reserve Bank of India (RBI) to ensure strict and efficient regulatory compliance's to prevent any misuse of the provision of increasing the limit. Both bankers and sectoral experts have argued that there was a need to raise the voting rights in order to maintain a balance between economic control and corporate democracy.

Also it had been recommended by the committee, headed by former finance minister Yashwant Sinha, that RBI should conduct due diligence of "fit and proper persons/entities." This move is being seen as a major reform by the government, which has recently been accused to be in a policy paralysis stage.

The Banking Laws (Amendment) Bill, 2011, clubs various banking amendment Bills, including changes in the Banking Regulations Act, to increase the voting power of shareholders in banks. The Banking Law Amendment Bill also seeks to give the central bank powers to vet mergers and acquisitions in the sector to ensure that their operations do not pose any systemic risk to lenders.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/voting-rights-cap-in-private-banks-at-26-now/articleshow/12889844.cms

FOCUS ON TRANSACTIONS IN NO FRILLS ACCOUNTS: RBI

Banks need to focus on transactions in accounts opened under financial inclusion, according to Dr K.C. Chakrabarty, Deputy Governor of RBI.

Speaking on developing a framework for financial inclusion at a national seminar here on Thursday, he said financial inclusion had become fashionable of late.

“But this fashion has to become passion,’’ he said.

Stating that banks had “great reluctance’’ to open brick and mortar branches in unbanked area, he said a combination of traditional branch model and business correspondent model should be adopted.

“The central role in financial inclusion had to be played by banks,’’ he said.

“They also need to be careful in collaborating with other agencies like MFIs and NBFCs in financial inclusion because they can only play only supportive role,’’  Dr Chakrabarty said.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3355688.ece

BANKS HAVE TO PLAY THE ‘CENTRAL ROLE' IN FINANCIAL INCLUSION

Appropriate delivery models are vital for achieving financial inclusion, according to Dr K. C. Chakrabarty, Deputy Governor, Reserve Bank of India.

Speaking on developing a framework for financial inclusion at a national seminar here on Thursday, he said financial inclusion had become fashionable of late. “But this fashion has to become a passion,” he added.

The seminar was organised by Crux Management Services in association with State Bank of India's Institute of Rural Development and Nabard.

Stating that banks had “great reluctance” to open brick and mortar branches in un-banked area, he said a combination of traditional branch model and business correspondent model should be adopted. Banks should open intermediary structures between base branch and customer locations.

TRANSACTIONS IN ACCOUNTS

“The central role in financial inclusion has to be played by banks, he said, adding that they needed to focus on transactions in accounts opened under financial inclusion. Only banks can offer the entire suite of products required to usher in meaningful financial inclusion.

“They also need to be careful in collaborating with other agencies such as microfinance institutions and non-banking finance companies in financial inclusion because they can only play only supportive role,” Dr Chakrabarty said.

In the recent policy, the RBI had asked banks to offer a basic savings account with a reasonable minimum balance norm.

The financial inclusion plans were being prepared by banks with board approvals since 2010 under the directions from the apex bank.

“The three-year horizon up to March 2013 has been given to banks. We are closely monitoring the progress,” he added.

UNIVERSAL BANKING

The target of covering villages with population of above 2,000 was achieved by March 2012.

“Now, we need to work towards universal banking access,” he said.

Financial inclusion was part of trinity along with consumer protection and financial literacy which would ensure financial stability.

Dr Chakrabarty had also asked the banks to ensure transparency in pricing of financial products and rationalisation of charges.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3357237.ece

RBI NOT TO INTERFERE IN BANK SERVICE CHARGES

The Reserve Bank of India (RBI) will not stop banks from collecting charges for various services or insist on a minimum balance, as it is the choice of the customer where to open account, Deputy Governor K.C. Chakrabarty said here Thursday.

"This is business. We can't interfere. We are not here to control business. We can only bring more competition," Chakrabarty told reporters on the sidelines of a national seminar on financial inclusion.

The central bank is only asking banks to bring transparency in what they are charging and that it can ask them to drop charges if they are found unreasonable, he added.

The RBI deputy governor said customers who have money will go to those banks which insist on minimum balance of Rs.25,000 or which charge two to three times for value added services. 

"We are only saying pricing should not be discriminatory or exploitative and the banks should provide minimum services. The customers should know minimum terms and conditions."

Earlier in his address, Chakrabarty said banks were also charging for services which they were not providing, collecting pre-payment penalty and not reducing the interest rate for existing customers. He termed this as illegal, unethical and immoral. 

He said having a bank account is a fundamental right of an individual and no bank can refuse opening an account. 

The RBI recently asked banks to devise a basic bank account with minimum bouquet of products and services. The banks have been asked not to charge for maintaining minimum balance.

Under financial inclusion, the banks will provide a savings account with emergency credit/overdraft facility, payment services and remittances facility, a pure savings facility such as recurring deposit facility and facility of entrepreneurial credit to deserving people.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-not-to-interfere-in-bank-service-charges/articleshow/12885217.cms

S&P LOWERS OUTLOOK ON STATE BANK OF INDIA AND ICICI BANK

Standard & Poor's has lowered the outlook on 11 financial institutions, including State Bank of India and ICICI Bank, to negative from stable. It, however, said a rating downgrade is unlikely since the individual finances of the institutions are unlikely to deteriorate sharply.

The revision follows a similar move in terms of the sovereign as financial institutions from India cannot be viewed above the sovereign since policy changes have substantial impact on them.

"The negative outlooks on the 11 financial institutions reflect the outlook on the sovereign credit rating on India," S&P said in a statement. "We could lower the ratings on these financial institutions if we lower the sovereign rating or if the stand-alone credit profiles of these financial institutions deteriorate sharply. We believe that such deterioration is unlikely in most cases. We could revise the outlook to stable if we take a similar action on the sovereign rating."

Indian banking sector's health has been deteriorating in the last few quarters since borrowers are either postponing repayments or defaulting as tight business conditions hamper growth.

Policy obstacles have halted many projects. Crisil, the Indian unit of S&P, forecasts that restructured loans may touch 2 lakh crore this fiscal, from an estimated 1.5 lakh crore in fiscal 2012.

Telecom tower group GTL Infrastructure; microfinance company BASIX; Deccan Cargo and Express Logistic, founded by Captain Gopinath; and Bharati Shipyard are among companies whose loans were restructured last year, document from the CDR Cell shows. Other companies like Hotel Leela Ventures, builder HCC and Lavasa, a hill city, await approvals from banks to restructure their loans.

But the rating company's decision is unlikely to have any significant impact on the banks' operations since most of them do not have much overseas borrowings, or have access to huge domestic funds. After the 2008 credit crisis, the impact of rating companies' report on corporate decisions has diminished substantially.

"It is just an outlook change and we need to wait for a month or two to see if this has any material impact," said Brijesh Koshal, managing director - investment banking, Daiwa Capital Markets. "When such developments occur, corporates also adopt a wait-and-watch approach and evaluate the market before they take a decision."

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sp-lowers-outlook-on-state-bank-of-india-and-icici-bank/articleshow/12873887.cms

UNCLAIMED MONEY IS PILING UP

In a country where deficits and poverty are rampant, unclaimed money is an irony — but a huge reality. Be it un-banked cheques, deposits with banks, finance companies and post-offices, or investment in tax saving schemes and life insurance policies, the unclaimed sums can be significant.

LIC had, for instance, in response to an application filed under the Right to Information Act, stated that as many as 1,80,031 policies were lying unclaimed with the Corporation even after the maturity period.

The Corporation, however, did not disclose the amount deposited against these policies by the policyholders.

NO COMMUNICATION

Why does this happen? “It's because the insured fails to keep his near and dear ones informed about his/her investment. Many people have no clue that they are a beneficiary or even that a life insurance policy exists. It does happen and fairly often,” says Mr P. Mohankumar, the Principal Officer and Managing Director, Link-K Insurance Broker Co (P) Ltd.

Citing an instance, he said a friend took a life cover for Rs 50 lakh. He moved to the US, where he passed away. His wife relocated to India after his death. Many months later, when she went through the transactions in his pass book, she noticed that there were payouts towards insurance premium. The policy documents were missing. But somehow she managed to get the claim.

“It may not always be easy, especially if the premium against any policy is discontinued continuously for five years. The policy lapses and cannot be revived,” he emphasised.

“Such secrecy is uncalled for, especially when it is life insurance cover,” he said, and pointed out that in the case of a car accident or health services, ‘you are the claimant', but when it comes to life ‘you aren't the one to pay the final bills. It will probably be your beneficiary!'

Emphasising the need for maintaining proper record of one's investment and the need to keep close family members in the know of such investment, Mr Mohankumar said “it is also important to know your agent.”

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3353429.ece

S&P CUTS INDIA'S OUTLOOK TO NEGATIVE; GOVT UNFAZED

Global credit ratings major Standard and Poor's (S&P) has revised the outlook on India's long-term credit rating to ‘negative' from ‘stable.' There was a ‘one in three' chance of a rating downgrade within the next 24 months, the agency warned.

S&P cited slow fiscal progress and deteriorating economic indicators as the reason for its surprise move. For the moment, India's credit rating on its long-term rupee debt has been left unchanged at ‘BBB-' (pronounced triple B minus). This is the lowest investment grade rating issued by S&P.

However, the Government, in an effort to down play such a move, said the agency has only raised a red flag and not downgraded India. The outlook cut will not impact the ability of corporates to borrow abroad, officials said.

S&P's credit analyst, Mr Takahira Ogawa, said, “The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting.”

India's favourable long-term growth prospects and high level of foreign exchange reserves support the ratings. On the other hand, the country's large fiscal deficits and debt, as well as its lower middle-income economy, constrain the ratings, S&P said.

“We expect India's real GDP per capita growth will likely remain moderately strong at 5.3 per cent in the current fiscal year ending March 31, 2013, compared with about 6 per cent on average over the prior five years, but down from 8 per cent in the middle of the last decade,” Mr Ogawa said.

India's favourable demography and the increasing middle-class population will “undergird its medium-term growth prospects, which in turn will support the sovereign ratings,” he added. The agency said India's external position remains resilient despite the deterioration in the past two years. The foreign currency reserves cover about six months of current account payments, down from eight months in 2008 and 2009.

High fiscal deficits and a heavy debt burden remain the most significant constraints on sovereign ratings on India. “We expect only modest progress in fiscal and public sector reforms, given the political cycle — with the next elections to be held by May 2014 — and the current political gridlock.”

A downgrade is likely if the economic growth prospects dim, external position deteriorates, political climate worsens, or fiscal reforms slow, Mr Ogawa said.

A warning, no need to panic: Pranab

The Finance Minister, Mr Pranab Mukherjee, acknowledged Standard & Poor's decision to cut India's rating outlook to negative as a ‘timely warning.' However, he felt there was no cause for panic.

Mr Mukherjee said, “I am concerned but I don't feel panicky because I am confident that our economy will grow at around 7 per cent if not plus. We will be able to control fiscal deficit and it will be around 5.1 per cent (of GDP).”

He also said that economic reforms will be on track. The Government aims to go for the reform process and necessary administrative decisions to ensure that fiscal deficit is retained at projected level. “We should continue to work for higher GDP... We will take note,” Mr Mukherjee added.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3352110.ece

CENTRAL BANK OF INDIA REVISES THE BASE RATE AND INTEREST RATE ON DOMESTIC TERM DEPOSITS FROM 1ST MAY 2012

Central Bank of India has revised the BASE RATE from existing 10.75% to 10.50%.  Interest spread on Base Rate for transport operator is also revised downwards to the extent of 2%.

The interest rate on domestic term deposits for the various brackets has also been revised with effect from 1^st May 2012.  The revised interest rates range between  5% to 9.10%.

BPLR remains unchanged at 15%.

ALL RATES ARE IN PERCENTAGE PER ANNUM.

SOURCE: https://www.centralbankofindia.co.in/upload/news/Press_Editors_Press_Release_Baserate.pdf

OFFICERS' BODY AGAINST MOVE TO EASE FOREIGN CAPITAL NORMS IN PRIVATE BANKS

It's not the debate between big banks versus small banks that worries the workforce of old banks. Rather it is the discrimination between old private banks and new private banks.

‘We are a discriminated lot,' said the President of the All India Private Sector Bank Officers' Federation (AIPSBOF), Mr K. Anandakumar. He says old private banks implement government-sponsored schemes effectively.

But he is peeved that new banks aren't asked to do that. “Such schemes are not thrust on the new private banks. Why?' His solution for the problem: Immediate nationalisation or takeover of all old private banks by State-owned institutions.

Yet another reason for demanding ‘immediate' nationalisation of these banks is a proposed amendment in the Banking Law Amendment Bill 2011, which seeks to remove the ceiling on voting rights of foreign investors.

FOREIGN INVESTMENT

“This Bill, if passed in Parliament, will only spell doom on the old private banks. Today, there is a 10 per cent ceiling on the voting rights of foreign investors in banks such as ours.

“If this clause is deleted, the foreign investors would have full voting rights without any ceiling and proportionate to their capital investment. Old private banks would become vulnerable for takeover by foreign capital,” said Mr Anandakumar.

Speaking to Business Line on the sidelines of the 8th Triennial National Conference of the AIPSBOF, he said “we are opposed to the new policy pronouncements by the Ministry of Finance. The foreign capital in some of the private banks is already quite high. Allowing and encouraging more foreign capital and removal of the ceiling on the exiting voting rights will be highly detrimental to the country and the banking industry as a whole.”

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3349981.ece

BANKS TO RESTRUCTURE LOAN WORTH RS 2 TRILLION BY MARCH 2013: CRISIL

Restructured loan portfolio of banks is expected to touch Rs 2 trillion by March 2013, said Crisil the rating company. A sizeable proportion of the restructuring comprises large-ticket corporate exposures; total restructured loans will account for 3.5 per cent of the banking sector's total advances as at March 2013,'' it said

GTL Infrastructure, a telecom tower group; microfinance company BASIX; and Deccan Cargo and Express Logistic, founded by Captain Gopinath, Bharati Shipyard are among companies whose loans have been restructured this year, document from the CDR Cell shows. Other companies like Hotel Leela ventures, HCC and Lavasa await banks approval to be admitted to CDR cell.

"The nature of restructuring in 2011-12 and 2012-13 is qualitatively different from that in 2008-09 and 2009-10. The loans restructured in the earlier phase were smaller and represented the small and medium enterprise (SME) accounts. In the current phase, the loans being restructured are large corporate exposures; over two-thirds of the loans restructured till December 2011 had a ticket size of over Rs1000 crore, reflecting a high level of concentration,'' said Ramraj Pai, president, Crisil Ratings.

Bank's gross NPAs are set to increase to 3.2% of advances by March 2013, from 2.9% as at December 2011. The large quantum of restructuring reflects the prevailing stress on corporate India's credit quality because of lower profitability, weak demand, and tight liquidity.

'Nearly 30% of the restructuring is expected in the power sector. The other sectors to be impacted include aviation, construction and engineering, steel, textiles, and telecom infrastructure,'' the rating company said.

Such a large quantum of restructuring will help restrict the increase in banks' reported NPAs - the gross NPAs are expected to marginally increase to 3.2% as at March 2013 from 2.9% at the end of December 2011 said Crisil. The increase in NPAs reflects the expectation of slippages in the agriculture and SME portfolios. The large ticket size of the restructured loans, slippages of even 20%, similar to that witnessed in the past, could lead to further increase in gross NPAs by over 50 basis points over the medium term, the rating company said

SOURCE http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/banks-to-restructure-loan-worth-rs-2-trillion-by-march-2013-crisil/articleshow/12853420.cms