Banking
'Invocation of RBI's corrective plan would curb many activities of banks'
The invocation of the new Prompt Corrective Action (PCA) framework announced by the Reserve Bank of India (RBI) recently would put a curb on many activities of government-owned banks, said investment banking firm Jefferies.
 
In a report issued on Tuesday, Jefferies said the invocation of PCA threshold would require these banks to act on many fronts.
 
"Some of the actions may require them to stop paying dividends and cease branch expansion. In addition, they may be required to raise capital and increase provisioning," Jefferies added.
 
Last week, the RBI came out with revised PCA framework whereby capital, asset quality and profitability would be the basis on which the banks would be monitored and has defined three kinds of risk thresholds.
 
The RBI said mandatory action that would be taken when a bank breaches the risk threshold includes restriction on dividend payment/remittance of profits, restriction on branch expansion, higher provisions, restriction on management compensation and director's fees.
 
The RBI has classified the risk thresholds into three categories and the PCA depends on the type of risk threshold that was breached.
 
The RBI said the breach of 'Risk Threshold 3' of CET1 (common equity tier 1) by a bank would identify a bank as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up and others.
 
"The PCA framework would apply without exception to all banks operating in India including small banks and foreign banks operating through branches or subsidiaries based on breach of risk thresholds of identified indicators," the RBI said.
 
According to Jefferies, the five associate banks of State Bank of India (SBI) were breaching one or more PCA thresholds.
 
Post merger of the five banks with SBI, the consolidated bank should not be breaching any of the thresholds, Jefferies said.
 
According to Jefferies, a total 21 (including the five associate banks of SBI) out of 27 government-owned banks have breached asset-quality trigger.
 
In fact two of the state owned banks have breached 'threshold 3' of asset quality, with their net non-performing asset (NNPA) above 12 per cent.
 
Continued losses in the last two years meant eight of the state owned banks are likely to breach 'threshold 1' of profitability.
 
Jefferies said based on the data up to Q3FY17, the private sector banks are well above the thresholds of the individual areas.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Gupta

6 months ago

Wonder when we will give up all these dramatics and acknowledge the real issue with these banks - corruption and complete lack of knowledge of banking. This is not a joke, these jokers are hired based on their caste and references and ability to siphon funds, not for their banking knowledge.

REPLY

Kunal Singh

In Reply to Gupta 6 months ago

That's what happens. Apparently, a random person commenting on the internet is qualified to lead a bank, aye? Why not apply when the vacancies are announced?

Gupta

In Reply to Kunal Singh 6 months ago

Sure. The day the vacancy doesn't require an SC/ST and doesn't require commissions to be sent to political masters and the day this so call CEO has the authority to sack striking employees rather than indulging them, lots of bankers will apply. Why did a young aditya puri apply for a hdfc bank job in 1994 but only a retired banker apply for BOB when the govt invited private sector CEOs for BoB for the first time? Easy to comment here without getting into facts and realities. Fact is that India has the highest NPA in the world - more than double or triple the next highest - despite all the cover up schemes we have to restructure and avoid calling a lot of loans NPAs. The best and only viable solution for NPAs is to not create them. Why is there not a single PSU bank with no NPA problem if we have smart bankers sitting there? Not even 1 smart guy in 27 banks? Why only 2 private banks and 1 foreign bank suffered from this problem when there are so many of them? How does an hdfc or kotak manage to get away completely unaffected by the NPA problem? Hdfc today has a market value more than all 27 PSU banks put together. Can't we see the writing on the wall? We haven't even acknowledged the real issue yet which is corruption and not economic environment or sectoral issues or RBI regulations preventing recoveries. God bless our ignorance and determination to keep running away from reality.

Govinda Warrier

In Reply to Gupta 6 months ago

We can go on asking questions. What's that market value of bank, we are discussing? Why private sector banks improve their market share in banking business to a decent level from the present below thirty percent which is not a pass mark(with moderation)? True, public sector banks are not allowed to recruit professionals from the market, paying market related remunerations.True, the burden of serving semiurban and rural areas which is unremunerative is exclusively given to PSBs. True, Government and politicians treat PSBs as their servants. True, in Government and public sector we don't have a respectable HR policy in place. But can we shift the entire blame for all these to PSBs alone? Till BBB came under Vinod Rai, there was no talk about professionalising bank boards or factorising incentives and disincentives in remuneration of public sector bank employees. Media and analysts have a blow hot blow cold approach while talking about Indian Public Sector which is still the backbone of Economic Growth and Scientific Development in this country.

Simple Indian

6 months ago

High time the Govt sets up a Banking Regulatory Authority of India, on the lines of TRAI for telecom sector. The Banking Regulator should oversee operations of both public sector as well as private sector Banks to ensure they abide by all Govt/RBI rules and also serve their customers as promised in their charter of services. The Banking Ombudsman has often been indifferent towards Bank customers' plight and those who have the time and resources approach RBI for resolution. The PCA framework should also include arbitrary increasing of charges by Banks to benefit/compensate one set of Bank's customers at the cost of another set of customers. For instance, the SBI Chairperson was frank & honest enough to declare recently that SBI will increase MAB substantially for all regular customers, to compensate for JDY A/c maintenance by SBI. This is a clear case of robbing Paul to Peter syndrome. Mind you, regular S.B. A/c holders will have to maintain higher MABs while NOT getting any improvement in services for themselves. Such unethical practices should be stopped by PCA rules.

Govinda Warrier

6 months ago

This is a welcome initiative from RBI. Gradually, both Government owned and private sector should come under uniform regulatory requirements and have a level playing field for conducting banking business. After all, both raise resources from the same source namely deposits from the public. Post nationalisation, somehow an impression was created that private sector banks are "commercial" banks and only the "nationalised" banks were responsible for ensuring flow of credit for priority sectors and reaching out to rural and semi-urban areas with banking services. Several concessions like depositing shortfall in targeted lending in Rural Infrastructure Development Fund maintained by Nabard strengthened this impression. The differentiation affected public sector banks adversely in all areas including HR management.

Credit Cards, Credit Ratings & Phoney Customer Care of Banks
Many of us won’t forget a presentation by Ravi Subramaniam, ex-banker and author of several thrillers set in banking. His book, If God Was a Banker, opened our eyes to the millions that Citibank probably earned on ‘Citibank Suraksha’, an insurance that was quietly loaded on to consumers, without their consent, in the 1990s. (The book, of course, has a fictionalised account—so any similarities that I have found with Citibank are purely coincidental.) Although there was a media furore, the bank in the book only reversed charges if a customer called to complain. Apparently an overwhelming majority didn’t. The bad press didn't matter as long as the bottom-line was fattened and it was, in a big way. 
 
Two decades later, HDFC Bank faces a similar controversy over its Rs110 ‘account management’ fee charged to customers without their consent. A furore ensued and has led to some change. But not enough – it remains an ‘opt-out’ service. HDFC’s head honcho, Aditya Puri, who was coincidentally with Citibank during the 1990s, will be laughing in his Bank and probably snag another trophy or two as the ‘best banker’
 
In HDFC Bank’s case, at least the shareholders probably approve of what the bank is doing. But what about State Bank of India (SBI), owned by the government of India? Its chairperson is busy recovering both the cost of Jan Dhan accounts (as she has admitted) and the Bank’s bad loans from its hapless depositors, by levying hefty charges on a range of poor services.
 
Earlier this month, SBI launched its ‘Unnati’ card, which will drag its customers into the heaven of “digital transformation through cashless transactions.” Meanwhile, chairperson Arundhati Bhattacharya has announced that the Unnati card will be issued to anyone who has a cash balance of Rs25,000 in his account (including Jan Dhan account-holders) without going into their credit history. Ms Bhattacharya portrays this as a selfless national service. It will cater to the credit card requirements of new users, especially those without any prior credit history, she said, adding, “we must credit empower our citizen and this is an initiative towards that.” We have a different interpretation. SBI is luring unsuspecting users. For this, it is offering ‘zero annual fees’ for four years. 
 
This brings us back to Ravi Subramanian’s talk. One big insight from him was how every action of card-issuing companies that appears to benefit a card-holder is actually geared to improve its own revenues. It is meant to encourage you to spend money that you don't have and cannot repay at the end of the month—so you roll it over at a usurious interest rate. When an issuer upgrades your card—silver to gold, or gold to platinum—it is rarely because you are a good borrower (who diligently clears all dues at the end of the credit period), but because the bank earns a higher commission. In fact, credit card issuers love customers who roll their credit and pay the minimum dues. Those who pay up on time are a cost and a burden. So let’s examine SBI’s generous Unnati offer more closely.
  • SBI’s ‘zero’ annual fee is an eyewash. What the card-holder needs to know is what interest SBI will charge and whether there are other hidden charges and costs. At the moment, SBI has among the highest charges for a slew of banking services, including minimum balance, cheque leaves, drafts, etc. In fact, its charges are often higher than those of private banks, without even the excuse of offering better service and ambience. 
  • Secondly, SBI is already hiking costs, even before the Unnati card hits the market. On 4th April, political analyst and doctor, Dr Sumanth Raman, tweeted, “SBI Cardholder, w.e.f. 1st April 17, Rs100 will be charged for payments made thru cheque of up to Rs2,000.” This is a charge waiting to hit the Unnati card-holder whose minimum payments may be below Rs2,000. Of course, SBI’s excuse is that it wants them to be part of national digital transformation, or be punished. 
  • Thirdly, SBI’s big push to increase the issue of cards and collections will raise funds to buy out General Electric, its long-time partner in the credit card business. By giving credit cards to every depositor who has 25,000 in her bank account, SBI expects a 300% growth in the card business in one year. If plenty of these customers, with no previous knowledge of the high interest credit card business, fall for the high-decibel, heart-tugging marketing (remember MasterCard’s ‘Priceless’ campaign?), it will mean big bucks for SBI. 
  • Fourthly, SBI simply cannot offer credit cards to all those who have Rs25,000 in their account. The Reserve Bank of India (RBI) rules clearly require it to “ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means.” So, hopefully, its claims are more gimmicky than real. 
 
Credit History for Whose Benefit?
The SBI chairperson told a newspaper, “Presently, lack of credit history has been a challenge in increasing the card penetration in the country. In such a scenario, this card is likely to facilitate in generation of credit history for new users, which will help bringing them into organised financial stream.” This is an extraordinary assertion. India is not Europe or the USA, where it is hard for people without a credit history to get a credit card. Nowhere does the RBI’s master circular mandate a credit history requirement for issuing new credit cards. On the contrary, the entire Jan Dhan drive was triggered by the fact that India has a huge unbanked population with no access to formal funding, and hence no credit history.
 
Indeed, our credit bureaus are only helping lenders. It is almost impossible for a credit defaulter in India to get a loan, barring rare exceptions by finance companies. Many defaults date back to 2005 or earlier when people were clueless about the consequences of being listed as a defaulter. Even today, most people become aware about credit scores only when they are refused a loan. No lender offers better terms, or lower interest, to good borrowers with a high credit score as a matter of right. Even when it comes to resetting interest downwards on their home loans, lenders will do their best to extort a charge unless the borrower is savvy enough to haggle and threatens to switch to another lender. Here, too, most borrowers are unaware that the bank knows that a high credit score will get them a good deal with a new lender. 
 
RBI, and the cartel of banks, are completely uninterested in educating consumers about these rights or the importance of credit scores. I wrote to three of the four credit bureaus this week to check if they are aware of lenders who offer a better deal to borrowers. Two replied. They were unaware of any such benefits off-hand and offered to get back. Several months ago, I wrote about how Bank of Baroda was the only bank to frame an official policy wanting to introduce lending rates based on credit scores. We have not heard of any customer getting such an advantage. 
 
All this only goes to show that SBI chairman’s benevolence has everything to do with the Bank’s bottom-line rather than any concern about its new card customers who may end up getting unnecessarily indebted. A consumer website puts it beautifully when it says, “Once you enter the world of credit cards, it becomes tantalisingly easy to buy today what you can’t afford tomorrow.” But lenders and governments have a nice way of blaming individual greed for running up debt. That is why many borrowers in developed countries end up seeking psychiatric help to deal with addiction to credit-card spending. 
 
With RBI shutting its doors to any feedback and communication and the bank cartel being given full liberty to impose charges at will, we are fast headed to the bad old days of 2004-06 when bank excesses and shady marketing pushed millions into needless debt.

User

COMMENTS

Sri Chadalawada

5 months ago

SBI credit cards were given like sim cards under umbrella in NIT Warangal. My friends in IIT Bombay said same happened in their college

Rajendra Ganatra

6 months ago

I have been a preferred customer of HDFC Bank for years. Recently I received this mail from HDFC Bank saying:

"..........we charge a nominal fee of Rs.100 + taxes per quarter per Customer ID for Savings and Current Account holders. The fee is charged only after you have enjoyed a free trial period of One Year"

There was no justification for this new charge which did not exist earlier. So I have opted out of the preferred customer status with HDFC Bank.

Thank Sucheta Dalal for this article, that I took note of the "routine" mail which took for granted, my consent for the charge, unless I would opt out of the service! It's time RBI advised the banks to seek express confirmation for any charge.

B. Yerram Raju

6 months ago

The article is very timely and most needed. On the 9th instant I presented four cheques issues by a firm. Of them only one got credited in the clearing. The other three were returned. Reasons are not informed to me although my account is linked to my mobile.I asked my issuer of the cheques, the reason: he ascertained from the HDFC Bank that he image of the cheque is not clear and hence rejected. But my bank, SBI without representing and without informing held the cheques with it and charged quietly Rs. 496 for the cheques as fees for the cheques returned in clearing!! I lodged my protest and the bank agreed to represent and it took eight days to get the credit. Who will pay interest for the delayed credit of Rs.82000/- and reverse the usurious charges for the return of cheques caused by bank lapse?

Sucheta Dalal

6 months ago

If usurious bank charges worry you, please join my fight against it. Sign and share this petition with your friends. It is easy to whatsapp or put on facebook : https://www.change.org/p/governor-rbi-finance-ministry-stop-banks-fleecing-depositors/w?source_location=petition_nav

REPLY

Sucheta Dalal

In Reply to Sucheta Dalal 6 months ago

You can also copy this smaller URL : https://tinyurl.com/k45z4n5

Sunil Prakash

6 months ago

Banks services are deteriorating. Some nationalised banks have showns customer icare improvements, but then since online banking has come, most of them have stopped personal responses. The people responding from online are just nuts and do not wish to respond, they have set replys to what ever queries you raise. Pitiable condition.

Jagdish Chavan

6 months ago

Thanks for writing and following up bank's openly exploiting common man. I had ISA account with HDFC for few years. Took me time to realize I get zero value having this type of account [rather it was pain to sort out issues even between HDFC MF and HDFC Bank] and only excess charges debited from account. Closing the account was double pain, at point HDFC representative was asking me to redeem all MF units to close ISA account. Thank god, I was aware that time and didn’t follow their advice. Its 5-6 years old story. Re: CITI, I heard many stories but yet to experience serious issues.

ksrao

6 months ago

The combined motto of banks and credit card companies is really, "Use now and regret later". Bernard Shaw said, "Income one pound, expenditure nineteen shillings, result happiness. Income one pound, expenditure twentyone shillings, result misery."

Yazdi Tantra

6 months ago

Forget Farmers' suicides - Credit Card Debt induces suicides in several countries -
http://www.thenational.ae/world/south-asia/spiralling-debts-and-shame-drive-dozens-of-indians-to-suicide-in-uae
http://www.creditcards.com/credit-card-news/debt-depression-and-suicide-1264.php
https://www.sott.net/article/314184-Financial-suicide-Credit-card-debt-in-the-United-States-is-approaching-a-trillion-dollars

sundararaman gopalakrishnan

6 months ago

I fully agree with whatever is said in the article..I have an HDFC Bank Visa card since last 9 years and rarely use it.Have kept the same since i travel abroad frequently and in case i need to use it overseas in extreme emergency..Debit card is any day better..

Vivek Silla

6 months ago

Increased issuance of credit cards might be a good push on the digital economy, but comes with its own set of risks.
Credit Card is a lovely financial instrument for the customers as long as they are used judiciously and the payments are made on time. In addition to the up to 50 days interest free period, it also gives host of other benefits like rewards points, lounge access, cash back, attractive deals and discounts, travel insurance etc. based on the type of the card. Further, it can always be of assistance in case of emergency.
So like every other financial instrument, the onus is on the customers to use the credit cards judiciously to avail maximum benefits from the credit cards. As the old saying goes, cut your coat according to the cloth. The rule of thumb should be that one spends from credit card only as much as he or she can repay within the due date. One should not indulge in spending on unnecessary things using credit card, just because he or she has a good credit limit as eventually he or she has to pay it up, if not within the due date, then with fees and crazy interest rates.
I would expect the media and financial press to create awareness about responsible usage of credit cards so that customers may benefit the most out of the credit cards.
Regarding your point that SBI simply cannot offer credit cards to all those who have Rs25,000 in their account and hopefully, its claims are more gimmicky than real. As rightly stated by you, The Reserve Bank of India (RBI) rules clearly require it to “ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means.”
So it is up to SBI discretion to issue or deny credit cards to any individual based on its own credit risk assessment. So if SBI is ready to issue cards, so be it. SBI is a bank and would definitely care for its own business and might have done a risk benefit analysis prior to taking this decision. They definitely might be looking at their own benefits, whether it is to buy out GE or whatever be it.

Mandar Kulkarni

6 months ago

I've held a Citibank credit card for 5 years, have paid back every bill on time fully. Never got a call to enhance my credit limit or upgrade my card. Someone known to me fell back on payments and opted to convert his spends to EMIs, got his credit limit doubled in 6 months!!! It was only after I sat down with a pen and a paper, this person woke up and paid back full outstanding by liquidating some of his savings. Lot of us don't read the fine print and most of us aren't capable of deciphering the fine print.

Mandar Kulkarni

6 months ago

I've held a Citibank credit card for 5 years, have paid back every bill on time fully. Never got a call to enhance my credit limit or upgrade my card. Someone known to me fell back on payments and opted to convert his spends to EMIs, got his credit limit doubled in 6 months!!! It was only after I sat down with a pen and a paper, this person woke up and paid back full outstanding by liquidating some of his savings. Lot of us don't read the fine print and most of us aren't capable of deciphering the fine print.

Ramesh Poapt

6 months ago

this' addiction' is worse than alcohol,drugs...

p venkateswara

6 months ago

They say 45 days credit you will get & they say you neednot to pay full amount of monthly bill, you can pay 5% of the bill or you can opt for EMI. they creat a confusion, finally the customer will go to their hands.

Gurudutt Mundkur

6 months ago

I would tend to believe that you are a bit to harsh on the Banks. I have had a citibank creidt card for over 18 years, and have not paid a single paisa as penalty. I know what my limits are... they are not the limits set by Citi Bank, but are the limits to which i can repay when the payment becomes due. So I have know problem.... IDO NOT FALL FOR THE BEAUTY OF A LADY IF I CANNOT FINANCE HER DESIRE FOR LUXURIES. If I did not, i would have suffered and become a pauper. I know when my payment is due and also time my purchase at the beginning of the billing period, to extract the maximum of credit time. I am one of the poorest customer of the Bank. I also extract he maximum reward points to the extent that during these eighteen years, I have been to the U.S.A using the reward points and continue to stay in Hotels at almost 10% of the regular rates. Sorry, as it is sadi --- nobody can fool you if you do not want to be fooled.

REPLY

Sucheta Dalal

In Reply to Gurudutt Mundkur 6 months ago

With all due respect sir, you should not judge the financial literacy of others, who may not have your background or savvy. It is harsh and callous. For the past 7 years, we have run Moneylife Foundation and come across stupefying cases of wealth destruction, even by those who have businesses with a turnover of Rs 40 crore and above. Their trust is betrayed and finances destroyed. It is always easy to blame all those who get cheated or tempted as weak and foolish. But most of us are foolish about something or the other in life -- sometimes about our health, or physical security. It is best not to judge. We go by hard facts and numbers. Moneylife Foundation runs several helplines and free daily clinics, so allow us to say we know what we are talking about and how this will get misused.
I must also mention that taking up these issues is a thankless job, but someone needs to do it. We lose advertising and sponsorship support when we write against banks -- believe me, there is no INCENTIVE to write this. It is only the truth!

Vidya

In Reply to Sucheta Dalal 6 months ago

Hi Sucheta,

Many people appreciate the good work done by you, I am one of them. Please continue to educate customers and challenge what is not ethical and not correct.

Anand Vaidya

In Reply to Gurudutt Mundkur 6 months ago

The bank will classify you as a "bad customer" atleast as far as credit card goes. You're not the type of customer they are looking for :-(

RBI raises ARCs' capital requirement to Rs 100 cr
Mumbai, The Reserve Bank of India (RBI) has raised the capital requirement for asset reconstruction companies (ARCs) to Rs 100 crore, from the current Rs 2 crore, it has announced.
 
This move was necessitated by the higher amount of cash required to buy bad loans from the current fiscal, RBI said in note accompanying its first bi-monthly monetary policy statement of the current fiscal presented here on Thursday.
 
The enhancement in capital requirements comes after new norms notified by the RBI in September last said if security receipts (SRs) make more than 50 per cent of the value of the asset under consideration, banks have to continue to provide for these loans as if the loans continue in the books of the bank.
 
These norms were aimed at forcing banks to sell more such non-performing assets (NPAs), or bad loans, at cash.
 
"In view of the enhanced role of ARCs and greater cash-based transactions, it is proposed to stipulate a minimum NOF (Net Owned Fund) of Rs 100 crore for ARCs. The necessary instructions will be issued by end-April, 2017," the RBI said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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