Govt banks resort to special loan schemes

B S : Namrata Acharya / Kolkata Oct 06, 2012, 00:16 IST





Ahead of the festive season, the high cost of funds and sluggish credit growth have prompted public sector banks to consider reducing interest rates in certain portfolios, especially the retail and small & medium enterprise (SME) segments.

Last month, the Reserve Bank of India (RBI) had cut the cash reserve ratio, or CRR, (the funds banks have to keep with RBI as cash) 0.25 per cent to 4.50 per cent. It was expected the move would infuse Rs 17,000 crore into the monetary system.




Responding to this, State Bank of India (SBI) cut its base rate 0.25 per cent to 9.75 per cent. Ruling out the possibility of a further cut in the base rate, Diwakar Gupta, chief financial officer and managing director, said ahead of the festive season, the bank might consider launching special loan schemes to boost demand.


“Currently, we do not contemplate further reduction in the base rate. However, we might decide to launch special schemes like providing a one-time rebate to customers,” he said.

SBI has excess case reserves of about Rs 60,000-90,000 crore. As credit growth is sluggish, the bank is finding it difficult to deploy these funds. Smaller public sector banks have already resorted to reducing interest rates on a few portfolios.

“Unless the repo rate (the rate at which banks borrow from RBI) comes down, it will not be possible to reduce the base rate. Due to the high inflation, we cannot reduce deposit rates, too. We responded to RBI’s CRR cut by offering preferential rates,” said M Narendra, chairman and managing director, Indian Overseas Bank. The bank has already launched several special rate schemes in the housing and car loan portfolios, apart from waiving processing fees for certain loans. Recently, it had cut the interest on housing loans 1.50 per cent and that on loans against jewellery from 14.25 per cent to 12.50 per cent. Narendra said the bank might reduce the rates further.

“The benefit of a reduction in the base rate is often limited to large companies. By reducing interest rates selectively, its benefits can be given to a large number of customers,” Narendra said.

Next week, asset liability committees of several public sector banks would meet to decide on base rates.

Recently, Kolkata-based United Bank of India had cut interest rates for loans to SMEs by 75-225 basis points. This was the first time the bank had cut interest rates in a particular portfolio. Currently, the bank’s base rate is 10.45 per cent. “We are working on ways to reduce interest rates. However, unless the cost comes down, it would be difficult to reduce the base rate. We are collecting information on different portfolios and would take a decision soon,” said Bhaskar Sen, chairman and managing director, United Bank of India.

Currently, the bank’s SME portfolio stands at about Rs 8,000 crore, about 12 per cent of its total portfolio. The bank has reduced its credit growth target for this financial year from 20 per cent to 15-16 per cent. In the quarter ended June, its credit growth stood at 19.85 per cent.

Kolkata-based Allahabad Bank has reduced interest rates on retail loans. “In our half-yearly assessment, we found the cost of deposits had declined only marginally. We will take a call on the possibility of reducing the base rate next week,” said T R Chawla, executive director, Allahabad Bank.

Asha Bhosle's daughter Varsha commits suicide

Money Control :Mon, Oct 08, 2012 at 14:36

Varsha Bhosle, daughter of playback singer Asha Bhosle, has committed suicide by shooting herself, reports said. Varsha was a political columnist and journalist based in Mumbai.

Varsha Bhosle, daughter of playback singer Asha Bhosle, has committed suicide by shooting herself, reports said. Varsha was a political columnist and journalist based in Mumbai.

Varsha has herself sung playback for some Hindi and Marathi movies. Asha Bhosle is currently in Singapore to attend MIFTA awards (Marathi Culture awards).

Varsha was in her mid-50s and had allegedly attempted suicide once four years ago. She was admitted to Mumbai's Jaslok hospital after a drug overdose in 2008. She stayed by herself in the same locality as her mother.

She has worked as a columnist for The Sunday Observer between 1994 and 1998 and at Rediff between 1997 and 2003.

According to TV reports, she reportedly shot herself at the singer's residence 'Prabhu Kunj' in Peddar Road. Varsha was divorced from freelance sports writer Hemant Kenkre.

State-run banks to cut debit card usage fee

At present, many vendors discourage card usage by customers, 
especially for high-value purchases, and sometimes even insist the customers
 bear the transaction costs. 
Photo: Pradeep Gaur/Mint

Remya Nair :Mon, Oct 08 2012. 01 14 AM IST

Charges could be as low as Rs.2 per transaction, 
are expected to promote greater use of debit cards

In a major fillip to e-commerce, state-run banks will soon lower fees for debit card transactions. The fee could be as low as Rs.2 per transaction and is expected to promote greater use of debit cards and a gradual reduction in cash purchases.

The fee will be charged per transaction rather than as a percentage of the value of a purchase, as a massive proposed roll-out of point-of-sale (POS) terminals is expected to reduce costs. Public sector banks are expected to collectively roll out 600,000 POS terminals in the next two years as part of the government’s plan to encourage shopping through cards.

Credit card transactions will continue attracting higher transaction costs.

At present, many vendors discourage card usage by customers, especially for high-value purchases, and sometimes even insist the customers bear the transaction costs. For credit cards, the charge is 1-2% of the value of the transaction, depending on the merchant size and location. For debit cards, the charge goes up to 1%. The Reserve Bank of India capped debit card charges earlier this year.

“Payments are still linked to value of the transactions for both debit and credit cards. At a time when we are looking to encourage e-payments, such high costs act as a big disincentive,” said a finance ministry official who did not want to be identified. “In debit cards, there is no risk of default. We have asked banks to charge a flat rate on every debit card transaction,” the official said.

The decision is in line with the recommendations of a committee set up by the finance ministry to examine issues affecting the growth of online shopping. The committee, which included software industry lobby Nasscom, recommended that the fee on debit cards be reduced because of the lower risk involved.

“With the roll-out of POS machines, costs for banks will come down to as low as Rs.2 and there is no reason why they should charge a higher fees,” the official added.

“Vendors may not pass on the costs to the customers, especially in high-value transactions, if charges are levied at a flat rate. This will lead to greater use of debit cards and also discourage cash handling,” said Anish Thacker, a tax partner at audit and consultancy firm Ernst and Young.

IDBI Bank Ltd has issued a tender to procure POS machines for all public sector banks. The bidding is likely to be completed by next month. An official with a public sector bank said there was scope to reduce the fee, but the rates will be finalized only once the bids come in.

Sudip Kumar, head, Tata Communications Banking InfraSolutions Ltd, said the proposed huge roll-out of POS terminals will help banks lower their costs due to economies of scale. “There will be savings on the information technology infrastructure. There will be pressure to lower interchange costs and change the business model,” he said.

Cibil’s new score to rate even fresh borrowers

Individuals with no loans outstanding and who have no pending enquires 
about them from banks will be rated at -1, Cibil says. 

The new version will grade first-time borrowers on a risk index of 1 to 5—1 being the highest risk of default and 5 the lowest

Photo: Priyanka Parashar/Mint

Live Mint :Joel Rebello Thu, Oct 04 2012. 10 55 PM IST

Mumbai: Credit Information Bureau (India) Ltd, or Cibil, the country’s largest collector of databases on borrowers, has launched a credit score that will help banks rate new borrowers with a credit history of less than six months.

The previous version rated all borrowers with a credit history of less than six months at 0. The new version, christened Cibil TransUnion Score 2.0, will grade first-time borrowers on a risk index of 1 to 5—1 being the highest risk of default and 5 the lowest.

“This will help credit institutions classify new-to-credit customers as high, medium or low risk,” Cibil said in a statement on Thursday.

Individuals with no loans outstanding and who have no pending enquires about them from banks will be rated at -1, Cibil said.

Indian banks use Cibil’s data to estimate the likelihood of loan repayments by borrowers. With a database of more than 200 million and 862 financial members, including banks and non-banking financial companies, Cibil is India’s largest credit bureau. Banks have been accessing the scores since 2007 and are increasingly dependent on them to check individual credit history before lending.

Cibil expects the new version of credit scoring to help banks identify 10% incremental defaulters, saidSatish Pillai, chief operating officer.

For borrowers with a credit history of more than six months, the credit bureau will rate according to a three-digit number ranging from 300 to 900—300 indicating the highest default risk.

“We think this new score will help banks distinguish between the good and very good borrowers. The Indian market is dynamic and there are many new borrowers particularly in the low-income category who take loans for two-wheelers. For these borrowers, the new system could provide sooner access to credit,” Pillai said.

For new borrowers with no loans outstanding and no enquiries from banks, the grade will be based on the type of loan, total indebtedness and demographics such as age, he added.

V.N. Kulkarni, chief counsellor at Abhay Credit Counselling Centre, said the new grades will help because “quite a few number of people have never borrowed before”.

He added, “Maybe going forward, just like in Western countries, Indian borrowers can also demand concessions from banks on lending rates based on their credit score. That, however, has not happened so far.”

Since April 2011, Cibil has permitted individuals to access credit scores for a fee. However, borrowers have not been able to use their scores as a bargaining chip for cheaper loans.

Consumers can access their detailed credit report and score by paying Rs.450 and completing a form at cibil.com and furnishing proofs of identity and address.

Pillai said the public will be able to access the new reports after all the banks migrate to the new system, which is expected to happen in three months.

How will Cibil’s newly launched score affect loan seekers

Vivina Vishwanathan: livemint: 8th Oct 2012

Those already with a score may find it lowered but
 that’s because of a change in the calculation method.

If you have borrowed first time in the last six months, you would now have a credit score. Earlier, the credit score for all first-time borrowers with less than six months credit history was zero. Last week, Credit Information Bureau (India) Ltd, the country’s largest credit information company, launched a new version of credit score—Cibil TransUnion Score 2.0—which will replace the earlier Cibil credit score and take under its wings even those with a credit history of less than six months.

As of now, you won’t have access to this score; the earlier version was available to customers by paying a fee. The new version will be provided only to credit institutions for now.

The change

Borrowers who have taken credit for the first time in the last six months will be graded on a scale of one to five, where one would mean highest risk and five would mean lowest risk of default. The risk index has three categories: a score of one or two means high risk, a score of three means medium risk and a score of four or five means low risk.

For those already with a score, the range will remain 300-900 as earlier. However, your score may be lowered a bit, but there’s nothing to panic as this is only because the calculation method has been modified. For instance, if your score in the old version was about 750, it will come down to about 700 in the new version. Accordingly, the credit institutions will also adjust. So earlier if 750 was the eligibility level, it will be lowered to 700 now.

The parameters for calculation remain the same; they will include delinquency, credit seeking activity, type of credit and demographics.

Why has the change been brought about?

According to Cibil, there has been a change in borrowing behaviour of consumers. Says Arun Thukral, managing director, Cibil, “There has been a shift in the borrowing trend. Earlier, the focus was on credit cards and personal loans; now it is shifting to home and auto loans. To cater to this changing development and the change in the ratio of secured and unsecured loans, we have introduced the new version.”

Says Rajesh Kumar, executive vice-president and head-debt management, risk intelligence and business analytics, HDFC Bank Ltd, “Credit score is of great help for banks when it comes to loan acquisition and account management. The earlier version of Cibil score was five years old and was due for recalibration. This is because a lot has changed in the database and also in customer behaviour. The new version is built on more recent data and can help differentiate between good and bad customers. Banks normally encourage first-time borrowers and people with less credit history. Hence, the new feature of risk index will be very useful.”

Says M. Narendra, managing director, Indian Overseas Bank, “Credit information companies have in-depth commercial and retail data, which is of great help for banks. Such data also helps in retail pool analysis and in policy decision-making.”

What it means for you

New borrowers: They will obviously benefit. Says Adhil Shetty, CEO, Bankbazaar.com, “This move will be beneficial for recent borrowers. Earlier, there was no differentiation between a person who paid his dues on time and the one who defaulted on his payments. But now there will be a demarcation between the two. This makes credit more accessible.”

This, however, also means that you will have to be a little careful when you enquire about loans. If you call 4-5 banks at a time, Cibil will be informed about the calls and it can work against your score.

Borrowers with existing credit history: For those with a credit history of more than six months, the credit score will come down by a few points. But there is nothing to panic about; it is just that the figure has been readjusted.