Tag: Deposit

Depositors of PMC Bank to get pre-Covid interest rate, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: Retail deposits at Punjab & Maharashtra Cooperative (PMC) Bank will continue to earn the higher interest rates offered by the bank at the time of the moratorium in September 2019 until March 2021. This is despite the fact that all banks have brought down interest rates following the sharp rate cuts by the RBI in the wake of the pandemic.

The high rates for two years will help compensate for the five-year interest holiday from March 2021. Although interest for subsequent years on high value deposits that are locked in will be capped at a return equivalent to the savings bank rate of SBI, the depositors will have an upside. Bankers said that as Unity SFB will be a startup bank with a high capital base, it will have every incentive to offer better terms to depositors and restore their confidence to ensure that thIn terms of the resolution plan, customers with up to Rs 5 lakh will get their money immediately as this would be made available by the Deposit Insurance and Credit Guarantee Corporation. Those with deposits up to Rs 10 lakh will get most of their funds in four years, while those with deposits above Rs 15 lakh will have to wait for 10 years.

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DICGC can now fix risk-based deposit insurance premium

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The Deposit Insurance and Credit Guarantee Corporation (DICGC) can usher in a differential premium system (DPS) for banks, based on their risk profile, following an amendment to the DICGC Act.

A sub-section inserted in the Act allows the corporation to increase the deposit insurance premium for a bank. Currently it charges a flat rate premium of 12 paise per ₹100 deposit.

According to the amendment, “the Corporation may, having regard to its financial position and to the interests of the banking system of the country as a whole, and with previous approval of the Reserve Bank of India (RBI), from time to time, raise the aforesaid limit of fifteen paisa per annum for every hundred rupees of the total amount of the deposits in that bank.”

Prior to the amendment, Section 15(l) of the Act had said: “…Provided that the premium payable by any insured bank for any period shall not exceed fifteen paise per annum for every hundred rupees of the total amount of the deposits in that bank at the end of that period…”

Empowering the DICGC

The amended DICGC Act replaces the “shall not exceed fifteen paise per annum for every hundred rupees” clause with “raise the aforesaid limit of fifteen paisa per annum for every hundred rupees”.

Though the corporation currently has a one-size-fits-all approach to collecting deposit insurance premium, the amendment empowers it to create a differential premium system based on the risk profile of banks.

The flat rate premium had been upped from 10 paise to 12 paise per ₹100 of assessable deposits since April 1, 2020, to mitigate the impact of the hike in insurance cover on the corporation’s Deposit Insurance Fund (DIF).

All you wanted to know about the new changes in deposit insurance

DICGC, a wholly-owned subsidiary of RBI, had upped the limit of insurance cover for bank deposits fivefold to ₹5 lakh per depositor with effect from February 4, 2020.

D Krishna, former advisor and chief executive of the National Federation of Urban Co-operative Banks and Credit Societies, said the amended DICGC Act empowers the corporation and RBI to prescribe higher rates of premium for co-operative banks vis-a-vis commercial banks.

Flat rate premium: The moral hazard

To address the moral hazard inherent in flat rate premiums irrespective of risk profile, DICGC is examining the recommendations of an internal committee on risk-based premium.

Of the total claims settled by DICGC since inception, around 94.3 per cent pertained to co-operative banks that were liquidated, amalgamated, or restructured, according to RBI.

As per the report of the RBI committee on DPS, the categories for assigning premium rates should be limited to four or five. Further, the ratings system, as far as possible, should be ownership-neutral.

DPS: Level playing field needed

Krishna observed that public sector banks, which have implicit government guarantee and/or backing, get recapitalisation support and private sector banks are not allowed to fail when they get into trouble as they are either revived or merged with another bank.

Exempt public sector and commercial banks from Deposit Insurance Scheme: AIBEA

In contrast, a number of urban co-operative banks have been liquidated as there was no support from any quarter.

“Therefore, it would be unfair for RBI to think of differential premium without having a level playing field or to allow DICGC to hike the premium just because the Act now permits them to do both,” Krishna said.

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Exempt public sector and commercial banks from Deposit Insurance Scheme: AIBEA

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Ahead of the Lok Sabha taking up the Deposit Insurance Bill for passage, the All India Bank Employees’ Association (AIBEA) has urged Finance Minister Nirmala Sitharaman to exempt from its purview public sector banks and/or commercial banks, which are covered under Section 45 of the Banking Regulation Act.

Commercial banks pay about ₹12,000 crore of premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an unwarranted expenditure as it would otherwise have gone to the banks’ profit, CH Venkatachalam, general secretary, AIBEA, said in a letter to the Finance Minister on Sunday.

Recast deposit insurance

Venkatachalam pointed out that Section 45 empowered the government and the RBI to amalgamate any bank with another bank to avert closure and loss of customers’ deposits.

“That is why, while hundreds of banks were getting closed prior to 1960, with this amendment to Banking Regulation Act, not a single commercial bank has been liquidated or closed,” he pointed out, adding there was thus no question of any commercial bank getting closed down. The AIBEA strongly felt that the deposits of commercial banks and, importantly, public sector banks, need not be covered by the deposit insurance scheme, he said.

Leg-up for depositors

He highlighted that, year after year, public sector banks and all commercial banks were required to pay a huge premium to DICGC, yet the claim ratio was nil since there was no likelihood of liquidation. The AIBEA letter highlighted that the claim settled so far, since 1962, was only ₹5,200 crore, and that too for cooperative banks.

The AIBEA’s missive comes at a time when the government is looking to increase the deposit insurance coverage to ₹5 lakh from ₹1 lakh at present. The Lok Sabha is expected to take up the Bill for passage on Monday.

The AIBEA letter also highlighted the fact that of the 2,067 banks covered by the DICGC, the 1,923 cooperative banks were the only ones facing threats of closure and their deposits need protection. Even in their case, the premium should be charged only to the extent of deposits covered by insurance, rather than the total assessable deposits, which is much higher, the association said.

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KVG Bank targets ₹31,000 crore business for 2021-22

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Karnataka Vikas Grameen Bank (KVGB), a regional rural bank headquartered in Dharwad, is targeting a business of ₹31,000 crore for 2021-22.

Addressing a virtual media conference on Monday, P Gopikrishna, Chairman of the bank, said the bank reached a business level of ₹27,818 crore during 2020-21 as against ₹26,268.81 crore in the previous fiscal, recording a growth of 5.9 per cent.

Stating that this growth is well comparable with growth percentage of other banks, he said more thrust will be given to agriculture, MSME (micro, small and medium enterprises), retail lending during the year.

The bank is targeting a deposit of ₹17,500 crore and advances of ₹13,500 crore during the year.

He said KVGB, which has registered an operating profit of ₹124.89 crore in this adverse situation, has emerged stronger with its focus on rural development, agriculture, MSME and digitalisation initiatives.

The bank registered an operating profit of ₹124.89 crore in 2020-21 as against an operating loss of ₹179.90 crore during 2019-20.

Gross income of the bank increased to ₹1,589.53 crore (₹1,492.84 crore), and the total expenditure came down to ₹1,583.03 crore (₹2,097.80 crore).

After making a provision of ₹118.39 crore towards tax and other provisions, the bank recorded a net profit of ₹6.50 crore for 2020-21.

He said increase in the NPA (non-performing assets) and creation of pension fund as per the Supreme Court orders attracted higher provisioning.

He said that the outbreak of Covid pandemic and continuous drought for the last five-six years adversely affected the recovery efforts of the bank.

In spite of unfavourable climatic conditions, the bank curtailed its net NPA to 9.22 per cent with an outstanding cash recovery of ₹1,007.37 crore during the year, Gopikrishna said.

KVGB has jurisdiction over Dharwad, Haveri, Gadag, Vijayapura, Bagalkot, Belagavi, Uttara Kannada, Udupi and Dakshina Kannada districts of Karnataka.

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City Union Bank hopes to maintain better asset quality in FY22 amid second wave blues

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Leading old private sector lender City Union Bank hopes that FY22 will not be as bad as FY21 and credit growth this fiscal for the bank could be in the mid- to high-single digit if the economic environment and Covid second wave behaved like last year.

“Though the impact of the second wave is much higher in terms of infection and mortality, its impact on bank’s growth and other parameters may not be as bad as it saw in the first wave. I do not say that we will be seeing milk and honey flowing, but it looks like now things are not as bad as the same time last year,” N Kamakodi, Managing Director & CEO, told the Q4FY21 earnings conference call.

The bank’s credit growth in first wave hit-FY21 was 7 per cent and the slippage ratio to closing advances was at 3.01%.

He said the adverse impact of the second wave on the growth and slippages would definitely be there, but it may not be as bad as the first wave. FY21 almost ended like what we thought during the beginning of the year, and we hope FY22 will not be as bad FY21. It should be slightly better, he added.

At the same time, the total lockdown in three States particularly in Tamil Nadu where CUB has the bulk of its operations, the collection efforts are dampened and some impact on the collections are there. There are no property sale transactions as government registration departments are closed. Hence, the bank expects to see some spike, but overall slippages will be slightly better than FY21.

“We expect even though for the year as a whole the slippage may be slightly lower than whatever we saw in FY21, the slippages could be front loaded may be in the first one or two quarters and we will be seeing things getting eased up once the lockdown is removed,” Kamakodi said.

The bank expects its gross and net NPA to be lower than FY21 amid some quarterly spikes.

ECLGS scheme

In FY21, the major credit growth came from jewel loan and extension of facility to ECLGS scheme. Of the ECLGS scheme under ECLGS 1, 2, and 3, it disbursed ₹2,096 crore for an exposure of about ₹10,445 crore constituting about 5.63 per cent of the advances.

“We expect a further sanction of about ₹200 crore from ECLGS 3.0 scheme. The government guaranteed ECLGS scheme 1, 2 and 3, in fact most of the credit of MSMEs and also non-MSME sector and businesses have started generating surplus. This has also resulted in improving capital adequacy ratio as the disbursement to the ECLGS scheme attracts no risk weight and is guaranteed by the government,” said Kamakodi.

The total restructured portfolio for MSME account on March 31, 2021 stood at ₹1,849 crore and overall percentage restructured account constituted about 4.99 per cent.

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Depositors’ body wants banks to take a cue from Govt and not cut deposit rates

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The All India Bank Depositors’ Association (AIBDA) has requested the Reserve Bank of India (RBI) to advise banks to reduce their operating cost and prune the net interest margin, so that the entire burden of cut in interest costs does not fall on depositors.

The Association, in its pre-monetary policy memorandum to RBI, underscored that the depositors in the small income earner and senior citizen categories are suffering the most due to the current negative real interest rate (adjusted for inflation).

“While a pause in repo rate is desirable to support growth at this point in time, too much liquidity in the market works adversely against the depositors without a significant increase in bank credit. As depositors are major stakeholders and risk bearers in the financial system, their interests should not be ignored,” said DG Kale, President and Amitha Sehgal, Honorary Secretary, AIBDA.

They cautioned that a negative real interest rate may increase the wedge between savings and investment in the economy going forward and hamper growth in the long run.

The Association observed that since February 7, 2019, the repo rate (interest at which RBI provides liquidity to banks to overcome short-term mismatches) has been reduced by 250 basis points and has remained unchanged at 4 per cent since May 5, 2020.

Moreover, the RBI has made a liquidity provision of over ₹13-lakh crore in 2020-21.

Flush with liquidity amidst sluggish demand for credit, commercial banks reduced term deposit rates nearly by 200 basis points, it added.

Take a cue from government

The AIBDA office bearers opined that banks could take a cue from government’s decision not to cut the interest rates on Small Savings Schemes.

“In a deregulated environment, it may not be possible for the RBI to re-regulate deposit rates. But the entire burden of cutting interest costs should not fall on depositors. We would like to reiterate that the one-year real deposit rate should be at least 2 per cent for saving-investment equilibrium to be maintained at a reasonably high level,” Kale and Sehgal said.

ATM/POS charges

The Association said no charge should be imposed by the card-issuing bank in case of a failure of transaction at ATM/POS.

Referring to banks imposing a fee every time there is a transaction decline at an ATM or point of sale (POS) due to insufficient balance in the account, the AIBDA reasoned that such transactions are nowhere at par with cheque/ECS returns. These charges are currently of the order of ₹25 + GST.

“It (declined POS/ATM transactions due to insufficient balances) does not involve any intent of systemic inconvenience or distrust to a third party. We would like to mention that NPCI does not consider it as a transaction and there is no cost imposed by NPCI/ acquirer bank onto the card-issuing bank,” said Kale and Sehgal.

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Bank lending 50 per cent higher in October-February, BFSI News, ET BFSI

Banking & Finance

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Bank credit growth is accelerating with unlock trade gathering momentum as aggregate loans disbursed in the five months to February this year rose nearly 50 percent.

An analysis of RBI‘s credit data shows that banks lent Rs 5 lakh crore between end September and February of the current fiscal compared to Rs 3.3 lakh crore in the same period of FY’20.As of February 26, overall credit growth was higher at 6.6 per cent than 6.1 per cent a year ago. But loan growth in Septmber’20 was lower at 5.1 per cent compared to 8.8 per cent in the same period a year ago, indicating that the unlock phase has spurred credit demand.

Much of the growth in the post pandemic period has been due to various government initiative undertaken as a part of the stimulus package to help the MSME sector to revive the economy post COVID-19. ” ECLGS disbursements at Rs 1.6 lakh crore in the first nine months of this fiscal have lent support” Ratings firm Crisil said in a report.

Besides, the better monsoons this year also lifted prospects for agriculture even as the pandemic derailed the industry and services sector. This also reflected in growth of agri-loans have also risen at a higher pace this year at 9.9 per cent in January, compared to 6.5 per cent with fresh sanctions in absolute terms crossing the Rs one lakh crore mark so far this fiscal.

But the trends till January also show that since the pandemic, some new heads like loan against gold jewellery-132 per cent, bank lending to non-HFC NBFCs-150 per cent, social infrastructure-98 per cent and aviation-120 per cent has gone up by over 100 per cent-

As for loan against gold jewellery this can largely be attributed to focus of banks towards secured lending products post LTV relaxation, said a report by ICICI Securities. “NBFCs, after having consolidated for almost 2 years now, significantly deleveraging the balance sheet by running down high risk profile assets, are now more confident to pursue growth opportunities in a risk-calibrated manner” it said.

Besides lending opportunities arising out of general economic revival and pick up in consumption demand, banks will also have an edge over NBFCs because of their access to low cost funds. “Competition is intensifying. With low-cost funding access, banks will be aggressive in the retail segments, especially housing and new vehicle finance” Crisil said.



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