Banking down south at Mayavaram :Indo Commercial Bank

Indo Commercial Bank New Building Opening

MADRAS MISCELLANY :S. MUTHIAH :The hindu ;3 Mar 14

It had to happen to this column one day. I’m caught in the middle of two 

groups of descendants claiming that their ancestors were the persons

 who founded the Indo-Commercial Bank in Mayavaram (Miscellany,

 February 3). I’ll just present today the material sent to me by the rival 

claimants and look forward to readers who might know anything about

 the subject sending in more information.

It was on December 23, 2013 that I had mentioned “S.N.N. Sankaralingam’s 

Indo-Commercial Bank” and on February 3 I mentioned that the postman’s 

knock arrived with information that the Bank has been started by Rao Bahadur 

Subramanyam, T.R. Venkatarama Sastry, A.R. Vishwanathan, T. Sivaswamy

 and A. Venkataraman, and that S.N.N. Sankaralingam (SNN) was first Manager 

and then Managing Director of the Bank which had functioned in a house in

 Mayavaram in 1933 and then moved in 1935 into a handsome new building 

it built in Mayavaram.

This claim is what has brought a heap of responses from descendants of SNN. First, 

there are two pages from the Articles of Association of the Bank (the first page 

with the date is missing) stating that the “the first Directors of the Bank” shall

 be Rao Bahadur C.S. Subramaniam Pantulu, V. Venkatarama Iyer, R. Viswanatha 

Aiyar, K. Sivaswami Aiyar and S.N.N. Sankaralinga Iyer and that S.N.N.

 Sankaralinga Iyer “shall be the first Managing Director”. It adds, “All acts 

bona fide done by the said Directors on behalf of the Bank prior to the

 registration of these Articles are hereby ratified and confirmed by the 

Bank.” The “prior” in the wording probably refers to the activities of the 

Bank from its founding in, according toThe Hindu, November 1932. 

This is supplemented by T.M. Satchit’s Who’s Who in Madras, 1935 

stating that S.N.N. Sankaralinga Iyer “was doing business as an indigenous 

banker at Kumbakonam, Colombo and Madras very successfully until 1932, 

towards the close of which year he took up the management of the 

Indo-Commercial Bank Ltd., whose founder he was.”

Together with this material there’s a news report from The Hindu of 14.2.33

 describing Pantulu as the President of the Board and “Sankaralingam Aiyar” 

as the Managing Director of the Indo-Commercial Bank, an advertisement for

 the Bank in The Hindu of 31.12.34 signed by “S.N.N. Sankaralinga Iyer” as 

Managing Director, an advertisement from The Hindu of 12.3.1953 mentioning

 SNN as Deputy Chairman of the Bank, and two articles from Compass (1973),

 the house journal of India Cements which was the major industry that SNN founded

 in Tirunelveli District. In one, SNN’s personal physician Dr. K. Vedantam writes, “

At that time a friend of Sri Iyer, who was a relation of Sri K. Lakshmanan,

 suggested that he should start a public limited company with the object

 of rendering services in small towns and rural centres round about 

Kumbakonam which was a very big business centre… K. Lakshmanan, 

who was a law graduate and who had previously served in Indian Bank 

as an apprentice for a year, and Sri Iyer put their heads together and a 

public limited Bank was started with the help of the local educated rich

 mirasdars under the auspices of Rao Bahadur Subrahmanyam Pantulu, 

with its Registered office in Mayavaram…” In the other article, 

S.Y. Krishnaswamy writes, “In those day he (SNN) was a banker 

but he was also connected with the salt industry in the Tanjore District…

. His first important act of consolidation was to convert his private 

banking business into a limited concern with funds which at that time

 were considered adequate with great potentials for growth.

 He established the headquarters of the Bank at Mayavaram 

and collected together a group of friends who continued to be 

his associates for life. While the Bank grew steadily in the early 

years, his own mind was occupied in exploring certain industrial lines.” 

And it was while at the bank in the 1940s that SNN drew up the plans

 to start India Cements in the Tirunelveli District in 1946 together with

 T.S. Narayanaswami.

The descendants of A.R. Vishwanathan, who sent me today’s picture

 taken at the opening of the new headquarters of the Bank in Mayavaram, 

wonder whether without the funding by the others in the front row in the 

picture (excluding the Chief Guest) the Bank would have ever got off the 

ground. C.S. Subramanyam Pantulu, they add, was a keen agriculturist

 and had handled many agriculture related problems. “Soon after harvest

 the mirasdars of Tanjavur used to lavishly spend money. When it came to

 paying taxes they used to borrow from moneylenders at very high interest 

rates which ruined many families. He came up with the idea of starting a bank

 to help develop saving habits. … they decided to rope in S.N.N Sankaralinga 

Iyer of Kallidaikurichi to manage the bank as he ran a successful finance

 business in Kumbakonam and was considered a very efficient go-getter 

and a livewire businessman. He also knew who had money. He brought in

 a lot of his clients into the Bank.”

As one of my correspondents says, “It is not very important” and

 “sources are scarce”. What is important is that a bank was started in 

an area which needed its help.

****

E & O.A.

T.R. Venkatarama Sastry was certainly an Advocate General (Miscellany, 

February 3), but of Madras Presidency, not of India. And even in the Presidency, 

he was not the first; that honour goes to V. Bashyam Iyengar, according to several

 readers who have kept the postman busy. Mea culpa.

Postscript

A. Madhavan sends me a list of banks that had branches in George Town and 

which I had missed in Miscellany December 23, 2013, January 6 and February 3.

 Most of these are no longer in existence, he adds: Bank of Bikaner, Broadway; 

Bank of Jaipur, N.S.C. Bose Road; Bharatha Laxmi Bank, Govinda Nayak Street; 

Devkaran Nanjee Banking Company, N.S.C. Bose Road; Indo-Commercial Bank,

 Armenian Street; Indo-Mercantile Bank, Thambu Chetty Street; Nedungadi Bank, 

Linghi Chetty Street; Palai Central Bank, N.S.C. Bose Road; Travancore Bank,

 Thambu Chetty Street; and Travancore Forward Bank, Stringer Street.

RBI extends deadline to exchange pre-2005 notes

   B S :Priya Nair  |  Mumbai  March 3, 2014 Last Updated at 19:40 IST
RBI extended the date for exchanging the notes from April 2014 to Jan2015.
The earlier deadline was April 2014

If you have notes that were issued before 2005, now you have time till January 2015 to exchange them. The Reserve Bank of India extended the date for exchanging the notes from April 2014 to January 2015. In a press release issued on Monday, the central bank also told banks to exchange the old notes for full value.

"This withdrawal exercise is in conformity with the standard international practice of not having multiple series of notes in circulation at the same time. A majority of such notes have already been withdrawn through the banks and only a limited number of notes remain with the public,'' the RBIsaid.

The central bank also clarified that all such notes continue to remain legal tender and people can continue to freely use these notes for any transaction and receive them in payment. These notes can be identified because they do not have the year of printing on the reverse.

In its earlier circular issued in January 2014, the RBI had said that RBI had said that after July 1, 2014, exchange of more than 10 pieces of Rs 500 and Rs 1,000 notes would not be allowed at a bank where you are not the customer, unless you furnish proof of identity and residence. But now this deadline has been extended.

According to the RBI's Annual Report, around 14.1 billion pieces of soiled banknotes were processed and removed from circulation during 2012-13. The number of bank notes withdrawn from circulation and eventually disposed of at the RBI offices increased over the previous year by 358 million pieces. During 2012-13, around 8.97 billion pieces were processed through 59 Currency Verification and Processing Systems (CVPS) and the remainder were disposed of under other modes.

India home to 70 billionaires; Mukesh Ambani is richest Indian: Report

PTI  BL 2 MAR 14

India is home to the fifth largest group of billionaires in the world and Mukesh Ambani, chairman of Reliance Industries, is the country’s richest man with a personal fortune of $18 billion, says a report.

According to China-based research firm Hurun’s 2014 global rich list, Mukesh Ambani was ranked 41st in the list that was topped by Bill Gates, whose personal networth stood at a whopping $68 billion.

Other noted Indians in the list include Lakshmi N Mittal ranked 49th with a personal net worth of $17 billion.

Dilip Sanghvi of Sun Pharmaceutical Industries and Wipro’s Azim Premji both ranked 77th with a personal wealth of $13.5 billion each. Tata Sons’ Pallonji Mistry ranked 93rd with a personal wealth of $12 billion.

SP Hinduja & family was ranked 93rd on the list, with a net worth of $12 billion.

In the global rich list, Gates was followed by Berkshire Hathaway’s Warren Buffett (2nd) with a personal wealth of $64 billion and Amancio Ortega of Inditex was ranked 3rd with $62 billion fortune.

The fourth position was claimed by Carlos Slim Helu & family ($60 billion) while Oracle’s Larry Ellison with $60 billion was ranked fifth.

The report said that during the past year the Indian rupee weakened 12 per cent against the US Dollar, making it harder for Indians to make the cut-off.

Despite the currency fluctuations, India has improved its position over last year. In the 2014 Hurun global rich list, the country is ranked fifth with 70 billionaires, 17 more than 2013.

Interestingly, India has higher number of these super rich individuals than Germany, Switzerland, France and Japan.

The combined wealth of the Indians billionaires comes to a staggering $390 billion.

The US is home to 481 billionaires, followed by China with 358 billionaires. The US and China now have half of all billionaires on the planet, the report said, adding that the UK, Japan, Switzerland, India and Russia are growing fast in terms of billionaires.

Moreover, Mumbai is home to 33 billionaires and is among the top six billionaire cities in the world.

New York is officially the ‘Billionaire Capital of the World’ as 84 of the Hurun Billionaires live in the ‘Big Apple’, up 14 from 70 last year.

The list is a compilation of US dollar billionaires and wealth calculations were a snapshot of the positions on January 17, 2014. The list ranked 1,867 billionaires from 68 countries. The total wealth of these super rich people amounted to an eye-popping $6.9 trillion.

Of the 1,867 billionaires, 946 saw their wealth increase and there were 482 new faces. Only 318 individuals saw their wealth decrease and 123 remained unchanged.

The average age is 64, up one year from 2013. One in nine billionaires is a female, compared with one in ten last year, the report said.

(This article was published on March 2, 2014)

Warren Buffett NOW: Ajit Jain’s mind an idea factory

NEW YORK, MARCH 2:2014 :pti :

 

Continuing to shower praise on him, billionaire investor Warren Buffett has said Ajit Jain’s mind is an “idea factory” that always looks to add more lines of business to his current assortment.

Buffett has been consistent in his praise for Indian-origin Jain, one of the key executives at the investor’s sprawling Berkshire Hathway business empire.

Jain, associated with Buffett for nearly three decades, has long been speculated as being a potential candidate to succeed the octogenarian investor at the conglomerate.

“From a standing start in 1985, Ajit has created an insurance business with float of $37 billion and a large cumulative underwriting profit, a feat no other insurance CEO has come close to matching.

“Ajit’s mind is an idea factory that is always looking for more lines of business he can add to his current assortment,” Buffett said in his latest annual letter to shareholders released on Saturday.

Last year too, the maverick investor had praised the business acumen of Jain who holds the reins of Berkshire Hathaway Reinsurance Group.

According to the letter, Berkshire’s attractive insurance economics exist only because of some terrific managers running disciplined operations that possess strong, hard-to-replicate business models.

Among the conglomerate’s major units, Reinsurance Group is first in terms of float size.

Jain insures risks that no one else has the desire or the capital to take on, Buffett said, adding that he never exposes Berkshire to risks that are inappropriate in relation to the resources.

His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the insurance business, Buffett said.

“Indeed, we are far more conservative in avoiding risk than most large insurers. For example, if the insurance industry should experience a $250 billion loss from some mega-catastrophe — a loss about triple anything it has ever experienced — Berkshire as a whole would likely record a significant profit for the year because of its many streams of earnings,” the letter said.

“And we would remain awash in cash, looking for large opportunities if the catastrophe caused markets to go into shock. All other major insurers and reinsurers would meanwhile be far in the red, with some facing insolvency,” it added.

In 2013, Berkshire Hathway’s gain in net worth was $34.2 billion while full-year profit was over $19 billion.

(This article was published on March 2, 2014)

What ails State Bank of India?

SBI owns many of its 15,000 branches and a few thousand residential flats across the country, making it among the largest real-estate rich outfits, after defence, Indian Railways and LIC. Photo: Pradeep Gaur/Mint

Live MINT :2 Mar 14

The biggest challenge before SBI, at this point, is monitoring its bad assets

For the past one year, the State Bank of India (SBI) has been showing a drop in both operating as well as net profits in every quarter and a rise in bad assets. Its gross non-performing assets (NPAs) rose to 5.73% of total loans in the December quarter, up from 4.75% in March; after setting aside money, the net NPAs have risen to 3.23% in December from 2.10% in March. What ails the nation’s largest lender?

There are some cosmetic changes such as insurance cover for all export and small loans, air-conditioning of all branches, and taming of the aggressive trade unions, but fundamentally nothing has changed in the bank. Its expenses have been on the rise while there is no commensurate rise in its income—both interest income as well as fees. There is also a structural issue that could be harming the bank. Following the recommendations of consultancy firm McKinsey and Co., SBI has de-layered its administrative structure. Its four managing directors looking after most of the bank’s businesses and nine deputy managing directors report to the chairman. This makes the chairman an operational head with very little time for lateral thinking and strategy.

Besides, through a change made about two-and-a-half years ago, the chairman is also now a member of SBI’s asset liability management committee (Alco), which takes a call on deposit and loan rates. Since the chairman has the last word on such issues, ideally he should stay away from Alco meetings, allowing his colleagues to have frank discussions. Many in the bank believe that a sharp rise in the bank’s short-term deposit rates, done at the chairman’s insistence, has affected its net interest income and consequently net interest margin, a key parameter of profitability.

There are many ways that SBI can cut costs. For instance, it has 14 stationery departments to supply A4 size papers, ball pens, pins and clips to 14 circles of the bank. These departments employ several hundred workers. Does a bank need such a division when a Flipkart.com can take care of such needs? Similarly, it has 14 processing centres to scrutinize new depositors’ forms, employing at least a couple of thousand people. It’s a mystery why SBI needs data processing centres for every circle when most foreign and new private banks run one centre to process such data across India.

Yet another cost centre is the currency chests that SBI has historically been managing on behalf of the Reserve Bank of India. Of the 4,200 currency chests across India, SBI runs 2,200 or 52% of them while its market share in loans and deposits is around 17%. Assuming that each currency chest on average needs about six armed guards, more than 13,000 such armed guards are on the payroll of the bank. While cash management is a critical activity for the banker to the nation, surely there are modern cash replenishment and logistics alternatives that can minimize use of guards and space.

Finally, SBI owns many of its 15,000 branches and a few thousand residential flats across the country, making it among the largest real-estate rich outfits, after defence, Indian Railways and Life Insurance Corp. of India. What prevents it from floating a real estate arm, in partnership with a real estate management firm? This will result in savings of several hundred crores every year through efficient negotiations with the landlords and free up resources for their core job of business development.

Another area where the bank must look into is its 41,000-odd ATM network for the group. In November, the SBI group roughly accounted for 41% of the 380 million outstanding debit cards (and 45% of the total 530 million transactions) but its share in the ATM network was far less, at 30%. As a result, the bank’s customers use other banks’ ATMs for withdrawal of money. Under norms, up to five such transactions are free. While the customers make free transaction at other banks’ ATMs, SBI needs to pay Rs.18 per transaction. Indeed, SBI also makes some money while other banks’ customers use its ATMs but that’s far less than what it pays to other banks. It possibly needs to take a look at the locations of its ATMs to increase the footfalls. It can also explore whether it can charge on its ATM use. There are roughly 8 million ATM transactions a day and even if it charges Rs.1 per transaction, it can earn Rs.300 crore a year.

The biggest challenge before the bank, at this point, is monitoring its bad assets, about 60% of which originate from mid-corporates and relatively large among the small and medium enterprises (SMEs), the companies which are not diversified, and another 25% from low-ticket accounts from retail, agriculture and small businesses. The bank must give up its traditional model of focusing on manual supervision which is almost impossible when one needs to track millions of accounts. Apparently, sometime back it had set up an account tracking and monitoring platform, called AT@M, for real time monitoring of stressed accounts, but it has not been put to proper use. As a result, even in tractor loans, the bank’s NPAs are in double digits. The bad asset monitoring should be entirely technology driven, supported by modern models of call centres and field tracking.

Finally, the employees should be incentivized to take decisions. Currently, about 70% of SBI’s 220,000 employees are backroom staff and only 30% face customers. This order must be reversed. In a modern bank, up to three-fourths of the employees are expected to be on the frontline. That will help the bank increase its business and income, both interest and fees.

Note: This story has been updated from its original version to clarify the roles of the bank’s managing directors.

Tamal Bandyopadhyay keeps a close eye on everything banking from his perch as Mint’s deputy managing editor in Mumbai. He is also the author of A Bank for the Buck, a book on HDFC Bank

State-run banks may have a tough time ahead

Raising capital wouldn’t be an easy task for state-run banks as seen in the recent offering of State Bank of India to qualified institutional investors, which received a tepid response. Photo: Hemant Mishra/Mint

Dineshunikrishnan :Live Mint ;: MON, MAR 03 2014. 12 16 AM

Rising bad debt, huge capital requirements to meet Basel III norms likely to crimp growth of state-owned banks

Mumbai: A rising pile of bad loans, huge capital requirements to stick to the international Basel III norms and the inability of a cash-strapped government to fork out funds are likely to severely crimp growth of India’s state-owned banks.

State-run banks, crippled by capital constraints, will find it difficult to face competition from deep-pocketed private and foreign rivals and the new set of banks about to enter India’s Rs.83 trillion banking industry, experts warned.

While the capital needs of public sector banks are huge, the interim budget announced by finance minister P. Chidambaram earmarked only Rs.11,200 crore for them in fiscal year 2014-15, even lower than the Rs.14,000 crore in the year to 31 March. This led to immediate warnings from rating agencies, which cautioned that the limited capital infusion is credit-negative for these entities, against the backdrop of rising capital requirements.

An analysis of 40-listed state-run banks showed that at least seven public sector banks have equity capital adequacy ratio less than 8%. These are IDBI Bank Ltd (7.93%), Allahabad Bank (7.68%), Canara Bank (7.48%), Indian Overseas Bank (7.48%), Uco Bank Ltd (7.26%), Union Bank of India(6.75%) and United Bank of India (5.59%).

United Bank is already facing a crisis with its total bad loans rising to nearly 11%, and the bank’s overall capital adequacy ratio falling to 9.01%, forcing it to stop lending operations and virtually seek a government bailout. Experts expect that the government will need to infuse at least Rs.1,000 crore in funds into the bank, over and above what it was originally supposed to receive under the annual share of capital from the government.

A core capital adequacy of less than 8% doesn’t imply that a bank is in any form of trouble, but their capital position is relatively weaker than other banks, which could impact their ability to grow their business.

Of these seven banks, the government owns above 75% in three banks, and between 58% to 69% in the rest.

Warning signals

State-run banks will find it tough to grow their business and face competition, besides meeting the Basel III capital requirements, unless the government allows them to raise capital by bringing down its stake, experts said.

“It is a inflection point,” said Naresh Makhijani, partner, financial services, at consulting firm KPMG India. “The big question is that how will the government, which is running in a deficit, find money to infuse in government banks unless it reduces stake? Capital is going to be a major issue.”

The government expects to contain it’s fiscal deficit for 2013-14 at 4.6%, and has set a fiscal deficit target of 4.1% for 2014-15, suggesting that its ability to set aside additional capital for banks is limited.

But the government has also been reluctant to bring down its stake in public sector banks. “There will be no dilution of government’s shareholding,” Chidambaram said on 23 October in Delhi, responding to questions on capital infusion.

On 24 February, Moody’s Investors Services said the capital allocation made as part of the interim budget is “much smaller” than its estimate of theRs.25,000-36,000 crore required by India’s public sector banks to meet a minimum equity capital ratio of 8% under Basel III norms by 2018.

Under Basel III norms, which are being implemented in phases between April 2013 and March 2018, banks need to have a 8% core capital ratio and total capital adequacy ratio of 11.5% against 9% prescribed now, including a capital conservation buffer of 2.5%. Such a buffer is built by banks in good times to be used only in times of economic or system-wide downturns.

In February, this year, the Reserve Bank of India (RBI) permitted banks to use one-third of the amount banks have set aside as counter-cyclical buffers to make provisions against bad loans—the first time since the reserves were created starting 2010, implicitly acknowledging that mounting bad loans are a systemic concern. RBI’s concern is justified going by the sharp surge in bad loans in recent years and the resultant pressure on the capital adequacy of banks.

Gross non-performing assets (NPAs) of Indian banks rose to Rs.2.4 trillion in the December quarter, while another Rs.4 trillion is being restructured for stressed borrowers. Together, such loans constitute at least 11% of the total advances of Indian banks. Banks need to make 5% provisions for new restructured loans and the provision can shoot up drastically if the loan turn bad.

“Indian PSBs’ (public sector banks) need for significant external capital is a result of an increase in non-performing loans owing to the country’s slowing economy and infrastructure bottlenecks, and profitability that is insufficient for internal capital generation to fund loan growth,” Moody’s said, adding that it expects bad loans to continue rising in fiscal 2015.

Huge burden

“Indian banks will need sizable capital to support growth and meet Basel III requirements. Rated private sector banks are better placed than their public sector peers in terms of meeting Basel III capital requirements,” said rating agency Standard and Poor’s in its banking outlook for 2014 released on 10 February.

The agency expects weakness in banks’ asset quality to persist for the next 12 months given the tepid economic growth, and adds that capital is going to be a major challenge.

“Public sector banks will have to rely on a combination of government capital infusion and equity markets to support their capitalization.”

If the government opts to maintain its shareholding at the current level, the burden of recapitalization to meet Basel III norms will be of the order ofRs.90,000 crore, while on the other hand, if the government decides to reduce its shareholding in every bank to a minimum of 51%, the burden reduces to under Rs.70,000 crore, according to an RBI estimate in September 2012.

“No one would want to maintain the minimum capital in a highly competitive market. Government banks with a weaker capital base will either have to sacrifice their growth or will raise capital from market, which will further dilute their book value,” said Vaibhav Agrawal, vice-president, banking research,Angel Broking Ltd.

Raising capital wouldn’t be an easy task for state-run banks as seen in the recent offering of State Bank of India to qualified institutional investors, which received a tepid response.

As against the targeted Rs.9,600, the bank managed to raise only Rs.8,032 crore, with a state-owned Life Insurance Corporation of India bailing out the issue by buying 41.3% of the total shares offered.