Investing in Bank Deposits

Investing in Bank Deposits The easiest way all do is to deposit their money in bank fixed deposits. Because they feel it is the safest and easiest method to grow their money and also it is highly liquid. Banks normally give interest ranging from 3% to 10% per year (approx.) on the deposits kept by public. The senior citizens will get higher interest ranging from 0.5% to 1.0%. The rate may vary from time to time. The rate of interest also varies with the period of deposit. The higher the period higher will be the interest. But recently this trend has changed. Now the banks fix their rate of interest based on their assets and liabilities so you may get higher interest for shorter period and lesser interest for higher periods. Some banks also give floating rate (the rate of interest varies when bank raises or lowers the interest) but this concept has not find good response from public. Here the banks normally give two options. You can get simple interest or you can get compound interest. When you opt for simple interest you may get interest at Monthly, Quarterly, Half yearly or Yearly intervals. Normally banks give quarterly interest. If you opt for monthly interest you will get discounted rate. This type of deposit is suitable for those who want to get fixed monthly income like senior citizen or when you have fixed monthly commitment that can be met by this interest. (like monthly rent, school fees etc.) Other way is when you do not opt for above you should go to compound interest, here the interest is added to principal and interest portion also starts to earn interest. This type is suitable for those who want to get lumpsum amount after a period like for education, marriage etc. Other very good deposit is Recurring deposit, here you can invest small amount monthly for a period ranging from one year to ten years and get lumpsum at the end of the term. This is novel scheme for salaried class as they can save small and get big. Higher the period greater will be the amount you get back. Drawback: 1. The maximum period of deposit will be for 10 years. 2. Tax will be deducted at source if the interest earned on your deposit exceeds threshold limit fixed by income tax department which is Rs.10000 per year. If you want not to deduct tax you must submit form 15H/G every year. 3. Thinking that the rate of inflation is 5% the return you will get on these deposits is very minimal. 4. Interest earned on deposit will be added to income in hands of assesse and tax will be paid by him. 5. Now many banks are charging 0.5% to 1% for prematurely withdrawing your deposits thus lowering your yield. Plus Points: 1. Rs.100000/- per year exemption can be got under sec.80CCC of IT act. 2. Highly liquid. 3. Repayment risk is minimal. 4. Loans can be taken in case of need. Calculations: Rs.100000/- invested in Fixed deposit for 5 years at 10% p.a. at quarterly interest option will fetch you Rs.150000/- (principle plus interest) effective int. 10% Rs.100000/- invested in Compounding interest scheme for 5 years at 10% will fetch you Rs.163862/- (principle plus interest) effective int. 12.77% Rs.1000/- invested per month in Recurring deposit at 10% will fetch you Rs.12665/- for 1 year (prin. Plus int.) effective int. 10.38% Rs.77908/- for 5 year (prin. Plus int.) effective int. 12.77% Rs.205569/- for 10 year (prin. Plus int.) effective int. 16.85%

Govt should cut stake in banks to below 51%

The Indian Banks’ Association has made a representation to the government proposing consolidation of public sector banks as well as dilution of government holding to below 51%. “Even with a 33% or 26% holding, the government will be the single largest shareholder, thereby giving it total control,” said IBA chief executive HN Sinor. However, if that happens, the government will lose the right of appointment, which will rest with the Reserve Bank of India (RBI) thereafter.

YES Bank bets on mobile phone for micro-fin biz

YES Bank is looking at using mobile phone as a platform to enhance the reach and bring down the cost of micro-finance. The bank along with Accion, the US based micro-finance agency, plans to tie up with a global software provider in order to find a software solution for the same. “We will pass on the cost benefits to our customer by bringing down the interest rates on micro-finance,” said Mr Somak Ghosh, President, Corporate Finance and Development Banking, YES Bank. “We are in advanced stages of talks and are hopeful of launching the product by the end of this year or by March 2008,” he said. He felt it would bring down the cost of operations by about 30-35 per cent. The bank also plans to lend it to other banks and micro-finance institutions. The bank plans to launch more products such as medical loan, emergency loan, special events loan and home improvement loan from the second and third year based on its experience and the track record of its clients.

Andhra Bank drive on ‘kiddy bank’

Andhra Bank is very aggressive on the ‘kiddy bank’ account. Andhra Bank has this year commenced a month-long ‘AB Celebrations 2007’ drive to create awareness about the various products and services offered. At one such meeting, its Deputy General Manager (Chennai Region), Mr P.N. Murthy, gave away the ‘kiddy bank’ doll, which, according to him, was the USB product of Andhra Bank. While asking the child to put his/her savings into it, Mr Murthy also informed the gathering about the secret lock in the doll. “This can be opened only at the branch where the account is held.” It is now targeting schools for popularising this product.

Five-day work for StanChart staff

Standard Chartered Bank employees would work five days a week from September 1, a move which, the foreign lender said, aimed at ensuring work-life balance among the staffers. All the 5,500 employees in the consumer bank division would come under the new work schedule. The bank started implementing the five-day week in phases. In the first phase, 2,000 staff in the wholesale banking, corporate divisions and support functions came under the norm. The bank has, however, ensured its business hours continues to be the same and the “customer delivery” is not affected.

Indian Bank revises deposit rates

Indian Bank on Tuesday revised interest rates on fixed deposits, effective from September 1. Interest rates on term deposits of tenure one to less than three years have been revised to 9%. Fixed deposits of 3-5 years would now draw an interest rate of 8.75%. A maturity period of over five years would attract a rate at 8.5%. The short-term deposit rates of tenure 180-364 days and 91-179 days has been fixed at 7% and 6.5%, respectively.

PSU banks face staff crunch at senior levels

Mumbai-based Bank of India, faced with an impending talent crunch at the top, has started grooming 70 assistant general managers and deputy general managers to takeover from the current crop of general managers, all of whom would retire by 2012. With one in every eight public sector bank officials set to retire over the next three years, public sector banks would soon be hard-pressed to fill the vacuum in their senior managements. While 13 per cent of the 2.5 lakh officers currently employed would retire over the next three years, only 8.7 per cent of the 4.7 lakh clerks and sub-staff would reach the end of their service by then. The departure of a large number of officers for greener pastures, has only added to the woes of these banks. A K Khandelwal, chairman and managing director, Bank of Baroda, had estimated that public sector banks were losing 1,000 officers every year to their private and foreign counterparts. “Why should all the public sector banks have the same salary structure. They should be allowed to target cost to income ratio and the board can then decide on the salary structure. They should also be allowed to give employees’ stock options,” M V Nair, chairman and managing director, Union Bank of India, said.

Banking services at doorsteps

The District Collector, Mr S.S. Jawahar, launched ‘Canara Gramin Vikas Vahini’ scheme at Thottiyapatti village, 40 km West of Madurai recently, in an effort to take banking services to doorsteps in remote villages, under a nationwide scheme initiated in June. Executed through a van service equipped with public address system, the branch manager travelling in the van has the authority to sanction spot loans for eligible candidates, who could come and collect the amount the next day at a nearest branch, according to Mr Murugaprabhu, Senior Manager, Canara Bank. Apart from carrying requisite forms to open bank accounts and pamphlets on different schemes, the van will carry the latest farming techniques developed by agricultural colleges. The villages would be intimated in advance of the visit and would operate on a fixed schedule, round the year.

Now, IndusInd Bank launches exercise to change its name

After the UTI Bank’s move to change its name to Axis Bank, its now turn of IndusInd Bank to go in for a new name. The bank, which wants to consolidate its presence in the private sector banking in India, has already launched exercise for the same. It has so far considered various names such as Indus Bank, the Plus Bank, the Right Bank and so on.

Centurion- LKB merger okayed

The Reserve Bank of India has sanctioned the scheme of amalgamation of Lord Krishna Bank Ltd with Centurion Bank of Punjab Ltd, said a press release from RBI. The scheme will come into force with effect from August 29. All the branches of Lord Krishna Bank will function as branches of Centurion Bank of Punjab effective August 29.

State Bank of Patiala’s scheme

State Bank of Patiala (SBP) has launched ‘SBP-Smart Deposit Scheme’ (term deposit and special term deposit) for a maturity period of 455 days. The deposits would provide an interest of 9.5 per cent per annum for general public and 10 per cent per annum for senior citizens.

State Bank of Saurashtra to be merged with SBI

SBI has decided to merge State Bank of Saurashtra, a wholly owned associate bank, with itself. The boards of both SBI and State Bank of Saurashtra have given an in-principle approval to the merger proposal, a senior SBI official confirmed on Saturday. SBI will now have to get approvals from both the Government, the majority owner of the bank holding 59.73 per cent stake, and the Reserve Bank of India. State Bank of Saurashtra is the smallest among the seven associate banks of SBI, in terms of networth. SBI’s controlling interests in the associate banks range from 75 per cent to 100 per cent. State Bank of Saurashtra (SBS) has a branch network of 460 and SBI officials said once the merger is approved, consolidation of the branch network for eliminating duplication of branches in the same geographical area would start in six months. SBS reported a net profit of Rs 87.4 crore in 2006-07, a jump of 45.4 per cent from Rs 60.1 crore in the previous year. The bank has paid-up equity capital of Rs 314 crore. SBS’ total deposits stood at Rs 15,804 crore while total advances were at Rs 11,081 crore. A senior SBI official said State Bank of Indore could be the next bank on the radar in the consolidation process as it is the smallest bank after State Bank of Saurashtra

Canara Bk plans open offer for Can Fin Homes

The board of directors Canara Bank, which met recently, approved a proposal to make an open offer for Can Fin Homes. The bank will acquire shares so as to hold 51% stake in Can Fin Homes in order to convert the sponsored entity into a subsidiary. Necessary permissions have been obtained from the Reserve Bank of India (RBI) and the ministry of finance.

Indian Bank to hike stake in NSE

Indian Bank, one of the leading state-run lenders in southern India, will increase its stake in the National Stock Exchange (NSE). At present, the bank holds 0.52% stake in NSE, the country’s largest bourse in terms of turnover

Public sector banks want to use more profits for staff rewards

Public sector banks have pitched for the right to use up to 5% of their net profits for compensation purposes. As of now, the government policy allows them to use only up to 1% of their profit to compensate performers. Speaking at an HR conference organised by Indian Banks’ Association (IBA) on Friday, Bank of Baroda CMD Anil Khandelwal indicated that IBA has made such a proposal. He further said the restriction to use only 1% of profit has not yielded proper results. Though public sector banks are still giving huge competition to private and foreign banks, rigid compensation packages are the biggest disadvantage they face in attracting and retaining talent. Canara Bank chairman and managing director MBN Rao raised concerns over PSBs being constrained by “structured compensation packages with limited flexibility”. Mr Rao, who is also the IBA chairman, further said, “PSBs need to find ways to nurture their available talent base rather than hiring fresh talent.” Mr Khandelwal said, “Nationalised banks are losing more than a thousand employees to private and foreign banks every year. Union Bank CMD MV Nair said it was the time to take a call on whether all PSBs should have the same salary structure. Most felt that serious engagement of employees, providing ownership and instilling a feeling of institutional pride in them were the main ways of employee retention, apart from compensation. Mr Chakrabarty felt there should be a common objective that the CEO of the bank as well as the head of human resources work towards, which should be effectively communicated to every employee of the organisation

Bank staff to strike on Sep 12

The United Forum of Bank Employees will spearhead a nationwide strike on September 12 for additional pension benefits and protest against outsourcing activities of banks. The forum is represented by 8.5 lakh nationalised bank employees. The protest is being supported by one crore signatures to be presented to Prime Minister Manmohan Singh. While unions are quiet on the service issues plaguing state-owned banks, the four bank officers unions and five bank workmen’s union have decided to jointly highlight how government’s banking policy is hurting the interests of the nation.

New priority sector lending norms for RRBs

The Reserve Bank of India (RBI) has issued revised priority sector guidelines for regional rural banks (RRBs) to increase lending under financial inclusion. The banks will have to ensure that 60 per cent of their advances are towards priority sectors such as agriculture, small industries and retail trade. Of the total priority sector advances, at least 25 per cent (that is 15 per cent of the total advances) should be advanced to weaker sections of the society. The revised guidelines have taken effect immediately.

Banks to start new pension plan

In their first step towards introducing a pension scheme based on defined contribution, public sector banks have in-principle decided to introduce such a scheme for new recruits in the officer cadre. The cost of servicing the present “defined benefit” pension scheme has been mounting, with banks having to make provisions to the extent of 32 per cent of the employee’s annual salary. Under the government’s defined contribution pension scheme, the employee has to compulsorily contribute 10 per cent of the basic pay and dearness allowance every month. This contribution has to be matched by the employer. The income that the employee receives is not fixed and depends on the returns earned on the funds contributed towards pension. For higher returns employees, can increase their contribution, even as the employer’s contribution remains fixed.

Farm loans up to Rs 50 k may get service tax waiver

Small and marginal farmers availing agriculture loans up to Rs 50,000 need not pay any service charge and need not deposit land documents at bank branches. These are some of the recommendations of the group set up by the Reserve Bank of India to examine the procedures and processes of agriculture loans. For loans exceeding Rs 50,000, the service charge should not exceed 0.25 per cent of the loan limit per annum, said the group’s report. The group has suggested that the Nabard should issue and circulate the mandatory application forms among banks. The form should be simple, user- friendly and should use the local language. The report also suggest that all loans having credit limit of up to Rs 50,000, should be disposed off within a fortnight and those with credit limits up to Rs 3 lakh, within four weeks.

All borrowers to get documents in loan agreement

It is now mandatory for banks to provide a copy of the loan agreement including all enclosures to the borrower. The condition would apply for all loans across the board, said a senior RBI official. Banks usually furnish these documents only at the request of the borrowers. Banks also provide a copy of all the documents to their corporate or big-ticket size customers.