Bankers expressing their views on the Reserve Bank of India's move to hike the cash reserve ratio by 75 basis points have said it “has been a pleasant surprise and a master stroke.”
Different reactions were given by high officials of various banks on RBI’s move.
The Executive Director of City Union Bank, Mr N. Kamakodi, pointed out, “The banking regulator has proved that it is acting independently. We all thought unilaterally, but the RBI's master stroke has been in not increasing the interest cost while maintaining its cool on inflationary pressures.”
“Every bank had surplus liquidity throughout the year. So, the increase in CRR would only siphon out the excess liquidity in the system.”
According to Karur Vysya Bank Managing Director, Mr P.T. Kuppuswamy, they were expecting hike in CRR and the market had already discounted it. “It is an appropriate measure,” he said.
Dr V. A. Joseph, Managing Director and Chief Executive Officer, South Indian Bank, while expressing his views said, “Though a hike in CRR was expected, the 75 bps hike is slightly more than our expectation.” However he welcomed the reduction in credit growth targets from 18 to 16 per cent. He further added, “Credit growth differs from bank to bank. The current fiscal has, in fact, been the best year for us, so far as credit growth is concerned. We grew at 22 per cent. And considering the current growth pace, we will be able to achieve 25 per cent growth”.
When enquired how this hike would impact their bottom line, all of them replied, “It will not impact us. The impact if at all would be virtually low.”
Mr Neeraj Swaroop, Regional Chief Executive, India & S. Asia, Standard Chartered Bank said, “The RBI has adopted the right balance for managing inflationary expectations, while supporting a robust economic recovery. The 75 basis point hike in the CRR, the largest-ever increase, is a strong indication of the central bank's growing confidence in a recovery. In view of this, the move clearly indicates the beginning of monetary policy normalization. The central bank is adopting a calibrated approach towards normalization as liquidity management is essential for possible interest rate increases to be fully effective. Liquidity management also helps manage the two challenges we can foresee for the near future. One is keeping inflationary expectations in check. The other is managing liquidity as capital inflows could swell necessitating liquidity tightening while ensuring enough to support a potentially large government borrowing program.”
Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, pointed out, “Though the 75 bps increase in CRR is more than what we expected, it may not immediately impact lending to retail, MSME and agriculture, among others. Broadly the PLR would not be touched. However, there is scope of some tweaking sub-PLR lending which may be made more moderate.''
Ms Renu Challu, Managing Director, State Bank of Hyderabad said, “The RBI move was largely expected. By hiking CRR, the RBI has sent a signal that it is the end of easy money regime. The interest rates should start hardening now as the banks would face some tighter liquidity conditions to the extent of the rise in CRR.''
According to Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of Karnataka Bank Ltd, the RBI has done a balancing act. Giving his views he said the hike of 75 basis points in CRR might speed up credit release and, as there is enough of liquidity available in the system at present banks might not increase the interest rates.
Thursday, February 4, 2010
Tuesday, January 19, 2010
Soon RBI to allow withdrawing money using prepaid cards from PoS terminals
It is expected the Reserve Bank of India (RBI) will allow withdraw money from the point of sale (PoS) terminals using prepaid cards issued by banks.
A senior executive of a public sector bank said, “RBI is considering allowing open loop cards to withdraw money from a PoS terminal. RBI is working on issues, like the amount a PoS owner should charge. The decision may come soon.”
There are three types of prepaid cards. The prepaid cards issued by banks are generally open loop cards whereas the cards issued by non-banking finance companies (NBFCs) are semi-closed loop cards such as telecom companies issuing prepaid vouchers, and the gift vouchers issued by firms are close loop cards. However last year, RBI had brought close and semi-closed loop cards under the Payments and Settlement Act.
At present there are around 4.7 million PoS terminals in the country. Recently ICICI Bank has signed an agreement with First Data to set up PoS terminals.
A PoS terminal is mainly used to swipe card for payment of sale and purchase transaction, where as you can use ATM for several other services like balance enquiry.
In case of PoS the banks pays charges which are divided between card-issuing bank, the bank that owns the PoS terminal, the payment company, Mastercard or Visa, and the place where the PoS terminal is located.
Sachin Khandewal, senior general manager, ICICI Bank said, “We expect the growth to be around 50-70 per cent in the coming years. There is a huge potential in this industry, as it efficiently generates income for the issuers.”
A senior executive of a public sector bank said, “RBI is considering allowing open loop cards to withdraw money from a PoS terminal. RBI is working on issues, like the amount a PoS owner should charge. The decision may come soon.”
There are three types of prepaid cards. The prepaid cards issued by banks are generally open loop cards whereas the cards issued by non-banking finance companies (NBFCs) are semi-closed loop cards such as telecom companies issuing prepaid vouchers, and the gift vouchers issued by firms are close loop cards. However last year, RBI had brought close and semi-closed loop cards under the Payments and Settlement Act.
At present there are around 4.7 million PoS terminals in the country. Recently ICICI Bank has signed an agreement with First Data to set up PoS terminals.
A PoS terminal is mainly used to swipe card for payment of sale and purchase transaction, where as you can use ATM for several other services like balance enquiry.
In case of PoS the banks pays charges which are divided between card-issuing bank, the bank that owns the PoS terminal, the payment company, Mastercard or Visa, and the place where the PoS terminal is located.
Sachin Khandewal, senior general manager, ICICI Bank said, “We expect the growth to be around 50-70 per cent in the coming years. There is a huge potential in this industry, as it efficiently generates income for the issuers.”
Monday, January 18, 2010
Banks to suggest RBI to reduce savings a/cs interest rate
Last year the Reserve Bank of India (RBI) had issued directives to the banks that the interest rates on saving accounts to be calculated on daily balances and the new directive is to be implemented by April 2010. Ahead of the deadline to implement RBI directive, the banks have requested RBI to lower interest rate on savings accounts to make possible for them to implement the new directives. RBI fixes the interest rate on savings accounts and at present banks are giving 3.5%.
At present the interest is calculated on the average amount maintained from the tenth to the last day of the month as a result the interest cost comes to less than 3.5%. For most banks, the interest cost ranges between 2.5% and 3%. As per new directives when the interest rate will be calculated on a daily basis, the cost of savings account deposit will be the interest rate on savings accounts.
A senior executive from a large PSU bank said, “Banks are of the view that the interest outgo will increase by 50-75 basis points, which could be compensated if they hike the lending rates by 25 basis points. But at the same time, banks would not be comfortable hiking rates only to make up for this. Instead, banks would prefer to wait for RBI signals to hike rates”. In the forthcoming meeting some banks are going to suggest to RBI to continue with the current system i.e. the interest is to be paid on the minimum amount maintained with them.
He added, “Banks will take up this matter with RBI in the forthcoming meeting scheduled on January 14”. RBI deputy governor Subir Gokarn will be meeting CEOs of large commercial banks on Thursday before the credit policy.
For banks Current and Savings Account Deposits (CASA) are the core deposits as these are low-cost lend able resources. The banks having higher ratio of CASA deposits are considered to be strong in comparison to those who are dependent on fixed deposits and wholesale funds. It is believed after April 1, banks with higher CASA deposits will get badly affected. The low-cost deposits comprise more than one-fourth of bank deposits. For instance, SBI CASA ratio is as high as 42%, ICICI Bank has a CASA of 37% whereas PNB ratio is around 40%.
Bankers are not in favor of implementation of new directives on savings rates as they fear that this can generate a rate war as up coming banks are hiking interest rates on savings accounts to grow market share.
At present the interest is calculated on the average amount maintained from the tenth to the last day of the month as a result the interest cost comes to less than 3.5%. For most banks, the interest cost ranges between 2.5% and 3%. As per new directives when the interest rate will be calculated on a daily basis, the cost of savings account deposit will be the interest rate on savings accounts.
A senior executive from a large PSU bank said, “Banks are of the view that the interest outgo will increase by 50-75 basis points, which could be compensated if they hike the lending rates by 25 basis points. But at the same time, banks would not be comfortable hiking rates only to make up for this. Instead, banks would prefer to wait for RBI signals to hike rates”. In the forthcoming meeting some banks are going to suggest to RBI to continue with the current system i.e. the interest is to be paid on the minimum amount maintained with them.
He added, “Banks will take up this matter with RBI in the forthcoming meeting scheduled on January 14”. RBI deputy governor Subir Gokarn will be meeting CEOs of large commercial banks on Thursday before the credit policy.
For banks Current and Savings Account Deposits (CASA) are the core deposits as these are low-cost lend able resources. The banks having higher ratio of CASA deposits are considered to be strong in comparison to those who are dependent on fixed deposits and wholesale funds. It is believed after April 1, banks with higher CASA deposits will get badly affected. The low-cost deposits comprise more than one-fourth of bank deposits. For instance, SBI CASA ratio is as high as 42%, ICICI Bank has a CASA of 37% whereas PNB ratio is around 40%.
Bankers are not in favor of implementation of new directives on savings rates as they fear that this can generate a rate war as up coming banks are hiking interest rates on savings accounts to grow market share.
Thursday, December 31, 2009
RBI reports Indian bank loans growth up by 11.25 percent
On Wednesday the Reserve Bank of India (RBI) released the provisional data according to which, this year up till December 18 the Indian bank loans had grown to about 11.25 percent.
As on Dec. 18 the outstanding on loans was high up to 2.94 trillion rupees as against 2.64 trillion a year ago. As of Dec. 4 the bank credit had grown up to10.5 per cent. The central bank will be giving final figures for the week to Dec. 18 in its weekly statistical supplement on Friday.
Deposits had risen up 17.85 percent from a year earlier. According to supplement banks’ investments in government approved securities have increased to 24.21 percent during the year.
As on Dec. 18 the outstanding on loans was high up to 2.94 trillion rupees as against 2.64 trillion a year ago. As of Dec. 4 the bank credit had grown up to10.5 per cent. The central bank will be giving final figures for the week to Dec. 18 in its weekly statistical supplement on Friday.
Deposits had risen up 17.85 percent from a year earlier. According to supplement banks’ investments in government approved securities have increased to 24.21 percent during the year.
Tuesday, December 29, 2009
Finance ministry floats draft paper on consolidation of PSU banks
Finally the finance ministry has prepared a discussion paper titled ‘Consolidation among public sector banks’ to sought out the issue of mergers of public sector banks. In this paper the ministry has drafted the guidelines for mergers of public sector banks. One of the major guideline mentioned in the paper is that the merger entity must get hold of 5 to 7 per cent market share across regions and should be able to establish a pan-India presence.
Other guidelines include that the merger banks must be IT compatible and have proper cultural fit.
The paper states at the time of merger one of two banks chief executive officer should be close to retirement as this will not lead to any type of clash at the top level.
In the paper out of the 19 public sector banks, besides the State Bank of India there are seven other banks have been classified as ‘strong’. These include Punjab National Bank, Bank of Baroda, Union Bank, Canara Bank and Bank of India, Corporation Bank and Vijaya Bank.
A finance ministry official pointed out, “Others have been left out of the ‘strong’ category based on various criteria, including levels of non-performing assets, capital adequacy and technology adoption.” He stated that the banks which have been included in the list do not mean they are ‘weak’ banks but they have to improve in some aspects of their functioning.
With the heads of some ‘string’ banks discussion on guidelines has already been done. Soon the discussion will be taken up with other banks also.
The paper points out it is mandatory that the IT networks of the merger banks should be compatible or one of them must have approved superior technology platform which will be adapted by the other bank in the due course of merger.
Then merging banks should do a proper assessment of the cultural fit of their staff. Giving an example the paper stated the Canara Bank staff are ‘homogenous’, whereas Mumbai-based banks such as Bank of Baroda, Union Bank and Bank of India have a more cosmopolitan staff mix.
The paper has pointed out the rigour of the dozen-odd steps that banks required to go through, at the time of merger process until the final consummation. Some of them are both the merger banks have to prepare proposals and get it approved by their boards, getting consent from the government, carrying out detailed due carefully, evaluation of agreement should be done as per Reserve Bank of India and Securities & Exchange Board of India guidelines, to advertise about merger in newspapers and get the approval of shareholders.
The ministry official clearly stated that the initiative for mergers has to come from banks. “We will act as a facilitator.” At present no merger proposal is pending with the government.
Recently Finance minister Pranab Mukherjee had told the Parliament that the government will not interfere in the working nor any directive issued to any bank for merger or consolidation.
An anonymous chairman and managing director of a large public sector bank told Financial Chronicle the discussion has been done with the government on the issues in the paper. The chairman told, “We told the government that, to begin with, the stronger banks should merge, especially those which have a better cultural fit. Our advice is that all aspects should be evaluated beforehand so that, once the merger process is initiated by two banks, it should be taken to its logical conclusion. Any mid-course failure will send wrong signals.”
Other guidelines include that the merger banks must be IT compatible and have proper cultural fit.
The paper states at the time of merger one of two banks chief executive officer should be close to retirement as this will not lead to any type of clash at the top level.
In the paper out of the 19 public sector banks, besides the State Bank of India there are seven other banks have been classified as ‘strong’. These include Punjab National Bank, Bank of Baroda, Union Bank, Canara Bank and Bank of India, Corporation Bank and Vijaya Bank.
A finance ministry official pointed out, “Others have been left out of the ‘strong’ category based on various criteria, including levels of non-performing assets, capital adequacy and technology adoption.” He stated that the banks which have been included in the list do not mean they are ‘weak’ banks but they have to improve in some aspects of their functioning.
With the heads of some ‘string’ banks discussion on guidelines has already been done. Soon the discussion will be taken up with other banks also.
The paper points out it is mandatory that the IT networks of the merger banks should be compatible or one of them must have approved superior technology platform which will be adapted by the other bank in the due course of merger.
Then merging banks should do a proper assessment of the cultural fit of their staff. Giving an example the paper stated the Canara Bank staff are ‘homogenous’, whereas Mumbai-based banks such as Bank of Baroda, Union Bank and Bank of India have a more cosmopolitan staff mix.
The paper has pointed out the rigour of the dozen-odd steps that banks required to go through, at the time of merger process until the final consummation. Some of them are both the merger banks have to prepare proposals and get it approved by their boards, getting consent from the government, carrying out detailed due carefully, evaluation of agreement should be done as per Reserve Bank of India and Securities & Exchange Board of India guidelines, to advertise about merger in newspapers and get the approval of shareholders.
The ministry official clearly stated that the initiative for mergers has to come from banks. “We will act as a facilitator.” At present no merger proposal is pending with the government.
Recently Finance minister Pranab Mukherjee had told the Parliament that the government will not interfere in the working nor any directive issued to any bank for merger or consolidation.
An anonymous chairman and managing director of a large public sector bank told Financial Chronicle the discussion has been done with the government on the issues in the paper. The chairman told, “We told the government that, to begin with, the stronger banks should merge, especially those which have a better cultural fit. Our advice is that all aspects should be evaluated beforehand so that, once the merger process is initiated by two banks, it should be taken to its logical conclusion. Any mid-course failure will send wrong signals.”
Monday, December 28, 2009
RBI amended mobile banking guidelines increased transaction limit
The Reserve Bank of India has relaxed mobile banking guidelines in order to boost it.
Some of the leading telecom companies like Bharti Airtel are active in taking up pilot project for mobile banking.
The mobile number of users is four and a half times the total number of bank accounts in this country, therefore mobile banking is being largely looked at as a good option for providing transfer facility across the length and breadth.
Some of the operative parts of these guidelines which were introduced after the October 2008 circular and have been amended to a large extent are:
Now RBI has increased the daily transaction limit to Rs 50,000 per customer for both funds transfer as well as transactions which involve purchases of goods and services. At present the transactions are limited to Rs 5,000 and 10,000 respectively.
Secondly, RBI has also relaxed the technology and security standards and banks have been permitted to undertake transactions up to Rs 1,000 without end to end encryption. This way in some of the cost of transaction will be reduced.
The remittance of funds for disbursements in cash is the other major feature of the circular. This feature is directly related to facilitating the use of mobile for cash. In India around 90% of the user base has prepaid mobile phones thus the cash transaction is preferred where user puts in money, gets the credit and uses it.
However mobile phone companies are having discussions for extending this facility for direct transfer in case the individual is staying in Delhi and adds Rs 1,000 the money can be delivered somewhere in the hinterland of Bihar or UP
For this RBI has stated that there are separate guidelines for disbursal of these funds. The maximum amount of these transactions will be Rs 5,000 per transaction to which banks are permitted to put a cap on the rapidity of such transactions subject to a maximum of Rs 25,000 per month per customer. The funds can be transferred through both, an agent or an ATM.
As it is not possible to go to ATM easily and the number of ATMs is also less in some of parts of the country, large parts of the country particularly rural and suburban areas do not have access to ATMs. Thus banks can appoint agents for such transfers.
Then some of the agents can be mobile operators, the service providers and the handset resellers in the hinterland.
According to bankers this can help in financial inclusion in a big way. Also, this will take over from retail payment from cash and cheque based transaction to mobile based transaction which will be convenient and will also reduce the cost.
The bankers said these guidelines are mainly focused on metros. If they were able to get hold of this market, it will increase in transactions. Currently in India, transactions through mobiles are of not importance. Therefore these guidelines can boost the overall transactions.
Thus these guidelines are being looked as most important factor and companies like Bharti Airtel among others will be benefited from this proposal giving them reason to cheer.
Some of the leading telecom companies like Bharti Airtel are active in taking up pilot project for mobile banking.
The mobile number of users is four and a half times the total number of bank accounts in this country, therefore mobile banking is being largely looked at as a good option for providing transfer facility across the length and breadth.
Some of the operative parts of these guidelines which were introduced after the October 2008 circular and have been amended to a large extent are:
Now RBI has increased the daily transaction limit to Rs 50,000 per customer for both funds transfer as well as transactions which involve purchases of goods and services. At present the transactions are limited to Rs 5,000 and 10,000 respectively.
Secondly, RBI has also relaxed the technology and security standards and banks have been permitted to undertake transactions up to Rs 1,000 without end to end encryption. This way in some of the cost of transaction will be reduced.
The remittance of funds for disbursements in cash is the other major feature of the circular. This feature is directly related to facilitating the use of mobile for cash. In India around 90% of the user base has prepaid mobile phones thus the cash transaction is preferred where user puts in money, gets the credit and uses it.
However mobile phone companies are having discussions for extending this facility for direct transfer in case the individual is staying in Delhi and adds Rs 1,000 the money can be delivered somewhere in the hinterland of Bihar or UP
For this RBI has stated that there are separate guidelines for disbursal of these funds. The maximum amount of these transactions will be Rs 5,000 per transaction to which banks are permitted to put a cap on the rapidity of such transactions subject to a maximum of Rs 25,000 per month per customer. The funds can be transferred through both, an agent or an ATM.
As it is not possible to go to ATM easily and the number of ATMs is also less in some of parts of the country, large parts of the country particularly rural and suburban areas do not have access to ATMs. Thus banks can appoint agents for such transfers.
Then some of the agents can be mobile operators, the service providers and the handset resellers in the hinterland.
According to bankers this can help in financial inclusion in a big way. Also, this will take over from retail payment from cash and cheque based transaction to mobile based transaction which will be convenient and will also reduce the cost.
The bankers said these guidelines are mainly focused on metros. If they were able to get hold of this market, it will increase in transactions. Currently in India, transactions through mobiles are of not importance. Therefore these guidelines can boost the overall transactions.
Thus these guidelines are being looked as most important factor and companies like Bharti Airtel among others will be benefited from this proposal giving them reason to cheer.
Monday, December 7, 2009
SBI launched SBI Freedom, a telephone banking facility in Chandigarh
In India public sector banks (PSBs) have steady customer base. The Reserve Bank of India the regulatory body of the banking system has given permission to one of the PSB to introduce telephone banking facility so that banks can offer latest facility to their customers.
On Friday State Bank of India launched a service called SBI Freedom, and the facility is fully functional in its Chandigarh circle.
Currently PSBs are offering internet banking facility to their customers and many of them have linked their branches through the internet.
The bank’s chief general manager for the circle, SK Sehgal, said, “With this launch, our customers will be able to use facilities like balance enquiry, mini statement, fund transfer, cheque book issuance, mobile recharge and bill payment at any time and place through the use of their cell phones. We are also working at adding rail and air ticket booking and shopping to this service.” In the beginning this facility will be available only on Java-enabled mobile phones with GPRS connections. Sources said services for other phones are under process.
The bank has set a limit of Rs 5,000 for daily fund transfers and Rs 10,000 for bill payments.
To enable the services the customers can get the software installed at any of the bank’s branches for free through Bluetooth technology.
An SBI official told, “A customer is registered when he or she sends an SMS to 567676 prefixed with the area code. The service is activated either after the password is verified at an ATM or by the bank branch when the customer appears in person. This makes the system foolproof”.
The official pointed out that people living in remote areas will be benefited the most from this service. “We also expect students to avail of the facility,” he added.
Out of the 30 lakh customers in Chandigarh circle, 7 lakh are expected to get subscribed to the new system.
Punjab National Bank’s Chandigarh circle head, AK Loomba, stated, “We are also working on developing this kind of a service. But first, we will try to understand its limitations.”
On Friday State Bank of India launched a service called SBI Freedom, and the facility is fully functional in its Chandigarh circle.
Currently PSBs are offering internet banking facility to their customers and many of them have linked their branches through the internet.
The bank’s chief general manager for the circle, SK Sehgal, said, “With this launch, our customers will be able to use facilities like balance enquiry, mini statement, fund transfer, cheque book issuance, mobile recharge and bill payment at any time and place through the use of their cell phones. We are also working at adding rail and air ticket booking and shopping to this service.” In the beginning this facility will be available only on Java-enabled mobile phones with GPRS connections. Sources said services for other phones are under process.
The bank has set a limit of Rs 5,000 for daily fund transfers and Rs 10,000 for bill payments.
To enable the services the customers can get the software installed at any of the bank’s branches for free through Bluetooth technology.
An SBI official told, “A customer is registered when he or she sends an SMS to 567676 prefixed with the area code. The service is activated either after the password is verified at an ATM or by the bank branch when the customer appears in person. This makes the system foolproof”.
The official pointed out that people living in remote areas will be benefited the most from this service. “We also expect students to avail of the facility,” he added.
Out of the 30 lakh customers in Chandigarh circle, 7 lakh are expected to get subscribed to the new system.
Punjab National Bank’s Chandigarh circle head, AK Loomba, stated, “We are also working on developing this kind of a service. But first, we will try to understand its limitations.”
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