Banks to increase profits plan to expand savings accounts biz

Commercial banks with of view to increase their profits and bottom lines have started moving towards CASA (current account saving account). Earlier the banks were only interested in big ticket high cost deposits.

The Indian bank has this year cut down in its high cost deposit portfolio significantly. MS Sundara Rajan, CMD, Indian Bank informed, "We have shed close to Rs 2,200 crore high cost deposits this fiscal and we would not be renewing high cost deposits that come up this month".

Out of the total deposits organized by bank for the last fiscal year (2007-08) the high cost deposits stood at 11%. However bank is trying to bring this down to less than 7% by the end of the current fiscal. Rajan explained, "The need of the hour is to bring down the cost of deposits. We have to reduce costs and improve yields".

Likewise, Indian Overseas Bank is also concentrating on CASA. YL Madan, ED pointed out, "When it comes to quoting rates on high cost deposits, banks are not that aggressive now". On high deposits 7.5%-8%, interest rate is offered while on saving accounts only3.5% interest is given. But bankers are of view that ultimately borrowers are going to be the achievers as lending rates are falling.

In metro cities people prefer terms deposit as compared to CASA. Therefore banks are seeing towards semi-urban and rural branches for attaining growth in CASA. For instance, Vijaya Bank has got approval for 89 new branches to be opened this year besides have 11 old licenses thus is expecting higher CASA contribution from new branches especially those in semi urban and rural areas.

Moreover the smaller banks whose big source of income comes from term deposits are also looking at CASA. VS Reddy, MD, Lakshmi Vilas Bank told, "While in case of term deposits, the asset liability management becomes easier on account of time period involved, CASA provides greater profitability even though it’s a violently fluctuating portfolio".

At present about 15% of the bank's total deposits is obtained by CASA and it is believed that this figure may move up to 18% by end of next fiscal (2009-10). With a view to strengthen its CASA base, Lakshmi Vilas Bank has launched two new savings bank and current account products.

Indian Overseas Bank has planned to expand its CASA base by making use of mobile and net banking and ATM facilities. Currently Indian Bank is increasing new accounts through a current and saving account campaign. Rajan informed, "We can't depend on walk-in customers anymore". From last month bank has introduced a HNI (high net worth account campaign) and has plans to mobilize one lakh new accounts soon. Though in the last quarter people when banks were offering 10% interest rate on FDs rates people had move their funds from savings account to FDs.

Tata Capital to get into private equity biz by end of Q1 FY’10

Tata Capital financial services firm has a proposal of introducing its private equity business by the end of first quarter of the next financial year.

Tata Capital Managing Director and CEO Praveen P Kadle informed reporters, "We will be launching our private equity business by the end of first quarter of the next financial year".

The funds for PE business will be provided by Tata Capital's own and third-party investments.

Kadle notified that the company is having talks with domestic and international players for third-party investments in the PE business.

Tata Capital Head Investment Banking J Niranjan told, "The first round of funding by the PE firm will be around 350-500 million dollar ....the fund will invest across all sectors".

Tata Capital, is a wholly-owned subsidiary of Tata Sons, had previously selected Shailendra Bhandari as head of its private equity business.

Bhandari, earlier had held the position of Managing Director and CEO of Centurion Bank of Punjab, and has also held leadership positions in Citibank, HDFC Bank and in ICICI Prudential Asset Management Company, he was the CEO.

Kadle added the PE business in the beginning would look at the non-listed companies in the Tata ecosystem and divestment opportunities after that.

Currently, Tata Capital has launched public issue of secured non-convertible debentures (NCDs) through which it is likely to raise at least Rs 500 crore.

In the issue there is an option to retain over-subscription of up to Rs 1,000 crore and the closing date of the issue will be February 24 or the date might be decided at the discretion of the Committee of Directors of Tata Capital.

Get a personal loan through ATM

When you go to withdraw cash from ATM of private bank you might see a message “You are eligible for a pre-approved personal loan of Rs 5 lakh. Press yes if you are interested.” Some to the leading private banks are now leveraging technology to ensure quality due diligence and low-cost marketing.

Now banks have started replacing the traditional agency or franchisee-based marketing of retail loans, with enterprise resource planning solutions and ATMs.

In an interview to Business Line Mr Sanjeev Patel, Executive Vice-President & Head, Direct Banking Channels, HDFC Bank told, “Marketing retail products through ATMs is non-intrusive and customer-friendly. As we have a data-base of customer transactions, we make an estimate of his needs and offer a retail product. If there is a confirmation from the customer, we go ahead with other procedures”.

“In ATM-based marketing, the cost of contacting the customer through out-bound mechanism is lesser. However, it cannot fully replace physical verification prior to loan sanctions.”

The trend is being followed due to recent dip in the direct marketing expenses of the banks. In the second quarter the direct marketing expenses of ICICI bank have decreased by more than half. For the three month period ending September 30, 2008, its expenses were at Rs 144.50 crore as compared with Rs 385 crore in the year-ago period.

According to experts discretely from being customer-friendly, the new marketing tools will also make certain quality assets for the banks. A senior ICICI bank official said, “Due to current economic conditions, retail advances (especially personal loans) to the non-customers of the bank have come to a negligible level. We first ensure that there are no defaults and check-bounces in a customer’s account before offering a loan.”

He further added this will also help in tackling the issue of growing non-performing assets.

Last week, Reserve Bank of India has warned banks to make sure credit quality as the bad loans in new generation private banks and foreign banks are “more noticeable”.

Some customers are satisfied with the tech-marketing. “When I applied through an ATM of ICICI Bank, I got a follow-up call within a day and loan was sanctioned in three days. As checking the account transaction is vital in loan-approval, it is good that they are at it before offering the loan,” said Mr H.M. Murthy, a senior official in the Railways.

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.