Microfinance rates can be cut if banks lower interest : Apex body

Microfinance institutions are ready to cut lending rates by as much as 2.50 percentage points provided banks reduce the cost of money for these institutions by a similar quantum, according to a senior official of the industry association of MFIS.
The 12-13% interest on loans taken from banks is the single biggest cost for MFIS and this presents them a challenge in bringing down lending rates, said Mr.Alok Prasad, CEO, Microfinance Institutions Network (MFIN), the apex industry body.
MFIN is a self-regulatory organisation representing the interests of MFIS that are registered as non-banking finance companies (NBFC-MFIS)with the RBI.Its members represent about 80% of total outstanding micro loans in the country.
MFIS are in the eye of the storm as negative perception has gained ground that they are creaming off profits by charging high interest rates on loans given to small borrowers and also for resorting to strong -arm tactics while making recoveries.
Recently, the Reserve Bank of India(RBI) has set up a committee to study the issues and concerns in the microfinance institutions (MFI) sector, including ways and means of making interest rates charged by them reasonable.
The RBI regulates only those MFIS that are registerted with it as non-banking finance companies.Although the registered companies cover over 80% of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIS in the country. The Central Bank, however, does not prescribe lending rates for these institutions. ( BL20.10.2010)

SBBJ plans rights issue

Mumbai: State Bank of Bikaner & Jaipur is planning to raise Rs.800 crore (inclusive of premium ) through a rights issue of shares.( BL 20.10.2010)

Crisil to develop index for financial inclusion

Rating agency Crisil is developing an index for financial inclusion, which will look into operational nature of "no-frills accounts". Mr.R. Gopalan, Secretary, Financial Services, MOF addressing a press conference at Chennai, after assessing the financial inclusion plans of South based- banks, said that Crisil would develop various indices, including the percentage of these accounts that are operational. The Crisil Index, a neutral index will be applied to evaluate public sector banks performance on financial inclusion. When asked about number of active "no-frills account", Mr. Gopalan said that the operational efficiency of these accounts vary from Bank to Bank. Corporation Bank has an operational efficiency close to 60% while other banks are much less but they are beefing up their technology to improve efficiency. Facilities to be provided for "no-frills account" will be deposits, withdrawals, remittances, account queries, in the next phase loan products micro insurance and micro pension will be offered.(BL 15.10.2010)

Risk rating determines our lending rate :PNB

" Technology advancements in banking operations not only make transactions cost effective but also easy and quick. Avail (yourself' of)internet facility, use technology,"urged the Field General Maneger(Chennai) of state-oriented Punjab National Bank, Mr. S. Ranganathan in a meeting with the selected customers at Tirupur.
His reminder and reiteration on use of technology was in response to a customer's request for slashing interest rates.
The bank had invited around 25 customers for a 'customer meet' on Thursday. When a customer raised the issue of rising borrowing cost, the banker said that PNB's Prime Lending Rate (PLR) was the lowest in the industry. They have since June switched to Base Rate.Due to inflationary pressures, the rate of interest on deposits has gone up and with it bank's cost of funds is also registering an increase. The Bank has a system of risk rating in place, based on which it determines the lending rate. The system is transparent .The rate would depend on the borrower's rating category and the rate difference the best and poorly rated units would be roughly around 3.5 percentage points. Low rating means higher interest, the banker said. He further stated that where the borrowing limits exceeded Rs 5 crore, the account was rated by an external rating agency as well. But the Bank does not go only by the external agency rating.(BL 09102010)

Banks' commission from Govt. business set to rise

Commission earned by banks on Government business are likely to rise with the Reserve Bank of India setting up a committee to review the existing payment structure. The structure is generally reviewed every five years. It was last reviewed in 2005. RBI has formed a committee under A M Pedgaonkar for the review.
Banks receive Rs. 60 per transaction in case of pension payments. For other payments, they get nine paise for every Rs.100. For receipts, they get Rs.45 per transaction. Bankers have made a case for increasing the commission to 15 paise per Rs.100 for payments other than pension and to Rs.100 per transaction in case of pension.
The country's largest lender, State Bank of India(SBI) has the major share in Government business. More than 7000 branches of SBI conduct Government business. As such, State Bank of India will be the biggest beneficiary.
Recently, the Central Bank asked State Governments not to engage private sector banks. The wide network of state-run banks, especially in rural and semi-urban areas, was seen as an effective means to carry out Government transactions.(BS 07.10.2010)

Southern Banks begin financial inclusion process in villages

South India- based banks such as Corporation Bank, Karnataka Bank have kickstarted the financial inclusion plan as envisaged by the Reserve Bank of India to provide financial services to the rural populations. Most of these financial institutions are also in the process of appointing business correspondents who will work as financial intermediates between banks and the rural people. The Corporation Bank has a plan to extend financial services in 212 villages by the end of this fiscal of which they have already covered around 80% of the villages as of now under financial inclusion plan, said the Executive Director, Corporation Bank. However, the Bank is yet to tie up with any "for-profit" or "not for-profit" organisation to act as business correspondents.
The Karnataka Bank plans to cover 75 villages under the financial inclusion plan in the present fiscal.
Under financial inclusion plan, banks will open no-frills accounts with service provisions like deposit, withdrawal, remittance payment, loan repayment among others excluding cheque services. Vijaya Bank has also recently started its financial inclusion plan from Mandya district of Karnataka.(BS 07.10.2010)

Banks against freeing savings account rate

Bankers, especially from the public sector, are against deregulation of savings bank (SB) deposit rates. At a pre-monetary policy review meeting with the Reserve Bank of India on 4th Oct.2010, they feared this would unleash unhealthy competition in garnering deposits .
At the meeting, called to gauge the views of select bank chiefs on credit and deposit growth, interest rates, deregulation of the SB rate, the non-performing assets situation and the transition from the Benchmark Prime Lending Rate to Base rate-linked lending regime, the bankers are believed to have told the RBI that deregulation of the SB rate could trigger volatility in the interest rate on these deposits.
Currently, the 3.50% interest rate on SB deposits serves as a floor rate for all deposits in the banking system. Once deregulated, the SB rates could fluctuate wildly, depending on the liquidity situation. If call money rates shoot up, SB rates would go up, and vice versa. So, whether the depositor will gain or lose, it will be difficult to assess. At least now there is a certainity that the depositor is earning 3.50 per cent interest daily on SB deposits, said a banker clued into the developments.
"Most banks are against the de-regulation of savings bank rate as they feel it would give rise to competition, and could hit the growth of Current Account, Savings Accounte deposits. Also, depositors have been compensated by the daily calculation of savings bank rate and the de-regulation would not serve any additional purpose", said Dr. K. Ramakrishnan, Chief Executive, Indian Banks' Association.(BL 05.10.2010)