Federal Bank to open 100 branches

Kerala based Federal Bank on Tuesday announced that it would open 100 new branches and hire 2,000 people.

All the 100 branches will be opened at one go on Saturday to take the total network size to 935, executive director of the bank, a Mr Abraham Chacko, told reporters here adding that majority of the branches will be opened outside Kerala.

The bank plans to raise the number of branches upto 1,000 by mid—2012, he said, adding that it will also hire 2,000 professionals next fiscal in view of the expansion and to fill the vacancies created by retirement.

Mr Chacko, however, stated that the expansion programme has been long planned and it would not put any stress on its cost to income ratio.

The bank will maintain the cost to income ratio, which stands at over 38 now, under 40 even after the current phase of expansion, he said, when asked about the troubles surrounding Dhanlaxmi Bank.

Just like Federal Bank, Dhanlaxmi is also an old age lender having its roots in Kerala. The latter posted a loss for the third quarter and also had its rating downgraded.

Ratings agency Fitch, which downgraded Dhanlaxmi Bank, had pointed out revenue pressures from a rapid expansion of network as one of the reasons for the downgrade in rating.

The recent spate of troubles at Dhanlaxmi Bank has also seen as its top management, including the chief executive and managing director, Mr Amitabh Chaturvedi, resign.

Mr Chacko said Federal Bank’s strategy largely focuses on growing organically and acquiring a large bank is not under the radar.

Mr Chacko also said that the bank will slow down its expansion after it reaches the mark of 1,000 branches.

The bank, today, also announced that it wants to open three branches internationally, including one at Dubai which will act as an offshore banking unit fulfilling the overseas fund raising needs of corporate clients.

Within the domestic business, Mr Chacko said funding small and medium businesses having a turnover of upto Rs 1,000 crore is a focus area for the bank.

A senior bank official said the bank would maintain its current NPA ratio level due to higher recoveries even though it has seen stress on assets in various sectors like aviation.

Its exposure of Rs 300 crore to national carrier Air India got restructured recently while the non servicing of debt by Vijay Mallya—promoted Kingfisher Airlines, to which it has an exposure of Rs 82 crore, has turned sub standard as of February, Mr Chacko said.

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Citibank launches new package for the emerging affluent

Citibank India on Monday launched a new proposition for the emerging affluent segment, which include salaried professionals and self-employed individuals with an annual income between Rs 3 lakh and Rs 15 lakh.

Some of the facilities offered under the ‘Citibanking' proposition include zero charges for cash withdrawal at any ATM in India and overseas; no fees on services such as draft issuance, duplicate statement, funds transfer, stop payment and assistance for account opening for customers relocating overseas.

To be eligible for the ‘Citibanking' proposition, customers have to maintain a relationship value of minimum Rs 2 lakh with the bank.

The emerging affluent segment is growing at a compounded annual rate of 9 per cent. Citibank hopes to increase its market share in this segment from 10 per cent to 15 per cent over the next 2-3 years.

The revenue growth in this segment is likely to be around 18-20 per cent, said Mr Anand Selva, Country Business Manager, Global Consumer Group, Citi India.

Citibank is in the process of rebuilding and growing its unsecured business, which includes credit cards and unsecured personal loans.

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HDFC Bank launches gold loan scheme

HDFC Bank on Tuesday announced the launch of ‘Bharosa Gold Loan', a product tailored to provide viable finance to the millions of rural customers in India.

Speaking on the occasion, Mr Biju Pillai, Senior Executive Vice-President and Business Head, said that the product would offer a loan amount up to 140 per cent of the gold value. The minimum loan amount will be Rs 10,000 for rural customers and Rs 25,000 in other areas. The rate of interest will be 11-14.5 per cent depending on the segment.

The bank is looking at targeting women borrowers with a differential rate of interest, which will be 1-1.5 percentage points below the rates charged for other customers. The idea is to cover one lakh women customers within a year.

He said that the bank will introduce the product in 1,300 branches in over 950 locations across the country over the next six months. The objective is to cater to five lakh customers in 10,000 villages.

Rising demand

With the entry of organised sector into the sector, consumers have begun to seek gold loans from banks and NBFCs rather than from traditional moneylenders. As this shift gathers momentum, the gold loan market is set for strong growth, he added.

Mr Dhiraj Relli, Branch Banking Head South-2, said that the bank has a board approved plan to bring 10 million families into the banking fold in five years.

sajeevkumar@thehindu.co.in

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Kingfisher account turns substandard for Federal Bank

The Kingfisher Airlines account turned into a substandard asset for Federal Bank in mid-February, according to a top official of the old generation private sector bank.

The Kerala-based bank has an exposure of around Rs 90 crore to the struggling airline. According to Mr Abraham Chacko, Executive Director, Federal Bank, the guarantee issued to the airline for procurement of aviation turbine fuel (ATF) has devolved.

The Kingfisher account has become a non-performing loan with majority of the public sector banks such as State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and IDBI Bank in the December 2011 quarter.

However, it is still a performing asset in the books of other banks, including Oriental Bank of Commerce, Indian Overseas Bank, ICICI Bank, Axis Bank, and IndusInd Bank, said an official with one of the consortium banks.

Federal Bank has an exposure of Rs 300 crore to Air India, whose debt was recently restructured.

Mr Chacko said the impact of the Air India restructuring would be minimal for banks.

Cuts base rate

The bank has cut its base rate from 10.75 per cent to 10.65 per cent with effect from March 5. With interest rates expected to thaw in the next few months, the bank is positioning itself to expand its loan portfolio through the cut in base rate, explained the official.

The bank will step up lending to the agriculture segment by recruiting more specialist agriculture officers. Currently, it is falling short of the regulatory requirement of 18 per cent of adjusted net bank credit as on March-end of the previous year by about two percentage points, said Mr Varghese K. I., Additional General Manager.

Further, it will step up focus on gold loans, home loans and small and medium enterprise loans.

Branch expansion

The bank is planning to open 100 branches across the country on March 10. This will take its branch network to 938.

It is also planning to open a representative office in Abu Dhabi and an offshore banking unit in Dubai.

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ICICI Bank, LIC, Bank of Baroda to launch infra debt fund

The decks have been cleared for the launch of country's first infrastructure debt fund (IDF) under the company route. Private sector lender ICICI Bank and other financial biggies, including Bank of Baroda and Life Insurance Corporation, have decided to come together to set up an IDF as a non-banking finance company (NBFC).

A memorandum of understanding will be signed for this purpose in the presence of the Finance Minister, Mr Pranab Mukherjee, here on Monday, official sources said.

The Finance Ministry had on June 24 last year issued guidelines, allowing IDFs to be set up either as trusts or as companies. A trust-based IDF would basically be a mutual fund that would issue units. On the other hand, a company-based fund is an NBFC that would issue bonds to domestic as well as foreign investors.

RBI NORMS

As per the guidelines issued by RBI and the Finance Ministry, the IDF-NBFC can invest only in public private partnership and post-commercial operation date infrastructure projects, which have completed at least one year of satisfactory commercial operation and are a party to a tripartite agreement with the concessionaire and the project authority for ensuring a compulsory buyout with termination payment.

Refinance by NBFC-IDF would be up to 85 per cent of the total debt covered by the concession agreement. Senior lenders would retain the remaining 15 per cent, for which they would charge a premium from the infrastructure company.

The returns from the investments made by IDFs in debt securities of PPP projects are fully tax-exempt. For investors subscribing to bonds issued by an IDF, the main attraction will be the lower withholding tax of five per cent, against the normal 20 per cent tax deducted at source on interest payments. The returns to investors are not entirely tax-free as dividend distribution tax will be applicable to any dividend payout made by the IDF.

NET-OWNED FUND

The RBI guidelines stipulate that IDF-NBFC is required to have a net-owned fund of Rs 300 crore or above. Also, sponsors of NBFC-IDFs will have to contribute a minimum equity of 30 per cent.

The maximum equity of sponsors in a NBFC-IDF is 49 per cent. The minimum capital adequacy to be maintained by the IDF-NBFC will have to be 15 per cent of risk-weighted assets.

The major part of debt requirements of infrastructure sector in India continues to be sourced through commercial banks.

Of the total investment in infrastructure during 2007 to 2010, 50 per cent is from budgetary sources, 36 per cent from debt funding and the remaining from private equity.

Commercial banks have contributed 20 per cent of the total debt funding and the remaining 16 per cent has together been pumped in by NBFCs, external commercial borrowings and insurance companies.

The total bank lending to infrastructure went up from 8.68 percent of total bank credit as at end March 2008 to 14.7 per cent by end March 2011.

krsrivats@thehindu.co.in

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