Financial inclusion makes business sense for banks, says RBI official

When foreign investors are attracted by the return on investment generated by microfinance institutions, which cater to the credit needs of those at the bottom of the pyramid, then there is definitely a business case for banks to go the whole hog on financial inclusion under the Prime Minister’s Jan Dhan Yojana, according to a top Reserve Bank of India official.

“Why are foreign investors willing to come into the country in the microfinance segment? This is because they can get returns on their investment. So, the business case has been built up. What we need to build up in financial inclusion is also a similar business case. You do have profit at the bottom of the pyramid,” said Deepali Pant Joshi, Executive Director, Reserve Bank of India, on the sidelines of a recent financial inclusion conclave.

Basic accounts

Under the Yojana, which was launched on August 28 by Prime Minister Narendra Modi, banks collectively have to open 7.5 crore basic savings bank deposit accounts by January 26, 2015.

These accounts come with benefits including a RuPay debit card, a Rs1-lakh accident insurance cover and an additional Rs30,000 life insurance cover.

On satisfactory performance of an account in the first six months, the account holder will get an overdraft facility of up to Rs5,000.

Joshi observed that under the Yojana there would be a steady stream of small deposits for banks. So, they will have a large corpus to depend upon.

The RBI has advised banks to leverage the Government’s Direct Benefit Transfer (DBT) initiative to link all individuals to the banking system and to utilise the large amounts likely to be credited in these accounts to promote deposit and credit products.

Direct transfers

“It is a win-win proposition for banks if they manage to build a business case. And such a business case is emerging, because if you have direct benefit transfers and you have a revenue stream, then a lot can be achieved. If 50 per cent of the country’s population, which is marginalised, comes into the mainstream as producers and consumers of goods, you can imagine what strength of the economy would then be,” said Joshi.

The RBI official said the central bank is monitoring implementation of the Yojana at the State and district levels.

“It is a question of putting your shoulder to the wheel and being in the trench along with the troops,” she added.


Source : The Hindu

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Jan Dhan cover: LIC says no to premium

Life Insurance Corporation wants the Government to bear the premium cost involved in providing  Rs30,000 life cover for reach beneficiary of the Pradhan Mantri Jan Dhan Yojana (PMJDY), the flagship financial inclusion scheme launched by Prime Minister Narendra Modi.

While the insurance behemoth has agreed to extend life cover, it has conveyed to the Finance Ministry’s top brass that it is in no position to bear the premium cost, sources close to the development said.

Even a premium as low as Rs100 for every life insurance contract with a sum assured of Rs30,000 would mean an outgo of at least Rs 750 crore, a rough calculation shows.

This is because the Government wants to open at least 7.5 crore basic bank accounts for un-banked families by January 26 next year. The Modi administration is keen that each un-banked family has at least two accounts (including one for a woman member of the family).

Apart from a basic bank account, a beneficiary will get accident cover of Rs 1 lakh under the programme. The premium bill for the accident cover will be borne by the National Payments Corporation of India and the cover, by HDFC Ergo.

Meanwhile, Financial Services Secretary GS Sandhu on Wednesday reviewed the implementation of the scheme with top executives of all the public sector banks.
Good start

The scheme got to a flying start with 2.5 crore accounts opened on the launch date of August 28 and subsequent few days.

The main draw to this financial inclusion project has been the free accident cover that was being bundled with the Rupay debit card.

The Prime Minister's move to add life cover for the beneficiaries sweetened the deal for the un-banked families, say bankers.Moreover, the Finance Ministry’s “camp mode” strategy paid rich dividends. About 78,000 camps were organised across the country on August 28 to enable enrolments.



Source : The Hindu

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Dena Bank seeks Rs 1,200 crore fresh capital from government

State-run lender Dena BankBSE -0.24 % has sought Rs 1,200 crore capital infusion from government in the current fiscal, a top bank official has said.

In the interim Budget, the government had earmarked Rs 11,200 crore for capital infusion in public sector banks during 2014-15 and the new government has ruled out allocating more funds this fiscal for banks.

"We have asked for Rs 1,200 crore capital from the government but how much we will get we don't know," bank's executive director R K Takkar said.

The bank's total capital adequacy ratio stands at 11.14 per cent while the tier-I capital adequacy ratio stands at 7.43 per cent.

Last year, the government had infused Rs 700 crore into the Mumbai-based mid-sized lender as part of the overall Rs 14,000-crore recapitalisation of state-run banks.

In FY14, the bank deferred its plan to raise nearly Rs 570 crore through qualified institutional placement, owing to the weak market condition.

Takkar said that once the bank gets funds from the government, it may look at raising funds from other options such as a rights issue, qualified institutional placement, Esops or through tier II bonds.

"Currently, the government's holding in the bank is 58 per cent. Once the fresh capital comes in their share will increase to over 65 per cent and we will also have more room to raise funds," Takkar added.

Dena Bank had posted a net profit of Rs 187.28 crore for the March quarter up from Rs 125.67 crore a year ago.

Source: Economic Times

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Bad loans a cause of concern: RBI Deputy Governor R Gandhi

Reserve Bank Deputy Governor R Gandhi expressed concern over bad loans and said banks should strengthen their internal credit appraisal systems to minimise the risk of default.

"The final (NPA) figure for March 2014 is yet to be known; while some may view this ratio as reasonable, given the economic conditions prevalent in the country and elsewhere, the total stressed assets in the banking system (including restructured standard assets) as at December 2013 was 10.13 per cent of the gross advances of the banks, which is a cause of concern for the Reserve Bank," he said.

However, he said early indications are that the figures for the fourth quarter are better than the third quarter.

The gross non-performing assets (NPAs) or bad loans of the domestic banking system was 4.4 per cent of gross advances, he said at an event organised by Assocham here.

To minimise the risk of default, he said, "There is a growing need for banks to strengthen their internal credit appraisal system that is on their credit assessment and risk management mechanisms."

At the same time, he said, banks should consider using external credit appraisals in conjunction with their own assessment.

"This would mean getting the house in order and at least on this score, banks would be on stronger ground. Banks would still be vulnerable to other factors, such as economic slowdown or policy changes or wilful defaults. But, one area of concern would be plugged," he said.

"We can see that among the proactive steps that a bank can take to stem the problem of increasing level of NPAs and stressed assets, use of credit ratings is an important one," he added.

However, he said, banks need to balance the use of external ratings, as the recent financial crisis has highlighted the dangers of overdependence on ratings.

Noting that growing NPAs are the biggest challenge for the banking industry, he said a slowing economy is bound to see an increase in bad loans.

"Notwithstanding the economic weakness, NPAs of banks have registered increase since 2011-12, which is a cause of concern for us," he said, adding that the rise is more pronounced in the case of public sector banks.

The gross NPAs of public sector banks rose to Rs 2.03 lakh crore at the end of September from Rs 1.55 lakh crore on 31 March, 2013.


Source: Economic Times

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Canara Bank aims to reach aggregate biz of Rs 8.50 lakh crore

Public sector lender Canara Bank is targetting to reach an aggregate business of Rs 8.50 lakh crore during this fiscal with plans to add 1,250 branches, a top official today said.

"The bank was aiming to reach an aggregate business figure of Rs 8.50 lakh crore with a deposit growth of 16-17 per cent and advances growth of 19-20 per cent by March 2015," bank's Chairman and Managing Director R K Dubey told reporters here.

During 2013-14 fiscal, the bank's business had touched Rs 7.22 lakh crore. Last year the GDP growth had dipped, there was slow down in economy and raising capital was a problem.

But the bank registered a 20.7 per cent growth, opened 1,027 branches of which 80 per cent was in rural and semi urban areas, he said.

The public sector lender will be adding 1250 branches this year, including 100 in Kerala, to increase its branch strength from 4,755 to 6,000 and ATMs from 6,312 to 10,000 by March next year, he said.

The bank was planning to raise capital of Rs 3,000 crore this fiscal to meet its capital requirement. "We may raise capital from government or from market or from bonds. As market improves, we will go for the best option subject to government and RBI approval," he said.

The bank has five overseas branches -- London, Leicester, Hong Kong, Manama and Shanghai and had plans to open 20 more branches abroad. Total business of the foreign branches reached Rs 43,0450 crore during the previous fiscal, he said.

It would be opening a branch at Johannesburg in South Africa and has plans to open branches at New York by June this year and 8 other international centres, including Dubai, Qatar, Frankfurt, Sao Paulo, Dar-es-Salaam and Tokyo, by march next.

On recruitments, he said 9,000 persons were recruited in various categories last year and 8,000 would be taken this year. The total staff strength of the bank was 50,000.

Asked about media reports that government wanted commercial banks to offer interest free loans of up to Rs 50,000 to victims of loan sharks, Dubey said "under no scheme loans can be given at zero rate of interest. Loans cannot be given as doles. Interest can be subsidised by the government", he said.


Source: Economic Times

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