With China' impressive economic growth catapulting their banks into the top global league, India's top private sector lender ICICI Bank's chief Chanda Kochhar has said Indian banks also must aspire to scale up their activities significantly. ICICI Bank, which has opened its first branch in China, would also keep reviewing the India-linked business opportunities in the international markets and expand its presence as new avenues emerge, Kochhar said. "For economies like India and China, where banks are the major financiers of growth, the performance of the banking sector is closely linked to the economy. "China has an exceptional record of consistent high growth of over 10 per cent for three decades which has helped to catapult Chinese banks to a significant size at a global level," said Kochhar. "India is expected to be the fastest growing economy in the medium term. As India grows, Indian banks must also aspire to scale up their activities significantly," added more. A number of Chinese banks have made it to the world's top banking league, but Indian banks are still not there. Kochhar, who was here for the opening of ICICI Bank's first branch in China on Saturday, was replying to a question on whether some Indian banks, including ICICI Bank, would be able to join the top global league some time soon. With a consolidated asset base of $132 billion, ICICI Bank is India's largest private sector bank and it is present across 17 countries. It already had a representative office in China, which it had opened over 10 years ago in 2003. The bank's international book accounts for about one-fourth of its assets. To another question on whether ICICI Bank would look at entering other countries which have potential for greater trade flows with India, Kochhar said, "The Bank continues to review India-linked business opportunities and expand our presence as new avenues emerge." "The Bank continues to calibrate its global presence as per its India-linked strategy. We have had a presence in China since over a decade through our representative office, which can now been be scaled up further through the branch to take advantage of the growing linkages between the two countries," she said. ICICI Bank's global footprint consists of subsidiaries in the UK and Canada, branches in the US, China, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre, and representative offices in UAE, Bangladesh, Malaysia and Indonesia. The bank's UK subsidiary has established branches in Belgium and Germany. (PTI)
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HDFC Bank Ltd, India's second-biggest private sector lender by assets, said on Thursday it was optimistic of growing loans on the back of faster economic expansion after reporting net profit grew more than a fifth in the March quarter. The lender said net profit rose to Rs 2807 crore ($444 million) in its fiscal fourth quarter from Rs 2327 crore a year ago. Analysts on average had expected a profit of 27.8 billion rupees, according to data compiled by Thomson Reuters. HDFC Bank expects to grow loans faster than the banking sector during the financial year to March 2016, Paresh Sukthankar, deputy managing director at the lender, told reporters. He expected the banking system loan growth this fiscal year to be between 13 and 14 percent if the economy grows one percentage point faster. Bank loans grew about 12 percent last fiscal year. Indian lenders have been hurt by two straight years of slower economic expansion that led to projects being stalled and corporate balance sheets getting stretched. Demand for loans from companies has yet to pick up, although consumer loans are growing fast. "Have we seen a huge pick up on the capex side? The answer is 'no'," Sukthankar said, but added that was not a surprise since loan demand revival typically comes with a lag to economic recovery. HDFC Bank's net interest income grew 21.4 percent in the March quarter as advances rose 20.6 percent. Net interest margin was stable at 4.4 percent. Bad loans as a percentage of total loans was at 0.9 percent compared with 1 percent in the third quarter. Shares in HDFC Bank, which is India's most-valuable lender with more than $40 billion in market capitalisation, have outperformed bigger rivals such as State Bank of India and ICICI Bank so far this year. HDFC Bank stock has gained 6.5 percent in 2015, while the bank sector index is down 2.6 percent.
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Eight months ago Kunal Bahl of Snapdea, met Kunal Shah of Freecharge at a coffee shop to discuss what would be the next step to stay ahead in the e-commerce industry. Yesterday, both of them joked with the media that they did not need a banker to seal the deal. The deal was signed with the aim of beating the competition and staying ahead in the e-tail race. "We chalked out the foundation and our small M&A team took care of the rest," says Kunal Bahl, founder of Snapdeal, along with Kunal Shah of Freecharge. There will be some accounting and shareholding patterns to sort out because Freecharge is part of Accelyst Solutions Private Limited, which will now be the subsidiary of Jasper Infotech, the company that owns Snapdeal. However, the synergies of the deal are evident and there may be some push from the Softbank team, the Japanese telecommunications and internet giant, run by business tycoon Masayoshi Son, in driving the consolidation. Snapdeal is backed by Softbank which put in $627 million in 2014 itself while it also has a 37 per cent stake in China’s e-commerce giant Alibaba. Ali Baba has invested in PayTM, which competes with Freecharge. Clearly the message is to take on Flipkart and Amazon in India. Now all eyes will certainly be on PayTM, Freecharge's competition, and their their fund raising plans. The larger question is will they be up for consolidation with a suitor now?. Softbank has invested $627 million in Snapdeal last year. They also have a 32 per cent stake in Ali Baba, the Chinese online market place, which has invested $575 million in One97Communications which is the parent company that owns PayTM. Why was Freecharge important? Its revenues could be around $8 million (the company does not disclose its revenue and does not confirm the number) and since it did not have a e-commerce play like PayTM, it makes absolute sense for Snapdeal to acquire it. But with Softbank in the helm of things, in Snapdeal (which now owns Freecharge) and in PayTM (through Ali Baba) we at Businessworld believe that the payments industry is clearly heading for big consolidation phase. Freecharge has 20 million registered customers and 3 million active users who regularly pay their mobile and DTH TV bills on the platform. In return Freecharge offers users coupons which can be redeemed at their favourite restaurants and cinema halls. This also included a percentage of the payments that could be availed as cash back offers. Through the Freecharge platform Snapdeal has access to a younger customer, who is between 18 and 25 years of age, and they can cross sell deals on the market place through Freecharge. Rumours are ripe that it was a 80 per cent stock deal and that 20 per cent was paid in cash. Kunal Bahl says that majority of it was a stock deal. Newspapers value the deal size to be Rs 2,800 crore or $420 million. Sources also add that Kunal Shah is richer by Rs 80 crore, in cash, after this current deal. Sources also say that his business is now valued at 50 times its revenue in dollar terms.
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The Reserve Bank of India (RBI) is expected to keep its benchmark interest rate on hold at 7.50 percent at a policy review on Tuesday, while signalling that it could act swiftly to lower rates further if inflation stays within its target. This year, RBI has already cut the repo rate twice, by 25 basis points each time, in a bid to bolster economic growth. Neither reduction took place during a regular policy review. "Having cut rates in mid-March and mid-January, a pause may be warranted to reassess the outlook on inflation," said Gaurav Kapur, senior economist at Royal Bank of Scotland in Mumbai. The RBI rates on the back of easing inflation. The consumer price index rose 5.37 percent in February, marking a fifth consecutive month of staying within the RBI's target of 2 to 6 percent. Earlier-than-expected rainfall in parts of the country have pushed up prices of winter crops, such as wheat and pulses, which could make the RBI cautious over the outlook for inflation. The RBI's wariness will also be heightened by any rebound in crude oil prices due to tensions in the Middle East. Only nine of the 40 economists surveyed by Reuters expect the RBI to cut rates on Tuesday, but most expect at least a 25 bps cut by the end of June. Those analysts reckoning on a rate cut later this month, instead of at a policy review in June, are expecting inflation to remain within target when the next data is released on April 13. Beyond the outlook for inflation, the RBI has also made rate cuts contingent on Prime Minister Narendra Modi's government containing its fiscal deficit and passing economic reforms. Lower Indian interest rates would help stop the rupee from strengthening further against other currencies whose central banks are cutting interest rates. A surge in foreign investment flows into India has pushed up the rupee, raising worries about sudden, destabilising outflows should the Federal Reserve start raising U.S. interest rates later this year, as is widely expected. Analysts expect any dovish statement from the RBI to be accompanied by more pressure on commercial banks to lower their lending rates. Only a few reduced rates after the previous central bank cuts, raising concerns about the transmission of monetary policy actions to the broader economy. Although markets have speculated that the RBI could cut the cash reserve ratio (CRR) - the portion of deposits that lenders must keep with the central bank - to boost banks lending capacity, few analysts believe the RBI would resort to such a blunt tool. (Reuters)
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With India and some other nations threatening criminal proceedings over suspected black money in Swiss banks, the European nation has stepped up its supervisory and enforcement efforts to keep away the illicit funds from its banking system. This comes at a time when a number of Swiss institutions have seen "asset outflows" and the tax status of many of their clients have been found to be "inappropriate", as per the Swiss Financial Market Supervisory Authority (FINMA), which also has the mandate to combat money laundering activities. Switzerland has been making efforts to strengthen its bilateral cooperation with India and some other countries on tax matters, as many Swiss banks are finding themselves in regulatory crosshairs in multiple jurisdictions. Acknowledging that international pressure on cross-border wealth management remained high in 2014, FINMA said in its latest annual report that the same would continue to preoccupy the country's financial sector in the years to come. "Germany, France, Belgium and Argentina have followed the US in launching high-profile criminal investigations, while Israel and India are threatening to do so," the supervisory authority said, while adding that it is keeping a close watch on such proceedings. FINMA's observation comes at a time when Indian authorities are making efforts to trace black money allegedly stashed by its citizens in Swiss banks. Recently, there was also an international uproar over reports suggesting that many entities parked their illicit assets at HSBC bank in Geneva. Elaborating on cross-border taxation issues, FINMA said it is deploying both supervision and, where necessary, "enforcement to ensure that banks adequately assess, manage and limit their legal and reputational risks in this area". The regulator said that a number of institutions recorded asset outflows as they parted with clients whose tax status was inappropriate or who had filed voluntary declarations in their countries of origin. "This trend will intensify in the run-up to the planned automatic exchange of information scheduled to begin in 2017/2018," it noted. Sources recently said that Swiss banks are asking their Indian clients to provide fresh undertakings to ensure that untaxed money is not stashed in their accounts. Besides, they have also sought auditor certificates from high net worth individuals and corporate clients to vouch for the "clean status" of their money. Last month, a Swiss Finance Ministry spokesperson had said that talks with India on automatic exchange of tax information would begin at the "earliest" once the domestic procedures are in place. According to FINMA, one of its major concerns is the declining trust in the finance industry. "This trust is the key to financial stability and therefore to a flourishing economy. Misconduct at many banks around the globe has eroded that trust. "We have seen many examples of unacceptable business conduct: manipulation of stock prices and foreign exchange markets, and aggressive conduct in cross-border wealth management, all of which absorbed much of our time in 2014," the report said. (PTI)
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Most investors make their investment decisions purely on past performance, that is, returns. The trouble with such an approach is that it often fails to suggest how the fund will perform going forward. Analysts and fund trackers must consider factors beyond just performance and focus on more critical parameters. Morningstar calls these parameters the five key pillars — Parent, People, Process, Performance and Price.
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Today size isn’t everything. It is true that a large organisation fails to innovate if it tries to do everything on its own. This statement may not be true in the smart phone manufacturing world, but in the retail industry it is the hard truth. Corporations, with serious revenues, like the $473-billion Walmart, the $130-billion Tesco PLC and the $73-billion Target have all suffered a drop in profits because of unpredictable shopping habits of the new millenials, who are people born after the year 1990. These folks would rather look at a smartphone, for a price comparison and to quickly place the order, before walking in to the store. So where do the large companies begin to change or rather when do they change? They begin by working with startups, small technology companies that have built platforms to engage and understand consumers, ideas which large corporations are desperately after to redeem themselves of falling profits. Walmart’s IT company, Walmart Labs, has acquired 13 start-ups, since 2011, globally. Tesco has sponsored a startup accelerator called “Rainmaking Loft”, in London, and is working with a few startups on a pilot basis. The game is bigger than we think because even large system integrators, like Infosys, have announced the need to work with startups to give them the edge in business deals.“We are already taking start-ups to work on IT transformation projects, mobile and digital, for large corporate retailers,” says Krishnakumar Natarajan, CEO of Mindtree. He adds that large corporations cannot ignore the digital consumer if they have to stay relevant. What about ‘Target’? The company has, unlike other companies, has a India first strategy when it comes to ideas. While they continue to focus on analytics, like Walmart and Tesco in India, they believe that mobile is the biggest driver of shopping, which together with other technology trends like big data and cloud will decide the future of brick and mortar retailing. These large retailers get less than 3 per cent of their revenues from online sales today. So while the likes of Amazon become powerful, across the globe, Target has to look at an omni channel strategy for revenues. In less than a year it has worked with ten startups and has signed vendor agreements with a couple of them. It has plans to sign up two more this year. Trigger Happy IdeasIt was early 2014 when Konotor, MuHive, InstaClique, Turnaround Innovision and UnBxd were all picked to work with Target. Of the 350 applications these five startups were picked to pilot their ideas with over 100 stores in the USA. Each of them was unique to the pain point that Target was facing (see chart). Konotor, founded in 2012, started building messaging apps before realising that their unique selling point was in listening to the noise, also known as usage patterns, that the users were creating on applications. “We realised that mobile apps need a different form of engagement and there was so much data generated by conversations,” says Srikrishnan Ganesan, co-founder at Konotor. The platform can be used to segment people on an active and not active basis. This is where the analytics kicks in for retailers; they can use the “active” user data to push relevant messages to individual shoppers or floor managers that visit the app. Konotor quickly developed an internal messaging application that allowed store managers to communicate with headquarters faster. “It is a mobile communications bridge, where quick queries on product, including pictures of stock outs, could be uploaded and sent to management teams,” says Ganesan. This software is offered as a service and is integrated to the mobile devices of the organisation. Target has now offered a vendor contract to the company because of real time resolution of problems in stores. The product puts the power back in the hands of store managers and allows them to serve their guest better and increase return to store, which is an indirect victory for Target’s corporate office in increasing shareholder wealth. Now Konotor has gone from being a startup to winning big names like GoIbibo, Shopera and BigBasket as clients in India. The Konotor platform boasts of 10 million users across 38 apps, and has used $1,25,000, which they won through a Qualcomm prize. Another vendor from the 2014 batch to have a contract is MuHive, a Bangalore-based social analytics platform. Today corporations have integrated their apps and websites to social channels, like Twitter and Facebook, and there are consumers commenting on the service and the product offered. MuHive collects these conversations and puts down questions to the retailers. The retailer will then have to work with the startup to find answers based on a sentiment analysis, of the text on the social channel, or by studying the consumer’s views of a product. “A retailer launches an electronic device or apparel campaign, he must know what kind of product his demographics like and then stock only that product in the store,” says Sagar Vibhute, co-founder of MuHive. This platform fits well with Target’s “Express” store format, small 20,000 square feet stores, which will be used as delivery centres for orders placed on the e-commerce site. If a customer does not like a particular fit of jeans and she puts it up on the social feed, Target can then figure out which store in the locality has that fit and can deliver to the lady before she drives to the store. “We can use the social data and merge it with loyalty data to make more meaningful insights,” says Vibhute. This platform connects social feeds with the customer relationship management software, of the retailer, and can make legacy tools more effective. Both Konotor and MuHive are in advanced talks with investors to raise their first large round of funding. Similary Bangalore-based ‘Unbxd’, which raised $2 million from IDG Ventures and Inventus in 2014, worked with Target’s e-commerce platform to make the search engine intelligent. “Our technology picks up user behaviour, on the site, and makes suggestions,” says Prashant Kumar, co-founder of Unbxd. The company has managed to get 250 global customers. “Working with Target gave us the requisite experience to find retailers across the world,” says Kumar. Today the company studies 20 million user events a day and has customers like Yepme, Madura Garments and PepperFry. Data analytics, intelligent search and smartphone solutions were the theme, for Target, last year and the company is investing, it does not disclose the numbers, in integrating stores with intelligent technology. “It is a time of unprecedented change …. driven by smart phones,” says Navneet Kapoor, MD of Target India. He says that the future of retail is still not scripted and he adds “Relevant merchansiding and inventory management is the future of retail. We need to connect with our guests beyond sales data and technology allows us to connect on a real time basis.” Target is absolutely right. The consumer is not coming to the store because he wants products available on phone screens first. This makes managing inventory, for such a consumer, a difficult proposition. Old style in store advertising along free coupon campaigns is no longer interesting, unless it is personalised, for the millennial population. “These Indian startups are helping us with ideas ranging from content to customer engagement to intelligent search,” says Kapoor of Target. Also the shareholders of Target Corporation are keen that the company do this immediately. Its stock price on the NYSE has, over the last year, gone up from $57 to $75 per share on a year to date basis. “It is a value proposition, it is an era of personalised solutions, technology provides insights and retailers need to know their guests,” says Devangshu Dutta, CEO of Third Eyesight, a consulting firm. The writing was on the wall when Target’s Canadian operations, 133 stores, shut shop in January 2015. Although the business was generating $2 billion in annual revenues, it was still running in to huge losses worth $500 million and more. The company realised that deep discounting can win customers for a short while and not in the long run. Hence it pulled out, at the right time, to retrospect on the future and focus all its business in the USA. Apart from MuHive and Konotor it is now working with a new bunch of startups in 2015 for new ideas. Warehouse Comes To The Living Room“Internet of things is real and every company must open up their IT infrastructures for start-ups to build apps on,” says Karsten Ottenberg, CEO of the $15 billion Bosch Siemens Home Appliance. He adds that the mobile word is part of a business that no company can miss. “They should be open to new ideas,” he says. This year Target selected four companies from a list of 3,000 applications that it received on December 2014. One of the first problems Target wanted to solve was the guest’s inability to find the right apparel in the store and on the website. It brought in WazzatLabs to build a visual search engine on a pilot basis to power the ecommerce store. The five founders of WazzatLabs are machine learning experts who say images speak a “million words” and that the creating visual recognition algorithms for ecommerce or mobile sites could easily win over younger customers. “The algorithm recognises image uploads and matches, available apparel, inventory to fit the person’s choice,” says Mautik Kulkarnai, co-founder of WazzatLabs, the three-year-old startups from Hyderabad. WazzatLabs is trying to win over customers by solving a pain point, at the very onset of entering the app or the website. The software can be plugged in to a mobile app and a web platform. Image technologies are becoming powerful in a mobile and soon 50 per cent of the shopping revenues will be driven by customer engagement on smart phones. Moving a step ahead in to the future of image recognition is Whodat, a two year old startup from Bangalore, which essentially is building artificial intelligence or gesture recognition technology in to mobile apps which can use the camera. Take for example, a customer wants to buy furniture for her house. The lady goes shopping on an ecommerce site and cannot make up her mind. All she has to do is take a print out of a paper marker provided by the catalogue, and then point the camera – of the phone - towards the living room along with the paper marker. Voila! The furniture of your choice and colour show up as a virtual image in the frame. “Our visualisation technology can change the way a store is designed, it brings the store to the living room,” says Sriram Ganesh co-founder of Whodat. Target is on warpath to work with such path breaking technology. It wants to do away with dumb content on its ecommerce site and wants images to become much more interactive. Today a creative that an ad-agency builds does not fit in with every device because of the proliferation of different screen sizes and operating systems. This can indirectly impact customer interaction if a person is accessing the website through a phone. Solving this problem is Visarity, a self funded startup that has put in $100,000 to begin its venture. “Our real time rendering engine compresses high definition images and makes them interactive on the mobile,” says Harsha Padmanaba, co-founder of Visarity. He adds that the company has opened the 3D platform for developers to create and test their creatives. Harsha and his partner Bastian Zuhlke began building chips for automobile companies before jumping full time in to interactive technology. Today their technology is used in the websites of global automotive giant Mercedes and a global watch brand. “Using our tool has helped clients increase their clicks per impression, which translates to customer involvement in buying the product,” says Harsha. Indian retailers are yet to adapt to or even adopt such technologies. They have taken baby steps and have just launched mobile apps to keep the guest interested. But soon apps themselves will be commoditised if there isn’t a quest undertaken to personalise service. Target is also working with Synapse Inc, a one year old start up, whose technology recognises customers when they walk in to the store and pushes relevant messages to their smart phones. “Our platform brings context in to the picture, after which content takes over,” says Ranjan Jagganathan, co-founder of Synapse Inc a one year old startup. He adds that his company’s technology allowed retailers to know where the customer is located in the store. “Imagine sending messages to the lock screen and getting users to make additional purchases because of the relevant content,” says Jagganathan. “The whole idea of customer engagement is going beyond a loyalty card. The customer is happy if he is engaged at the point of need, which is why everyone is investing in start-up technology,” says Ajay Kelkar, Hansa Cequity, a data science firm in Mumbai. May be Target has read the India story right. But for it to keep its revenues increasing consistently, it needs to figure out whether the consumers are ready for this path breaking technology to make an impact on their lives. Only time will tell how successful they will be but it has been a great attempt nevertheless.
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Measure Monetising Gold The government has introduced a gold monetisation scheme that will allow investors in gold deposit schemes and gold loan schemes to earn interest. The government is also trying to structure a sovereign gold bond that could act as an alternative to physical gold
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You will soon get to see a new bank in your neighbourhood. It will accept deposits, remit money, hawk third-party products and services, and issue debit cards. But you will not get a dime as credit. The new beast is a payments bank. Now why on earth should you bank with one? We are told that’s the whole idea behind it — it’s not meant for folks who are already part of the banking universe or think of it the way they are accustomed to.Touted as the best on offer after sliced bread, payment banks are meant to bolster financial inclusion so that the multitudes who fall outside the pale of banking (not seen as ‘bankable’) — only around 60 per cent of the country’s 1.2 billion people are covered by banks — can be brought within its ambit. Nearly 43 per cent of rural households relied on informal credit when the last All-India Debt and Investment Survey was undertaken in 2002. While the population per bank branch has come down to 12,300 from 64,000 in 1969 (when such data began to be tracked), Basic Statistical Returns showed that rural India had only seven branches per 1,00,000 people in 2011 (the latest figures in the public domain); most developed economies have over 40 branches.Payments is big business. Crisil Research puts the domestic remittance market at Rs 800-900 billion and expects it to grow at 11-13 per cent (CAGR) over the next few years. It needs to be mentioned here that the ratings agency has restricted the remittances’ turf to low-income migrants who are seen as early adopters of payments bank services.Non-banking financial companies, telcos, retail giants — even existing banks — can aspire to a payments bank licence from Mint Road. Telcos (current share 3-4 per cent of remittances) will snatch business away from an India Post or informal sources on account of superior reach (especially in rural areas) and lower cost of transaction; by fiscal 2019, their share is seen growing to nearly 15 per cent.Little wonder then that nearly 40 applicants have queued up at Mint Road for a payments bank licence; they include Reliance Industries (with State Bank of India), Aditya Birla Group (Idea), Bharti Airtel (with Kotak Mahindra Bank or KMB) and Vodapone (with Yes Bank) and business correspondents (BC) like Oxigen. A retailer, Future Group, is also in the race. If you look at the 70-odd applicants who have sought a small bank licence (full service, but with small ticket sizes), it’s clear that bottom-of-the-pyramid banking is seen as an El Dorado.Says Manish Khera, co-founder of FINO, a small-bank licence applicant and a BC: “There are scores out there who are not seen as bankable even by today’s small banks. The approach of most of them, too, has changed; it is like that of the bigger banks. They are not keen on the bottom of the pyramid.” Just how big is the scale of his ambitions? “Five years from now, I hope to have an asset size of Rs 2,500 crore,” he says. That’s the kind of bulk a medium-size bank puts on in two months!According to Monish Shah, senior director at Deloitte (India), “The approach of payment banks is to create supplementary access points from a customer’s perspective and this new supply of financial services will, hopefully, meet the unmet demand of providing banking at the doorstep.”What’s unsaid in all this is that any kind of banking licence from Mint Road can be a force multiplier for your branding and reputation. The irony is if payment banks do increase the ‘touch points’ to serve the needy, their very success has the potential to eat into many a weak commercial bank’s traditional deposit and payments business. And if that were not to happen, the question that arises is: what becomes of payment banks at the end of the day? Says Ravi Rajagopalan, CEO, Empays Payment Systems: “To the extent that all banks offer current and saving accounts (CASA), these (payment banks) are me-too in nature.”Yet just about everybody has jumped onto the bandwagon. Last September, when asked how many such banks will be issued licences, Reserve Bank of India governor Raghuram Rajan said: “I don’t have a number… my guess is, and this is just a guess, that it will be certainly more than two and I don’t want to put an upper limit, I don’t want to put a lower limit, other than saying that the lower limit will not be two... We need to ensure that there are a variety of participants that are licensed here so that we can learn from the experience. That would imply a reasonable number.”Now your ubiquitous bank and its watered-down avatar cannot both laugh their way to the bank, although it needs to be said here that we are now in unfamiliar territory — nobody quite knows how the underfoot conditions in the park will play out. Sound On PaperA payment bank has been conceived as a ‘scaled up’ version of a pre-paid instrument (PPI) player — an entity that accepts cash (‘deposits’) and tucks it into a ‘digital’ or ‘plastic’ wallet. The sums (aggregate) ‘raised’ by PPIs are parked in escrow accounts with banks (so that they are not diverted to ‘treasury play’) and earn no interest. Nor can PPIs pay interest to ‘depositors’ — now that’s a huge fault line as the sums are substantial relative to the savings of low-income households which are sought to be brought under the umbrella of financial inclusion. So PPIs can morph into payment banks. The well-heeled may also troop in.Nielsen (India) in a study (it reached out to high, mid- as well as low-income consumers, between 22 and 60 years of age, who influence decision-making in households) says a majority have few, if any, existing investments and show little inclination to invest over the next 12 months. This segment’s financial requirements are mostly confined to basic banking transactions like deposits, withdrawals and fund transfers. A resounding 72 per cent of respondents — low, mid- and high-income — said they would consider opening an account with a payment bank, with equal preference shown for retail and telecom players. While the response of low-income consumers comes as no surprise given that they are largely underserved by banks, those of mid- and high-income respondents is a bit of a surprise and come as a shot in the arm for payment banks.“In what may be of concern to banks, mid- and high-income consumers have cited the convenience of fewer trips to banks as the main attraction of payment banks. Younger consumers are more willing to open payment bank accounts because of convenience,” says Anand Parameswaran, director, Nielsen (India). Adds Rajagopalan: “A very large proportion of accounts are of less than Rs 1 lakh in value – this is the bulk of Indian CASA. These can migrate to new payment banks. Competition is expected to improve service, better the return and cut the cost of operations for the banking system as a whole. This is the intent of the legislation.”A closer reading of what Parmeswaran and Rajagopalan’s views makes a few things clear: one, there is a universe which is laid-back, but has a cash surplus; and two, many with less than a lakh in the bank will move to a payment bank. On paper, payment banks will fire.But Look At The MathA payments bank can accept deposits up to Rs 1 lakh from a customer (the limit may be revised upwards, but that’s in the future). To deposit a higher amount, you either have to go to another bank of its ilk or a ‘regular’ bank. Now, it’s a no-brainer that a payment bank must offer rates that are competitive. Recall that CASA (the more you have of them, the lower the cost of funds), is not exactly ‘cheap’. There is a cost to acquiring them other than the interest rate offered — branches and manpower, among others. That’s why it is the smaller banks such as Kotak Mahindra Bank (KMB), Yes Bank and IndusInd Bank that offer the best rates. But this game can be played only up to a point: when the share of CASA vis-a-vis total deposits is lower than that of peers. And while you do so, you have to be smart. Take KMB: its deposits grew 15.8 per cent to Rs 59,072.3 crore in end-March 2013; savings’ bank (SB) deposits rose 38.8 per cent to Rs 10,087.1 crore. But it may surprise you to know that while the bank offers 6 per cent on its SB accounts, its average cost for this mop-up stands at 5.5 per cent!If a payments bank cannot lend, has to maintain a cash reserve ratio (CRR), a statutory liquidity ratio (SLR) and invest its deposits only in government securities (which offer returns of about 6-7 per cent), how is it to make enough to cough up for its operations and pay interest on deposits? Let’s also not lose sight of the fact that a payments bank has to compete with credit co-operatives (which cater to small and marginal farmers) which expand into urban cooperative banks; regional rural banks which incorporate features of co-ops and banks. And all of them offer credit too. If you are keen on numbers, here you go: we have 26 state-run; 20 private (seven new, 14 old); 43 foreign banks; 64 regional rural banks; 1,606 urban cooperative banks and 93,551 rural co-ops — all of them chasing customers.That’s why Crisil points out that even though telcos are likely to capture around 15 per cent of the domestic remittances market, luring deposits is another ball game altogether because they will have to invest in brand building and gain the trust of depositors (just paying competitive interest rates will not do). “As a result, we forecast payment banks having a minuscule share of less than 0.5 per cent of CASA deposits of the Indian banking system five years after launch,” says Ajay Srinivasan, director, Crisil Research. In defence of payment banks, Swarup Roy Choudhury, managing director of First Data, says: “It is not a brick-and-mortar model. The cost structure is not like that of a commercial bank.” What if a commercial bank were to set up one of its own? “I don’t know how they (banks) will distinguish it from what they already offer their customers. You can’t (as a bank) just strip the entire payments business and push it into a new payments bank.” He stresses on cross-selling. “What matters is that you have a relationship with your customer on the credit side; it does not matter whether you `manufacture’ a financial product.” You can’t argue with that. IndusInd Bank ‘sells’ home loans of HDFC Ltd; HDFC Bank also hawks those of its parent; and ICICI Bank vends AmEx cards; banks sell insurance products of their own and those of rivals. The point being made here is that as long as you can buy what you want to from a counter, it does not matter whose counter it is. At least that’s how the argument goes. But making cross-selling work is a different proposition; few have succeeded in pulling it off. The cross-sell ratio (relationships per customer) for the best of the lot will at best be a shade above three (there are no industry-level studies as yet). The global leader, Wells Fargo, claims in excess of six. You can’t expect payment banks to beat legacy banks straightaway on cross-sell. Let’s look at the fee income potential for payments banks. The offerings (third-party) will perforce have to be tailor-made for clients. It’s a hurdle that even the best of commercial banks have not overcome in their efforts to get into lower-tier cities. So it’s a tough ask to expect them to customise offerings for payment bank customers. Then again, the credit appraisal in such cases is done by the bank whose product is being cross-sold. And,what stops commercial banks from playing the same game? They too can cross-sell a suite of services to their depositors (whatever the size of deposits) and offer them better pricing if they consolidate their relationship (with a bank) — discounts on car, home and personal loans. The coming of age of credit bureaus, data mining and analytics will hasten this process. Axis Bank has made sure existing depositors drive 60 per cent of its incremental retail assets. Of course, you have to make sure as a bank that your liability and assets businesses ‘talk to each other’ to increase cross-sell and not be silo-ed. Few state-run banks do so (which account for 72 per cent of market share), but there’s nothing to suggest that at least the better among the lot will not do so down the line for the financially excluded. Out Of Context?The case for a PPI to convert to a bank was valid as in case the bank in which the escrow was held went belly up, it could take the PPI with it — the amounts held by the PPI have no deposit insurance unlike the direct depositors of the bank. The Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low Income Households observed: “All `nested’ have this feature and there may be greater stability obtained from independent designs where the PPI deals directly with RBI rather than through a sponsor bank.” PPIs like Airtel Money and Oxigen are ‘nested’. The idea of a payments bank is not new. Brazil’s (Law 12865) created a new legal entity known as a ‘payments institution’, to be regulated by the Brazilian Central Bank; in 2007, the South African Reserve Bank said non-bank payment service providers (PSP) can play an important role in the payments system. And, globally, in the inclusion context, Kenya‘s M-Pesa is the most successful ‘nested’ payments bank. Over two-thirds of Kenyans use this service and about 25 per cent of the country’s GDP flows through it. But the Indian version is an ‘independent payments bank’ which would be a direct participant in the payments system and, instead of escrow balances with a sponsor bank, hold reserves — CRR and SLR — with Mint Road.These examples cannot be stretched to make a case for payment banks. “We do not expect payment banks to repeat that success in India. Rather, the value of transactions through payment banks is likely to be less than 0.2 per cent of India’s GDP by fiscal 2019,” says Srinivasan. His view is that the M-Pesa service in Kenya benefited from lower banking penetration (less than 15 per cent at the time of launch in 2007), higher working migrant population and regulatory patronage (telcos in the country do not require tie-ups with banks). Safaricom was able to navigate KYC concerns as Kenya has a national identification system. “Compare that with India where users need basic identification to open ‘accounts’ and must go through some due diligence, which reduces adoption. Also, competition from other modes of money transfer (postal system, etc.) is significant unlike in Kenya where remitting money through people (which can be unsafe) was the predominant mode of money transfer prior to M-Pesa,” says Srinivasan.Yet some telcos may pull it off. That’s because, compared to them, an India Post, a large BC, PPIs and retail chains will be at a disadvantage as their customer base is limited. They will have to make significant investments on expanding their distribution network, technology and brand-building. The business will make losses for at least a few years (till volumes pick up), as spreads earned on deposits and earnings from remittances may not be sufficient to cover distribution, marketing and technology costs.The key driver for telcos is that they can increase the ‘stickiness’ of their customers. That means a lower churn rate which, over a period of time, could lead to an increase in average revenue per user (ARPU) which is in the region of Rs 119 per month. Another plus is the commission telcos can earn on transactions — big telcos have well over 100 million subscribers; even if each one of them conducts one transaction a month, it translates into 1.2 billion transactions annually. The value of transactions through m-wallet have more than trebled in the past two years to over Rs 27 billion in the last fiscal, indicating the huge business potential. The additional channel of income for them as payments banks is deposits (difference in yield earned by investing deposits and the interest rate offered on deposits). Crisil feels it will hasten the EBITDA break-even period by 2-3 years compared to plain vanilla m-wallet services. They can also save on commissions currently paid to a bank whenever a customer withdraws cash (technically called cash-out), but then telcos will have to take care of cash management on their own (which can be a challenge).Former RBI deputy governor K.C. Chakrabarty is on record stating that “my only question about payment banks is what will be their viability? How will they earn money?” He said financial inclusion was not limited to merely opening bank accounts. “Financial inclusion is also providing emergency credit. The maximum request from the poor is for emergency credit.”Given the number of applicants for both payment banks and small finance banks, it is possible that Mint Road may go in for an ‘on-tap’ approach while issuing licences — dole them out as and when they are seen as fit, proper and needed (and not unlike the method adopted for new private bank licences). You might well see the first of this lot a year down the line. We are well on our way to ‘tap’ and ‘pay’. With inputs from Anup Jayaram(This story was published in BW | Businessworld Issue Dated 09-03-2015)
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With RBI keeping interest rates unchanged, government today said it is looking forward to the central bank to support revival of growth and employment.In a statement, the Finance Ministry said it was encouraging that RBI has taken note of the structural change in the outlook for inflation."The government looks forward to the RBI supporting the revival of growth and employment," the statement said.Referring to the proposed new monetary policy framework, it said in the weeks ahead, government and RBI will work towards it.The framework would "help institutionalise the gains achieved on the inflation front, so as to reduce inflationary expectations and further support the revival of investment and growth", the ministry added.Earlier in the day, RBI Governor Raghuram Rajan said talks with the government have progressed well and the details will be announced soon.The new monetary policy framework involves setting of a formal inflation target and accountability to deliver on the same. The RBI has set the inflation target for January 2016 and beyond at 4 per cent, plus or minus 2 per cent.In its policy review, the RBI said "if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle".RBI today kept interest rates unchanged for fifth time in a row and the repo rate continues to be at 8 per cent while the cash reserve ratio has also been retained at 4 per cent.On the inflation trajectory, Rajan said he expects it to ease further and average at the 6 per cent."Over the next 12-month period, inflation is expected to retain some momentum and hover around 6 per cent, except for seasonal movements, as the disinflation momentum works through," he said after his bi-monthly review of the monetary policy.On her part, SBI Chairperson Arundhati Bhattacharya said that interest rates are likely to remain unchanged after RBI's status quo.ICICI Bank chief Chanda Kochhar said that "the statement that a change in monetary policy stance is likely early next year if the current positive trends continue is very welcome.""The results of government actions to energise investment activity should start playing out in the coming months. As this happens and interest rates moderate, we should see an improvement in growth going forward," she added.Economic growth slowed to 5.3 per cent in the second quarter of current fiscal, from 5.7 per cent recorded in April-June quarter.(PTI)
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