Disclosure requirement of interest rates charged on individual loans effective from April 1, 2015

The Reserve Bank of India (RBI) has asked banks to be more transparent in displaying information about the interest rate and the fees charged on loans.

Lenders have been asked to display the interest range of loans in the past quarter, along with the average interest rate at which loans have been granted to borrowers, on their website. This is applicable to all the categories in which loans to individual borrowers have been sanctioned. Banks have also been asked to inform borrowers about the fees and charges on the loan at the time of processing.

Lenders will also have to display the charges on their website and publish annual percentage rate (APR) of loans.

“Banks should publish APR or such similar other arrangement of representing the total cost of credit on a loan to an individual borrower on their websites so as to allow customers to compare the costs associated with borrowing across products and/ or lenders,” the regulator said in a notification.

Lenders will also have to provide a fact-sheet at every stage of loan processing or in case there is any change in terms and conditions.

This fact sheet includes information such as interest rate, fee on processing, penalty, details of security/collateral obtained, equated monthly instalment, or EMI, that the borrower needs to pay, etc.

“The same (fact sheet) may also be included as a summary box to be displayed in the credit agreement,” said the notification. These directives are based on the recommendations of working group on pricing of credit and the guidelines will come into effect from April 1, 2015.

Earlier this week, RBI had asked banks to ensure that loan spreads were not changed arbitrarily.

Banks had been told to change spread on existing loans only if there was a deterioration in the credit risk profile or change in tenor premium.

Mobile payment firm LoopPay plans to enter India this year

US based tech firm LoopPay is planning to enter India this year with its patented technology that facilitates payment by just place mobile phone beside a normal card reader.
Credit or debit card details can be loaded in LoopPay's mobile phone applications.

HDFC Bank to launch digital wallet

HDFC is planning to launch a digital wallet and market place for various online merchants since it is seeing a shift in e-commerce from desktops to mobiles.

The wallet will enable contactless payments over mobiles using NFC.
ICICI Bank this month only launched its NFC enabled cards.

At end of October14, HDFC bank logged in mobile banking transactions worth Rs 3,450 crore while ICICI bank logged in Rs 1,416 crore.

Spending rate outpaces credit card issuance growth in 2014

Spending growth tops 27 per cent in October, the highest in three years
For banks, 2014 might have been one of the worst years in terms of loan growth. However, things are different in credit cards. The growth in credit spends is at a three-year high, according to latest data from the Reserve Bank of India (RBI).

While the growth in the total number of credit cards in the system at end-October was 7.5 per cent compared to 0.3 per cent in the previous year, spends logged a robust growth of 27 per cent — from Rs 13,639 crore to Rs 17,314 crore. Overall loan growth of the banking system was 10.9 per cent till December 12, according to RBI data.

The number of cards at the end of October was 19.9 million, up from 18.5 million in the year-ago period. In 2013, while loan growth was 14.5 per cent, card spend grew 24 per cent.

A number of factors, including improved reward and loyalty points, better offers and the boom in e-tailing have pushed credit card spends. So, banks are unfazed by the single-digit growth in the number of cards in the system.

“The number of cards is growing at a slower pace than we would like, but the spends have increased. The credit card spends for the entire year has been in high double digits. And we have been focusing on growing that by giving out better offers in order to improve customer experience of shopping via cards,” said Sumit Bali, executive vice-president (personal assets) at Kotak Mahindra Bank.

Even during the festival season, lenders had tailor made several offers on credit cards to encourage consumers to use plastic money.

HDFC Bank continues to be the largest issuer of credit cards. At the end of October, the lender had a credit card base of 5.57 million, followed by ICICI Bank that has the second largest credit card base with 3.30 million card users.

Bankers believe that with the use of credit information bureau, they can extend credit cards to consumers with more confidence. “This time is different from 2008; now all banks access the credit score before giving a credit card and therefore, they lend it only to consumers with a good credit history. This has ensured that defaults have come down and lenders are also more confident about the credit card business.”

Banks have so far been restricting themselves to issuing credit cards only to consumers with whom they have a banking relationship. However, there are some lenders such as RBL Bank (formerly known as Ratnakar Bank) that have from this year onwards started offering cards to new consumers.

According to experts, convenience and better offers on credit cards will push the usage of plastic money even further.

India's credit card base nears 20 million

The outstanding number of credit cards was 19.95 million at the end of October 2014, the Reserve Bank of India (RBI)'s latest data showed. Bankers claimed the card base had probably topped 20 million in the last two months, for the first time since February 2010.
The exponential growth in India's e-commerce space has helped. The country's 213-million internet population, as on 2013, saw five million additions every month. Consumers are now buying almost everything online - groceries, apparel, furniture, jewellery - and on most occasions are using cards for payments.

The entry of credit information companies has helped banks access comprehensive data of credit history of consumers.

"Credit information companies have played a key role in improving the portfolio quality," Kalpana Pandey, managing director and chief executive officer of CRIF High Mark Credit Information Services, said, "They enable credit card issuers to objectively evaluate risk of a potential client with various credit risk management products, including credit scores."

CRIF's study showed the average credit limits on credit cards had gone up in 2014 across the top 10 cities.


"The portfolio quality has also improved, with a reduction in the percentage of non-performing cards in 2014," Pandey said.

Our long-term interest continues to be in a universal bank licence: Sanjiv Bajaj, Managing director, Bajaj Finserv

One of the 25 applicants for a new banking licence was Bajaj Finance, non-banking finance arm of Bajaj Finserv. Last year the central bank gave ‘in-principle’ approval to two applicants, IDFC Limited and Bandhan Financial Services, while Bajaj Finance was not chosen. Sanjiv Bajaj, managing director of Bajaj Finserv, tells Neelasri Barman about the focus areas of the company. Edited excerpts:

You were one of the applicants for a new banking licence. Since you were not chosen, what next?

For our kind of business, a small bank licence is not relevant. Our long-term interest continues to be in a universal bank licence. However, there is no urgency. We will wait for the universal bank licence guidelines and then decide. In the short term, as a non-banking financial company (NBFC), we are adequately taken care of. We are not looking for any tie-ups for payment banks either.

What are the new initiatives planned for 2015?

In Bajaj Finance our focus will be to expand geographically and strengthen our digital presence. In case of our life insurance business, the focus will be to strengthen our agency channel and improve operational efficiencies. The digital theme will be common across our businesses.

How was the festive season?

In the first six months of this financial year, Bajaj Finance delivered a growth of 41 per cent year on year, in assets under management (AUM), while the general insurance business has clocked a growth of almost 18 per cent in premiums in the same time period. Life insurance as a sector has been going through a slowdown. In our case, after falling in topline in life insurance last fiscal, this year we are hoping to hold premiums steady. In festive season what really mattered was consumer durable financing which grew over 40 per cent. But barring the festive season things are still muted. As economic growth picks up in 2015, these businesses should grow further. Even our small medium enterprise (SME) financing business has been growing impressively.

In insurance products have you seen investors shifting from pure debt to pure equity products in a big way?

This is more relevant for Ulip (unit linked insurance plan) products in the life insurance business. If we compare over last three years, Ulips accounted for 15 per cent of  total sales. This year the growth in Ulips has been over 25 per cent year on year as most customers are choosing equity schemes. This is due to the overall positive sentiment in the economy. Besides that, it has also to do with how the product designs have completely changed over the last few years and have become much more attractive for consumers.

Your rural portfolio in Bajaj Finance continues to be a very small portion out of your total portfolio. Do you see it expanding in percentage terms?

Our rural portfolio is rapidly expanding every year. We started our rural business just two years ago and we have covered a large number of villages and towns in Gujarat and Maharashtra. This year we plan to take up an additional state.
Year-on-year this portfolio is expected to grow steadily. We are following a low-cost technology-led model which enables us to lend at reasonable rates and make it a profitable business from early on. As an NBFC, we don’t have an obligation to do rural business, but we see this both as a responsibility and as an opportunity.

In case of our general and life insurance business we have a strong rural presence. The rural portfolio will grow faster, but given that we have just started, it will take time for it to be a significant percentage of our total portfolio. Over the years we would like it to be close to 10 per cent of our total portfolio.

Do you plan to build your consumer finance portfolio somewhere close to SME portfolio which is the largest?

If you look at the number of loans given annually, consumer finance is much higher than the SME. But because on an average, consumer finance loans are of very short tenure (on an average 18 months compared with 5-6 years for SME loans) the result of which is that consumer finance AUM runs off much faster. The consumer finance business is growing much faster than the SME business.

This year even banks did not clock high growth in retail lending while you have recorded over 40 per cent year on year growth in first six months of the fiscal. What were the drivers for growth in your case?

This was because of multiple drivers. Our strong value proposition for customers in terms of 0 per cent EMI on consumer durable loans combined with differentiated offerings and quick loans disbursements across our wide portfolio of products. In addition we have also built a strong partner ecosystem to enable better and faster reach to customers.  All of this has been a result of our constant endeavour to build positive customer impacting capabilities across our product portfolio

The mortgage business of yours was in consolidation phase. When do you plan to expand?

We have added 12-13 per cent AUM in mortgage businesses in the first half of this year versus previous fiscal year end. The whole economy was slowing down so we too slowed down our growth. We expect the growth rate to accelerate as the economy picks up in the coming quarters. We are across 47 locations and in bigger locations the ticket size of loans are around Rs  2.5 crore and in small locations it is closer to Rs  1 crore.

Your net NPAs have risen but at the same time the provisioning has been decreasing. Why is that so?

Given our low net NPA of 0.2%-0.3% over last 12 quarters, a minor increase in net NPA can happen given our multiple lending business lines which also includes high ticket businesses like infra, construction equipment and mortgages. There has been systemic stress in construction equipment financing and infrastructure financing sector which in turn has led to a marginal increase in net NPA. However, these portfolios together constitute less than Rs  850 crore and about 3.0% of our book. We had exited these businesses and the portfolios remain in remedial mode. At the same time the performance of the rest of the lending portfolio has continued to improve leading to reduction in provisioning cost.

What impact will the new norms on provisioning for standard assets and NPA classification have on your business?

These norms will not have any impact on us. Our provision for standard assets is already at 0.4 per cent.

LIC launches co-branded credit card with UAE bank

LIC International of India has partnered with First Gulf Bank (FGB) to launch a first of its kind cobranded credit card in Gulf nation