IRDA plans cap on sales by bank-promoted insurers

Insurance companies promoted by non-banks may soon be on a level playing field with bank-promoted insurers.

According to the guidelines being planned by Insurance Regulatory and Development Authority (IRDA), banks, which opt to be insurance brokers, will have to cap business from their own group companies at 25 per cent.

This simply means banks cannot push for products from their own group companies beyond 25 per cent of the total annual sales. For example, if State Bank of India becomes a broker, its total insurance sales from SBI Life Insurance will be restricted to 25 per cent. There will be a similar cap for general insurance business.

Most major banks such as ICICI Bank, HDFC, SBI, IDBI Bank, Bank of Baroda, Canara Bank, Bank of India, Punjab National Bank, and Andhra Bank have promoted insurance companies.

With many banks starting their own insurance ventures, newer, non-bank promoted insurers have been finding it difficult to find distribution partners with a wide network.

Under the current existing norms for distribution, a bank can become only a corporate agent, which allows it to sell products of one life insurance company and one non-life company and one standalone health insurance company.

In his budget speech, Finance Minister P. Chidambaram had said that banks would be allowed to act as brokers to sell insurance to help improve penetration through the extensive national bank network.

“These steps will ensure there will be no selective selling by banks and provide a good platform for products of all insurance companies,” said a CEO of a private insurance company.
To specify norms

Also, to prevent mis-selling of policies through the bank channel, the insurance regulator will specify norms which require extensive training of the bank personnel selling insurance products, besides a strict compliance with KYC norms.

The regulator is expected to come out with the final norms soon under which banks will be able to sell insurance products of different companies.

deepa.nair@thehindu.co.in

Source: thehindubusinessline

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Tata, Birla, India Post among 26 applicants for bank licence

Tata Sons, IDFC, India Post and Suryamani Financing are among the 26 entities seeking a bank licence which the Reserve Bank of India said will be granted only to a few even if everyone meets the guidelines.

The aspirants include the Aditya Birla Group, which has interests ranging from telecom to aluminium, and Reliance Capital of Anil Ambani - which has presence in power and roads, besides financial services.

Lesser-known names such as Suryamani Financing Co from Kolkata (owned by Dunlop Tyres' Pawan Ruia), auditing firm INMACS Management Services and Smart Global Ventures, Noida, have also thrown their hats in the ring, applicant names published on the RBI website show.

"Of the 26 applications, the RBI can easily eliminate 17-18 and of the 7-8 considered, the central bank will give out 4-5 licences," said Ashwin Parekh at consultants Ernst & Young. "Guidelines were very onerous to apply and under the current structure, scope for niche or specialised banking is restricted."

Submission of applications ends a 10-year drama of permitting more banks in a country where more than half the population has not walked into a bank despite nationalisation four decades ago.

The list of applicants saw surprising additions and dropouts.

10 NBFCs also eye licences

Mahindra & Mahindra Financial, which has been pitching on its rural presence to carryout the financial inclusion agenda of the government, pulled back citing inflexible guidelines from the RBI. There have been additions such as Value Industries Ltd, Aurangabad, backed by Videocon Industries, which realised a windfall from the sale of its stake in Mozambique oilfields.

"The current set of guidelines, as clarified, has an adverse economic and operational impact on the business of larger non-banking finance companies," said Mahindra.

"A time-bound co-existence of a NBFC and a bank in the same group would help set up a sustainable model and address the concerns of all stakeholders."

Around 10 non-banking finance companies, including L&T Finance, LIC Housing Finance, Shriram Capital, Aditya Birla Nuvo and Bajaj Finserv are seeking to own a bank despite what some describe as onerous reserve requirements.

"There is no predetermined number. The RBI will be very selective while considering applications for new bank licences. It will look for very high-quality applications. It may, therefore, not be possible to issue licences to all the applicants meeting the eligibility criteria," the RBI said in its clarifications issued on June 3.

Indeed, the applicants face yet another obstacle in the form of a key objective of the policymakers - financial inclusion, which may disturb their returns calculations.

"One of the criteria for evaluating the applications that we get in due course of time will indeed be their business plan for financial inclusion," RBI Governor D Subbarao had said. "Banks consider this as an obligation and not an opportunity."

Some high-profile firms are also among the candidates. JM Financial, the investment banking and financial services franchise run by Nimesh Kampani, has roped in former Citigroup chief executive Vikram Pandit to bolster its chances.

Other requirements such as priority sector targets and 25% branches in unbanked rural areas could be some of the big challenges for these new banks.

Brokerage firms such as Edelweiss, India Infoline and Religare are also in the fray. New banks may find it difficult to build low-cost accounts when new-generation private sector banks are offering 6-7%.

The RBI has clarified that it will not give any form of dispensation to applicants. Stocks of many aspirants were up during the day. But some are expecting the central bank to relax the norms given their current structure.

The Shriram Group is seeking exemption from transferring its transport funding business into a new bank since it may dilute the business prospects due to cultural issues.

Shares of Reliance Capital rose 7.31% to Rs 361 while L&T Finance gained 2.1% to Rs 80.15. The Aditya Birla Nuvo stock was up 3% at Rs 1,095.

Source: TimesOfIndia

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YES Bank Row: No end in sight, Madhu Kapur, Shagun Gogia looking for more than just a board position

YES Bank's four-year-old family feud that spilled over to streets may play out in courts for a long time as Madhu Kapur prepares for a prolonged battle to establish her claim as an equal business partner to Managing Director and Chief Executive Rana Kapoor.

"This will be a long drawn court battle,'' said a legal advisor to Madhu Kapur after her daughter's nomination was rejected. "Madhu and the family are aware of it. They are fighting for joint nomination rights along with Rana, and not just a board seat for Shagun,'' said the person who did not want to be identified because of the legal issues involved.

Madhu is the widow of bank co-promoter Ashok Kapur who was killed during 2008 Mumbai terrorists attack on Oberoi Hotel.

YES Bank last week dismissed Madhu Kapur's daughter Shagun Gogia's nomination to the board of directors as the legal heir of one of the two founders. It said it was not in line with practice at other institutions such as ICICI Bank, HDFC Bank, and family-promoted Kotak Mahindra Bank. The Bombay High Court directed the bank to consider Kapur's nomination after the family challenged the nomination of two directors by co-founder Rana Kapoor.

The late Ashok Kapur family also sought the stay of the appointment of the third director. The court will be informed today of the board's decision and Madhu could file an affidavit challenging the validity of the nominations of Ravish Chopra, a former HSBC banker and former Reserve Bank of India staffer MR Srinivasan on the board of the private lender by Kapoor.

The articles of association of the bank provides for joint nomination by Rana and his late partner Ashok Kapur. "The Board evaluated the submissions considering the past and current composition and profile of the Board of the bank, the current composition of the boards peer banks Kotak Mahindra Bank and the three largest private sector bank,'' Yes Bank's company secretary wrote to Madhu Kapur.

"Based on the above and after extensive deliberations, the board of directors has unanimously agreed to that the recommendation of Mrs Shagun Gogia made by you should not be accepted.'' The bank will formally announce its decision, taken with Rana Kapoor abstaining from the deliberations on Thursday's meeting, to the Bombay High Court on Monday. The Kapurs moved the court on June 6 against the appointment of Diwan Arun Nanda of advertising company Rediffusion. The court then directed the bank to advance its board meeting by a month to discuss Ms Gogia's candidature.

Source: EconomicTimes

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RBI's new bank license norms: Now, corporates may vie for takeovers in banking sector

The deadline is 24 hours away. By the end of day on July 1, some 40 applications of corporations seeking a banking licence are expected to reach the doorstep of the Reserve Bank of India (RBI). Only four or five are likely to get the go-ahead.

The applicants still in the fray — after the apex bank did its bit to clear ambiguities with 124 pages of answers to 422 questions in the first week of June — are hopeful. A few, like Mahindra Financial Services and Sundaram Finance, decided to walk away after they felt the regulations were not suited to their aspirations.

Among the clarifications, the RBI made it clear that it wants clean promoters and it will do a background check. For instance, it will seek information from the Central Bureau of Investigation, the Income Tax department and the Enforcement Directorate before it grants licences.

Of course that's not what kept away the ones who have turned their backs on banking. Rather, analysts point out that tight priority sector lending norms and doubts about meeting requirements in terms of CRR ( cash reserve ratio, or the amount banks are expected to park with the RBI) and SLR ( statutory liquidity ratio, or the amount banks are expected to maintain before providing credit) would have persuaded them to stay away.

"The goals of the regulator are very clear," says Akeel Master, head of financial services at KPMG. "The RBI wants to take banking to the unbanked and the rules are same for everyone. If a particular sector feels it is tough for them, they should talk to the RBI," he adds. Master says that there is no merit in pointing out that this time around the norms are tougher; they had to be considering that the last two times the RBI gave out licences was in the early '90s and 2004. "Policies have evolved since then," he adds.

In the Fray

There are large conglomerate-backed entities like Aditya Birla Nuvo, L&T Finance and Reliance Capital in the fray. The last named has roped in two Japanese partners in Mistui Trust Bank and Nippon Life Insurance. Financial services players like India Infoline, Edelweiss Capital and Religare have also thrown their hats into the ring. There is also India Post, with its huge countrywide network of post offices and deposit mobilisation machinery which, in many ways, places it ideally to roll out banking services.

Once the winners are announced, it may not be as if the failed applicants will throw in the towel. In fact, they may well pursue a go-ahead from the central bank for an alternative entry into the banking — via the inorganic route. Sudip Bandyopadhyay, who heads Destimoney Securities, feels that many of the private players who will not be allowed will later petition the RBI to allow them to acquire existing banks. "If the RBI allows new banks, there can't be justification for not allowing takeovers. Taking over an old existing bank may be a better strategy," he says.

Bandyopadhyay points out that the condition of having a fourth of one's branches in rural areas will slow down the road to profitability; breakeven will take at least a decade. "Promoters will have to dilute their equity at a time when their entities will not be fully profitable. The RBI should have allowed 15 years for promoters to dilute their stakes," he says.

One of the RBI's conditions is that applicants should promote the bank through companies in which there is a 51% public shareholding. These companies will have to promote a non-operative financial holding company, which in turn will hold the bank. That is the reason why the Singh brothers have chosen to bring down their stake to 49% in Religare Enterprises. The guidelines state that the banks have to be listed within three years.

Tough Going

Non-banking finance companies ( NBFCs) may find the norms particularly challenging, with the RBI in no mood to give them more time to meet the CRR and SLR conditions. The banks have to meet the CRR and SLR conditions at the time of starting operations. Theoretically, those angling for licences have two years to meet CRR and SLR norms as the licensing process will take six months; and an in-principle approval to start within 18 months. The current CRR is 4% and SLR is 23%.

Ashvin Parekh, Ernst & Young's national leader for global financial services, points out that the CRR and SLR norms will force new banking licensees to find new funds to park with the RBI (CRR) and in gold or government securities (for SLR) from day one. Benefits of having a bank will come from the 2% lower cost of funds that will accrue when a bank will raise low-cost deposits from its customers.

Parekh reckons that a Rs 30,000-crore NBFC will be able to offset the initial cost of meeting the norms only once it succeeds in raising at least Rs 12,000 crore of low-cost deposits. That won't happen in a hurry, particularly when a fourth of your branches are in rural areas.

However, one large NBFC happy to play with these rules is Srei Infrastructure Finance Ltd. Says Srei chairman Hemant Kanoria: "We submitted our application on June 27. Now it is in the hands of the RBI." Srei has drawn up a business plan to have 60-70% of its branches in rural areas starting with eastern and northeastern India before moving in for a pan-India footprint. Kanoria refutes Bandyopadhyay's assertion that rural branches can be a drag. "We have studied the viability of these branches very well. There is a lot of money in rural India — otherwise how do so many chit funds survive," he asks.

"We have been working in the rural areas for the past 24 years and we are the specialists. We have the Sahaj project in rural areas where many of our partners are already banking correspondents and sell financial products," adds Kanoria.

One of the biggest fears revolving around corporations foraying into banking is that group companies would be putting their hands into the till. The RBI decidedly nixed that opportunity earlier. As the CEO of the financial services business of a widely diversified group puts it: "I am not disappointed at all [that lending to group companies will not be allowed]. This is good." He's got his eyes fixed on another opportunity that he considers more lucrative: selling the conglomerate's financial products and related services to the bank's customers. That indeed makes strategic sense.

Source: EconomicTimes

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Canara Bank driving weavers credit card scheme

Canara Bank is aggressively pushing the weavers’ credit card scheme.

This loan scheme for handloom weavers, formulated by the Development Commissioner (Handlooms), Ministry of Textiles in consultation with the Ministry of Finance (Banking Division), aims to provide adequate and timely finance – both for investment purpose and working capital needs – to this unorganised sector of the textile industry.

Canara Bank sources told Business Line that the existing handloom weavers, including those that had utilised credit under other schemes of the bank were also eligible to avail themselves of finance support under this scheme, provided they cleared their existing liabilities with the bank.

The weavers can avail themselves of support up to a maximum of Rs 2 lakh. The loan is for a period of three years and no margin money is required for loans up to Rs 25,000, the official said.

The Government supports this scheme by providing margin money subsidy of Rs 4,200 per weaver (which is claimed by the respective banks) and a three per cent interest subvention for prompt repayment.

“The awareness level about the scheme appears to be pretty low. We have therefore commenced this awareness drive, as the funds available are remaining unutilised,” said U. Ramesh Kumar, General Manager, Canara Bank (Coimbatore Circle).

The Coimbatore Circle of this state-run bank has in the last couple of months sanctioned over 2,200 weavers’ credit cards and disbursed amounts totalling Rs 5.88 crore.

“As a result of this, the subsidy that will flow in would be Rs 92.86 lakh, apart from interest subsidy of three per cent,” said Ramesh Kumar, adding “there are a number of subsidy schemes which need to be pushed”.

Cluster of weavers and ancillary workers who joined to form Societies, Self Help Groups, Joint Liability Groups, Produce Companies are also eligible in their individual capacity.

revathy.lakshminarasimhan@thehindu.co.in

Source: thehindubusinessline

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