30.12.2008

PNB slashes prime lending rate to 12%

Anticipating a further reduction in interest rates by the central bank, Punjab National Bank on Monday announced a 50 basis points cut in its benchmark prime lending rate from 12.5 per cent to 12 per cent with effect from January 1, 2009. With this, PNB’s lending rates will be the lowest among its peer banks. Currently, State Bank of India’s BPLR is the lowest among public sector banks, at 12.25 per cent. Bank of Baroda and Bank of India had last week announced cut in BPLR by 75 basis points to 12.5 per cent with effect from January 1. PNB had earlier cut BPLR from 14 per cent to 13.5 per cent with effect from November 1, 2008, and further to 12.5 per cent from December 1, along with reduction in retail lending rates. PNB is hopeful of maintaining its Net Interest Margin at 3.4-3.5 per cent, despite the reduction in rates, Dr Chakrabarty said. The cost of funds will go down by 100 basis points by the middle of next year,” he said. PNB also announced a cut in deposit rates by 100 basis points, from 9.5 to 8.5 per cent, for deposits of one year to less than three years. The aggressive reduction in deposit rates is corresponding to the cut in lending rates, he said. The bank also reduced interest on floating rates housing loans and fixed rate car loans by 50 basis points. Mumbai-based Dena Bank, too, announced a reduction of 75 basis points in its BPLR from 13.5 per cent to 12.75 per cent and a reduction of 25 to 100 basis points in deposits across maturities, with effect from January 1, 2009.

IDBI Banks cuts deposit rates

IDBI bank has reduced the interest rates on retail term deposit by 50-150 basis points in the maturity period of 46-90 days up to 10 years, with effect from January 1 and also realigned its maturity buckets. The bank is introducing a longer maturity term deposit of 1,100 days with interest rate for normal depositors at 9.5 per cent per annum and at 10 per cent per annum for senior citizens instead of the existing 890 term deposit. The new deposit is also available from January 1.

Banks resposible for delivery of ATM pin, card

In case of misuse of debit cards, banks cannot escape responsibility by saying that they have delivered the card and the personal identification number (PIN) at the address mentioned in the application. A bank customer has approached the Ombudsman with a complaint about withdrawal of funds through unauthorized use of his card. Though he did not receive the card, he found that Rs 25,000 was debited from his account. The Ombudsman, said that the card and PIN should have been delivered to the complainant in person or to his authorised representative only under his proper acknowledgement. The Ombudsman asked the bank to not only reimburse the Rs 25,000 withdrawn from the complainants account but also pay interest at savings bank rate and an additional amount to meet the expenses relating to follow-up of the complaint.

PSU banks’ unsecured loans up 41% in FY08

Unsecured loans by public sector banks grew 40.9% in FY08, higher than the growth recorded by private sector banks which collectively recorded a 39.7% growth during the same period. These loans typically comprise a host of personal loan products that are riskier than secured loans. They are predominantly advances to individuals and include small-ticket education loans, credit card receivables, loans against salaries and consumer durable loans. Notably, among the banks with a perceptible portfolio of unsecured loans, many smaller banks- private and public-have more than doubled their unsecured loan portfolio, like Allahabad Bank (140%), Central Bank of India (104%), Indian Overseas Bank (106%), Karur Vysya Bank (101%) and Catholic Syrian Bank (144%). As a whole, the banking sector extended Rs 5,72,160 crore as unsecured loans in FY08, up 41.6% from Rs 4,04,067 crore in FY07. In line with the industry trend, new-age banks like ICICI Bank (31%) and HDFC Bank (40%) also have recorded a steady growth of their unsecured loan portfolios. These loans carry higher risk weights but are often extended at a significant premium to the benchmark prime lending rates of a bank.

ATMs on wheels to help banks expand reach

Technology is expected to be a key enabler in meeting the banking needs of a large section of the population in India. Despite the large network of banks spread across rural areas, more than 50% of the population does not have access to formal financial services. With the RBI's directive for financial inclusion, banks are trying to reach the unbanked areas through channels such as biometrics, smart card technology and handheld devices. These technologies are helping banks expand both in urban and rural markets. One such interesting service is providing banking services at the doorstep through mobile automated telling machines (ATMs). The vans are equipped with a 42-inch plasma TV with a DVD player which can be used by the bank for informing its customers about various products and offerings. Services being offered on mobile ATMs include cash withdrawal, fund transfer, cash against credit cards, mobile recharge, balance inquiry, mini statement and utility payments.

FW: Eco Briefs - 28 & 29.12.08

NPA management biggest challenge for banks in 2009

After the global financial turmoil in 2008, Indian banks begin the new year with a lurking fear that their Non Performing Assets (NPA) would go up with their portfolios coming under severe stress. There is already a visible strain on consumer, credit card and vehicle loan portfolios and many banks have taken conscious decision to scale down their advances to risky sectors. Some banks have also revised their credit growth targets downwards as the year has come to a close. "The ongoing financial crisis has had its toll on export-related sectors like IT, textile and SMEs. This may indirectly impact banks' asset quality. There is, therefore, a pressing need to ensure adequate risk-management mechanisms to overcome this challenge," State-owned Bank of Baroda's (BoB) Chairman and Managing Director M D Mallya, said. Gross NPAs of commercial banks in FY'08 escalated by Rs 6,136 crore, according to figures released by RBI. Though there was no need to be unduly alarmed, banks need to follow certain standard parameters to ensure the quality of their lending portfolios, Mallya said. Similar view was echoed by ICICI Bank's CEO-elect Chanda Kochhar who said the lender has taken a conscious decision "to follow certain parameters" to ensure asset quality.

Selling agents look for jobs as banks cut back on retail loans

High interest rates and the economic slowdown have forced banks, especially the private and foreign players, to scale down loan growth to check delinquencies. As a result, direct sales agents (DSAs), who were responsible for originating over 30 per cent of retail loans, have been badly hit. Banks like ICICI Bank have become extremely selective about offering retail loans, especially unsecured ones, and smaller players like Development Credit Bank have virtually stopped lending. Most foreign and private sector banks have stopped small-ticket personal loans and consumer durables financing is hard to come by. While banks are not lowering interest rates to discourage borrowers, they have also tightened credit appraisal rules, resulting in many more loan proposals being turned down. The change in strategy is also showing in the bank’s financial statement, with direct marketing expenses falling 62 per cent to Rs 145 crore during the quarter ended September 2008, against Rs 385 crore in the same period last year. All this means that there is little left for outside agencies. So, many DSAs, who were drawing between Rs 5,000 and Rs 10,000 a month in addition to commission on every loan sold, are now effectively jobless. With projections not looking too optimistic over the next few quarters, the DSAs are now looking at other options to survive.

ICICI may cut rates by 50-75 bps in Jan

ICICI Bank, the country’s largest private sector bank is all set to cut interest rates by 50-75 basis points across the board, making home and car loans cheaper in the new year. According to a senior banker, the rate cut will happen “very soon”-possibly early next month. Current home loan rates across various banks average around 10.5% for sub-Rs 20 lakh loans and around 12% for above Rs 20 lakh loans. Car loans average around 12.5-16% depending on loan profile and kind of model chosen.

RBI may cut repo, reverse repo rate anytime now, say bankers

With the inflation declining even below the RBI's comfort levels, the Reserve Bank is likely to cut the lending rate for banks and reduce the amount banks need to keep with the Central Bank 'anytime from now' to support demand, bankers have said. "A 0.5-1 per cent cut in the reverse repo rate could be expected anytime now following the sharp decline in inflation numbers. This would be needed to support the falling demand in different sectors owing to a global economic slow down," HDFC Bank's Deputy Head of Treasury Ashish Parthasarathy said.

‘RBI should pay interest on CRR in excess of 3%’

As a part of special packages announced by the RBI and the centre, the domestic banking industry, particularly the public sector banks are playing a major role in tackling the economic slowdown and ensuring that fund flow is available for the needy sectors. Allen C.A Pereira, chairman & managing director, Bank of Maharashtra said, banks have decided to provide a liberal package upto June 30 2009 for housing loans and to micro, small and medium enterprises (MSME) sectors. Deposit growth is moderated. Due to higher spread between interest rate of savings bank accounts and term deposits, customers prefer to place their savings mainly in term deposits. This has affected the growth of current accounts and savings account (CASA) deposits. Recent reduction of about 50 basis points in interest rates on term deposits will have a marginal effect on growth of term deposits. Interest cost of resources has increased. Banks are still keeping CRR of 5.5%, which is not earning any interest. We feel, RBI should pay interest on cash reserve ratio(CRR) in excess of 3%. This may partly compensate the banks in times when they try to operate on lower margins to stimulate flow of credit to productive sectors.

SBI Web site hacked, but no data loss

The menace of hacking has come to haunt India’s largest bank, State Bank of India. The bank’s Web site was paralysed on Christmas Eve as hackers, believed to be from a foreign country, broke through the bank’s stringent IT defences. “Attempts were made to disrupt the system from outside the country. However, there was no loss of data,” said Mr R.P. Sinha, Deputy Managing Director (Information Technology), SBI.

Farm debt relief evokes lukewarm response

Banks such as Union Bank of India and IDBI Bank have been taken by surprise at the ‘not so good’ response of large farmers to the one-time settlement scheme under the Government’s Agriculture Debt Waiver and Debt Relief Scheme, 2008. Nearly 40 per cent of these banks’ eligible farmer-borrowers, who own over 5 acres of agricultural land, are believed to have not coughed up even the first instalment towards one time settlement in order to avail themselves of the 25 per cent rebate on their loan overdues. Under the scheme, the government gives 25 per cent rebate on the overdue loan amount if farmers bring in the balance 75 per cent for one-time settlement.

SBI to launch mobile banking in Jan

The country's largest lender, the SBI, is all set to launch its mobile banking services in January. SBI has selected 383 out of 700 ATMs located in various railway stations for the installation of mobile-banking services. Apart from reservation of railway tickets, these kiosks would provide online banking services such as fund transfers, transaction/balance enquiries, payment of utility bills, inter-banking fund transfers through RTGS, NEFT and others.