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Banking News 10.04.2017

Cash in use 26% less than November 8

levels, withdrawals fall for fourth week


Gayatri Nayak

The Economic Times

Published on April 10, 2017



Mumbai, April 10: Cash levels in the economy remained at least 26% less than what they were before demonetisation as policy makers are keeping a close watch on the new currency that’s flooding the system.


Weekly cash withdrawals too have slowed down after the caps on withdrawals were lifted early March. The surge in digital payments — whether government-driven UPI, or private ones — is also helping people withdraw less cash.


Total cash and currency in the system amounted to Rs 13.32 lakh crore as of March 31, according to the latest Reserve Bank of India data.


At current levels, the cash and currency in circulation is 74% of the levels in early November 2016, or 26% less than early November 2016, when the government banned high value Rs 500 and Rs 1,000 notes. Then, the currency in circulation was Rs 17.97 lakh crore.


Weekly cash withdrawals too have dipped for the fourth consecutive week from Rs 47,400 crore in the week ended March 10 to Rs 22,194 crore in the week ended March 31.


It may be recalled that restrictions on daily withdrawals were lifted and the pre-ban limits were restored on March 13.


A shift to digital modes of transfer is largely helping the use of less cash. The government has also introduced a number new digital payment and settlement channels: its United Payments Interface (UPI), an interbank settlement platform, has proved to be extremely useful even in settling small-value transactions.


The number of transactions under UPI has jumped from 42 lakh in February to 49 lakh in March with value of transactions rising from Rs 1,900 crore to Rs 1,970 crore during the period. Going by international benchmarks, the demonetisation initiatives seem to have helped do away with excess cash in the system.


India’s cash-to-GDP ratio was over 13% before the November 2016 note ban, which is now estimated to be at around 11% of the GDP. “Currency in circulation may settle at around 10% to 10.5% of the GDP which is in line with international standards,” SK Ghosh, group chief economic advisor, State Bank of India, told ET.


The demonetisation exercise is expected to permanently extinguish about Rs 1.7 lakh crore worth cash from the system translating into liquidity, according to a report by SBI’s research team. This would be equivalent to about 1.1% of GDP— this, in the process, may add to the Reserve Bank of India’s challenge of liquidity management.



From E-Group, Banking-News



Govt asks public sector banks to finalise

next wage revision before 1 November


The Mint

Published on April 10, 2017



In a communication to CEOs and MDs of the state-owned banks, the finance ministry advised them to initiate the steps for smooth conclusion of next wage revision


New Delhi, April 9 (PTI): The finance ministry has asked the heads of public sector banks (PSBs) to finalise the modalities for timely implementation of the next pay revision from November.


There are 21 public sector banks, post merger of six lenders with State Bank of India (SBI), in the country. They together employ about 8 lakh people.


In a communication to CEOs and MDs of the state-owned banks, the ministry advised them to initiate the steps for smooth conclusion of next wage revision of the employee within the time-frame. “However, it is seen that several banks are yet to proceed in the matter,” it said, requesting the PSBs to “look into the matter and conclude the next wage revision prior to the effective date of 1 November 2017”.


The wage revision of public sector bank employees takes place every five year. The last revision was effected in November 2012. In the last wage negotiation between PSU banks employee unions and bank management, Indian Banks’ Association (IBA) had settled at 15% hike. Recently, Banks Board Bureau chief Vinod Rai had made a case that the compensation package across the board of public sector banks needs to be improved.


“Maybe, we are not able to do much with the fixed part of compensation package but (with) variable part we are hopeful that in the next financial year (2017-18), we will be able to introduce a far more attractive package which do have bonuses, ESOPs and other performance linked incentives as part of the package,” he had said. Rai has also suggested that managing directors of the public sector banks should be appointed for minimum 6 years.



From E-Group, Banking-News



Banks get time till June 30 to

obtain PAN from account holders


The Press Trust of India

Published on April 7, 2017



New Delhi, April 7 (PTI): The Tax Department has given banks three more months till June 30 to obtain permanent account number (PAN) or Form—60 from all account holders as it looks to tighten the noose around evaders.


Though the deadline for getting the PAN or Form 60 (if PAN is not available) by banks ended on February 28, the tax department on April 5 notified the extension of the time till June 30.


In the notification, the Income Tax Department said that in Income—Tax Rules 114B, in the fourth proviso, “for the figures, letters and words ‘28th day of February’ the figures, letters and words ‘30th day of June’ shall be substituted.”


Rule 114B lists various transactions for which quoting PAN is mandatory. The tax department had in January asked banks, post offices and cooperative banks to document PAN or declaration of Form 60 received from account holders and maintain all records for transactions under Rule 114B of I—T Act.


It had said that persons who have not quoted PAN, or did not furnish Form 60 at the time of opening account, will have to provide the same by February 28. Form 60 is a declaration form filed by an individual without PAN.


Following the demonetisation move effective November 9, the tax department had asked banks and post offices to report to it all deposits above Rs 2.5 lakh in savings accounts and more than Rs 12.50 lakh in current accounts made between November 10 and December 30, 2016.


Also, cash deposits exceeding Rs 50,000 in a single day had to be reported. With an estimated Rs 15 lakh crore in junked currency notes coming back into the banking system post demonetisation, the tax department has started analysing the bank deposit trends.



From E-Group, Banking-News



State Bank of India to enter Digital

Fintech Era with New Brand Identity


The BusinessWorld

Published on April 8, 2017



SBI: Now instantly new, yet instantly recognisable, is

looking hard at entering the digital fintech age of banking


Mumbai, April 8:  State Bank of India, the nation’s largest banking and financial services provider, unveiled on 7th April, 2017, its new brand identity, designed to position SBI as a modern, progressive bank, ready to meet the financial needs of all Indians.


Arundhati Bhattacharya, chairman of SBI, stated, “In recent years, SBI has accelerated its efforts towards developing digital products and services. Hence, we felt the need to position SBI as a contemporary brand, ready to connect with a diverse audience in a world that is rapidly going digital.”


SBI top management and the SBI brand marketing team, led by Dinesh Menon, CMO-SBI, collaborated with the founding partners of Design Stack, Priyanka Bhasin and Anoop Patnaik, to develop the new identity. The challenge was to arrive at a fresh perspective, while retaining the brand’s iconic stature. Strategically, it needed to be ‘Instantly new, yet instantly recognisable.’


About the new identity


While the legendary SBI monogram has been the de-facto symbol of State Bank of India, combining it with the abbreviated SBI word mark was pivotal to the new identity. It made the brand more concise, modern and approachable, infusing new energy, while retaining its core values.


The original iconic monogram was retained, and refined for greater clarity and ease of use. It was opened up for more breathing space, showing the bank to be more approachable.


For the word mark itself (SBI), a modern Sans Serif typeface was further adapted to create a sense of weight and heighten the institutional feel. It is a sturdy, geometric and highly legible typeface. To connect to the monogram, a gap was introduced in the letterform B in the word mark, just as the monogram itself. This creates a visual hook and also sets it apart.


The family of colours have been expanded for scale and play. The iconic SBI Blue was refreshed to make it more approachable. The deep inky blue symbolises trust and integrity. A youthful yellow has been introduced for contrast.


The signature graphic, the Arc, will be used across every touch point of the brand, from media communications, to signage, to marketing and advertising across platforms, to reinforce the brand.


Dinesh Menon, CMO of SBI, said, “The new identity symbolises the forward movement of SBI into a modern India, ready to service a new generation of consumers with new services with a renewed vibrancy”.


“We followed a rigorous design process to make sure the new brand identity is optimised and consistent across all its touch points, one of the major challenges the brand has faced over the years,” said Priyanka Bhasin, founder of Design Stack.


“Considering the stature of SBI, the idea was to create an identity that was concise and modern, but also retained the established and immediate recall that the logo enjoys. The SBI logo was created in 1971 at the National Institute of Design. As NID alumni, this project is close to us,” said Anoop Patnaik, the other founder of Design Stack.


Design Stack


Branding and design agency Design Stack is based out of Mumbai and services clients across the India. Founded in 2008 by two NID designers, Priyanka Bhasin and Anoop Patnaik, their highly specialised team works on a wide variety of projects and clients.



From E-Group, Banking-News



We need a bank just for long-term credit


C Rangarajan and S Sridhar

The Business Line

Published on April 10, 2017



Constrained by NPAs, banks are unable to extend long-term loans.

It now seems that shutting pre-reform DFIs was premature


It is now well recognised that one of the critical issues facing the economy is the stressed loan assets of the banking system. As per available data, the gross non performing loans (NPAs) of all commercial banks amounted to Rs. 6.5 lakh crore; that is 8.6 per cent of their aggregate loan book as at end of June 2016. The corresponding figures for the public sector banks are even more alarming. ‘Stressed’ assets i.e. NPAs plus restructured assets shown as standard in the books of the banks, stand at approximately Rs. 12 lakh crore i.e. 12.1 per cent of outstanding loans and advances. Some analysts have estimated total stressed assets ratio at over 16 per cent.


A fall out of the stressed assets situation is the decline in fresh lending. Bank lending to the corporate sector has contracted in absolute terms during 2016-17 by 5.2 per cent over the previous year as against a growth of 2.8 per cent in 2015-16.


The decline in credit growth has affected both short term and long term credit. This may partly explain the steep fall in corporate investment, which at the height of our high growth period stood at 14 per cent of GDP.


The debate on the NPA issue has largely focused on resolving the stock of NPAs. This is no doubt important and several proposals are under active consideration. But the fact of the decline in term-lending and the consequent impact on private investment and more particularly corporate investment has not received much attention.


Evolution of DFIs


At this juncture it will not be out of place to recount briefly the history of the evolution of industrial financing in our country. Post independence, as India embarked on an ambitious industrial development programme, the concept of development financial institutions (DFI) was embraced. The Industrial Finance Corporation of India (IFCI) was set up as a fully owned Government of India (GoI) entity in 1948, Industrial Credit and Investment Corporation of India (ICICI) was set up in 1955 in the private sector.


Industrial Development Bank of India (IDBI) was a part of RBI from its inception in 1964 until it became a separate entity owned by GoI in 1976. In addition a number of sector- specific DFIs were set up under the administrative control of other ministries.


The DFIs were envisaged to provide medium and long term credit supplementing the commercial banks who provided short term credit for working capital. DFIs grew rapidly — the combined asset base of DFIs was Rs. 6,143 crore in 1981, which increased to Rs. 52,054 crore in 1990-91 and to Rs. 158,379 crore in 1998-99.


The DFIs had access to cheap funds largely in the form of i) National Industrial Credit Long Term Operations (NIC-LTO) Fund, which was created out of the profits of the RBI and ii) bonds which were reckoned for computation of Statutory Liquidity Ratio (SLR) purposes for commercial banks who subscribed to these bonds.


For example in 1989-90, the share of borrowings from RBI and rupee bonds in total borrowings of IDBI was 23 per cent and 40 per cent respectively. This access to low cost funds was vital as it enabled the DFIs to lend directly or indirectly (through banks and other financial intermediaries by way of refinance) to enterprises at affordable cost i.e. the latter’s internal rate of return could then exceed the cost of capital.


As part of the banking sector reform initiated in 1991, the flow of funds from LTO ceased, reducing the availability of low cost funds to DFIs. With lower levels of pre-emption such as CRR and SLR freeing up funds for lending, it was believed that the banks would be able to provide adequate credit both long term and short term to industry. In addition, the equity and bond markets that would be widened and deepened progressively were expected to provide the needed long term finance.


Demise of DFIs


As banking reform gathered pace, role of DFIs diminished. With the loss of access to lower cost funds, lending rates of the DFIs had to be increased to a level where they were uncompetitive as compared to banks, which had rapidly expanded their term loan portfolio. Increased access to external commercial borrowings (ECB) as well as capital markets to corporates led to further decline of DFI lending. Meanwhile, RBI permitted the opening of banks by private sector or semi public sector. This resulted in term lending institutions such as IDBI and ICICI setting up commercial banks.


The long term portfolio of banks has grown. As of March 2016, medium and long term loans had touched almost 50 per cent of total loan portfolio. Apart from the liability-asset mismatch, banks are also running into various exposure limits. This has constrained the ability of banks to extend long term loans. The bond market is still to become vibrant. With the growing NPAs, the flow of long term credit has been choked and this has to some extent affected corporate investment.


It is therefore time to rewind and accept that the closing down of the DFIs was premature and allow the setting up of term lending institutions. A Long Term Credit Bank (LTCB) or by whatever name it may be called, must be set up by government to provide medium and long term credit to manufacturing and infrastructure, barring the power sector. The power sector is well served currently by DFIs such as PFC, REC, and IREDA.


Long-term credit bank


The LTCB will need to be fully or substantially owned by GOI, but should be bestowed with full operational autonomy. LTCB may finance green field and brown field projects across manufacturing, infrastructure and other areas as may be considered fit.


Three distinct advantages may be identified for the LTCB. First, it is a response to the gap that has emerged in institutional financing structure and would thus have a ready market. Second, as a specialised institution with expertise in project finance LTCB will be able to better evaluate the loan proposals. It will also be able to attract suitable talent on ongoing basis which the banks may not be able to do. Third, LTCB can assist the faster development of the corporate bond market through credit enhancement, and partial credit guarantees.


A key element in the new scheme is that LTCB must be provided with low cost resources to enable it to lend to enterprises at reasonable rates. The model will not work otherwise. The DFIs currently in operation do enjoy such an advantage albeit, in a different way such as NABARD through Rural Infrastructure Development Fund, NHB — Rural Housing Fund — both of which are funded by penalties on non-achievement of certain Priority Sector targets by banks. LTCB must be permitted to avail of ECB and assistance from multilateral and bilateral agencies such as World Bank, ADB, JICA, KFW. Thus the LTCB will have a mix of funds, some raised at the market rate and some provided at a concessional rate. The new institution should be able to raise funds from the market on its own strength.


The current situation demands not only finding a solution to the high level of NPAs in banks but also to revive long term lending to industry. The latter needs an approach different from dealing with accumulated NPAs. Sharpening focus on investment-led growth is the need of the hour. It is time to rewind and set up term lending institutions with specialist skills dedicated to financing projects in manufacturing, infrastructure, and services sectors.


C Rangarajan is a former RBI Governor.  S Sridhar is a

former CMD of Central Bank of India & National Housing Bank


From E-Group, Banking-News



SBI, a synonym for resurgent India


S Adikesavan

The Business Line

Published on April 5, 2017



Among the world’s top 50 banks post merger, it will continue

to meet varied domestic needs, while being globally competitive


Effective last weekend, State Bank of India, the country’s banking icon, has begun a new journey after merging five of its associate banks and the Bharatiya Mahila Bank with itself, reiterating its position in our banking landscape as numero uno with a solid 23 per cent market share, both in deposits and advances.


While its entry into the world’s top 50 banks is already known, what is equally noteworthy is that now SBI becomes arguably the bank with the highest market share in any major economy. This makes SBI matchless within even this top-50 club.


Matchless position


Just a few comparisons should provide the base for this hypothesis. While the world’s topmost bank by assets, the Industrial Credit Banking Corporation of China (ICBC), has a market share of 17 per cent in China, JP Morgan Chase, another global leader, has only a 14 per cent share in the US. Neither BNP Paribas of France nor Bank of Tokyo-Mitsubishi UFJ in Japan, both figuring in the top 10 global banks, has a market share in their respective countries close to SBI’s, covering both deposits and loans.


In a league of its own now, SBI becomes even more emblematic of the resilence and growing maturity of the Indian economy — in financial terms, it is a proxy for a sovereign. India also happens to be the fastest growing major economy in the world. Quite strikingly, in terms of client base, it can be said that if SBI’s customers were a country, they would be the third most populous nation at 50 crore, ahead of the US! What does the merger mean for the medium-term, and the long-term prospects of this institution which traces its origin to 1806 when the Bank of Calcutta was formed? With a multinational presence, it is now unique among Indian public sector entities for an uninterrupted track record of profitability coupled with a deep-rooted commitment to social uplift.


Industry powerhouse


Over the past several decades it has been able to attract the brightest and the best and has functioned as a powerhouse for the industry as a whole. In the first wave of new bank licensing which India witnessed in the nineties, the erstwhile UTI Bank (now Axis Bank), Indusind Bank and ICICI Bank were all headed by former SBI bankers such as Supriyo Gupta, Solomon Raj and N Vaghul, respectively. The talk then was that the competition was between people who are in SBI and those who were in SBI. The only exception was HDFC Bank.


While earlier too, betting on SBI was analogous to betting on India, the odds would favour this bet even more now. If India is to grow, it will do so with SBI and if SBI is to flourish, it will do so with India.


Never before has a nation and one of its financial market players become so inextricably intertwined that speaking of one’s prospects is tantamount to talking about the other. In that sense, there is a heavier responsibility on Team SBI. The bank has always offered services that cover a range of clients, spanning the smallest borrower to the biggest corporate. It has bridged and narrowed the gap between the last man out there in the hinterland of India, and the wealthiest of them, in the metros. The challenge now will be to scale up this role, be all things to all domestically, and yet retain a global competitive edge. This will truly yoke SBI’s future more firmly to our nation’s economic advancement.


The merger can exploit the niche-market strengths of its five associates to propel further the pole-position of the mother brand, by enmeshing the micro-potency of the former with the macro-stature of the latter, topping up efficiencies.


Nurturing role


Among the merged banks is also State Bank of Mysore, the smallest public sector bank. I remember a conversation in 2012 with R Chellappan, now the CEO of Swelet Energy Systems (formerly Numeric Power Systems), who sold his 26-year-old company to French major Legrande for ₹829 crore then. Born into an ordinary Salem family, Chellappan recalled his ₹25,000 loan from SBM in 1986 when he made the first UPS all by himself. “SBM helped me reach up to the Legrand deal,” he had said. Chellappan is one among many nurtured by the associates to reach heights they had never dreamt of. Through this merger, customer connects for SBI will both deepen and widen.


SBI was a resilient structure of nearly 17,000-odd branches which are tightly-controlled with strong systems and procedures. That network has now becomes close to 24,000.


Perhaps there is no better integrator of people and cultures than SBI in India’s contemporary body-politic which has kept us ticking as a nation.


Good leadership


Well endowed in human resources, it has seen a string of outstanding leaders, not least among whom was the legendary Raj Kumar Talwar, who spoke truth to power in extraordinary circumstances during the Emergency in 1975. He paid the price for the sake of institutional and personal integrity at a rather tender age for a chairman. When he was forced out of office at 54 he had been at the helm for seven years.


Latter-day SBI has also had an array of chairpersons with the trend-setting OP Bhatt, the meticulous Pratip Choudhary, and the first woman to head the bank, widely acknowledged as a clear thinker and lucid communicator, Arundhati Bhattacharya. It has a durable and diverse second line of leadership as well.


The historic change comes at a time when a Prime Minister whose passion for “param vaibhavam” (greatest glory) for India has only been matched by his dedication to “antyodaya” (uplift of the last-mile man). A bigger bank with dispersion in vertical terms financially and horizontal terms geographically, should become the engine for our great nation’s march forward.


The writer joined the State Bank group in 1985 and is Chief

General Manager, I&A, Hyderabad now. The views are personal.



From E-Group, Banking-News



How public sector bank CEOs are selected


Tamal Bandyopadhyay, The Mint

Published on April 10, 2017



The Banks Board Bureau is conducting—for the first time—the so-called assessment centre exercises to select the CEOs of India’s public sector banks


The Banks Board Bureau has recommended five executive directors of public sector banks for top posts in state-run banks which will fall vacant in coming months. They are Sunil Mehta of Corporation Bank, Dina Bandhu Mohapatra of Canara Bank, Rajkiran Rai of Oriental Bank of Commerce, R.A. Sankara Narayanan of Bank of India and R. Subramaniakumar of Indian Overseas Bank.


Within hours of selection, the Bureau put up the names on its website—probably to bring in transparency and ward off any pressure from any quarter to change the names later. In the past, there has been at least one instance where the Bureau’s recommendation was not accepted by the government, the majority owner of these banks.


The selection process of these five gentlemen also marks a departure from the past. This is for the first time the so-called assessment centre exercises were conducted to select the CEOs of India’s public sector banks. Assessment centre is a catch-all term which refers to a standardized evaluation of behaviour, based on multiple evaluations, including job-related simulations, interviews, and psychological tests. An assessment centre is defined as “a variety of testing techniques designed to allow candidates to demonstrate, under standardized conditions, the skills and abilities that are most essential for success in a given job”.


One critical component of this is psychometric tests—a standard and scientific method to measure individuals’ mental capabilities and behavioural style. Such a test helps identify the hidden aspects of candidates that are difficult to extract from a face-to-face interview. The Bureau sought the assistance of Egon Zehnder, a global executive search, talent strategy and leadership development firm, to conduct such tests.


Do these five candidates have great leadership qualities? I don’t know about that, but they seem to be the best in the talent pool from which the Bureau had to select the prospective CEOs. Unlike in the past, when the government invited applications from the private sector for the top jobs in state-run banks, this time around the selection was done from among the talent available within the industry.


In 2015, two large public sector banks got CEOs from the private sector—P.S. Jayakumar (Bank of Baroda) and Rakesh Sharma (Canara Bank). A former Citibanker, Jayakumar was heading VBHC Value Homes Pvt. Ltd as managing director and CEO while Sharma was running Lakshmi Vilas Bank. Unlike Jayakumar who had worked in the private sector throughout his career, Sharma had spent three decades with the State Bank of India (SBI) before his 18-month stint in the old private bank. The government is still watching the experiment of managing a state-run bank with a private sector executive before opening the doors for more.


Indeed, the selection process of the five CEOs is innovative, but no less interesting is the act of swapping the top jobs of two banks last month. The Bureau was not involved in that exercise as its mandate is selection of the CEOs of public sector banks and it doesn’t have a say in lateral entries. The government swapped the top posts of IDBI Bank Ltd and Indian Bank. Kishor Piraji Kharat, the CEO and MD of IDBI Bank since 18 August 2015, has been made the boss of Indian Bank and Mahesh Kumar Jain, MD and CEO of the Chennai-headquartered bank since 2 November 2015, is now heading the Mumbai-based IDBI Bank.


Why has this been done? There have been various theories doing the rounds. Many believe that the Reserve Bank of India (RBI) is instrumental in doing this. This is probably not correct. I understand that the banking regulator expressed concerns about the health of IDBI Bank and wanted the government to strengthen its management bandwidth but did not recommend shifting its CEO to another bank.


Yet another theory is Jain has been rewarded for its brilliant performance in Indian Bank and Kharat had to go as he had not managed IDBI Bank well. This is also difficult to believe as neither the top post in IDBI Bank can be a reward for a performer and nor the CEO’s job in Indian Bank is a punishment for a non-performer.


IDBI Bank is a much larger bank than Indian Bank, but it’s sick. Indian Bank is roughly half the size of IDBI Bank in terms of assets but in the first three quarters of fiscal year 2017 it recorded a net profit of Rs1,086 crore against a Rs1,958 crore loss by IDBI Bank. It is better capitalised (13.89% capital adequacy ratio) than IDBI Bank (11.29%) and has far less bad assets (4.76% net bad loans and 7.69% gross bad loans) than IDBI Bank (9.61% and 15.16%, respectively). Bad loans of IDBI Bank have doubled since September 2015 when the RBI put in place the so-called asset quality review and its overall stressed assets are more than one-fourth of the loan book.


Of course, Jain can take up his new assignment as the biggest challenge in his career and if he turns around the bank, that will be an achievement. Since Indian Bank is in a far better shape than IDBI Bank on every count, its top job can never be a punishment for any professional.


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