RBI Choose Six Big Banks

Too-big-to-fail bank names by Aug '15: RBI-times of India

MUMBAI: Around four to six large banks are set to be classified as 'systemically important' by the RBI from August 2015 and will be subject to higher capital requirement and intense regulation. 

Systemically important is the term used by the RBI to describe institutions that are considered too big to fail as allowing a failure would cause a crisis in the financial system. Such large banks will be subject to intense regulation and higher capital requirements. 

Following the Lehman Brothers crisis, the Basel Committee on Banking Supervision — a panel of central bankers worldwide — prescribed a regulatory framework to deal with domestic systemically important banks (D-SIBs). The indicators which would be used for assessment are: size, interconnectedness, substitutability and complexity. Based on these parameters State Bank of India, HDFC Bank and ICICI Bank are widely expected to be among the D-SIBs. 

How India’s Private Banks Duck NPAs

Amit Bhandari, July 22, 2014                                      Bad loans by public sector banks, which account for the bulk of the banking system in India, have tripled over the past three years. Gross non-performing assets (NPAs) of public sector banks stood at Rs 216,739 crore at the end of March 2014, three times the figure for March 2011.

On the other hand, NPA figures for the private sector banks, which are much smaller than their public sector counterparts as a group, have been much better. Total NPAs for private sector banks stood at Rs 22,744 crore at the end of March 2014, up 26% over the past three years. Looking at other publicly available information, it would appear that private sector banks do a better job of managing loans, which may turn bad. But the reason in some ways is simple. They have been more pro-active with tools like debt restructuring.

 

Indeed, the situation could be much worse if not for the corporate debt restructuring (CDR) mechanism, which allow payment terms and interest rates on an outstanding loan to be renegotiated before it turns into an NPA.

CDR packages also involve fresh working capital loans to the distressed borrower and fresh equity infusion by the promoters. Lenders representing 75% of the outstanding loan amount must agree to the CDR package. Loans worth Rs 330,444 crore had been approved by the CDR cell till March 2014. Else, the NPA figure could have been even higher. The total value of loans under CDR stood at Rs 229,013 crore in March 2013, indicating the sharp increase here as well.

The list of industries in CDR is dominated by infrastructure, iron & steel, power, textiles, ship-building/ship-breaking and telecom. The total loan value under CDR in these sectors exceeds Rs 10,000 crore each. Two sectors where the value of CDR packages has shot up in the past 12 months are infrastructure and ship-building. In both the sectors, a few large corporate accounts are responsible for the increase.

In March this year, a group of 22 lenders cleared a debt restructuring proposal of Rs 11,000 crore. Earlier, in 2013, a Rs 13,500 crore CDR package had been cleared for Gammon India, an infrastructure company involved in construction and development of roads, ports and other such projects. The shipbuilding sector has been hit by an international slowdown following 2008 while the infrastructure sector’s problems are domestic in nature. Wind energy major Suzlon received approval for a CDR package for its debt of Rs 9,500 crore.

News reports had identified ICICI Bank as a leading lender to ABG and Gammon. Going by these numbers, it seems private sector banks are more willing to let a large lender go for debt restructuring rather than let it turn into an NPA. Had these accounts turned NPAs, they would have been several times larger than Kingfisher or Winsome Diamonds – which currently lead the bad loan list of the banking sector.

Telecom Service Providers Rush For Private Bank

Airtel, Vodafone & Idea may rush for payments bank permit-Times of India

KOLKATA: Top mobile operators such as Airtel, Vodafone and Idea Cellular are expected to be among the first ones to set up 'payments banks', opening up a new revenue stream by leveraging their large customer base and wide geographical reach through retail outlets.

The Reserve Bank of India (RBI) had on July 17 issued draft guidelines for those seeking licences to open payments banks and small banks in a bid to ensure banking services covered most households across the country. A payments bank can accept deposits and remittances but cannot lend. While Bharti Airtel and Vodafone India declined to comment on whether they will apply for payments bank licence, Idea Cellular did not respond to ET's queries as of press time.

Analysts and top industry executives said such a permit can give a big boost to telcos' mobile money transactions. The top two telcos in the country, Airtel and Vodafone, are familiar with the business model and have seen a sharp spurt in revenues in African markets such as Kenya, they pointed out.

Analysts, however, said it is not clear if the norms for payments banks in India will be as liberal as in Kenya, where the mobile banking and payments business has been a runaway hit for companies such as Vodafone managed Safaricom.

"We suspect Indian payments bank licences will be much more restrictive than those issued Kenya," Credit Suisse said in a note to clients, adding that it expects mobile payments to add 1%-1.2% of telecom industry revenues "although a more liberal interpretation gives a 7-8% revenue upside".

The Swiss brokerage also does not expect EBITDA contribution to be significantly higher due to higher competition levels in India's telecom sector compared to Africa.

Rajan Mathews, director general of Cellular Operators of Association of India (COAI), the lobby body representing GSM mobile operators, said the RBI move would boost mobile banking services and financial inclusion, saying the "biggest deterrent to expansion of mobile payments" so far has their inability to offer cash-out transactions.

"Though RBI's proposals don't allow telcos setting up banks to lend, we believe they will allow cash-out transactions, which I reckon can be a game-changer to boost mobile payments and financial inclusion in India as in Africa," he said. The cash out facility, Mathews said, would enable a person who has deposited money with a mobile company to withdraw it at any location he wishes. For example, if a migrant labourer deposits Rs 10,000 in Delhi with a mobile operator, his relatives can get the sum at a mobile operator's retail outlet from anywhere.

Credit Suisse, however, said it's not yet clear whether cash outs in the form of 'people-topeople' (P2P) money transfers will be allowed in India. "It is still not clear if telcos will be allowed to use standalone retail partners as agents, and whether cash-out transactions will be permitted as these were critical factors that drove the success of Vodafone managed Safaricom in Africa," the brokerage said.

Know About Nayak Panel Report

My Comments are as follows on Nayak Panel report on bank reforms ( Gist of report is submitted below)

In my view Nayak panel has done nothing or suggested no such good idea which may help in the improvement of health of Public Sector banks. Panel has not fixed responsibility of erring officials and erring ministers. What they have suggested is nothing but old wine in new bottle. This is purely an attempt to hide the past mistakes of top bankers and regulators and set up a new governance committee, new board for selection of top management etc. 

It has now become clear to RBI and Government of India that they have damaged the fundamentals of public sector banks and time is ripe now for public revolt against regulators. One crystal clear point which emanates from panel report is that RBI and GOI failed to do their duty in last two decades and it is their sheer negligence which has resulted in current critical sickness of PS banks. They remained silent spectators when CEOs of banks were looting banks in the name of credit growth. They remained deaf and dumb when corrupt bankers were humiliating senior officers and workers of banks in the name of merit oriented policy for promotions, transfers and recruitment. They maintained complete silent when politicians were exploiting banks in the name of revival of economy. They were sleeping when legal set up for recovery failed to recover money from defaulters even after lapse of two or three decades.

I am of strong view that health of PS banks have gone from bad to worse during last two decades only due to bad Human resource policy and due to worst execution of good policies. If one peeps into performance and appraisal reports of all officers of last two decades , it will become crystal clear that good officers have always been neglected in all promotion processes and bad officers who were master in flattery and bribery got one after other elevation. And now gang of bad officers is ruling the banks with unity. They unitedly protect bad officers and sideline really good officers similar to case of Mr. Khemka in Harayana .

As long as workers of any organization do not feel satisfaction after doing devoted duty, there is no chance of bank improving their health whatsoever may be the finding and suggestions of Nayak Panel. It is only in PS banks that 20 year or 30 years experienced good officers are rejected and brand new officers in higher scale are recruited directly to please top bosses and politicians. Juniors are ruling seniors  not because they are more intelligent and talented ( barring some exceptions) but because they used money and powerful bosses for getting quicker promotions and got success in getting new job in higher scales.

It is this dirty game of top bankers that health of banks have deteriorated during last  two decades whereas private banks have improved their health under similar and fully same external situations like global recession or natural calamities, or interest rate freedom or recruitment freedom or government policies or legal set up etc.

Officers of PS banks work to please and protect the self interest of their bosses whereas officers in private banks work for betterment and for protection of their organization.

Anger of investors, bank customers, bank staff and that of all concerned against government is on rise due to relentless rise in stressed assets and due to government failure in containing the same and in recovery of bad loan from defaulters. Before it becomes violent, government as usual set up a panel for suggesting alternate ways and switch over the responsibility of failure to another set of body and get rid of punitive action for their past mistakes. And panel is also manned by such persons who can submit reports as per whims and fancies of the officials who are behind all stories of scams, frauds, bad debts and all types of irregularities.

It is the habit of Government; first they exploit the government organization and government fund for self interest and then change the name of the scheme and name of regulators or merge the maligned schemed to some other schemes. In the past many small banks , big banks , rural bank or cooperative banks or chit funds have failed and then merged with some stronger entity to avoid the consequences of public anger against mismanagement and large scale fraudulent activities perpetuated by the management of the failed bank.

As long as officials and the persons who hold the key post in any organization are bad and ill-motivated, no power on earth can stop misuse and pilferage of government money and no power can ensure good health of any public sector undertaking or any department. When top officials in banks are bad, assets created by them will definitely be bad and no power on earth can stop rise in bad assets of these banks. Nothing is to change if rules for constitution of bank’s board are altered or stake of government is diluted to below 50% in PS banks.

This is why they , corrupt bankers in nexus with corrupt team of politicians and regulating officials either write off the bad loans or keep bad loan evergreen by fresh lending or restructure bad loans or sell the bad loans to ARC to clean the balance sheet. All efforts are to conceal evil works and bad assets .This is a usual phenomenon in banks and in all government offices dealing with finance and money. When a bank become weak or goes beyond control, it is merged with some other stronger banks. 

It is the Habit of the government not to cure the root cause of the disease but to make lame excuses for failures or to put carpet on the malady or carry out little surgical operation to befool innocent masses.

And finally flattery and bribery culture is the root cause behind all mismanagement and all scam stories . Weak and ineffective judiciary adds fuel to fire.

All you wanted to know about Nayak panel's PSU banks report (source MoneyControl)

An RBI-constituted committee led by PJ Nayak Tuesday submitted its recommendations to improve the governance structure of state-owned banks and also to help private sector banks attract more capital.

An RBI-constituted committee led by PJ Nayak Tuesday submitted its recommendations to improve the governance structure of state-owned banks and also to help private sector banks attract more capital.

 Following are the key commendations of the panel: 

*Given poor asset quality and low productivity, either privatize PSU banks or transform governance structure to make them efficient.

 *Reduce government stake in PSU banks to less than 50 percent  

 *Remove dual structure of both Finance Ministry and RBI regulating PSU banks. Give all regulatory authority to RBI   

*Improve quality of PSU bank board discussions; focus on key areas like business strategy, financial reports, risk, and compliance.  

 *The government should transfer its stake in PSU banks to a holding company termed Bank Investment Company   

*Government should reduce its stake in BIC to under 50 percent and appoint a professional management for BIC 

  *For better accountability, BIC should be governed by The Companies Act 2013, and not the Bank Nationalisation Acts of 1970 and 1980  

 *Ownership functions to be transferred by BIC to the bank boards. Appointments of directors, CEO to be the responsibility of bank boards.  

 *Have uniform bank licensing regime across all broad-based banks, and niche licenses for banks with more narrowly defined businesses   

*Allow mutual funds , pension funds, PE funds to hold 20 percent in private sector banks, without having to take RBI approval   

*Allow promoter investors to hold up to 25 percent in private sector banks, against the 15 percent ceiling currently  

 *Ensure a minimum five-year tenure for bank Chairmen and a minimum three year tenure for Executive Directors

 *Private equity funds, including sovereign wealth funds, be permitted to take a controlling stake of upto 40 per cent in distressed banks 

*Allow voting rights in proportion to the stake held Link Money ControlRBI, not FinMin, should oversee PSU bank regulations: Panel The government periodically issues instructions to public sector banks, which have to do with regulations, as well meeting social objectives.

The PJ Nayak-led panel on governance of bank boards has recommended that public sector banks should be answerable only to the RBI, and not to both RBI and the Finance Ministry as is the case now. This would provide a level playing field for state-owned banks vis-à-vis their private sector counterparts, the panel said. "All regulatory functions of the Government need to be moved forthwith to RBI, freeing the public sector banks of dual regulation,” the committee said in its report. 

The government periodically issues instructions to public sector banks, which have to do with regulations, as well meeting social objectives.   In July 2012, the government had written to the CEOs of all scheduled commercial banks, public sector financial institutions and public sector insurance companies ‘may consider’ uniform card rates for bulk deposits for different maturities at least up to one year, so as to create a ‘level playing field’ for all banks. 

The circular warned that failure to do so would be treated as a violation of the government’s instruction. "The circular acts at cross-purposes with the regulatory regime of deregulated interest rates which RBI has established. 

In effect the government becomes a second regulator, with little sensitivity to whether its directives are consistent with RBI regulation,” the report said.

 Last October, the Finance Ministry had asked public sector banks to offer cheaper loans for customers wanting to buy automobiles and consumer durables, in an effort to boost demand in the economy.

 But even more damaging was the interference by the Finance Ministry in 2008 when it asked PSU banks to waive off Rs 76,000 crore worth of outstanding loans to farmers. "Any directions issued which are applicable to a subset of banks (PSU banks in this case) do damage to that subset, however laudable the objectives. 

Those banks not part of the subset (private sector banks in this case) are under no obligation to participate; if they do so the participation is voluntary, while for the subset it is coercive,” the committee said in its report.

 The panel said that for the government to issue other instructions in pursuance of development objectives solely to public sector banks was discriminatory and anti-competitive. "If the tasks are indeed laudable, they should be laid down for implementation by all banks. The straightforward way of doing so is to route it through RBI,” the report said.

Link Money Control

Keep Eye On Shadow Banking

'Need to keep an eye on shadow banking entities'-Business Standard

In India, shadow banking entities essentially refer to the large number of unregulated companies that act as financial intermediaries, providing credit and generating liquidity in the system

 

The Reserve Bank of India (RBI) on Thursday said there was a need to monitor "shadow banking" entities, which were perceived to be regulated by the central bank, albeit inaccurately, to eliminate ambiguities related to legal, regulatory and administrative aspects of their functioning.

In India, shadow banking entities essentially refer to the large number of unregulated companies that act as financial intermediaries providing credit and generating liquidity in the system. For instance, companies engaged in multi-level marketing, offering prize chits and money circulation schemes are currently not regulated by RBI.

"(The shadow banking sector) raises concern partly because of the public perception that they are regulated," the central bank said in its financial stability report released on Thursday.

At a time when some developed economies have initiated efforts to mitigate systemic risks posed by shadow banking activities, India has witnessed a a significant increase in the exposure of its banks to shadow banking entities.

"The motivation for regulatory reforms in the shadow banking space in developed economies, especially in the US, emanated from certain dilemmas that, on the one hand, there was a need to de-risk the overgrown complex banking industry, which inevitably needs the presence of shadow banking entities to absorb those risks and the concerns over the role of shadow banking entities in consummating the financial crisis, on the other," RBI said.

The banking regulator, however, admitted that in developing markets such as India these concerns might not be entirely valid because of the low penetration of banking services, much less complex financial markets and level of regulatory oversight exercised over shadow banking activities. In fact, some shadow banking entities have been playing an important role in supporting efforts towards financial inclusion.

But with relatively lower levels of financial awareness and the misconception that all financial activities come under some regulatory framework, shadow banking entities in the country may assume systemic importance.

Hence, the central bank feels there is a need for clarity in the regulatory framework for shadow banking entities in India. "There is a need to assess the collective size and profile of activities of the large number of non-bank financial entities functioning in the organised as well as the unorganised sector (including unincorporated entities which are outside the purview of the regulatory perimeter)," RBI said.

The banking regulator is in the process of reviewing the regulatory framework for non-banking financial companies (NBFCs), based on the recent developments in the sector and also recommendations made by the Nachiket Mor committee.

"The proposed review will cover the legislative framework of the NBFC sector, asset classification and provisioning norms for NBFCs vis-a-vis that of banks - (including the need for raising tier-I capital requirement for NBFCs), corporate governance guidelines including 'fit and proper' criteria for their directors, regulation of deposit acceptance activity, consumer protection measures, present classification scheme of NBFCs and activity of lending against shares by NBFCs," RBI said.

Stop Charging Fees On ATM

Debit card annual fees: Why mostcustomers shouldn't be charged.--By Puneet Kumar Pattar-Money Life

While many appreciate the progress from ATM cards to debit cards, there are many bank customers out there who do not see any real reason for shelling out a hundred rupees every year as annual fees

The banking industry has come a long way and today we are almost at a stage where everyone has a bank account. Those of us living in cities could have two and those living in metros could have even three to five accounts. I remember reading somewhere that the upper middle class has at least six bank accounts per family. From being a privilege for the wealthy and for those working in the Government services, banking has become a basic necessity of life. In fact, most parents get a bank account in the name of their as soon as they get him/her into school. How could they not? After all, a whole bunch of bankers run around them explaining the advantages of opening a child account, how it could help the kid become responsible, how it will help in education, and so on. The moment you open a bank account, a recurring deposit in the name of the kid and a life insurance policy are up next. That's okay. After all, the world is growing.

Banks want to have their cake and eat it too. Guess what, they have been successful at it.

Over the last many years, I have been looking at the changes happening in the banking sector. After computerization of the banking industry, banking has more to do with marketing than with calculations. The computers and software take care of all the calculations and thus, the banks are now better positioned to use human resources to generate revenue. Not so long ago, a bank employee would spend majority of his time in accepting deposits and making payments across the cash counter, making him a cost centre for the bank. Modern bankers (like ICICI Bank, HDFC Bank, etc) aggressively market their products by showcasing their services like ATMs, Internet Banking, Phone Banking, etc, making them a revenue centre.

Inter-bank fund transfers through internet banking attract charges too. Internet banking was supposed to benefit the bank by reducing the cheque clearing work, thereby leaving behind a lot of time for bank employees to work on other fronts. Its a different story that phone banking, which was supposed to help customers on a toll free number, is now offered on a paid line. So, all these services that came up to help customers have helped the banks more than the customers. Of course, no one can deny the many conveniences we enjoy today. The point I want to make is that all that was free, now comes at a cost.

Even an SMS sent to customers are subject to charges now. The SMS initiative came as a measure to ensure safe banking and now it costs the customers to ensure that he banks safely. Somehow, it doesn't convince me that my bank account is not safe with the banks with this paid SMS facility.

Debit Card Annual Fees - A trap?
 

Before declaring charges for their SMS facility, the banks introduced annual fees for debitcards. This one is perhaps the most annoying charge that today's customers pay. I personally had nearly 10 debit cards on my name up till some time ago (the side effects of working in the banking and financial services industry). One fine day, I realised that I had been paying a lot of money in the name of 'Debit card annual fees'. At Rs110 per card, I had been paying almost Rs100 a month. Since I would hardly use those cards I started closing those accounts one by one and yet, I was left with five of them. I was still stuck with paying Rs500 plus taxes for no sensible reason whatsoever.

Banks benefit more in terms of time and cost than the customers

Banks came up with the idea of ATMs in order to save time for customers and more importantly, for themselves. While customers do benefit from these cards, the banks benefit far more. Imagine the bankers sitting around and processing cash withdrawals of Rs100-1,000 to thousands of customers everyday in today's world.

A large number of customers still do not extensively use cards
 

It is a well known fact that a large number of customers who possess these cards, especially the ones in rural areas or the ones in business, seldom use these cards. Sole proprietors and, to some extent, Partnership firms have cash on hand, which they use for their daily expenses and this cash is received by them in the course of daily business. Most of their withdrawals are in the form of payments to third parties by cheques or transfers. So, the card lies in their pockets or lockers and they keep paying the annual fees.

Use of debit cards for shopping is very low
 

Banks promoted debit cards saying that these cards can be used at ATMs of other banks as well as be swiped at merchant terminals. However, the number of customers using debit cards for shopping is very low. Most customers who have a credit card would prefer swiping their credit card, thereby getting more than a month's time to pay the amount, rather than swiping a debit card where the amount goes off immediately. It is only when there are some offers, discounts, cash backs, etc that customers consider swiping their debit cards.

Five transactions only 
 

The banks' promotion of debit cards quoting that these can be used to withdraw cash from any ATM doesn't appeal anymore. After all, only 5 such transactions in a month are free and the customer has to pay for the 6th transaction. However, banks have continued to offer unlimited transactions at their own ATMs even today.

Banks should bring back the ATM card
 

While adapting to technology should be encouraged, banks should also provide for such customers who do not want to use technology that doesn't help them. Its like asking a banker to learn Hadoop or Big Data, as they are the latest technologies. There are some banks who are still issuing ATM cards on request. In fact, I got an ATM card from one of the leading private sector bank on placing a request for the same.

There was absolutely no need for the bankers to do away with an ATM card and make the customers opt compulsorily for debit cards. An ATM card is a boon for those customers who do not use the ATM often or do not intend to shop with it. Banks are making big bucks with these charges but it is time they realize that they focus on tailored solutions instead of making generic products. While many appreciate the progress from ATM cards to debit cards, there are many customers out there who do not see any real reason in shelling out a hundred rupees every year. In fact, there are awkward situations when such charges result in a drop in balance, and such a drop results in a cheque bounce. Online consumer forums are full of such complaints.

Reintroducing ATM cards would be a friendly step to help customers who have too many debit cards, or those who seldom use them. Levying an annual fee on all cardholders could be legally permissible but when you look at it from the ethical or customer service perspective, it may not fly well with customers. Although, abolition of the annual fees in totality would be more of a dream for customers.

Link Money Life

Future Of PSU Banks

PSU Banks may face the same fate as state-run peers in telecom, aviation -ET

11th July 2013   (  Similar opinion express by me in my past blogs , links given below )

Indian banking is experiencing a tectonic shift. Holding a stick to state-run bank chairmen to revive the economy will do more harm than help the nation's cause. PSU banks may face the same fate as state-run peers in telecom and aviation. If the government does not change its way and banks don't focus on service, both may end up as losers.


Finance Minister P Chidambaram might not have directed public sector banks to reduce lending rates citing State Bank of India example if only he had had a detailed look at the deteriorating financial ratios of other banks over the past few years.

There is a transformation which is happening in the Indian banking scene where state-run companies dominate three-fourths of the market. That is the best part of the story. The disturbing factor is that barring State Bank of India, all other state-run banks are staring at a low-cost funding crunch that could change the banking landscape forever.
Corporation Bank's annual analysts' presentation for the last fiscal year tells the story. A few inches at the bottom right of page 16 in the presentation is a diagram which is hard to identify — it is hard to tell whether it is a tree or a stick. That is the space which should have indicated the percentage growth or fall of its lowcost deposits — known popularly in banking circles as CASA (current account savings account).

If 26 entities have applied to own a bank including non-banking Finance companies, the dominant thought was they could get access to CASA which will help them earn more profits.

However, what is plaguing state-run banks is exactly the opposite. Over the last few years the likes of Punjab National Bank (PNB), Bank of Baroda, Canara Ban and Corporation Bank have been losing CASA market share to nimble, technology-savvy private sector peers such as HDFC Bank and ICICI Bank.

The New Delhi-based PNB's CASA has fallen to 39% of its total deposits in 2013, from 46% in 2005, squeezing its profitability. But ICICI Bank's has risen 24% in 2005, to 41% in 2013, helping it raise its profitability.

"If you have low-cost deposits then you don't need to take as much risks on the lending side to make the same amount of profits," says Anish Tawakley, director, equity research,Barclays Capital. "If you start with a high-cost deposit base then to earn a profit you have to lend at a high rate, effectively taking on more risks. These earnings are seen as riskier."

When low-cost deposits for state-run banks in general have fallen to just about a quarter or in some cases even lower, State Bank of India has its CASA at 44.8%. Indeed, it has also improved as it is seen as a proxy for the government and, therefore, considered the safest, even though other state-run banks have similar profiles.

SBI's base rate is at 9.7%, the lowest among the lenders and PNB's is at 10.25% and Bank of India's is at 10%. These banks have since their meeting with Chidambaram reduced interest rates. But one could be sure that their profitability could be squeezed if their low-cost deposits do not rise which looks the most likely possibility.

"Eventually, banks will have to settle for lower NIMs (net interest margins)," says BA Prabhakar, chairman and managing director at Andhra Bank. "But if they can migrate from compliance to business opportunity in rural India, they have a better chance of improving CASA."

Private lenders such as HDFC Bank andAxis Bank have been gaining a higher share of low-cost deposits due to their service offerings to individuals and corporates which many state-run banks have been slow to realise.

Absorption of technology has been an important factor. Taking strides in internet banking, mobile banking, facilitating bill payments, online trading, credit card payments and electronic clearing system payments are some of the features that induce the salaried class to keep cash with private sector banks. Corporates are also lured with facilities such as cash management and portfolio management.

"Given the network and presence that PSU banks have in our country, they should at least have maintained their market share," says Vaibhav Agrawal, vice-president, research, banking, Angel Broking. "Building and maintaining a sustainable CASA profile is easier said than done as it involves significant execution challenges. With a customer-centric approach, right from the branch level, private banks have managed to gain a sizeable market share from state-owned banks." Rising bad loans, the prospect of new banks and the option of keeping surplus money with mutual fund schemes would not help public sector banks improve their positions any time soon.

Although the Reserve Bank of India has cut policy rates in the last one year, many banks have been raising fixed deposit rates. Since companies are defaulting or falling behind on payments, banks have to keep attracting new funds to maintain the assetliability mismatch.

Since low-cost funds are with private sector banks, PSUs such as Bank of Baroda, and Indian Overseas Bank have no option other than to raise rates on fixed deposits. That raises the overall cost of funds, limiting their ability to lower lending rates. Furthermore, attractive rates from liquid schemes of mutual funds are also luring corporates away from banks. "Liquid funds offer 8-9% against the current account balance of zero percent. So, more and more corporates are parking their surplus funds with mutual funds," says Andhra Bank's Prabhakar.

The prospect of lowering lending rates appears to be distant if managers just go by their cost of funds. But if the government coerces banks to do so as it did in forcing them to lend, it would weaken their finances further. For policy-makers who are looking to revive the economy, the choice may be to swallow the fact that the banking system, after years of abuse, is not in the pink of health. So, one might have to wait for the rottenness in the system to be purged before getting back to normal.

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/psu-banks-may-face-the-same-fate-as-state-run-peers-in-telecom-aviation/articleshow/20995640.cms?curpg=2

My Blogs of the Past are in following links

Average Pay Per employee in Private And Government Banks

RBI DY Governor compares average pay per employee in public sector banks with that in private sector banks. 

( Please also read latest submission dated 28th March 2013 on this subject http://importantbankingnews.blogspot.in/2013/03/pubic-sector-banks-policy-of-branch.html)

In public sector banks, clerks are not given promotion in two to three decades. If clerks are promoted to officer cadre, the promotee officers continue to perform the duty of clerk or that of cashier as he or she used to do before becoming officers. Not only this, there are many scale II, scale III or scale IV officers who are constrained to perform the duty of cashier or a dispatch clerk or front line officer.

http://dkjain4970901092007.blogspot.in/2012/06/average-pay-per-employee-in-private-and.html

Public and Private Sector Banks

Reality of stimulus package is now visible; Fiscal deficit is increasing , trade deficit is increasing, current account deficit is increasing and GDP is coming down, IIP figure is coming down, rating of banks is coming down rating of country is at alarming position and so on ….Borrowing by government has been consistently increasing, public debt has reached to the level of 46 lac crores i.e. around 40% of GDP. Still government is allowing one after other subsidies to big corporates, exporters and importers. 

Total subsidies , interest relief, and tax relaxation provided per year to high profile corporate comes to the tune of ten lac crores which is at least four times more than the total of subsidies provided to common men in the name of fertiliser subsidy or fuel subsidy.How can one dream of good results for common men when the present government continues such pro rich policies in the name of reformation. 

http://dkjain497091112006.blogspot.in/2012/03/public-and-private-sector-banks.html

http://importantbankingnews.blogspot.in/2013/03/pubic-sector-banks-policy-of-branch.html

http://importantbankingnews.blogspot.in/2012/12/psu-banks-are-sick-due-to-poor.html

http://dkjain4970901092007.blogspot.in/2012/05/public-sector-banks-in-crisis.html

http://dkjain497091112006.blogspot.in/2012/05/all-is-not-in-government-banks.html

http://dkjain4970901092007.blogspot.in/2012/05/public-sector-banks-in-crisis.html

Work Culture In Banks

PM’s call to improve work culture extends to banking sector-Hindu Business Line

K RAM KUMAR

Must submit ‘action taken report’ within five days

MUMBAI, JUNE 9:  

Prime Minister Narendra Modi’s fiat to Central ministries and departments to ensure “improved work culture and work environment” has been extended to all financial sector regulators, chiefs of public sector banks, financial institutions and public sector insurance companies.

Initiate immediate action

In a communication issued on Monday to the above-mentioned entities, the Finance Ministry said they are required to initiate immediate action to improve work culture and work environment in all their offices, branches, premises or “any other spaces” in their organisation.

However, the ministry has given the regulators and financial intermediaries only five days to submit their ‘action taken report’ (by June 13), so that the Cabinet Secretary can be apprised of the action taken.

As part of this exercise, the ministry wants the workspace cleared and spruced up and filed/papers neatly stacked so that a positive work environment is created.

The financial sector regulators and financial intermediaries are required to identify forms that are in vogue and shorten them to one page.

They should also encourage online submission of information and eventually universalise it.

Decision-making

For quick turnaround in decisions, the ministry said decision-making layers should be whittled down to a maximum of four.

Calling for collaborative decision-making and frequent consultations between various verticals in an organisation, the ministry underscored that the entire organisation should work as a team, with every level being encouraged to provide inputs and value-addition.

The regulators as well as the financial intermediaries have been asked to ensure effective and timely resolution of public grievances.

In the case of financial sector regulators, the ministry wants them to identify at least 10 rules or processes and even archaic laws, which are redundant and not lead to any loss of efficiency, so that they can be repealed.

There are five financial sector regulators — Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, and Forward Markets Commission — in the country.

Hindu Business Line

Merger Of RRBs (Regional Rural Banks)

FinMin puts amalgamation of regional rural banks on hold

At present, central govt, state govts and sponsor banks like SBI and PNB provide capital                          

     RRBs were set up in 1975, to create an alternative channel to the cooperative credit structure and ensure sufficient institutional credit for the rural and agriculture sectors

The Centre has put on hold further amalgamation of regional rural banks (RRBs), as these face challenges in meeting capital adequacy norms. It is expected the focus will now be on improving their performance and exploring a new class of investors to raise capital for these.

In a communiqué to the heads of public sector banks, the finance ministry said there was a need to tap other sources of capital for RRBs. No fresh proposal of amalgamation of RRBs should be taken up, it added.

Currently, the central and state governments and sponsor banks such as State Bank of India and Punjab National Bankprovide capital to RRBs — while the Centre provides 50 per cent, the state government provides 15 per cent and the sponsor bank 35 per cent. While Centre and sponsor banks have been infusing capital, state governments have been found wanting in providing their share.

A Bill to amend the RRB Act is being considered by the parliamentary standing committee on finance. The amendments are aimed at increasing the pool of investors to tap capital for RRBs.

A senior public sector official said now, the focus would be on improving the performance of RRBs, including their profitability. Further amalgamation on this front should happen only after examining the viability of the exercise, the official added.

As of March-end, 2011, the total number of RRBs stood at 82; this fell to 64 in March 2013 and 57 in March 2014.

National Bank for Agriculture and Rural Development (Nabard), the regulating body for rural banks, has said agricultural credit disbursement by RRBs has been short of the target. The low disbursal of farm credit by RRBs was due to amalgamation and capital adequacy limitations, as these banks had to maintain a capital adequacy ratio of at least nine per cent, it said, adding RRBs didn’t have any source of capital other than paid-up capital.

RRBs were set up in 1975, to create an alternative channel to the cooperative credit structure and ensure sufficient institutional credit for the rural and agriculture sectors.

RRBs have presence throughout the country. P Chidambaram during his first innings as finance minister under United Progressive Alliance (UPA) took steps including recapitalization, and restructuring to improve the functioning and financial health. It was also meant to attain economies of scale and ensure better managerial control.

Link Business Standard

New Liquidity Ratio for Banks

RBI introduces liquidity ratios for banks-Business Standard-10th June 2014

Mandate 60% liquidity coverage ratio from Jan 1, 2015; 100% by 2019

In a move aimed at creating liquidity buffers in banks, the Reserve Bank of India (RBI) has mandated the lenders to maintain 60 per cent liquidity coverage ratio (LCR) from January 1, 2015. Also, the central bank suggested a phased manner in which the ratio will have to increase to 100 per cent by January 1, 2019. Equal quantum of increase has been suggested for every year, till 2019.

The LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high-quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days.

LCR is defined as the proportion of high-quality liquid assets to the total net cash outflows in the next 30 calendar days.

Typically, banks face two types of liquidity risks — funding liquidity risk and market liquidity risk. Funding liquidity risk is the one in which the bank is unable to meet expected and unexpected future cash flows and collateral needs without affecting its financial condition.

Market liquidity risk is the one when a bank cannot easily offset or eliminate a position at the prevailing market price because of inadequate market depth or market disruption.

“The LCR would be binding on banks from January 1, 2015; with a view to provide a transition time for banks, the LCR requirement would be minimum 60 per cent for the calendar year 2015, i.e. with effect from January 1, 2015 and rise in equal steps to reach 100 per cent on  January 1, 2019,” RBI said in a statement on Monday.

Banks, however, has been asked to achieve a higher ratio than the minimum prescribed above as an effort towards better liquidity risk management.

The move from the Indian banking regulator comes after the Basel Committee on Banking Supervision proposed certain reforms to strengthen capital and liquidity regulations in the aftermath of the global financial crisis of 2008.

The central bank had conducted a Quantitative Impact Study (QIS) as on December 2013 on a sample of banks to assess their preparedness for the Basel III Liquidity ratios, which indicated that the average LCR for these banks varied from 54 per cent to 507 per cent.

In the draft guidelines on liquidity risk management of banks, released on November 2012, the board of the bank has been given the overall mandate to ensure liquidity coverage.

RBI had said that the banks’ boards should develop strategy, policies and practices to manage liquidity risk in accordance with the risk tolerance and ensure that the bank maintains sufficient liquidity. The boards were  also asked to review the strategy, policies and practices at least annually

Link Business Standard