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Monday, April 11, 2011
Rongali Bihu at Pandu
A cheque lost in transit: How to minimise your loss
Depositing a cheque in the bank doesn't always guarantee that it will reach its destination. There are times it gets lost due to the circuitous banking procedures. Often, however, it is misplaced when it is withheld after being dishonoured. And if you haven't applied for the SMS alert facility, it's likely you won't even know that the amount hasn't been credited till you examine your account. Did you know that banks are supposed to inform you when a cheque is rejected and the reason for this? According to a directive by the Reserve Bank of India, banks should return the dishonoured cheque to the account holder within 24 hours, citing the reason for doing so. However, most banks don't bother to follow this procedure. Calling up customer care executives isn't of much help either. They will simply tell you to approach the bank which holds your account to clear up the matter. While the onus for a lost cheque lies with the collecting banker, not with the account holder, it is often the latter who ends up bearing the brunt. This is because if a cheque doesn't get credited on time, you will need to issue a 'stop payment' order to the bank. Most banks charge a fee for this, which ranges from Rs 50-200, depending on the bank. Some banks may provide this service for free if you do it through Net banking . You will then have to issue a fresh cheque or ask the payer to give you one. In some cases, the payer may be unable to draw another cheque. So you will have to approach the branch manager or the nodal officer of the bank. The bank is supposed to solve the problem within a month, but if no solution seems imminent, approach the banking ombudsman. To get the details of the ombudsman in your area, log on to www.rbi.org.in/scripts/bs_viewcontent. aspx?Id=164. You can also file an online complaint on www.rbi.org.in/ scripts/bankingombudsman.aspx. Another problem is that while local cheques get credited within 48 hours, outstation cheques could take 7-15 days. In case you have issued other cheque on the basis of the one that has been misplaced, these could bounce and you will have to pay a fine of Rs 75-300 per cheque. Some banks will charge extra if more than two cheques bounce within a quarter, and the fine can go up to Rs 800 per cheque. Also, if the cheques drawn on an account are rejected four times during a financial year due to insufficient funds, the bank can deny you a fresh chequebook. This is also a criminal offence, punishable with imprisonment for up to one year, or with a fine, which could be twice the amount of the cheque. If you have proof that you had deposited the cheque and that it is lost due to the bank's negligence, you can ask the bank to pay. According to an RBI order, banks should reimburse the account holder for expenses related to obtaining duplicate cheques. However, a few precautions can ensure that the chances of a cheque being dishonoured are minimised. Don't over-write on the cheque and ensure that the date as well as the name of the payee is spelt correctly. Though banks ask you to put the cheque in the drop box, in the case of a high-value cheque, get the counter-foil stamped and keep it carefully. In 2009, the Pune district consumer court ordered Axis Bank to pay Rs 5.61 lakh to building construction contractor Nilesh Pokar after the bank misplaced a cheque. The bank initially claimed that Pokar had an 'unauthorised' counter-foil, but later retracted its statement. Pokar had deposited a cheque for Rs 4.94 lakh in May 2008 and it took him a year to resolve the issue. The court asked the bank to return the original amount with a 12% interest and added Rs 10,000 as compensation.
Banking on credit growth
The latest numbers from the Reserve Bank of India (RBI) show that while credit growth has eased a bit, it is still strong, up 21.4% over a year ago. That, combined with the low base for three months ended March 2010, will drive earnings for banks in the fourth quarter of fiscal 2011. However, the tougher macroeconomic environment in the form of higher interest rates, tighter liquidity and an inflation rate that RBI is still uncomfortable with, means that net interest margins for banks will be under pressure. Indeed, many banks had indicated as much after their third quarter results. Brokerages reckon net interest margins may decline by up to 20 basis points from the third quarter levels, especially for smaller banks that don’t have the luxury of a large bank network and, hence, a lower proportion of low-cost current and savings deposits. One basis point is one-hundredth of a percentage point. Despite banks hiking deposit rates by up to 1.25 percentage points in the past few months, the credit-deposit ratio is hovering around 75.6, not much different from a quarter ago. However, the key question is whether banks still retain the pricing power to raise lending rates. Sure, liquidity concerns may ease in the next couple of quarters; liquidity adjustment facility borrowings averaged Rs. 70,000 crore in the last week of March compared with Rs. 1 trillion at the beginning of the fourth quarter. However, deposit rate increases operate with a lag and higher funding costs are likely to hurt net interest margins over the next couple of quarters as well, even as RBI continues to hike rates to keep inflation in check. Still, asset quality has generally improved for the whole system in the last fiscal. Angel Broking Ltd calculates that the net non-performing assets (NPA) ratio has declined to 0.99% for the December quarter from a peak of 1.15% in the year-ago period. With RBI extending the deadline to move to a new system of recognizing NPAs, there might not be any surprises in this metric for the fourth quarter, at least for private sector banks. For public sector banks, there is also the googly of pension liabilities after new settlement packages were finalized in the third quarter. While banks are allowed to amortize these liabilities over five years, the portion that goes to retired employees has to be provided for in fiscal 2011. This can be as high as 26% of public sector banks’ post-tax earnings in the fourth quarter, reckons Prabhudas Lilladher Pvt. Ltd. Overall, the consensus is that private banks will post more robust results than their public sector peers in the fourth quarter.
SBI: Transition challenges after the O. P. Bhatt era
A few years ago, Mr O. P. Bhatt, who retired ten days ago as chairman of State Bank of India (SBI), the top bank in the country, won an award given by a news organisation. This award was decided on the basis of popular votes that came in by SMS. A retired senior official of SBI told this correspondent that SBI employees were told to vote for their Chairman — and given their large numbers, he predictably won hands down. This anecdote was accompanied by a disapproving comment about what this great bank was coming to. It is common for retired officials of any organisation to think that the golden era ended with their tenure and the institution has now fallen into bad times. So, when one listens to these things all the time, we pass no judgment. Still, one heard the story with mixed feelings. On the one hand, I was a trifle surprised that someone, least of all an SBI chairman, should want these awards that badly. Put it down to naiveté, if you will. On the other hand, if this story was indeed true, then it showed certain PR savviness that you didn't normally associate with the SBI top brass till then. In the last few years, Mr Bhatt had managed to match word and deed and push his organisation into a faster growth path. He was granted a five-year tenure, one of the longest in recent times, and rare in recent SBI history which has seen chairmen come and go even before they had warmed their seats. Putting stability of tenure to good use, Mr Bhatt energised SBI and drove it to top spots in home and car loans — two segments of retail banking that it had completely missed in the preceding many decades. SBI was a natural leader in corporate banking by virtue of its size and an active player in SME (small and medium enterprise) banking because of its government parentage and developmental goals. But retail banking required a different approach, which public sector banks were generally slow to pick up. And they yielded rather good ground to private banks such as HDFC Bank, ICICI Bank and Axis Bank. What Mr Bhatt did in his tenure was to show that SBI can be a player to reckon with in all these segments too. With the economy expected to grow at 10 per cent upwards for the next decade, the demand for homes and cars can only keep growing and ensure SBI is on a strong growth path. The doubling of branch and ATM networks, the integration of all associate banks that is under way, surviving the global slowdown and the transformation that he brought about in attitude, are an impressive legacy of achievements that he leaves behind. To be sure, no leader leaves any organisation without creating some new problems. Often, the frenetic pace set by one leader has to be followed by a calmer period under another leader. The new leader consolidates the gains while also seeking to eliminate some of the weaknesses that got papered over during an earlier growth period. If you look at SBI's nearest private sector rival — the parallel would be obvious. Ms Chanda Kochhar has had to slow down and consolidate during the past two years after the hectic pace of the Kamath years. For SBI's new Chairman, Mr Pratip Chaudhuri, consolidation will be the challenge. He has a two-and-a-half year stint — just the right bit of time to understand the demands of the job, not upset the apple cart, consolidate the gains made earlier and hand over a stronger organisation to the next leader. He has already said that SBI will take a breather. Most importantly, Mr Chaudhuri will have to repair SBI's troubled relationship with the regulator — Reserve Bank of India. Mr Bhatt was a journalist's delight — in providing controversial copy. But in voicing his differences with the regulator with unexpected vehemence on a number of issues, including teaser loans and provisioning requirements, Mr Bhatt may have gone a bit overboard. That things didn't get worse was due to considerable regulatory forbearance and a high degree of tolerance on the part of RBI top brass. The RBI has stuck to the position that it cannot engage in any kind of public war with institutions that it regulates or their heads. Mr Chaudhuri's first priority will be to set this relationship right and ‘engage constructively' with RBI.
Dual bank licence plan
New Delhi, April 10: New licences for banks are likely to be of two types — one to provide just basic banking and another one to provide the usual range of services that not only includes basic banking but also sophisticated facilities such as wealth management and merchant banking. The Reserve Bank of India is set to come out with the draft guidelines for new licences later this month. The basic licence will allow new banks to set up base in rural areas to fulfil the obligation of financial inclusion. Microfinance organisations and co-operative banks will, therefore, get an opportunity to convert themselves into banks. Large industrial houses will be allowed entry, though there will be strict rules in place to ensure that lending is not limited to group businesses. Top finance ministry officials said the RBI was likely to use its discretion to prevent groups with huge investments in high-risk businesses such as realty. Diversified groups having limited exposure to real estate such as the Tatas or Wadias will not be debarred. The past record of an industrial house will be an important factor. “The whole idea is to allow large corporate groups to enter banking but not to bring about a repeat of the 1950s and 1960s when India had witnessed a large number of private banks being set up by industrial houses collapsing,” officials said. Officials said the minimum capital requirement was likely to be jacked up. Under the revised guidelines issued in 2001, the minimum capital requirement for a bank is Rs 200 crore. Promoters are required to raise it to Rs 300 crore within three years. This minimum capital requirement is now likely to be raised to Rs 500 crore for basic banking and Rs 1,000 crore for a comprehensive licence. Officials said there were differences over the voting rights for foreign investors. It is unlikely that foreign investors will be given majority voting rights. “In all probability, their voting rights will be limited to 49 per cent,” the officials said. “The explanation in the recently announced changes in the FDI guidelines makes it very clear that we will distinguish between foreign-owned or controlled investments and Indian owned and controlled investments,” the officials said. The change is being interpreted to mean that for a bank to be defined as an Indian entity it should be owned and controlled by Indians. Otherwise it will be treated as a foreign bank and will face many restrictions. Sources said top industrial groups such as Mukesh Ambani’s Reliance Industries as well as his younger brother Anil’s ADAG group and the Tatas could make an entry. The Aditya Birla group could be keen on banking. Ghanshyamdas Birla had set up Uco Bank in 1943, but it was nationalised in the 1960s. Earlier this month, RIL had entered financial services through a joint venture with hedge fund DE Shaw.
Govt eases rules for bank top jobs
The government has relaxed the norms for appointment to top jobs at public sector banks. To be eligible for the post of chairman and managing director (CMD), a candidate will now require at least 18 months of residual service, with six months experience as an executive director (ED). Earlier, a candidate was required to have at least two years of residual service, with one-year stint as an ED. The government has called 20 EDs for interviews by the end of this month. Eight CMD posts will fall vacant this financial year. In addition, the government has called 30 general managers for the interview for promotion as EDs. During 2011-12, a total of 13 vacancies are expected to arise. To be eligible for the ED's post, a candidate should have two years of residual service and two years of experience as a general manager. The norms for appointing EDs, however, have not been changed. Central Bank of India, Corporation Bank, Dena Bank, Andhra Bank, Syndicate Bank, OBC, Bank of Maharashtra and Union Bank of India will see new faces at the top this year. The appointment at Central Bank of India will be lateral, that is, a CMD of a smaller bank will be given charge. The norms were relaxed during the previous selection process, too. Then, the residual service requirement was made 15 months. The government may also consider appointing a second ED in banks that have a business of Rs 1 lakh crore and above. Some banks such as United Bank of India, Dena Bank and Punjab and Sind Bank have recently entered the league and, therefore, are eligible for a second ED. The search panel to interview candidates comprises RBI Deputy Governor Anand Sinha, Financial Services Secretary S K Sharma and former HDFC Bank chairman Jagdish Capoor, among others. The process for appointing the CMD of Punjab & Sind Bank has started. The post has been vacant for nearly a year. Sources say the finance ministry has initiated the process of shortlisting a suitable candidate. The selection of the chairman of Punjab & Sind Bank is not a part of the interview process followed for other banks.
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