Sumit Sharma says all credit to RBI and government in their determination to serve those without banking access By granting 11 licenses for payment banks, the Reserve Bank of India put in yet another building block in its effort to reach banking services to unbanked and to the remotest parts of the country, and potentially increase use of digital technology and mobile services. The payment banks will be an add-on to the banks rather than competitors, said RBI Governor Raghuram Rajan hitting the nail on the head in an interaction with SBI chairman Arundhati Bhattacharya at a banking conference this morning. Payments banks will act as feeders to universal banks. The payments banks have been permitted to do only a few limited functions that are much fewer than universal banks. The main purpose for setting up payment banks is to further efforts of financial inclusion by opening small savings accounts, offer payment and remittance services to migrant labor workforce as also to low income households small businesses and others unorganized entities. The 11 payment banks, which have to start functioning within 18 months, will also help reduce the need to hold physical cash and the risks associated with keeping cash under the pillows for safety. In a country that has less than half of its population with access to basic banking services, and less than 100,000 bank branches in a country with 630,000 villages, towns and cities, the government has been making a variety of efforts to reach banking services to as many as possible. Following lukewarm success of business correspondents and a less than sanguine performance of micro finance institutions, the authorities seem to be banking on payments banks and use of mobile phones to further the use of banking services especially with almost 17 crore new accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY). Universal commercial banks are already taking rapid strides in using technology to provide banking services to even non-customers through e-wallets at lightning speed and little risk. The day is not too far when physical cash will no longer be necessary for making payments. The payments banks will rope in those missing out accessing banking services. The companies and partnerships selected from among 41 applicants, include Aditya Birla Nuvo Ltd, Airtel M Commerce Services, Cholamandalam Distribution Services Ltd, Department of Posts, Fino PayTech Ltd, National Securities Depository Ltd, Reliance Industries Ltd, Dilip Shantilal Shanghavi, Vijay Shekhar Sharma, Tech Mahindra Ltd and Vodafone m-pesa Ltd. They all have sound experience and credibility in conducting the businesses. Yet, some apprehensions have been expressed on profitability potential of payments banks. A typical payments bank can accept deposits, and hold balance of maximum of Rs 100,000 per individual customer, and help in making payments and remittance services. They are not permitted to issue debit or ATM cards to facilitate banking services beyond banking hours. While they are not permitted to issue credit cards to keep any risk to the minimum, they can still offer basic mutual fund and insurance products to depositors. So, the basic purpose of payment banks is to help small depositor in an area with low penetration of banking services, as also migrant labour with limited KYC documents. It will be some time before one will be able to pass judgment on its success. Yet, all credit to RBI and government in its determination to reach the unbanked population.
Read More
After granting approval to 11 entities for payments banks, the Reserve Bank of India (RBI) on Thursday said it will announce small finance bank licences next month and allayed concerns that these new entities can pose any threat to existing banks. RBI Governor Raghuram Rajan said that new payments banks would not pose any competitive threat to the existing banks and these new entities would rather serve as 'feeder' for the universal banks. The RBI had received 72 applications for small finance bank licences and 41 applications for payment bank licences. Out of these, the RBI on Wednesday granted 'in principle' approval for payments bank to 11 entities, including big names like Reliance Industries, Aditya Birla Nuvo and Tech Mahindra, as also Airtel and Vodafone. Those having applied for small finance banks include DHFL, IIFL Holdings, Lulu Forex, SKS Microfinance, UAE Exchange and Ujjivan Financial. Rajan said that RBI would announce small finance bank licences next month. The small finance banks can provide basic banking services like accepting deposits and lending to the unbanked sections such as small farmers, micro business enterprises, micro and small industries and unorganised sector entities. The payments banks would be allowed to provide payments and remittance services, but can not issue credit cards or accept deposits beyond Rs 1 lakh. They can issue ATM and debit cards and also distribute mutual fund and insurance products. Rajan said introduction of Payments Banks will revolutionise banking, make it very exciting for customers and existing lenders will have to improve service to retain depositors. "I've no doubt banking will become very competitive and universal banks have to provide full service to retain customers," Rajan said during a chat with SBI Chairman Arundhati Bhattacharya at the conference organised by the country's largest lender. 'Exciting For Customers'The introduction of Payments Banks will make banking "exciting" for the customers, Rajan said. Bhattacharya had asked whether payments banks could lead to a "worry" and eat into the low-cost deposit base for banks as the new banks have the option to accept deposits. Rajan said there is no threat to the banking system and the PBs will serve as a feeder for the existing banks. The bank branch can become a centre of activity, helping with cash handling or do some completely new work. "There is a lot of scope for everyone, not everybody will succeed but this is a revolution which can happen," he said. He also thanked Nachiket Mor for the work he has done on the PBs and quipped that the new banks can also be called "Mor Banks". Amongst those selected by the Reserve Bank include Reliance Industries, Airtel, Aditya Birla Group among others, to start a Payments Bank. They have an 18-month window in which they can submit their plans and get the final license. Dilip Shanghvi, the second-richest Indian, was also among those who won a permit. His company Dilip Shanghvi Family and Associates will partner Norway's Telenor and Indian financial firm IDFC Ltd for the planned payments bank. IDFC previously won a full-service banking permit and plans to start the bank from October. Rajan further said there is a pick up in the economy and the rural economy may also see an uptrend if monsoon improves and sowing is good. He also raised questions on the true strength of Chinese economy and said India shouldn't be concerned if yuan depreciation holds at current levels. On the banking sector's bad debt problems, Rajan said the NPAs covered under credit guarantee trust for medium and small enterprises were high. Besides, small companies were facing liquidity problem due to non-payment of bills, including those by the government. (Agencies)
Read More
India's leading mobile carriers Bharti Airtel Ltd and Vodafone India were among 11 companies selected by the Reserve Bank of India (RBI) to help set up "payments banks" aimed at granting millions of citizens access to basic banking. Energy-to-telecoms conglomerate Reliance Industries Ltd, controlled by India's richest man Mukesh Ambani, which plans to set up a payments bank in a partnership with top lender State Bank of India, was among the winners. Payments banks will be able to take deposits and remittances but will not be allowed to lend. They are part of India's financial inclusion push, meant to bring banking services to a country where less half the adult population has a bank account. The aim is for payments banks to piggy-back on existing retail or other networks. Dilip Shanghvi, the second-richest Indian, was also among those who won a permit. The country's postal office, and a joint venture of Aditya Birla Nuvo Ltd and third largest Indian cellphone carrier Idea Cellular were among others selected by the central bank. Fino PayTech Ltd and Cholamandalam Distribution Services Ltd, which already work with banks as agents or distribute financial products were also given provisional approval. The companies selected will be given "in-principle" approval for 18 months, after which they will be given licences if they fulfil all conditions stipulated by the RBI, the central bank said on Wednesday. A total of 41 companies had applied for the permit, the RBI said, adding "some of the entities who did not qualify in this round, could well be successful in future rounds." Vijay Shekhar Sharma, founder of mobile wallet services provider PayTM that is partly owned by Alibaba's Ant Financial, was also selected. India's fifth-biggest software exporter Tech Mahindra was also named among the winners. (Reuters)
Read More
Life Insurance Corporation of India (LIC) recently launched Ulip which may not suit all. Here’s why? Sunil Dhawan explains Life Insurance Corporation of India (LIC) has recently launched ‘New Endowment Plus’, a unit linked insurance plan (Ulip). This Ulip from LIC comes after a long gap of almost 32 months since the new Ulip guidelines were put in place in January 2014. Fund performance of LIC’s equity fund has not been as per peers but certainly high compared to return generated in traditional plans. Also, equity exposure of New Endowment Plus is capped at 80 percent of premium and term of is capped at 20 years. For longer term goals, the plan may not be suitable. Considering these, there could be other flexible, better performing and unrestrictive Ulips in the market to look at. Fund Plays: Out of the four fund options, the one that allows maximum exposure to equities in the Growth fund whose mandate is to have not less than 40 percent and not more than 80 percent in equities. The performance of Growth fund of ‘Endowment Plus’, an existing Ulip of LIC is shown below. As because other funds are 100 percent equity-funds, the actual comparison cannot be made but sill it gives an idea as to how the fund performance of LIC has been over the years. If the Ulip is not giving an opportunity to the investor to participate fully in equities, the result is there for the potential buyer to see as per the table below. Whom does it suit: Ulip suit those investors who may not be financially inclined to keep protection and investment needs separate from each other. And their expectation for returns is high than what is being offered in traditional plans such as endowment or money-back. Ulips being market-linked have potential for high real return. The horizon: The maximum term of New Endowment Plus is 20 years. Being market linked plan, a Ulip helps meet different needs at different life stages. Even if someone holds New Endowment Plus for entire 20 years, a new Ulip might be required to be bought after its term ends. Read here, as to why and how a single Ulip can be enough for a lifetime. Features: Similar to all other Ulips, the basic sum assured would be higher of 10 times the annualised premium and 105 per cent of the total premiums paid. At the time of maturity, the policyholder gets the fund value. LIC has reduced the entry age from 7 years as per earlier Endowment Plus to 90 days in the new Ulip New Endowment Plus. Read Also: Make It CountWhile the term period remains same as 10-20 years, the maximum age at which policy will mature has been reduced from 70 to 60 years in New Endowment Plus. The reason for this could be to make people invest in New Endowment Plus for the benefit of their children needs. Even in that case, it’s always suggested to buy the policy in parent’s name and keep the children as nominee. One may attach the accident benefit rider to the plan. What’s the cost: The Premium Allocation Charges are 7.5 per cent of premium in first year, 5 percent on 2nd to 5th year premium and thereafter its 3 per cent of premium. The other charge is that of Policy Administration charge which is deducted till maturity. The fund management charge is .7 per cent. LIC has it seems reduced the mortality risk charges in New Endowment Plus compared to what it charged in Endowment Plus. Here’s the breakdown: What’s in a name? Can the name be misleading? In insurance, there could be two major categories of plans- Endowment or Market linked Ulips. Now, if a plan is termed as New Endowment Plus, merely going by name, it appears as Endowment plan. But in reality it’s a Ulip. If LIC’s reach and policyholder’s base is largely into traditional plans, the name probably plays around the bush. Not only LIC, HDFC Life too has a similar plan titled Endowment Super, which actually is a Ulip. Regulator should take note of this and avoid brewing up of confusion in the already tainted market of insurance selling. What to do: The fund performance has not been stellar. Also, the exposure to equities is restricted to 80 per cent, the actual allocation could be even lower. Do not invest in New Endowment Plus with the expectation of high returns in short period. If your goal is less than ten years, stay away. Under the new Ulip guidelines, the costs in Ulips are capped hence maturity fund values of more than one Ulip would show up the better Ulip. So, if one has to invest in New Endowment Plus, keep a term of ten years or more. Ask the agent to generate illustration benefit based on your age, term, sum assured and compare with at least 2 other insurer’s illustration. Compare the fund values and then decide.
Read More
The Merriam-Webster dictionary defines a bank as an entity set up for the custody, loan, exchange, or issue of money; for the extension of credit; and to facilitate the transmission of funds. But in this era of information technology, “banks will — whether through conviction or compulsion — have to transform into technology companies”, says Harun R. Khan, deputy governor, Reserve Bank of India. That’s because you never know how developments in one industry can hit you. Cash-on-delivery proved to be a headache for e-commerce — it led to the coming of age of m-wallets which, in turn, now challenge debit cards as a product. It’s a wake-up call for the laggards — state-run banks. The top 30 processes in these banks account for around 50 per cent of back-office costs; and over 80 per cent of customer-facing activities. Going digital can help reap huge gains. By the way, “bank” also means a “pile” — if banks don’t wake up soon, they will soon be confined to the pile!— Raghu Mohan Dictators Of DemocracyI read and re-read the news about Mumbai Police barging into hotel rooms and yanking out 40 couples who were not married and whom the police decided has no right to be together behind closed doors. Ironically, it is the police that is breaking the law here, and not the young couples. The moral policing is shocking enough in and of itself, but what is also chilling is that there has been barely any protest over this. The more we take of it, the more these dictators of democracy will feel justified in their interpretation of laws they don’t even seem to be acquainted with. How long is protest to be restricted to the television debate? Why is the government and the judiciary silent on this violation of personal privacy?— Mala BhargavaMore Than Just StartupsOnline food delivery startups such as BiteClub, HolaChef, CyberChef and Mealme are tapping ‘home-run’ kitchens and their ghar ka khana to serve customers in Delhi and Mumbai. Besides, Mumbai-based food ordering startup TinyOwl has launched an app just to connect home chefs to foodies. While it’s too early to comment on the business models of these startups, they need to be applauded for giving opportu nities to home chefs, who are mostly housewives, to become entrepreneurs. Until now, the work done by these housewives has not been counted among the goods and services that make up the gross domestic product of the country. But by recognising their culinary talents, these startups are helping them to become productive members of the economy. — Sonal Khetarpal Nurturing UPA’s BabiesThe direct benefit transfer (DBT) scheme, fathered by UPA II, is going places under the NDA regime. After the successful transfer of subsidies on LPG cylinder to the beneficiaries, efforts are under way for a nationwide rollout of DBT for kerosene and food grains by the Republic Day — a pilot project is set to be launched this Independence Day in the Union Territories of Puducherry, Daman & Diu, Dadra & Nagar Haveli and Chandigarh. In fact, the expenditure management commission wants DBT to be extended to all government welfare schemes. As for kerosene, those currently availing PDS-distributed fuel will be offered either cash or account-linked DBT. The subsidy payout on kerosene has been capped at Rs 12 per litre for 2015-16; kerosene is sold through the public distribution system at Rs 15/litre, but has an actual cost of Rs 30 per litre. The difference is the revenue loss, which will be borne by the oil marketing companies. Lesson: making a scheme work on the ground is certainly more important than just laying claims to it.— Ashish SinhaWhen More Means SafeThe fall in Tata Motors’ revenues from its Jaguar Land Rover division should serve as an important lesson for the automaker — it is a risky proposition to depend on one brand alone to grow in the market. The company reported consolidated revenues of Rs 61,020 crore for the first quarter (April-June 2015), which was down 6 per cent from the corresponding quarter last year (Rs 64,683 crore). The growth of the Jaguar Land Rover brand in the Chinese market over the past few years has allowed Tata Motors to report high profit margins. However, the sharp decline in China volumes of Jaguar Land Rover Automotive Plc has hit the company’s revenues hard and, for the first time in 15 years, Tata Motors has decided not to pay dividend to its shareholders. One hopes that the Tata Motors management’s recent focus on the Indian market will result in more sustainable growth for the company in future.— Neeraj ThakurWhy GST Is ImportantThe delay in bringing in the proposed Goods and Services Tax (GST) is hurting e-commerce marketplace companies more than others. Take the case of Amazon India, which has been prevented by the Karnataka government from using its warehouse. It wants the e-commerce player to register goods coming into the state and collect value added tax (VAT) from sellers. Its logic is merchants are selling on e-commerce sites without paying additional tax for using the platform. Amazon, on its part, maintains that since tax has already been paid on products at their point of origin, sellers cannot be taxed again in Karnataka. Besides, collecting tax on behalf of sellers would violate foreign direct investment (FDI) regulations, which clearly state that they are marketplaces and not retailing businesses. The GST is meant to end precisely this sort of hindrance to the free movement of goods across the country. It is supposed to create a single point-of-origin tax and rid the country of state taxes. More importantly, it will create supply chain efficiencies and destroy the stranglehold of trade lobbies on distribution, which is more important for the consumer.— Vishal Krishna(This story was published in BW | Businessworld Issue Dated 07-09-2015)
Read More
To improve ease of doing business, government will soon finalise three new important laws - the litigation policy, the bankruptcy code and an arbitration law, Indian Finance Minister Arun Jaitley said on Tuesday. Replying to queries from top industrialists at the State Bank of India (SBI) Conclave in Mumbai on Tuesday evening, Jaitley said, "The litigation policy is more or less ready. We have a small informal group of ministers that has cleared it." "The bankruptcy code was to be ready by the end of July and I think it's going to be ready any of these days. The arbitration law is already cleared by Cabinet and it will be introduced in Parliament. So, all the three are ready," he said. With top industrialists like Anand Mahindra, Anil Ambani, Shashi Ruia, Anil Agarwal, Sajjan Jindal and Kumar Mangalam Birla in the audience, Jaitley said when legal reforms are involved, it's not merely between the litigant or the industry at one hand and the government on the other. "There is a third agency which is the courts. Therefore, courts not being a part of the legislative process, are only interpreters of the legislative decisions," he said. India is ranked very low at 140th position in terms of ease of doing business, as per a list of the World Bank, and the areas of prime concern that have been often cited for such low ranking include lengthy litigation processes, difficult arbitration procedures and lack of a bankruptcy law. The Modi government has said it wants to improve India's ranking to top-50. The World Bank is expected to release its latest annual ranking in a month or two. (PTI)
Read More
India's private sector banks have seen their loan books deteriorate at a faster pace than state-owned peers over the past three quarters, raising concerns that a slower economic recovery could mean writedowns estimated at around $1.5 billion. The spike at private sector lenders like ICICI Bank and Axis Bank follows a push to grab market share from India's dominant state banks. They account for some 70 per cent of all outstanding loans but have pulled back on new credit for much of the past year, to keep a lid on bad debt. Investors, who have long favoured private banks for their comparative nimbleness and cleaner balance sheets, say the higher exposure to heavily indebted companies is becoming a cause for concern in an economy that has been slow to take off. "What has happened is that there are a few large accounts in the infrastructure and metals space that have stressed balance sheets in the private banks," said Mahesh Patil, co-chief investment officer at fund managers Birla Sun Life Asset Management, which holds shares in Indian banks. "That is something we are concerned about and we are watching the sector very carefully." According to numbers reported by the banks, state banks hold $44 billion of nearly $50 billion gross loans classified as bad. But Reuters calculations based on publicly available data show the problem is growing at a faster pace at private banks. Combined gross bad loans at 15 publicly traded private sector lenders, excluding restructured loans, grew quarter-on-quarter at 7.5 per cent, 6.9 per cent and 10.4 per cent over the past three quarters to the end of June, the calcuations show. That compares to state banks, where sour debt grew at 6.2 per cent, 3.2 per cent and 8.8 per cent, respectively. The Indian arm of ratings agency Fitch estimates private sector banks — or those with a heavy corporate exposure — could be forced to take a hit of around Rs 10,000 crore ($1.5 billion). OCEAN OF DEBTIndia's corporate sector has one of the highest debt levels among emerging markets and one of the lowest interest coverage ratios, a measure of the ability to repay — a problem given a substantial economic recovery could come only in 2016-17. Against this background, analysts have raised concerns over the growing exposure of private sector banks to sectors including steel, infrastructure and power, questioning loans provided or refinanced even after these sectors started to show signs of strain. A financial stability report published by the central bank in June said that under its worst case scenario, private sector banks' gross bad loan ratio could almost double. In a note based on public records but disputed by several of the banks quoted, investment bank UBS wrote last month that loan approvals to stressed companies by banks it covers rose 85 per cent in the past three years. Axis Bank, for example, has lent to some of the most troubled Indian infrastructure and steel heavyweights, including Jaiprakash Associates and Essar Steel. It said in July that Jaiprakash was meeting its obligations with "some delay". "We are very conscious of the state of these groups and continue to monitor these exposures," Axis Bank Executive Director V. Srinivasan said. "If we take any additional exposure it is against very high quality collateral and cashflows." Other banks such as ICICI, which saw bad loans in the quarter to June rise 40 per cent year-on-year, are rapidly expanding into retail banking to vary their loan book. "Finally all banks are in the same ocean of water," said Uday Kotak, managing director at Kotak Mahindra Bank. India's fourth-largest private sector lender, it saw bad loans surge after the $2.4 billion acquisition of ING Vysya Bank.(Reuters)
Read More
Gold loan NBFC company, Manappuram Finance, has tied up with Ria Money Transfer (“Ria”), an international money transfer and payment firm, to provide inbound remittance payout services throughout India.This partnership will allow Ria customers to send money to their families and friends in India and provides greater convenience for beneficiaries, enabling quick cash pay-out on inbound money transfers up to Rs 50,000. In 2014, Ria obtained a Money Transfer Service Scheme (MTSS) license from the Reserve Bank of India (RBI) and now Manappuram Finance will act as their sub-agent in India. “With the MTSS license we are consolidating our business and ensuring the future growth of Ria in the number one remittance receiving country in the world,” said Juan Bianchi, CEO and President, Ria.The purpose of these remittances may include family maintenance, as well as remittances to foreign tourists visiting India. The MTSS is structured to connect reputed money transfer companies abroad with agents in India that pay out remittances in local currency. MTSS licenses are issued by the RBI.(BW Online Bureau)
Read More
