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Banking News 21.04.2017

From April 1 all associate banks'

branches to become SBI branches


The Press Trust of India

Published on March 20, 2017



Mumbai, March 20 (PTI): Branches of all five associate banks, which are merging with parent State Bank of India, will begin functioning as SBI branches from April 1. “Customers, including depositors of State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore will be treated as customers of State Bank of India with effect from April 1, 2017,” the RBI said in a notification.


With the merger of all the five associates, SBI is expected to become a lender of global proportions with an asset base of Rs 37 trillion (Rs 37 lakh crore) or over USD 555 billion, 22,500 branches and 58,000 ATMs. It will have over 50 crore customers. Officers and employees, with the exception of the board of directors and executive trustees of the associate banks, will become employees of SBI following the merger.


SBI alone has nearly 20,000 branches, including 191 foreign offices spread across 36 countries. Of the five subsidiary banks, only SBBJ, SBM and SBT are listed. Meanwhile, the government today announced that Bharatiya Mahila Bank will also be merged with SBI. Three years after it was formed, the government has approved merger of the Bharatiya Mahila Bank with the country’s largest lender SBI to ensure greater banking outreach to women. The Union Cabinet, chaired by Prime Minister Narendra Modi, had last week cleared the merger of the two banks. Explaining the rationale behind the merger, the Finance Ministry said the SBI group already has 126 exclusive all-women branches across the country while the Bharatiya Mahila Bank (BMB) has only seven.



From E-Group, Banking-News



Pre-merger, Is State Bank of India

Heading Towards bankruptcy?


Dr B Yerram Raju

The MoneyLife Online

Published on March 20, 2017



Customers of State Bank of India (SBI), especially in south India, are forced to ask whether SBI is headed for bankruptcy as they find 99% of the automatic teller machines (ATMs) shut down and all branches declining withdrawals from the depositors’ savings account beyond a limit. Bank branches are refusing to honour cheques drawn on them, either their own or on third party, in spite of sufficient balance in the account. To top it, the bank’s branches refuse to give written objection for returning the cheque across the counter.


In February, SBI, in a regulatory filing had stated, “…the entire undertaking of State Bank of Bikaner & Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH) shall stand transferred to and vested in the State Bank of India from 1 April 2017.”


What does the rule-book say? Is it because of systemic failure or management failure? Does the blame rest with the SBI, or with the Reserve Bank of India (RBI) as well, as it has been a silent spectator for the last 15 days? Just last week, when Bandaru Dattatreya, the Union Minister for Labour, approached the RBI’s office at  Hyderabad, the central bank said that it has pumped in Rs1,170 crore worth of currency into the system, with half of it in the ATMs of banks and the rest to the bank branches.


Section 5 (c) of the Banking Regulation Act, 1949 defines a banking company as any company that transacts ‘banking business’ in India.


The Act clarifies, in clause (b) of the same section, that the expression ‘banking’ found in the definition should mean accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheques, drafts, order or otherwise. To constitute the business of banking today, the banker must also undertake to pay cheques drawn upon himself (the banker) by his customers in favour of third parties up to the amount standing to their credit in their ‘current accounts’, and to collect cheques for his customers and credit the proceeds to their current accounts. Lending by itself does not constitute banking business, clarifies ML Tannan.


A recall to all this became necessary, for the banks, even of the ilk of the SBI, seem to have forgotten the basics of banking. Yesterday I paid a carpenter for the work done at my house, by way of a ‘bearer’ cheque drawn on my savings bank account, Rs13,750, which was presented at the counter. The official at the counter and the accountant refused to pay the amount, saying that they can pay cash only up to Rs5,000 as they do not have enough cash. This is not a solitary instance. During the last fortnight, many customers faced this situation. Many members of the Resident Welfare Association, Kalyanapuri, Hyderabad, brought up this issue and demanded its resolution.


The payee asked for a written objection, which the bank officials refused to provide. The cheque was otherwise in order in all respects – with proper date, proper signature and adequate balance in the account.  The Negotiable Instrument Act requires that if a cheque or bill of exchange is returned, either on the counter or in clearing, an objection memo duly signed by the authorised official of the bank shall be provided with the relevant reason.


In case a bank branch declines to honour a cheque, in writing, for want of cash in its vaults, it would amount to the bank being bankrupt. In the case of SBI, it is also the agent of Reserve Bank and operates the currency chest at a number of branches. Whenever a bank branch falls short of cash, SBI is supposed to make arrangements for providing the required funds. The transaction between the branches on such count can form the internal cash management of the bank.


Contrary to this practice, if the bank chooses to tell its customers that since there are not enough deposits coming into its vault and it is therefore restricting payments to its customers, it amounts to sheer mismanagement.


Since SBI is shutting ATMs and refusing to pay cash, either in full or in part, customers seem to have stopped depositing cash into their accounts and prefer to keep cash with themselves for meeting their requirements. This is a classic vicious circle.


Whenever creditors’ demands are not met and assets do not support the liabilities of a bank, that bank is said to be on the verge of bankruptcy. But by statute, the SBI cannot go into liquidation at its will.  


Customers are losing faith in the bank with which they have been transacting for decades. Bad banking and good economy can never co-exist. Let not SBI declare bankruptcy ahead of its merger.


(Dr B Yerram Raju - is an economist

and risk management specialist)


From E-Group, Banking-News



Bad loans: Time for government

 to take remedial action


Editorial: The Economic Times

Published on March 21, 2017



Banks Board Bureau chairman Vinod Rai has written to the finance minister and the Prime Minister’s Office about the need to expedite restructuring of the banks’ bad loans portfolio. He has reportedly suggested expanding the role of the Oversight Committee and some technical refinements. But the problem holding up bad loan restructuring is not technical in nature— rather, it is political. Loan restructuring will entail banks taking a haircut, substantial in many cases. Bank chairmen want the assurance that they would not be held responsible for this. No one wants to go to jail for causing loss to state-owned banks and, thereby, to the exchequer. This means that the government must give them political cover. That is the nub of the challenge.


After its electoral success in Uttar Pradesh, the Narendra Modi government has the political capital to push for banks to take some discounts on loans that have gone sour, convert debt to equity and find new buyers for these. The government has been hesitant to push very hard on this, because it fears that it will be accused of crony capitalism by opposition parties. Today, with increased political capital, New Delhi must not run from opposition jibes.


The reassurance to public sector bank managements that they will not be hounded for accepting haircuts to clear up their books, by agencies like the Central Bureau of Investigation and the Enforcement Directorate, is essential to resolve the banking crisis. Otherwise, the bank liquidity crisis and NPA levels will spiral out of control, choking lending and growth. In other words, spurring further investment and growth in the economy hinges on political rather than technocratic decisions. The point is for the government to lose no further time to take remedial action.



From E-Group, Banking-News



India Hunts for Solution to

Bad-Debt Crisis as Measures Fail


Anto Antony

The Bloomberg News

Published on March 21, 2017



New Delhi, March 20 (Bloomberg): If at first you don’t succeed, try, try, try and try again. Indian policy makers appear to have adopted the mantra as they mull setting up a state-run fund manager to resolve stressed assets in the banking system after numerous efforts to fix the problem failed.


A “Public Sector Asset Rehabilitation Agency” will help deal with the soured-debt problem that is hindering loan growth and an economic revival, advisers to the nation’s finance minister said last month. It’s an old idea being revived now as India’s stressed loans rise to the highest among major economies.


"With more than $180 billion in stressed assets, the government and regulators have to evaluate all avenues including a bad bank to drive better recovery rates,” said Nikhil Shah, managing director at Alvarez and Marsal Inc., a firm that specializes in turnarounds. “The mechanisms offered by the RBI haven’t been successful in resolving bad loans, primarily as the RBI does not regulate promoters and other equity stakeholders and as a result they cannot force resolutions on to them.”


Former Reserve Bank of India governor Raghuram Rajan, who rejected the idea of a so-called bad bank, ensured that the hidden stress on bank balance sheets was bought into the open through an independent audit. He offered avenues including the Sustainable Structuring of Stressed Assets and Strategic Debt Restructuring as ways to rework large impaired loans. None of them, however, have proved helpful. The World Bank estimates that only about 26 cents is recovered on a dollar of defaulted debt in India.


Here’s a look at some of the programs and what’s hindered their success.


Strategic Debt Restructuring:


Introduced in June 2015, SDR allows banks to take over a majority stake in stressed companies by converting debt into equity. Banks have to sell the stake within 18 months or start making provisions on these accounts, according to the rules.


While banks already hold controlling stakes in at least four companies, including Monnet Ispat & Energy Ltd. and IVRCL Ltd., no money has been recovered from these accounts. A wide gap between the valuation expectations of lenders and bidders for the assets are hindering the sale and loan-recovery process.


There has also been a reluctance on the part of officials from state-run lenders to write-off even a part of the debt due to the threat of punishment. Since major write-downs can attract the attention of investigative agencies, lender’s forums are not able to reach decisions on the resolution of stressed assets, advisers to the country’s finance minister said in an Economic Survey presented in parliament last month.


Scheme for Sustainable Structuring of Stressed Assets (S4A):


Scheme for Sustainable Structuring of Stressed Assets, or S4A, allows banks to provide borrowers with debt reduction of up to 50 percent. While lenders have invoked the mechanism in at least five large loan accounts, so far, the debt of Hindustan Construction Co. is the only one that’s been successfully rejigged.


Many of the large loan accounts don’t meet the criteria set out by the central bank for implementing the program, while in other cases decisions are delayed as lenders aren’t able to agree among themselves, according to Sandeep Upadhyay, chief executive officer, investment banking, Centrum Infrastructure Advisory Ltd.


As the capital buffer needed to take a deep cut in debt and the size of exposures vary across lenders, it takes time for them to agree on a course of action, said Upadhyay, who is working on the restructuring of several accounts. “In some other large loan exposures to the infrastructure segment, borrowers won’t be able to service even half of the debt with existing earnings-- a prerequisite for S4A restructuring.”


Bankruptcy Law:


The new code aims to slash the time it takes to wind up a company or recover dues from a defaulter. Yet, the framework to implement the law-- including information repositories for financial and credit data, the development of a professional resolution industry, and adequate judicial infrastructure -- still needs to fall into place.


With loan-recovery cases pending at other agencies in the country, like the Company Law Board, Debt Recovery Tribunal and Board for Industrial and Financial Reconstruction, moving into the new resolution mechanism will be a “challenging task” of dealing with more than 25,000 pending cases apart other corporate cases, estimates by Alvarez & Marsal show.



From E-Group, Banking-News



Uttar Pradesh Farm Loan Waiver:

SBI Report sees Rs 27,420 crore Hit


Beena Parmar

The Moneycontrol News

Published on March 20, 2017



Mumbai, March 20: After the Bharatiya Janata Party won a massive mandate in Uttar Pradesh, Chief Minister Yogi Adityanath’s first challenge will be fulfilling the election promise to waive off loans given to small and marginal farmers.  The Uttar Pradesh government stands to lose Rs 27,420 crore, or 8 percent of its total revenue, if the farm loan waiver scheme becomes a reality, according to State Bank of India. As per data, the total outstanding credit by all banks in 2016 towards the agriculture sector was Rs 86,240 crore in Uttar Pradesh, with an average ticket size of Rs 1.34 lakh.


According to Reserve Bank of India data from 2012, 31 percent of the direct agriculture finance went to marginal and small farmers (landholdings up to 2.5 acres). “Taking this as a proxy for Uttar Pradesh as well, approximately Rs 27,419.70 crore will have to be waived off in case loan waiver scheme is implemented for the small and marginal farmers for all banks [scheduled commercial banks, cooperative banks and primary agricultural cooperative societies],” the country’s largest lender said in a report.


It stated that the UP government’s total revenue for FY17 was Rs 340,255.24 crore, according to revised estimates. Thus, the amount of Rs 27,419.70 crore to be waived off is approximately 8 percent of total revenue. ”This will definitely cause some amount of stress for the state’s fiscal arithmetic in the coming year,” read the report. According to the Socio-Economic and Caste Census 2011, 40 percent of rural households of Uttar Pradesh are engaged in cultivation. When it comes to landholdings, 92 percent are marginal and small landholdings, according to 2010-11 Agriculture Census.


Banks are against the implementation of the loan waiver scheme as they fear this would affect the credit discipline among that segment of borrowers. SBI Chairman Arundhati Bhattacharya recently said, “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. As such, future loans given often remain unpaid.” She added that no formal proposal had come to them from the government.


A Congress leader submitted a breach of privilege notice in the Maharashtra Assembly against Bhattacharya for “insulting farmers and the House” with her remarks. In 2009, the Congress-led United Progressive Alliance government retained power on its lucrative election promise of Rs 60,000-crore farm loan waiver scheme.


This is not the first time that such a concern has been raised by lenders. In 2014, banks had raised opposition to a loan waiver scheme in Andhra Pradesh and had written to the finance ministry expressing their concerns. Former Reserve Bank of India (RBI) governor Raghuram Rajan had also pointed out that the “repeated loan waivers by various state governments distort credit pricing, thereby also disrupting the credit market”.


Incidentally, SBI last month allowed one-time settlements for its tractor and farm equipment loans that make up about Rs 6,000 crore of doubtful and losses on its books. According to the SBI report, the new UP government has to go beyond the traditional solutions and find innovative ways of adding to its revenues. The Yogi Adityanath administration must focus on raising farm productivity, fast track transfer of benefits to the farmers’ bank accounts, encourage multiple cropping by farmers and increase interstate price parity among other things, it said.



From E-Group, Banking-News



Still paying interest on home loan at old rates?

Cut EMI by switching to MCLR-linked rate now


Narendra Nathan

The Economic Times

Published on March 21, 2017



Mumbai, March 20: Just like bank depositors, those borrowing from banks also need to be alert in order to protect themselves against unnecessary charges. Given below are the most common areas where banks tend to overcharge customers.


If you compare the interest costs of your friends and relatives on bank loans—housing, auto, personal loan, etc.—you will realise that they vary drastically. And these costs not only vary across banks, but across customers of the same bank—and not because of varying customer credit scores. Some banks have been offering loans at cheaper rates to new customers, while charging old customers a higher rate. “Banks continue to follow the discriminatory practice of offering differential rates for existing and new customers and this should stop,” says Ramganesh Iyer, Co-founder, Fisdom.


As the banking regulator, the Reserve Bank of India (RBI) should stop this discriminatory practice, which it is partly responsible for creating. The RBI introduced the MCLR (marginal cost based lending rate) method, effective April 2016, to enable a faster transmission of rate cuts to bank customers, replacing the base rate method that was being used by banks to set their lending rates—earlier the base rate had replaced the less transparent prime lending rate (PLR). Now, borrowers who took loans 4-5 years back, and did not ask their bank to switch to the newer regime, are still linked to the PLR. Those who borrowed when the base rate became the benchmark are stuck with the base rate. Now, while banks are giving new loans at cheaper rates, based on MCLR, old customers are still paying higher rates.


“Since banks offer different rates, it is better to visit some common aggregator and understand the lowest rates available in the market. This will help you bargain better with your bank,” says Dipak Samanta, CEO, iServeFinancial.


To reduce your interest outgo, you need to shift your loan from base rate or PLR to MCLR. Shifting to MCLR now is a good move, say experts. “Though RBI’s stand is neutral now, rates may not go up from current levels. In fact, they may come down later—after an year,” says Balwant Jain, investment expert. Bear in mind though, in an upward moving interest rate regime, MCLR will move up faster than base rates, just like it falls faster in a reducing interest rate regime.


Loan reset charges


There are two types of loans: Fixed and floating rate. Floating rate loans are supposed to mirror the rise and fall in interest rates set by the RBI. But this rarely happens. While banks increase rates immediately, they are very slow in cutting them. The introduction of new benchmarks has also turned out to banks’ advantage. They charge customers for shifting from one benchmark to another— from PLR regime to base rate regime to MCLR regime now. The charges are levied to meet the expenses involved in drafting and registering new agreements—stamp duty, registration charges, etc. Though these expenses vary across states, ordinarily they won’t be more than 0.2% of the outstanding amount. However, some banks try to profit from this also by charging around 0.5%.


Should you go for a reset even if it involves a small charge? Yes. The amount you save will be significantly higher over the years. To illustrate, consider the case of a home loan borrower with Rs 50 lakh outstanding loan amount and a 15-year tenure. A 1% fall in interest— from 9.5% to 8.5%—will bring his EMI from down from Rs 52,200 to Rs 49,250, a reduction of Rs 2,950 per month. A total saving of Rs 5.31 lakh—significantly higher than the reset fee of Rs 25,000 even at the maximum rate of 0.5%. You may be able to get this reset cost down by negotiating with your bank. A threat of shifting to another bank often works. “Another way is to approach the branch manager. Based on the value of your relationship, they can reduce or even waive charges,” says Samanta. The ‘value of relationship’ here is crucial. If you have multiple relationships with the bank—savings bank account, credit card, other loans, investment, etc.—you have a valuable relationship and will receive a favourable treatment.



From E-Group, Banking-News



Sad. India Ranks behind Bangladesh,

Pakistan and Iraq in Happiness Index


The Press Trust of India

Published on March 20, 2017



New York, March 20:  India ranked a low 122 on a list of the world's happiest countries published under a UN initiative, dropping four slots from last year and coming behind China, Pakistan, Nepal and Iraq.


The World Happiness Report 2017, which ranked 155 countries by their happiness levels, ranked Norway as the happiest country in the world. It jumped three spots from last year, displacing Denmark, which had held the top spot for three out of the past four years.




v         India ranks 122 out of 155 countries surveyed


v         Report released under UN initiative for 
International Day of Happiness


v         Norway gets top spot, displaces Denmark


India comes in on the 122nd spot, down from 118 in the 2013-2015 report, which maps happiness on the parameters of GDP per capita, social support, healthy life expectancy, freedom to make life choices, generosity and perceptions of corruption.


Nations such as China (79), Pakistan (80), Nepal (99), Bangladesh (110), Iraq (117) and Sri Lanka (120) fared better than India on the ranking. The report was released today at an event celebrating International Day of Happiness. It is the fifth report to come out since 2012.


"The World Happiness Report continues to draw global attention around the need to create sound policy for what matters most to people - their well-being," said Jeffrey Sachs, Director of the Sustainable Development Solutions Network that produced the report.


"As demonstrated by many countries, this report gives evidence that happiness is a result of creating strong social foundations. It's time to build social trust and healthy lives, not guns or walls. Let's hold our leaders to this fact," he said.


Despite recent declines in oil prices, oil-rich Norway still moved into the top spot, illustrating once more that high happiness depends on much more than income, it said.


Rounding out the rest of the top ten in order were Denmark, Iceland, Switzerland, Finland, Netherlands, Canada, New Zealand, Australia and Sweden. The US ranked 14th, dropping down one spot from last year, the report said.


This year the report gives special attention to the social foundations of happiness, including happiness at workplace.


"People tend to spend the majority of their lives working, so it is important to understand the role that employment and unemployment play in shaping happiness," said Professor Jan-Emmanuel De Neve of the University of Oxford.


He said research reveals that happiness differs considerably across employment status, job type, and industry sectors.


"People in well paid roles are happier, but money is only one predictive measure of happiness. Work-life balance, job variety and the level of autonomy are other significant drivers," De Neve said.


The report also highlights the personal factors affecting happiness, saying "in rich countries the biggest single cause of misery is mental illness."


The World Happiness Report 2017 looks at trends in the data recording how highly people evaluate their lives on a scale running from 0 to 10. The rankings, which are based on surveys in 155 countries covering the three years 2014-2016, reveal an average score of 5.3 (out of 10).



 From E-Group, Banking-News



The need for a business cycle dating committee


Mayank Gupta, The Mint

Published on March 21, 2017



A business cycle dating committee will strengthen the information base for the economy and help gauge its changing nature


It has been a quarter of a century since India commenced the journey of opening its economy to the world. But the idea of a business cycle dating committee (BCDC) for India has not received sufficient attention. Most of the research in business cycles is done keeping in mind advanced industrial economies. The scarcity of research for studies of business cycles in India along with data limitations might be some of the reasons why policymakers in India are not too concerned about this issue.


What are business cycles?


Business cycles are the short-run fluctuations in aggregate economic activity around its long-run growth path. It is the “ups and downs” in economic activity, defined in terms of periods of expansion or recession. The US’ National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales.


What does a BCDC do?


A BCDC maintains a chronology comprising alternating dates of peaks and troughs in economic activity. It analyses and compares the behaviour of key macroeconomic variables such as consumption, investment, unemployment, money supply, inflation, stock prices, etc., which may have different dynamics before, during and after the recession. It identifies turning points which act as a reference point for the construction of coincident, leading and lagging indicators of the economy. Timely identification of economic contraction and its severity allows policymakers to intervene, and thereby reduce its amplitude and duration. In addition, firms can re-evaluate projections of sales and profits, and the consumers their purchasing and investment plans, based on information on transitions to new business cycle phases.


International experiences of business cycle dating committees


The NBER’s BCDC maintains a chronology of the US business cycle. NBER is a private, non-profit, non-partisan organization conducting economic research and regarded as authoritative by both academic researchers and the public at large. The committee was created in 1978 and has been chaired by Robert Hall from Stanford University since its inception. The committee waits long enough so that the existence of a peak or trough is not in doubt and does not follow a fixed time rule.


For the euro area, it is the Centre for Economic Policy Research (CEPR) which does this job. Like the NBER, CEPR is also an independent, non-profit organization. CEPR dates the business cycle for the euro area as a whole and not for any individual country. Although the countries in the euro area have adopted a common monetary policy since 1999, countries have heterogeneous institutions and policies. Hence, some of the criteria of dating business cycles for CEPR differ from those for the NBER, although similar definitions of a recession are adopted by both these organizations.


Even an emerging market economy such as Brazil has a BCDC known as O Comitê de Datação de Ciclos Econômicos (Codace), created by the Brazilian Institute of Economics. It was founded in 2005 and replicates the experience of the NBER BCDC and CEPR.


Why does India need a BCDC?


By maintaining a chronology of business cycles, India will be able to better monitor the economy. A BCDC can also maintain an index of coincident, leading and lagging indicators for the Indian economy. Currently, India relies mostly on individual studies for the dating of business cycles. The Reserve Bank of India (RBI) set up a working group of economic indicators in 2002 and a technical advisory group (TAG) on the development of leading indicators for the Indian economy in 2006, both under the chairmanship of R.B. Barman.


The working group proposed a standing committee for business cycle analysis. Its job was the same as a BCDC, i.e., maintaining historical dating of business cycles. TAG suggested a methodological framework for the construction of coincident, leading and lagging indicators along with a composite index for the Indian economy. It also reviewed different techniques adopted by various international organizations.

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