RBI denies banks' plea on loans to realtors

The Reserve Bank of India has rejected the request of banks that they be allowed to restructure real estate loans without providing for likely losses if the loans go bad, according to an Economic Times report. A loan is said to be restructured when the original terms of the agreement (interest rates, tenure) are diluted to enable troubled borrowers to repay loans. This also helps banks to recover a good chunk of the funds they have lent.

 

This RBI move is welcome for two reasons, points out CNBC-TV18. One, home prices could soften (or at least the steep rate of climb could be arrested) as banks put pressure on property developers to repay loans. This in turn could force builders to push up sales by dropping prices if need be. Second, and more important, by bringing greedy realtors to heel, the RBI may also be able to rein in a key contributor to inflation: soaring property prices.

The RBI stance is in marked contrast to that of finance minister P Chidambaram, who last week is said to have told banks to help out builders of residential projects facing a cash crunch. This could also set the stage for a fresh conflict between the RBI and the finance ministry, which have been publicly sparring over interest rates.

When property prices crashed in 2008-09, banks should have ideally forced builders to sell property at prevailing rates and repay the loans owed to banks. Instead, with permission from RBI, banks rolled over the loans, by allowing builders to keep paying interest even if they were unable to repay the principal amount. Had the RBI not given this leeway, banks would have had to set aside huge provisions for doubtful loans, which would have then dented their profits. The central bank had little choice but to give this concession, given the backdrop of the raging global financial crisis which was hurting the Indian financial sector as well.

One, there have to be rules in place to ensure that builders have a good chunk of their own funds (equity) tied up in the project. According to a presentation made by Corporation Bank to the finance ministry last week (as reported in The Economic Times), builders are showing advances collected from purchasers as their equity contribution. With the rest of the funds arranged from banks, builders have little to lose in case the project is delayed.But the move set a bad precedent. Knowing that it was as much in the interest of banks not to let the loans go bad, developers held on to high prices, undeterred by slowing sales as they were in no hurry to repay the loans. Even now, many banks resort to 'evergreening' of real estate loans (giving fresh loans to repay the old loans) so that they don't have to make provisions which would hurt their profits and thereby valuations. There are two more things that need to be done to ensure that unrealistic real estate prices don't create distortions in the economy.

Second, the government needs to expedite the setting up of a regulator for the real estate sector. Stringent penalty clauses in the agreements with home buyers will put additional pressure on the builder to complete projects on time.

Banks setting up info sharing mechanism to check NPAs

The Reserve Bank of India (RBI) has directed banks to put in place an effective information sharing mechanism by end-December 2012, to address the issue of rising non-productive assets (NPAs) and restructured advances of banks.

This will help banks to use information on credit, derivatives and unhedged foreign currency exposures of prospective borrowers.

Effective 1 January 2013, any sanction of fresh loans / ad-hoc loans/renewal of loans to new or existing borrowers should be made only after obtaining/sharing necessary information, as per the RBI directive.

RBI will view non-adherence to these instructions seriously and banks would be liable for action, including imposition of penalty wherever considered appropriate, an official release said today.

NPAs of nationalised banks as a whole increased to Rs 33,699.12 crore at the end of September 2012 from Rs 27,637.84 crore at end-September in the previous fiscal. The regulatory and supervisory measures are aimed at reducing growth in NPAs and restructured advances by banks and are being closely monitored by the RBI on an ongoing basis, minister of state for finance Namo Narain Meena informed the Rajya Sabha in a written reply today. 

Total non-performing assets of scheduled commercial banks in the country rose to Rs 62,602.57 crore at the end of September in the 2011-12 financial year from Rs 56,332.30 crore during the similar period of the previous fiscal (2010-11). Among state-run banks, the share of the State Bank group stood at Rs16,300.15 crore at end-September 2012 against Rs15,359.00 crore as of end-September 2011.

 

As a percentage of gross advances, NPAs of all scheduled commercial banks increased to 3.57 per cent of gross advances at end-September 2011-12 from 2.94 per cent in 2010-11. Total NPAs with all public sector banks rose to 4.01 per cent at end-September 2011-12 from 3.17 per cent in the previous year.

NPAs of nationalised banks rose to 3.5 per cent as of end-September 2011-12 from 2.67 per cent during the comparable period of the previous fiscal. The State Bank group had the highest NPA of 5.16 per cent at end-September 2011-12 against 4.36 per cent during the comparable period in 2010-11.

RBI has also asked banks to monitor their NPAs and take steps to bring them down through upgradation/ recovery/prudential write-off. The government has, meanwhile, advised public sector banks (PSBs) to take a number of new initiatives to increase the pace of recovery and manage NPAs, which include appointment of nodal officers for recovery, conducting special drives for recovery of loss assets, putting in place early warning system, replacing system of post-dated cheques with electronic clearance system (ECS), e-auctions, sharing of credit information through CIBIL, assigning of loss assets on incentive basis to asset reconstruction companies and giving weightage to recovery of NPAs in statement of intent on annual goals of PSBs, the minister added.

JCB announces credit card deal in Burma

JCB is to become the third of the major global credit card companies to launch operations in Burma after its international subsidiary, JCB International (JCBI), signed an agreement with Myanmar Payment Union (MPU) to issue JCB cards in the country.
The company said it aims to expand JCB card acceptance early in 2013 and to launch a JCB card issuing program in the near future.
JCB, meaning Japan Credit Bureau, is the leading credit card in Japan and has increased its presence heavily in other parts of Asia in recent years. JCBI says its cards are now issued in 16 countries and territories, with more than 77 million card members worldwide.
Japanese press reported on November 26 that JCB—following in the footsteps of US giants VISA and MasterCard— had signed a Memorandum of Understanding for building a JCB ‘card acceptance network” and for issuing JCB cards in Burma through the member banks of MPU.
MPU was established by the Central Bank of Myanmar in 2011 with 17 local banks to promote the acceptance and issuance of payment cards in the country.
The MPU debit card scheme was officially launched in September among eight private banks out of the 17 members. Those were: Myanmar Citizen Bank, Myawaddy Bank, Myanmar Oriental Bank, Kanbawza Bank, Cooperative Bank, Asian Green Development Bank, and Myanmar Apex Bank.
It was announced that the first ATMs would be installed in the three main cities of Rangoon, Mandalay and Naypyitaw.
The cash amount an MPU card-carrying customer can request is set at a minimum of 1,000 kyat ($1.14) and a maximum of 5 million kyat (about $5,700).
On November 1, Co-operative Bank Ltd launched the first ATM in Burma at its head office in Rangoon. The name of the ATM service is “Easi Banking”.

Beyond Branch Banking

After all, rich-country banking systems accounted for over 90% of worldwide industry assets as recently as 2004, according to Economist Intelligence Unit data. Developing-country lenders now account for about 24% of global banking assets, and this share will increase to over 35% by 2016, according to our forecasts. About half the world’s adult population lacks an account at a formal financial institution—that is, at a bank, a savings and loan association (building society) or a credit union—according to a recent series of household surveys by the World Bank and Gallup. Many developing countries have only low levels of bank usage and thus offer the greatest potential to reach new customers and deepen financial sectors. For example, in China some 64% of adults have or share an account, with lower levels in Brazil (56%), Russia (48%) and India (35%). By contrast, in developed markets most adults have accounts, and any growth in customer numbers depends on population growth and immigration (which are themselves often stagnant). For example, in the United States 88% of adults hold accounts, with even higher rates of bank usage in Japan (96%), the United Kingdom (97%) and Germany (98%). The industry has recently been shrinking in many rich countries as banks trim loan books, sell off assets and realign their capital ratios to meet regulatory requirements.

A successful formula in Peru: Microfinance has grown by leaps and bounds in Peru, a market that combines sound regulation and private-sector participation.

According to Asomif, an industry association, the volume of loans increased by nearly 17% in the year to June 2012 and have more than trebled since end-2007. The growth of the sector in the three decades it has existed has been solid. More than three dozen entities offer microfinance in Peru, and they already account for about 16% of the money lent in the country. Since MFIs focus on small-value loans to individuals and small businesses, their market share of total borrowers is much higher than that.

The industry has even given birth to a not-for-profit, diversified financial group with international ramifications in the form of Grupo ACP, which owns the local heavyweight Mibanco, with outfits in Argentina, Mexico and Uruguay, plus a bank in Ecuador.

Their most important group of clients is composed of small and microbusinesses, which account for most of the country’s economy. Almost 80% of all loans provided by microfinance entities go to this group, while around 12% are granted to individuals. Even mid-sized companies sometimes employ the services of microlenders, with firms of this size representing slightly more than 5% of all loans. Some supporters of the model argue that it is working because, if they want to, operators can try and make a profit out of microcredit. Some surely seem to be aiming at the most promising markets from a business point of view, rather than simply targeting destitute regions. Data from Asomif show that almost one-third of all the money lent by microfinance companies has gone to the Lima region,which is the economic heart of the country.

Indian Banks entice uber rich with super-premium credit cards

It is an area where Indian banks had rarely ventured in the past but the concept ofcredit cards for the uber-rich is fast gaining popularity among local lenders.

Superior credit quality, large ticket transactions, and the opportunity to get high-profile clients have made ultra-premium cards a necessity in private banks’ product portfolio.

These cards were a forte of foreign lenders such as American Express Banking Corporation, Citi, Standard Chartered Bank, and Hongkong and Shanghai Banking Corporation till mid-2010. But Indian banks have now started gaining market share in this business.Axis Bank, HDFC Bank and ICICI Bank were among the first domestic banks to enter this space.

CREDIT CARD PORTFOLIO OF BANKS IN INDIA
Bank	Credit cards (in million)
HDFC	5.9
ICICI	2.8
State Bank of India	2.4
Citibank	2.3
Standard Chartered	1.3

Axis Bank introduced ‘Privee Infinite’, a credit card for its high net worth customers, in November, 2010.

Almost a year later, HDFC Bank, the largest credit card issuer in the country, launched ‘Infinia’, a by-invitation-only credit card, with no spending limits. It positioned Infinia as a direct competition to Amex’s high-end cards and strengthened its portfolio further with follow-up launches — Regalia, Superia and Platinum Edge. “We want to offer our customers all possible banking products. This strategy prompted us to launch Infinia and other premium cards. The HNI (high networth individual) is an important and growing business segment. Their numbers may be small but they generally spend more,” said Parag Rao, senior executive vice-president and head of credit cards at HDFC Bank. According to rough estimates by bankers, wealthy individuals account for 25 per cent of the total cardholders in the country but their share in total spends is estimated at 65-70 per cent.

Recently ICICI Bank has launched Diamant, a super premium card for private banking customers. The bank had also launched a couple of premium cards, Sapphiro and Rubyx, earlier this year. “Our strategy is to deepen the relationship with clients and expand the product offering to meet the financial needs of customers. There are different ways of getting a client into the bank’s family. This (super-premium cards) is certainly one of them. Delinquency is hardly there. The average spend is also three-four times more than mass segment cards,” said Rajiv Sabharwal, executive director and head of retail banking at ICICI Bank.

Even IndusInd Bank that entered the credit card market only in 2011, by acquiring Deutsche Bank’s portfolio, is likely to introduce an ultra-premium credit card soon, a top official of the bank said.

Bankers agree Indian lenders have made a delayed entry into this space. A limited client pool, lower returns and the affluent Indians’ preference for global brands made them hesitant.

“The HNI segment is a relatively small but growing segment in India. Customers in this segment are defined by the banking relationships they share with us. Typically, such clients will not only be a credit card customer but will have two to three different banking relationships with us. All these factors have made this segment very attractive for banks in India,” saidMuge Yuzuak, managing director and head of payment products at Citibank in India. Bankers also felt HNIs are no longer “excessively brand conscious” and choose their cards based on reward programmes and convenience.

http://business-standard.com/india/news/banks-entice-uber-richsuper-premium-credit-cards/494124/

Cybercrime alert on credit card fraud on 500000 Australians

Credit card data of up to 500,000 Australians has been stolen, writes Ken McGregor.

Shockwaves have been sent through the banking sector following the arrest of an international organised crime gang that allegedly committed the biggest theft of credit card data in Australia's history.

While the banks agreed to shoulder the burden of the losses - which totalled about $30 million - consumers have been put on high alert that their details need to be protected from the global cybercrime network.

In the latest fraud, committed by computer hackers from a Romanian syndicate, the alleged criminals gained access to 100 small retail out-lets where the credit card details of up to 500,000 Australians were stored.

One of those picked up in the Romanian raids was the international martial arts and Greco-Roman wrestling champion, Gheorghe "The Carpathian Bear" Ignat.

Ignat allegedly travelled to Australia in recent years and Romanian prosecutors were expected to argue his role in the gang included creating fake credit cards from stolen credit-card details.

Thousands of counterfeit transactions have been carried out in numerous overseas locations including Europe, Hong Kong, Australia and the United States.

The probe grew to involve law enforcement agencies in 13 countries, with the Australian banking and finance sector in strong support.

By all accounts, cybercrime is a booming industry.

Australians lost $4.8 billion through direct cash and lost productivity to online criminals last year, according to a Norton cybercrime report. That's an average of $212 per Aussie citizen.

While some online hackers emptied bank accounts in one hit, the majority were silently fleecing bank accounts of small amounts, leaving the victims none the wiser.

Recently released Visa statistics showed 40,000 small and medium-sized businesses in Australia and New Zealand were considered the highest risk for victims of fraud. Such businesses were large enough to process about 20,000 eCommerce transactions each year but too small to adequately protect their systems - which meant that criminals could spy on customers' credit-card details.

RBS India sale of retail unit to HSBC falls through as deadline ends

Royal Bank of Scotland's (RBS) proposed sale of its retail and commercial banking operations in India to Hongkong and Shanghai Banking Corporation Ltd (HSBC) failed to materialise as the conditions for the sale were not met even after the deadline expired today.

RBS had, in July 2010, agreed to sell its 31 branches, which had revenues of 42 million pounds and a customer base of 400,000, to HSBC by end of November this year (2012).

''The agreement for the acquisition by The Hongkong and Shanghai Banking Corporation Ltd of The Royal Bank of Scotland Group plc's Indian retail and commercial banking businesses has expired as the long stop date of November 30, 2012, has been reached without all conditions required to close the transaction being satisfied,'' HSBC said today.

Neither RBS nor HSBC offered to specify the reasons for the breakdown and explained it away as a failure to complete all the details by 30 November, the deadline for resolving all issues related to data and customer transfers and regulatory approvals.

Obviously, the two parties have failed to meet regulatory norms for branch ownership by foreign banks.
RBS's proposal last month to sell of 316 branches to Spanish bank Santander for $2.7 billion also failed to materialise, after more than two years of talks, as the issue got stuck on IT issues.

RBS said it would now start winding down of its retail and commercial banking business in India, in order to reduce or exit its non-core assets and businesses.
"Consistent with RBS's strategic objective to reduce or exit its non-core assets and businesses, it will begin to wind down its retail and commercial banking business in India, whilst meeting all customer obligations."
In a regulatory filing with the London Stock Exchange, HSBC said it would rather pursue growth in India without meeting the conditions required for the RBS deal.
HSBC was due to pay a premium of up to $95 million over the tangible net asset value (TNAV) of RBS's retail business in India.