Tag: scheme

Now, a vaccine-linked deposit scheme for Kerala Gramin Bank customers

Banking & Finance

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Even as government bodies are exploring options to encourage people to take Covid jabs, a regional rural bank in Kerala has come out with a novel motivational incentive by offering an additional interest rate on the deposits for its customers.

The product – KGB Kavacham – introduced by the Malappuram-headquartered Kerala Gramin Bank in this regard has started receiving overwhelming customer response since its launch on July 1 that helped the bank to garner additional ₹500 crore deposits till September.

The cumulative deposits opened under the scheme, according to bank officials, will fetch an interest rate of 5.55 per cent, which is higher than the prevalent rate of interest for the same period for normal deposits opened for 15 months by 0.25 per cent

“We joined hands with the government’s Covid vaccination drive by launching this deposit scheme linked to vaccination. It is intended to motivate people to get vaccinated,” KR Bindu, Assistant General Manager, Kerala Gramin Bank, Malappuram told BusinessLine.

Innovative approach

Vaccine hesitancy, reportedly, has resulted in lower turnout of people in Malappuram district compared to other districts in the State which prompted the bank to come up with an innovative idea. “The success of our scheme is evident from the deposit collections,” added Bindu.

This is for the first time in India a rural bank is drumming up support for the government’s vaccination campaign, according to Bindu, and KGB Kavacham is a distinct effort to salute all who braved the trauma and setbacks caused by the Covid pandemic, she added.

Those who have taken a single or double dose of the Covid-19 vaccine are eligible for the bank’s deposit scheme. Besides, the bank has also rolled out a special term-deposit scheme – KGB Platinum – to commemorate the platinum jubilee celebrations of India’s independence – offering a higher interest rate of 5.60 per cent for deposits made for 775 days.

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Kerala Financial Corporation announces special loans for MSMEs

Banking & Finance

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Kerala Financial Corporation (KFC), a leading State-level financial institution, has launched a special loan product to the Micro, Small and Medium Enterprise (MSME) sector, aiming to assist them execute work orders and also discount pending bills.

Under the scheme, 75 per cent of the cost of work received from government departments/agencies/PSUs will be provided as a loan, a spokesman for the corporation said.

Duration of work

Repayment will depend on the duration of work and expected receipt of funds from the work-awarding authority. The rate of interest will be linked to the credit rating score of the MSME, starting at eight per cent.

Considering the Covid-19 situation, the credit rating of the MSME will be based on analysis of the balance sheet during the pre-Covid period, the spokesman said.

Once the work awarding authority accepts the bill, MSMEs can immediately get up to 90 per cent of the bill amount through discounting. For final bills, the discounting can be done without security also.

Discounting facility

MSMEs play an important role in the economic growth of the country. But they continue to face constraints in obtaining adequate finance, particularly in terms of sourcing funds required to execute work orders or convert bill receivables into liquid funds. The new scheme from Corporation will be appropriate to address such issues during this pandemic period, the spokesman said.

The applicant should be MSME Udyam registered to become eligible for the scheme. GST registration and the latest audited balance sheet are also mandatory. However, GST registration will not apply to MSMEs exempt from registration.

An audited balance sheet may not be insisted with respect to MSMEs with annual turnover of up to ₹2 crore, paying income tax on a presumptive basis.

The loan will be sanctioned as a Line of Credit (LoC) for a five-year period during when MSMEs can avail facilities such as guarantees, work execution loans, bill discounting, government promissory note discounting and equipment finance.

Maximum assistance

Maximum assistance will be ₹20 crore for companies/registered cooperative societies and ₹8 crore for others. However, the limit for guarantees and discounting of government promissory notes will be up to ₹50 crore for all entities.

The validity of the LoC is for five years. Once the customers execute the loan agreement, they can avail all facilities throughout the five-year period with minimum formalities. The scheme will be reviewed on the basis of feedback from the MSMEs.

Kerala Financial Corporation targets to disburse at least ₹500 crore under this scheme during the current financial year itself, the spokesman added.

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RBI extends on-tap TLTRO scheme by three months till Dec 31

Banking & Finance

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The Reserve Bank of India (RBI) has extended the on-tap Targeted Long Term Repo Operations (TLTROs) scheme by three months till December 31, 2021.

This is in view of the nascent and fragile economic recovery.

The RBI had, on October 9, 2020, first announced that it will conduct on tap TLTRO with tenors of up to three years for a total amount of up to ₹1 lakh crore at a floating rate linked to the policy repo rate. The scheme was available up to March 31, 2021, but was later extended.

Liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by the entities in five specific sectors. This scheme was further extended to stressed sectors identified by the Kamath Committee in December 2020 and bank lending to NBFCs in February 2021.

The liquidity availed under the scheme can also be used to extend bank loans and advances to these sectors.

Investments made by banks under this facility are classified as held to maturity (HTM), even in excess of 25 percent of total investment permitted to be included in the HTM (held to maturity) portfolio.

All exposures under this facility will also be exempted from reckoning under the large exposure framework (LEF).

As per RBI data, under on-tap TLTRO, banks had availed ₹5,000 crore on March 22, 2021, and ₹320 crore on June 14, 2021.

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Yield to maturity – The Hindu BusinessLine

Personal Finance

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A coffee time chat between two colleagues leads to an interesting explainer on bond market jargons.

Vina: Do you think I should try my luck with the bond markets?

Tina: While stock and bond market prices are unpredictable, don’t leave your investment decisions entirely to a game of luck.

Vina: Agreed! Today while bank deposit rates are at all-time lows, I came across a bond that promises a yield to maturity of around 8.8 per cent. Interest of ₹88 on a bond with a face value of ₹1000, sounds like a great deal. Doesn’t it?

Tina: No, that’s not how it works, Vina. You are mistaking the yield to maturity for the coupon rate. The two are not the same.

Vina: Jargons again! What is the interest I will earn?

Tina: The coupon rate when multiplied by the face value of a bond, gives you the the interest income that you will earn. Yield to maturity is a totally different concept.

Vina: Enlighten me with your wisdom, will you?

Tina: When you buy a bond in the secondary market, its yield will matter more to you than the coupon rate or the interest rate that it offers on face value. Because the yield on a bond is calculated with respect to current market price – which is now the purchase price for you.

The current yield is the return you get (interest income) by purchasing a bond at its current market price. Say, a bond trades at ₹900 (face value of ₹1,000) and pays a coupon of 7 per cent per annum. Your current yield then is 7.8 per cent.

Vina: What is the YTM then?

Tina: The yield to maturity (YTM) captures the effective return that you are likely to earn on a bond if you hold it until maturity. That is, the return you get over the life of the bond after accounting for —interest payments and the maturity price of the bond versus its purchase price.

The YTM for a bond purchased at face value and held till maturity will hence be the same as its coupon rate.

Vina: Hold until maturity? The bond I was referring to has 8 years left until maturity. Too long a tenure, right?

Tina: Yes! The bond whose YTM is 8.8 per cent and has a residual maturity of eight years must be paying you a coupon of 7 per cent annually. That isn’t too high when compared to what other corporates have to offer.

Vina: So, should I now look for bonds that offer even higher YTMs?

Tina: Don’t fall prey to high yields, Vina. A high deviation from the market rate often signifies a higher level of risk. Higher YTMs are a result of a sharp drop in the current bond market price, which is most likely factoring in perceived risk of default or rating downgrades.

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NBFCs included in TLTRO ‘on tap’ scheme

Banking & Finance

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The Reserve Bank of India on Friday proposed to provide funds from banks under the TLTRO ‘on tap scheme’ to NBFCs for incremental lending to these sectors.

Reserve Bank of India Governor Shaktikanta Das said NBFCs are well recognised conduits for reaching out last mile credit and act as a force multiplier in expanding credit to various sectors.

“With a view to support revival of activity in specific stressed sectors that have both backward and forward linkages and have multiplier effects on growth, the RBI had announced the TLTRO on Tap Scheme for banks on October 9, 2020,” Das said on Friday.

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LVB-DBS merger: Plea in Delhi HC on LVB share capital write-off

Banking & Finance

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A shareholder in Lakshmi Vilas Bank has filed a Writ Petition in the Delhi High Court challenging its amalgamation with DBS Bank India.

A clause in the scheme seeks to write off the entire share capital of the troubled lender

The petition, filed by one Sudhir Kathpalia, naming also the Union of India, Reserve Bank of India and DBS as respondents, contended that the merger would leave investors and the Centre and the RBI have failed to protect investors’ rights.

Accordingly, it has sought quashing of clause 7(i) in the merger scheme, which provides for the write off of LVB’s share capital states.

The petition which was listed for January 13 before a bench of Chief Justice DN Patel and Justice Jyoti Singh has been adjourned to February 19 after the Bench was informed that the RBI has moved a plea in the Supreme Court for transfer of all pleas against the amalgamation scheme to the Bombay High Court.

Kathpalia, a lawyer, holds 20,000 shares of LVB.

The petition contended that the scheme of amalgamation was “irregular, arbitrary, irrational, unreasonable, illegal and thus, void”, and the respondent could have demanded protection for shareholders money by asking DBS Bank India to give the shares equivalent to the value of shares last traded on stock exchange post amalgamation.

“The Petitioner wants to categorically state that it is not against the scheme of amalgamation per se but the manner in which investors’ money is being written off.” The amalgamation of the banks was approved by the RBI on November 25, 2020 and the merger took place on November 27.

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