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Banking News 01.02.2017

10 lakh bankers to strike work on February 28

 

The Financial Express

Published on February 1, 2017

 

 

Chennai, January 31 (IANS): Around 10 lakh bankers will now go on strike on February 28 to demand recovery of bank loans that have since turned bad and action against wilful loan defaulters as well as solution to cash crunch post-demonetisation, a top union leader said on Tuesday.

 

“Earlier, three unions had given the strike call. But now all the nine bank unions have agreed to go on strike and hence the February 7 strike has been withdrawn,” C.H. Venkatachalam, General Secretary, All India Bank Employees’ Association (AIBEA), told IANS.

 

Venkatachalam said around 10 lakh bankers ranging from officers to clerks belonging to nine unions will resort to strike on February 28. The nine bank Unions are--- AIBEA, AIBOC, NCBE, AIBOA, BEFI, INBEF, INBOC, NOBW and NOBO.

 

The three unions that gave the February 7 strike call were AIBEA, All India Bank Officers’ Association (AIBOA) and the Bank Employees Federation of India (BEFI).

  

 

From E-Group, Banking-News

 

 

Economic Survey 2017 tabled

in Parliament: Key highlights

 

The Press Trust of India

Published on January 31, 2017

 

 

Union finance minister Arun Jaitley tabled the Economic Survey 2016-17 in Parliament during the first day of the budget session. Here are the major highlights from the Survey

 

New Delhi, January 31: Union finance minister Arun Jaitley on Tuesday tabled the Economic Survey 2016-17 in Parliament budget session. The survey projects the economy to grow in the range of 6.75% to 7.25% in the next fiscal year 2017-18 in the post-demonetisation year.

 

The survey prepared by chief economic adviser in the finance ministry Arvind Subramanian said the adverse impact of demonetisation on GDP growth will be transitional. The Economic Survey 2016-17 advocates the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty.

 

Here are the major highlights from the Economic Survey 2016-17:

 

v         Gross domestic product (GDP) growth in 2016-17 to dip to 6.5%, down from 7.6% in last fiscal.

 

v         Economic growth to rebound to 6.75 to 7.5% in 2017-18.

 

v         Economic Survey sees fiscal windfall from Pradhan Mantri Garib Kalyan Yojana, low oil prices.

 

v         Farm sector to grow at 4.1% in the current fiscal, up from 1.2% in 2015-16.

 

v         Fiscal gains from Goods and Services Tax (GST) will take time to realise.

 

v         Growth rate of industrial sector estimated to moderate to 5.2% in 2016-17 from 7.4% last fiscal.

 

v         The survey prepared by Chief Economic Adviser in the finance ministry Arvind Subramanian said the adverse impact of demonetisation on GDP growth will be transitional.

 

v         The Economic Survey 2016-17 has advocated the concept of Universal Basic Income (UBI) as an alternative to the various social welfare schemes in an effort to reduce poverty. In his budget speech earlier this month, J&K finance minister Haseeb Drabu said he would want to create a social security fund and provide a UBI to all those living below the poverty line through a direct benefit transfer system.

 

 

From E-Group, Banking-News

 

 

Provisioning pushes SBH into Rs. 620-cr loss

 

The Business Line

Published on February 1, 2017

 

 

Hyderabad, January 31:  State Bank of Hyderabad posted a loss of Rs. 619.8 crore in the third quarter ended December 31, 2016, as against a profit of Rs. 185 crore in the corresponding quarter last year.

 

Interest income for the quarter was down about 17.89 per cent at Rs. 2,942.82 crore (Rs. 3,584.15 crore in the same period last fiscal). The bank posted a loss of Rs. 1,368 crore for the nine months ended December 31, 2016, as against a profit of Rs. 811.77 crore in the year-ago period.

 

Mani Palvesan, Managing Director, said higher loan provision of Rs. 4,047 crore resulted in the net loss for the nine-month period. The bank’s total business was up at Rs. 2,60,023 crore; deposits increased 16 per cent year-on-year to Rs. 1,50,301 crore.

 

CASA deposits increased 43 per cent y-o-y to Rs. 60,309 crore and the share in total deposits too improved 758 basis points (bps) y-o-y to 40.13 per cent.

 

Retail deposits increased 25.14 per cent to Rs. 1,31,015 crore and the personal segment advances grew Rs. 4,015 crore (14.15 per cent) to Rs. 32,383 crore.

 

The total number of bank branches stood at 1932, of which 774 are in Telangana and 434 in Andhra Pradesh.

 

The bank’s retail advances account for 56 per cent of its total advances, of which personal advances alone account for 29 per cent of total advances, the bank said in a statement.

 

 

From E-Group, Banking-News

 

 

ICICI Bank net profit falls 19% as bad loans rise

 

The Business Line

Published on February 1, 2017

 

 

Mumbai, January 31:  ICICI Bank’s net profit declined 19 per cent in the third quarter ended December 2016 to Rs. 2,442 crore, against Rs. 3,018 crore in the year-ago period, due to an increase in bad loans.

 

However, the bank’s net profit has increased if one takes away the profit on sale of shares of its life insurance subsidiary — once during the third quarter of the last fiscal year and for the second time during the IPO in Q2 of FY17.

 

Net interest income in Q3 decreased 1.7 per cent to Rs. 5,363 crore, while the net interest margin fell 41 basis points (bps) year-on-year to 3.12 per cent.

 

Gross NPA (non-performing assets) rose to Rs. 37,717 crore (7.91 per cent of gross advances) from Rs. 21,149 crore (4.72 per cent) in the December 2015 quarter.

 

Net NPAs during the same period rose to 4.35 per cent from 2.28 per cent.

 

 

From E-Group, Banking-News

 

 

What to trust on demonetisation:

Official data or grim reports in media?

 

Arun Kumar

The Scroll Online

Published on January 31, 2017

 

 

Why are the two accounts so diametrically different?

 

New Delhi, January 31: There is confusion as to how the economy is doing under the impact of demonetisation. The Index of Industrial Production rose by 5.7% in November as compared to the decline of 1.8% in October. This was unexpected and has given relief to the government which has been reeling under daily reports of industries and businesses floundering since November 8, when demonetisation was announced by Prime Minister Narendra Modi.

 

However, a report by the State Bank of India, based on a survey in Maharashtra in early January, suggested a sharp decline in business in Mumbai and Pune. Earlier, the All India Manufacturers’ Organisation projected a drop in employment of 60% and loss in revenue of 55% before March 2017. Another chamber of commerce and industry had shown that in different categories, between 80% and 50% of the enterprises surveyed reported a sharp drop in their business. The biggest fall in services and manufacturing in three years was noticed in Nikkei India Manufacturing Purchasing Managers’ Index or PMI data for December. Credit growth has been the lowest in 60 years.

 

Reports of distress among farmers have been appearing in the media. Farmers have not been able to get a remunerative price for their perishables like vegetables and have even given them away free or fed them to cattle or thrown them on the roads in protest. The government reports, however, show a 7% rise in acreage under rabi crops (sown in winter, in this period after demonetisation was announced) and a rise in off-take of fertilisers. The implication is that agriculture would not suffer a decline in spite of the hardships in rural areas due to the demonetisation-induced shortage of cash for carrying on farm operations.

 

The government has presented data to show that tax collection is rising and not falling. Direct tax collection rose 12% and indirect tax collection rose 25% in the April-December period in comparison to the same period last year. However, in the first three months, tax collection rose even faster, direct taxes by 25% and indirect taxes by 31%. The Value Added Tax collections by states showed an increase of 18% in November and for 17 states in December they rose by 9%. Does this imply that demonetisation did not affect production and sales, belying expectation of adverse impact of demonetisation?

 

But what about the anecdotal evidence appearing daily in the media showing a decline in industry after industry – automobiles, jewellery, plantations, construction, real estate, fast-moving consumer goods, health-care and so on. The decline seems to be not only in the unorganised sector but also the organised sector. The unorganised sector has reported massive retrenchment of workers and reports suggest that the unemployed workers are going back to their villages since they are unable to survive in urban areas. This has increased distress in rural areas since these people used to send money home to support their family. Now, they are adding to the burden on the family. There are reports of a sharp rise in employment sought under Mahatma Gandhi National Rural Employment Guarantee Scheme.

 

Who is right?

 

So, where is the catch? Is the official data or the anecdotal evidence daily being reported in the media correct?

 

Demonetisation immediately hit the unorganised sector and later the organised sector. So, in November, the unorganised sector production was hit and it led to unemployment there. This affected demand in the organised sector and led to an increase in inventories as sales fell. Indeed companies like GAIL were reported to be looking for additional warehousing to stock the unsold inventory of some of its products. So, production may not have immediately declined in the organised sector. This would have happened in the latter part of November.

 

The Index of Industrial Production reflects the organised sector performance. It is also often revised as more accurate data comes in with a time lag. Revisions can be large, especially when there is a sharp change in the economy, something that demonetisation triggered. So, we will have to wait for the correct data for November to come. Further, this data may not be representative of what is happening to the industrial sector because it does not directly capture unorganised sector data and that can cause a substantial revision later on.

 

The unorganised sector data are not directly captured in the Index because in many sectors it is assumed to be a proportion of the organised sector production. So, if the organised sector production does not show a fall, the data would not show a decline in the unorganised sector, even if actually there is a decline. So, demonetisation has led to a rupture between the two sectors and the Index does not capture that. Reports from hosiery and machine business in Ludhiana suggest that even in January business was down 50%. This is a much sharper fall than in the organised sectors.

 

The unorganised sector production is about 40% of the total. Assume that the non-agriculture component of this sector declined only by 50% over two months and then recovered to its October level, that is, had zero growth for the balance of the financial year. Further, if the organised sector is assumed to be stagnant rather than showing a decline, the rate of growth of the economy would drop sharply from 7% before November to about 2% for the year as a whole.

 

However, reports suggest that even the organised sector has taken a hit since not only demand from the unorganised sector has declined but even better-off sections of consumers have postponed discretionary demand. Thus, after inventory build-up in November, it would have cut production starting December. This is what the fall in demand for automobiles and other goods suggests. If this sector is assumed to only decline by 10% over the four months from December, the rate of growth of the economy would become zero for the year. If the unorganised sector does not stay flat at the pre-November figure after December but is less depressed (say, 20%), then the rate of growth would turn negative. How negative is hard to estimate at present with limited data available.

 

Correct comparisons

 

Agriculture sowing should not be compared with last year’s sowing but that in 2013—14, when the monsoon was normal. Compared to that, there is no rise. Further, there are reports that there was delay in sowing and applying inputs which would imply a decline in productivity compared to the past.

 

Tax collection could be higher for many reasons, and also perhaps because people used the old notes to pay taxes and arrears, like in the case of property tax. In the next quarter, there could be deceleration; one needs to wait. In the case of VAT, traders showed higher sales to recycle their cash holdings. This would also lead to higher direct tax collections. In brief, while sales may have fallen for different reasons, tax paid may have increased in the quarter for unrelated reasons, but this may not continue in the next quarter.

 

Stock markets initially declined but of late have gone up. The foreign investors have pulled out about Rs 70,000 crore not only due to the uncertainty introduced by demonetisation but also because of the rise in interest rates in the US. So, why has the market risen? It is not because the uncertainty has ended but because the financial institutions have intervened just as they do at the time of the budget to boost sentiment. But how long can they sustain the market in the face of lack of investment by individuals and foreign institutional investors pulling out?

 

Thus, positive data presented by the government needs to be reinterpreted to take demonetisation into account. And it could take a year for official data to reflect reality.

 

Demonetisation was a big shock to the economy and the government itself admitted that there would be pain. Ground reports seem to suggest that the pain persists. Should limited and preliminary data be allowed to trump reality on the ground?

 

Professor Arun Kumar is the author of

The Black Economy in India, published by Penguin (India)

 

 

From E-Group, Banking-News

 

 

Don’t speak, don’t tell

 

Meera Nangia, The Hindu

Published on January 31, 2017

 

 

RBI’s continuance of the cash withdrawal limits, along with the thrust on digital banking, is aimed at averting the possibility of a bank run

 

“Do you fear a run on the banks?” This was the question posed by some MPs in the Parliamentary Standing Committee on Finance to Urjit Patel, Governor, Reserve Bank of India (RBI). Before he could respond, former Prime Minister Manmohan Singh intervened by saying, “No, you don’t have to answer this question.” Had the Governor answered the question, he would probably have listed out scenarios that could result in a bank run. Since the 2008 global financial crises, central bankers are actively engaged in the issue of financial stability and pre-emption of bank runs. The RBI too has been bringing out half-yearly Financial Stability Reports (FSR) since 2010, in which one section is devoted exclusively to the commercial banking sector. The reports contain sophisticated stress tests that gauge the risk to the banking system based on liquidity-cum-insolvency contagion scenarios. These reports are reviewed by a subcommittee of the Financial Stability Development Council that functions under the Finance Ministry.

 

Any professional banker would never deny the possibility of a bank run. Banking is a risky business. A bank lends out money received from its depositors. The presumption is that all depositors will not demand all their money back at the same time. There is liquidity risk if the bank is unable to repay on demand the money it has accepted from the depositors. There is credit risk if the bank is unable to recover its loans.

 

The central bank, as a regulator, ensures that a bank is prepared to meet liquidity and credit risks. The capital to risk (weighted) assets ratio (CRAR) is a safeguard that the capital base of a bank is not eroded. The statutory liquidity ratio (SLR) is a safeguard that a bank is able to return deposits of customers on demand.

 

Credit and liquidity risks

 

In order to further mitigate these risks, the RBI is adopting international standards prescribed by the Basel Committee on Bank Supervision and the Financial Stability Board. It has directed banks to give up forbearance in the classification and reporting of non-performing assets (NPA) from April 1, 2015.

 

In simple terms, this means that as banks stop playing ‘pretend’, the loans that were earlier classified as ‘standard’ assets will now be downgraded, leading to an increase in the loan defaults. Excess provisioning will lead to a decline in profits; in some cases even chipping away bank capital. This declining trend is discernible in the bank performance during 2015-16. The ratio of gross NPAs to gross advances increased sharply from 5.26% to 10.69% for nationalised banks and marginally from 2.10% to 2.83% for private banks from March 2015 to March 2016. According to the December 2016 FSR, as of September 30, 2016, the return on assets for public sector banks was -0.1%, and 1.5% for private sector banks. Similarly, the return on equity for public sector banks was -1.5%, and 13.4% for private sector banks.

 

Credit risk covers possibilities of defaults by individual borrowers and borrower groups. For example, if because of borrower default, one bank fails, it is likely to trigger a domino effect across banks — since banks have financial linkages with each other besides exposure to the same big borrower groups. However, a bank with adequate CRAR would be able to withstand this credit shock.

 

The December 2016 FSR reveals interesting results of stress tests conducted using 10 different scenarios based on the information of group borrowers. The tests show that CRAR would fall below 9% for two banks if there is default of the top 1 borrower group; five banks if the top two borrower groups default; 12 banks if the top five borrower groups default and as many as 22 banks if the 10 top borrower groups default.

 

A typical liquidity risk scenario covers unexpected deposit withdrawals (10% withdrawal in 10 days or a 15% withdrawal in 5 days) in banks on account of loss of depositor confidence. The December 2016 FSR analyses the liquidity risk to the banking system on the assumption of increased withdrawals of the uninsured 10% deposits (presently these are 69% of total deposits) and unutilised portions of 75% sanctioned working capital limits. The tests show that only 49 out of the 60 banks in the sample will remain resilient (by using their SLR and High Quality Liquid Assets) in such a scenario. In case of incremental shocks in an extreme crises, banks will be able to withstand withdrawals of 15% of deposits using their remaining SLR investments. In other words, 11 out of the 60 banks will fail the liquidity test! The report does not disclose the names of these 11 banks.

 

Banks on the precipice

 

Incidentally, Viral Acharya, the new RBI Deputy Governor, in a study titled ‘State intervention in banking: the relative health of Indian public sector and private sector banks’, concludes that the Indian banking system needs radical reform and recommends repealing the SBI Act, SBI (Subsidiary Banks) Act, and Nationalisation Acts 1970, 1980. One of the scenarios studied assumes the absence of regulatory forbearance on restructured assets (as directed by the RBI with effect from April 1, 2015). The results show that in such a scenario the tier I capital of all public sector banks slips below the mandatory 6.5% level and four public sector banks become insolvent.

 

As anyone familiar with quantitative tests would know that the stress tests are based on certain assumptions and not foolproof in their replication of reality. However, these tests do indicate that the banking system is apparently not even prepared for the withdrawal of 10% of depositors funds. Perhaps, a more appropriate question for the RBI Governor would have been, “How are you planning to prevent a bank run?”

 

It is therefore not surprising that the RBI is continuing with its cash withdrawal limit of Rs 24,000 and managing perceptions by allowing minor concessions to current account holders (while ATMs continue to run dry). This, along with the thrust on digital banking, is ensuring that a large portion of the uninsured deposits remains within the banking system, thus precluding the possibility of a bank run.

 

Meera Nangia is an Associate Professor in commerce at the University of Delhi. Her doctorate was on the Indian banking system

 

From E-Group, Banking-News

 

 

India Post Payments Bank commences

operation: Here's all you need to know

 

Avneet Kaur

The Business Today

Published on January 31, 2017

 

 

New Delhi, January 31: The Reserve Bank of India (RBI) recently gave its nod to India Post Payments Bank (IPPB) to commence operations. IPPB became operational from 30 January 2017. It is the third entity after Airtel and Paytm payment bank, to get the central bank's approval and the second after Airtel Payment Bank to commence operations.

 

IPPB stated that it will offer 4.5 per cent of interest on deposits up to Rs 25,000 and 5.0 per cent interest on deposits up to Rs 50,000. For deposits between Rs 50,000 to one lakh rupees, the bank will offer an interest rate of 5.5 per cent.

 

Apart from offering savings account and current account deposits, IPPB will provide digitally-enabled payments and remittance services of all kinds between entities and individuals. It will also provide access to third-party financial services such as insurance, mutual funds, pension, credit products and forex in partnership with insurance companies, mutual fund houses, pension providers, banks and international money transfer.

 

IPPB will use postmen to help deliver banking services and the huge network of post offices will provide enough muscle to the new player. IPPB also plans to offer services through internet and mobile banking as well as through pre-paid instruments such as mobile wallets, debit cards, ATMs, point of sale and mobile point of sale terminals. The bank will train postmen to enhance their soft skills, so as to efficiently carry out banking operations.

 

The Department of Posts, launched two branches of the IPPB in Raipur and Ranchi on 30th January, 2017. "By September 30, 2017, the wide network of post offices will enable us to make banking at doorstep a reality," Finance Minister Arun Jaitley said, while announcing the launch of the two branches. The bank is likely to launch operations in these two branches on a pilot basis.

 

He also said that that payment banks will have a 'multiplier impact' on banking system and financial inclusion, and will provide doorstep banking to people in remote areas at lower cost and compete with traditional banks in the future.  He added that as all post office branches will get converted into banks, the banking system of the country will gain a lot of strength.

 

Around 1,000 ATMs that are currently run by India Post will be transferred to IPPB, as per RBI guidelines. IPPB plans to open 650 branches across several districts by 30 September 2017. The bank shall operate as a public limited company under the department of posts with 100 per cent equity from the government. As per CMIE, the Government of India invested Rs 800 crore on this bank, of which Rs 275 crore was already released.

 

The idea of setting up payments bank came to RBI in November, 2014. The objective of RBI to set up payment banks was to promote financial inclusion (banking the unbanked areas). These banks shall not offer loans and will be allowed to accept deposits up to one lakh rupees. However, they can offer several other facilities that are already provided by full-fledged banks, which shall be of immense help in taking banking services across the country, especially in remote areas.

 

Earlier this month, Airtel Payments Bank launched nationwide operations by offering 7.25 per cent interest on savings account, slightly higher than seven per cent offered by State Bank of India. Paytm, too, is expected to start operations as a payment bank next month.

 

 

From E-Group, Banking-News

 

 

Cheaper commercial papers might be

hurting Indian banks' loan business

 

Gayatri Nayak & Saikat Das

The Economic Times

Published on February 1, 2017

 

 

Mumbai, January 31: Banks are taking it on their chin from many sides - the government, the regulator, customers and even from competitors in the market. While many are grumbling that there is no credit demand, banks find the market is slowly slipping from under their hands thanks to them being uncompetitive, which is partly of their own making and partly due to regulatory obstacles.

 

Loan demand has fallen to nearly a six-decade low as private investment has collapsed after the binge that created excess capacity. Banks find their prime corporate clients moving away from the banking system as alternate sources like borrowing from mutual funds have become more beneficial for companies.

 

Banks may be willing to offer competitive rates to lure customers, but they have been placed at a disadvantage in relation to others like mutual funds as the Reserve Bank of India bars banks from lending at rates lower than the Marginal Cost of Lending Rate (MCLR), which is calculated based on the formula provided by the central bank.

 

Though MCLR may have avoided retail borrowers subsiding rich companies, it has also robbed banks of their marquee clients.

 

"A top-rated client won't come to you if it is treated almost at par with others," said Jayesh Mehta, MD & country treasurer of Bank of America. "Banks tend to lose good quality credit to other debt market instruments if they are not allowed to determine different lending rates based on individual clients with varying creditworthiness."

 

Indian firms have been raising resources directly from the market by issuing commercial papers (CPs) bypassing banks where funds are costlier.

 

The total stock of commercial papers, a fixed income instrument with a tenor between 7 days to a year, is at Rs 4.06 lakh crore as on January 15, 2017, up from Rs 2.6 lakh crore on March 31, 2016, amounting to a rise of Rs 1.46 lakh crore so far this fiscal year. This is slightly lower than the overall bank credit growth of Rs 1.54 lakh crore in the same period.

 

Notably, bank credit also includes retail and loans to agriculture, a borrower segment with no direct access to market.

 

The market has reported gross CP issuances of over Rs 55,000 crore a fortnight since the beginning of the current fiscal beginning April 2016.

 

The lowest rate at which a firm has raised CPs is 6.15%, according to the latest Reserve Bank data. This is almost 160 basis points lower than the lowest MCLR offered by any bank. A basis point is 0.01 percentage point.

 

"In the current liquidity environment, corporates find it increasingly cost efficient to replace bank working capital loans with CPs," said V Srinivasan, deputy managing director at Axis Bank. Reliance Jio raised funds at about 6.25% recently with maturity due around March. In contrast, the MCLR of SBI is at 7.85-7.90% with one to threemonth maturities.

 

Top-rated PSU PowerGrid Corporation paid 6.40% to raise three-month funds of `500-1,000 crore via CPs in the past fortnight, dealers said. "The CP market still offers cheaper short-term rates compared to banks despite a series of rate cuts by lenders, which also need to protect their margins," said Lakshmi Iyer, chief investment officer (debt) and head (products) at Kotak Mahindra Mutual Fund.

 

"Corporates could gain at least 100-150 basis points by tapping the CP market." The lowest CP rate has fallen by 120 bps since the beginning of the fiscal, at the same pace as the lowest MCLR, an analysis of RBI data shows. "Banks may have cut rates but they shall take time to match market rates," said Ajay Manglunia, executive VP (fixed income) at Edelweiss Financial Services.

 

The subscriber base of CPs is wider as besides the banks, mutual funds and in

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