Metro Bank founder to set up UK's first digital-only bank

The founder of Metro Bank is setting up what according to him, would be the UK's first digital-only bank.

In a bold initiative aimed at leveraging the growth of mobile banking, the digital-only bank would have no bank branches and also no telephone banking services available for customers who would manage a full range of personal and business banking products through the internet and mobile apps.

There would be a free helpline number which customers experiencing difficulties would call but they would not be able to move money and perform normal banking functions by phone.

According to Anthony Thomson, who would be the first chairman of the new bank, called Atom, the company's aim was to make it so simple to operate online that would be faster than the time it took to call someone.

Atom would offer a "full range" of personal and business banking products when it opened for business in 2015 including current and savings accounts, as also loan products and credit cards.

Mark Mullen, who ran First Direct since 2011, an online bank operated by HSBC, would become the chief executive of the new bank.

The bank would be based in the north east of England.

Metro became the first new UK consumer bank in over a century with its opening in July 2010. It was attempting to win clients from the UK's biggest banks by opening longer and offering better service than competitors.

Bloomberg quoted Thomson as saying in a telephone interview that there was a significant market for a new bank.

He added people did not like the existing incumbent banks. He said people were asking why they needed to pay for branches that they probably would not ever use adding Metro could deliver better service and better value digitally.

Indian banks may not be able to cope with unexpected losses, says International Monetary Fund

The International Monetary Fund (IMF) has warned that Indian banks don't have enough of a buffer to absorb unanticipated losses, and may have to dip into capital if credit quality deteriorates. In its global Global Financial Stability Report (GFSR) released on Wednesday, the IMF said Indian banks have not set aside enough money from profits to cover bad assets compared with others.

"Relative to regional peers, loan loss provisioning appears low in Hungary, India, Indonesia,  Malaysia, and South Africa, suggesting that any potential credit quality deterioration may need to be absorbed by equity capital,"the report said. While most countries now meet the Basel III minimum Tier 1 capital requirement of 6%, the relative provisioning has created differences in loss-absorbing capacity.

"Hungary and India have the lowest loss-absorbing buffers, followed by Chile and Russia, although buffers in these last two countries meet Basel III requirements,"the report said. Indian company earnings are exposed to exchange-rate and foreign-currency risk, implying that if the domestic currency depreciates sharply, as happens in most emerging markets,
they could face significant stress.

 "Currency depreciation in an environment of rising global uncertainties could lead to higher payments of principal and interest on foreign currency debts and thus to a further erosion of profitability,"the report said, adding that losses could be most in cases where risks are covered largely through natural hedges. "Where foreign currency liabilities are largely hedged through natural hedges, foreign exchange losses could amount to 20-30 per cent of earnings in India, Indonesia, and Turkey,"it warned, calling for assessing the effectiveness of natural hedges as well.

Banking licence for corporate houses will be a retrograde step: AIBEA

Nearly two dozen corporate houses and business enterprises in the country have been waiting for more than six months to obtain permission from the Reserve Bank of India (RBI) to start their own banks. In turn, the RBI has approached the Election Commission to permit them to issue the new banking license.

Terming the present move of RBI as ‘unfair’ as the Parliamentary elections were on, the All India Bank Employees’ Association (AIBEA) general secretary C.H. Venkatachalam said allowing private sector to open banks would lead to ‘profiteering’ and there were chances of public money being diverted by the corporate and business houses to run their ventures without any hindrance.

Substantiating his statement, he said: “Any industry house with Rs.500 crore can open a bank. Thereafter they would become the absolute owner of the bank and can have access to huge cash deposits of public. The funds can be transferred between the bank and their firms swiftly. Accounts can be fudged easily. We don’t want such a thing to happen.”

As per the proposed list, Aditya Birla, IDFC Ltd, IFCI, India Bulls, India Post, India Infoline, LIC Housing Finance, L&T Finance Holding, Muthoot Finance, Reliance Capital, Religare Enterprises, Shriram Capital, SREI Infrastructure, Tourism Finance Corporation and UAE Exchange India others have applied for the banking license.

“Prior to nationalisation of the banks in 1969, most of the banks were owned by one or the other industrial or business house. Their mismanagement and abuse of people’s money resulted in nationalisation of banks. Hence, handing over banking licenses to the corporate and business house is a clear retrograde step. Particularly, when the country is moving towards general elections to elect a new Parliament, RBI’s hurry in this regard overlooking the political views of the Parliament would be unfair,” he said.On Monday, AIBEA sent a letter seeking the intervention of Chief Election Commissioner, V.S. Sampath not to approve such a move stating that would result in conflict of interest and banking institutions cannot be left to the corporate whims.

It may be recalled that AIBEA has been openly criticising corporate houses for being wilful defaulters that led to banks setting aside a large portion of its profits to write off bad debts.

Mr. Venkatachalam quoted the report of Parliamentary Standing Committee on Finance which said: “Banking being a highly leveraged business involving public money and public welfare, the Committee are of the considered opinion that it will be more in the fitness of things to keep banking and industry separate. The Committee therefore desires the Government and RBI to review the licensing guidelines accordingly.”

Mahila Bank mulls childcare allowance for women staff

http://www.thehindubusinessline.com/industry-and-economy/banking/mahila-bank-mulls-childcare-allowance-for-women-staff/article5418481.ece

In a first of its kind human resource initiative in the public sector banking space, the Bharatiya Mahila Bank is planning to give childcare allowance to its women employees.

The proposed move is aimed at attracting and retaining talent, especially women employees in the junior management grade (entry-level officer) and middle management grade (officers of the rank of manager and senior manager) in India’s first women’s bank in the public sector.

Allowance amount

In the works is an allowance of Rs 500 a month or Rs 6,000 a year per child till the age of 12 years, subject to a maximum of two children.

While the salary offered by BMB is on a par with other public sector banks, it is trying to differentiate itself by adopting a more gender sensitive HR policy, said a senior Finance Ministry official.

If the childcare allowance passes muster with the eight-member all-women board of BMB, then other public sector banks too, are likely to follow suit.

The Delhi-headquartered BMB, which has been set up exclusively to meet the financial needs of women, began its operations last month.

So far, the bank has recruited 105 entry level officers. Of these, almost two-thirds are women.

To man operations at the head office and also to head branches, BMB has taken about 95 officers on deputation one grade higher than their current grade from other public sector banks.

Usha Ananthasubramanian, Chairperson and Managing Director, said her team is sparing no effort to lay the foundations for growth of the bank so that it can play an important part in meeting the financial aspirations of women.

The women’s bank has kicked off its operations with seven branches (Mumbai, Chennai, Kolkata, Guwahati, Bangalore, Ahmedabad and Lucknow).

By March-end, it intends to have 25 branches.

Going by its business plan, the new bank is expected to bolster its physical network to 778 branches and 2,088 ATMs by the end of the seventh year of operations.

It is eyeing a business (deposits plus loans) of Rs 60,000 crore by March-end 2020.

Muthoot Finance files application for banking licence

http://www.thehindubusinessline.com/industry-and-economy/banking/muthoot-finance-files-application-for-banking-licence/article4869434.ece

Gold loan company Muthoot Finance Ltd today filed an application with the Reserve Bank of India for a banking licence.

Confirming that the non-banking finance company has filed its application, K.P.Padmakumar, Executive Director, said that Muthoot Finance would set up a non-operative financial holding company to conform to the RBI guidelines.

While MFL would hold 90 per cent stake in the holding company, the balance 10 per cent will be held by the promoters.

Padmakumar said that Muthoot Finance knew the "rural heartland " very well and that most of its 4400 branches were located in Tier 2 and Tier 3 cities.

"Our application should be eminently considerable given our existing focus on rural india", Padmakumar said.

He also said that Muthoot Finance had an 18-month period to change its legal structure in line with the RBI requirements, if an in-inprinciple approval is granted by the central bank for the banking foray.

Dept of Post applies for banking licence

http://www.thehindubusinessline.com/industry-and-economy/banking/dept-of-post-applies-for-banking-licence/article4856824.ece

The Department of Post today submitted application before the Reserve Bank for a licence to offer full-fledged banking services.

“We have approached RBI today and hopefully having met all the conditions of RBI, an in-principle approval might be given. If it is given, I think, it will be a revolutionary step because it will bring banking, subject to Cabinet approval, to the doorstep of the ordinary man in this country,” Telecom and IT Minister Kapil Sibal told PTI.

The RBI is in the process of granting fresh banking licences and has set July 1 as the deadline for applying.

The India postal network has 1,54,822 post offices in the country. Of these, 1,39,086 are in rural areas and 15,736 are in urban regions.

There are around 90,000 bank branches in the country and provision of real-time banking services through postal network is estimated to triple the current banking network.

The The Department of Post (DoP) has plans to start 50 bank branches in the first year and scale it to a total of 150 branched in 5 years.

The Minister said after RBI’s in-principle approval the Department of Posts will require the Cabinet approval to go ahead with its plan.

“If RBI agrees that this (banking licence for DoP) is the proposition that must move forward because most of the Aam Aadmi (common man) does not have access to banking facilities. Post bank is ideal way to bring banking facility to the doorstep of aam aadmi,” Sibal said.

Department of Posts has started inter-ministerial consultations for seeking Cabinet approval on around Rs 1,900 crore fund requirement to start Post Banks. The total amount includes Rs 500 crore paid-up capital required under new banking licence guidelines.

The Post Banks are proposed to be owned by DoP but with a completely independent board, governance structure and operations. It will have representation from Ministries of Finance and Communication & IT.

Crash of the rupee and how it impacts you

http://articles.economictimes.indiatimes.com/2013-05-27/news/39557333_1_rupee-petrol-and-diesel-dollar

Where you gain

> NRIs remitting money back home are effectively putting more money into their family's wallets as they will get more rupees for every dollar remitted.

> Export oriented companies and those with significant foreign currency revenues will benefit from the rupee decline. This is because they will earn more rupees for every dollar worth of goods sold or assets held.

> Domestic gold prices are likely to receive a boost on account of the declining rupee. Individuals in global funds gain as the performance of these funds in rupee terms gets multiplied to the extent of the fall in the rupee.

Where it hurts

> Companies with foreign currency borrowings or those importing raw materials from abroad take a hit.

> A weaker rupee may dampen FII sentiment as the value of their investments (in dollar terms) erodes.

> Foreign travel and overseas education become more expensive.

> Weakening rupee will raise the cost of petrol and diesel.

Women's Bank to begin operations in November

http://www.financialexpress.com/news/womens-bank-to-begin-operations-in-november/1112959/0

The blueprint of the country's first Women’s Bank is ready and the venture is likely to start off with six branches across the country by November. With an initial outlay of Rs 1,000 crore, the bank will open with six branches — one each in the four metro cities, while a fifth would be in central India and the sixth in the north east. It would expand subsequently to 25 branches within a span of one year and scale up to 300 over the next four to five years."

"Locations are nearly finalised and the Mumbai branch will be in Bandra Kurla Complex and the one in Delhi will be opened in Parliament Street,” said a senior government official.

To be set up as a public sector bank, the proposed bank will differentiate itself from its state-owned counterparts in terms of lending exclusively to women-run businesses and self help groups. It would, however, include male employees in its payrolls. “We can’t have it manned exclusively by women. It will certainly have men employees as well,” the official said. But to cut down on hiring and recruitment costs, the finance ministry will allow lateral movement of employees from other public sector banks as well. But the plan is to keep staff at a minimum and depend more on technology to ramp up services. “To start off with, it will be a small set up. So the idea is to have as few employees as possible and use technology to provide world class services,” the official said.

But the name of the bank is still a mystery, with a final call likely to be taken by finance minister P Chidambaram. The proposal of a Women’s Bank was mooted by Chidambaram as part of Budget 2013-14 and is aimed at fulfilling one of the UPA’s key agenda of providing gender empowerment and financial inclusion. Soon after, the finance ministry had set up a six member expert committee under former Canara Bank chairman MBN Rao to finalise the road map for setting up the bank.

It would expand subsequently to 25 branches within a year and scale up to 300 over the next four-five years

Falling oil and gold doesn't mean we are out of the woods

http://www.firstpost.com/economy/falling-oil-and-gold-doesnt-mean-we-are-out-of-the-woods-705044.html

It is too early to celebrate the decline in oil and gold prices. Reason: while this will benefit the current account deficit (CAD) and lower the prospects for further fuel price inflation, the critical question is what happens to the rupee. If the rupee stays weak, or it declines, then all bets are off.

At the time of writing, Brent crude was at $100 a barrel, the rupee just under Rs 54, and gold was quoting below Rs 24,000 per 10 gm. All this is good news, but they do not add to a positive story overall. Here’s why.

A high CAD – the gap between what the country spends abroad and what it earns from exports and remittances – is one reason why the rupee has been under pressure since 2011. When the rupee falls, imported oil gets pricier even if the global price of crude falls – as it is doing now. Hence what matters to us is not just the price of oil or gold, but the value of the rupee which determines local prices of these commodities.

The rupee, in turn, depends on the level of CAD and the state of capital inflows. A high CAD pressures the rupee down. CAD itself depends on two things – the level of imports and exports, and net inward remittances. Falling imports are a signal that CAD could improve, but if exports fall in tandem, relatively we will remain in the same place.

Capital inflows, on the other hand, will depend on several factors – from the attractiveness of competing investment destinations outside India to domestic interest rates (the higher the rates, the more the inflows), political uncertainties (the greater the uncertainty, the more the reluctance of foreigners to invest in India), and the related policy environment, among other things. Portfolio flows depend on the short-term prospects of the stock and debt markets, and expectations on the rupee, and long-term foreign investment flows (FDI) depend on policies.

Right now, political uncertainties are rising, and interest rates are set to fall as growth stumbles. The US stock markets are already at highs, and if they start falling, the sentiment could affect Indian stocks, too, and lead to a selloff. Year-to-date, India has already attracted over Rs 63,000 crore in foreign portfolio flows into equity and debt, and further inflows depend on prospects elsewhere, and not just here.

In short, since all variables impact all other variables, it is not possible to make a linear deduction that since oil and gold prices are falling, the CAD will improve and hence both the rupee and inflation will stabilise.

As for gold, the less said the better when it comes to India. Will Indians buy less gold if it is cheaper, or more? A lot will depend on whether we think gold will fall further, in which case we will wait and watch. But if we think it is cheap enough, we will buy more. If this happens, it would mean that the full extent of the CAD gain from falling gold imports will be lesser than expected.

SBI raises the red flag on falling gold prices

http://www.dnaindia.com/money/1823362/report-sbi-raises-the-red-flag-on-falling-gold-prices

Pratip Chaudhuri, chairman of the State Bank of India, says 20% lower gold prices won’t impact the lender yet.

“But any further fall would become an issue.”

As a precautionary measure, the bank is planning to reduce the quantum of loan given against gold, or reduce the so-called loan-to-value (LTV) ratio, which stands at 70% currently.

SBI has a gold loan portfolio of Rs 35,000 crore, which makes up for a little more than 3% of its gross advances. Most of this is agricultural loans supplemented by gold, Chaudhuri said.

LTV ratios have climbed high in the recent past, mainly due to intense competition and regulatory loopholes.

Gold prices have fallen more than 10% to a two-year low in just the last four trading sessions to Rs 25,900 on Tuesday. It is expected to fall further.

This sudden and sharp decline has raised issues over the value of gold collateral with banks and other gold loan companies.

“Falling gold prices, if sustained, can significantly impair the asset quality of the gold loan portfolios of non-banking finance companies (NBFCs) and banks,” said Prakash Agarwal, associate director at India Ratings.

A sizeable proportion of gold loans outstanding may already be close to the realisable value of the collateral, according to India Ratings’ assessment.

An additional 10% correction in gold prices in the near future could result in a majority of outstanding loan amounts being higher than the realisable value of collaterals, increasing possibility of losses, it added.

South-based private banks such as Federal Bank are likely to be impacted more, mainly because of higher proportion of gold loans.

Lending rates likely to come down: SBI

http://businesstoday.intoday.in/story/rbi-policy-review-lending-rate-sbi/1/191929.html

Borrowers could see better days ahead as banks are expected to cut lending rates following the RBI's decision to cut short term lending rate as well as unlocking Rs 18,000 crore by slashing cash reserve ratio (CRR) by 0.25 per cent.

Soon after the Reserve Bank unveiled its mid-quarter review of the monetary policy, several bankers hinted that they may consider rate cut in their ALCO (Asset Liability Committee) meeting.

RBI Governor D Subbarao in the third quarter monetary policy review surprised the market by cutting short-term lending rate called repo by 0.25 per cent to 7.75 per cent and Cash Reserve Ratio (CRR) by similar margin to 4 per cent, releasing Rs 18,000 crore primary liquidity into the system.

Commenting on RBI's action, SBI Managing Director A Krishna Kumar said "a rate cut is likely. Rates on advances and deposits could come down simultaneously. The RBI's action is positive".

Government presses RBI on new bank licences

http://www.business-standard.com/india/news/government-presses-rbinew-bank-licences/488685/

The message to the Reserve Bank of India (RBI) is loud and clear from the corridors of North Block — frame the final guidelines on new banking licences and allow private entities to set up new banks as soon as possible..

After the change of guard in the finance ministry, with P Chidambaram taking charge, it has asked RBI to expedite the process, people familiar with the development said.

However, even if RBI issues the final norms this month, allowing business houses to apply, the number of banks is unlikely to increase anytime soon, sources said. For, the central bank is yet to set up a committee for examining such applications. “The committee will be formed only when final guidelines are in place. It will then scrutinise the applications. So, don’t expect anything to happen for the next 12-18 months,” said a source.

The government, however, is determined to set the ball rolling in this season of reforms. RBI had said it was awaiting amendments in the Banking Regulation Act before issuing the final guidelines. RBI wants more power, such as dissolving a bank’s board, before it allows new entrants. However, “the ministry said the Act will be amended but it should not hold RBI from forming the guidelines”, said another source. Also, there were opinions that at least non-banking finance companies (NBFCs) be allowed to set up banks till the Act was amended.

Interestingly, RBI has asked the government to extend the tenure of one of its deputy governors, Anand Sinha, by a year. Sinha will complete his two-year term in February 2013 and heads the department of banking operations and development that will issue the final guidelines on new banking licences.

Pranab Mukherjee, the former finance minister and now the country’s President, had said in his 2010-11 Budget speech that companies and business houses would be allowed to set up new banks. RBI released a discussion paper on the entry of new players in August 2010. A year later, it issued the draft guidelines. In July this year, it released the gist of the comments it had got on the draft norms.

RBI had suggested the initial minimum capital must be Rs 500 crore; it received feedback that recommended Rs 1,000 crore as the minimum. It also wanted new banks to be listed within two years and have a fourth of all branches in hitherto unbanked rural centres.

But NBFCs and federations suggested only 15 per cent of branches should be in rural areas and asked the central bank to extend the listing deadline, to four to five years.

Foreign investment in insurance hiked to 49%; pension opened up

http://www.thehindubusinessline.com/industry-and-economy/banking/article3965052.ece

In the biggest slew of reform measures in years, the Government went ahead with long-pending financial sector reforms, risking the wrath of political allies and setting the stage for a political showdown at the upcoming Assembly polls in key States.

The Cabinet on Thursday hiked the limit for foreign equity investment in insurance companies to 49 per cent. The wording is crucial; as there was no mention of foreign direct investment, the limit may combine FDI and FII investments.

It also paved the way for a major reform of the pension sector by clearing amendments to the Pension Bill and allowing foreign investments in the sector.

That was not all. Official amendments to the outdated Companies Act, the largest single piece of legislation in the world, were also cleared, as was an amendment to the Forward Contracts Regulation Act allowing options. Amendments to the Competition Act were approved, though bank mergers were kept out of its purview.

While India Inc welcomed the reforms push, political opposition to reforms, particularly in insurance, is bound to harden, especially because the Government ignored the views of the multi-party Parliamentary Standing Committee on Finance.

However, the Government appeared to have kept some elbow room. This was evident when Finance Minister P. Chidambaram said: “We will sit, discuss and negotiate…. We will reach out to all political parties, especially the principal Opposition party, to get the reform Bills passed.”

He said there have been instances when Bills have been passed, even when the government was in the minority. This was particularly with reference to the lack of required numbers to get the Bills passed in the Rajya Sabha.

Meanwhile, Chidambaram clarified that the new decision will not apply to Government-owned companies such as Life Insurance Corporation (LIC) and the five general insurance companies.

“The benefit of this amendment will go to the private sector insurance companies which require huge amounts of capital and that capital will be facilitated with the increase in FDI to 49 per cent,” Chidambaram told reporters.

The state-owned general insurance companies and GIC will, however, be permitted to raise capital from the market to meet future requirements, provided the Government’s shareholding does not fall below 51 per cent at any point.

To encourage health insurance, the capital requirement for a health insurance company is now proposed at Rs 50 crore (against Rs 100 crore for a general insurance company) to reduce entry barriers to a priority sector in the insurance space.

The definition of the ‘health insurance business’ has been revised to clearly stipulate that health insurance policies would cover sickness benefits on account of domestic or international travel.

Further, the period during which a policy can be repudiated on any ground, including misstatement of facts, has been confined to three years from the commencement of the policy. Thus, no policy can be called in question on ground of misstatement after three years.

PENSION BILL

The Cabinet also approved five official amendments to the Pension Fund Regulatory and Development Authority Bill, 2011. These official amendments are based on the recommendations of the Standing Committee on Finance. Among these, the provision on assured return is key.

The provision says: “The subscriber seeking minimum assured returns will be allowed to opt for investing his funds in such schemes providing minimum assured returns as may be notified by the Authority.”

The other provision is related to foreign investment limit. It says the foreign investment ceiling in the pension sector, at 26 per cent or such percentage as may be approved for the Insurance Sector, whichever is higher, may be incorporated in the present legislation.

Asked whether these Bills will be brought for consideration and passage during the Winter Session, the Finance Minister said the time-table has to be approved by the Parliamentary Affairs Ministry.

Interest on savings bank deposits may fall

http://www.business-standard.com/india/news/interestsavings-bank-deposits-may-fall/487876/

Savings bank deposits might fetch lower returns. For the first time since rates on these were deregulated in October 2011, leading banks are considering reducing it, as the interest rate cycle has started showing a downward bias.

Bankers say a cut in the savings bank rate is needed to protect net interest margins (NIMs).

“There is a distinct possibility banks may cut savings bank interest rates. The fact of the matter is if the whole interest rate structure comes down and you don’t cut the savings bank rate, your margins would be impacted,” said Aditya Puri, managing director, HDFC Bank.

To protect NIMs, banks have already cut fixed deposit rates on retail term deposits across maturities.

For many quarters, HDFC Bank has maintained a net interest margin of 4.15-4.35 per cent. Now that the second-largest private sector lender is considering a cut in its base rate (the benchmark rate to which all loans are linked), its margins would be under pressure if the cost of funds do not decline.

HDFC Bank’s margins are boosted by the high proportion of low-cost deposits. The bank’s current account and savings account deposits account for 46 per cent of total deposits, one of the highest in the sector.

Most commercial banks pay four per cent interest on savings bank deposits, though some offer more.

YES Bank offers seven per cent on deposits of more than Rs 1,00,000, while Kotak Mahindra Bank and IndusInd Bank offer six per cent. These banks had raised the interest on savings deposits after the Reserve Bank of India (RBI) had deregulated these rates. This had helped the banks garner more of these deposits.

ICICI Bank to offer reward points to SB accountholders

http://www.thehindubusinessline.com/industry-and-economy/banking/article3951911.ece

In a bid to stave off competition from the likes of Kotak Mahindra Bank, IndusInd Bank and YES Bank, ICICI Bank has unveiled a rewards programme for customers transacting through savings bank (SB) account.

The rewards programme comes at a time when the abovementioned banks are paying higher interest rates, ranging from 5.5-6 per cent on SB balance up to Rs 1 lakh and 6-7 per cent on balance over Rs 1 lakh.

All public sector banks and majority of the private sector banks, including ICICI Bank, HDFC Bank, and Axis Bank, have left their SB interest rate unchanged at 4 per cent. This is despite the Reserve Bank of India deregulating the SB interest rate last year.

Industry experts say India’s largest private sector bank, besides responding to the challenge posed by smaller rivals on the SB deposits mobilisation front, is possibly targeting multiple objectives through the rewards programme, called ‘MySavings Rewards’.

The bank may be seeking to get existing retail depositors to maintain higher balances, attract new ones, migrate transactions to alternate channels — Internet and mobile, give a thrust to e-commerce, and cross-sell loans to retail depositors.

REWARD POINTS

Retail customers of ICICI Bank will get reward points for various transactions including activating Internet banking, shopping online/ paying utility bills with Internet banking, and auto-debit from savings account towards equated monthly installments for home/ auto/ personal loan/ recurring deposit.

Further, customers will get points for activating mobile banking, shopping though mobile, consolidating family banking accounts, and activating demat account.

For example, a customer will get 100 points when he logs in to ICICI Bank’s Internet banking for the first time. The bank is offering one point for every Rs 100 spent online and 10 points every time a registered biller is paid using Internet banking.

MONTHLY AVERAGE BALANCE

Rolled out from September 1, ICICI Bank’s SB customers, maintaining monthly average balance of Rs 15,000 or more, will automatically earn reward points. This will be reflected in their SB statements from October onwards. These points can also be clubbed with points earned on credit card transactions.

The points can be redeemed by a customer by logging in to his internet banking account and clicking on the ‘redeem’ option. The customer can redeem his points from a wide range of lifestyle products to household items to travel to auto accessories.

COMPETITION FOR SB DEPOSITS

The competition to mobilise low-cost SB deposits seems to have prompted ICICI Bank to throw down the gauntlet to its smaller rivals. It has extended the strategy used to market credit cards to SB accounts.

After Kotak Mahindra Bank increased the interest rate on SB deposits by 50 per cent last year, it clocked a robust year-on-year (y-o-y) growth of 67.5 per cent in these deposits from Rs 3,307 crore (June-end 2011) to Rs 5,540 crore (June-end 2012.

On a larger base, ICICI Bank’s SB deposits grew at a slower clip — 16.1 per cent y-o-y growth — from Rs 66,858 crore (June-end 2011) to Rs 77,923 crore (June-end 2012).

Govt clears tax incentive scheme for first-time equity investors

http://businesstoday.intoday.in/story/rajiv-gandhi-equity-savings-scheme-rgess-mutual-fund/1/188295.html

Are you yet to start investing in equities? If you have been planning to take the plunge, it might be a good time. First-time retail investors in stocks and equities-based mutual funds can now avail of tax benefits under the Rajiv Gandhi Equity Savings Scheme (RGESS).

In a bid to increase participation of small investors in the equity market, the finance ministry on Friday (21 September 2012) approved the scheme under which beginners investing up to Rs 50,000 in approved stocks and mutual funds can claim 50 per cent of the amount as tax deduction. However, only those with an annual income of less than Rs 10 lakh would be eligible for the deduction. 

Top 100 stocks listed on the BSE 100 (of the Bombay Stock Exchange) and CNX 100 (of the National Stock Exchange) indices and shares of government-owned Navratna, Maharatna and Miniratna companies have been approved for the benefit. 

Investments in follow-on public offers (FPOs) of the aforementioned companies and initial public offerings of state-owned companies with an annual turnover of Rs 4,000 crore or more in the three years preceding the issue would also be eligible for the tax deduction. 

Exchange-traded funds (ETFs) and mutual funds investing in the approved securities have also been included in the incentive scheme. The tax deductions can be claimed under Section 80CCG of the Income Tax Act, 1961. Investments can be made in parts during the financial year for which a tax deduction is claimed under the scheme.  

Investments under the scheme will have a lock-in period of three years. For one year from the date of purchase of equities/mutual funds units under the scheme, an investor cannot sell the securities or take appreciation benefit at all. 

From second year onwards, one can sell the securities provided the portfolio does not fall below the amount for which deduction was claimed or the value of the portfolio before initiating the first sale transaction, whichever is less, for at least 270 days in a year during the lock-in period. If an investor fails to meet these conditions, the tax benefit will be withdrawn.

By restricting the ambit of the incentive scheme to large-cap stocks, the government has tried to limit the risk exposure of new investors. Some market experts had expressed concern that the scheme might expose small investors to the vagaries of stock markets.

Equity market experts and the mutual fund industry have welcomed the move saying it would broaden the equity investors' base and bring more depth into equity markets.

Banks follow SBI in reducing lending rates

http://www.business-standard.com/india/news/banks-follow-sbi-in-reducing-lending-rates/187498/on

A day after the country's largest lender State Bank of India (SBI) slashed its base rate, a couple of public sector banks have announced a reduction in their lending rates.

Kolkata-based UCO Bank said it has reduced its interest rate on loans to retail, mid-corporate, SME and farm sectors by 25-150 basis points with immediate effect. The state-run lender has pared interest rate on home loans by 25 basis points, car loan rates by 50 basis points and educational loan rates by 150 basis points.

In addition, the bank will offer loans above Rs 1 crore to retail, mid-corporate, SME and farm sectors at 25-150 basis points lower rates.

State Bank of Bikaner and Jaipur (SBBJ) went a step ahead and cut its base rate or minimum lending rate by 25 basis points to 10.25 per cent. The new rates will be applicable from October 1, 2012. The bank has also reduced its deposit rates by 25 basis points for tenures between one to five years.

SBI cuts base rate by 0.25 pc to 9.75 per cent

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Acting on the cue from the Reserve Bank of India (RBI), the State Bank of India (SBI) on Tuesday announced a reduction in the minimum lending rate by 0.25 per cent, giving relief to all types of borrowers.

"The cut in base rate was driven largely by the RBI's decision to cut the CRR yesterday," State Bank's Chairman Pratip Chaudhuri said late on Tuesday evening.

The bank's Asset Liability Committee (Alco) met on Tuesday and decided to cut the base rate to 9.75 per cent.

The reduction is effective from September 20.

The decision by the country's largest lender comes a day after the Reserve Bank cut Cash Reserve Ratio (CRR) by 0.25 per cent to 4.5 per cent inducting Rs 17,000 crore into the system.

SBI is the first to cut base rate after RBI's policy announcement and its rate is among the lowest in the market. Other banks are likely to follow suit and cut lending rates in the coming days.

Chaudhuri said the cut would have a "very minor" impact of up to four basis points or 0.04 percent on its margins.

According to Chaudhuri, of the bank's Rs 6 lakh crore loan book, up to Rs 5 lakh crore is linked to the base rate mechanism.

The base rate mechanism came into effect in July, 2010 as a new transparent alternative to the earlier benchmark prime lending rate.

The remaining Rs 1 lakh crore is linked to the BPLR, he added.

Cabinet allows up to 49% FDI in aviation by foreign carriers

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In a major move for the aviation sector, the government on Friday decided to allow foreign airlines to buy up to 49 per cent stake in local carriers. The foreign investment limit of 49 per cent in local airlines includes both foreign intuitional investments and foreign direct investment, according to a government document. 

"The cabinet today approved the proposal of allowing foreign airlines to pick upto 49 per cent stakes in Indian carrier. Though FDI of upto 49 per cent, 75 per cent and 100 per cent was there in aviation sector, foreign airlines were not allowed," Civil Aviation Minister Ajit Singh told reporters after the meeting. 

Ajit Singh said that the sector has been under financial stress and now banks will look at them favourably. Technical & management expertise would be available. 

Reacting to the move, Gurudas Dasgupta of Trinamool Congress said that the decision is a "futile act of a bankrupt government".

Earlier, the government allowed foreign investors, not related to airline business, to buy up to 49 percent stake in domestic airlines but foreign carriers were not permitted to invest. The government had initiated the process in January but key UPA constituent Trinamool Congress was opposed to it. 

This provides a potential lifeline to the country's debt-laden airlines by opening up a fresh source of funding. Earlier in the day, aviation stocks surged on hopes that the government will finally tweak rules about allowing foreign direct investment in the sector. 

Most of the Indian carriers are suffering losses because of high taxes on jet fuel, rising airport fees, costlier loans, poor infrastructure and cut-throat competition. 

Except IndiGo, all airlines have posted losses in the financial year ending on March 31. 

Cash-strapped Kingfisher Airlines, which is burdened with a debt of over Rs 7,000 crore, has been in the forefront of pushing for permission to allow foreign airlines to invest. 

The moves follow a 12 percent hike in the price of heavily-subsidised diesel on Thursday night, which some analysts saw as the government signalling its intent to reinvigorate its long-stalled reform agenda. 

Government allows up to 51% FDI in multi-brand retail, 100% in single brand

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In a big move, the government on Friday cleared the proposal to allow up to 51 per cent Foreign Direct Investment (FDI) in multi-brand retail. The government has allowed the FDI on the condition that states will be allowed to decide whether they want to opt for it. 

Commerce Minister, Anand Sharma also announced 100% single brand FDI notification with the requirement of 30% local sourcing. "The move will attract investment, create employment," Sharma said. 

"For FDI proposals beyond 51% in single brand retail, 30% sourcing from 'Small Industries' has been made mandatory," Cabinet Committee on Economic Affairs (CCEA) said. For multi-brand retail, CCEA said that 50% FDI brought in shall be invested in back-end infrastructure within 3 years of FDI induction. 

The government had allowed 51% FDI in multi-brand retail in December last year, but the decision was kept in abeyance following widespread opposition from the allies and opposition parties. 

Prominent industrialists had been emphasising the need for the government to pus key economic reforms, one of which was allowed FDI in multi brand retail. 

The UPA II government ally Trinamool Congress expressed strong opposition on the government's decision. Opposition party BJP also called the FDI in retail as a "betrayal of people of country". 

Retail stocks surged on market speculation that the government might finally allow foreign investment in the country's multi-brand retail sector. 

The move would allow global firms such as Wal-Mart Stores to set up shop with a local partner and sell directly to consumers for the first time, a move which supporters say could transform the $450 billion retail market and tame inflation. 

The moves follow a 12 percent hike in the price of heavily-subsidised diesel on Thursday night, which some analysts saw as the government signalling its intent to reinvigorate its long-stalled reform agenda.