The proposed payments banks will change banking habits in the country as more and more people entering formal banking network would act as a "game-changer" for the economy, Finance Minister Arun Jaitley said on Friday (21 Augusty). RBI has given nod to 11 entities to launch such niche banks within next 18 months. "Payments banks will change the banking habits of people, it will change the way they think, it will change the way they keep the money, where they keep their money, it will change the way they pay," Jaitley said at the Indian Bank event here.He said going ahead, banking is going to be more of technology-enabled and effort is now on to expand banking to every unbanked corners of the society. "... using banks for all transactions, small and middle will become a habit of the people. More and more outside of the regular economy will get into the economy. And this itself is going to be a big game-changer as far as the Indian habits and Indian economy is concerned," Jaitley said. Jaitley said banking network is expanding hugely and the health of banks reflects on the challenges for the economy. "While on one hand we can take some satisfaction in the fact that networks are expanding across the country, there is huge amount of activity which is still to be done," he said. Earlier this week the RBI gave 'in-principle' nod to 11 entities, including Department of Post, Reliance Industries, Aditya Birla Nuvo, Vodafone and Airtel, to set up payments banks and proposed such licences 'on tap' in future. Payment banking licence will allow companies to collect deposits (initially up to Rs 1 lakh per individual), Internet banking, facilitate money transfers, and sell insurance and mutual funds. They can issue ATM/debit cards, but not credit cards.(PTI)
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Hoping that the NPA situation will improve in the coming quarters, Finance Minister Arun Jaitley on Friday (21 August) said an all-out effort has been launched to correct the current "unacceptable" level of bad loans in the PSU banks. "NPAs, which have reached to the present level are unacceptable. They reached this level partly because of indiscretion, partly because of inaction, partly because of challenges in some sectors of the economy, which were evident through the high NPA in these sectors," he said. Jaitley was inaugurating 109 new branches and 109 Bunch Note Acceptors (BNA) on the Indian Bank Foundation Day. Gross Non Performing Assets (NPAs) of public sector unit (PSU) banks at the end of March quarter stood at 5.20 per cent compared with 5.63 per cent in December. "An all-out effort have been launched to correct the health and bring NPAs down. The effort by the bank administration, the effort by the government to infuse more capital, the effort to get more finance by divesting (government holding), and then greater discretion and more importantly addressing the concerns of each of (stressed) sectors. "And I don't have a doubt that over the next few quarters, the banks will be able to address these challenges," he said. The Finance Minister said the government's plan to infuse capital into the PSU banks over the next four years will "infuse lot of financial strength" in these banks to deal with the bad loan problems. (PTI)
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Bringing poor people under the digital banking platform will help financial transfer meant for social security payment easier, writes Nilanjan BanikA quiet financial revolution has begun in India. Reserve Bank of India, India’s central bank, has granted permission to set up payment banks to 11 Indian companies. This is with the objective of bringing new areas under financial inclusion which otherwise are neglected by traditional commercial banks. Payment banks can accept deposit up to INR .1 million, and will offer other banking services such as issuance of ATM/debit cards, and money transfer. Among the big names which are granted license (likely to be operational by September 2015) are India Post, Reliance Industries, Airtel, Vodafone, Tech Mahindra, Paytm, IDFC, National Securities Depositary Limited (NSDL), Fino PayTec, Cholamandalam group, and Aditya Birla Nuvo. Although India Post, with 0.15 million post offices, has already got a network in place, others are tying up with commercial banks (for instance, Reliance with State Bank of India, Airtel with Kotak Bank, etc.) to leverage their presence. The usher of payment banking system is an important step for financial inclusion in India. In 2014, only 35% of the adults have a bank account and a meagre 8% availed loan from banks. Access to formal banking is a necessary condition for any economy to grow. It will increase saving rates, which will enable capital investment in sectors such as roads, ports, and railways. India needs to invest over USD 320 billion in infrastructure. As capital is scarce, a perfect capital market will ensure a higher return for each additional dollar of saving invested for building India’s infrastructure. Importantly, access to banking will increase productivity of the Indian Micro, Small and Medium Enterprises (MSMEs) sector, and aid the much touted Make in India campaign for India. Only 5% of the MSMEs avail loan from institutional sources, underscoring the need for financial inclusion for the MSME sector, and to drive India’s inclusive growth agenda. Although, economists and policymakers, in general, are worried about individual well-being, and the factors affecting this well-being, they somehow seem to assume the market is perfect. All the growth models in economics, explaining why some economies grow faster than the others, have tried to explain higher standard of living (read, per-capita income) without explicitly accounting for market imperfection. In fact, the fundamental assumption for any country to grow is to assume that the capital market is perfect – so that whatever is saved can be invested for productive purposes. Imperfection in capital market affects distribution of income. A person who is economically poor and does not have a bank account has no other choice but to store his money in the form cash, livestock, or jewellery. The value of cash withers with inflation, jewellery run the risk of being stolen, and livestock can fall ill. All these adversely affect flow of income, and hence affect consumption smoothening. Payment bank will be a big boon for thousands of migrant workers. In India, only 2% of the people used an account to receive money from family member living in other regions. A survey among Indian migrant workers showed they pay a commission of 4.6% when they transfer money through informal route such as Hawala. The cost of loan through informal channel is also high in India. Firms/people with access to finance/capital are guaranteed with more income than the ones without access to banks and capital. As these payment banks are backed by big corporates (some of them have already pioneered use of technology in the financial sector such as Tech Mahindra and NSDL), it will usher in a technological revolution in India. Technology helps to augment financial inclusion by making accessibility to bank and financial transactions easier. Long are the days of waiting in long queue in banks. In a digital world financial transaction happens through click of mouse, and over mobile phone. In India, changes have already happened in three specific areas. First is introduction of Real Time Gross Settlement (RTGS) system, enabling banks to transfer funds across all deposit accounts in real time. The newer version of RTGS has many advanced capabilities such as national electronic fund transfer (NEFT), and electronic fund transfer (EFT) across national boundaries. Second is the introduction of online automatic clearing mechanism such as BillDesk, underlying any retail transfers between point of sale for credit/debit cards and bank automatic teller machines. And, third is introduction of electronic clearing service (ECS) for cheques, an electronic mode of fund transfer from one bank account to another. Payment banks will make mobile network operators (MNOs) and internet banking more popular. According to ‘Internet in India 2014’ report jointly published by the Internet and Mobile Association of India, and IMRB International, Internet users in India will cross 300 million by December 2014. The year on year growth rate registered stands at an impressive 32 per cent. In rural India, the number of Internet users increased by 39 per cent to reach 101 million in October 2014. India has the third largest Internet user base in the world, after China with more than 600 million Internet users and the US with an estimated 279 million users. For a populous country like India future strategy for financial inclusion will call for technology to reach bottom of the pyramid, something that these payment banks can facilitate. Bringing poor people under the garb of digital banking platform will help financial transfer meant for social security payment easier. A study by McKinsey points out online payment of social security benefits will save the government USD 22 billion per year. A study involving 2016 households in Kenya found people availing M-PESA service (banking through mobile, and the service is provided by Vodafone) are better equipped to absorb negative income shocks arising from poor health, crop failures, and job loss. Statistically comparable household not availing M-PESA service are likely to experience a 6 – 10% reduction in consumption in response to similar income related shocks. The future will see emergence of contactless payment enabled through usage of near field communication (NFC) technology. NFC will enable smartphones and other devices to establish radio communication with each other by touching devices together or bringing them in close proximity. Going paperless by saving time will not only reduce transaction costs but will also play an important role for financial inclusion. Some big commercial banks such as HDFC has already started work on it. (Nilanjan Banik is with Mahindra Ecole Centrale. He is a Fellow at CUTS International and is an ARTNeT UNESCAP Researcher. He is the author of The Indian Economy: A Macroeconomic Perspective.)
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Technology firm Mphasis, teamed up with The Royal Bank of Scotland plc (RBS), to provide application management services.Mphasis will manage the performance and quality of critical applications at the corporate and institutional banking divisions of RBS.Gopinathan Padmanabhan, President of Global Delivery at Mphasis, said, “This encourages us to further raise the benchmark and help RBS transform their business by leveraging emerging technologies, tools and solutions. We are appreciative of RBS for giving us this opportunity and very excited to start yet another chapter with them.”Mphasis has partnered with multiple large and mid-size, commercial and universal banks globally. The company brings an in-depth understanding of processes and technologies relevant to banks. This, coupled with Mphasis’ impeccable global track record for consistent service delivery, resulted in RBS selecting Mphasis for this mandate.(BW Online Bureau)
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Analysts estimate large amounts of homes across cities lying unsold as property buyers are short of funds and many of them are waiting for interest rates to fall. Sumit Sharma reportsReserve Bank of India governor, Raghuram Rajan, on Thursday (20 August) said real estate developers should consider cutting prices on their unsold inventory property to help clear up the stock as also help boost new demand. "I do believe that real estate developers, who are sitting on unsold stocks, should reduce prices on unsold stocks,’’ said Rajan during an interaction with Arundhati Bhattacharya, chairman of State Bank of India in Mumbai. "We need the market to clear up . . . we don’t need a situation where prices are high and demand doesn’t pick up. " Analysts estimate large amounts of homes across cities lying unsold as property buyers are short of funds and many of them are waiting for interest rates to fall. Developers on their side are holding prices in the hope of selling for profit. "It will be a big help to the sector because once there is a sense that price itself has stabilized then more people will be willing to buy,’’ said Rajan. Rajan said there could be a pick-up in the economy if monsoon improves and rural demand too would pick up. Referring to home loans, SBI’s Bhattacharya said the NPAs from this segment are minimal. In a situation similar to 2008, SBI could offer home loans at a rate lower than its base rate for an initial period and raise it in the subsequent years. Schemes on similar lines had helped lift demand after the global financial crisis in 2008. The same could happen now. Bhattacharya emphasized that due diligence on these loans would be the same as for all other regular loans. Rajan on his part said "I never say no your ideas. We will examine it.’’
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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.
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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)
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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)
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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)
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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)
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