Citibank could sell its retail business in parts or as a whole with suitors ranging from local new and established lenders like Kotak Mahindra, IDFC First or even foreign banks like DBS Bank.
DBS Bank is considered one of the potential buyers of these businesses given its deep pockets and ambitions to expand in India. In November last year, the Singaporean lender completed the first of its kind RBI directed acquisition of a distressed lender taking control of Chennai based Lakshmi Vilas Bank (LVB).
DBS India has already infused more than $1 billion into India in its relatively new existence in the country and though LVB gives its wider access to South India, it may look at Citi‘s credit card portfolio to kick start that business in India. DBS does not offer credit cards in the country currently.
Kotak Mahindra Bank, which was said to be exploring an acquisition of IndusInd Bank and refused the offer for Yes Bank, could be interested in the Citi Bank assets
What’s on offer?
The consumer banking business, which includes cards and loans against property, would be around Rs 32,000 crore. It also has a huge amount of savings accounts built over the last few years, which has a lucrative liability book and also credit cards, which they were the largest among foreign banks in India.
The bank also had Rs 27,911 crore of loans to agriculture, affordable housing renewable energy and micro, small and medium enterprises (MSMEs). Of this, Rs 4,975 crore was to weaker sections, as part of Citi India’s priority sector lending obligations, results released last year showed.
Outstanding credit cards as of February stood at 2.65 million, the largest among foreign banks in India, ahead of 1.46 million by Standard Chartered and 1.56 million by Amex. Citi India had 2.9 million retail customers with 1.2 million bank accounts as of March 2020.
At the end of March 2020, Citibank served 2.9 million retail customers with 1.2 million bank accounts and 2.2 million credit card accounts.
Earlier acquisitions
Local lenders have profited from foreign banks’ exit from India over the last decade. IndusInd Bank for example brought and built up Deutsche Bank’s credit card portfolio in 2011 and followed it up by buying Royal Bank of Scotland’s (RBS) diamond financing business in 2015. Another private sector RBL Bank also started its credit card business by purchasing the portfolio from RBS in 2013.
In a conversation with ETBFSI on its transition from an urban co-operative bank to a small finance bank. Shivali Mercantile Co-operative Bank’s Chief Executive Officer and Managing Director, Suveer Kumar Gupta talks about the reason behind the transition, how it’s relying and investing in digital capabilities and partnerships with FinTechs and MSMEs being a key focus customer base. Journey from UCB to SFB
Shivalik Mercantile Co-operative Bank started in Saharanpur District in Uttar Pradesh is the first urban co-operative bank to transition into a small finance Bank. It acquired Bhoj Nagarik Sahakari Bank Maryadit in Dhar and became a multi-state co-operative bank and further expanded in Indore after acquiring Malwa Commercial Cooperative Bank Limited.
Suveer Kumar Gupta, Managing Director & Chief Executive Officer, Shivalik Bank
The bank has 31 branches and business size around Rs 2050 crore with a deposit base of Rs 1225 crore and advance of Rs 825 crore as of March 31, 2021.
Suveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank Ltd on the transition towards the small finance bank said, “Right from the very start we wanted to be a strong and well managed one of the larger co-operative banks in the country and had aspirations to grow and be professional. For the past few years we’ve been improving our systems, controlling measures, risk management practices and most of all working towards building a strong technology infrastructure. At the same time our focus was on financial inclusion and MSMEs.”
When the Reserve Bank of India in 2015 put forward the small finance bank vision the bank realised they’re in sync with the vision they had set for Shivalik Bank. Gupta said, “The synergies were significant towards a transition to SFB and then RBI came up with voluntary transition guidelines and we jumped to the opportunity and applied for the transition and got an in-principle approval in January 2020 and the final license was in January 2021 and are in the last leg of the journey and hope to go live very soon.”
While the SFB transition will bring in more regulatory oversight and compliance norms, the bank sees numerous benefits with the transition to SFB as existing SFB proven the business model of lending to priority sector with small ticket sizes is successful and as a co-operative bank they have been following for some time.
Gupta said, “We are clear and no two thoughts on how the business will progress. Becoming an SFB will allow us to raise capital for growth and becoming a commercial bank will make it easier to approach investors and infuse a greater trust among the customer base. Further as co-operative banks miss out on government and institutional business, becoming a scheduled commercial bank will help them to reach out for institutional business.”
The bank is eyeing MSMEs as the key are of the focus and 90% of its book is fully secured and about 10% of their portfolio is microfinance. Going forward they tend to retain the philosophy of secured lending and are not shy of unsecured lending as well and will be looking forward to introducing some products in the unsecured side but major focus will be on the secured part.
We are clear and no two thoughts on how the business will progress. Becoming an SFB will allow us to raise capital for growth and becoming a commercial bank will make it easier to approach investors and infuse a greater trust among the customer base. Further as co-operative banks miss out on government and institutional business, becoming a scheduled commercial bank will help them to reach out for institutional business.Suveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank
Ecosystem Partnerships
Gupta says as a bank they realised that the thought process of ownership mindset will not work for them because they are not experts in everything. He said, “ and have partnered with India Gold providing gold loan to customers at doorstep, Airtel Payments Bank for digital sourcing of loans, we’ve tied up Atyati, a microfinance banking correspondent partner and we are in discussion with other few fintechs as well some on customer onboarding side and some on digital sourcing side and invoice financing side where they’re using blockchain.”
They are very much open to digital partnerships and believe having a pan India license the best way to is by not being asset heavy with physical branches but can be done digitally too. “Any customer sitting anywhere can open and operate a Shivalik bank account just using a mobile phone and that is the way we want to go forward.”
We are bankers and will stick to banking. As for technology and other services, let’s seek experts and partner with them. We’ve been looking forward to partner with FinTechsSuveer Kumar Gupta, MD & CEO, Shivalik Mercantile Co-operative Bank
Physical Expansion
On Physical expansion, they want to be a global local bank. He adds, we would do it in the northern region and by physical I would not only consider bank branches but also digital assisted channels like banking correspondents moving around with micro-ATMs. We also have micro-ATMs which are being used by banking correspondents and are connected to the core-banking system in real time.
He explained, customers can withdraw by swiping card or Aadhar and deposit money too among other banking services like bank-in-a-box kind of thing. This would eventually help us in expansion.
Digital Savvy
As the bank is heavily relying on digital partnership and capabilities they’re adequately focusing on cyber-security. He said, “We are focused on the safety aspects of digital exposure. From a customer point of view, we’ve put in all safeguards like two factor authentication, info-sec testing before release, customer education programmes, vulnerability testing, applications have biometric logins. From an organisation perspective, there’s an information-security (info-sec) team in place and internal policy on info-sec has been designed by one of the Big 4 and are one of the first co-operative banks to get cyber-insurance much ahead of the RBI mandate. “
Gupta also said, The bank has hosted its data in a tier-4 data center which is considered to be the best in Asia and its core banking system provided by Infosys is on a hosted model making Shivalik Bank as the first bank to do it.
The bank is ready for the transition and is waiting for the final go-ahead from the regulator, concluded Gupta.
Government think-tank NITI Aayog, in consultation with the Finance Ministry, has started deliberations to finalise the names of two public sector banks that will be privatised in the current fiscal as part of the disinvestment process. NITI Aayog has been entrusted with the task of selection of names of two public sector banks and one general insurance company for the privatisation as announced in the Budget 2021-22.
The work in this respect is going on, sources said, adding, a couple of meetings have been convened by the NITI Aayog on the subject.
There are various aspects that have to be looked into including regulatory issues, HR management, financial health etc before reaching a conclusion, sources added.
Once NITI Aayog makes its recommendations, it will be vetted by the Core Group of Secretaries on Disinvestment headed by Cabinet Secretary.
The other members of the high-level panel are Economic Affairs Secretary, Revenue Secretary, Expenditure Secretary, Corporate Affairs Secretary, Secretary Legal Affairs, Secretary Department of Public Enterprises, Secretary Department of Investment and Public Asset Management (DIPAM) and the Secretary of administrative department.
Following clearance from the Core Group of Secretaries, the finalised names will go to Alternative Mechanism (AM) for its approval and eventually to the Cabinet headed by the Prime Minister for the final nod.
Changes on the regulatory side to facilitate privatisation would start after the Cabinet approval.
Last month, Finance Minister Nirmala Sitharaman had said “interests of workers of banks which are likely to be privatised will absolutely be protected whether their salaries or scale or pension all will be taken care of.”
Explaining the rationale behind the privatisation, Sitharaman had said that banks in the country needed to be bigger, just like the State Bank of India (SBI).
“We need banks which are going to be able to scale up… We want banks that are going to be able to meet the aspirational needs of this country,” Sitharaman had said, adding that a lot of thought had gone behind the intention to privatise some public sector banks.
Meanwhile, banking sector regulator RBI also said it is in discussion with the government over the privatisation of public sector banks.
The government has budgeted Rs 1.75 lakh crore from stake sale in public sector companies and financial institutions, including 2 PSU banks and one insurance company, during the current financial year. The amount is lower than the record budgeted Rs 2.10 lakh crore to be raised from CPSE disinvestment in the last fiscal.
The universal bank licensing guidelines state that resident individuals and professionals having 10 years of experience in banking and finance at a senior level are eligible to promote universal banks
The Reserve Bank of India (RBI) on Thursday announced names of applicants under its on-tap licensing window for universal banks and small finance banks (SFBs). The list includes a foreign exchange services provider, two cooperative banks and a former banker.
Applicants under guidelines for on-tap licensing of universal banks are UAE Exchange and Financial Services, The Repatriates Cooperative Finance and Development Bank (Repco Bank), Chaitanya India Fin Credit, and Pankaj Vaish and others. Applicants seeking licences for SFBs are VSoft Technologies, Calicut City Service Co-operative Bank, Akhil Kumar Gupta, and Dvara Kshetriya Gramin Financial Services.
Guidelines for on-tap licensing of universal banks and SFBs in the private sector were issued on August 1, 2016 and December 5, 2019, respectively. The constitution and composition of the standing external advisory committee for evaluating the applications received under the guidelines was announced on March 22, 2021.
The universal bank licensing guidelines state that resident individuals and professionals having 10 years of experience in banking and finance at a senior level are eligible to promote universal banks. Large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10%. Non-operative financial holding company (NOFHC) has been made non-mandatory in case of promoters being individuals or standalone promoting/converting entities who/which do not have other group entities.
For SFBs, the minimum paid-up voting equity capital / net worth requirement shall be Rs 200 crore. For primary (urban) co-operative banks (UCBs) desirous of voluntarily transiting into SFBs, the initial net worth requirement shall be at Rs 100 crore, which will have to be increased to Rs 200 crore within five years from the date of commencement of business. The net worth of all SFBs currently in operation is in excess of Rs 200 crore.
The pandemic has necessitated being digital, from a consumer side rather than the traditional walk-in model.
Federal Bank’s digital channels now account for 86% of the total transactions and the lender has a market share of 17.50% in personal inward remittance business in 2020. Nilufer Mullanfiroze, country head for deposits, cards & unsecured lending (retail business) of Federal Bank, tells Rajesh Ravi about consumer behaviour during the pandemic and the use of technology.Excerpts:
Have you seen a paradigm shift in behaviour of customers during the pandemic? Earlier online transactions, using mobile banking, net banking, were ‘nice to do’ activities from a customer perspective. It was more due to the fact that customers were habituated in a certain manner with regards to their banking habits. The pandemic moved the needle from ‘nice to do’ towards ‘need to do’ during lockdown to keep social distance, avoid usage of cash, etc. Hence the pandemic has definitely changed consumer behaviour.
CASA of many banks have seen an increase during the pandemic. Are the customers saving more and is this a temporary phenomenon? I believe it is a little of both, i.e. “saving more” as well as “spending less”. With regards to ‘spending less’ discretionary spends like movies, restaurant-dining, etc, as well as pent-up demand, refurbishing homes, etc, will come back as the economy truly opens up. We are hence focusing on consumer finance loans, where customers can buy washing machines, dishwashers, etc, which did see a unprecedented increase in demand during lockdown. Suddenly these moved from ‘luxury items’ to ‘day-to-day need items’ as many families relied on doing all chores themselves during the pandemic. With limited day-to-day spends avenues, there has been an automatic ‘saving more’ that has happened as well.
Could you tell us how the bank has become the preferred bank for NRI remittance? The pandemic has necessitated being digital, from a consumer side rather than the traditional walk-in model. It was a habit based on consumer’s muscle-memory, more than anything else. Till around 12 months back, app-based inward remittance was more a PUSH model from banks and exchange-houses; the shift, led by pandemic, is now likely to become a habit for customers. Again, since the bank had the digital capabilities in place, even as the volumes scaled, we didn’t have to do much from an infrastructure perspective nor did we need to throw more people for processing, as it was fully automated already.
What is the status of the credit card and the partnership with Fiserv? The bank’s credit card should be launched soon. We have a large existing customer base, which we plan to tap first and complete the product-suite of offerings to our existing customer base. Our active debitcard base itself is 80 lakh plus and we are the 5th largest private sector bank with regards to debit-spends. Fiserv is a robust platform for credit-card management, not only in India but globally. Hence, post evaluating other possible platforms, we decided to go with them.
What about the demand for personal loans from the consumers ? The contours of loans has changed to some extent. Earlier, the customer had to take a personal loan and then use the same to say purchase a mobile, fridge, holiday-package, etc. With consumer finance, the customer can now simply swipe his debit card and create a loan to buy many of the consumer durables, both in-store and on large on-line platforms. This is truly taking the loan to the place-of-consumption. Various fintechs, POS-providers and online companies have invested in this form of lending under the umbrella BNPL, lazy-pay, Debit-Card-EMI, Credit-card-EMI, etc. Banks like ours, who have the full digital stack, with no need of any paper and hence can give these loans in less than 60 seconds, will benefit from the demand of end-used based personal loans.
Could you tell us the long-term plan of the bank given the fact that technology is disrupting the conventional models? The bank has been investing in technology for many years now. What is now visible is the culmination of all the various enhancements and system-upgrades, etc. Federal Bank now has a comprehensive stack of APIs, which can be consumed by various vendors and partners. Since the bank has long believed in ‘distribution heavy, branch light’, we have used the method of partnerships to grow our businesses rather than feet-on-street (FOS model). Technology has always been the backbone for Banking, it is now getting its due share of appreciation, by being the face-of-banking, in general. Hence, banks which have invested in technology will reap the fruits of it.
The United Forum of Bank Unions (UFBU) has requested the finance ministry to reduce the business hours of banks, bring in five-day week, and allow hub banking in a bid to break the Covid-19 transmission chain and protect bank employees and their families.
Sanjeev K Bandlish, Convenor, UFBU, in a letter to the Debasish Panda, Secretary, Department of Financial Services, Ministry of Finance, said: “As was implemented last year, there is a necessity to restrict physical banking for next 4-6 months. Banks may be advised to reduce working hours (say from 10am to 2pm).
“Similarly, banking should be restricted to 5 days in a week, to break the chain. This would cut the exposure of bankmen and the customers to a great extent without impairing services.”
Pitching for hub banking, UFBU suggested that instead of opening all branches at multi-centres, numbers may be restricted in such a manner that banking facilities can be extended at a few select branches, obviating the necessity to open all and expose bankmen and customers to the risk of infection.
UFBU is the umbrella body of nine trade unions in the banking sector.
“We call upon you to instruct all the banks to deploy minimum possible staff/officers at branches/offices. Measures like working with 1/3rd of staff strength, work from home, should be implemented for next 4-6 months. Staff/Officers to be called on rotation so that exposure is reduced,” said Bandlish.
UFBU sought exemption from duty to employees with existing comorbidities, pregnant employees/officials, persons with disabilities (Divyangjan).
“Considering the nature of work, coming in contact with hundreds of customers every day, bankmen carry higher risk. Having considered as Frontline Covid Warriors by the Parliamentary Standing Committee, we call upon you to initiate measures to provide vaccination to all bankmen,” said the UDBU Convenor.
UFBU sought fine-tuning of insurance policy in Banks. In this regard, Bandlish said several bank employees and officers have succumbed to COVID and over a lakh have contracted infection.
“There are many instances where the bankmen have not only suffered physically, but they have been harmed financially as entire expenditure charged at hospitals had not been reimbursed.
“We urge upon you to issue suitable instructions to insurance companies to fine tune their policies to ensure that bankmen are not out of pocket for getting treatment at hospitals,” said the UFBU Convenor.
UFBU wants Covid-related expenditure to be brought under exemption clause of Income Tax and compensation to family of diseased bankmen.
As bank employees come in contact with hundreds of customers every day, they carry higher risk.
“Having considered as Frontline Covid Warriors by the Parliamentary Standing Committee, we call upon you to initiate measures to provide vaccination to all bankmen,” said UFBU.
Government Securities (G-Sec) prices tumbled on Thursday as the Reserve Bank of India (RBI) purchased some of the securities under its G-Sec Acquisition Programme (G-SAP) at lower than the previous closing price.
Yield up 11 basis points
The price of the 10-year benchmark (carrying 5.85 per cent coupon), which was part of the open market purchase of G-Secs under G-SAP, plummeted about 82 paise to close at ₹98.01 (previous close ₹98.825), with its yield shooting up about 11 basis points to close at 6.1256 per cent (6.0114 per cent).
Bond price and yield are inversely related, moving in opposite directions.
Of the five G-Secs that the RBI purchased under G-SAP, the purchase price of the 10-year benchmark was lower at ₹98.68 (yield: 6.0317 per cent) against the previous close of ₹98.825 (6.0114 per cent).
RBI purchased the 2027 G-Sec, carrying 6.79 per cent coupon rate, at ₹103.30 (6.1303 per cent) against the previous close of ₹103.50 (6.0915 per cent).
However, the central bank purchased the other G-Secs at a price that was higher than the previous close – 4.48 per cent G-Sec 2023 (3 paise higher); 5.15 per cent G-Sec 2025 (11 paise higher); and 6.22 per cent G-Sec 2035 (6 paise higher).
Though the RBI infused ₹25,000 crore liquidity via G-SAP, the spike in G-Sec yields in the secondary market reflects the disappointment of the market, with the purchase price/ yields set at the open market purchase.
Under G-SAP, the RBI commits upfront to a specific amount of open market purchases of G-Secs, with a view to enabling a stable and orderly evolution of the yield curve amid comfortable liquidity conditions.
The central bank’s endeavour is to ensure congenial financial conditions for the recovery to gain traction. For Q1 (April-June) of 2021-22, the RBI has decided on a G-SAP of ₹1 lakh crore.
The price of the 2035 G-Sec (carrying 6.22 per cent coupon), which was also part of the open market purchase of G-Secs under G-SAP, plunged about 93 paise to close at ₹95.47 (previous close ₹96.40), with its yield shooting up about 11 basis points to close at 6.7255 per cent (6.6190 per cent).
The Reserve Bank of India (RBI), on Thursday, said four applicants each have applied for on-tap licences to start Universal Banks and Small Finance Banks in the private sector so far.
The applicants under the guidelines for ‘on-tap’ licensing of Universal Banks are UAE Exchange and Financial Services Ltd, The Repatriates Cooperative Finance and Development Bank Limited (REPCO Bank), Chaitanya India Fin Credit Private Ltd and Pankaj Vaish and others, the RBI said in a statement.
The applicants under guidelines for ‘on-tap’ licensing of Small Finance Banks (SFBs) are VSoft Technologies Private Ltd, Calicut City Service Co-operative Bank Ltd, Akhil Kumar Gupta, and Dvara Kshetriya Gramin Financial Services Private Ltd, it added.
The guidelines for ‘on-tap’ licensing of Universal Banks and SFBs in the private sector, were issued on August 1, 2016, and December 5, 2019, respectively.
The constitution and composition of Standing External Advisory Committee for evaluating the applications received under the aforementioned guidelines was announced on March 22, 2021.
For a Universal Bank, the initial minimum paid-up voting equity capital/ net worth has been set at ₹500 crore. Thereafter, the bank have to maintain a minimum net worth of ₹500 crore at all times.
For a SFB, the minimum paid-up voting equity capital/ net worth is ₹200 crore. For Urban Co-operative Banks desirous of voluntarily transiting into SFBs, the initial requirement of net worth has been set at ₹100 crore, which will have to be increased to ₹200 crore within five years from the date of commencement of business.
Among the aforementioned eight applicants, UAE Exchange and Financial Services Ltd (Bengaluru), Chaitanya India Fin Credit Pvt Ltd (Bengaluru) and Vsoft Technologies Pvt Ltd (Hyderabad) had applied for a SFB licence in 2015. Chennai-based REPCO Bank’s subsidiary, Repco Micro Finance Ltd, had also applied for a SFB license.
The last time that the RBI granted universal bank licences was in June-July 2015, when Bandhan Bank and IDFC Bank were granted licence to carry out the banking business in India. These banks were given licenses under the guidelines for licensing of new Banks in the private sector, issued in February 2013.
The Reserve Bank of India has released the names of entities who have applied for universal bank license and small finance bank license under the on-tap licensing mechanism.
The Reserve Bank of India (RBI) announced that it has decided to set up a new Review Authority (RRA 2.0). Initially, Regulations Review Authority (RRA) was established on April 1, 1999, for the purpose of reviewing regulations, circulars, and reporting systems based on public, bank, and financial institution feedback. RRA’s recommendations resulted in the simplification of regulatory prescriptions, the issuance of a master circular, reduction in the reporting burden on regulated entities and streamlined and improved processes.
RBI said that considering the developments in regulatory functions of the Reserve Bank and the evolution of the regulatory perimeter over the last two decades, it has been decided to set up a new Regulations Review Authority (RRA 2.0) for a period of one year from the date of its establishment. The Deputy Governor, M. Rajeshwar Rao, has been appointed the Regulations Review Authority. The Authority will be in place for a year starting May 1, 2021, unless the Reserve Bank decides to prolong its term.
RRA 2.0 would concentrate on streamlining regulatory instructions, reducing the compliance burden of the regulated entities by simplifying processes, and reducing reporting requirements. The RRA will engage internally as well as externally with all regulated entities and other stakeholders to facilitate the process.
The terms of reference of RRA would include removing redundancies and duplications from regulatory and supervisory instructions, reducing compliance burden on regulatory agencies by streamlining the reporting process and, if necessary, revoking obsolete instructions, and avoiding paper-based submission of returns wherever possible.
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