PAYMENTS BANKS IN INDIA: BANKING ON THE UNBANKED

After a series of setbacks—like the recent withdrawal of three ‘in-principle’ licence-holders, eventually leaving only eight in the fray—the concept of payments banks seems to be finally inching closer to reality

CLOSE TO a year after the Reserve Bank of India (RBI) gave ‘in-principle’ licences to 11 entities (only eight are in the fray now) to launch payments banks in the country, the concept seems to be finally inching closer to reality. Several licence-holders are accelerating preparations for the launch of their ambitious payments banks—a financial ecosystem that is said to redefine banking and push for India’s journey into a cashless economy. On June 30, Reliance Industries (RIL) signed a shareholder agreement with banking major State Bank of India (SBI) to set up their payments bank joint venture. The two entities had, in February this year, entered into a non-binding memorandum of understanding to set out the principal terms. This would bring together the nation’s largest banking network and a pan-India telecom and retail set-up. While RIL signed the subscription and shareholders’ agreement as the promoter with 70% equity contribution, SBI will contribute the remaining 30%.

A few weeks before that, the Union Cabinet approved a proposal to set up India Post Payments Bank (IPPB) as a public limited company under the department of posts with 100% government equity. The total corpus of the payments bank is R800 crore, which will have R400 crore equity and R400 crore grant. As per then telecom minister Ravi Shankar Prasad,650 branches of the postal payments bank will be set up initially across India, which will be linked to rural post offices—India has 1.54 lakh post offices, of which 1.39 lakh are rural ones. The IPPB will obtain a banking licence from the RBI by March next year and, by September that year, all 650 branches of the postal payments bank will become operational, say reports. All geared up Noida-based Paytm, another in-principle licence-holder, is all set to launch its payments bank before Diwali and
is readying a budget of  R350-500 crore to roll out the venture, say reports. “We are looking at launching some time between August and November. Our goal is to stay focused on our twin objectives: to digitise cash and to provide access to small-income households,” says Shinjini Kumar, CEO-designate, Paytm Payments Bank.

A former RBI executive and former partner at global consultancy firm PricewaterhouseCoopers, Kumar was brought into the fold of the Alibaba-backed mobile wallet and e-commerce firm to head its payments bank in March this year. She is expected to build a 2,500-strong team to roll out the venture. “We expect the benefits from this inclusive digitisation will accrue to the users of financial services, who have traditionally not been serviced due to high costs of distribution and associated risks of not having enough data points to understand consumer behaviour,” she adds.

In the first week of June, Airtel Payments Bank appointed Shashi Arora as the CEO and managing director of the company subject to the approval of the RBI. He replaced Manish Khera, who reportedly left the company to pursue an entrepreneurial journey. In an official statement, Airtel Payments Bank chairman Sunil Bharti Mittal said, “I am delighted to announce the appointment of Shashi Arora as the CEO and MD designate of the bank… I am confident that under Shashi’s leadership, our launch plans will gather further momentum, and we look forward to delivering an outstanding banking experience to millions of customers across the country.” Only in April this year, the telecom major’s wholly-owned subsidiary, Airtel M Commerce Services—as Airtel Payments Bank was known before being re-branded in May—became the first to be issued a payments bank licence by the RBI.

In February, Kotak Mahindra Bank signed an agreement to pick a 19.9% stake for R98.38 crore in Airtel M Commerce Services. After having gained a national footprint post its acquisition of ING Vysya Bank towards the end of 2014, Kotak Mahindra Bank is setting its eyes on grabbing a large pie of the payments bank business. The new payments bank will help Kotak Mahindra—the fourth-largest private-sector bank by assets—to break new ground among the unbanked and expand its reach in the huge rural market.

Concerns & challenges

The concept of payments banks came into being when, in February 2015, the RBI released the list of entities that had applied for a payments bank licence. There were 41 applicants. After examining the applicant entities for their financial track record and governance issues, the RBI finally gave ‘in-principle’ licenses to 11 entities to launch payments banks on August19,2015.However, by May this year, three applicants—Tech Mahindra, Cholamandalam Finance and Dilip Shanghvi-IDFC Bank-Telenor JV—dropped out, leaving only eight in the fray: India Post, Airtel Payments Bank, Reliance Industries, Paytm Payments Bank, Aditya Birla Nuvo, Vodafone M-Pesa, Fino PayTech and National Securities Depository.

The ‘in-principle’ licence would be valid for 18 months from the day of granting, within which the entities must fulfill the requirements—they are not allowed to engage in any banking activity within that period. The RBI was to consider granting full licences under Section 22 of the Banking Regulation Act, 1949, after it was satisfied that the conditions were fulfilled.

This is for the first time in the history of India’s banking sector that the RBI has given out differentiated licences for specific activities. The move is seen as a major step in pushing financial inclusion in the country. The RBI expects payments banks to target India’s migrant labourers, low-income households and small businesses, offering savings accounts and remittance services with a low transaction cost.

Why are then some firms shying away from their plans? “The fundamental premise was that we needed differentiated financial institutions—more nimble and focused—to unleash financial innovation and inclusion in India. Payments (banks) could be the ‘highway’ on which other financial services could ride,” says Varad Pande, a partner at Dalberg Global Development Advisors, a global strategic advisory firm that works to raise living standards in developing countries and address global challenges. Pande also co-leads Dalberg’s financial inclusion practice area. “The RBI deliberately gave licences to a wide range of applicants, as it didn’t want to pre-judge where innovation would come from. So we had telcos, NBFCs, wallet players and India Post in the picture. It is true that since payments banks won’t be able to disburse loans, their net interest income will be limited. So traditional banking economics isn’t so attractive. As some licensees delved deeper, they found that the economics didn’t make much sense for them or that there were other priorities they wanted to pursue,” explains Pande.

Clearing the air on its withdrawal from the payments bank race, IDFC Bank MD and CEO Rajiv Lall had recently said they were still open to any kind of partnerships, including for a payments bank. “Telenor, one of our significant partners, is re-evaluating its strategic footprint in India. So that was one factor. Likewise, (their other partner, industrialist) Dilip Shanghvi was also reviewing the competitive landscape that a payments bank would unveil in India, re-visiting his earlier plan for such a bank. We had been planning to put together a business plan in the light of what we learnt about the competition as it began to unfold. I would say a combination of all these reasons led us to not pursue,” he was quoted as saying in a media interview.
Of late, the industry is also talking about profitability and rising competition, among several other reasons. Is there really a cause for concern? “Competition is not a point to worry about. In fact, with 97% cash transactions in the economy and with a fast-growing population of smartphone and data users, we think everyone who does their bit to make the system cashless will help by shaping behaviour and reducing cash. In that sense, our competition is with cash,” says Kumar of Paytm Payments Bank.

As per Kumar, that is also her major challenge because while cash can be acquired, exchanged and used by anyone for any purpose, digital money can only be accessed after KYC (‘know your customer’, the process of a business verifying the identity of its clients) and requires behavioural change on handling security, etc. “Unfortunately, despite tall claims, policymakers have higher comfort with paper than with the digital medium. e-KYC is our commitment, but in many of our target geographies, data availability and Aadhaar penetration are not seamless. Traditional approach to KYC and cash management remain the biggest challenges. If we have the same requirements as large banks and can’t play to our digital connect with the consumer through the mobile, it is not easy to truly differentiate and achieve a different level of scale,” she adds.

Courtesy Financial Express and By: Kunal Doley | New Delhi |

CAR AIR CONDITIONING

Subject: FW: Car Air-conditioning !!!

Date: Wed, 28 Apr 2010 10:38:31 +0530

No wonder more folks are dying from cancer than ever before. We

wonder where this stuff comes from but here is an example that

explains a lot of the cancer causing incidents. Hmmm. Many people

are in their cars first thing in the morning and the last thing at

night, 7 days a week. As I read this, it makes me feel guilty and

ill. Please pass this on to as many people as possible. Guess its not

too late to make some changes

Car A/C (Air Conditioning) MUST READ!!!

Please do NOT turn on A/C as soon as you enter the car.

Open the windows after you enter your car and turn ON the AC after a

couple of minutes.

Here's why:

According to a research, the car dashboard, sofa, air freshener emit

Benzene, a Cancer causing toxin

(carcinogen - take time to observe the smell of heated plastic in your car).

In addition to causing cancer, Benzene poisons your bones, causes

anemia and reduces white blood cells.

Prolonged exposure will cause Leukemia, increasing the risk of cancer.

Can also cause miscarriage.

Acceptable Benzene level indoors is 50mg per sq.ft. A car parked

indoors with windows closed will contain 400-800 mg of Benzene.

If parked outdoors under the sun at a temperature above 60 degrees F,

the Benzene level goes up to 2000-4000 mg, 40 times the acceptable

level.

People who get into the car, keeping windows closed will inevitably

inhale, in quick succession, excessive amounts of the toxin.

Benzene is a toxin that affects your kidney and liver.. What's worse,

it is extremely difficult for your body to expel this toxic stuff.

So friends, please open the windows and door of your car - give time

for interior to air out -dispel the deadly stuff - before you enter.

A mail received by me published for public benefit only.

13 BANKS RECAPITALISED WITH RS 22,915 CRORE, ANALYSTS SAY MORE NEEDED

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The Finance Ministry on Tuesday announced the much-awaited capital infusion of Rs 22,915 crore towards the recapitalisation of 13 public sector banks during 2016-17.

However sectoral analysts are of the view that the quantum of capital infusion will provide some stability to the weak financial profiles of state-owned banks but may not go a long way to help them achieve growth.

The largest amount of Rs 7,575 crore was earmarked for the country’s largest lender, the State Bank of India.

“In line with the announcements made under ‘Indradhanush’ and the Union Budget, the government has undertaken an exercise to assess the capitalisation needs of public sector banks during 2016-17,” a ministry statement said.

“The capital infusion exercise for the current year is based on an assessment of need as calculated from the compounded annual growth rate of credit for the last five years, banks’ projections of credit growth and an objective assessment of the growth potential of each public sector bank.”

Following this assessment, 75 per cent of the amount collected for each bank is being released now to provide liquidity support for lending operations as also to enable banks to raise funds from the market, it said.

The remaining amount, to be released later, is linked to performance, with particular reference to greater efficiency, growth of both credit and deposits and reduction in the cost of operations, it added.

Among others, Indian Overseas Bank will get Rs 3,101 crore, Punjab National BankRs 2,816 crore, Bank of India Rs 1,784 crore, Central Bank of India Rs 1,729 crore and Syndicate Bank Rs 1,034 crore.

In his response, Saswata Guha, director, Financial Institutions at global credit rating agency Fitch Ratings, told IANS: “What the government is providing banks currently is simply part of the amount it had budgeted for. It will provide some stability to the weak financial profiles of state-owned banks but may not go a long way if banks have to pursue decent growth in a scenario where some more amount of asset quality stress is yet to filter through.”“In our estimate, the government will likely have to provide at least double of its budgeted $11-12 billion to state-owned banks but there is also a risk that this could go up if the government banks are unable to raise their share of capital (in various forms) independently from the capital markets,” he added.

In a recent report, Fitch Ratings had said it expects Indian banks to require around $90 billion of capital to meet new Basel III capital standards that will be fully implemented by the financial year 2018-19.

Resolving the asset quality and capital issues will be important for some banks to regain market access, which is now difficult for the majority of state banks, it had said.

Fitch Ratings said it expects Indian banks’ stressed asset ratio to peak around 2016-17, although the recovery will depend on resolution of non-performing loans (with state banks having average stressed asset ratio of 14.5 per cent compared to 4.5 per cent for the private banks) and credit growth.

The ‘Indradhanush’ scheme was announced on the eve of the Independence Day in 2015, covering seven areas – appointments, setting up of a Bank Board Bureau, capitalisation of banks, de-stressing their assets, empowerment, accountability and governance reforms.

The preparations for the first tranche of capital infusion for this fiscal began soon after the state-run banks made presentations to the Finance Ministry on their balance sheets, especially the extent of stressed assets and measures being taken to recover them, officials said.

In his Budget speech this year, Finance Minister Arun Jaitley said that while the problem of stressed assets and bad loans was a “legacy of the past”, the structural issues were already being addressed, and promised adequate infusion of funds, to the tune of Rs 25,000 crore.
“If additional capital is required by these banks, we will find the resources for doing so,” he added.

In fact, in anticipation of such capital infusion, as also because of the steps being taken by the banks to tackle the debt issue, banking stocks have been on the rise in recent weeks.Since June 1, the banking index of the Bombay Stock Exchange, in fact, has risen nearly 10 per cent. Some stocks, like those of Punjab National Bank, have flared up by over 50 per cent during the period.

Courtesy The Financial Express
 

NEW CIVIL AVIATION POLICY: HOW FLYING MAY GET MORE EXPENSIVE

With the new civil aviation policy proposing to extend the so-called hybrid till model for determining airport charges to state-run (Airport Authority of India-operated) airports also, passengers will have to fork out more as user development fees (UDF). Besides, they could also suffer from airlines deciding to treat their share of the extra cost as a pass-through to the passengers, analysts said.

This runs contrary to the new policy’s objective of making air travel more affordable.

Airport charges are universally determined under single till, double-till and hybrid-till mechanisms. In all cases, airport operator gets a predetermined internal rate of return (IRR) as per the concession agreement. Under single-till mechanism, revenues from both aeronautical (landing, parking and ground handling) and non-aeronautical (duty-free shops, hotels, restaurants and airport infrastructure) segments are taken into account to determine the IRR.

However, under the hybrid till method, which is currently being used by joint venture (public private partnership) airports, only 30% of non-aeronautical revenue is taken towards IRR, allowing the operator to pocket 70% of the non-aeronautical revenue. The idea is to encourage the operators to expand airport infrastructure. But the lower revenue base compared to single-till method practically prompts the operators to levy higher charges (UDF) on passengers and airlines.

For instance, the Airport Economic Regulatory Authority (AERA) in 2014 determined tariffs on the basis of single-till for the Hyderabad airport and ruled that the UDF be made zero, still allowing the airport operator to achieve the targetted annual revenue. The airport operator GMR was later allowed by the Andhra Pradesh High Court to collect charges as per hybrid-till method. This resulted in UDF of Rs 1,938 for international passengers and Rs 491 for domestic passengers, corresponding increase in airfares.

Some experts say that the new aviation policy has ignored the conclusions reached by the AERA and the ministry of finance after an extensive evaluation that single-till method is the most suitable for India. However, the aviation ministry defended its decision to extend the hybrid till model to AAI airports. “It (hybrid till) won’t lead to an increase in UDF; on the contrary, the method will attract private investments and boost commercial development at the airports,” RN Choubey, secretary at ministry of civil aviation said. He added the decision was based on the success of this model at international airports run by private operators in joint venture with AAI namely Delhi, Mumbai, Hyderabad and Bangalore airports.

“This change makes AERA a toothless entity. Passenger charges in India will increase, making air travel more expensive. And it contradicts one of the stated intentions of the civil aviation policy to make flying affordable,” Conard Clifford, regional vice president, Asia Pacific, IATA said. He added that the UDF charged at Hyderabad airport seems to have no correlation to what is the targeted annual revenue requirement for the airport and is a case example which establishes that single-till is in the best interest of the Indian passengers.

“There is no fixed mechanism to find out how the charges will increase under the hybrid-till method. Moreover, it will depend on AAI if it wishes to increase the UDF; it may choose to charge the airlines instead,” Amrit Pandurangi, senior director at Deloitte said.

The final civil aviation policy stipulates that under the hybrid-till mechanism if the tariff in one particular year or contractual period turns out to be excessive, the airport operator and regulator will explore ways to keep the tariff reasonable, and spread the excess amount over the future.

^{By: Bilal Abdi | New Delhi} 

^{Courtesy The Financial Express}

Text of PM Modi's address to the joint session of US Congress

Text of PM Modi's address to the joint session of US Congress

STRIKE AGAINST MERGER OF SBI ASSOCIATE BANKS FROM JULY 12

The State Sector Bank Employees’ Association (SSBEA) has decided to go on a two-day strike from July 12, to protest the move to merge five associate banks with State Bank of India (SBI).

Opposing the merger decision, nearly 45,000 employees in the Associate Banks, with 6,700 branches and 9,000 ATMS, will go on strike on July 12 and 13, since the merger will hit the customers and the business badly, SSBEA General Secretary, K S Krishna told reporters here today.

The total business of these banks as on March 2016 stood at Rs 900,000 crore with operative profit of Rs 10,500 crores, he said adding that the association will request the government to reconsider the decision.

The merger is to make SBI a very big bank of global standards, for the benefit of corporates and big companies.

Also Read: Bad loans crisis in SBI to go from bad to worse? Find out here

Such banks in USA had collapsed like a pack of cards.

“If the merger takes place, the customers will face hardship, as they will be forced to wait for several hours for a single transaction,” he claimed.

Even the state governments of Kerala, Karnataka, Rajasthan, Telengana and Punjab, with stake in the banks, have raised concern over the merger, for fear of losing share of profits paid by the banks, he said.

Stating that there will be no rectuitment for five years, he said delinking of associate banks from SBI would ensure independence, functional autonomy, further growth and its progress, Krishna added.

The managements of the associate banks, including State Bank of Mysore and State Bank of Hyderabad, have given nod for the merger at a meeting held on May 17 last.

Courtesy The Financial Express