Soon RBI will be issuing regulatory guidelines for mobile payment systems. According to the RBI annual Credit Policy statement the drafted guidelines will be placed on RBI Web site by June 15. After these guidelines the customers will be able to use mobile phone easily and safely to carry out entire banking transactions.
Senior bank officials said the guidelines have been formulated mainly to provide safety and for interoperability issues in using mobile phones for conducting normal banking services.
According to the central bank sources discussion is going on with banks, service providers and industry bodies for the purpose of framing the guidelines. “The focus of the guideline would be on devising an inter-operable system. It is important that banks and various service providers talk to each other so that transactions flow seamlessly between different payment solutions,” said Mr Nitin Chittal, Assistant Vice-President, Alternate Banking Channels, Axis Bank. Inter-operability would require a standardized messaging format between the various service providers and banks, Mr Chittal said.
Senior bank officials are of view that the guidelines will help in ensuring software-related safety and proper risk management in order to encourage more customers to use the mobile platform.
Stressing on the need to use mobile phones for conducting various transactions, the RBI said, “The mobile channel facilitates small value payments to merchants, utility service providers and the like and money transfers at a low cost.”
As per the data available as on December 2007 there were about 231 million mobile phone connections in the country. The rapid expansion of this mode of communication has brought up a new payment delivery channel for banks. Many countries have already adopted this mode of delivery to expand the reach of the banking facility to cover remote parts, the RBI said.
Several banks have tied up with mobile phone operators and service providers to carry out transactions on mobile phones and more banks are to follow. While some banks are offering simple account-related queries on mobile phones and some have gone a step further and stored the debit and credit cards on mobile phone to enable various transactions.
ICICI Bank has already tied up with Airtel and mChek to load a virtual credit card on a mobile phone to carry on complete banking transactions as well as for making payments. “We conducted a pilot in Delhi and received close to a thousand responses. Mobile phones can be safer as compared to physical cards as they are pin protected, thereby minimizing the risk of misuse,” said Mr Sachin Khandelwal, General Manager, Head-Cards Product Group, ICICI Bank.
Axis Bank is also carrying out a similar pilot project with Atom Technologies to store a debit card on the mobile phone.
Wednesday, April 30, 2008
Monday, April 28, 2008
RBI norms on Cibil will allow tracking of credit record
Many people use credit cards and large group of people take loans from the banks but how many of them are aware that their repayment track record is maintained by an agency-centralized credit information bureau India (Cibil). Not many. Generally the agency gets the information from the banks. The banks pass on the repayment track record of the borrowers and the credit card holders to the agency. From here the banks can get the complete credit history of the individual before lending money.
The data stored with Cibil positive or negative, plays a major role in determining whether a borrower’s future loan application gets accepted or rejected. But it is very unfortunate, unlike US or UK, Indian borrowers cannot access this information to verify its authenticity. The existing state of affairs may hopefully change soon. A senior banker suggested that Cibil should provide written intimation about a borrower's credit history, or publish it on a website, which an individual could access by paying a token fee.
Now Cibil has come forward and in a written communiqué to TOI, the credit bureau said, "We are expecting guidelines from the RBI in this regard. Once the guidelines are made available, we expect to be in a position to share credit information reports with individuals." However, till such a system is in place, "if there is some mistake (in my credit profile), I cannot get it rectified", says Bejon Misra of Delhi's Consumer Voice.
The senior banker said not many borrowers are aware that disputes over an insignificant amount can lead to negative credit history. He gave one instance in relation to this: "Suppose a person owes Rs 10,300 to a credit card company and has a dispute over the Rs 300 in charges, and refuses to pay this balance. Interest will rise on this amount and a small problem will become a big one... Certain systems are triggered off. For such a small dispute, your housing loan of Rs 10 lakh may get rejected." The banker has advised the borrowers, that they must pay up the entire amount and dispute the charges only after doing so.
Even in the recently released 2006-07 annual report on the banking ombudsman's scheme disputes that have reached the redressal body over "wrong reporting of status of (credit) card-holder's dues to credit information companies" has been mentioned.
An official of the ombudsman’s office mentioned such complaints might be over payment disputes which have been resolved but credit bureau might not have been informed about the development. On this subject, the credit bureau clarified, "Cibil is a neutral service provider, which maintains information on borrowers on basis of data reported to it by credit granting institutions. In cases of disputed data, Cibil will consider information provided by credit granting institution and update it in its database. Again, in cases where dispute is resolved, and any modification is made to borrower's details, credit granting institution needs to report rectified data to Cibil and Cibil database is updated immediately."
Relating to credit cards, Sachin Khandelwal, head (cards) at ICICI Bank, said sometimes negative history is created if a consumer stops using the card without informing the card-issuing bank. "My suggestion to customers is to make sure when you exit a card relationship, make the card outstanding zero, and get the bank's written confirmation on this."
The data stored with Cibil positive or negative, plays a major role in determining whether a borrower’s future loan application gets accepted or rejected. But it is very unfortunate, unlike US or UK, Indian borrowers cannot access this information to verify its authenticity. The existing state of affairs may hopefully change soon. A senior banker suggested that Cibil should provide written intimation about a borrower's credit history, or publish it on a website, which an individual could access by paying a token fee.
Now Cibil has come forward and in a written communiqué to TOI, the credit bureau said, "We are expecting guidelines from the RBI in this regard. Once the guidelines are made available, we expect to be in a position to share credit information reports with individuals." However, till such a system is in place, "if there is some mistake (in my credit profile), I cannot get it rectified", says Bejon Misra of Delhi's Consumer Voice.
The senior banker said not many borrowers are aware that disputes over an insignificant amount can lead to negative credit history. He gave one instance in relation to this: "Suppose a person owes Rs 10,300 to a credit card company and has a dispute over the Rs 300 in charges, and refuses to pay this balance. Interest will rise on this amount and a small problem will become a big one... Certain systems are triggered off. For such a small dispute, your housing loan of Rs 10 lakh may get rejected." The banker has advised the borrowers, that they must pay up the entire amount and dispute the charges only after doing so.
Even in the recently released 2006-07 annual report on the banking ombudsman's scheme disputes that have reached the redressal body over "wrong reporting of status of (credit) card-holder's dues to credit information companies" has been mentioned.
An official of the ombudsman’s office mentioned such complaints might be over payment disputes which have been resolved but credit bureau might not have been informed about the development. On this subject, the credit bureau clarified, "Cibil is a neutral service provider, which maintains information on borrowers on basis of data reported to it by credit granting institutions. In cases of disputed data, Cibil will consider information provided by credit granting institution and update it in its database. Again, in cases where dispute is resolved, and any modification is made to borrower's details, credit granting institution needs to report rectified data to Cibil and Cibil database is updated immediately."
Relating to credit cards, Sachin Khandelwal, head (cards) at ICICI Bank, said sometimes negative history is created if a consumer stops using the card without informing the card-issuing bank. "My suggestion to customers is to make sure when you exit a card relationship, make the card outstanding zero, and get the bank's written confirmation on this."
Rural bank shows good results after merger
To bring the small banks onto a fast track RBI had permitted the merger of the small banks going in loss, with the big banks. In Muzaffarpur seven rural banks had merged into North Bihar Regional Rural Bank (NBRRB) and have given good result making a big profit during a period of the last one year. The RRB not only has paid a debt of overall loss of Rs 17.82 crore but also has succeeded in making a profit of Rs 11.51 crore during the period.
In a press meet on Wednesday the chairman of NBRRB Avinash Yog told the media person that the bank has made this achievement, mainly due to enhancing its loans, deposits, recovery and productive investments.
He informed that the bank's deposited amount has increased from Rs 3,062 crore to Rs 3,842 crore in 685 branches, making a hike of more than 25 per cent. He claimed the bank made an advance of Rs 1,471 crore as against only Rs 1,149 crore last year, registering a hike of 28 per cent. It did a business of Rs 5,313 crore in comparison to only Rs 4,212 crore. The average increase in business per branch was Rs 7.76 crore.
The NBRRB came into existence in 2006 after the merger of Vaishali, Siwan, Saran, West Champaran, Gopalgamj, Madhubani and Darbhanga rural banks.
The chairman of the bank, as well as the chief manager, S K Singh and the senior manager, R N Paswan, said whole credit of this profit goes to officers and employees of all branches spread in north Bihar region who put in all their efforts of the bank.
Recently there is a proposal to merge Kosi rural bank also in this bank during the current year. With this it will cover 18 districts of north Bihar under the jurisdiction of NBRRB.
All these banks are being sponsored by Central Bank of India. While giving the clarification on the merger of the banks the chairman said as the rest of three districts rural banks including those of Samastipur, Begusarai and Khagaria are being sponsored by other commercial banks, so they will not to be merged with it.
He said the NBRRB has distributed kisan credit cards to 73,409 farmers with a fund of Rs 243 crore at the rate of 109 cards each branch. The bank also opened 309 new kisan clubs in 272 branches during last one year.
In a press meet on Wednesday the chairman of NBRRB Avinash Yog told the media person that the bank has made this achievement, mainly due to enhancing its loans, deposits, recovery and productive investments.
He informed that the bank's deposited amount has increased from Rs 3,062 crore to Rs 3,842 crore in 685 branches, making a hike of more than 25 per cent. He claimed the bank made an advance of Rs 1,471 crore as against only Rs 1,149 crore last year, registering a hike of 28 per cent. It did a business of Rs 5,313 crore in comparison to only Rs 4,212 crore. The average increase in business per branch was Rs 7.76 crore.
The NBRRB came into existence in 2006 after the merger of Vaishali, Siwan, Saran, West Champaran, Gopalgamj, Madhubani and Darbhanga rural banks.
The chairman of the bank, as well as the chief manager, S K Singh and the senior manager, R N Paswan, said whole credit of this profit goes to officers and employees of all branches spread in north Bihar region who put in all their efforts of the bank.
Recently there is a proposal to merge Kosi rural bank also in this bank during the current year. With this it will cover 18 districts of north Bihar under the jurisdiction of NBRRB.
All these banks are being sponsored by Central Bank of India. While giving the clarification on the merger of the banks the chairman said as the rest of three districts rural banks including those of Samastipur, Begusarai and Khagaria are being sponsored by other commercial banks, so they will not to be merged with it.
He said the NBRRB has distributed kisan credit cards to 73,409 farmers with a fund of Rs 243 crore at the rate of 109 cards each branch. The bank also opened 309 new kisan clubs in 272 branches during last one year.
Tuesday, April 22, 2008
RBI likely to issue norms for reverse mortgage in credit policy meet
The Reserve Bank of India (RBI) on April 29 in its forthcoming annual monetary policy meeting is likely to announce the prudential norms for reverse mortgage loans to safeguard banks in a falling real estate market.
Reverse mortgage scheme was announced by the Union Finance Minister P. Chidambaram in the Finance Bill 2007 as a social security measure for the elderly. Reverse mortgage allows senior citizens with inadequate income sources to mortgage their own homes for a monthly stream of income for up to 15 years.
It includes a senior citizen borrower mortgaging the house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. It is a way of monetizing the owner’s equity in the house.
The senior citizen borrower is not required to examine the loan during his lifetime and on the borrower’s death or on the borrower leaving the house permanently, the loan is repaid along with accumulated interest, through sale of the house.
According to the sources close to the development said it has become necessary to introduce the prudential norms for banks as the property mortgaged with banks would wear down the value if the real estate prices continued to fall. This may result in non-performing assets in the books of banks. Currently, such loans are being dealt at par with commercial real estate by banks as far as prudential norms are concerned.
The norms will include capital adequacy and asset classification for such loans.
Which means a bank will have to provide a certain portion of the loan as capital for provisioning if such loans go bad. The standards will be specified to classify such loans as standard or non-performing assets.
Certain risk weights may also be attached to such loans depending on the risk potential of the loan scheme. At present, the reverse mortgage loan carries the same risk weight as that of real estate loans, which are already very high at 150 per cent. Sources made it clear that such loans were non-commercial in nature and thus a lower risk weight akin to residential real estate would be appropriate.
As per banking sources such prudential norms will protect banks from having such loans as NPAs. Further, RBI will also spell out valuation norms for pricing such schemes.
At present several banks are following comprehensive norms introduced by National Housing Bank for the reverse mortgage scheme.
In the meantime the banks are not aggressive since the guidelines from RBI are not clear. In the last Budget, the government had exempted senior citizens from paying tax on the income earned by mortgaging their property to banks.
Reverse mortgage scheme was announced by the Union Finance Minister P. Chidambaram in the Finance Bill 2007 as a social security measure for the elderly. Reverse mortgage allows senior citizens with inadequate income sources to mortgage their own homes for a monthly stream of income for up to 15 years.
It includes a senior citizen borrower mortgaging the house to a lender, who then makes periodic payments to the borrower during the latter’s lifetime. It is a way of monetizing the owner’s equity in the house.
The senior citizen borrower is not required to examine the loan during his lifetime and on the borrower’s death or on the borrower leaving the house permanently, the loan is repaid along with accumulated interest, through sale of the house.
According to the sources close to the development said it has become necessary to introduce the prudential norms for banks as the property mortgaged with banks would wear down the value if the real estate prices continued to fall. This may result in non-performing assets in the books of banks. Currently, such loans are being dealt at par with commercial real estate by banks as far as prudential norms are concerned.
The norms will include capital adequacy and asset classification for such loans.
Which means a bank will have to provide a certain portion of the loan as capital for provisioning if such loans go bad. The standards will be specified to classify such loans as standard or non-performing assets.
Certain risk weights may also be attached to such loans depending on the risk potential of the loan scheme. At present, the reverse mortgage loan carries the same risk weight as that of real estate loans, which are already very high at 150 per cent. Sources made it clear that such loans were non-commercial in nature and thus a lower risk weight akin to residential real estate would be appropriate.
As per banking sources such prudential norms will protect banks from having such loans as NPAs. Further, RBI will also spell out valuation norms for pricing such schemes.
At present several banks are following comprehensive norms introduced by National Housing Bank for the reverse mortgage scheme.
In the meantime the banks are not aggressive since the guidelines from RBI are not clear. In the last Budget, the government had exempted senior citizens from paying tax on the income earned by mortgaging their property to banks.
Monday, April 21, 2008
RBI might increase repo rate to check inflation
The Reserve Bank of India (RBI) to control the high intensity of the inflation which has gone up over 7 per cent is planning to take more monetary measures including a hike in key short term rates in its credit policy on April 29.
According to top bankers there is a possibility of 0.25-0.5 per cent hike in the repo rate to supplement the 0.5 per cent cash reserve ratio (CRR) hike which announced in the last week by the apex bank.
Repo rate is the rate at which the RBI borrows from the banks while CRR is the amount of funds that the banks have to keep with the RBI.
UCO Bank's Chairman & Managing Director, S K Goel, while expressing views on RBI’s step to control inflation said, “The first priority of the Reserve Bank would be to rein in inflation. A 0.25-0.5 per cent hike in repo rates is quite possible.”
On Thursday RBI hiked CRR by 0.5 per cent to 8 per cent to suck out Rs 18,500-crore liquidity from the banking system as a measure to combat ballooning inflation.
Goel added, "The impound on Uco Bank with this CRR hike would be around Rs 400 crore while the loss of income would be around Rs 24 crore. This would have an impact on the lending surplus of the bank.”.
Goel said the bank's Asset Liability Committee (ALCO) will be holding a meeting on May 5 in which decision on lending rates will be taken.
However a 0.25 per cent hike in short-term rates can compel banks to hike lending rates passing on the burden to their customers.
According to top bankers there is a possibility of 0.25-0.5 per cent hike in the repo rate to supplement the 0.5 per cent cash reserve ratio (CRR) hike which announced in the last week by the apex bank.
Repo rate is the rate at which the RBI borrows from the banks while CRR is the amount of funds that the banks have to keep with the RBI.
UCO Bank's Chairman & Managing Director, S K Goel, while expressing views on RBI’s step to control inflation said, “The first priority of the Reserve Bank would be to rein in inflation. A 0.25-0.5 per cent hike in repo rates is quite possible.”
On Thursday RBI hiked CRR by 0.5 per cent to 8 per cent to suck out Rs 18,500-crore liquidity from the banking system as a measure to combat ballooning inflation.
Goel added, "The impound on Uco Bank with this CRR hike would be around Rs 400 crore while the loss of income would be around Rs 24 crore. This would have an impact on the lending surplus of the bank.”.
Goel said the bank's Asset Liability Committee (ALCO) will be holding a meeting on May 5 in which decision on lending rates will be taken.
However a 0.25 per cent hike in short-term rates can compel banks to hike lending rates passing on the burden to their customers.
RBI to assist SHGs and MFIs to curb money-lenders
A top RBI official said to curb the influence of money-lenders over poor borrowers the Reserve Bank of India is considering of giving more assistance to Self Help Groups (SHGs) and Microfinance Institutions (MFIs).
In Mumbai speaking in a seminar RBI’s Deputy Governor, Usha Thorat, said, "There is a need to propel the growth of SHGs and MFIs in order to bring down the influence of money-lenders over poor borrowers...RBI is taking regulatory and strategic initiatives to achieve this goal".
Thorat said the apex bank is considering formulating guidelines to allow banks to open savings bank accounts for SHGs and for the de-regulation of interest rates for SHGs, MFIs, Non-Banking Financial Companies, Regional Rural Banks and Urban Co-operative Banks.
In order to facilitate remittances from urban centers and encourage them for opening accounts, it is being assumed soon RBI will be coming up with guidelines to simplify KYC norms for small value accounts which will help urban-migrants to avail banking services.
In Mumbai speaking in a seminar RBI’s Deputy Governor, Usha Thorat, said, "There is a need to propel the growth of SHGs and MFIs in order to bring down the influence of money-lenders over poor borrowers...RBI is taking regulatory and strategic initiatives to achieve this goal".
Thorat said the apex bank is considering formulating guidelines to allow banks to open savings bank accounts for SHGs and for the de-regulation of interest rates for SHGs, MFIs, Non-Banking Financial Companies, Regional Rural Banks and Urban Co-operative Banks.
In order to facilitate remittances from urban centers and encourage them for opening accounts, it is being assumed soon RBI will be coming up with guidelines to simplify KYC norms for small value accounts which will help urban-migrants to avail banking services.
Saturday, April 19, 2008
Banks to decide on interest rates after RBI’s annual credit policy
On Thursday RBI had announced a hike in Cash Reserve Ratio (CRR) rate by 50 basis points - or half a percentage point- in a two-step process to 8%. After this announcement hike in interest rates is expected although country’s leading bankers have forbidden any possibility from immediate hike in interest rate. The bankers said they will wait for the Reserve Bank’s annual credit policy scheduled for April 29.
This decision has come as a relief for those who are planning to take a home or car loan. For some time now the loan seekers can enjoy the stable interest rate regime.
However many of the financial institutions have started assessing their liquidity positions in milieu of RBI decision to raise CRR – percentage of deposits that banks have to keep with the regulator -- to eight per cent from 7.5 per cent earlier.
Commenting on this ICICI Bank managing director and CEO K V Kamath said, "We will see as we go along. We are all working in a market place. We have to understand market. For that we need next..."
While HDFC chairman Deepak Parekh said the company has not yet decided on its interest rates. He said hike in CRR by 50 basis points will increase pressure on the margin of banks by 3-4 per cent.
"There is going to be profitability impact on banks, that I think is given because whatever is kept aside as CRR, you are not going to get interest on it," Kamath said.
Punjab National Bank chairman and managing director K C Chakrabarty expressing his views said "we have to see how we can cope up with the situation...immediately nothing is going to happen."
He said most of the banks will decide on interest rates after the annual credit policy, as everybody will get the clear picture of monetary stance for 2008-09.
This decision has come as a relief for those who are planning to take a home or car loan. For some time now the loan seekers can enjoy the stable interest rate regime.
However many of the financial institutions have started assessing their liquidity positions in milieu of RBI decision to raise CRR – percentage of deposits that banks have to keep with the regulator -- to eight per cent from 7.5 per cent earlier.
Commenting on this ICICI Bank managing director and CEO K V Kamath said, "We will see as we go along. We are all working in a market place. We have to understand market. For that we need next..."
While HDFC chairman Deepak Parekh said the company has not yet decided on its interest rates. He said hike in CRR by 50 basis points will increase pressure on the margin of banks by 3-4 per cent.
"There is going to be profitability impact on banks, that I think is given because whatever is kept aside as CRR, you are not going to get interest on it," Kamath said.
Punjab National Bank chairman and managing director K C Chakrabarty expressing his views said "we have to see how we can cope up with the situation...immediately nothing is going to happen."
He said most of the banks will decide on interest rates after the annual credit policy, as everybody will get the clear picture of monetary stance for 2008-09.
Wednesday, April 16, 2008
Banks to incur additional cost of Rs 800 cr for training program
The Reserve Bank of India recently released its second draft guidelines for recovery agents in which it has proposed that banks should tie up with the Indian Institute of Banking and Finance (IIBF) or organize program in their own training colleges to ensure that every agent passes the exam conducted by IIBF during a one-year period.
In its norms the RBI has clearly defined “agents” to include not just agencies engaged by banks and their agents or employees but also bank employees.
If the banks comply with the RBI proposed loan recovery norms banks might have to spend up to Rs 800 crore training close to one million employees.
The biggest complaint of the bankers is the additional cost that they would have to spend on 100 hours of training, which could be anything between Rs 600 crore and Rs 800 crore.
NIS Sparta, a division of Mudra Communications Pvt. Ltd., a Reliance ADA group organization. which provides training facilities for financial sector, charges around Rs 6,000 per employee.
Another institute run by a public sector bank said the 100-hour training costs Rs 6,500 per employee, which does not include the cost of study material and meals.
Study material, including brochures and CDs it costs to around Rs 500, and if meals are included for 14 days and other costs add up to around Rs 1,000, taking the total package amount to nearly Rs 8,000 per employee.
According to a banker recovery being one of the high-pressure jobs, most of the employees are unwilling to put in long term in the collection department of private banks, resulting in high stir and, therefore, more training needs.
In the public sector banks departments of employees keep changing which means training almost the entire workforce over a period of time.
In the meantime, the Indian Banks' Association (IBA), which represents the interests of both state-owned and private banks, has written to the RBI seeking the clarification on the term “recovery”.
Most of the large banks have customer services departments who do the follow-up with customers who fail to pay their credit card or personal or car loan dues on the due date.
“Before the matter is referred to the collection department, which usually takes a month, it is this department which follows-up. We do not know if even this will constitute recovery activity and if we need to train our customer service executives too,” said a senior banker.
However the IBA has submitted its opinion to RBI, which expects the release of final guidelines shortly.
Banks have also expressed their apprehension over including the telephone numbers of recovery agents in the notice and authorization letter sent to defaulting borrowers.
“These recommendations were listed in the first draft as well. We send our feedback but it seems to be falling on deaf ears. In this day and age how can you expect a bank to make public the number of its recovery agent,” said the collection head of a private bank.
“Today, customers can opt for call-barring facilities. What can a bank do if the customer refuses to receive calls? Unless RBI wants us to not pursue defaulters there is no reason why it should include such a suggestion,” said the banker.
Banks have also said the proposal to implement Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) to reclaim assets will delay the recovery process which in turn depreciates the value of the asset.
“Under Sarfaesi the bank will have to wait for 90 days which means three installments before it can pursue the defaulter. The bank will also have to send the borrower an official letter before taking any action. This causes delay in recovery and the value of the asset also depreciates,” said a banker.
In its norms the RBI has clearly defined “agents” to include not just agencies engaged by banks and their agents or employees but also bank employees.
If the banks comply with the RBI proposed loan recovery norms banks might have to spend up to Rs 800 crore training close to one million employees.
The biggest complaint of the bankers is the additional cost that they would have to spend on 100 hours of training, which could be anything between Rs 600 crore and Rs 800 crore.
NIS Sparta, a division of Mudra Communications Pvt. Ltd., a Reliance ADA group organization. which provides training facilities for financial sector, charges around Rs 6,000 per employee.
Another institute run by a public sector bank said the 100-hour training costs Rs 6,500 per employee, which does not include the cost of study material and meals.
Study material, including brochures and CDs it costs to around Rs 500, and if meals are included for 14 days and other costs add up to around Rs 1,000, taking the total package amount to nearly Rs 8,000 per employee.
According to a banker recovery being one of the high-pressure jobs, most of the employees are unwilling to put in long term in the collection department of private banks, resulting in high stir and, therefore, more training needs.
In the public sector banks departments of employees keep changing which means training almost the entire workforce over a period of time.
In the meantime, the Indian Banks' Association (IBA), which represents the interests of both state-owned and private banks, has written to the RBI seeking the clarification on the term “recovery”.
Most of the large banks have customer services departments who do the follow-up with customers who fail to pay their credit card or personal or car loan dues on the due date.
“Before the matter is referred to the collection department, which usually takes a month, it is this department which follows-up. We do not know if even this will constitute recovery activity and if we need to train our customer service executives too,” said a senior banker.
However the IBA has submitted its opinion to RBI, which expects the release of final guidelines shortly.
Banks have also expressed their apprehension over including the telephone numbers of recovery agents in the notice and authorization letter sent to defaulting borrowers.
“These recommendations were listed in the first draft as well. We send our feedback but it seems to be falling on deaf ears. In this day and age how can you expect a bank to make public the number of its recovery agent,” said the collection head of a private bank.
“Today, customers can opt for call-barring facilities. What can a bank do if the customer refuses to receive calls? Unless RBI wants us to not pursue defaulters there is no reason why it should include such a suggestion,” said the banker.
Banks have also said the proposal to implement Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act) to reclaim assets will delay the recovery process which in turn depreciates the value of the asset.
“Under Sarfaesi the bank will have to wait for 90 days which means three installments before it can pursue the defaulter. The bank will also have to send the borrower an official letter before taking any action. This causes delay in recovery and the value of the asset also depreciates,” said a banker.
Monday, April 14, 2008
RBI’s lowering of risk weight age can make reverse mortgage cheaper
It is being considered that the reverse mortgage loans might become cheaper if the Reserve Bank of India (RBI) agrees to lower the risk weight age on such loans. Though there is some uncertainty is persisting whether the reverse mortgages should be treated as personal loans or as retail loans.
As per the sources Indian Banks’ Association has sought clarification from RBI on this. According to capital adequacy rules, on a loan of Rs 100, a bank has to keep aside Rs 9 as capital if the risk weight age is 100%. However, the capital that needs to be set aside could be lower if the risk weight age is lowered.
As per current guidelines banks have to allocate a risk weight age of 125% point on the personal loan against 75% on retail loans. As reverse mortgages are loans which will be taken by individuals and the borrowed amount will be lower in the range of Rs 1 lakh to Rs 50 lakh which can fall in personal loan category.
At present any general purpose loan taken by an individual is treated as a ‘personal loan’ as the borrower need not disclose the purpose — unlike in housing or education which is also given to individuals but for a specific purpose.
Bankers are of view that instead of classifying reverse mortgage as personal loans, these should be encouraged by granting it the main concern sector status because the scheme has social purpose attached to it. Moreover the loan does not generate any income for the bank for 15 years. In case the bank has to sell the property on the death of the borrower, the profits in excess of the loan amount are given to the nominee.
Under the scheme, senior citizens can consider earning a monthly income by taking a loan against their home from a housing finance company (HFC) or a bank their home with a housing finance company (HFC) or a bank even while they continues to occupy the house for lifetime. The borrower is not required to service the loan during his lifetime or make monthly payments.
On the borrower’s death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property. Alternatively, the borrower or its heir can repay or prepay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.
All banks are charging a fixed rate, subject to a reset after five years. SBI has a margin of 10%, but it is charging 10.75%, PNB is charging 10% and a margin of 20% and Allahabad Bank is charging 11% and a margin of 40%. Union Bank is charging 10% with a margin of 30%. The monthly installment paid to the customer will get the interest component. On the other hand the non-banks LIC Housing Finance and Dewan Housing have announced their reverse mortgage schemes.
As per the sources Indian Banks’ Association has sought clarification from RBI on this. According to capital adequacy rules, on a loan of Rs 100, a bank has to keep aside Rs 9 as capital if the risk weight age is 100%. However, the capital that needs to be set aside could be lower if the risk weight age is lowered.
As per current guidelines banks have to allocate a risk weight age of 125% point on the personal loan against 75% on retail loans. As reverse mortgages are loans which will be taken by individuals and the borrowed amount will be lower in the range of Rs 1 lakh to Rs 50 lakh which can fall in personal loan category.
At present any general purpose loan taken by an individual is treated as a ‘personal loan’ as the borrower need not disclose the purpose — unlike in housing or education which is also given to individuals but for a specific purpose.
Bankers are of view that instead of classifying reverse mortgage as personal loans, these should be encouraged by granting it the main concern sector status because the scheme has social purpose attached to it. Moreover the loan does not generate any income for the bank for 15 years. In case the bank has to sell the property on the death of the borrower, the profits in excess of the loan amount are given to the nominee.
Under the scheme, senior citizens can consider earning a monthly income by taking a loan against their home from a housing finance company (HFC) or a bank their home with a housing finance company (HFC) or a bank even while they continues to occupy the house for lifetime. The borrower is not required to service the loan during his lifetime or make monthly payments.
On the borrower’s death or on the borrower leaving the house property permanently, the loan is repaid along with accumulated interest, through sale of the house property. Alternatively, the borrower or its heir can repay or prepay the loan with accumulated interest and have the mortgage released without resorting to sale of the property.
All banks are charging a fixed rate, subject to a reset after five years. SBI has a margin of 10%, but it is charging 10.75%, PNB is charging 10% and a margin of 20% and Allahabad Bank is charging 11% and a margin of 40%. Union Bank is charging 10% with a margin of 30%. The monthly installment paid to the customer will get the interest component. On the other hand the non-banks LIC Housing Finance and Dewan Housing have announced their reverse mortgage schemes.
Wednesday, April 9, 2008
RBI rule out Banks can’t take stocks as security
Recently there have been significant changes in the stock market index. The sensex index went down to an unbelievable point its mark can be seen on the Indian economy. Due to this instability in the stock market has forced the Reserve Bank of India (RBI) to change the rules of banking.
The regulator has instructed the banks that seeing the frequent changes in the sensex index banks can no longer regard stocks as security against loans for calculating the capital adequacy ratio, the minimum capital that banks have to set aside to give loans.
Bankers said the change in the rule is not only going to affect corporate planning to raise long-term loans but also investors and brokers who borrow money against shares. With CAR being at 9% now, a bank has to keep aside Rs 9 capital for a Rs 100-loan which carries a risk weight age of 100%.
A lower risk weight age, which varies from 20% to as high as 150% means lower capital. Till now, if shares worth Rs 60 are guaranteed for a loan of Rs 100, banks have to give capital for the balance Rs 40, depending on the rating of the borrower. Now, even if shares are given as security, banks have to keep aside capital for the entire loan of Rs 100.
Thus according to new norms banks have to keep aside more capital. The central bank has pointed this while giving clarification on certain issues relating to Basel II, the second set of norms that measure the quantum and nature of risk banks can take.
RBI has doubts that a down fall in the market can seriously wear away the value of security held by banks. Since its new high, the BSE Sensex has fallen 30% till date to 15,587 in a period of two and half months.
After this the banks have to recalculate the CAR and keep aside more capital than they had expected earlier during the year. “The earlier guidelines on the Basel II norm issued in April 2007 said that equity can be considered as collateral. But a March 2008 circular from RBI has de recognized equity as collaratoral,” said a senior bank manager in charge of risk management.
Since equity is not included in the list of securities, several banks had to take up the matter with RBI. Borrowers, specially those taking loans for their major projects, will have to arrange for other forms of security.
However in case of projects like road and port done on a built operate and transfer basis, promoters tend to guarantee their equity stake. In case of telecom, company keeps equity besides cell sites as collateral.
Already the capital charge under Basel II (which comes into effect from March 2008) is far stricter than in case of Basel I. A PSU bank chief said under the Basel I norm, equity was not recognized as collateral. “Thus we are back to square one. Some relaxations which were thrown in Basel II have now been taken away”.
The regulator has instructed the banks that seeing the frequent changes in the sensex index banks can no longer regard stocks as security against loans for calculating the capital adequacy ratio, the minimum capital that banks have to set aside to give loans.
Bankers said the change in the rule is not only going to affect corporate planning to raise long-term loans but also investors and brokers who borrow money against shares. With CAR being at 9% now, a bank has to keep aside Rs 9 capital for a Rs 100-loan which carries a risk weight age of 100%.
A lower risk weight age, which varies from 20% to as high as 150% means lower capital. Till now, if shares worth Rs 60 are guaranteed for a loan of Rs 100, banks have to give capital for the balance Rs 40, depending on the rating of the borrower. Now, even if shares are given as security, banks have to keep aside capital for the entire loan of Rs 100.
Thus according to new norms banks have to keep aside more capital. The central bank has pointed this while giving clarification on certain issues relating to Basel II, the second set of norms that measure the quantum and nature of risk banks can take.
RBI has doubts that a down fall in the market can seriously wear away the value of security held by banks. Since its new high, the BSE Sensex has fallen 30% till date to 15,587 in a period of two and half months.
After this the banks have to recalculate the CAR and keep aside more capital than they had expected earlier during the year. “The earlier guidelines on the Basel II norm issued in April 2007 said that equity can be considered as collateral. But a March 2008 circular from RBI has de recognized equity as collaratoral,” said a senior bank manager in charge of risk management.
Since equity is not included in the list of securities, several banks had to take up the matter with RBI. Borrowers, specially those taking loans for their major projects, will have to arrange for other forms of security.
However in case of projects like road and port done on a built operate and transfer basis, promoters tend to guarantee their equity stake. In case of telecom, company keeps equity besides cell sites as collateral.
Already the capital charge under Basel II (which comes into effect from March 2008) is far stricter than in case of Basel I. A PSU bank chief said under the Basel I norm, equity was not recognized as collateral. “Thus we are back to square one. Some relaxations which were thrown in Basel II have now been taken away”.
Monday, April 7, 2008
RBI might hike in their indicative rates
The wholesale price index (WPI) is going up bringing difficulties for the Centre due to this RBI might be forced to make hikes in their indicative rates. This means more trouble for the consumers.
For instance Puneet Lakhotia, 26, an employee with a multinational bank made plans to buy a flat before getting married in the next one year. The only problem is he cannot find a suitable house that fits his budget. In the last three months, when banks started reducing their home loan rates, he thought soon he will be able to purchase a flat.
But, the recent rise in the inflation numbers has made him think again as the Reserve Bank of India (RBI) might hike the indicative rates in the upcoming credit policy. At the moment, he is hoping for decrease in property prices.
On the other hand Chetan Tandel was planning to replace his father’s 1992 model Maruti 800 for a better car. But he has postponed his decision because he fears that the household budget could get hit, if he opts for a car loan.
Certainly these are signs that the Indian consumer is not so strong-willed about the prospects of the economy.
Since January, what many people feared of has actually happened. The Sensex has slipped from the peak of 21,000 to 15,500. Add to that an inflation rate of 7 per cent and fears that interest rates are likely to stay firm or worse, even rise in the next few months is quite scary.
According to Madan Sabnavis, chief economist, NCDEX, “Though the rise in inflation is due to supply side constraints, I expect some hike in the cash reserve ratio (CRR) or reverse repo in the upcoming credit policy.”
There are clear indications that in coming day’s consumers have to face more trouble. For a new home buyer like Lakhotia, have to keep fingers cross and pray for some divine intervention. Otherwise, the finances will have to be stretched severely to purchase that “home”.
In case, it is your first home, most financial experts might tell you that it’s best if you do not delay the decision. “Negative sentiments are there, but there is no reason to delay buying because these sentiments balance themselves out over the years,” says a certified financial planner.
Jitendra Balakrishnan, deputy managing director, IDBI Bank said, “Even if there is a CRR hike of 0.25 to .5 per cent, it will not dampen the spirits of the consumer because these small hikes are built into the home loan tenure. So, the monthly outgo from the buyer’s pocket remains the same.”
There is a word of caution from financial planners for the ones who are seeking to take loan that one should not expose oneself to too much risk, even while taking a home loan. Try and limit your home loan to 40-50 per cent of the monthly take-home salary. In fact, if possible, limit your entire credit to a maximum of 50 per cent of salary.
As many home buyers have found themselves in deep trouble because of the rise in the interest rates in the last few years. Some actually bared the pressure of home loan equated monthly installments (EMIs) rising by 10 to 20 per cent, if the tenures were not tinkered with. And with the interest outlook being firm in the next six months, it is best if you do not increase the pressure on yourself.
“A lot of professionals, in the last two years, have found their financial planning going completely haywire because of the rise in the interest rates. In fact, a couple of my clients had to tap into their investment money to pay the EMIs,” adds another financial planner. For the investor in property, the advice is clear.
One should wait and watch for the next six months. Though with credit off take down by 6 per cent, from 23.8 per cent to 17.8 per cent (between March 15, 2007 and March 15, 2008) in the last financial year, there is sure to be some pressure on property prices. Most feel that in six months, there is a strong probability that there would be some correction on that front. There is a word of advice for car buyers through loans, to delay doing the deed.
“If you are taking a car loan to fund the car, then it is best if you wait for sometime,” says financial planner Gaurav Mashruwala. The best thing you can do at this point in time is not take any kind of loans. So, even a summer holiday funded through a loan is a definite no-no.
In short spending decisions have to be considered carefully, especially, as the stock markets are not giving great returns at this point in time. And rising interest rates and inflation will further consume your salary.
For instance Puneet Lakhotia, 26, an employee with a multinational bank made plans to buy a flat before getting married in the next one year. The only problem is he cannot find a suitable house that fits his budget. In the last three months, when banks started reducing their home loan rates, he thought soon he will be able to purchase a flat.
But, the recent rise in the inflation numbers has made him think again as the Reserve Bank of India (RBI) might hike the indicative rates in the upcoming credit policy. At the moment, he is hoping for decrease in property prices.
On the other hand Chetan Tandel was planning to replace his father’s 1992 model Maruti 800 for a better car. But he has postponed his decision because he fears that the household budget could get hit, if he opts for a car loan.
Certainly these are signs that the Indian consumer is not so strong-willed about the prospects of the economy.
Since January, what many people feared of has actually happened. The Sensex has slipped from the peak of 21,000 to 15,500. Add to that an inflation rate of 7 per cent and fears that interest rates are likely to stay firm or worse, even rise in the next few months is quite scary.
According to Madan Sabnavis, chief economist, NCDEX, “Though the rise in inflation is due to supply side constraints, I expect some hike in the cash reserve ratio (CRR) or reverse repo in the upcoming credit policy.”
There are clear indications that in coming day’s consumers have to face more trouble. For a new home buyer like Lakhotia, have to keep fingers cross and pray for some divine intervention. Otherwise, the finances will have to be stretched severely to purchase that “home”.
In case, it is your first home, most financial experts might tell you that it’s best if you do not delay the decision. “Negative sentiments are there, but there is no reason to delay buying because these sentiments balance themselves out over the years,” says a certified financial planner.
Jitendra Balakrishnan, deputy managing director, IDBI Bank said, “Even if there is a CRR hike of 0.25 to .5 per cent, it will not dampen the spirits of the consumer because these small hikes are built into the home loan tenure. So, the monthly outgo from the buyer’s pocket remains the same.”
There is a word of caution from financial planners for the ones who are seeking to take loan that one should not expose oneself to too much risk, even while taking a home loan. Try and limit your home loan to 40-50 per cent of the monthly take-home salary. In fact, if possible, limit your entire credit to a maximum of 50 per cent of salary.
As many home buyers have found themselves in deep trouble because of the rise in the interest rates in the last few years. Some actually bared the pressure of home loan equated monthly installments (EMIs) rising by 10 to 20 per cent, if the tenures were not tinkered with. And with the interest outlook being firm in the next six months, it is best if you do not increase the pressure on yourself.
“A lot of professionals, in the last two years, have found their financial planning going completely haywire because of the rise in the interest rates. In fact, a couple of my clients had to tap into their investment money to pay the EMIs,” adds another financial planner. For the investor in property, the advice is clear.
One should wait and watch for the next six months. Though with credit off take down by 6 per cent, from 23.8 per cent to 17.8 per cent (between March 15, 2007 and March 15, 2008) in the last financial year, there is sure to be some pressure on property prices. Most feel that in six months, there is a strong probability that there would be some correction on that front. There is a word of advice for car buyers through loans, to delay doing the deed.
“If you are taking a car loan to fund the car, then it is best if you wait for sometime,” says financial planner Gaurav Mashruwala. The best thing you can do at this point in time is not take any kind of loans. So, even a summer holiday funded through a loan is a definite no-no.
In short spending decisions have to be considered carefully, especially, as the stock markets are not giving great returns at this point in time. And rising interest rates and inflation will further consume your salary.
Saturday, April 5, 2008
RBI suggests banks to form (FLCCs) in both rural and urban India
The Reserve Bank of India has drafted a document in which it has suggested the banks to form financial literacy and counseling centers (FLCCs) in both rural and urban India, which would provide free counseling to people.
The draft if put into practice will take forward the current credit counseling plans by some banks, namely Bank of India’s Abhay, ICICI Bank’s Disha Trust and Bank of Baroda’s Grameen Paramarsh Kendras.
According to the RBI draft the counseling centers should be able to take up a case on behalf of the customer. “There is a need for credit counseling centers to be empowered for liaising and negotiating with banks on behalf of their customers,” it says.
The central bank said offering credit counseling can be made a part of fair lending code for banks in due course. Even the threat of recovery agent can be delt with through the credit counseling centers. “RBI may sensitize banks to give due consideration to the debt management plan prepared by such FLCCs before resorting to recovery measures,” it said.
Regarding the single-creditor-debts the RBI said, “The FLCCs could assist the borrower in negotiating with the bank concerned. In case of multiple credits availed of by individuals, the FLCCs may negotiate with the bank/s having the largest exposure to restructure the debt and the recoveries to be shared on a pro-rata basis.”
But their work stops there: “The FLCCs would, however, not involve themselves in recovering and distributing money. This would be left to the bank concerned, or the bank having the largest exposure to act on behalf of all the banks.”
The main aim of behind the setting up of financial literacy and counseling centers is to bring in more farmers into the organized borrowing ambit, instead of money lenders, who charge a high interest rate.
Whereas in the urban sector, “The aggressive marketing of personal loans and credit cards to vulnerable section of borrowers could also have consequences of over- indebtedness and rising NPAs,” RBI said.
Mean while, when the banks set up such credit counseling centers an appropriate ‘firewall’ should be there between a bank and the counseling centre set up by it. “Financial education should be clearly distinguished from commercial advice; codes of conduct for the staff of financial institutions should be developed.”
The draft has been posted on the RBI’s bank website for the public comments and suggestions. The site is open for public comments and suggestions till April 30, 2008.
The draft if put into practice will take forward the current credit counseling plans by some banks, namely Bank of India’s Abhay, ICICI Bank’s Disha Trust and Bank of Baroda’s Grameen Paramarsh Kendras.
According to the RBI draft the counseling centers should be able to take up a case on behalf of the customer. “There is a need for credit counseling centers to be empowered for liaising and negotiating with banks on behalf of their customers,” it says.
The central bank said offering credit counseling can be made a part of fair lending code for banks in due course. Even the threat of recovery agent can be delt with through the credit counseling centers. “RBI may sensitize banks to give due consideration to the debt management plan prepared by such FLCCs before resorting to recovery measures,” it said.
Regarding the single-creditor-debts the RBI said, “The FLCCs could assist the borrower in negotiating with the bank concerned. In case of multiple credits availed of by individuals, the FLCCs may negotiate with the bank/s having the largest exposure to restructure the debt and the recoveries to be shared on a pro-rata basis.”
But their work stops there: “The FLCCs would, however, not involve themselves in recovering and distributing money. This would be left to the bank concerned, or the bank having the largest exposure to act on behalf of all the banks.”
The main aim of behind the setting up of financial literacy and counseling centers is to bring in more farmers into the organized borrowing ambit, instead of money lenders, who charge a high interest rate.
Whereas in the urban sector, “The aggressive marketing of personal loans and credit cards to vulnerable section of borrowers could also have consequences of over- indebtedness and rising NPAs,” RBI said.
Mean while, when the banks set up such credit counseling centers an appropriate ‘firewall’ should be there between a bank and the counseling centre set up by it. “Financial education should be clearly distinguished from commercial advice; codes of conduct for the staff of financial institutions should be developed.”
The draft has been posted on the RBI’s bank website for the public comments and suggestions. The site is open for public comments and suggestions till April 30, 2008.
Wednesday, April 2, 2008
Bankers ask RBI to give more time to adhere to Basel II norms
On Tuesday in Mumbai in the pre-credit policy meeting of the bankers with the RBI, the bankers have asked the Reserve Bank of India (RBI) to give more time to completely stick on to the Basel II norms which come into effect from fiscal year 2007-08.
RBI, on April 29 will be announcing credit policy, before the announcement of the policy the RBI officials met the CEOs of large commercial banks — PSU, private and foreign — to take into account their views on the economy.
According to the Basel II norms, for March 2008, banks have to set aside capital for the loan that is sanctioned, but not availed by the borrower. The risk weight-age is 20% for short-term unavailed limits and 50% for long-term unavailed limits. With this the banks’ capital adequacy ratio (CAR) will be affected. In this context, banks have asked the banking regulator to give them additional time to stick on to these guidelines.
In the meeting the bankers also took the rising inflation issue and the slowdown in the economy. Central bank officials had asked senior bankers their opinion on liquidity, interest rate and credit growth.
According to sources Citigroup country head Sanjay Nayar made presentation to the regulator on perception of overseas markets about India. He pointed that investors from developed countries like the US and Hong Kong are not worried about the recent developments in India. He said that they are of the view that the Indian market has seen correction.
In the meeting issue regarding fall in the foreign currency non-resident (FNCR) deposits was also raised by some bankers. This, they said, is due to the cap on the interest rate that is fixed by the central bank. Currently, banks can offer Libor minus 25 basis point on such deposits. FCNR deposits unable banks to lend in foreign currency. They also called upon RBI to tinker the reshipment policy.
The meeting was attended by State Bank of India chairman OP Bhatt, ICICI Bank CEO KV Kamath, Citigroup country head Sanjay Nayar, Canara Bank chairman and managing director MBN Rao, Bank of India CMD TS Narayanasami and Indian Banks’ Association CEO HN Sinor.
Among top RBI officials meeting was attended by Governor YV Reddy, four deputy governors — V Leeladhar, Rakesh Mohan, Usha Thorat and Shyamala Gopinath. Also, senior officials from monetary policy department were present.
RBI, on April 29 will be announcing credit policy, before the announcement of the policy the RBI officials met the CEOs of large commercial banks — PSU, private and foreign — to take into account their views on the economy.
According to the Basel II norms, for March 2008, banks have to set aside capital for the loan that is sanctioned, but not availed by the borrower. The risk weight-age is 20% for short-term unavailed limits and 50% for long-term unavailed limits. With this the banks’ capital adequacy ratio (CAR) will be affected. In this context, banks have asked the banking regulator to give them additional time to stick on to these guidelines.
In the meeting the bankers also took the rising inflation issue and the slowdown in the economy. Central bank officials had asked senior bankers their opinion on liquidity, interest rate and credit growth.
According to sources Citigroup country head Sanjay Nayar made presentation to the regulator on perception of overseas markets about India. He pointed that investors from developed countries like the US and Hong Kong are not worried about the recent developments in India. He said that they are of the view that the Indian market has seen correction.
In the meeting issue regarding fall in the foreign currency non-resident (FNCR) deposits was also raised by some bankers. This, they said, is due to the cap on the interest rate that is fixed by the central bank. Currently, banks can offer Libor minus 25 basis point on such deposits. FCNR deposits unable banks to lend in foreign currency. They also called upon RBI to tinker the reshipment policy.
The meeting was attended by State Bank of India chairman OP Bhatt, ICICI Bank CEO KV Kamath, Citigroup country head Sanjay Nayar, Canara Bank chairman and managing director MBN Rao, Bank of India CMD TS Narayanasami and Indian Banks’ Association CEO HN Sinor.
Among top RBI officials meeting was attended by Governor YV Reddy, four deputy governors — V Leeladhar, Rakesh Mohan, Usha Thorat and Shyamala Gopinath. Also, senior officials from monetary policy department were present.
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