Bank as a neighbour

A survey by market research firm IIMS Dataworks shows that Indian consumers rarely distinguish between banks in their decisions to opt for the one over the other. They go for the bank that comes their way, for one reason or the other. "Only very high income groups make a choice to go to a particular bank, others just walk into the nearest bank branch,” says K C Chakrabarty, chairman and managing director, Punjab National Bank (PNB). About 60 per cent of the working population still do not have bank accounts, he added. While State Bank of India (SBI) dominates the mind space almost as a singular monolith, PNB’s brand recall seems to be in line with its status as the second largest public sector bank in the country. Among the relatively low income segments, the only private bank that has any significant brand recall is ICICI Bank

Bank of Maharashtra in pact with LIC

Bank of Maharashtra in association with Life Insurance Corporation of India has launched two products, Maha Suraksha Deposit Scheme and MahaGrih Suraksha scheme. Under the Maha Suraksha Deposit Scheme, deposit holders get life cover under a one-year renewable term insurance plan of LIC of India. Deposit account holders between 18 and 59 years of age, who opt for the scheme, would be eligible for an insurance cover of Rs 1 lakh on life, at a low premium. The Maha Grih Suraksha Scheme provides life insurance cover to the housing loan borrowers of the bank through LIC under “Group mortgage redemption assurance scheme” (GMRA).

Indian Bank revises rates on term deposits

Indian Bank has revised the interest rates on domestic term deposits with effect from September 1. Interest rate for the 7-14 days period for an investment of Rs 15 lakh is at 3.5%, while that for the same period for Rs 15 lakh to less than Rs 1 crore is at 4%. Interest rate for the 30-45 days period upto Rs 1 crore is at 4.5%. The bank has fixed interest rate on deposits for 46-90 days for Rs 15 lakh at 5.25% and for Rs 15 lakh to less than Rs 1 crore at 5.75%. Term deposits for 91-179 days for investment upto Rs 1 crore is at 6.5% and that for 180-364 days is at 7%. For a period of one year to less than three years, the interest rate is at 9%. For 3 years to less than 5 years, the interest rate is at 8.75% and for five years and above at 8.50%.

PSB Director resigns

Punjab and Sind Bank (PSB) Director, Mr Harcharan Singh Josh, has resigned from the board of the bank, which is fully state-owned. The Government order accepting his resignation was received by the bank a few days ago, sources in the Board said. Mr Josh, who was one of the five non-official directors in the bank’s board, had a face-off with the PSB Chairman, Mr R.P. Singh, over alleged favouritism in sanctioning Rs 150 crore loan without collateral and at lower interest rate to Orbit Resorts expansion project. The PSB Chairman had contended that politically affiliated directors were attempting to frustrate the debt recovery measures of the bank.

India's sub-prime market proves a prime opportunity

Like the US, India too has a subprime market and it is booming. The success of early entrants like Citi Financial and GE Money has encouraged several others to enter the consumer lending business, nearly half of which is a sub-prime market. These include players like HSBC (Pragati Finance), Stanchart (Prime Financial), Fullerton India, DBS Cholamandalam and Indiabulls. Industry sources say Barclays, Deutsche Bank and AIG are eyeing the segment, which includes private lenders like ICICI Bank and HDFC Bank, which entered in 2004. What’s attracting them is an estimated $10-11 billion market for unsecured credit, which is growing at 25-30 per cent, according to Citi Financial Managing Director Sandeep Soni. The smaller players are growing at 50 per cent or more. "It’s an untapped market. There’s an opportunity to expand the market like in telecom," said Rajeev Yadav, head of personal loans at GE Money. A typical sub-prime customer is the self-employed, neighbour-hood retailer or a trader who needs credit to buy goods and grow their business. He may be filing a tax return (most show an income of Rs 70,000-80,000), but it doesn’t truly reflect his cash flows. "Many of these people do huge business in cash; there’s no way it can be registered on paper. If he maintains an average bank balance of Rs 2,000-3,000 and that’s increasing or services an EMI of Rs 1,500 on credit card or another loan, it shows he has cash flows. Banking tells us about a guy’s character, about his cash flows."

Demand for home loans slowing down

The demand for home loans has slowed down over the past few months due to rising property prices and high interest rates. The number of applications for home loans and registrations of new flats have come down, say bank officials and analysts. The stricter prudential norms for the real estate sector have pushed up property prices across the country. According to Mr Sunil Rohokale, General Manager, Mortgage Finance and Real Estate, ICICI Bank. “Interest rates have increased by 250-350 basis points in the last 18 months. Also, the property prices have increased by as much as 40-50 per cent in the same period. Customers have been hit by a double whammy,” he said. Mr H.N. Sinor, Chief Executive, Indian Banks’ Association, said that there is need for some kind of relaxation of the prudential norms with regard to sectors such as housing, as the sector is seeing a slowdown.

SBH deposit mop-up drive

State Bank of Hyderabad (SBH) will launch a nation-wide ‘Deposit Mobilisation Utsav’ from September 1. During the one-month programme, an additional interest of 25bps per annum would be offered on all term deposits for a period of one year and above. Coinciding with the campaign, the bank would also be launching two new deposit products - Recurring Deposit Plus and Current Account Plus. These account-holders would be offered free Internet banking facility, free ATM/debit card, free multi-city cheques, and free accident insurance cover. The bank had set a goal of opening more than three lakh new accounts during campaign and mobilise over Rs. 3,500 crore of deposits.

Bank of Baroda cuts home loan rates

Bank of Baroda reduced the rate of interest on housing loans up to 50 basis points. The bank said the new rates would be applicable to all new housing loans sanctioned on or after September 1, 2007. The new floating rates for loans up to Rs 20 lakh range from 10 to 11 per cent for periods from five years to 25 years. For loans of above Rs 20 lakh, the rates vary from 10.25 per cent to 11.5 per cent. In case of fixed rate option, the revised rates on loans up to Rs 20 lakh range from 11.25 per cent to 12.5 per cent for periods from five to 15 years. For loans of more than Rs 20 lakh, the rates are between 11.5 and 12.75 per cent. The reduction in rates is merely to realign with the market.

Canara Bank bags SME award

The Centre has conferred the first award under 'National Awards for Excellence in Lending to Micro and Small Enterprises for the year 2006-07' on Canara Bank. The award instituted by the Ministry of Micro, Small and Medium Enterprises was in recognition of the bank's performance in lending to micro and small enterprises sector during the year 2006-07. The award was presented by the Prime Minister, Dr Manmohan Singh, in New Delhi to Mr MBN Rao, CMD of Canara Bank. The bank increased its lending to micro and small enterprises (MSEs) by Rs.3,261 crore during the year, recording an impressive growth of 49.48 per cent over March 2006.

The Sub-Prime Drama

In India, banks have what is called a Benchmark Prime Lending Rate (BPLR) which is supposed to be the basic lending rate beyond which markups are added for borrowers with lower credit rating. Sub-PLR rates, i.e. rates lower than this BPLR, are offered only to the top class borrowers. In the USA, however, the best rates are offered to 'prime' borrowers and it is the sub (below) prime borrowers who are quoted rates with a premium or markup loaded, depending on their credit rating. Therefore, sub-prime refers to the (lower) quality of the borrower and this kind of borrower is usually charged a higher rate than a 'prime' (best) borrower. According to Wikipedia, subprime lending, also called B-Paper, near-prime, or second chance lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. It is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and murky financial situations often associated with subprime applicants. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. The term "subprime" refers to the credit status of the borrower (being less than ideal), not the interest rate on the loan itself. Generally, subprime borrowers will display a range of credit risk characteristics that may include one or more of the following: i) Two or more loan payments paid past 60 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months; ii) Judgment, foreclosure, repossession, or non-payment of a loan in the prior 48 months; iii) Bankruptcy in the last 7 years; iv) Relatively high default probability as evidenced by, for example, a credit bureau risk score (FICO) of 660 or below (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood. About 21% of all mortgage originations from 2004 to 2006 were subprime, up from 9% between 1996 and 2004, as per chief economist for Moody's Investors Service. Subprime mortgages totaled $600 billion in 2006, accounting for about one-fifth of the U.S. home loan market. Many of the sub-prime mortgages were offered at special schemes offering below-market rates for the first few years of the mortgage but escalating thereafter. Consumers took these mortgages hoping that they could refinance them after a few years at an affordable interest rate. On the other side of these transactions, rapid developments in financial engineering allowed mortgages of all types to be packaged into pools and sold as high-yielding securities to a range of investors from third-tier banks to sophisticated hedge funds. Thus both homeowners and buyers of such securities got caught in this cycle. The tricky part was that after a few years, the artificially-low mortgage rates were required to reset to levels more in line with current market rates, which, in all likelihood, would be higher than the initial low rate levels. If house prices continued to increase, homeowners would still find it profitable to refinance their mortgages at affordable interest rate levels. However, beginning in late 2006, the realty bubble started to burst. Two events that were assumed to have a low probability in a booming market in fact happened: first, interest rates increased and second, home prices began falling. This led to sub-prime mortgages resetting at shockingly high rates, with homeowners missing payments and banks foreclosing accounts. On the other hand, banks and other financial institutions holding the mortgage-backed securities incurred losses and had to sell their assets. It is estimated that in the next five years $1 trillion in adjustable rate mortgages will reset, with sub-prime mortgages making up the majority. Resets of mortgages this year are estimated to occur at rates that are about four percentage points higher than the current rate on 30-year home loans. The virtuous cycle of mortgages turned sour. Banks and other institutions cut back their lending, not only for mortgage-related activities, but also for other activities, as liquidity fell. As the impact spread from the US to Europe and then globally, central banks rushed to inject liquidity into their respective markets in order to stem the tide. The US Federal Reserve Board announced a half a percentage point cut in the discount rate (the rate at which it lends to commercial banks) to 5.75 per cent on August 17 alongwith other measures to boost liquidity. The impact of this crisis has been felt as far as in India, where the stock market showed a steep fall from around mid-July'07 onwards (Sensex on 16 July'07 was 15,311, dropping to 14,195 by 17 Aug'07) as FIIs starting drawing down their investments in emerging markets to create enough cash for meeting their obligations in the US market. However, it is to RBI's credit that the early actions taken by it to stem credit to the booming real estate market in India by raising provisioning requirements and risk weights, besides warnings about heating up of this sector, stopped banks from overextending themselves to this sector like US banks. Rising property rates as well as interest rates on housing loans also contributed towards lowering excess demand, especially from second time home loanees. The Indian banks having branches abroad were also not much affected as their exposure to mortgage backed securities had been quite low. Ultimately, fund flows to the Indian stock market will improve as the fundamentals of the Indian corporate sector continue to be good. Meanwhile, the fall in the stock markets had the side-effect of weakening the (appreciating) rupee to over Rs 41 levels against the US$, and this would be welcomed by the Indian IT majors and other exporters like the textiles sector, as their dollar-denominated pay cheques will now fetch them a higher revenue.

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.