The CVC has asked RBI and Indian Banks' Association (IBA) to red flag multiple transactions of smaller amounts from a single account and ensure compliance of KYC norms to check fraudulent forex transactions in the wake of alleged Rs 6,100 crore foreign remittance scam through Bank of Baroda, a top official said on Friday (23 October). "We have written to Reserve Bank of India (RBI) to say that if smaller forex transactions of less than one lakh dollars are being made than it should come to your notice," Vigilance Commissioner T M Bhasin told reporters here. He said similar communication has been sent to IBA chief, saying there may be "attempts to camouflage generation of alerts by sending small amount of money through multiple transactions of foreign exchange abroad. We have told RBI and IBA that they should tell banks to red flag transactions of smaller amount from one account." At present, an alert is generated only when foreign exchange (forex) remittance is over one lakh dollars. "IBA has also been asked to tell all member banks that they follow Know Your Customer (KYC) and Anti-Money laundering (AML) guidelines so as to check reoccurence of such (Bank of Baroda case) incidents," he said. On the recent forex scam in which about Rs 6,100 crore were remitted to Hong Kong allegedly misusing Bank of Baroda, Bhasin said Enforcement Directorate (ED) has been asked to look into the matter and if these were not genuine transactions then they should work on repatriation of the money. Bhasin said as soon as the BoB incident was reported to the Central Vigilance Commission, requests for probe was made to the CBI and ED. "Commission personally spoke to CBI and ED Directors. Very next day of the CVC's communication, Bank of Baroda's Ashok Vihar branch was raided by the CBI. They also conducted raids at 59 places and arrests were made. Today also investigation in the case is going on 24x7 basis," he said. The bank has not lost any money, said Bhasin, former Chairman and Managing Director of Indian Bank. The transactions were made in about a period of about 14 months and 90 per cent of them were through Real-Time Gross Settlement (RTGS) system, in which transactions are settled on real-time, he said. "Wherever loopholes are found, they are being plugged," the Vigilance Commissioner claimed. Both the Central Bureau of Investigation (CBI) and ED are probing transactions of Rs 6,100 crore to Hong Kong from a Bank of Baroda's Ashok Vihar branch here. The huge transaction is believed to be trade-based money laundering as the amount was transferred in the garb of payments for imports, that never took place. As per CBI probe so far, Rs 6,100 crore were transferred through nearly 8,000 transactions done between July, 2014 and July, this year. The Commission has sought a report from BoB and CBI in this regard. (PTI)
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Singapore's biggest lender DBS Group Holdingsand South African banking group FirstRand are in separate talks to buy Royal Bank of Scotland Group Plc's India unit, people with direct knowledge of the matter told Reuters. Financial details of the transaction were not immediately clear, though one of the people said the deal could fetch about $200 million. An Indian private sector lender is also likely to bid for the unit, another source directly involved in the process said, declining to give details. The sources declined to be named as the talks are not yet public. RBS, 73 percent owned by the British government, said in February it would shrink its banking operations, pulling out of about 25 countries including India to help it refocus on lending in Britain. The India business of RBS comprises corporate banking, trade finance and cash management. DBS, FirstRand and RBS declined to comment. (Reuters)
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The global banking industry is currently in the grip of a perfect storm of disruption. Every component of the conventional banking model is under stress from the opportunities presented by the shift to a digital economy. Banking leaders everywhere are under intense pressure to conceptualize and implement a cohesive transformation strategy that will reinvent a classic business to thrive in a brand new normal.In order to ensure success, every transformation program will have to adopt a dual 'Renew & New' strategy. Banks need a transformation framework that renews current models, processes and systems, while simultaneously adding new capabilities and technologies relevant for digital competence. Based on our experience of working with banks of varying size and technological maturity, we believe there are five best practices crucial to a successful 'Renew & New' transformation.Best Practice #1 - Unify and optimize requirementsThere needs to be a concerted effort to unify, wherever possible, the diverse range of requirements coming from business, at the planning stage itself. In our experience, we have seen that it is possible to unify and optimize requirements focusing on commonality to distil a common pool of changes that can accommodate every requirement. For example, in multi-country Finacle transformations, we have observed that many market-specific business requirements can be fulfilled without deploying individual systems or processes for each geography. Here, we focus on working with the bank's technology and business teams to devise a unified approach to enabling all requirements while reducing the number of changes to be made.Best Practice #2 - Industrialize transformationIndustrialization refers to the automation of the transformation journey. Breaking down the transformation process into a sequence of steps makes it easier to identify processes that can be automated. Then it's on to drilling down into the details of automation - identifying common processes, assessing what needs to be done, understanding how to improve efficiency etc., with a focus on minimizing manual intervention wherever possible. A well-articulated automation strategy, clearly defined in terms of process workflows, ensures that the transformation process is streamlined and also easily replicated by users. Industrialization played a critical role in Finacle's transformation strategy for one of India's large private sector banks. As a result, in a matter of just over a decade, the bank was able to register a 35X growth in number of branches, 28X growth in number of customers, 52X growth in accounts and 24X growth in internet banking customers, among others.Best Practice #3 - Consolidate existing systemsOver the years, banks have built up a patchwork of applications, many of which are redundant or superfluous. Several traditional processes need to be completely re-engineered for the digital era. Transformation offers a huge opportunity for banks to rationalize and consolidate their systems landscape. Besides eliminating legacy satellite systems, the focus should be on centralizing operations across product lines to enhance agility and efficiency. Component and API-based banking solutions give banks the flexibility to redesign applications and processes to address changing market dynamics and business priorities.Best Practice #4 - Choose partners, not vendorsThe core focus of transformation should be on business outcomes rather than technology. The engagement model during transformation can no longer be based on traditional vendor-buyer dynamics. The emphasis has to be on building sustainable long-term partnerships that can deliver measurable value in terms of agility, efficiency, customer experience, market share etc. Productive partnerships will be those that go beyond the brief of designing and implementing solutions to actually cooperating on developing new ideas that can deliver unique competitive advantage.Best Practice #5 - Strengthen and streamline complianceCreating a robust regulation and compliance framework is a critical challenge in any banking transformation, more so in the context of a multi-country implementation. The focus should not only be on incorporating all essential regulatory requirements into the platform, but also on streamlining compliance across different enterprise layers. Wherever possible, regulatory and compliance processes need to be standardized across business lines and geographies, so that banks can connect the dots across the organization. Finacle's multi-country implementation in one of the largest banks in Africa is enabling its over 9 million customers to bank seamlessly across five countries.The overarching objective of any transformation strategy is to create an enterprise framework comprising ofinfrastructure, processes, products and channels,which enables banks to embrace new technologies and innovate continuously. The technology platform must give banks the agility to enter new markets, target new segments, launch innovative products and services. The journey to this preferred end-state is unique to every bank, based on their existing technology architecture and immediate business priorities. But regardless of size, profileor priority, every bank can leverage the aforementionedbest practices to streamline transformation even in the case of multi-country implementations.The author, Sheenam Ohrie, is head - delivery, support and testing at Infosys Finacle
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By Arshad Khan Yes Bank — India's fifth-largest private sector bank — has partnered with Blue Dart and Snapdeal to enhance the 'Cash on Delivery' (COD) model by making strategic interventions in the financial supply chains of these companies. This partnership is under Yes Transact — Yes Bank's award winning transaction banking product suite and reinforces the bank's philosophy of providing insightful knowledge banking solutions to the sunrise sectors of India's economy. The integration would enable Snapdeal to receive COD proceeds from Blue Dart in a faster, streamlined fashion and also help with faster payments to suppliers. For Yes Bank, it will help them enhance their financial supply chain management. "We are proud to partner with Blue Dart and Snapdeal who are leading the ongoing revolution in India's e-commerce space for this pioneering solution. The cash on delivery model is very important in the Indian e-commerce industry, and we are certain that our Yes Transact solution will bring in enhanced efficiencies offering significant value to the companies in managing their supply chain," said Asit Oberoi, group president & chief operating officer, Yes Bank. The COD model accounts for close to 60 per cent of all e-commerce transactions and the transaction value is expected to reach about Rs 54,000 crore size by 2016. "The dominant mode of payment for a large portion of online customers continues to be cash on delivery, this in effect adds time to the payment cycles for sellers. With this partnership we are confident that we can improve payments cycles and help our sellers become more successful," said Amit Choudhary, senior vice president, corporate finance, Snapdeal. Yes Bank reports that efficient COD model to enable e-commerce reach the consumers Tier-2 and Tier-3 cities in India. The bank also reported that it is also working on enabling electronic and digital payment solutions for consumers.Yes Bank will act as a collection banker to Blue Dart for its cash handling and also a technical integration through which data is processed electronically and payments are released to the market place basis the same.
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Raghu MohanShares of the Aluva-based Federal Bank fell 14.67 per cent to its 52-week low of Rs 55.80 on the Bombay Stock Exchange after dismal second quarter numbers. Net profit for the period fell 32.88 per cent year-on-year to Rs 161.28 crore (from Rs 240 crore in 2015-15). Asset quality also slipped. Gross non-performing assets (NPAs) was up by sharply by 80 basis points (bps) at 2.90 per cent with the net NPA ratio up 67 bps to 1.33 per cent. The net interest margin, a key indicator of profitability, was down by 24 bps to 3.11 per cent.
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HDFC Bank, India's second-biggest private sector lender by assets, reported quarterly net profit grew by a fifth and asset quality was stable as loans grew faster than expected. Indian banks are battling slower credit growth and a surge in bad loans as companies and consumers have been squeezed by an economic downturn. While corporate loans have yet to revive, lending to individuals is growing at a faster pace. HDFC Bank, with its stronger retail business and relatively smaller exposure to project finance has far lower bad loans than its bigger rivals and is seen as a better bet for investors. The Mumbai-based lender said net profit rose to Rs 2,869 crore ($440 million) for its fiscal second quarter to September 30, from Rs 2,381 crore a year earlier. Analysts on average had expected a net profit of Rs 2,881 crore, according to data compiled by Thomson Reuters. Gross non-performing loans as a percentage of total loans fell to 0.91 per cent from 0.95 per cent in the June quarter. Cuts in minimum lending rates to pass on policy rate reductions by the central bank weighed on net interest margin that fell to 4.2 per cent in the September quarter from 4.3 per cent in the previous three months. HDFC Bank will likely recoup some of the lost margins in the coming quarters, said Vaibhav Agrawal, a sector analyst at Mumbai's Angel Broking. Agrawal, who considers the lender among his preferred stock picks, described its asset quality as "rock solid". Net interest income for the quarter grew 21.2 per cent to Rs 6,681 crore as loans grew about 28 per cent - much faster than the industry. Non-interest revenue including fees and commissions grew a faster 24.7 per cent. Shares in HDFC Bank, India's most-valuable lender with a market capitalisation of more than $42 billion, were down 0.2 per cent by 0743 GMT. The stock has gained more than 6 per cent since the start of September and is up nearly 15 per cent this year during which it has outperformed the NSE bank index and the broader Nifty.(Reuters)
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In FY 2014, the microfinance sector in India raised about $192 million through 5 private equity transactions; whereas, Q1 2015 alone accounted for 4 investments worth $535.15 million. According to a report by India Ratings and Research, the MFI sector is expected to grow at 24% annually over FY15-19. The Andhra Pradesh MFI crisis seems like distant turbulence in a sector making its journey towards transformation, stability and growth. In this context, the RBI's Guidelines for Licensing of (privately owned) Small Finance Banks ("Small Bank Guidelines") are an important step towards promoting investment in this sector. It is anticipated that Small Finance Banks, together with successful payments bank licensees, may need to mobilise at least close to Rs 2,000 crore to meet their statutory minimum paid-up capital requirements. This article examines material provisions of the Small Bank Guidelines to the extent they impact structuring, control and exit of private investment from Small Finance Banks. Several issues raised here are equally pertinent for investments in universal banks and payment banks.OverviewThe Small Bank Guidelines regulate small banks serving niche interests in unbanked and under-banked regions and RBI has already issued in-principle approval to 10 applicants for setting up Small Finance Banks ("SFBs") out of a total of 72 initial applicants. The objective of setting up SFBs is to further financial inclusion through high-technology and low-cost operations by providing "savings" vehicles to "unserved" and "under-served" sections and promoting the supply of credit to small businesses, farmers, industries and other unorganised sectors. Like healthcare and pharma, financial services, as a sector, touches upon a number of India's selling points to global investors: a scalable model due to the demographic dividend, vast unmet demand and the ability to make gains in productivity with even modest use of technology.Corporate StructureThe SFBs are mandatorily required to be registered as a public limited company under the Companies Act, 2013 and to use the words "Small Finance Banks" in their corporate names. SFBs are not permitted to incorporate any subsidiaries, making control and management easier for investors, who need not worry about decisions or transactions at subsidiary boards where they do not have direct oversight.Conversion from Financial Institutions to SFBsSeveral SFB licensees are existing MFIs or NBFCs. Upon conversion into an SFB, the existing businesses of such NBFC or MFI (for instance the lending activities which can be carried on by the SFB), would be carried on by the SFB. Those activities which cannot be carried on by the SFB, but were not prohibited to the existing financial institution, would have to be divested within a period of 18 months from the date of in-principle approval, or as on the date of the commencement of banking business, whichever is earlier. These requirements make it imperative for private investors to anticipate the implications of such restructuring and assess any adverse tax consequences or other leakages that may impact the value of the loan book. Investors must be cautious while migrating to the SFB regime so that potential for leakage in terms of costs, ownership or control is minimised. Minimum CapitalThe minimum paid-up equity capital for an SFB is Rs 100 crores. While freshly incorporated SFBs need to adhere to this immediately, the RBI has clarified that in case of existing MFIs/ NBFCs are converting into SFBs in accordance with the provisions of the Small Bank Guidelines, a minimum net worth of Rs 100 crores is mandatory (as opposed to minimum paid-up capital requirement). The promoters are required to furnish a plan for raising paid-up capital (to Rs100 crores) within 18 months of registration as an SFB. For investors and promoters alike, the bankability of these covenants, and the need to adhere to the RBI's timeframe, will be critical. Short term changes in the business cycle could pose challenges to locked-up funding requirements and certainly lead to dilution as investors would like to back-end as much of their commitments as possible.Listing RequirementThe Small Bank Guidelines have stipulated that SFBs need to be mandatorily listed within a period of 3 years of reaching a net worth of Rs 500 crore. The minimum public shareholding requirement for a listed company is 25%. Unlike in case of universal banks, the listing requirements for the SFBs is not linked to a specific timeline from the commencement of business, but is instead pegged to the SFBs reaching a specified net worth. However, SFBs with lower net worth are also permitted to voluntarily list.Corporate GovernanceThe Small Bank Guidelines prescribe a number of corporate governance driven requirements for SFBs such as majority independent directors on the board and compliance with the corporate governance guidelines issued by the RBI from time to time, including the 'fit and proper' criteria for directors. RBI has clarified that even though there can be non-executive common directors in the promoter entity and the SFB, any director on the board of the promoter entity will not be consider as an independent director on the board of the SFB. These requirements need to be considered while negotiating the board governance rights of the shareholders of the SFB and it could pose significant challenges at the investment stage if diversified investors (bear in mind 10% investment limit for single investors discussed below) want representation on the board. This issue could be partially mitigated by the appointment of observers on the board of the SFB and by entering into appropriate shareholders' arrangements which envisage a greater role and oversight of the shareholders in the management of the SFB.Foreign Direct InvestmentThe restrictions on foreign investment in SFBs are substantially similar to the restrictions on foreign shareholding in private sector banks in under the FDI policy. Consequently, currently, at least 26% of the paid up capital of an SFB has to be held, at all times, by residents. Foreign investment up to 49% can be undertaken under the automatic approval route and any foreign investment beyond 49%, subject to an overall cap of 74%, require prior approval of the government, granted by the Foreign Investment Promotion Board. Any Foreign Institutional Investors (FIIs) / Foreign Portfolio Investors (FPIs) shareholding is capped at 10% (which is also similar to the cap on any single non-promoter shareholder). The aggregate limit for all FIIs / FPIs / Qualified Foreign Investors is capped at 24% of the total paid-up capital of the SFB, which can be raised by the SFB to 49% by passing a board resolution and a special resolution at it shareholders meeting in this regard.NOFHC StructureUnlike banks in the private sector, SFBs are not required to be mandatorily held through an intermediate holding company structure. However, if an SFB is held through an intermediate holding company, such intermediate company has to be a Non-Operating Financial Holding Company ("NOFHC") in compliance with the Guidelines for Licensing of New Banks in the Private Sector dated 22 February 2013. In particular, 100% of the entire share capital of the NOFHC must be directly held by the stated promoter group. It should be noted that an NOFHC cannot have any non-promoter shareholding. Further, RBI has clarified that any change in the shareholding of the NOFHC by 5% or more would also require a prior approval of the RBI.PromotersThe Small Bank Guidelines and related clarifications state that the following entities are restricted from promoting an SFB:" joint ventures between different promoter groups;" Indian Charitable trusts / private or public trusts; and" large public sector entities and industrial houses (including NBFCs promoted by them). The RBI has clarified that groups with assets of Rs 1,000 crore and with the non-financial business of the group accounting for 40% of more in terms of total assets or total revenue will be treated as a large industrial / business group.Joint ventures between two (or more) promoter groups are not permitted to promote an SFB. RBI has clarified that even a special purpose vehicle incorporated by two entities within the same promoter group, for the purpose of promoting an SFB, would also comprise of a joint venture and hence be debarred. Non-promoter investment, up to 10% of the share capital of an SFB, is permissible by a single investor. Consequently, foreign investors (including private equity investors) can participate in the shareholding of an SFB. However, such investors must be classified as a non-promoter and each such investor's holding must be capped at 10% of the paid-up equity share capital of the SFB.In case if the promoters are involved in other financial and non-financial services activities, such activities have to be kept distinctly ring fenced, whereby any arrangements for sharing of infrastructure of the parent entities are entered into at an arm's length basis, with suitable firewalls built in, customer confidentiality maintained and instituting risk mitigation measures. Resident individuals promoting an SFB are required to have at least 10 years of experience in banking and finance. Where an SFB is promoted by an entity, or if the existing MFI / NBFC converts into an SFB, a successful track record for a period of at least 5 years is required.Promoters' Lock-inAs mentioned above, at least 40% of the initial paid-up equity capital must be held by the promoters. Of the initial promoters' contribution, at least 40% of the paid-up share capital is subject to a statutory lock-in for a period of 5 years from the date of commencement of business of the SFB.Promoters' DivestureIn case the initial promoter shareholding is in excess of 40%, the promoters are required to reduce it to 40% within a period of 5 years. Further, the promoters are mandatorily required to reduce their shareholding to 30%, and thereafter to 26% period, within a period of 10 years and 12 years, respectively, from the date of commencement of business by the SFB.Divesture of promoter shareholding may be challenging going forward since any acquisition of more than 5% of the paid-up share capital in an SFB would require a prior approval of the RBI. These promoter dilution and approval requirements may prove to be a major negotiation point in respect of third party investment in the SFB as it may conflict with the exit options sought by the investors and would lead to broad-basing of the shareholding in SFB. So, for example, exercise of rights such as a tag along or a drag along or a share swap may be more challenging for investors. IPOs could be a realistic exit route if the markets have an appetite for such companies.Voting RightsAny single shareholder's voting rights in a private sector bank is statutorily capped at 10%. The Small Bank Guidelines provide that this restriction would also apply to SFBs. The Small Bank Guidelines also state that this limit can be raised to 26% by the RBI in a phased manner. However, RBI has clarified that this is to be construed only as an enabling provision for the future.Promoters' ExitThe Small Bank Guidelines are silent on an exit of promoters from the SFBs after the completion of the promoters' lock-in detailed above. However, in the clarifications issued by the RBI on the Small Bank Guidelines, RBI has stated that an exit by promoters from SFBs would "depend on the RBI's regulatory and supervisory comfort / discomfort and SEBI regulations in this regard at that time". Consequently, though it is theoretically possible for the promoters to exit SFBs after the completion of the statutory lock-in, exercise of such an option would hinge on the regulatory atmosphere prevailing at the time of the proposed exit. Realistically, a complete exit by the promoters will be challenging and its difficult to predict the contours of such a transaction.Branch Expansion PlansThe SFBs are also required to obtain a prior approval of the RBI for their annual branch expansion plans for the initial five year period. Such plans have to comply with the requirement of operating at least 25% of its branches in unbanked rural centres, which have a population upto 9,999 as per the last census. The Small Bank Guidelines further state that after the initial period of 5 years, the RBI may consider liberalizing the requirement of a prior approval for the annual branch expansion plans and the scope of activities to be undertaken by the SFBs.Application ProcessAt the time of application, the promoters have to submit to the RBI a plan and a methodology for compliance with the Small Bank Guidelines. The applicant, among other things has to submit information concerning its plans for raising its minimum paid - up equity capital (i.e. Rs 100 crore) for the proposed entity, information concerning persons / entities who would subscribe to 5% or more of the equity capital and any foreign equity participation. The promoters would also have to submit its plan for the dilution of the promoter shareholding.Conversion to BankAn SFB may apply to RBI for conversion into a universal bank. In order to convert into a universal bank an SFB must meet the minimum paid-up capital/ net worth requirements, satisfy the performance track record for a period of 5 years and adhere to the RBI's due diligence norms. Upon becoming a universal bank, the SFB will be subject to the regulations governing universal banks (including those relating to NOFHC structure). Since the Small Bank Guidelines do not require the SFBs to be promoted under an NOFHC structure, in case of conversion into a universal bank, the holding structure of the SFB will need to be converted to an NOFHC structure in accordance with the Guidelines for Licensing of New Banks in the Private Sector dated 22 February 2013.The author, Bharat Anand, is partner, Khaitan & Co.Note: The views of the authors are personal, and should not be considered as those of the firm
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Banking and payments technology firm FIS has introduced Banking on Demand, an innovative, hosted solution that enables small banks, payment banks and microfinance institutions to deliver banking capabilities to their customers without the expense and time associated with building out traditional banking infrastructure.“Technology will be the biggest enabler for new bank entrants to deliver on the mandate they have been given to bring financial access to everyone in India,” said Ramas Venkatachalam, managing director, FIS India and South Asia. “Banking on Demand is another example of FIS’ ongoing commitment to promoting financial inclusion, and we’re excited to offer this innovative solution to help institutions better serve their customers and expand banking access.”Banking on Demand is a preconfigured core banking solution that uses shared technology infrastructure to minimize initial capital expenditures and deliver click rate pricing that matches costs to business growth, thereby empowering new market entrants to quickly address needs of the underserved.Eight of the 10 small finance banks announced recently in India are microfinance companies. When their current base of micro-credit customers become banking customers, these institutions will need to adopt more stringent practices for regulatory compliance. This, in addition to challenges of complex data migration and door-step banking, is easily enabled by Banking on Demand, saving time, money and infrastructure for these institutions.FIS systems are recognised worldwide by bank start-ups and other financial institutions looking to disrupt the traditional financial services mould. From app-only banks and micro ATMs to “e-lobbies,” mobile access and more, FIS innovation is reinventing the way consumers interact with their banks and bringing financial access to more people.(BW Online Bureau)
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To protest at North Block during Parliament’s Winter Session, writes Raghu Mohan By the end of this fiscal, bank unions would have fine-tuned their strategy to take on North Block and its high priest, Arun Jaitely, on what they consider to be “no-go zones”. The first flash point -- the privatisation of IDBI Bank -- is well upon us; it’s also a forerunner of what’s in store. Did you know that IDBI Bank staffers held nation-wide protests the week gone by? The bank has about 30,000 plus staffers, but over a lakh from other banks – state-run and private banks – joined in to show solidarity. It was not captured in the media as it was held after office hours and did not affect banking transactions. IDBI Bank staffers (each one of them) are now to write to Jaitley that what’s being sought to be done to the bank is unfair. Silly, you might say. Okay, get this now. Bang during the Winter Session of Parliament, a demonstration is to be held before North Block (the unions are working on a suitable date!). After that, it’s anybody’s guess how it’s going to escalate; and you anyway have an alphabetic soup of unions to deal with. Says S Nagarajan, general secretary of the All India Bank Officers’ Association (AIBOA): “In the larger interest of the industrial development of the nation, the All India IDBI Officers’ Association (AIIDBIOA) and All India Industrial Development Bank Employees’ Association (AIIDBEA) under the banner of United Forum of IDBI Officers and Employees have embarked upon organisational forms of action to ventilate our categorical opposition over the contemplated move of the Government of India to privatise IDBI bank by dilution of its share-holding to below 51 per cent”. It will lead to the inter-twined -- mergers of state-run banks, transfer of Centre’s stake to a Bank Investment Company (BIC), and bank-wise wage settlements. Simply put, from here on, it’s only a matter of time before the powder keg explodes. You can brace for a series of strikes, and long weekends! But before we proceed, let’s get this clear -- there is no way on earth that the Centre can continue to hold 51 per cent stake in state-run banks or what is called in bureaucratese as “public sector banks”. Even without the additional capital pressures due to Basel-III capital norms (which kick in from fiscal 2019), the Centre would have found it difficult to retain its 51 per cent stake in state-run banks given the state of the fisc and the competing demand for funds. Not Just A Blast From The Past…Bank unions contend the move to privatise IDBI Bank – cut the Centre’s stake in it to under 51 per cent – is in violation of the assurance given during the debates on the IDBI (Transfer of Undertaking and Repeal) Bill (2002) in the Lok Sabha on 4th December 2003; it was passed four days later. In the Rajya Sabha (15th December 2003), then finance minister, Jaswant Singh, said: “When IDBI converts into a bank after the approval of Parliament today, it will immediately become subject to banking regulation… and there it is mandatory. Unless that is amended, how can IDBI shareholding be reduced below 51 per cent? You have another matter of detail the unions highlight. IDBI Ltd was set up in 1964 as a development finance institution, but functioned as a department of the Reserve Bank of India (RBI) till 1976; after that it became an undertaking of the Centre (public sector). When it reversed merged into its offspring IDBI Bank (just like ICICI Ltd did into ICICI Bank in December 2001), Mint Road classified it as “other public sector banks” – a brand new category. Banks under this category (there is only IDBI Bank under it as on date) were to receive the same benefits under Section 10(23D) of the Income Tax Act (1961) as was made clear in the Explanatory Circular for Finance (No 2) Act (2009) dated 3rd June 2010. The unions’ stress all this to prove that what applies to other public sector banks (or state-run banks) holds true for IDBI Bank also. Why then the rush to dilute stake to under 51 per cent in IDBI Bank even as the Centre says it will not do so in other banks owned by it? It Is Potent TooIDBI Bank is a test case for all major issues in banking, especially in state-run banks. The call for mergers among these banks, and, in particular, the move on the part of a few of them to offer stock-options will only make matters worse. Bank unions see this as an attempt to dilute their bargaining power. Mergers and new-age banking based on technology will lead to large scale redundancies as it will call for a different kind of staffing; stock-options will render collective bargaining (in which the unions play a key role) to the dustbin of history. Let’s take mergers first. We are sometime away from mergers between state-run banks, but you can get a sense of what’s set to unfold. The new generation, Kotak Mahindra Bank (KMB; set up in 2003) had no union problem, but ever since it took over ING Vysya Bank last year, it’s reared its head. That’s because ING Vysya (an old private sector bank) had one; they have now migrated to KMB. Worse, for the first time after the new private banking licensing policy of 1993, unionisation is all over the place in these banks. On 17th August 2015, AIBOA -- the second largest union of bank officers' -- launched the Private Sector Bank Officer' Forum (PSBOF) in Bengaluru. “The growing concern of the existing workforce is hovering round a host of issues like contractualisation of permanent jobs, compulsory conversion of Scale-III officers under the C2C (cost-to-company) concept, outsourcing of banking functions, discrimination in performance-linked bonuses, and non-recruitment of staff against permanent vacancies”, says S Nagarajan, general secretary-AIBOA; he also looks after PSBOF. It’s reached proportions you could not have imagined. AIBOA has taken up the cause of some two dozen employees at Antwerp Diamond Bank’s operations in India – basically Mumbai. This follows its takeover last September by the Brussels-based KBC Group when it said it would wind down its loan portfolio and activities across the world. KBC decided to do so after it failed to sell ADB to the Shanghai-based Yinren Group. "Given that the sale of ADB to the Yinren Group could not be successfully completed, KBC has decided, in implementation of the agreement made with the European Commission, to run down the loan portfolio and activities of ADB in a gradual and orderly manner," ADB told the world in a release in September 2014. You may say the unions managed to ensure that ADB (read KBC Group) did not down shutters in India by end-December 2014 as threatened happened because its local management had no stomach for a fight with our bank unions. But when was the last time you heard of a union picking up cudgels on behalf of a small European bank, boutique at that? It can only get worse when state-run banks merge when issues more complex than in the case of KMB-ING Vysya Bank merger crop up. Now on to the question of compensation. The State Bank of India’s (SBI) move in July 2015 to seek the Centre’s nod to offer three per cent of its profits to its staffers will be the death knell for the four-decade old Bilateral Wage Settlements. Wages and terms of service in state-run banks have been based on uniformity from the days of The First Bipartite Wage Settlement (October 1966). This “collective bargaining” between unions and the Indian Banks’ Association (IBA) -- a club of predominantly state-run banks – has led to the comical: these bankers fix wages and then crib about poor pay. Now bank unions may say that the Bilateral Wage Settlement is fair; does not discriminate between staffers of different state-run banks, but the truth is all these banks are not of the same standard nor are their financials. Rather uniform wages have acted as a drain on several of the weaker state-run banks. In February 2015, the United Forum of Bank Unions (UBFU) wailed that “IBA is not giving any cognisance to the difficulties that are faced by the employees on account of high rate of inflation, which has eroded the salaries of the employees to a great extent and the wage increases considered in other similar public sector undertakings despite their low profits”. Yet when SBI made public what it intends to do this July, the very same unions had a different, but rather ingenious take -- that all state-run banks should also do the same, but with IBA in the middle of it! Of course, you may reason that union power is on the wane and point to the fact that bank managements did not move a muscle earlier this year when UBFU gave a call for a four-day bank strike (from the 25th to 28th February 2015); or threatened an indefinite strike from 16th March onwards. All that will change in the days ahead. You also get to see strange bedfellows. Bank unions are being strategically sought to be used by private sector banks to recover non-performing assets – the more noise they make, the better for these banks; the bulk of this mess is after all in state-run banks. “This is a nonsensical attitude”, says Vishwas Utagi, general secretary-All India Bank Employees Federation (AIBEA). His point is state-run banks account for 76 per cent of all banking assets, so naturally, they will have more NPAs in absolute terms. “The private sector or India Inc as the media calls it, borrows from state-run banks, takes them for a ride, and now private banks bosses want to use unions to scare them. Wonderful! We also have a government that chastises state-run banks for NPAs, but not private borrowers, yet wants to privatise state-run banks. You think all this is very clever?” asks Utagi. The proposed protest before North Block during the upcoming Winter session of Parliament may see other comers join in. Recall that a week after Jaitley inaugurated a seminar in Mumbai in August on agrarian distress, there came a strike call from a clutch of banks which were set up to service rural India. Nearly 1.25 lakh employees and officers of 56 Regional Rural Banks (RRBs) spread over 20,000 bank branches want to stop their privatisation; they have threatened a two-day strike during the Monsoon Session of Parliament. There was a test-run strike on 30th June 2015 by the United Forum of RRB Unions. Connect the dots -- bank unions are going to play hard ball.
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BankBazaar.com, a leading financial marketplace, awarded the creative mandate to Enormous, after a multi-agency pitch in Mumbai. As part of the scope of engagement, Enormous will work towards further strengthening Bankbazaar.com’s brand positioning as an online financial marketplace offering end-to-end financial services catering to the country’s growing tech-savvy customers. The account will be serviced from Enormous’ Mumbai office.Adhil Shetty, CEO of BankBazaar.com, said, “The e-commerce segment of the country has successfully spearheaded interesting communication campaigns to enable it as a high involvement sector. On the other hand, financial services, being an important aspect of our lives, remains a low involvement category due to complexities in information dissemination. We are delighted to have Enormous partner with us to simplify financial services through unique creative communication campaigns and to offer optimized benefits to our audience.”Established in 2008, BankBazaar.com has been a pioneer and a one-stop provider of hassle-free solutions for all personal finance products including insurance policies, bank loans and credit cards.Vinay Singh, Head – Brand Marketing at Bankbazaar.com, added, “There was an intensive evaluation of agencies and we decided to opt for Enormous due to their strength of understanding our business, focused creative roadmap based on strong audience insights, and clarity of campaign execution.”(BW Online Bureau)
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