trends in banking part iv
TRANSCRIPT
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Trends in BankingPart-IV
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Payment Banks(A threat to universal Banks)
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Reliance Industries Aditya Birla Nuvo Vodafone
Bharti Airtel
Department of Post (DoP)
Vijay Shekhar Sharma
(PayTm founder)
Cholamandalam Distribution Services Tech Mahindra
National Securities Depository
Limited(NSDL)
Fino PayTech Dilip Shanghvi (Sun Pharma promoter)
11 entties that got in-principle approval by RBI for payment banks
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RBI in August allowed 11 business houses including Reliance Industries, Aditya Birla Group & leading telecom companies Airtel & Vodafone to start payment
banks-Bharti Airtel & Reliance Industries had earlier tied-up with
Kotak Mahindra Bank & SBI for payment bank operations. The Reliance-SBI payments bank has an ambitious plan to cover
2,50,000 villages & 5000 towns in 3 years-Reliance SBI plans to start with a Rs.100 crore capital base &
this will be ramped upto Rs.400 crore in 3-4 years depending on business volumes
Vijay Shekhar Sharma, CEO of One 97 Communications that has PayTm as its flagship brand was one among the successful candidates
Sun Pharma promoter Dilip Shanghvi (who applied in his own name & not as Sun Pharmaceuticals
Industries also got the license. Norwegian Telecom Giant Telenor has also entered into a deal with
Dilip Shanghvi & infra financier IDFC to venture into the payments banks space
The Department of Post & Aditya Birla Nuvo both unsuccessful for universal bank licenses in 2014,succeeded this time
Payments banks will mainly deal in remittance services & accept deposits of upto Rs.1 lakh. They will not lend to customers & will have to deploy
their funds in Govt papers & bank deposits
Payment Banks-A Brief outline
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Dos & Dont’s of Payment Banks
DO’s of Payment Banks Dont’s of Payment Banks
Has to use the word Payment’s Bank in its name to differentiate from other banks
No NRO Deposits should be accepted
Accept demand deposits (i.e, Current Deposits & Savings Bank Deposits from individuals ,small businesses & other
entities)
Cannot issue Credit Card
To hold a maximum balance of Rs.1 lakh per individual Not allowed to set-up subsidiaries to undertake Non-Banking Financial Services activities
Allowed to use Debit Cards & also offer Internet Banking
Other Financial & Non-Financial Services activities of the promoters should not be mingled with the working
of payment banks
Can accept a large pool of money to be remitted but at the end of the day the balance should not exceed Rs.1 lakh
Can accept remittances to be sent to or receive remittances from multiple banks
Permitted to handle cross-border remittance transactions in the nature of personal payments/remittances on the Current A/c
Allowed to distribute Mutual Fund products, Insurance products & Pension products
Bank can also undertake Utility Bill Payments
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Department of Post(DoP)-Payments Bank Case Study
Amendments will have to be made in the financial rule of the Dept to include banking as a mandate. The DoP is open to partnerships with the other entities which got payment bank licenses from RBI.Under the payments bank, the initial plan of DoP is to have 650 main branches where the Dept has a head or bigger post offices. Subsequently 25,000 spoke branches will be set-up. The other 13,000 Post Offices will act as a business correspondent
DoP has planned to
invest Rs.300-400
crore for setting up payment bank for
Which it has started
preparing a note for
approval by the Public Investment Board(PIB)
According to the detailed project report by Ernst & Young for DoP, the payment bank will be able to break-even in 5 years once operations start. DoP will earn a revenue of Rs.250 crores in the first year from the new banking entity expected to go up to Rs.600-700 crores annually in the five years
The new unit to be financially & administratively independent &
will use the existing
infrastructure of the Dept & also pay user charges
to the Dept
By RBI guidelines the first branch of a payment bank has to be set-up within 18 months from the
date of license. In the budget speech this year, Finance Minister Arun Jaitley had said that the
Govt was committed to increase the access of people to the formal financial system
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RBI ‘s fast move to establish Banks in IndiaThe 11 entities are required to have an
initial capital of Rs.100 crore each & will have to start operations within 18 months from the date of license. The promoters
minimum initial contribution to equity capital will have to be
atleast 40% for the first five years
-This is for the first time in the history of India’s banking sector that
differentiated banking license are given out by RBI
for undertaking specific activities
-RBI has already come out with a second set of such licenses known as “small
finance Banks”-The RBI’s move is seen as
a major step in pushing financial inclusion in
the country
The 11 candidates for payment bank licenses were chosen from 41 applicants after applying fit-&-proper criteria & successful track
record in conducting business for 5 years
-An External Advisory Committee(EAC) headed by
RBI Board member Nachiket Mor scrutinized all applications & sent its
recommendations
The recommendations of the EAC were an input
for an Internal Screening Committee(ISC)
consisting of the RBI Governor & the 4
Deputy Governors. The ISC prepared a final list of recommendations for
the Committee of the Central Board(CCB)
The process for granting licenses was completed within a year compared
with 4 years for universal banking licenses given
out last year
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Are Universal Banks at threat
Impact on Private Banks & Large Public Sector Banks
oThe impact on private sector banks will be minimal because they have already made strong investments in TechnologyoBanks like Kotak Mahindra Bank, Yes Bank, ICICI Bank have all tied up with payment Banks & hence will not be affected muchoSome of the Large Public Sector Banks have also tied-up with payment banks
Impact on Small & Medium Public Sector Banks
There could be an impact on small & medium public sector banks as incremental
deposit growth & market share will see some impact from payment banks especially in
rural & semi-urban areas Public sector banks are also seeing their Current & Savings Bank Account (CASA) share slowing & have a huge pile of Bad
Debts that is affecting their profitability & growth
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India Post-A Big competitor for many banks
India-Post V/s
Other Banks
Since Payment Banks are allowed to take Deposits upto Rs.1 lakh, Public Sector
Banks could lose out on customers who
might open Savings Bank Account with
Post-Office
A big pressure on Public Sector Banks
could arise from India-Post which has
received the Payment Bank approval. India-
Post’s reach with 1,39,000 post
offices significantly exceeds the number of
Public Sector Bank branches at around
44,700 in rural areas
Post-Offices have long been trusted
for long-term Deposits & by offering CASA Deposits, they
could potentially cannibalize Public
Sector Bank’s CASA share in rural markets
which makes-up around 90-90-
95% of the CASA Deposit according
to a Nomura Global Markets Research note
dated 19th August
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How can Payment bank have a edge over other
universal banks
Competitive Deposit ratesPayment Banks could also start offering competitive Deposit rates as high as 6-7% to lure customers compared with the average of 4% Savings Deposit rates of many Public Sector Banks-according to Ambit Capital Pvt.Ltd. This could weigh on the deposit franchise of Public Sector Banks in the long run
Payment Banks backed by strong Technology & capitalBesides the threat to Deposits, competition for state-owned banks will intensify as payment banks which are backed by Digital platforms, adequate capital, zero legal issues & low-cost innovative & convenient services will compete heavily for liabilities in rural & semi-urban areas
Decline in Market ShareThere could be a loss of market share in payment transactions & Government transfers also-according to CSLA report
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Is RBI pushing banks for high growth
From 2015,competition is only get tougher & tougher & RBI has also announced the list of small
finance banks. That means, in the longer term, some of the small Public Sector Banks may remain
under pressure particularly those that are strapped for cash & cannot participate fully once a
full-fledged recovery happens
India is far from being the only country where Technology armed with Financial Apps is challenging traditional banks.For instance in China-Mobile Apps have mushroomed & have started threatening the backward & inefficient traditional banks so much so that many customers have switched directly from Cash Transactions to Banking through Mobile Apps
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RIL-SBI Payments Banks to push Digital Banking
(Reliance has entered into a partnership with State Bank of India for Payments Bank)
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RIL which has been granted a Payment Bank license by the
RBI believes that the new bank will be able
to push the digitization of
payments in the country.RIL has entered into a
partnership with SBI for payments bank.
While RIL is the promoter, SBI will be
the Joint-Venture partner with equity investment of 30%
The new bank will be able to leverage Reliance Jio’s
Telecom Network & retail business’s online/offline
presence. On the other hand, SBI will help in
enhancing product capabilities & also provide a strong
distribution networkThe payment bank is
integral to RIL’s digital initiative in a rapidly converging world of telecom,
internet, commerce, media & financial
services
-Mukesh Ambani
RIL-SBI in a first-of-its-kind public-private
partnership have joined on a mission to make India’s financial
services digitally smart. SBI’s vast
experience in structuring financial products for different customer segments
will be combined with the digital access
provided by RIL in completing the most efficient, simple & affordable delivery model with utmost focus on Financial
Inclusion
The payment bank alliance between RIL-
SBI will help in delivering Digital
Banking products & services & will also help in promoting
digital transactions by offering simple
products conveniently at a low cost
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RBI’s one big next moveSmall Finance Banks
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After granting in-principle approval to
11 applicants for Payment Banks, RBI is ready for another move
for small finance banks. Both Payment & small finance banks
will help deepen financial inclusion in
IndiaRBI had received a total of 113
Applications from players keen to set-up
niche banks like payment & small
finance banks. There were 72 applicants for small finance banks & 41 for payment banks
Small Finance Banks will be similar to
existing commercial lenders & will
undertake basic banking activities of accepting deposits &
lending to unserved & under-served sections.
The maximum loan size & investment limit exposure to single & group obligors cannot be more than 10 & 15% of its capital funds.
-Atleast 50% of their loan portfolio has to include
loans & advances of upto Rs.25 lakhs as per RBI
regulations
The credit growth of the banking system has
slowed down & a key factor has been high
lending rates. India Inc has preferred borrowing from the market where
rates have fallen. Though RBI has cut the repo rate or the rate at which banks borrow from the central bank, banks have been reluctant to pass on the
cuts
-RBI Governor says Banks needs to frontload transmission of monetary
policy. They should reduce lending rates for
boosting demand especially in retail. There
is an uptick in demand-In recent times bad loans have been on the rise. The thing that worries RBI is that how banks recognize
distressed assets in the first place
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New Banks et to create 25,000
small town jobs
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Varansi based Utkarsh Micro Finance-Utkarsh plans to recruit 2,000 people in the next 18 months & another 2000 over the ensuing three years. Utkarsh operations are based in Bihar, Uttar Pradesh, Jharkand & Madhya Pradesh. They have a total staff strength of 2,200.
IDFCIDFC plans
to begin operations with few branches
than Bandhan’s
500.In 2014,it has recruited 2000
people for its rural
operations
Bandhan Bank-Has recruited 8,500 people in 2014 taking its workforce to 19,500.Nearly 80% of the Bandhan’s staff is posted in small towns & villages.
Ujjivan Financial Services
-is one of the biggest Micro
Finance Institution
has a requirement for 3000 field staff
The starting salary of a filed worker in a microfinance institution is Rs.15,000 & after recent wage hikes in the banking sector, the entry level salary of a bank clerk is Rs.20,000.The new banks have to match their salary according to the new changes. Thrissur-based ESSAF Microfinance
-will need 1,000 new recruits ahead of banking foray
The newly licensed banks will create 25,000 jobs in small towns & villages
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•Bandhan & IDFC Bank has already recruited
•The data for Au Financiers, Capital Local Area, Equitas, RGVN is based on informal average estimates by Industry experts on a conservative basis
•Approx.25,000 Jobs to be created in this sector
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Anup George RebelloAsst.Manager
The Catholic Syrian Bank Ltd([email protected])
http://www.slideshare.net/anuppresentations