By Suchetana Ray Top sources in CBI say that they are conducting searches in a branch of Bank of Baroda in New Delhi. This raid comes after the investigating agency decided to launch a probe into certain foreign remittances by the Bank. Sources allege that Rs 6,000 crore has been illegally remitted to Hong Kong from Bank of Baroda. “This is a case of black money being siphoned out”, said a source in CBI on conditions of anonymity. A private company is also being probed and raided in this connection. But CBI refuses to divulge more details at this point since the searches at various premises are still continuing. This is a case of yet another Public Sector Bank coming under CBI surveillance for illegal financial transactions. Last year in August CBI had registered a case against Syndicate Bank for taking bribe in return for loans. PTI added that accounts of about 60 companies opened at the Ashok Vihar branch of the bank are under scanner. The Enforcement Directorate has also registered a case and carried out searches in this connection.
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Standard Chartered's new Chief Executive Bill Winters plans to cut about 1,000 of the bank's most senior staff to reduce costs, according to a memo sent to staff, as he battles to revive the bank following a sharp drop in profits. The cull shows the scale of the overhaul Winters is planning at the Asia-focused bank, which he has said needs to speed up decision-making on costs, people and strategy, and improve its risk management and profitability. Winters said he planned to reduce by a quarter the number of staff graded in bands 1 to 4, the memo seen by Reuters said. Those bands cover bankers at director level and higher and include about 4,000 staff. "Our situation requires decisive and immediate action," Winters told staff. "Each member of the management team has a mission to drive through improvements in our returns and part of this will be further streamlining of our organisation." Winters, a former JP Morgan investment bank boss who took over in June after the ousting of predecessor Peter Sands, said the bank would also make disposals and cut clients. Disposals would be in areas where the bank was "not differentiated", or an activity or location "was not critical to a core strength." Standard Chartered shares were up 5.3 percent at 788.4 pence by 1310 GMT. The shares have rallied 26 percent in the last eight trading days amid optimism Winters can get on top of its problems, but are still down 42 percent since the start of 2014. Standard Chartered has had a troubled three years due to weakness in many of its key emerging markets, rising losses from bad loans in India, China and on commodities, as well as fines from U.S. regulators and strained relations with shareholders. "We lost some discipline during that time, leading to our recent problems with loan impairments and relatively high expenses," Winters said in the memo. He is expected to outline his plans to investors and staff in November or December. Sress TestMeantime there are concerns a test of its loan book against a theoretical Asian recession, being carried out by the Bank of England, could show it is short of capital. The results are due out on Dec. 1. Standard Chartered could have a $4 billion capital shortfall under the "stress test", analysts at Goldman Sachs said this week. But they said there was scope for the bank to restructure and release up to $6 billion of capital. Winters halved Standard Chartered's dividend in August and said the bank would raise capital from investors if needed. It said at that time it had cut 4,000 staff since the start of the year, reducing the total to about 88,000. Winters also said in the memo his plans were not all about cuts, and he had identified areas for investment, to make room for which the bank would cut the number of its clients. "We will focus on those clients who value our capabilities and compensate us accordingly. For others, we will be there when they need us but will withdraw resources in the meantime." Standard Chartered has also been fined more than $1 billion for breaching U.S. sanctions, including with Iran, and authorities there are still investigating some issues. Winters said the bank was making progress in improving its processes and systems, its behaviours and remediating past issues, and told staff any violations would not be tolerated. A spokesman said a note sent to staff by Winters this week said kick-starting performance was a priority. It said the bank had indicated in July there could be personnel changes to come. (Reuters)
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The Reserve Bank’s new norms on individual housing loans is expected to give a strong fillip to the housing loan market in India, says a Bank of America Merrill Lynch report. The RBI yesterday released fresh norms on Loan-to-Value (LTV) ratios and risk weights for individual housing loans. “We expect the new guidelines to give a strong fillip to the housing loan market in India,” BofA-ML said, adding that banks having a large share of housing loans in their portfolios are likely to benefit from the move. As the RBI has raised the minimum home loan size to Rs 3 million from Rs 2 million, this will attract a lower risk weight of 35 per cent as against 50 per cent earlier, according to the global financial services major. “This is likely to help the banks to price housing loans better and generate higher returns,” it said, adding “this is likely to provide upside to our expected home loan growth of 18-20 per cent.” The Reserve Bank said that in the case of ‘individual housing loans’ falling under the loan category of up to Rs 30 lakh, the LTV (Loan-to-Value) ratio is now up to 90 per cent. For properties above Rs 30 lakh and up to Rs 75 lakh, the LTV is up to 80 per cent and those above Rs 75 lakh, the ratio comes in at 75 per cent.This means banks can now provide home loans up to 90 per cent for properties that cost Rs 30 lakh or below, RBI said.Earlier, the facility was available only in cases where the cost was up to Rs 20 lakh.The move will benefit those home seekers who plan to buy properties in the range of Rs 20-30 lakh.The RBI’s decision comes in the wake of all major banks reducing interest rates post the central bank’s policy rate cut.(PTI)
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Move to give fillip to low-cost housing segment as for loans of up to Rs 30 lakh, the loan-to-value (LTV) ratio will be 90. BW Online Bureau reports In order to boost demand for low-cost housing and to encourage builders to focus on this housing segment, the Reserve Bank of India (RBI) has reduced the risk weight for individual housing loans of up to Rs 75 lakh. The minimum risk weight for individual housing loans has been reduced from 50 per cent to 35 per cent. For loans of up to Rs 30 lakh, the central bank has increased the loan-to-value (LTV) ratio to 90. LTV is the highest loan amount a bank can disburse, as a proportion of the property price. Last month RBI had said risk weights would be reduced to boost affordable housing. In simple terms this move from RBI means banks will prescribe lower risk weights where the borrower brings higher contribution. This is expected to free up capital for banks to give more loans. As an example, if a house costs Rs 30 lakh and the borrower can bring in Rs 6 lakh upfront (20 per cent of the home value) then the bank will provide a loan of Rs 24 lakh. Lower risk weight means that the capital costs will come down as the banks will have to provision lesser capital. According to the new RBI norms, for loans of up to Rs 30 lakh (where LTV is up to 80 per cent), the risk weight will be 35 per cent. Where the LTV for loans is 80-90 per cent, the risk weight will be 50 per cent, RBI notification issued on October 8, 2015 said. In the Rs 30-75 lakh loan bucket with LTV of 75 per cent, the risk weight will be 35 per cent (earlier it was 50 per cent). For an LTV of 75-80 per cent, the weight will be unchanged at 50 per cent. For loans exceeding Rs 75 lakh where loans don’t exceed 75 per cent of the value, the risk weight has been kept unchanged at 75 per cent. However, the risk weight for commercial real estate has been left unchanged at 100 per cent. Bankers said this move will boost the demand for low-cost housing segment as increasing loan-to-value will encourage builders to build more houses in this segment. “At present, the minimum risk weight applicable on individual housing loans is 50 per cent. To improve affordability of low-cost housing for economically weaker sections and low-income groups and give a fillip to ‘housing for all’, while being cognisant of prudential concerns, it is proposed to reduce the risk weights applicable to lower value but well collateralised individual housing loans,” the central bank had said. The move by RBI comes at a time when the property sector is battling a prolonged slowdown amidst a drastic drop in new project launches, new sales and growing unsold inventory. Welcoming the move Manoj Gaur, President, CREDAI-NCR said this was a significant step especially in a significant real estate market like the Delhi NCR where consumer confidence is very low. "This may act as a trigger to improve the overall sentiment,” said Gaur. As a buyer: There are two important developments in the recent RBI move. One, home loan seekers in the range of Rs 20-Rs 30 lakh stands to gain the most and secondly, those ready to pay high down payment irrespective of the loan amount also gains. Let’s see how. The biggest beneficiary has been the home loans takers between Rs 20 and Rs 30 lakh as the LTV is now 90 percent for them, up from 80 percent. Earlier they had to arrange down payment of 20 per cent but now, it’s only 10 percent. Property buyers in tier I cities may not have much to cheer about as home prices for a decent 2BHK is well over Rs 30 lakh anyways. Another interesting feature of RBI’s latest move in reducing risk weightage is creating more room for banks to cut rate within the loan categories. This wasn’t there in the past. In loans up to Rs 30 lakh if LTV is up to 80 percent, banks have to keep lower risk weightage of 35 per cent, than compared to someone taking loan with LTV 90 per cent. Similarly, for loans between Rs 30 lakh and Rs 75 lakh, banks have to keep lower risk weightage of 35 per cent, than compared to someone taking loan with LTV 90 per cent. This is true in loans above Rs 75 lakh too. Banks therefore can offer much lower rate to those bringing more of own funds. In a way, banks are transferring risk to buyers and thus are able to offer lower rates. It remains to be seen, how aggrieve are banks in their pricing now. Banks should now be offering variable rate depending on how much of own funds the individual is ready to pay up. As a home loan seeker, try negotiating for rate and try keeping LTV 80 percent or less. Unlike in the past, now there’s an additional incentive to provide higher down payment to bank while getting the loan sanctioned.
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The maximum number of co-operative banks (Co-op banks) whose claims (deposit) were settled by the Deposit Insurance and Credit Guarantee Corporation (DICGC) in 2014-15 were based in Maharashtra and Gujarat. Of the Rs 321 crore in settled claims by DICGC, 18 were co-op banks were from Maharashtra for a sum of Rs 48 crore; the same for Gujarat was nine and Rs 27 crore. While the reasons for the dismal performance of these banks are not clear (nor does DICGC spell it out), what we can glean is that their health is not good. We have to only look into the Reserve Bank of India's Report on the Trend and Progress of Banking in India 2013-14 (the latest in public domain). It says that at the systemic level, the capital adequacy ratio of these scheduled urban co-operative banks (SUCBs) improved to 12.7 per cent at end-September 2014 from 12.4 per cent at end- March 2014. But at a disaggregated level, seven banks failed to maintain the minimum required capital adequacy ratio of nine per cent. Mint Road carried out a stress test to assess credit risk using the provisional data at end-September 2014. The impact of credit risk shocks on capital adequacy of these banks was observed under four different scenarios. The results showed that except under the extreme scenario, the system level capital adequacy remained above the minimum regulatory level, though individually a large number of banks (28 of the 50 banks under the extreme scenario) would not be able to meet the required level. What we can deduce is that several of these banks are not liquid. A stress test on liquidity risk was carried out using two different scenarios assuming 50 per cent and 100 per cent increase in cash outflows in the one to 28-day time-bucket. It was further assumed that there was no change in cash inflows under both the scenarios. The stress test results indicated these banks will be significantly impacted under stress scenarios.
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A recent Swiss Re report finds the gap between ‘actual’ and ‘required’ protection level to be big and increasing in Asia including India. Sunil Dhawan reports In spite of nearly 24 life insurance companies, hundreds of products, lakhs of agents, brokers and thousands of bank branches and almost 15 years since the insurance industry was opened up to forge in and private players, a typical Indian household continues to carry risk of life protection or the risk of dying too early. Either a large portion of the population is still without insurance or is grossly underinsured. The financial risk of dying too early can be met through adequate life insurance but there exists a big gap in terms of actual protection. The mortality risk is highly under-penetrated. Since 2011, the global re-insurance provider Swiss Re has been publishing a study on “Asia-Pacific mortality protection gap featuring multiple markets including India. The recent 2015 report finds the gap between ‘actual’ and ‘required’ protection level to be big and increasing. How big is the gap: As per the report – “The mortality protection gap for most markets has widened. Collectively, the size of the gap reached $57.8 trillion in 2014 from $42.1 trillion in 2010.” China had the biggest gap in Asia-Pacific in 2014, amounting to $32.1 trillion compared with $18.6 trillion in 2010. Indian gap: The size of the mortality protection gap in India is significant, at $8,555 billion in 2014 and having grown by 11 per cent per annum between 2004 and 2014. India stands at second position followed by Japan and South Korea. The reason attributed for India to become the second-largest gap country over the past few years are higher growth in the labour force and wages. Overall, India has a life insurance penetration of 2.6 per cent of GDP in 2014, lower than Asia’s average of 3.5 per cent but higher than that of emerging markets with 1.4 per cent. In India, the protection margin is at 92.2 per cent. The report explains how big is the protection margin with an illustration – “The ratio of 92.2 per cent in 2014 reveals that for every $100 needed for protection, only $7.8 of savings and insurance is in place, leaving a massive protection gap of $ 92.2.” in simple terms it means, only 10 per cent of protection need is met by savings and insurance. Under-insurance and the means to meet an unexpected financial event is high. Reasons: India has the highest protection margin in the region as growth in savings and life insurance coverage has lagged behind economic and wage growth, the report identified them as probable reasons. It clearly shows, life insurers haven’t been able to sell ‘sum assured’ to the extent required. “Population and wage growth are key drivers behind the increasing gap in many markets. At the same time, while insurance penetration has increased further, this has proven insufficient to rein in the trend of a widening gap,” adds the study. However, the report also identifies that “In major emerging markets (eg India and China), the growth of insurance coverage has been faster than economic and demographic growth, thus resulting in a narrowing of the protection margin between 2010 and 2014.” Industry action: In Indian market, Swiss Re, as per the report, undertook initiatives with local players in employing the use of online channels to distribute term life insurance. Term insurance plans are low-cost, high-premium plans. Although a must-have for someone with financial dependant, most agents do not push them as commission earnings are low in them because of low premiums. Further, individuals lack awareness and clarity on term plans and view them as something where its ‘premium lost’, on surviving the term of the plan. Most insurers have therefore been using the online channel and promoting purchase of term plans from their websites. Interestingly, persistency on such policies is high compared to non-term policies. Government action: Lately, government had announced schemes for general public providing life cover, accident cover and pension. One of them is Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), which is a one-year renewal group term insurance plan proving a life cover of Rs 2 lakh up to the age of 55. It remains to be seen, what impact it will have in bridging the gap. End note: The report highlights something which was known to all which is that under-insurance is high in India. But, the quantum is something one needs to look at seriously. As a thumb rule, one should own life insurance (in terms of sum assured) of at least ten times of one’s annual income. Add, future liabilities such as child education, marriage expense and home loan liability to arrive at actual figure. Review every five years to take care of inflation. And the best way to have enough cover is through term insurance plan. Visit insurer’s website and buy it online if your agent doesn’t help you. Use tools on sites to calculate actual coverage. To know about online term plan buying click here. The report certainly points out the potential for insurers but as a consumer, anytime is the right time to get fully protected and spend quality time with family without financial worries.
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At least six insurance companies have evinced interest in raising the stake of their foreign partners from present 26 per cent to 49 per cent, Insurance Regulatory and Development Authority(IRDAI) Chairman T S Vijayan said on Wednesday (07 October). These six to seven companies are from both life and non-life insurance space, he told reporters in response to questions at an event organised by ICICI Lombard General Insurance Company Ltd to announce that it had issued one lakh policies of the long term two-wheeler insurance. The insurance regulator declined to name the companies, saying they are yet to file a formal application on stake hike. "There are various stages of approval". The government raised the cap on FDI in insurance sector in March this year. Meanwhile, Vijayan hinted that IRDAI would soon take a call on the issue of long-term health insurance policies. He said a committee on health insurance is looking into the issue and expected to submit its report soon. "They have more or less finalised the report. We are evaluating the report actually," Vijayan said.(PTI)
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Naval Goel talks about how insurance companies will have no choice but to be present over mobile platforms apart from their regular websiteTechnology has always been a transformational factor in our lives and insurance industry is no exception. A few years ago, it was hard to get reliable information on insurance products. People had to rely on agents who were perhaps the only channel to get advice on insurance plans.But things changed after some time. Insurance companies started putting a lot of relevant information on their portals. Consumers who were web savvy got an edge due to this. Still, people had to buy insurance through agents only.But this too has changed. Today, you can buy online insurance. It is very easy. Thanks to the increased security measures and rising credibility of e-commerce platforms, people are open to buy insurance online.With rapid advancement in technology, things have even better. If you wish to buy coverage for yourself, your dear ones or for your assets, you can simply get the information even while on the move.Why are insurers vying to get on to the mobile platforms?As per industry research reports, the future belongs to mobile technology. It has been estimated that India has over 213 million people using mobile internet. That means over 21 crore people in India are using Internet services on mobile.In the next two years, this number will grow to 31 crore. By 2017, India will add over 10 crore people to mobile internet subscribers base. These numbers are huge and make sense, from both marketing and commercial perspectives. Data Source: Industry EstimatesYou must have come across popular web portals which have moved to mobile platforms swiftly. There are some who have gone one step further and have declared that they will only operate through mobile platforms. That means, they will be available on mobiles only. This reflects the underlying potential of mobile technology.Insurers have sensed this trend early on. They are providing many facilities through mobile platforms. Whether it is their agents or consumers, a lot of information is made available through mobile applications.There are many ways through which insurers are motivating people to use mobile to even transact on mobile phones. At present, the trends are low and people do not trust mobile software for financial transactions. A few years ago, the e-commerce industry was also facing the same challenge.People's concerns will fade away once companies start deploying more secured networks and introduce measures to keep hackers at bay. After all, there are thousands of incidents under which hackers have stolen information related to credit cards.But it will be increasingly difficult to steal personal information. The IT Act in India has provisions to deal with people who are proved to be involved in phishing or any illegal act using Information Technology.The OutcomesThe financial outcomes of mobile related technologies are at a low currently. But no company can afford to ignore it. They have to keep pace with the changing trends and the future prospects.There is no second thought that the mobile users will keep on increasing. If you look around, you will find that mobiles have brought a revolution in people's lives. From a high-flying millionaire to labourers working on the ground, everyone is using mobile phone. Internet is omnipresent. People are using social media, free messengers, games, and several things over the Internet.In times to come, insurance companies will have no choice but to be present over mobile platforms apart from their regular website. Their sales and marketing plans will be in tandem with this powerful media. Undoubtedly, there will be many facilities and privileges available to consumers who go for this mode of transaction.Thus, it will be a win-win situation for both companies and consumers.Should you buy insurance through mobile applications?Insurance companies in India are trying their best to reach out to its potential customers through various channels. If you are buying insurance through an authorised mobile application of an insurance company, your transaction will be most likely to be a secured one.Nevertheless, you can always utilise the vast pool of information available on internet while on the go. You can access many insurance comparison portals on mobile phone, even when you are travelling in a Metro or waiting for a friend at a restaurant.The author is founder & CEO of PolicyX.com
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