Banks offering lucrative schemes to card holder to recover dues

Banks are facing problem in recovering credit card dues. Last year due to economic crisis and regression in jobs there has been sharp increase in bad assets linked to them due to this many banks will be flushing out credit cards from the market, instead increase debit card count.

Thus most of the major banks including ICICI Bank and Citibank are cutting down their credit card exposure and are offering lucrative schemes to card holders. But banks are not publicizing these schemes as it might increase the risk of defaults from other card users who are regular with the payments and opt for these easier settlement options.

So, if you have large outstanding on credit cards and paying the usual high interest on the same, you can avail this opportunity to convert credit card loan to a lower interest bank loan on a long tenure.

An anonymous senior ICICI Bank official told, “There are various structured payment plans that we’ve been offering. These limited schemes are worked out in consultation with the customer as an alternative repayment plan.” The reporter of ET emailed a query with this regard but did not get any reply from the bank. However banks are offering different-different schemes.

In case you have an outstanding loan of around Rs 2 lakh on credit card and have been paying high interest of 18%, now is the chance to convert it into a regular loan, which you can pay over a period of three years, and the interest rate will be as low as 12%. Citibank, Sandeep Bhalla, a business manager cards, said, “We have a retention-oriented, assistance-based collections process, and if there is a genuine inability to pay, we work closely with customers to offer repayment solutions based on his or her cash-flows.”

There are around 2.5 million Citibank card holders. A CIBIL spokesperson told that when a bank sends a report of restructured loan it is displayed in CIBIL records as it is and also reflects in the same manner in the credit report.

Banks refused to disclose their bad loans, but they are moving very cautiously.

By the end of October 2009 there has been sharp decline of 21% to 21.1 million in a credit card base from 26.7 million a year ago. The decline was also seen in the credit card outstanding, by 12.13% to Rs 5,660 crore at the end of October 2009, from 6,442 crore a year ago.

According to Venture Infotek study all banks are reducing their credit card business. ICICI bank the largest credit card issuer has cut down the number of card holders from 9 million in 2008 to 7 million in 2009.

ICICI Bank to do aggressive lending in the car, truck loans segment

ICICI Bank, India’s second-largest lender two years ago had stopped giving auto loans due to rise in defaults but now it is planning to do aggressive lending in the car and truck loans segment. This time bank will not give loans through sales agent in favor of auto dealers. Bank is targeting car and truck dealers with an aim to revive auto loans, although it is going cautioned on financing two-wheelers. Recently a pan-India meet of over 180 car dealers was organized by the bank to discuss this issue.

A senior auto industry executive of ICICI bank said, “ICICI Bank will lend much more now that will bring incremental growth to the passenger-car industry.” Previously, three years ago ICICI Bank used to be the biggest lender of auto loans. But increase in the defaults from borrowers and liquidity crisis in the economy compelled the bank to stop the auto loan. Thus in late 2007 and early 2008 car sales dropped significantly as the private banks scaled down their auto finance segments and also the rate of interest was very high on these loans.

But from past few months ICICI Bank has started showing interest in auto loans segment. The change in bank standpoint has come after the increase in the demand in the car market, in the past one year the passenger car sales has grown at 16.2% to 10.52 lakh units between April and October, 2009 over the year-ago period. ICICI Bank spokesperson refused to share any information on the new strategy or reveal any details of loans dispersal when ET reported contacted. An executive related to auto finance industry told in the current fiscal, ICICI Bank has doubled the amount allotted for the auto loan disbursement; it has been increased over Rs 1,500 crore, as against the year ended March 2009.

The auto finance market anticipated to be Rs 40,000 crore a year, in the past few months has gone through major changes. The main reason for decline in market share of private banks is the virtual exit of ICICI Bank from key market and on the other hand government-owned banks adopted aggressive lending strategy, they offered cheaper loans at interest rates less than 10%. According to sources in the banking industry ICICI Bank will remain the largest player in auto finance because of its huge disbursements in the past even though other banks such as SBI, PNB, Canara Bank and Bank of Baroda, in the recent years have overtaken it in terms of new auto loans.

Banks September quarter net profits stand up to 20.2%, look for more margins

In the September quarter most of the banks did not have any substantial gain from core business but have made good amount of treasury and other income.

According to September quarter results declared by 37 banks – in line with analyst guess, the aggregate net profit stood up to 20.2%.

The net profit grew mainly because of other income plunged 44% year on year, with government bonds prices moving up.

While calculating the net profit banks are allowed to include notional gains on investments such as income earned on bonds to 'other income', this process is known as marking to market. The line is reversed when bonds prices fall.

On the other hand the net interest income (NII), or the difference between interest earned and interest paid, the core business income for banks increased to 7.9% year on year basis in comparison to last year 38% jump during the same period.

However that is over the June quarter, NII rose to 8.4%, mainly because of improvement in loan disbursements.

Amongst the banks the State Bank of India, India's largest by market capitalization, has reported a 10.2% jump in net profit, while its NII grew by just 2.81% on year-on-year basis.

ICICI Bank, the second largest bank net profit was insignificant up to 2.56% due to lower non-interest income. While its NII declined by 5.2%, as bank disbursed 14% less loans in the quarter.

Fewer loans were disbursed as ICICI had adopted the strategy to reduce exposure to the so-called "unsecured" retail loans and instead focused on corporate lending.

"Bank earnings have been a mixed bag. Several banks have shown an increase in treasury profits leading to improved bottom lines," said Vaibhav Agrawal, senior analyst-banking at Angel Broking.

Banks which benefited the most from a rise in other income include Central Bank of India (other income up 332.4%), Allahabad Bank (208.5%) and Canara Bank (163.6%).

Suresh Ganapathy, analyst with Deutsche Bank said the net profit results of some public sector banks haven't been up to mark.

"Higher treasury profits and lower provisioning has helped them to achieve higher net profit," he said.

Few of the banks which made profit as their core business did well include IDBI Bank (core income up 106.2%), IndusInd Bank (98.2%), Vijaya Bank (35.53%), South Indian Bank (31.27%) and Axis Bank (25.86%).

But one area which remains of concern is asset quality.

"A lot of the loan growth can be attributed to liquidity, which is not a healthy trend," according to an analyst with the domestic brokerage, not wishing to be named.

Thus net non-performing assets or bad loans of 37 banks are up by 25% on a year on year basis.

On a chronological basis, or over the June quarter, bad loans have increased by 1.12%.
"Asset quality declined at some public sector entities such as Bank of India," said Aggrawal.

The banks faced loss due to default in repayments on some retail loans and on loans to real estate and export-oriented sectors.

But the companies were able to moderate the debt burden through equity-based fund-raised by corporates in the quarter.

Praveen Sood, CFO of Hindustan Construction Company stated many realtors paid their debts through QIP proceeds. "A lot of liquidity was also made available through various other measures so that also helped," Sood said. HCC's current debt estimates to Rs 2,200 crore. Furthermore, analysts are expecting improvement in interest income and margins if credit offtake picks up. But it will all depend on the Reserve Bank of India's (RBI) new directive, which can impact profitability.

The central bank told banks must achieve at least 70% provision coverage by September next year for their bad loans.

According to analysts this will strike net profit by 3% to 4% on a back-of-the-envelope basis as all banks combined will have to provide for around of Rs 1,2000 crore to meet coverage ratio.

The central bank will be issuing more detailed guidelines on this. "It would be premature to take this into consideration right now, therefore," said Ganapathy.

According to Aggarwal the earnings growth in the third quarter, is not going to be much strong.

He observes credit growth in the 15-17% range. Ganapathy concurs. "Margins will improve going forward on account of re-pricing of bulk deposits in the coming two quarters, which will reduce cost of funds," Ganapathy said. He is expecting Bank of Baroda, PNB and HDFC to perform much better over the next one year.

ICICI Bank decides to slash auto loans by 50 basis points ahead the festival season

ICICI Bank the largest private sector bank has decided to slash its auto loan rates by 50 basis points to 10.5-11 per cent, before the festival season. The bank is taking this measure in line with its target of growing its retail book.

A senior ICICI Bank official pointed out, “The reduction in rate would be announced in a day or two; the team is still working out the finer details”.

Currently the bank has set auto loans at 11-11.5 per cent. Previously at its peak, the auto loans were available at 12-13 per cent.

In June bank’s total auto loan portfolio accounted to Rs 25,920 crore, out of which Rs 10,000 crore is retail auto loan.

The bank has decided to focus on four-wheeler loans which will be disbursed by its branches. It will not be selling through the direct selling agent.

Over the past two years bank completely stopped giving two-wheeler loans and on four-wheeler loans it has been going slow.

Chanda Kochhar, managing director and CEO of ICICI Bank, has been claiming that now it is the right time that the bank can revert its well rounded growth in portfolios as there has been increase in the domestic demand and retail customers have also started spending.

In her speech at the MSME (micro and small and medium enterprises) conclave, Kochhar said until January the demand for retail products had dropped especially home loans, the decline was of 50 per cent. She added, “But from January, I clearly see a 50 per cent rise in demand. So we are focusing on all segments in line with the revival in demand. MSME will continue to be a focus area for the bank as the segment contributes 40 per cent of the country’s industrial production and forms 35 per cent of the total exports”.

ICICI is open for domestic takeover than going for overseas buy: Kochhar

After missing a chance of global acquisition in 2008, on Sunday ICICI Bank said it is ready for domestic takeover as it is better to go for takeover in India in the current environment rather than going for overseas buy.

ICICI Bank CEO and managing director Chanda Kochhar speaking about acquisition prospects this year and the elusive search for a property last year said, “I am always open... but the question will always be in terms of what is available and at what value, and then you weigh the option”.

Emphasizing that the bank with over 17 per cent capital adequacy ratio is the best capitalized unit in the world, thus she said, “So, clearly, what I would say, we are definitely growing in India, when one talks of aggression. Again, in a way to put that in context, we are definitely a growth organization and the growth DNA continues.”

Urging further on the bank’s willingness for acquisition at the right value offer, she clarified, “But that doesn’t mean that anything is on the cards. If you write it that way, investors will think I am acquiring something. I am always open.”

She gave a positive reply to a question whether acquisition within India made more sense than one overseas.

Ms Kochhar informed in March bank had formed a “strategic committee” in March 2008 for exploring an acquisition. “When the committee was formed, what we were planning frankly at that time (was) on the international side.” In response to whether bank is still opened to acquire global property, Ms Kochhar said, “(We are) clearly not looking for any international acquisition because in the current scenario the risk on the international portfolio are still unknown.”

She informed, “As of now, we are neither growing out presence in the international market from where we are because we are already present in 18 countries. We have substantial number of branches so we don’t see requirement to grow (in overseas markets)”.

Earlier the strategy committee which was formed for acquisitions last year was dispersed, as the planned purchase did not took place. Moreover, Ms Kochhar said, “Our focus is to grow as the Indian corporate grows here, and even international focus was always to grow with international requirements of the Indian corporate.”

Now the concern is, she said, “Is whether you grow organically or inorganically. Well, we have capacity to set up 580 branches in one year. So, obviously one then weighs what is the cost of acquiring a bank of similar size or is it more economical to do it internally.”

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.