Yes Bank reduced PLR by 0.50 per cent after RBI cut in repo and CRR

Yes Bank announced cut down in its Prime Lending Rate by 0.50 per cent after RBI had announced cut in key short-term lending and borrowing rate by 100 basis points. More bankers have shown their acceptance to follow the signal for the southward movement of lending rates.

"After our asset-liability committee meeting today, we have decided to reduce our PLR by 0.50 per cent," the bank's Managing Director and CEO Rana Kapoor told press. With this the private lender’s PLR will cut down to 16.5 per cent.

K C Chakrabarty, Chairman and Managing Director of Punjab National Bank, is having lowest PLR in the industry, said that other banks that have not cut rates will be doing so.

In addition, PNB is also planning to analysis the asset-liability situation next month to decide on cutting interest rates further in the light of the RBI's announcement.

Agreeing with the PNB chairman and managing director remarks, ICICI Bank Joint Managing Director Chanda Kochhar said the RBI’s announcement is truly a strong signal and there is enough liquidity in the system and the rates should start reducing.

"Repo rate cut immediately means cut in deposit rates. I think that we have to give it some cooling off period and then see how the rate moves," Kochhar said.

While UCO Bank Kolkata-based public sector lender sources said the bank is planning to reduce both deposit and lending rate by half a percentage point in January.

"We are also planning to cut deposit and prime lending rate by 50 basis points from the next month," said UCO Bank Chairman and Managing Director S K Goel.

Central Bank of India set to expand its foreign presence

Central Bank of India the public – sector lender is set to expand its foreign presence, although global banking industry is feeling the pinch of the global credit crunch. The bank has applied with the Reserve Bank of India (RBI) to seek permission for the opening up of representative offices in five locations - Singapore, Dubai, Doha, London and Hong Kong.

Due to Sethia scam in the 1970s bank had closed down its London office; however this is the first time the bank is undertaking an independent overseas foray. At that time RBI asked the other two banks, who had operations in London, to close down.

Currently, Central Bank of India is having one overseas office, in a joint venture with Bank of India, Bank of Baroda and government of Zambia. In this joint venture the Zambian government has 40 per cent stake and the banks’ have 20 per cent each.

“We are awaiting RBI’s approval to expand our business overseas. We would like to open there by the end of this financial year,” said Central Bank Chairperson and Managing Director H A Daruwalla.

Bank’s plan to open overseas branches is in line with its plan to attract export-import businesses and NRE and FCNR deposits from abroad. As the value of rupee is decreasing to an unprecedented level, banks are struggling to get hold of trade-related business and remittance income from NRI deposits.

In the meantime, the bank has started a level-jumping exercise by promoting 2,000 clerical-level officials to the probationary officers’ cadre. The bank has also promoted some scale-II and III employees directly to scale-IV and V respectively.

Central Bank will also be recruiting 1,000 clerks by the end of March 2009. While on the technology front, the bank has allocated Rs 125-150 crore to implement core banking services (CBS) platform to 1,070 branches by the end of March 2009.

“Our aim is to become 100 per cent CBS compliant by March 2010,” Daruwalla added. At present bank is having over 700 branches under the CBS platform.

Banks & financial institution cautioned on giving out consume loans

The news of an economy getting slowdown in the future has made banks and financial institutions cautious of giving out consumer loans. This year consumer lending has come down by 10-15% during the pre-festive period as against last year.

Afraid of getting burdened with non-performing assets (NPAs) later, some FIs decided not to give out consumer loans a couple of months back. The slowdown in consumer lending has already affected the auto and two-wheeler sector.

R Narayanan, head of auto loans at ICICI Bank, pointed out that the market sentiment was almost subdued and there was "nothing much exceptional'' considering there were Navratras, Dussehra and Diwali in October.”We were expecting a mega month. But the market is not bullish,'' he said.

The banks are finding financing costlier and tougher due to liquidity crunch. Moreover the caution adopted by financers in terms of customer profile, is coupled with higher interest rates, which has made things difficult.

Narayanan added due to a variety of negative factors, the overall market seems to be "in a state of shock'' and also stated that people who normally replaced cars or upgraded to luxury vehicles in the festive period have now adopted a wait-and-watch policy. "There is hardly any festivity right now in the auto sector,'' he said, stating about the mood of the market.

However in the absence of loans consumers doing purchasing with credit cards. This is true for consumer durables, including white goods.

Nikunj Sanghi, a dealer of Mahindra and Hero Honda at Alwar in Rajasthan, said the market is moving slower than expected. "As a result of this, the inventories that we carry are huge.''

He held the "virtual pullout'' by finance companies from two-wheeler loans responsible for the poor show.” He added two-wheeler sales compared to the same period last year are estimated to be down by as much as 50%,''.

PSU banks offers ‘festive offer’ by cutting rates on loans

The Indian banks are facing acute fund crunch, in spite of that some of the banks are offering festive discounts on loan products.

Recently the Mangalore-based Corporation Bank has reduced interest rates of its home and vehicle loans by 0.25 percentage point from October 17 to November 15, 2008. The bank sources said that the ‘Festive Bonanza’ offer is only for fresh loans availed during the period.

“The scheme is to provide incentives to people who are serious buyers during this festive season. Many of our customers wait for these kinds of festive schemes. As we have had a good response to such schemes last year, we are hopeful of the same this year,” said a Corporation Bank official.

Another PSU bank which has also announced reduction in interest rates is Punjab National Bank. Bank has even reduced the floating rate of interest on housing and educational loans for the existing as well as prospective borrowers by 0.50 percentage points. The bank has also announced reduction in the fixed rate of housing loans and car loans for the prospective borrowers by 0.50 percentage points.

“This measure has been taken to ensure credit to the borrowers at a lower rate during the festival season,” the bank said in a statement.

Due to liquidity crunch in the banking system the banks were not ready to offer discounts or special offers. But the situation appears to have changed after cut in CRR rates by 250 basis points done by the Reserve Bank of India and releasing Rs 1,00,000 crore into the system. Besides this, banks have also got their first installment of the farm loan waiver, which injected Rs 25,000 crore into the system. Therefore this has encouraged some banks to pass on the benefit to their customers.

Union bank to provide wealth management services for HNW clients

Now day’s banks are providing wealth management services to their high net worth customers. Working on this line Union Bank of India launched the wealth management services for its high networth clients, which will provide a wider range of solutions to its customers.

Bank’s Chairman and Managing Director, M V Nair launched the service.

For providing this service the public sector lender has signed up with Wealth Advisors (India) Pvt Ltd, a leading company in the wealth management space headquartered at Chennai.

Nair said there has been increase in the number of customers because of speedy growth in the economy therefore demand for wealth management services are constantly increasing.

"In fact, India is one of countries where the growth in the high networth population is in double digits and it is expected to grow at around 15 per cent per annum for the next decade."

As per the reports of World Wealth Report published by Capgemini and Merrill Lynch, in India there are around 123,000 people with a net worth of $1 million.

"At present the bank has more than 500 high net income clients in the twin cities (Hyderabad-Secundarabad) and the number is expected to grow multi-fold," Nair said.

"As a part of our re-branding strategy under a new logo, we have promised our customers to deliver value for money," he said. He further added that the launch of wealth management services is a step towards fulfillment of this promise.

He said the solutions on offer will include financial planning, asset allocation and investment management.

RBI to review norms for entry of foreign banks

The Reserve Bank of India just six months before a review of norms for greater exposure to foreign banks has indicated that it will liberalize the guidelines only gradually.

In April 2009 RBI will be reviewing the norms, foreign banks have slowly started giving up hopes that the regulator will allow them to buy stakes in the healthier and bigger Indian banks.

RBI, in the latest Report on Currency & Finance, said that it might revise the entry norms of foreign banks from April 2009 in view of alleviating the risks of enhanced presence of these players in the country. It added that the emergence of large banks, involving foreign shareholding, can affect the business of smaller domestic banks and might result in a decline in lending to small enterprises, as in the case with several other economies.

It further added that an increase in presence of foreign banks will increase competition-may speed up the consolidation process of the Indian banking industry which might increase the risk of concentration if mergers or acquisitions involve large banks.

At the time of reviewing the norms for foreign banks in India, RBI main concern will be to reduce the impact of consolidation on existing domestic banks and the required supervisory and regulatory challenges considering the sophisticated operations of these foreign banking groups and their involvement in complex and sophisticated products.

RBI said that the liberalization of entry norms for foreign banks should not hinder the country’s ongoing emphasis on financial inclusion, credit to agriculture and SMEs, and public policy on credit delivery, cost and allocation.

However India will be allowing 12 branches of foreign banks in a year, it has been more liberal than the commitments. Previously between 2003 to October 2007, the central bank has given approval for 75 new foreign bank branches. But, during the second phase (April 2009 onwards), the challenges relating to co-ordination between home and host countries regulators will also be revisited.

On the other hand foreign banks have been complaining of RBI’s disinclination to open new branches. “If you ask for 40 branches, you get permission to open two,” said a senior executive at a foreign bank.

Moreover creating more rooms for foreign banks, implementation of Basel II norms will also cause further consolidation of the banking sector. RBI said then there can be changes in the ownership pattern of the public sector banks in the medium and long term.

In spite of number of bank mergers and acquisitions, the Indian banking system has become less powerful during the post-reform period. RBI added although some consolidation of the banking sector is necessary, the policies need to be formulated by the regulator to ensure that consolidation do not undermine competition in the future.

Credit card out standings converted to personal loan

To reduce the interest rate burden converting credit card out standings to a personal loan is a good idea, but one should choose the right tenure carefully.

Banks fear that non-payment of dues will increase their non-performing assets, which would be bad for their balance sheets. Hence banks are offering to credit card users, who have overspent on their card, can convert their out standings into a personal loan. Such an offer also means that many customers, who have been facing difficulty in paying off the amount, can use this method to ensure that they do not become defaulters.

The biggest benefit on this kind of conversion is that the rate of interest will be much less on personal loans. As far as credit cards are concerned there is huge interest burden (between 36-44 per cent per annum) and is increasing with each passing month. Interest rate on personal loan is much less at 16-22 per cent, lesser by almost 40-50 per cent.

But, things are not that simple. There is an additional risk involved, even though when the interest burden slopes down, it can lead to a situation where it becomes very difficult for the consumer to manage his finances.

In case you go for a personal loan option regular monthly payments have to be made and for a specific time period. While this is good because it will mean a disciplined payout, for some, the situation can worsen.

This is may be because while the credit card company allows a minimum payment of 5 per cent per month, whereas in case of a personal loan the outgo could be higher, especially if one opts for a smaller tenure. For instance, if a person has an outstanding of Rs 2 lakh, at the rate of 5 per cent he will have to pay around Rs 10,000 monthly. If the amount is converted to a two-year personal loan at say 18 per cent, the outgo would be around Rs 18,000. Hence the sudden rise in the repayment amount by 40-50 per cent can lead to a situation where the budget goes completely haywire.

Thus in such situations, investments are the first one to be affected because other expenses are more difficult to control. And if this happens, the safety net that you are creating for the future could get reduced. In case you face such situation, it is important to select the right tenure so that the burden does not increase considerably.

Many times when you go for a personal loan, the bank might put a clause where prepayment is allowed only after a certain number of months or only so many times in a year. Moreover there can be even a hefty prepayment penalty if you were to exercise this option. This can be because the bank might be losing out on the interest income.

Individuals facing a temporary problem regarding payments should take a step back and give the situation some serious thought. If they get a cash flow, in terms of bonus or from any other source, they can use that to pay off the outstanding credit card bills. Yes, you will have to bear temporary pain because of high interest rates, but it would be a better option to clear the entire loan instead of giving out equated monthly installments (EMIs) for a long time.

The biggest risk involved in this is that the person can really go down further into a debt trap, if he continues to hold the payments and spend on the card. If you have chosen the option of converting the out standing on the credit card to a loan, there is no outstanding. This can easily lure a spendthrift to use it again.

This will again lead to rise in the balance on the card leading to financial crisis as the consumer will now have a personal loan and more credit card bills that need to be paid.

Kolkata police arrested bank fraud racket kingpin

Kolkata police last night arrested one more person Manaranjan Roy (40), the manager-in-charge of Pincon involved in a bank fraud racket. After his arrest the number has reached to six. Last month the Shakespeare Sarani branch of Overseas Bank was cheated of Rs 5.5 crore by the gang.

Police arrested Manaranjan Roy near his residence at Raipur Road at Jadavpur. Police believe Roy was the key player of the racket.

Following the complaint lodged by the bank authorities last month police arrested five people including Pravin Kumar Agwaral (44) and Raghu Shetty (50), the bank manager of the Karnataka Bank few days back.

The gang had submitted eight forged letters of credit on the name of different branches of Karnataka Bank and cheated of Rs 5.5 crore. Police arrested Pravin, was the official recipient of the entire amount. During his interrogation he revealed Raghu’s name who worked as branch manager of the Karnataka Bank. It was Raghu who had confirmed the Indian Overseas Bank authorities, over telephone that the forged letters of credit were authentic and requested them to pay the amount to Pravin.

Investigating team belonged to anti-fraud section of the city police also came to know during the investigation that Manoranjan, had earlier duped Rs 2 core from a branch of United Bank of India. He was arrested in 2005 but was released on bail. Few years back he again tried to dupe Rs 6 core from Federal Bank. Police produced Manoranjan before the court and took him into custody for 14 days.

Private and public sector financial players qualify bid to manage provident fund

Leading private financial players HSBC and ICICI Prudential and the country's largest public sector bank SBI managed to qualify financial bid for managing about Rs 25,000 crore in provident fund of about four crore employees annually.

While giving the confirmation a member of the Finance and Investment Committee (FIC) of Employees Provident Fund Organization (EPFO) said, "Three asset management companies, including HSBC, ICICI Prudential and SBI have qualified in the financial bid round".

Earlier, when bid was announced 10 companies, including Reliance, Birla Sun Life, HDFC, had qualified in the technical round and later seven companies submitted financial bids.

A member of FIC of EPFO said HSBC and ICICI Prudential have quoted the lowest fee of one basis point, or 0.01 per cent, of the fund to be managed.

Regarding short listing of SBI, member said although the fee quoted by SBI and Reliance were almost same, but SBI was able to qualify the financial bid round as it had scored more points on technical grounds.

Three players selected by the FIC can be appointed to manage funds after Central Board of Trustees (CBT) gives its nod which is scheduled to meet on July 29.

The total amount of EPFO is around Rs 2, 40,000 crore with incremental deposits to the tune of Rs 25,000 crore every year.

In the beginning the EPFO will ask the fund managers to manage the incremental deposits only. Sources added once the private players are able to present better returns, they might be asked to manage additional funds.

The sources said this will help the EPFO to offer high interest rate to its subscribers as against 8.5 per cent at present.

NCDRC in its order told banks to pay for delay in cheque clearance

The National Consumer Disputes Redressal Commission (NCDRC) in its July 14 judgment has asked banks to credit local cheques to accountholders account the same day or at the most the next day. The commission in its order said the outstation cheques should be encashed between seven and 14 days, depending upon the distance from the place where the cheque is issued.

The commission in its order said you can claim interest from a bank for delayed encashment of your outstation cheques. “If there is any delay in collection of the said (outstation) cheques beyond the period… interest at fixed deposit rate, or at a specified rate as per the respective policy of the banks, is to be paid to the payee of the cheques.”

The judgment has come on the petition filed by an advocate Atul Nanda. As per the order of the commission the banks will have to pay interest to customers for delayed encashment of local cheques as well. Usually it takes up to three days to be encashed. While Nanda in his consumer litigation has said the delay in crediting the cheques to the consumers’ account was leading to “undue enrichment” of banks, which were earning crores in interest on the customers’ money for the delayed period.

The commission chairman Justice M. B. Shah directed the banks to abide by the order within two weeks. He asked the banks to write in bold letters in every branch’s notice board the salient features of their policies on collection period of outstation cheques and interest payable in case of delay. Justice Shah has asked the RBI to monitor the order.

Uttaranchal Gramin Bank to open three branches exclusively for women

Soon Uttaranchal Gramin Bank will be opening three branches exclusively for women in the hill state of Uttarakhand. The first such branch has already started operation at Dehradun’s Indira Nagar locality and being fully managed by women only.

In this branch only women are allowed to open their accounts. This is the 121st branch of the bank. There is a proposal of opening of three more such branches in Pauri and Pithoragarh districts.

A special women centre has also been opened at the head office of the bank. This centre has been started with the help from NABARD. The main drive of the women branch will be to attract Self-Help Groups (SHGs) and Non-Government Organizations (NGOs), having mostly women representatives.

"By opening women branches, we want to salute the women of the hill state who are known as matrishakti' (mothers' power) in Uttarakhand," said Chairman of the Uttaranchal Gramin Bank Threesh Kapoor.

In 2006 Uttaranchal Gramin Bank was formed with the merger of Alaknanda Bank, Ganga-Yamuna Bank and Pithoragarh bank. The bank has made a profit of Rs 8.83 crore before tax this year. This year bank has registered a jump of 233 per cent as compared to the last year.

The exceptional rise in the profit is mainly because of the merger of three banks. The bank is also promoting local artists from the state for this it has set up an art gallery at its head office.

IndusInd Bank offers attractive interest rates at 10 per cent per annum

IndusInd Bank Ltd, a new-generation private-sector bank in India, is offering 400 days attractive fixed deposit rates at 10 per cent per annum from July 2008. Bank in a statement said "We are feeling happy to announce the competitive fixed deposits rates in the industry once again. Bank has also started 200 days fixed deposits rate at 8.75% per annum."

Currently bank has around 180 branches network spread 147 geographical locations in 28 states and union territories across the country. Bank has also established representative office overseas each in Dubai and London.

Since its setting up bank has been driven by state-of-the-art technology. Bank has multi-lateral tie-ups with other banks to provide access to more than 18000 ATMs for its customers.

It enjoys clearing bank status for both major stock exchanges - BSE and NSE - and three major commodity exchanges in the country - MCX, NCDEX, and NMCE. It also offers DP facilities for stock and commodity segments.

According to bank statement bank has been awarded the highest A1+ rating for its Certificates of Deposits by ICRA and the highest P1+ rating for its FDs by CRISIL. CRISIL has also allocated the highest safety ratings to the Bank's Pass through Certificates for securitized assets.

Banking industry should be consolidated to empower larger banks

In Bangalore banking conference was organized by Mint where discussion on consolidation of banks, competition and inclusion was taken up by the chairmen and CEOs of several banks.

During the discussion the Reserve Bank of India (RBI) deputy governor V. Leeladhar said that he is in favor of consolidation of the banking industry so that larger banks get more power to fight competition and expand its reach to the unbanked areas. He added that all through this process the regional and cooperative banks should also be taken along as they play a crucial and at times have a distinct hand in financial inclusion.

He added, “If we think that commercial banks will be able to...(practise) financial inclusion in a cost effective manner in rural areas, we are 100% mistaken”. He further added, “It is left to the rural and urban cooperative banks and many other arms of the financial system to achieve the obligations of financial inclusion”.

He informed that RBI on its part has been constantly encouraging urban and rural cooperative banks to become strong and self-sufficient. This year RBI is giving licenses to cooperative banks to open new branches to expand their network across the country.

Leeladhar informed the gathering of chairmen and CEOs of several banks, “We have permitted them to have ATMs (automated teller machines), which is a big development. We have permitted them to have currency chests, which were never permitted”. A currency chest is a vault or safe that belongs to RBI but is kept on the premises of a bank and managed by it on behalf of RBI.

He point out, “We have convinced the state governments to initiate audit of the banks, with deposits of more than Rs25 crore, by professional independent chartered accountants as against the earlier system of audit by people who had no prior experience in auditing”.

He further added that commercial banks should expand and consolidate to enter the global markets. He said, “I still feel, as I used to advocate when I was chairman of Union Bank, that we do not require such large number of small commercial banks…we require small numbers of large banks.”

Comparing the situation with Malaysia where the number of banks has come down to eight to nine large banks after consolidation from 38 earlier, Leeladhar told the gathering that even in India after the consolidation there could be healthy competition among large banks. After consolidation large banks will have more influence in the international arena due to the size of their balance sheets, which is not possible in a current scenario with fragmented banking industry otherwise, he added.

“I have seen hundreds of applications by our commercial banks rejected by other countries saying, ‘What is the size of your bank? Why do we require such small banks to open branches in our country?’ There are many cases like this where applications have been rejected only because we look like pygmies in that whole system,” he said.

However the deputy governor of India’s banking regulator, made it clear that consolidation of banks should not be done at the cost of inclusion which is the main agenda of both the central bank and the government. In fact, he said regional and urban cooperative banks can reach out to the masses more easily with the responsibility of financial inclusion.

Leeladhar suggested that commercial banks to attain wholesome financial inclusion should help in strengthening the system of regional rural banks (RRB) and other cooperative bodies. “Look at RRBs of Canara Bank, look at RRBs of Syndicate Bank…how well they are functioning! At the same time, look at RRBs of Uco Bank or United Bank, you will see they are incurring huge losses,” Leeladhar said. “Which only goes on to show that in this concept, bank supervision counts,” he added.

“Some RRBs have far superior customer service than the sponsor bank or other commercial banks, private and public, that we are so proud of. I have observed that they have a genuine concern for their customers. Which only shows that they can independently handle financial inclusion in an effective manner,” Leeladhar said.

Union Bank to launch mobile banking by month end

Mr TY Prabhu executive director of State-run Union Bank of India informed by the end of this month bank will be launching mobile banking. He said bank has tie-up with Chennai-based BK Systems as its technology partner for offering this service to its customers.

He said, “The bank expects to launch the service by the end of June and is presently undertaking the process of implementation.”

Mr Prabhu said bank also has plans to offer full-banking services to its customers through mobile phone through the roll out of M-banking which will include account-to-account money transfer, mobile payments, and account status enquiry among other services.

Previously in December last year UBI had launched SMS banking services allowing its customers to avail basic banking services such as availing account information, mini statements on the last few transactions and making cheque book requests by sending SMS.

In the meantime, State Bank of India, country's largest lender, have plans to launch mobile-banking service around the same period and has tied-up with a Mumbai based technology company, to offer service to its customers.

Bank of Baroda to expand overseas network

Bank of Baroda has planned to open 10 new branches in overseas as its expansion strategy. At present bank has made its presence in 25 countries with 71 overseas offices and one joint venture in Zambia, is planning to make its presence in China, Australia, and New Zealand and have plans to open a branch in the Gulf region during the current financial year.

At the press meet BoB chairman and managing director MD Mallya told reporters that the bank will be converting its representative offices in China and Australia into full-fledged branches and open one new branch in the Gulf region. He added there is a proposal to open four more branches in Trinidad and Tobago and to open one more branch in the United States, however already branch exists in New York. This year bank has plans to open one electronic banking service unit in Abu Dhabi.

Mallya informed that bank had opened 11 branches abroad last year. He said bank gets 20 per cent of overall business from overseas branches.

Banks find lending to poor profitable through micro - finance

In India banks are now thinking of micro-finance. With the introduction of micro-finance, MFIs (micro finance institutions) and other NBFCs began lending to the poor. Banks are finding lending to the poor profitable. Through their micro finance banks lend directly to the borrowers or they team up with MFIs and other NGOs who help them in recognizing and grouping the members into various SHGs who are then given finance. On these loans bank charge interest at sub prime lending rates.

For instance S Parimala of Saligramam can think her lucky. She is part of a SHG (self-help group) which is engaged in glass and emboss painting. Her SHG name Lucky was recently granted a second loan of Rs 3 lakh after the group successfully repaid its first Rs 1 lakh loan it had taken from the bank in EMIs of Rs 10,600 spread over 10 months.

But, Parimala is upset because while the group had asked for a loan of Rs 5 lakh, the bank lent her only Rs 3 lakh. For this reason when it comes to borrowing money, the poor, especially the rural folks, are at the mercy of money lenders.

In the beginning, the average loan given out is usually below Rs 10,000. Moreover banks normally persuade SHGs to first open a savings bank account before giving credit.

"We initially observe the saving patterns of the group, how they save, lend and distribute money amongst them before giving them credit,” says Manohara Raj, senior vice-president, HDFC Bank.

More and more banks are opting for micro finance, so much so that many banks are opening exclusive branches that deal only in micro finance. Indian Bank, in 2005 opened its first micro finance branch at Chetpet in Chennai, has added 11 more micro finance branches to its network in India.

The bank plans, this year, to open 13 more micro finance branches. "It's an established fact that by being part of self help group, women are able to carry out economic activity more effectively.

Also, they need not borrow money at usurious rates of interest from money lender any longer,” says MS Sundara Rajan, CMD, Indian Bank.

HDFC Bank a leading private sector bank is strengthening micro finance business. Currently it is having four micro finance branches located in interiors of Tamil Nadu. About 15% of bank's micro finance business is generated from four branches. It is also planning to open few more micro finance branches this year.

MBA student and an employee of a dues-settlement agency arrested for bank fraud

Two accused has been arrested by the Mumbai police on charges of deceiving several banks customers. The accused, Samir Darekar (26), an employee of Resolutions Services and Vinod Kumar Patel (24), an MBA student, were arrested on the complaint of the manager from Resolution Services. The firm resolves outstanding bills and loans of various banks.

The two were produced before a metropolitan court on Thursday and later remanded to police custody.

According to the police report, Darekar's job was to approach bank customers, who had availed of credit cards but had not cleared outstanding payments. Once they made the payment, Darekar would provide them with a settlement letter, issued by the bank.

Officer Arvind Pawar of the Vakola police said, "Patel, who was friends with Darekar, came up with the plan of forging the settlement letter. Darekar would then convince some customers to make a settlement at a much lower amount and offer them the forged letter. The money earned was pocketed by the duo. The bank realized that they had been conned only when the customers approached them with the forged letters."

YES Bank in talks with foreign banks for investment and business relationships

Foreign banks are looking for opportunities for the expansion of their networks in India. After 2009 there are chances for the foreign banks to get more scope in expanding their network in India.

Even the small banks in India are looking for the bigger banks for increasing their retail business in the country. One such private sector YES Bank is in talks with foreign banks, both for strategic investment as well as for business correspondent relationships.

Speaking at a press conference to announce the bank’s fourth quarter results Mr Rajat Monga, Chief Financial Officer, YES Bank informed the reporters large MNC banks are interested in expanding in India and are looking for major minority or near majority stake in Indian banks. Therefore banks such as YES bank will be in a privileged position to talk to foreign banks when the Reserve Bank of India guidelines become favorable.

Mr Monga said by 2009, YES Bank will be in a better position to attract foreign partners, as it will have a bigger network and a larger share of SME and retail business. Mr Monga was talking to reporters at a press conference to announce the bank’s fourth quarter results.

For the quarter ended March 31, 2008 the net profit of the bank was more than doubled to Rs 64 crore from Rs 31 crore in the same period a year ago. The bank also reported a net NPA of 0.09 per cent for the first time and made higher provisions of Rs 22.8 crore as against Rs 12.7 crore.

Mr Rana Kapoor, Chief Executive Officer and Managing Director, said the bank did not have any failure in its marked-to-market (MTM) derivatives exposure. At present the bank is having 130 forex clients across large corporates and mid corporates. Out of the total MTM derivatives exposure, large corporates account for about 70 per cent, while mid-corporates or emerging corporates account for the remaining 30 per cent.

“We do not have a single derivatives exposure to the SME sector. We have filtered our clients very carefully,” Mr Kapoor said.

Separate laws needed for reverse mortgage

During the 70’s and 80’s having your own house as a property was looked up on as a big thing but it was not considered as an asset, one paid notional tax for living in one’s own property. But today, house as a property is a big asset and not a mere perception for the one who can weight the value of the house.

The people who rented their house, was at best an illiquid asset, at worst a liability. And the ones who lived happily in the house occupying an area of3500 sq. ft. at Rs 200-a month for twenty years — the perception was life couldn’t be better, till the realization that the asset lacked bank ability.

And the smart ones, who lived in their own house, avoided renting it, spent a major part of income on maintenance, and lived their old age between penury and pension. This was the time, when consumer loans were virtually non-existent, interest rates were very high, and acquirement of real estate without a black component almost impossible.

With the introduction of investment products, the returns have some what eased lifestyles, but fixed deposits and LIC returns may perhaps go so far and no further. High real estate rates effectively made the middle class citizen’s sole fixed asset to a shelter.

The limited cash resource is applied towards its preservation. How the asset can be best leveraged against the rising real estate prices to flow over the insufficiency of the current income is the problem.

The solution is the Finance Minister’s gift to senior citizens in last year’s budget — the reverse mortgage scheme. Earlier, such informal arrangements were worked out with property dealers or close relatives, but there was always a risk, whereas the reverse mortgage is a credit instrument under which, the owner of the house provides the property as security, and receives payments in installments, as a “loan”, while continuing to reside in the premises.

The qualifying criteria for reverse mortgage includes, other than the borrower’s age i.e. sixty plus, a clear, unencumbered title to the property having a residual life of twenty years. An independent valuation of the premises is carried out at market rates, and forms the basis on which the loan amount, interest components and installments are worked out.

Adequate flexibility is given in right of pre-payment without penalty, first right of settling loan with sale of security, which option is also made available to the legal heirs. On foreclosure and sale, any balance surplus is payable to the deceased’s legal heirs.

However, there are certain obligations on the Borrower’s part, most important being the restrictions on testamentary disposition. The Borrower has to keep the property fully insured, in proper state of repair and maintenance, and pay all taxes, electricity, water charges etc. The renting of the premises, changing user, deployment of the money for speculation is also not allowed otherwise it will lead to foreclosure.

This should have proved to be a bonanza for the target customer. Instead, the scheme flopped because of lack of clarity in the regulatory framework. According to the sources there were only hundred-odd takers, in the entire financial year.

The major concern of banks and beneficiaries is taxation issues. Is the amount of loan in the nature of a capital receipt? Is the creation of security by the borrower a transfer of capital asset under the Income Tax Act? If so, which is the point at which the tax is triggered and who is liable to pay? Does the tax arise on disbursements, or the sale of the property on foreclosure? What are the permissible deductions? Is indexation to be applied from the date of discharge of loan or date of acquisition by the original owner?

The tax issues have been touched in the current Financial Bill. For one, a proviso will be inserted in Section 47 of the Income Tax Act to clarify that the mortgage will not be treated as a transfer. Section 10 will also be amended to provide for exemptions from tax on capital receipt, to provide that disbursements are not treated as capital gain, which will arise only on sale of the property, for recovery of the loan.

The modalities of foreclosure and repossession however remain unclear. There is no concrete event of default as there is no regular repayment depicted.

Therefore, the only resultant stage of foreclosure is termination on owner’s death. Is the right under Section 13 of SARFAESI available for enforcement of security? Will banks be able to repossess a house property as they do vehicles? Guidelines or general laws are not enough, separate laws should be formulated to address these issues.

Lastly, with life expectancy over 80, 60-plus is not the time to go for reverse mortgage. This should be the last resort.