As mobile phones become more functional, mobile money will clearly emerge as the banking solution for the unbanked, writes Srinivas NidugondiMobile money, a digital money paid for a wide range of products or services through a mobile device is revolutionising financial access, especially for the unbanked.As per World Bank estimates, 2.5 billion people across the world, lack access to formal financial services. The primary reasons for this include:Insufficient banking servicesIn the absence of banking services, people have to rely on cash transactions, which are both inconvenient and unsafe. These are the exact reasons why mobile money finds favour. With its growing penetration, the mobile phone provides a low cost and highly accessible platform that formal banking systems are unable to provide.Change of PowerFrom offering person-to-person transfers, bill payments and point –of-sale purchase options, mobile money clearly shifts the balance of power in favor of customers. Some of the areas where mobile money can particularly benefit unbanked people include:Quicker recovery from economic shocks Efficient receipts of money transfers post any disasters Access to savings, credit and insurance opportunitiesLittle surprise then that the number of registered mobile money accounts worldwide, reached 299 million in 2014. However, in terms of percentage, they still represent a low 8 per cent of the mobile connections in markets where mobile money services are available.To achieve scale, mobile money providers will need to circumvent the following challenges, especially in rural areas:Logistics and delivery: Lack of infrastructure in rural areas can create logistical challenges. Local partnerships along with flexible agent financing are some of the aspects that providers are leveraging to address these challenges.Clearly communicating benefits: A compelling value proposition that will be different for rural and urban consumers, aided by a thorough understanding of their saving and buying patterns, can go a long way in optimising usage.User-friendly service: A user-friendly interface is one of the primary factors that will help in customer on-boarding. This is especially significant for customers with low literacy levels.Substitution of formal identification documents: The lack of formal identification documents is a major stumbling block as far as traditional banking is concerned. Substitution of these documents with acceptable KYC documentation within the regulatory framework can go a long way in customer adaptation.Other than mobile money, providers are now expanding the mobile financial services, to include:Mobile insuranceMobile savingsMobile credit to customersClearly, mobile financial services are set to impact a customer’s social and economic lives, especially the base of pyramid community where literacy levels are low and income is often sporadic. As mobile phones become more functional and less expensive, mobile money will clearly continue to emerge as the banking solution for the unbanked.(The author, Srinivas Nidugondi, is Senior Vice President & Head of Mobile Financial Solutions, Mahindra Comviva)
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IDFC Ltd said on Friday the Reserve Bank of India had granted banking licence to the financial company, making it the second lender to enter the banking sector after more than a decade. Indian microfinance company Bandhan Financial Services and Mumbai-based IDFC were the only two companies to be granted preliminary bank permits last year. Yes Bank was the last bank to be set up, in 2004. Bandhan said in June it would launch banking operations in August. Millions of people in India do not have access to formal banking services. The move to grant new permits marked the start of a cautious experiment to create more competition in a sector dominated by state lenders, many of which are reluctant to expand into rural areas or towns where banking penetration is low. (Reuters)
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In a move that may dilute powers of RBI chief, the government on Thursday (23 July) proposed taking away his authority to veto the interest rate decision of the central bank's monetary policy committee. The revised draft of Indian Financial Code (IFC), released today by the Finance Ministry, has also proposed that the all-powerful committee would have four representatives of the government and only three from the central bank, including the 'RBI Chairperson'. The draft talks of 'RBI Chairperson' and not 'RBI Governor'. RBI is headed by a Governor, at present. The IFC, which is conceived as an overarching legislation for the financial sector, proposes a monetary policy committee which will be entrusted with the task of deciding the key policy rate and chasing the annual retail inflation target to be decided by the government in consultation with RBI. "Inflation target for each financial year will be determined in terms of the Consumer Price Index (CPI) by the Central Government in consultation with the Reserve Bank every three years," said the draft on which the Finance Ministry has invited comments till August 8. Further, it said the RBI "must constitute a Monetary Policy Committee to determine by majority vote on the Policy Rate required to achieve the inflation target". At present, the RBI Governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance. The first draft, submitted in March 2013, too had talked about the committee and majority vote, but gave powers to RBI chairperson to supersede the decision of the panel. "In exceptional and unusual circumstances, if the RBI Chairperson disagrees with a decision taken at a meeting of the Monetary Policy Committee, the RBI Chairperson will have the right to supersede such decision," it had said. The provision was dropped in the revised draft. As per revised draft there will be three members from the RBI side and four from the central government, thus giving full control to the government on policy rate.
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The Reserve Bank is likely to keep interest rates on hold in the next month’s monetary policy meet, but may slash the key lending rate by a 50-75 basis points by March 2016, Morgan Stanley on Thursday (23 July) said.The investment firm believes that the RBI will leave the interest rates unchanged in its August 4 policy review meet given the acceleration in June headline CPI inflation and increase in core CPI for the third consecutive month. “We believe the RBI is likely to wait and watch how the monsoon season pans out and keep rates on hold in the August monetary policy meeting,” Morgan Stanley said. The brokerage however expects the headline CPI inflation to decelerate to 4.9 per cent by the end of next year, which in turn “should create room for the RBI to lower rates by a further 50-75 basis points by March 2016", its report said. The CPI inflation is likely to moderate due to weakening rural wages, slowdown in government spending, slower global commodity price growth and moderation in property prices, the global financial services major stated. As per official figures, retail inflation rose to an eight-month high of 5.4 per cent in June on costlier food items, fuel, housing, clothing and footwear even as prices of sugar and confectionery items eased during the month. The RBI, which tracks retail inflation as a benchmark for its monetary policy, said earlier last month that price rise was still a worry for the central bank. RBI expects inflation to rise to 6 per cent by January 2016. The central bank is scheduled to announce third bi-monthly monetary policy on August 4. On growth, Morgan Stanley said domestic demand would be the main driver of acceleration in growth, with support from external demand likely to pick up only gradually in the second half of this calender year. According to the firm, slowing rural real wage growth and tightening fiscal policy are likely to hold back rural consumption in the next 3-6 months, while urban consumption is expected to accelerate in a sustained manner with rising real incomes, a steady pickup in job growth and added support from further rate cuts. “We believe that in order to sustain growth at 7-8 per cent levels, in the medium term the government will need to focus on addressing issues related to land, labour tax, policy regime related to infrastructure and overall ease of doing business,” the report added.(PTI)
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Under pressure to do more to cut a $49 billion mountain of bad debt, India's state-owned banks are reversing years of lax recovery efforts, naming and shaming smaller borrowers and even using big TV screens at shopping malls to advertise seized assets for sale. India's bad debt pile, dominated by corporate loans, is at its highest in a decade, swollen by an economic slowdown, loose lending and, in many cases, banks' own failure to do enough to chase down rogue debtors. Now, bank executives say pressure — from a government needing to accelerate economic recovery and from a central bank that wants company owners to take more responsibility — has left little choice but to get tougher and faster. Tactics include targeting smaller borrowers with aggressive 'name and shame' campaigns, with placards and groups of bank employees protesting outside offices, for example, and putting pressure on investors or executives at larger firms. P.K. Malhotra, a deputy managing director at the State Bank of India, the country's largest bank, said his team received extra training, including in psychology, and was systematically chasing up payments, as others in the bank accelerated sales of seized assets. "The focus (is) on getting court cases expedited. Less on the paperwork and more on the fieldwork," said Malhotra. Executives say it's too early to measure overall success, but there have been some wins for India's bruised banks. Suzlon Energy this year sold its German unit, Senvion, for 1 billion euros ($1.1 billion) in cash — less than what it paid to buy the asset in a deal completed in 2011. It crystallised a huge loss after banks piled pressure on the loss-making wind-turbine maker to cut its debt. More than two dozen lenders led by SBI are looking for an investor in Electrosteel Steels Ltd, whose near-$1.4 billion bank loan is strained. Rather than 'evergreening' the loan - a process of regular review and renew - lenders are getting involved in the buyer talks, an individual with direct knowledge of the matter told Reuters. EARLY WARNINGSGross bad loans at Indian banks rose to Rs 3.1 trillion ($48.83 billion) as of end-March, or 4.6 per cent of total loans, according to central bank data. Including loans that are stressed but not yet classified as bad, total troubled loans made up 11 per cent of total lending. Banks say they are now moving faster to bring that down, stepping in at the first sign of trouble, sending out more officers to chase borrowers and putting more people on the job through specialised branches. Some are trying to speed up the sale of seized assets by advertising them on large screens at shopping malls. "These days people are getting on to the job the moment you have an early warning signal that something may happen in a company and you have thousands of crores at stake," said a senior banker at a big state-run bank. India uses crore to denote a unit of 10 million. SBI has set up branches focussed solely on recovering loans, and, to speed up cumbersome paperwork, encourages managers to snap pictures of themselves on seized assets - proof of the change of ownership. It plans to set up a web portal to showcase all the seized assets available for auction. "Companies can sometimes fall in love with their assets, but bankers can't afford to do that," said SBI's Malhotra. Union Bank of India chairman Arun Tiwari said his state-run lender has changed its system to put three separate general managers in charge of recovering different classes of loans - large, middle and small. "You have to go out in the field," he said.(Reuters)
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You can expect a slew of deals going ahead – as state-run banks seek to jettison what’s non-core to their business. And there are no “ifs” and “buts” here as North Block too wants it that way, says Raghu Mohan In the 90s – in the first blush of liberalisation – state-run banks set up arms to tap into just about every other sub-sector in financial services – for insurance, capital markets, broking, and factoring. Many of these entities just chased the fashion of the day. Some came to hold stakes in stock exchanges by virtue of them being seen as “institution builders”. That’s how the State Bank of India came to hold a tad above 10 per cent in the National Stock Exchange; IDBI Bank (from its days as a development financial institution) five per cent; and so too the now almost defunct IFCI with six per cent. The immediate trigger for the sale of non-core assets by state-run banks is the realisation that the Centre will be hard pressed to infuse funds into state-run banks – now that a distinction has been made between the “better” and worse off in this category. The estimated additional capital requirements on account of Basel-3 which kicks in from fiscal 2019 is put at Rs 5 lakh crore -- of which non-equity capital will be Rs 3, 25 lakh crore, while equity capital will be Rs 1, 75 lakh crore. In his first Budget speech of July 2014, finance minister, Arun Jaitely, put it at Rs 2, 40 lakh crore. The exact amount depends on a range of factors: credit growth, its quality, dud-loan provisioning, and the technicalities under Basel-3. In a recent report, Jefferies’ analysts Nilanjan Karfa and Anurag Mantry noted that “government capital allocation will also factor in and come with specific riders on what banks can generate through sale of non-core assets. This further accentuates the deleveraging that banks will undergo as a part of their balance sheet repositioning… We agree that not everything can or will be sold, but the need to unlock value from the non-core assets has never been higher than it is today”. The sale of non-core assets by state-run banks basically takes a leaf out of a global trend. For instance, Barclays has set up a “Bank non-core” or BNC to house such assets to eventually sell them off. Others like Citigroup, RBS and Credit Suisse have adopted a like strategy. In India, the sale of non-core business lines has been executed largely by foreign banks as their parents revisited strategy back home. Such “cherry-picking” can range from the simple: HDFC’s Rs 60-crore buyout of Gruh Finance, the housing finance arm of Gujarat Ambuja Cement, more than a decade ago, to the complex: HSBC’s move to knit RBS retail and branch licences. It can be geographical: StanChart’s buyout of ANZ Grindlays Bank’s India and West Asia operations for $1.3 billion in 2000. Or of a vertical: ABN Amro’s decision to buy BankAm’s Asian retail book for $200 million in 1999 after its merger with NationsBank. It’s a case of different folks, different strokes. If you are hard-pressed on outreach as a foreign bank, you go for an embedded local non-bank player to secure your retail ambitions. Seven years ago, HSBC picked up 73.21 per cent in IL&FS Investsmart, a retail brokerage house for $241 million, 43.85 per cent from E-Trade Mauritius, and 29.36 per cent from Infrastructure Leasing and Financial Services (IL&FS).Basel-III will now see state-run banks get onto the bandwagon now – as sellers to raise capital.
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Under pressure to do more to cut a $49 billion mountain of bad debt, India's state-owned banks are reversing years of lax recovery efforts, naming and shaming smaller borrowers and even using big TV screens at shopping malls to advertise seized assets for sale. India's bad debt pile, dominated by corporate loans, is at its highest in a decade, swollen by an economic slowdown, loose lending and, in many cases, banks' own failure to do enough to chase down rogue debtors. Now, bank executives say pressure - from a government needing to accelerate economic recovery and from a central bank that wants company owners to take more responsibility - has left little choice but to get tougher and faster. Tactics include targeting smaller borrowers with aggressive 'name and shame' campaigns, with placards and groups of bank employees protesting outside offices, for example, and putting pressure on investors or executives at larger firms. P.K. Malhotra, a deputy managing director at the State Bank of India, the country's largest bank, said his team received extra training, including in psychology, and was systematically chasing up payments, as others in the bank accelerated sales of seized assets. "The focus (is) on getting court cases expedited. Less on the paperwork and more on the fieldwork," said Malhotra. Executives say it's too early to measure overall success, but there have been some wins for India's bruised banks. Suzlon Energy this year sold its German unit, Senvion, for 1 billion euros ($1.1 billion) in cash - less than what it paid to buy the asset in a deal completed in 2011. It crystallised a huge loss after banks piled pressure on the loss-making wind-turbine maker to cut its debt. More than two dozen lenders led by SBI are looking for an investor in Electrosteel Steels Ltd, whose near-$1.4 billion bank loan is strained. Rather than 'evergreening' the loan - a process of regular review and renew - lenders are getting involved in the buyer talks, an individual with direct knowledge of the matter told Reuters. Early WarningsGross bad loans at Indian banks rose to 3.1 trillion rupees ($48.83 billion) as of end-March, or 4.6 percent of total loans, according to central bank data. Including loans that are stressed but not yet classified as bad, total troubled loans made up 11 percent of total lending. Banks say they are now moving faster to bring that down, stepping in at the first sign of trouble, sending out more officers to chase borrowers and putting more people on the job through specialised branches. Some are trying to speed up the sale of seized assets by advertising them on large screens at shopping malls. "These days people are getting on to the job the moment you have an early warning signal that something may happen in a company and you have thousands of crores at stake," said a senior banker at a big state-run bank. India uses crore to denote a unit of 10 million. SBI has set up branches focussed solely on recovering loans, and, to speed up cumbersome paperwork, encourages managers to snap pictures of themselves on seized assets - proof of the change of ownership. It plans to set up a web portal to showcase all the seized assets available for auction. "Companies can sometimes fall in love with their assets, but bankers can't afford to do that," said SBI's Malhotra. Union Bank of India Chairman Arun Tiwari said his state-run lender has changed its system to put three separate general managers in charge of recovering different classes of loans - large, middle and small. "You have to go out in the field," he said. (Reuters)
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Indian state-run banks need aggressive capital infusion, writes Anil AgarwalIndian state-run banks need capital, a lot of it. I calculate they will need about $40 billion of capital by FY2019 to meet Basel III requirements and grow balance sheets at around 10 per cent a year.Decision makers clearly understand the need to capitalise the banks. But they are not showing any alacrity in funding these banks — probably driven by the view that full implementation of Basel III is four years away.They expect banks to raise equity from markets, but for most of these banks, investors are reluctant to put in new capital unless the government invests adequate capital and removes tail risks.My view is that the Indian state-run banks need to be capitalised soon — at least to a level that allows them to start growing their balance sheets by double-digit annual percentages again. State-run banks are currently growing at around 7 per cent, which creates a number of problems:1. The state-run banks account for 70 per cent of system loans, and if they don’t grow their loan books in double-digit terms, it will be very tough for system loan growth to go above 11-12 per cent, thereby dragging economic growth. Moreover, private banks are likely to be very reluctant to fund long-term projects, given therisks. They are likely to concentrate on consumer, SME, and working capital loans. Hence, private capital expenditure cannot increase sustainably without state-run banks being able to lend.2. The bulk of the state-run banks’ reported loan growth is going towards interest capitalisation on existing corporate loans. This implies that net new loan disbursals for these banks are close to zero. This effective deleveraging is causing an already bad loan book to get worse.3. With credit costs remaining high, the state-run banks have to keep loan yields high to make enough margin, so they can report some profits. This lack of competition is helping banks keep lending rates high (reflected in all-time high RoAs at private banks), thereby hindering transmission of any rate easing.The longer the decision on capital infusion is delayed, the greater the cost will be. As banks de-leverage, the existing balance sheets will likely get worse — ultimately implying a higher cost to clean up balance sheets. Moreover, the inability of almost 70 per cent of the system to grow can hinder economic growth materially.So what is needed? The current strategy of ‘extend and pretend’ is clearly not working. The longer a solution is delayed, the more costly it will be.The problem is solvable. Indian state-run banks need aggressive capital infusion, a la TARP in the US, where balance sheets were quickly cleaned up, write-offs taken, and banks recapitalised. I believe a government infusion of $14-15 billion in state-run banks (1 per cent of GDP) is needed relatively quickly. This would help them clean up their balance sheets and start growing again in the right areas. As tail risk declines, investors will likely come in and provide the bulk of the remaining funding — such an infusion could actually turn into a good investment for the government, in addition to funding the growth agenda. The author is head of AxJ Banks Research, Morgan Stanley(This story was published in BW | Businessworld Issue Dated 10-08-2015)
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