Small banks witness increase in transactions after open ATM rule

Since the launch of free cash withdrawal facility from automated teller machines (ATMs) the small banks are getting large number of customers of larger banks. Previously the banks were charging customers for cash withdrawals and balance enquiry at third-party ATM but from April 1 as per RBI norms the charges cannot be passed on to the customers.

Now the customers are using small banks ATM located near to their place due to which the big banks such as ICICI bank and SBI paying more interchange fee to other banks for using their ATMs.

Therefore big banks such as ICICI Bank country’s largest private sector player is paying a monthly outgo of Rs 4-5 crore as the payment of interchange fee to other banks. Even the State Bank of India (SBI) country’s largest public sector bank is getting equal number of other banks’ customers using its ATMs as the number of its customers using other banks’ machines. R P Sinha the deputy managing director for information technology said, “The total number of transactions at our ATMs have gone up by more than 100 per cent since April 1. However, our customers are also using other ATMs, depending on convenience”.

The banks have to pay interchange fee of Rs 18-20 per transaction when a banks’ customer uses the ATM of another bank.

On the other hand the number of customers has increased in case of smaller players. Dhanalakshmi Bank sources have informed there has been increase in transactions by 50%, is largely of the customers from other banks.

According to bank’s Managing Director and CEO Amitabh Chaturvedi, “Often, ATMs of large banks have long queues outside them and if our ATM is just next door, there is a spillover into our ATMs”.

YES Bank a new generation bank is having 216 ATMs, has not witnessed much increase but its country-head for cash management and direct banking pointed out there has been a major increase in the number of transactions and positive inflows from interchange fees. T S Jagadeesan, General Manager, Planning informed, “We had apprehensions about the (free ATM use) rule, since we have a significant number of no-frills account-holders, who have no minimum balance requirement. However, so far we have seen positive interchange flows”.

While the big banks having large networks of ATM such as Axis Bank are getting positive cash flow from the ATM. Aspy Engineer, Senior Vice-President of Alternate Channels pointed out, “Since April, both the number of interchange transactions we have acquired and cases where our customers have gone to other ATMs have gone up by 100 per cent. However, we were a net acquirer even before the rule came into force and so are interchange revenue flows are positive”.

Big companies try to revive zero interest consumer loan market

The big banks like CitiFinancial, ICICI Bank and GE Money have complete stopped giving loans for consumer goods since then zero interest loans have become a thing of the past. But now the major consumer durable companies are trying to revive back the concept of zero interest consumer loans in order to attract more customers. According to the report printed in Financial Chronicle companies like Samsung, Videocon and LG on their own trying to bring it back. For this these companies have signed agreements with non-banking finance companies to offer easy loans to consumers.

Amit Gupta Vice President-Sales, Videocon, said, "About 10 percent of the company's sales depended on easy consumer loans with tenures ranging from 11-18 months." By and large, the companies will bear the interest amount, which will pay the financiers at a rate of nearly five percent.

The industry sources say, Bajaj Finance and Shriram Finance have just now entered the easy loans market and trying to take hold of the opportunity. Previously the major financial institutions have suffered losses therefore decided to focus less on the segment of consumer loans.

Private bank might not be included in purview of the new FDI guidelines

Government directing towards RBI’s concern on the change of their status from 'resident' to 'foreign' if the norms are implemented there is possibility that private sector banks like ICICI bank, HDFC bank and Vysya Bank might not be included in the purview of the new FDI guidelines.

An official stated "There is a probability that we will exempt these banks from the guidelines on the lines of the exemptions in the insurance sector".

In February the of Industrial Policy and Promotion, through a string of 'Press notes' made changes in the FDI guidelines after which many private sector banks found that their status will get changed from ‘resident’ to ‘non-resident’.

There will be change in status because the total FDI will take into consideration the stakes held by Non-Resident Indians, American and global depository receipts, foreign currency convertible bonds and convertible preference shares.

Thus RBI raised the issue with the Finance Ministry and DIPP, in which it pointed out that as per the revised policy, foreign investment in all these banks will go beyond 50% in the new policy regime therefore they will be treated as non-resident entities.

ICICI bank plans to open 580 new branches to increase deposits

Chanda Kochhar, the new chief executive officer and managing director of ICICI Bank. Kochhar took over from KV Kamath on May 1 told the bank is planning an aggressive increase of current account and saving account (CASA) to 33 per cent from the present level of 28 per cent by next year. Thus in view of this bank is planning to increase the growth once the deposit base mix gets aligned to a higher percentage of low-cost deposits.

As on March 31, 2009 the total deposits of the bank stood at Rs 218,348 crore compared to Rs 244,431 crore on March 31, 2008. Even the CASA ratio also showed improvement of 28.7 per cent of total deposits on March 31, 2009 from 26.1 per cent on March 31, 2008.

In an exclusive interview with Financial Chronicle, Kochhar told the bank will be rolling out to 580 new branches to build up the CASA deposits. Kochhar added, “The next phase of growth will come after we rebalance our deposit structure. By next year, we will be able to grow on a much more balanced balance sheet. We have sufficient branch licenses. We will reduce our dependence on bulk deposit because interest rates on these deposits are more volatile. Through CASA we will have a more stable interest rate”.

Kochhar added the bank will also review its shareholding in life insurance companies and the asset management company, but that the process will be slow.

She explained, “We will wait for the right time and right value and do it over a period of time. The IPO (initial public offering) of ICICI Prudential will also happen, but we have fixed no specific time frame now. We will definitely look at monetizing investments. We are in no desperate need to raise capital”.

Chanda, 48-year old, has been ranked 28th in the Fortune list of most powerful women in business, said she can already see recovery indications in the economy.

She pointed out, “Maybe in the next one year, we would get back to the next phase of growth. But it is too early to say which segments we will focus. It would depend on demands of the environment at that time”.

During the financial year 2008-09 the banking system observed a credit growth of 17 per cent while the ICICI Bank’s loan book slide down by 3.2 per cent.

Kochhar, while intricate on the present strategy of the bank that will propel it to the next round of growth explained, “We have controlled a lot of our credit losses and credit quality by tightening our credit parameters. We have cut back on products that used to contribute to our losses because we have realized that risks on these products have increased substantially. Losses are more or less controlled. We have stopped small-ticket personal loans, where the average size is about Rs 30,000 and less and some other unsecured loans”.

The bank has been able to build up gross non-performing assets (NPAs) of Rs 9,929 crore, of which 70 per cent has come from retail advances. However, Kochhar stated she is not more worried on the NPA levels.

She added, “I am not worried about the NPAs because it will peak out in a few quarters. But on the corporate side, there will be some restructuring required, but again no NPA surprises here”.

In bank books the total restructured assets include Rs 6,100 crore of debt out of which the major portion is of corporate debt.

In the fourth quarter bank restructured around Rs 1,100 crore of assets while about Rs 2,000 crore worth of assets are lined up to be restructured.

Kochhar told, “Most of the restructured assets are from the corporate side. Going forward, we expect more restructuring from wholesale lending but expect no NPAs".

Meanwhile the bank is not having any capital raising programs because refinancing requirement will be funded through the deposit base.

Speaking about the international front, Kochhar said the bank is having a repayment liability of $1 billion, due for repayment this year. Majority of the refinancing dues will be funded by the deposits.

Credit Score and Insurance: How Are They Related?

Credit score and insurance are very much related. Insurance providers may utilize your credit history while you are going for new home or automobile insurance. This article would give you some useful details that would help you know in what manner your credit score is utilized by the insurance companies.

What Is the Credit Score that Insurance Providers Prefer?

A credit score is basically a picture of your credit at a particular moment. The details of your credit history and your application for insurance are taken into account by the insurance providers for determining a particular credit score. This is known as insurance credit score and it ranges from 0-999. A higher insurance credit score suggests a better score.

How Your Credit Score is Utilized by the Insurance Providers

If an insurance company is dependent on credit score, it can utilize your credit score for the purpose of underwriting and ascertaining the amount of premium payable by you.

Underwriting is the procedure of determining whether a new policy can be issued to you or a current policy has to be renewed.

Rating is the procedure that decides the amount of premium that you need to pay for insurance. Besides the usage of credit details, insurance providers would utilize other conventional rating elements to figure out the premium that is payable for your home or automobile insurance policy. A few of these conventional rating elements include the following:

Homeowners insurance - your claim history, your residential address and the replacement cost of your home.

Automobile insurance - your residential address, type of car that you have and your driving history.

How Would You Know Whether Your Credit History has Influenced Buying of Insurance?

FCRA (The Fair Credit Reporting Act) necessitates insurance providers to inform consumers if any unfavorable step has been taken due to their credit details. FCRA delineates unfavorable steps to include raising of premiums, refusing or terminating coverage, altering the amount of coverage or the terms and conditions in such a manner that it causes harm to the consumer. The insurance provider should also let him know the name of the countrywide credit bureau that provided the details.

Instances of an unfavorable step include the following:

• Termination, refusal or non-renewal of coverage
• Restricting advantages like eligibility for dividends
• Not offering the consumer the cheapest rate
• Not offering the consumer the most attractive discount
• Providing the consumer an incomplete type of coverage
• Providing coverage for something else that was not asked for
• Addition of a premium surcharge

ICICI Bank awarded ‘best bank’ for NRI Services

ICICI bank the largest private sector bank and the second largest bank in India, NRI services has won the World Finance (London) award for the best bank for offering NRI Services Worldwide, 2008. The bank has also been judged best for its remittance business segment for the second year in a row by the Asian Banker Magazine.

According to Girish Nayak, head of ICICI Bank NRI Services bank’s main international strategy has been the NRI footprint.

Nayak explained, "ICICI Bank helps NRIs maintain the all-important link with their home country by offering a complete product suite that is available at the click of a mouse or a simple phone call away. The Bank is always innovating new products to stay a step ahead of the NRI needs and maintain its leadership position as the NRI Banker of choice”.

In 2001 ICICI Bank launched its NRI Services as a one-stop shop to address the home-linked financial needs of NRIs. The product suite offered include a variety of savings and deposit products, structured investment options, online remittances, mortgages, insurance and equity-linked products addressing the entire gamut of financial needs of this overseas community.

ICICI Bank is having a global presence and a rich customer base spread across 18 other countries, through its combination of subsidiaries, branches and representative offices. The bank is having has a presence in the UK, Canada and Russia through wholly owned subsidiaries.

Product distinction includes a premium product called – NRI Edge targeted at affluent NRIs looking for priority services and exclusive privileges. Other specialized products being offered include a card-based remittance account for with drawing down money transfers at the India ATMs and the Easy Receive a beneficiary-focused account customized for NRIs' family members in India with linked benefits.

ICICI Bank first started a foreign exchange forwards linked product called Rupee Plus. The product is a risk free and an opportunity to earn significantly higher returns on NRI investments. 100% principal and return protection is offered by this product.

For NRIs Money Transfers is a core need therefore ICICI Bank is offering state of the art technology enabled speedy and low-cost options to NRIs. Customers from the overseas ICICI Bank offices are able to initiate instant payment to their accounts in India. Customers also get the facility to transfer funds from their ICICI Bank India accounts to any other bank account efficiently at no additional cost using the online platform.

PSBs, car companies signing agreements with a hope to push sales

From the last six to seven months automobile industry has been facing slump in demand but as the banks have started reducing interest rates on auto loans the automobile companies are trying to take full advantage of this. The auto companies are getting into tie-up with public sector banks (PSBs) to offer cheaper finance to the buyers to push their sales.

Except for State Bank of India, PSBs, which are having less than 20 per cent share in the auto finance business, are signing these alliances with a view to attain a bigger share of the pie.

SBI, and other banks such as HDFC Bank, Axis Bank, ICICI Bank and Kotak Mahindra Bank all account for 75 per cent of the market share.

Recent tie-up between banks and auto companies include Punjab National Bank (PNB) and Syndicate Bank with Hyundai Motors, Andhra Bank and Bank of Baroda with General Motors, Central Bank of India and Corporation Bank with Tata Motors, Punjab and Sind Bank and Corporation Bank with Maruti Suzuki.

Besides lower interest rates, some of the deals offer facility of lower margin money. Along the retail tie-ups, many auto dealers have also signed up with country’s largest lender SBI.

Hyundai Senior Vice-president (marketing and sales) Arvind Saxena stated, “The rates offered by public sector banks are much more attractive than the ones offered by private sector players. In addition, these banks have a wider reach across the country. The share of PSU banks in our sales has risen to 30 per cent from 18 per cent earlier”.

Auto makers also stated that now the processing time required for a vehicle loan by a public sector bank has also reduced.

General Motors India Director and V-P (corporate affairs) P Balendran informed, “Private sector banks had a market share of 70 per cent while PSU banks had a share of about 10-15 per cent and the balance was in cash. PSUs’ share has gone up to 35-40 per cent as of today. Speedier processing of loans by PSU banks has also helped them gain market share besides lower interest rates”.

In February Maruti Suzuki, a leader in the passenger car segment, had sold 70,625 vehicles, thus an increase of 19 per cent over same period last year. According to auto analyst with equity broking house maybe this is an indication of change in the business sentiment.

Public sector banks (PSB) are also seeing opportunity in signing these tie-ups as this can help in filling the gap in the financing market ever since private banks reduced their auto finance portfolio considerably. PSBs have the advantage of a huge network especially in the rural sector which has not been much impacted by slowdown.

But while sanctioning loan banks are scrutinizing a loan application very carefully.

According to credit head of small public sector bank, “Even if tie-ups are in place, it does not mean that branches would start work is gusto. They will make doubly sure that credit proposal is going to be sound to avoid for containing increase in incidence of bad loans”.