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Banking News 18.03.2017

SBI may introduce variable pay structure


Anup Roy

The Business Standard

Published on March 18, 2017



Unions say it might be difficult for

them to stop this move after merger


Mumbai, March 17:  State Bank of India (SBI) might revive an old salary structure proposal that the bank always wanted to implement but could not because of union pressure. The structure entails that the salaries of officers in scale four to seven be divided into fixed and variable components. Fixed will club basic, dearness allowance, house rent allowance and the rest would be performance linked variable.


The new structure, if adopted, would be applicable for the employees of associate banks, too, once they become part of SBI after April 1. According to a senior SBI official, performing employees want a variable pay structure as their hard work would not be rewarded otherwise. The new wage structure need not mean pay would be less than the current package, but there would be scope for an upside through this structure, the official said.


SBI has been trying to introduce this for some time and in wage negotiations, the bank has time and again rooted for it. But unions have scuttled the proposal. This time, however, the case could be different. The unions said a variable structure seemed inevitable now.


“It doesn’t look like we would be able to stop this structure after merger. The bank management will force officers to sign the deal and will carve out a different structure than the industry,” said a senior union leader.


Associate banks have already offered employees a voluntary retirement scheme (VRS). The scheme is expected to be widely accepted. The scheme is for employees who have completed 20 years of service or have five years of service left. Unions have asked employees to reject the offer. But it would be difficult to convince the employees, conceded unions.


This is because a number of branches would have to be closed or re-designated after the merger and existing staff could get transfers arbitrarily, said bank unions.


As of March 2016, SBI had an employee strength of 207,739. State Bank of Travancore had 14,892 employees, State Bank of Bikaner and Jaipur had 13,529, State Bank of Mysore had 10,650, State Bank of Hyderabad had 17,414 and State Bank of Patiala had 11,175. The last two are not listed. “How the associate bank employees would be treated largely depends on the success of the VRS scheme. If it is a failure, the employees could get rough treatment,” said a senior official of an associate bank.


If the previous merger is any indication, associate bank employees could expect some discrimination as a given. Predictably, unions are opposing the move and the agitation might intensify soon. After the merger with State Bank of Saurashtra and State Bank of Indore, the SBI management reduced seniority of the officers from the merged entities.


Seniority of scale one officers of State Bank of Saurashtra was reduced by a year, scale two officers by two years and scale three officers by three years. A case in this regard is going on. Perhaps to counter the loss of seniority problem, associate banks’ managements have given aggressive promotions to employees since talks of the merger started firming up, said sources. This has not gone down well with SBI employees.


SBI is currently offering a smart package for its officers in scales one to three. The package entails monetising all small perks. For scale one officers, the monetisation comes at Rs 1.54 lakh a year. For scale two, it is Rs.2.24 lakh and for scale three it around Rs.2.5 lakh. Unions had advised the employees to reject the offer.



From E-Group, Banking-News



Currency in circulation 30% short of

pre-demonetisation levels, shows RBI data


The Mint

Published on March 18, 2017



Currency in circulation in India at Rs12.45 trillion as on 10 March, which is 30% less than the 4 Nov 2016 figure of Rs17.97 trillion


New Delhi, March 17: Currency in circulation in India stood at Rs12.45 trillion as on 10 March, showed data from the Reserve Bank of India. Although the pace of remonetisation was quicker in the week to 10 March compared to the two previous weeks, currency in circulation is still at about 70% of pre-demonetisation levels.


On 4 November 2016, currency with the public was Rs 17.97 trillion. It had dropped to a low of Rs8.98 trillion as on 6 January following the government’s demonetisation move on 8 November— invalidating Rs1,000 and Rs500 notes which amounted to around 86% of the total currency in circulation by value.


The demonetisation move led to severe cash crunch across the country, leading to a spike in the adoption of e-wallets and other modes of electronic transaction.


All cash withdrawal limits removed by RBI


The data showed that there was an increase of Rs47,410 crore in currency with the public during the week ended 10 March, compared to an average of Rs33,713 crore in the previous three weeks.


A week ago, while responding to a question in Parliament, finance minister Arun Jaitely said the RBI had been systematically injecting new currency notes of Rs 500 and Rs 2,000 denominations into the market since 8 November, the Press Trust of India reported. He had said then that around Rs12 trillion of new notes are currently in circulation, the news agency reported.


The Reserve Bank of India itself has not released any data on the number of new notes introduced since 7 December. On 18 January, central bank governor Urjit Patel told a parliamentary standing committee that Rs9.2 trillion worth of currency had been injected into the economy after the 8 November ban. So far, RBI has also not disclosed how much of old currency (in invalidated notes) had been returned to the central bank by 31 December.


To be sure, with the government’s current focus on a less-cash economy, currency in circulation might not reach 100% of pre-demonetisation levels. Analysts such as Soumya Kanti Ghosh, chief economist at State Bank of India, believe that cash with public may be capped at 10% of economic output, which works out to roughly Rs 15 trillion. That still is about Rs 2.5 trillion more than the latest data and would be reached only after 4-5 weeks at the current remonetisation pace.


Separately, earlier this week, RBI lifted all the limits on cash withdrawal from customer bank accounts that were first put in place on 8 November.



From E-Group, Banking-News



Repair rural household economy

to sustain growth: SBI Chairman


The Times of India

Published on March 18, 2017



Mumbai, March 17 (PTI):  Calling for focussing on farm sector growth to sustain higher overall growth, the State Bank of India on Friday said revival in credit demand will stay low until the balance sheets of the rural households are repaired.


Banks are facing two challenges-growth capital and asset quality concerns. The asset quality concerns are due to lack of demand and loans given during the boom years and we don't see both improving in the medium term. Therefore, the need for focusing on farm sector growth," SBI chairman Arundhati Bhattacharya told a CII event.


On overall credit growth, which averaged at a multi- decadal low of 5 percent so far, the SBI chief said she does not see a revival in the near-term.


Agriculture sector would need added thrust to drive the economy as it has been badly hit by two successive bad monsoons, she noted.


The tepid demand in rural segment is reflected in low growth of SBI's agriculture loan book. It grew by just 3.27 per cent to Rs 1,25,068 crore in the 12 months to December 2016. The incidence of bad loans was also on higher side with gross non-performing assets at 5.93 per cent as of December 2016, she added.


Referring to the impact of demonetisation on farming sector, the SBI chief said those segments like vegetable growers, who could not store produce and had to sell at cheap rates, were hit badly. Similarly, luxury sector has also been hit badly. But the cotton and cane farmers could manage the situation by bartering.


She also said during 50-day period of note-ban, the bank opened as many as 89 lakh of Jan Dhan accounts, taking the overall number of such accounts to over 11 crore now, which together have over Rs 16,000 crore in deposits now. On average every such account has deposit of four digits, she said.



From E-Group, Banking-News



NPA crackdown: Government asks PSU

banks to do forensic audit of defaulters


Sunny Verma

The Indian Express

Published on March 18, 2017



A roadmap is being worked out to deal with

the issue of NPAs in near and medium term.


New Delhi, March 17: the government and the Reserve Bank of India are close to finalising a number of changes in rules to reduce the proportion of bad loans in the banking sector, a prerequisite to kick-starting the investment cycle and pushing growth. Finance ministry sources told The Indian Express that the measures being finalised include tweaking the existing Joint Lenders Forum for faster resolution of NPAs (non-performing assets), a scheme for one-time settlement of bad debts and penal action for defaulters who have siphoned off loans taken for business purposes. Sources said that state-owned banks have been asked to conduct a forensic audit of top 50 loan defaulters to separate genuine cases of business failure from those where funds have been diverted.


They said that Union Finance Minister Arun Jaitley held a meeting with top RBI officials and bankers last week, and a roadmap is being worked out to deal with the issue of NPAs in near and medium term.


While the government is unlikely to set up a state-owned Bad Bank to take over NPAs from state-owned banks in the near term, the Department of Financial Services has been asked to review the existing framework of private asset reconstruction companies over the next few months and submit a report. A large-scale auction of bad debts is also being looked into by the government, said sources. Changes have been proposed to the Joint Lenders’ Forum (JLF), which deals with large NPA cases wherein multiple banks are lenders to a single company.


As per the existing rules, if a loan restructuring package is approved by 60 per cent of lenders by number and by 75 per cent of lenders by value, the other banks in the JLF have to go along with it. The approval percentages are now expected to be reduced to ensure a faster decision on restructuring of loans under JLF. As per the changes being discussed, the RBI may allow banks to go ahead with a decision on restructuring if just the top 4-5 lenders were to reach an agreement.


The government will also encourage banks to go for one-time settlement of loans with a haircut, and this process will be overseen by an oversight committee. The settlement will be done in a manner that it gives comfort to bankers against any regulatory backlash in future, sources said. The proportion of bad loans has been rising over the years, despite the government having announced the Indradhanush plan of reforms for the state-owned banks.


Public sector banks’ NPAs surged by over Rs 1 lakh crore during the April-December period of 2016-17. Gross NPAs in the first nine months of the current fiscal rose to Rs 6.06 lakh crore by December 31, 2016, from Rs 5.02 lakh crore during the entire year of 2015-16. The gross NPAs were Rs 2.67 lakh crore at the end of 2014-15. The amount of total stressed assets, which comprises NPAs and restructured loans, is much higher.


Top officials have acknowledged the need to resolve bad debts, in order to push economic growth and reinvigorate the investment cycle.


During a meeting of the Parliamentary Consultative Committee Wednesday, Jaitley had said that dealing with bank NPAs is a challenging task and that the government was considering several oversight committees to help with resolution of bad debts.


The core problem of bad debts is with very large corporates, predominantly in the steel, power, infrastructure and textile sectors, Jaitley said.


Members of the consultative committee suggested several measures to deal with the issue such as initiating criminal action against the big wilful defaulters, creating a Special Bank where NPAs of all the state-owned banks are transferred, allowing the concerned state government to take part in the auction of stressed assets, fixing the gross NPA in the range of 9-10 per cent and not counting restructured assets as NPAs.


One of the members said that the chief vigilance officer of the public sector bank would be made a part of the credit committee of the bank, and that its board should first take a call about the decisions being taken by their officials, rather than investigating agencies directly acting on the basis of their own information.


Some members suggested that the government must establish a bad bank or a Public Sector Asset Rehabilitation Agency (PARA), which should only consider those NPAs where sector-specific reforms do not work. The Economic Survey for 2016-17 has also suggested the idea of PARA to resolve the problem of bad loans.


On the issue of setting-up a “bad bank”, Jaitley said that several possible alternatives exist, and the issue is being debated on public platforms.



 From E-Group, Banking-News



Large wilful defaulters face criminal action


Dilasha Seth

The Business Standard

Published on March 18, 2017



PMO, FinMin, RBI also plan one-time

settlement scheme for some sectors


New Delhi, March 17: The government, along with the Reserve Bank of India (RBI), is mulling a multi-pronged strategy — initiating criminal action against wilful, big defaulters and a one-time settlement for certain sectors — to tackle the mess of toxic debts in public sector banks. 


The strategy will also involve encouraging banks to take a haircut, setting up more oversight panels and reworking the joint lenders’ forum (JLF). Ways to initiate a push to nab large, wilful loan defaulters and resolving rising non-performing assets (NPAs) were discussed in a slew of meetings.



From E-Group, Banking-News



Arundhati Bhattacharya served breach of 
privilege notice over farm loan waiver comment


The Press Trust of India

Published on March 17, 2017



Mumbai, March 17 (PTI):  A Congress leader in Maharashtra has submitted a breach of privilege notice against State Bank of India (SBI) chairman Arundhati Bhattacharya for “insulting farmers and the House” through her remarks on farm loan waiver.


The leader of opposition in the Maharashtra assembly, Radhakrishna Vikhe Patil, said he has submitted the notice to speaker Haribhau Bagde as “Bhattacharya did not apologise for her remarks despite the Congress’ demand”.


The senior Congress leader said he has described Bhattacharya’s comments as “insulting to farmers, elected representatives and the House” in the notice. The opposition Congress and NCP have been demanding a complete farm loan waiver for farmers by raising the issue in the legislature.


The SBI chief had recently said that farm loan waivers upset credit discipline. “We feel that in case of a (farm) loan waiver, there is always a fall in credit discipline because the people who get the waiver have expectations of future waivers as well. Such future loans often remain unpaid,” Bhattacharya had said on sidelines of an event here on Wednesday.


“Bhattacharya is not a policymaker and she cannot take a decision regarding loan waivers to farmers. She had no right to make such comments,” Patil said Friday, adding that the SBI chief’s remarks were “violation of the rights of the legislature which make laws”.


The notice by the Congress did not come up in the Maharashtra assembly due to repeated disruptions over the demand for the farm loan waiver. The state assembly witnessed four adjournments amid uproar, before it was adjourned for the day.



From E-Group, Banking-News



Lower MDR cap likely to hit e-payments

business: Payments Council of India


The Economic Times

Published on March 17, 2017



Mumbai, March 17: The Payment Council of India (PCI), the representative body of non-banking merchant aggregators and acquirers, has come out against the Reserve Bank’s proposal to reduce the merchant discount rate (MDR) on debit card transactions.


“The MDR should be left to be decided by the market forces for sustainable growth. The current MDRs are already at a very low level and any further reduction of MDR will discourage future investment in the industry and potentially impact the growth of digital payments industry,” PCI said. The Reserve Bank of India had recently issued a draft circular aiming at rationalising MDR on debit card transactions.


The latest changes proposed by the Reserve Bank of India on digital payments will make the payments business unviable and kill innovation, said Payments Council of India (PCI), the industry body of digital payment companies in the country.


In a typical digital transaction, there are four entities, one being the issuer bank, which has issued the card, the acquiring bank which has acquired the merchant, the payment network companies such as Visa, MasterCard, and finally, the service provider. The MDR is the charge for facilitating a digital transaction and is to be split among all stakeholders.


Each of them adds value to the digital payment ecosystem and there is a cost attached to the value added, it said. “The acquirers have been investing in giving small merchants access to digital payments. These non-banking payment entities take the responsibility of not only providing the infrastructure but also managing merchant’s evaluation, servicing, risk management and education, and MDR is the only source of revenue for these payment companies,” PCI said.


The charges levied on digital payments, referred to as MDR in industry parlance, is to be borne by the merchant and shared by all the four players, which currently is around 1% of the amount being paid. RBI in its latest guidelines suggested reducing the charges. It has suggested a lesser MDR for merchants with an annual turnover of less than Rs 20 lakh per annum, special category merchants such as hospitals, toll booths and government entities.


The RBI, in its draft circular, shared that the recent developments post demonetisation have led to smaller merchants taking the first step towards acceptance of digital payments but the momentum of e-payments acceptance needs to be maintained. “Over 10 lakh merchants have been acquired and are being serviced regularly by the non-banking aggregators and acquirers,” the circular said.


The draft circular said that small merchants and special category of merchants may not pay more than 0.40 per cent of the transaction value towards physical PoS (Point of Sale) infrastructure and 0.30 per cent towards digital PoS. It further said that all other categories of merchants (apart from the government) may not pay more than 0.95 per cent and 0.85 per cent of transaction value for physical and digital PoS. Currently, MDR charges on debit card transactions are below 0.75 per cent for transactions less than Rs 2,000 and less than 1 per cent for transactions above Rs 2,000.



From E-Group, Banking-News



Corporate debt up to 55% of GDP

from 49% a decade ago: RBI


Rachel Chitra

The Times of India

Published on March 18, 2017



Chennai, March 17: Corporate debt in emerging market economies including India, which used to average at 49% GDP nearly a decade ago, has now risen to 55% of GDP, said a latest RBI report.


India stands at the seventh place, when measuring its government debt to GDP ratio far behind countries like China, Indonesia and Malaysia. The report also sheds light on how the system could be setting itself up for more cases of wilful defaulters like the now defunct Kingfisher Airlines. In a study of firms with more than $1 billion assets over 19 years, it was found that bigger corporates tend to be more leveraged post a crisis, compared to smaller firms.


Why it matters? In December, the Reserve Bank of India (RBI), in its fifth bi-monthly policy statement held rates for the first time in 2016 given the excess liquidity entering the system post-demonetisation.


From some quarters the low-interest rate regime was hailed as the right time for pushing more loans to consumers, but a latest RBI report cautions against such a move. Titled, 'Corporate Leverage in EMEs: Has the Global Financial Crisis Changed the Determinants?' the report draws parallels to the 2008 financial crisis.


"The post crisis period was characterised by abundant global liquidity and search for yield, which possibly resulted in lenient credit-score evaluations and leverage built-up. It is also possible that these firms with low profit took advantage of their possible future upturn and borrowed cheaply from debt markets," said the report.


Given the RBI's successive interest rates and current neutral stance, it is possible that we are on the cusp of a change in the policy rate cycle. And its at this juncture, the reports warns that lenders need to exercise more prudence. "This apparently innocuous outcomes of quantitative easing, in absence of a concomitant increase in investment levels, disguises a possibility of financial distress as it points towards possible non-productive use of these borrowed funds," said the report, outlining how loans given in haste could turn toxic in time.


"Moreover, the result implies that the prolonged low interest rate regime as a pull factor behind the build-up of corporate leverage which suggests the possibility that leveraged assets may turn toxic with the change in policy rate cycle," added the report.


The RBI report studied the economies of 10 emerging countries, including Brazil, China, India, Russia and South Africa. Post-demonetisation, analysts feared higher loan defaults from MSMEs more than large corporates. But the report's findings show that its not MSMEs but large corporates, who are more likely to default after a crisis.


"The coefficient of profitability is significant only for large firms in the post-crisis period; larger firms, which in normal circumstances have access to greater retained earnings, find themselves in an environment characterised by less retained earnings but low cost of external funding and availability of abundant liquidity. Our results suggest that these pull and push factors may have together resulted in the higher leverage of large corporates," said the report.


Another counterpoint to mainstream views the report makes is that it lends credence to corporates who tend to shift blame and say, "It's not us. It's the economy." "Don't blame only the firms for defaults, the economy paper counters the mainstream view that firm level factors are of pivotal importance as determinants of corporate leverage and presents evidence that the changed macroeconomic scenario led to the sharp rise in corporate leverage in EMEs in the post-crisis period," said the report.



From E-Group, Banking-News



Govt to try out plastic currency


Arup Roychoudhury

The Business Standard

Published on March 18, 2017



New Delhi, March 17: The government will conduct field trial with plastic banknotes at five locations of the country, Minister of State for Finance Arjun Meghwal said in a written reply to the Lok Sabha on Friday.


The reason for such a move is that plastic banknotes are expected to last longer than cotton substrate based notes, Meghwal said.


“It has been decided to conduct a field trial with plastic banknotes at five locations of the country. Approval for procurement of plastic substrate and printing of banknotes of Rs 10 denomination on plastic banknote substrates has been conveyed to the Reserve Bank of India (RBI),” Meghwal said according to an official statement by the finance ministry.


“Over the years, central banks across the world have been exploring different solutions for extending the lifecycle of banknotes.


These include introduction of plastic banknotes and other developments in banknote substrates for enhancing durability including use of natural fibre blends, varnish of banknotes etc,” the statement said.


Such a move comes even as banks and the RBI deal with multiple complaints of fake Rs 500 and Rs 2,000 notes being dispensed by ATMs. There have also been cases of notes being dispensed without requisite features.



From E-Group, Banking-News



Bank wallets growing faster than e-wallets


Rachel Chitra

The Times of India

Published on March 18, 2017



Chennai, March 17: In the bank versus e-wallets sweepstakes, the banks have now gained lost ground. As of February, the number of transactions put across through e-wallets have dropped 10% month on month in February while banks have gained 20% in the same period, over a larger base.


Reserve Bank of India data also shows that the 8 e-wallets, including Paytm, Mobikwik, Freecharge, saw a loss in their marketshare post November 8.


E-wallets, which had a market share of 34% of total PPI transactions (169.32 million) in December, saw a dip to 33% in January and then a sharp fall to 29% in February.


RBI data also showed that e-wallets saw maximum growth of 50% to 88 million transactions in the month of December, and then fell 1% in January, before falling another 10% in February to 78 million.


Bank wallets, pre-paid cards and vouchers however saw a growth of 57% in December to 173 million and post-demonetisation saw growth of 20% to 208.45 million in January.


So why are banks gaining an edge? "Banks have a captive customer base - they offer multiple products and payments is one among a vast number of offerings. E-wallets are transactional where float and transaction fee are their only revenue model, so there could be some s

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