Credit card business will grow robustly

Marketers and market-makers in the financial services industry have for years salivated at the great Indian opportunity for growing the credit cards market.
And it indeed has been a great opportunity and will continue to be so in the coming years. A growing middle class, rising aspirations and an increased propensity to spend by an inherently young population creates heady mix of untapped market opportunity.
The credit cards industry is today coming out of what have truly been testing times. The financial crisis of 2008-2010 remains fresh in our minds. With the tide seeming to have turned finally and with the indicators across almost all key areas looking positive, if not robust, there is fresh optimism in the industry and an almost unanimous positive view that the industry is today placed well for sustained growth.
Learning from the past
Before we look forward to the future, we have to understand the past. As they say, hindsight is always 20-20. The question remains: what went wrong?
The answer lies not just in one reason but a multitude of factors which both issuers and consumers should introspect upon. Credit is, at the end of the day, a powerful tool and a truly flexible option to meet immediate expenses when cash is not at hand.
The credit card, therefore, adroitly addresses medical emergencies, facilitates holidays and travel, or fulfils the aspiration of purchasing that new television or washing machine, with the knowledge that the payment may be done in parts over a period of time, or when that bonuscheque comes in. What will be key is, how both, consumers and card issuers, will treat this extremely powerful tool?
While the global financial crises is ascribed as one reason for the fallout in unsecured lending in India, the impact was also compoundedby the misplaced market growth ambitions of some credit card issuers who wereimmersed in the mantras of market share and market expansion. With access to easy credit card facilities from over-exuberant and ambitious card issuers, customers somehow seemed to have lost the key message: that credit is an important tool, to be used with responsibility and prudence.
Future bright
The future, however, is bright. Several factors strongly indicate that credit card businesses will grow robustly in the coming years. The first is the emergence of strong credit rating agencies in India. Card issuers now have access to complete information of the applicant prior to issuing a card.
The key will be in seeing how the issuers use this information in taking prudent decisions. All information used in determining the creditworthiness of an applicant ultimately hinges on determining the ability and intention of the applicant to pay back the amount spent or borrowed. The expertise and sophistication of issuers in making such judgments, leveraging bureau data and recalibrating their own policies from time to time, will determine how the industry fares infuture.
Use the powerful tool of credit with wisdom
Customers, too, have now started understanding the importance of using credit wisely. With regulators and banks educating customers about the benefit of a good credit history, it is envisaged that better sense will prevail. Both issuers and customers now have the benefit of hindsight! Taur Mittran Di
Card issuers will have to clearly strategise as to which segments they want to operate in. Most card issuers have moved completely away from the mass market segments as the risk-reward equations have just not borne out.
Their predominant focus has been a move to mass affluent segments and high networth individuals. These segments are traditionally more robust and easier to evaluate. Credit underwriting norms have been tightened across the board. Card issuers also have to become more judicious about growing the market purely for that sake, as inactive cards can savage a portfolio.
It is no wonder that of the 28 million cards which were in the marketplace in 2008, only around 20 million exist today. While there has been a huge de-growth in plastics, there has been no slowing down the overall industry spends which have been growing robustly.
All of which goes to show the wastage by the industry in issuing cards to customers who saw no value in the product. At the end of the day, the consumer is king and will patronise a product or a brand which adds enhanced value to his / her life.Free cards, in many ways, were perceived to be free of value and benefits, and, as a corollary, have been freed of customer patronage!
Customer is king
Card issuers will now have to work extra hard in delivering enhanced value to consumers. Creating and managing sophisticated products, constantly enhancing value and innovating on service delivery, will be key drivers of future growth.
It’s a large market, so exercise care
At this stage, the opportunity looks large with a large untapped market potential. Only about 3% of the total personal consumption expenditure in India is done on plastic cards. With the government keen on moving more payments on to electronic media, the spends on plastic cards will continue to grow significantly.
The sustained growth in organised retail, the booming e- commerce space, the aspirations of one of the youngest populations in the world and the strong, globally savvy emerging middle class… all foretell that it can only be a boom time for the credit cards business in the coming years. The key will be to take measured steps based on prudence and good judgment. Let the good times begin!

Cheaper mortgages offer setting up chance

Although rock-bottom interest rates are playing havoc with investment returns, they offer a retirement-planning opportunity that adviser Marguerita Cheng now uses regularly: mortgage refinancing.
“For our reviews, we ask clients to bring in their mortgage statements and investment statements,” said the Ameriprise Financial Inc. financial adviser. “Since you can't control markets but can control what you save and spend, why not lock in a lower rate today and save more money for the future?”
Just last month, Ms. Cheng met with a 55-year-old client, a federal employee, who wanted to replace her 30-year 5.25% mortgage with a 15-year 3.25% mortgage so that she and her semiretired husband, a professor, could be almost debt-free once they stop working.
The couple owes $116,000 on the remaining 20 years of their mortgage, with a monthly principal and interest payment of $1,365. The refinancing not only would shorten the term of mortgage by five years but reduce monthly payments to $1,268.
“These clients have already been making extra principal payments, so if they continue, they can be fully paid off in 10 years,” Ms. Cheng said.
Given the Federal Reserve's decision last month to keep the federal funds rate in the 0% to 0.25% range at least until the end of 2014, many advisers think that replacing higher-cost debt — principally home mortgages and credit card balances — or paying it down faster, offers a savings opportunity that is more attractive than many investment returns.
In addition, advisers, worried about future inflation, feel that it's wise to lock in today's low rates.
“If you have a fixed-rate mortgage, you're happy if inflation goes up: The size of your debt gets smaller in real dollars,” said Christopher Van Slyke, an adviser with Trovena LLC. “If you have a variable-rate loan or a credit card, you're in big trouble.”

Debit card swipes hit credit card usage

July 2011 marks a tipping point in the payments space. For the first time, debit cards have been used in more transactions than credit cards. While credit cards are still more significant in value terms, the gap between the two has shrunk.
As compared to 2.56 crore credit card transactions in July 2011, debit cards were used 2.66 crore times. This has continued in August when credit cards were used 2.76 crore times, while debit was used on 2.77 crore occasions. In the past, credit card swipes always outstripped that of debit. In the whole of 2010-11, credit cards were used for 26.51 crore payments, while debit cards were used 23.7 crore times.
In value terms credit card payments accounted for Rs 37,678 crore worth of payments up to August 2011, while for debit cards it was Rs 20,483 crore. Total value of debit card transaction is lower than that of credit cards is because on an average an individual spends Rs 2,989 every time the card is used as compared to Rs 1,632 which is the average for a debit card payment. Click to know more and apply for SME Loan
Bankers say that it is only a matter of time before debit cards completely dominate the payment space. The reason for this is the sheer numbers. Debit cards have been growing by leaps and bounds. From 4.97 crore cards in 2005-06, their number has risen to 25.14 crore as on August 2011, according to data released by the Reserve Bank of India in its latest monthly bulletin. Credit cards, on the other hand, have been shrinking since the global crisis. From a peak of 2.8 crore in 2008, the number shrunk to 1.8 crore in March 2011. This has come down further to 1.75 crore in October 2011.
The decline has been largely because of the foreign banks and banks like ICICI which have been shrinking their portfolio. According to industry sources, ICICI Bank's card portfolio has continued to shrink during the current year as well. While other lenders such as HDFC Bank and Axis Bank have started issuing cards at a much higher pace, the issuances are not enough to bring up the overall industry numbers.
While debit cards have seen growth in issuances, cardholders have not been using them for transactions. In 2010-11, the average transaction per card has been 14. As compared to this, the average debit card has been used only once in a year. While the number of debit cards has gone up more than five times in five years the average number of transactions has not.
Even five years back the debit card usage was on an average just once in a year.
Credit cards, on the other hand, are seeing an increase in usage. At the time of the global financial crisis, the average usage of cards had dipped to eight times in a year. At the end of March 2011, this had improved to 14. Bankers say that this is because issuers have become choosy on issuing cards. Second, multiple card holdings have come down as even cardholders are realizing that it makes more sense to consolidate purchases in one card in terms of rewards.

Banks defer foreign fund-raising plans

Volatile markets and poor investor confidence have made Indian banks defer raising funds from foreign markets through medium-term notes (MTN) and instead find alternative routes.
Chennai-based Indian Bank, which had plans to raise $1 billion in two tranches during the current financial year though MTNs, has deferred its plans and will wait till the market condition improves. The state-run bank has opted for the line of credit option to meet its funding requirement.
“If we go for raising funds through the MTN route, we will have to find assets immediately else, the cost of keeping the money idle will be very high. So, we have opted for the line of credit route,”
T M Bhasin, chairman and managing director of Indian Bank, told Business Standard.There has been a moderation in growth owing to monetary tightening by the Reserve Bank of India (RBI). Apply for Credit Cards Online
The markets worldwide have been jittery recently due to the euro zone crisis and the US downgrade. According to a recent report by ratings agency Crisil, the Indian corporate sector fears a credit freeze in advanced nations, which could impair their ability to raise debt and roll it over. “We can get credit up to $500 million through foreign banks as and when we require it. This is far more cost-effective in an environment where we need to protect our net interest margins. Hence, instead of the MTN route, we have opted for the line of credit route,” Bhasin added.
The cost of funds for the banks has been rising due to RBI's monetary tightening. The interest rates are nearly 300 basis points higher than the foreign markets which have made the banks to hunt for foreign funds.
Another state-run lender, Union Bank of India, has shelved its plans of raising $300-500 million by September through MTNs for the time being, due to unattractive high yields being demanded by the investors. “The credit spreads have widened significantly. Indian banks generally leverage the spreads between the borrowing and lending cost. In view of this, it is not attractive in the present scenario to raise funds for onward lending,” said V K Khanna, general manager (treasury) at Union Bank. The bank would consider raising funds as and when the markets and pricing become attractive, Khanna added.
Lenders prefer taking loan in tranches for meeting their short-term funding requirements. Banks are not keen on giving credit guarantee now.
IDBI Bank is another lender that was looking at raising funds overseas through MTNs but has put its plan on the back burner for the same reasons as above. “Yield is not very attractive for us at the moment. The rate at which we want to borrow must meet the lenders' expectations. So, till the market conditions improve we will not be looking at raising funds overseas,” Chief Financial Officer P Sitaram said.

Find best Deals on Car loans how

They are standard reducing balance schemes and cheaper, because the manufacturer is subsidising the loans by giving extra but indirect discount in terms of lower interest rate, experts say. "Typically, car manufacturers collaborate with financiers to come up with a custom offer on one or all the cars they have in the portfolio. Both the car manufacturer and finance company go the extra mile to make the deal sweet.
This way, these deals are normally cheaper than the generic auto loan schemes offered by the banks. The availability and sweetness of these schemes depend on how badly a car manufacturer is looking to do sales. With a slow market like today, there are plenty of such deals even on fastmoving cars," says Banwari Lal Sharma AVP - Marketing, Car-Wale Automotive Exchange Private Limited.
However, don't go by the rates alone. The numbers could be highly deceptive when it comes to the car loan market. Car loan interest rates, unlike those on home loans, are not easy to compare. This is because banks just quote the rack rates, whereas the effective interest rate is much lower and it varies from dealer to dealer. That is why if you really want to evaluate a car loan offer that would work lighter on your pocket, you have to do the math yourself.
"The bank specifies the rack rate on which it would propose to lend. The dealer has the option of ploughing back his commission, thereby reducing the interest burden for the customer. The decision on the extent of commission to be ploughed back rests with the dealer. Manufacturers also provide subventions, from time to time, to ensure stock liquidation, and these may also be passed on to the customer to reduce his effective interest burden. However, the bank would continue to maintain its lending rate," says Ashok Khanna, senior executive vice-president & business head, vehicle loans, HDFC Bank.
Hence, it all boils down to the dealer-bank tie-up and how much benefit the car dealer passes on to the customer. Here, we help you navigate the process of identifying the best car loan deal.
EVALUATING THE OFFERS
With the hardening of interest rates and fuel prices touching the sky, discounts and subventions by manufacturers are the only way to make the car market survive the tough time. Most loan deals are genuine in nature, still buyers have to be careful. They need to understand the scheme very well and compare it with the other schemes from different finance companies.
"There have been instances of a non-standard loan product at 7% interest rate working out to be more expensive than a 12% interest rate standard loan because the non-standard product had a different compounding base and wasn't on a monthly reducing basis," says Sharma says.
A subsidy or discount offered by a manufacturer can be factor in while calculating the loan burden to make the deal look much better. For example, a Rs 3-lakh loan at an interest rate of 13% for five years will have an EMI of Rs 6,753. "Let's assume that the dealer gets a discount of Rs 20,000 to be offered to the customer.
He doesn't tell it to the customer but reduces it from the loan amount, making the EMI go down as low as Rs 6,303. Or he may also choose to tell the customer that the effective interest rate he is offering is 9.5%. A discount of 20,000 doesn't sound as lucrative as an interest rate of 9.5% in the current scenario," says Sharma.

SCOUTING FOR THE BEST RATE
Before scouting for the best rate, finalise the car model and the loan amount. If you plan to fix the model based on the ongoing loan offers, it will only add to the confusion. Once you finalise the car model and the loan amount, then calculate the EMI with the help of the EMI calculator available websites and portals of many banks.

HSBC aims to grow unsecured retail biz in India

HSBC is looking to grow its unsecured Indian loan portfolio, mainly credit cards, its country chief executive said, as its retail operation moves towards a return to profitability in Asia's third-largest economy.
Banks in India slashed unsecured lending after personal loans and credit card dues turned bad following the global financial crisis. HSBC India saw a 46 percent drop in overall profit for the first half of 2009 as losses on retail lending more than doubled.
"At this stage, we are well positioned to grow our unsecured book, but we will do it in a cautious and calibrated way," Stuart Davis, who took over as India chief executive in April 2009, told Reuters in an interview on Tuesday.
"We won't be looking at open market sourcing as we did perhaps four or five years ago," he said, referring to the practice of issuing cards to customers who do not already have an account with the bank.
HSBC's expansion of unsecured lending in India comes as it is turning around the performance of its retail banking operations in the country, the sixth biggest contributor to the UK-based bank's group profit.
In the first half of 2011, HSBC, Europe's biggest bank, posted a loss of $4 million in its India retail banking and wealth management business, narrowing from a loss of $49 million a year ago.
Fewer than 18 million of India's 1.2 billion people use credit cards. In China, a country with a slightly higher population, more than 200 million credit cards were in use as of a year ago.
Foreign banks lack the branch networks of local lenders like ICICI Bank and HDFC Bank, India's biggest card issuers, but tend to attract the most well-heeled customers in a country where incomes are rising fast.
London-based Standard Chartered, one of the biggest foreign banks in India, expects growth of 30-35 percent in new customers this year, Shyamal Saxena, head of retail banking products, had said in July.
HSBC's overall first half pre-tax profit in India rose 32.6 percent to $451 million. The bank is on track to achieve its target of $1 billion in India overall profit in 2013, Davis said.
LOAN GROWTH
HSBC, one of the top three foreign commercial banks in India along with Citigroup and Standard Chartered, expects to grow its India loan book "at least in line" with the sector's growth in this fiscal year, Davis said.
The country's central bank expects credit growth at 18 percent in this fiscal year, down from an earlier projection of 19 percent. HSBC posted a 17 percent rise in demand for loans in the last fiscal year to end-March 2011.
India raised interest rates last week for the 12th time in 18 months, triggering worries about a slowdown in demand for corporate and retail loans from banks.
"There is certainly a slowdown in loan demand...(but) we are not looking at a situation that we are looking at in Europe and the U.S. where loan growth is negligible," he said, adding the bank also plans to grow its India mortgage loan book.
The bank's home loan book in India grew 11 percent in the first half of this calendar year to $949 million.
"We feel very positive about the growth scenario and our business here and in the absence of some unforeseen macroeconomic downturn here in India we are positive about our growth," Davis said.
The bank, which plans to shed 30,000 jobs globally in the next three years to cut costs, expects to raise its India banking operations headcount over the next few years from about 7,500 now on the back of growth in its business, Davis said.

IDBI to float arm for core fund

Public lender IDBI Bank Ltd will set up a non-banking subsidiary to float an infrastructure debt fund.
“We are waiting for the Reserve Bank of India to come up with the guidelines for setting up non-banking finance companies (NBFC) that are eligible for floating infrastructure debt funds. The banking regulator is expected to announce its guidelines for setting up such NBFCs within the next six months,” IDBI Bank executive director R.K. Bansal told reporters today.
With Rs 33,000-crore credit outstanding in infrastructure projects, IDBI Bank has been planning to launch an infrastructure debt fund (IDF) to generate more long-term resources for power, port and road projects. Under the current regulations of the RBI, a commercial bank can lend a maximum of 25 per cent of its loan book to the core sector.
The Planning Commission has estimated the funding requirement of the infrastructure sector at $1 trillion with banks being the largest lenders. Insurance companies are not allowed to invest in infrastructure firms having a credit rating below AAA.
In June, the government issued a guideline, based on the recommendations of the Deepak Parekh committee, allowing banks to float infrastructure debt funds either through trust-based asset management companies (basically mutual funds) or through non-banking finance companies.
A trust-based fund will be regulated by the Securities and Exchange Board of India, while a fund set up as an NBFC will be under the Reserve Bank of India. Apply for Best Home Loans in Kolkata
Debit-credit card
IDBI Bank has launched a debit-cum-credit card, Magic Card, for its salary savings account holders.
“The card will work as a debit card till the account holder has balance in it but once exhausted, any further withdrawal or expenditure, the magic card will act similar to a credit card,” IDBI Bank chairman and managing director R.M. Malla said.

LIC Housing net in june quarter up 21%

With an improved yield on loans, LIC Housing Finance on Wednesday posted a 21 per cent growth in net profit at Rs 256 crore for the first quarter ended June 30, as against Rs 212 crore a year before.
Total income for the reporting quarter ended June rose 40 per cent to Rs 1,418 crore, as against Rs 1,015 crore in April-June 2010, said chief executive officer V K Sharma.
However, its margins were under pressure. The Net Interest Margins (NIM) for Q1 dipped to 2.78 % from 3.01 % a year before. With improvement in the availability of resources and reasonable rates on market borrowings, it expects to maintain NIM at 2.7-3.0 per cent in 2011-12, Sharma said.
The company recorded growth of 15 per cent in individual loan disbursements in April-June. Individual loan disbursements stood at Rs 3,468 crore in Q1, as against Rs 3,018 crore in the same period of 2009-10. Total disbursements, including loans, to developers stood at Rs 3,545 crore for Q1, up from Rs 3,392 crore in the corresponding quarter.
The mortgage portfolio as on June 30 was up 32 % to Rs 52,876 crore, as against Rs 40,030 crore as on June 30. Gross Non Performing Assets (NPAs) were 0.84 % as against 0.92 % a year earlier.
Its share price closed 2.8 % lower on the Bombay Stock Exchange on Wednesday, at Rs 217.75.

Plan for extra costs before buying a flat

Why does the payment schedule of your house read different from the figure you had in mind? Most probably because you have done your mental calculation by just multiplying the total area with the cost per square foot. However, the total cost of your flat is not just a function of the total square feet area of the house and the cost per square foot. There are certain fixed costs such as stamp duty, registration , property tax, service tax, etc, that also need to be factored in. Also, there are other costs that vary from developer to developer.
The exact cost and the area
To begin with, you should know the exact area of your house, which is used to calculate the cost of the house minus the taxes and other fixed costs. Today, most projects are sold on the basis of the super built-up area (SBUA). "The SBUA is usually 40% to 60% more than the carpet area. Which means that if you buy 1,200 sqft of space from the builder , it can be safely assumed that your net carpet area will be around 700-750 sqft," says Akshay Kulkarni, executive director - India , residential services, Cushman & Wakefield .
Keeping account of every cost
The most common costs that are not taken into account are stamp duty and registration charges, floor rise, and the maintenance cost per square foot. "While some of the additional charges such as stamp duty and maintenance are known to most buyers, the less obvious ones - which often adds up to a considerable sum - are only communicated verbally. In other words, the buyer may not have a document to go back to establish when such add-on costs were mentioned. Therefore, the overall cost of buying a property can rise drastically above the originally quoted rate," says Mrunal Duggar , vicepresident - Homebay Residential , Jones Lang LaSalle . In India, the cost break-up given by a builder usually does not include the stamp duty charges. In a way it is a hidden cost for most flat buyers, since they do not factor in this cost while working out their budgets. Also, since most homes in India are bought through home loans, flat buyers should also take into account the cost of an insurance policy to cover the home loan. Besides, a strata search of the property's legal antecedents may add up to quite an amount. "The registration of a new property with the local electricity board for the fitting of an electric meter involves a one-time expense . If a home is not fully furnished and outfitted, the buyer will incur the cost of furnishing, fittings and all other expenses involved in customising the property to individual needs and tastes," says Duggar. "In the case of a resale standalone property, valuation of the property may be a prerequisite. This will be charges involved in using the services of a registered valuation agency. There may also be costs incurred on the transfer of the title of the property , which is also known as conveyancing ," he says. "Society maintenance charges and a yearly property tax are among the other costs that most buyers do not factor in prior to purchasing a property." For most under-construction projects, buyers agree on a price and the agreements are drawn up and registered, post which the bank starts to pay the cost. In most under-construction buildings , there is very little scope for any major negotiation on the costs to be borne by the buyer. Some of the components that should be checked are - floor rise, car park, PLC (preferential location cost), maintenance cost and fit-out cost, if any. "Even while buying a resale property, all the above costs will be involved. Besides, societies may ask for transfer premium, also known as voluntary contribution, which is rather involuntary. It can range from 2% to as high as 5% of the registered sale value. The actual cost as per the Societies Act is Rs 25,000. Any amount over this is shown as voluntary contribution ," says Kulkarni.
The common area
Right from your fancy lobby to your elevator to the kid's pool, every square foot gets added to your bill under the common area head. There are several such parameters that come with a rupee value and get added to your final home price tag. What makes this component of the cost tricky is that there is no standard definition for common area. Usually, common areas would comprise the floor service areas of your apartment, stair cases, lift areas, floor electrical distribution rooms, lobby, swimming pool, etc. The logic a developer gives is that a home owner uses these facilities as much as his/her own house. Hence, check with your builder on the gross floor area, the difference between the super built-up area and the carpet area, and details about all that is included under common areas. Know more and Free Download Songs of Jihne Mera Dil Luteya Movie
No free lunch
Builders provide facilities/ amenities like pools, gyms, health clubs, recreation areas, and yoga rooms. Some even provide spas, mini theatres, etc. However, none of these is free of cost. These facilities are included in the super built-up area, in addition to all the common areas over the carpet. In some cases, where clubs, etc, are being formed, there is a separate membership fee that is to be included in the price of the apartment . In some projects, however, the fee may be voluntary. In townships with facilities for healthcare and education, the premium over the basic rates will be higher.
Society maintenance charges
Most builders take the society maintenance charges for up to two years in advance. "This trend is due to the fact that it is easy to create the facilities but difficult to maintain as time goes by. Some people end up not paying as they don't see value in the facility provided. Hence, the best way is to take the maintenance cost upfront," says Kulkarni of Cushman & Wakefield. As far as your developer is transparent about the pricing and terms and conditions, there is no reason to worry. But now you know all the the relatively unknown cost heads that can increase the cost of your house.

India gold loans market turns competitive

The gold loans market in India is set to witness more competition as more financial institutions and banks enter the lucrative business and safer business of lending funds with physical gold as collateral.
Kerala-based Federal Bank has announced plans to widen its network of exclusive gold loan branches in various parts of the country. It already has 60 branches in Tamilnadu and Karnataka, the first one was opened this year in January. The number of gold loan branches will rise to 80 very soon and 350 by the end of the year, Shyam Srinivasan, Managing Director and CEO of Federal Bank told a leading local daily. The gold loan business s of the bank is being promoted under its Federal Bank Financial Services Division (FEDFINA).
Public sector banks have now started offering competitive rates for gold loans for agricultural purposes with Canara Bank offering loans for a low rate of 5% per annum while other major banks are offering from 6-8 per cent interest rate per annum. New generation banks such as HDFC Bank and ICICI Bank have also come in the forefront promoting gold loans for the common man.
Bankers say the default rate is much lower for gold loans because Indians do not want to risk losing their family jewelry. And unlike traditional personal loan, no credit checks are needed for gold loans.
According to estimates, the organized gold loan market in India stands at Rs 350-400 billion and has grown at an compound annual growth rate of 40% during 2002-2010 and is expected to grow at an annual rate of 35-40% over the next three years.
Meanwhile, Muthoot Finance Ltd, India’s largest gold financing company whose Initial Public Offering (IPO) was heavily oversubscribed and subsequently listed in Bombay Stock Exchange (BSE) this month has announced plans to take gold loan business abroad.
The company is planning to set up about three or four branches at UK this year to target the large Asian immigrant population in the region for its gold loans business. The group already has a presence at England, through Muthoot Global Money Transfer, which provides cash transfer and remittance services to countries like Sri Lanka, Pakistan and Bangladesh apart from India.
With an established br¬anch network, presence of the large Asian immigrant population and the popularity of gold as an investment class in the community will be an advantage for the company as it tries to expand its gold loans business outside the Indian market, Muthoot officials said.
Muthoot Finance Ltd, registered a growth of 117 % in its net profit to Rs. 494 crore for the financial year ended March 31, 2011, as compared to Rs. 227 crore of the previous fiscal. The gold loans outstanding till March 31, 2011 is 15728 cr which is 114% higher than corresponding period in 2010. Total gold pledged with Muthoot Finance Ltd has risen 72% in FY 2011 to 112 tonnes.
In a recent development, Cholamandalam, Investment and Finance Company Ltd (CIFCL), part of the Murugappa group ,has decided to enter the lucrative gold loans market and will initially target Andhra Pradesh, Tamilnadu and Kerala which together account for over 40% of the Indian gold loans market. It would focus on the Rs 30,000-50,000 income bracket, and would lend up to 75-80 per cent of the value, company officials said.

SBI focuses on investor confidence after Q4 earnings

State Bank of India (SBI) will mitigate risk on its agriculture portfolio by buying insurance cover for all crop loans.
The nation’s largest lender, which had almost doubled bad assets in farm loans in fiscal 2011, will link the crop loans to crop insurance.
“Delinquencies will be in crop failure. In that case, crop insurance will take care of the losses,” chairman Pratip Chaudhuri said in an interview with Bloomberg UTV for Banker’s Trust programme.
The bank will also call an analyst meet in a week for a “threadbare discussion” on its dismal fourth quarter earning—a sort of soul searching exercise on what went wrong and why.
It had provided for bad loans, home loans and employees’ pension; as a result, SBI posted a Rs.21 crore profit in its fourth quarter against analysts’ expectation of Rs.3,000 crore.
The stock tanked 17% at a stretch, wiping out more than Rs.28,000 crore of investors’ worth—between 17 May, the day result was declared, and 26 May—before recovering marginally. On Monday, SBI stock rose 0.07% to close at Rs.2,236.
The proposed meeting with analysts, Chaudhuri expects, will restore confidence of the investor community, and reassure them that the weak fourth quarter earning was a one-off phenomenon.
The share of bad debts accruing from agriculture was Rs.4,524 crore, or 18% of the total non-performing assets (NPAs), or bad debts, in fiscal 2011.
The total farm loan portfolio of SBI rose 21.18% to Rs.94,826 crore in fiscal 2011 out of which 6.37% has turned bad. This is sharply up from last year’s 3.66%.
“We did not expect this,” said Chaudhuri.
“NPA in agriculture is a problem area for SBI. If they link their agri-portfolio to crop insurance and get money for crop failure related delinquencies, it solves SBI’s problem to a great extent; but it all depends on what kind of premium they will have to pay,” said Hatim Broachwala, analyst with Mumbai-based domestic brokerage Fortune Financials.
The bank has also drawn down close to Rs.8,000 crore from its reserves to set aside money to pay employee pensions.
Chaudhuri defended the move to erode its core capital.
“It is not by choice that we dipped into the reserves,” he said, adding that the bank’s operating profit was not enough to set aside the provision from. If the bank would have done that, it could have “distorted all important ratios,” Chaudhuri said.
According to the chairman, SBI is readying for an introspection of its key segments and business parameters in a bid to deal with a few critical issues such as an unprecedented rise in its NPAs, especially from farm sector, and a fall in its NIM (net interest margin) in the fourth quarter.
Sequentially, the NIM, a key parameter of profitability, fell close to 0.50% to 3.07%.
The analysts’ meet assumes importance because SBI is readying to raise capital through a Rs.20,000 crore rights issue.
Chaudhuri said being the “flagship bank” of the government, the nod for the issue will not be a problem for the bank to secure, especially when the government has given such a nod to all the other banks.
“For the government, SBI has a special place,” Chaudhuri said confidently.
Since fiscal 2009, in the wake of the global meltdown, SBI has restructured assets worth Rs.34,349 crore, close to 15% of which has turned bad so far.
Some analysts expect bad debts to rise as much as 30%.
However, the SBI chief said he is confident that recovery will not be hampered. “Restructured loans are backed by securities. The companies are cash-poor but asset-rich. Where the underlying assets are healthy, we don’t expect any deterioration in asset quality.”
“Besides, they (the restructured firms) are not fly-by-night operators,” Chaudhuri said.
Chaudhuri wants the bank’s credit growth to moderate between 16% and 17%, from 18-20% earlier, and deposits to grow at 21%.
“Our CD (credit-deposit) ratio is already at 76%. This will lend some semblance of balance,” Chaudhuri said.
The banking regulator had earlier criticized banks for high CD ratios as that makes asset liability management a challenge and may turn into a systemic risk.

Why it is important to effectively manage your credit score

In the rapidly-evolving credit landscape, it has become almost impossible for defaulters to get a loan from banks who actively use credit bureaus. The increasing significance of credit reports to the loan seeker prompts questions like what a ?credit report/ score? is and how it affects them.
A credit report is a compilation of information about the individual and his or her credit history that has been reported to the credit bureau by those who granted credit to the individual. This report reflects details of all the individual?s loans, credit cards and other borrowings. It contains information like the date opened, credit limit, outstandings , overdues and written-off amounts among others. An individual?s credit score is generated by information on their credit report, but is not part of the credit report itself.
Credit scores can project the amount of risk posed by the individual to a lender. When lenders request an individual?s credit report, they often choose to receive a credit score at the same time, and will select which scoring model they want to use. Large lenders may use a customised scoring model. For example, for Car loan, a lender may use a scoring model that focuses on car payment history.
Lenders will typically evaluate an individual?s credit report and credit score along with other key information, such as income, against their own internal decision criteria to determine the individual?s ability to qualify for a particular loan type. In future, lenders are also likely to use the credit scores to decide on interest rates. The rates will factor in the perceived credit risk depending on one?s score.
Credit scores can change gradually over time as one?s overall credit picture gets better. This happens by consistently engaging in credit-worthy behaviour going forward, such as paying one?s bills/EMIs on time and using credit conservatively.
There are a few good habits to keep in mind to maintain creditworthy behaviour. The first one is paying bills on time. Delinquent payments can have a significant negative impact on your score. If one has missed payments, they should do their best to get current and stay current. Debt should be paid off rather than shifting it to other accounts. One should look to re-establish their credit history if they have had problems. Opening new accounts responsibly and paying them off on time may help in the long term. One should also be prudent in applying for and opening new credit accounts.
Credit cards can be kept, but they need to be managed responsibly . In general, having credit cards and instalment loans (and paying timely payments) may favourably impact your credit score in the long term. If one is having trouble making ends meet, one should contact his or her creditors. Lastly, one should keep balances as low as possible on credit cards and other revolving credit.
There are also some areas one should tread with utmost caution . One should not close unused credit cards as a short-term strategy to try to raise their score. Also, one should avoid opening a number of new credit cards, just to increase the credit available. This approach could actually have a negative impact on one?s score. If a person has been managing credit for a short time, avoid opening a lot of new accounts too rapidly. Adding new accounts will lower the average account age, which could have a negative impact on the individual?s credit score, particularly if s/he is a new credit user.
It takes time and there is no quick fix for eliminating past aspects of one?s credit history that may negatively affect their credit score. Credit scores are based on one?s credit history and can generally only be changed over time. Remember - accurate and timely negative information cannot be removed from your credit file. Your best approach for establishing credit worthiness is to handle your credit responsibly over time.

SBI up lending rate by 10 bps to 7.6%

State Bank of India (SBI) increased base rate or the minimum lending rate for the new borrower by 10 basis points to 7.6 %, a move that would make all kinds of advances, including corporate loans, costlier.
The bank has revised the base rate below which bank cannot offer loans, upwards by 10 basis points from 7.5 % to 7.6 %, effective from October 21, 2010, SBI informed the Bombay Stock Exchange.
This is the first review of the base rate since it was introduced in July this year. As per the RBI guideline, banks have to review their base rate every quarter.
With the increase in base rate, all kinds of loans excluding housing and auto loans would be dearer by at least 10 basis points (0.1 %).
Currently, SBI is offering teaser home and car loan till December and rates would be as announced earlier.
The revision in base rate follows the RBI's move to raise short-term lending (repo) and borrowing (reverse repo) rates in its September monetary review.
In order to bring in more transparency, the base rate was introduced as replacement for the Benchmark Prime Lending Rate (BPLR) from July 1 this year.
SBI has also raised BPLR for the existing customers by 25 basis points to 12.5 % from earlier 12.25 %. The new rate would be effective from tomorrow.
Earlier this month, SBI hiked fixed deposit rates by up to 75 basis points. The bank raised deposit rates from 25-75 basis points (0.25-0.75 %) across various maturities.
For 91-180 days term deposits, SBI provides 5.5 % interest, up 75 basis points from the existing rate.
A fixed deposit with maturity period between 1 year and 554 days was raised by 25 basis points to 7 %, while deposits for 555 days would attract 7.5 %.
The interest rate on term deposits of between 556 days and 1,000 days under different slabs, has been increased by 50 basis points, to 7.75 %.

Credit cards hit retail loan business

In the dispensation of retail loans, banks increasingly find their hands tied by the credit card history of applicants. The repayment history of all credit card holders is recorded by Credit Information Bureau (India) Ltd (Cibil) and disseminated among banks.
Both public and private banks told Financial Chronicle that taking decisions on retail loan applications was becoming problematic as credit card defaults had increased and loan applicants’ record showed up on their computers. But the disputed accounts were not mentioned in the history.
Bankers said there had been many cases where the ‘defaulters’ might not have been at fault, as credit cards were thrust on them, and charges piled on them even while their cases were under dispute. Routinely dubbing them ‘defaulters’, card-issuing banks promptly sent adverse reports against them to Cibil.
Cibil, the credit information company formed in 2004, hosts the credit record of borrowers of virtually the entire lending spectrum of the country -- banks, non-banking financial companies (NBFCs) and financial institutions. The credit history of a loan applicant is made available to lenders to minimise fraud and check potential defaults.
Expressing concern at the trend, an official of the retail lending division of Punjab National Bank said loans were often refused, and applicants asked to sort out the matter with the card issuer or approach Cibil.
“We are witnessing a high incidence of adverse reports. It is an issue of concern for us and the industry in general,” he said.
G S Rekhi, chief general manager of credit at Punjab and Sind Bank, has had a similar experience. “We are facing a serious problem due to instances of credit card defaults reported by Cibil. An increasing number of our loan requests are getting blocked due to the adverse credit card history of applicants,” Rekhi said.
Arun Thukral, Cibil managing director, admitted most of the problems were on the credit card front. “We are working to improve the reporting system where disputed accounts will be brought to the notice of lenders,” he said. Thukral did not want to put a number to the cases of what he called “credit card challenges”.
Lending institutions said they did not keep a statistical record of loan denials. However, an extent of the malaise can be gauged from the report of the banking ombudsman, whose office deals with complaints of bank customers. The report for 2008-09, which was released by the Reserve Bank of India in February, points out that credit card-related complaints accounted for 26 per cent of all complaints which numbered 75,000 during the year.
The number of credit-card complaints itself increased by over 74 per cent during the year, showing an uptrend. “The types of complaints continue to be those related to issuance of unsolicited credit cards, unsolicited insurance policies, recovery of premium charges, charging of annual fee despite the cards being offered free, issuance of loans over the phone, disputes over wrong billing, settlement offers conveyed telephonically, non-settlement of insurance claims after the demise of the card holder, abusive calls and excessive charges,” the report says.
The report may not give the full picture, as many customers do not approach the ombudsman, choosing instead to try and settle with their banks.
C S Jain, head of personal banking at IDBI Bank, said that often the problem was due to outdated records with Cibil. “The pace of updation of Cibil records appears slow. We have come across cases where the Cibil report points to a default but the individual concerned has a letter showing a settlement having been reached with his bank months earlier,” Jain said.
Cibil’s Thukral denied delays, saying his organisation constantly updated its database. “We have upgraded our system over a period of time. Today, it takes barely three or four days to upload data we receive. The data must be fresh and we have to depend on what lending institutions provide. Earlier, data were provided to us on a quarterly basis but now it is done every month. The task is enormous. We host borrower data from over 200 lending institutions,” he said.
IDBI Bank’s Jain said his bank had instructed its staff that adverse credit report showing defaults of up to Rs 5,000 should be ignored where prima facie it appeared that the borrower was not at fault. “If defaults are bigger, then we certainly take cognisance of the Cibil report. Wilful default is a clear indication of how a borrower will behave subsequently,” he said.
The Punjab National Bank official spoke of instances when they ignored the Cibil report “if we feel that these are cases of forcibly sending cards and compounding of charges. Otherwise, we ask the borrower to approach Cibil with the facts and get the data rectified,” the official said.
A State Bank of India official dealing with retail loans, however, said Cibil’s report was useful to the system. “It is a question of being able to correctly interpret the report. Banks have to learn how to assess the payment ability and likelihood of default based on the report. The entire credit information system functions on the basis that it lets the rest of the system know about what’s going on elsewhere. We are still in a nascent stage,” he said.

Number of credit card holders slips to 18.3 mn in March: Fewer swipes

The number of credit cards in circulation fell below the 20-million mark in March, as issuers continued to cull inactive and defaulting accounts and focus instead on increasing spends.
The country’s credit card population fell to 18.3 million as of end-March from a peak base of 28.3 million in April 2008, according to data released by the Reserve Bank of India. In the last financial year, 6.04 million cards were put out of circulation. This is in addition to nearly 3.61 million credit cards being cancelled in 2008-09. So, over two years, nearly 10 million cards have gone out of circulation.
This is the first time since August 2006 that the credit card population has declined below 20 million.
As the economy slid into a downturn, unsecured portfolios of banks such as credit cards and personal loans were severely affected. As part of a firefighting exercise, banks began to cancel inactive cards and close accounts they feared would default. The country’s largest private sector lender, ICICI Bank, cut its base from a peak of more than eight million to about five million at present. Late entrants into the credit card space such as Barclays Bank and Axis Bank were also affected.
However, issuers have since become optimistic and have resumed new card issues from the second half of 2009, while simultaneously culling inactive and defaulting accounts. Some like HDFC Bank remained bullish and continue to issue 70-80,000 cards every month. HDFC credit cards has the second largest card network in the country, with 4.3 million cards as of March 31.
Rather than increase the numbers of cards, issuers are trying to increase the spending on each. Standard Chartered Bank has seen its monthly credit card spending increase from Rs 250 crore last year to Rs 400 crore. “We are aiming for a target of Rs 500 crore per month soon. Ours is a highly rewards-driven programme, concentrating on what works with customers,” said Shyamal Saxena, general manager of retail banking at StanChart.
The focus on getting fewer customers to spend more is reflected in the numbers. According to RBI data, customers spent an average of Rs 2,685.97 per transaction in 2009-10, up from Rs 2,518.4 in 2008-09. In 2007-08, customers spent an average of Rs 2,540.9 per swipe.
Bankers say the market has also shifted towards the high-end, less susceptible to delinquencies. “The focus for the last three years has been the premium segment and losses from this segment are significantly less than from other segments,” said a senior executive of a large foreign bank.
While the pool of premium customers is much smaller than the mass segment, high-end customers make up by spending more. “I would prefer to have 5,000 high-end customers rather than 20,000 premium segment customers,” the executive added.

Credit Cards: Par panel for capping of interest rates

Concerned over the exploitation of credit card holders, a Parliamentary Committee has suggested that RBI should prescribe maximum interest rate that can be charged by banks from customers.
"Maximum interest rates to be charged (by banks from credit card customers) may be specified so as not to allow exploitation of customers by banks," a report of the Standing Committee on Finance, which was tabled in Parliament, recently, said.
The Committee did not agree with the contention of the Finance Ministry that credit card dues are in the nature of non-priority sector personal loans and hence, the banks should be free to decide the interest rates.
Even the RBI's circular casing various aspects relating to credit card operations of banks has not been of much help in addressing the grievances and complaints of general public, the committee noted.
"The effectiveness of such circulars in bringing down the credit card related complaints is doubtful given the past record," the report of the committee said.
The Reserve Bank's circular asks banks to ensure prudence while issuing credit cards, avoid issuing unsolicited cards, third party agents for debt collection should not resort to intimidation or harassment, among others.
"The RBI has advised banks ... to consider issuing cards with photographs of the cardholder/ PIN/ signature laminated cards or any other advanced methods to prevent fraud; it is imperative to see that these are implemented," it added.
As of February, total number of outstanding credit cards in the country is 202 Lac, as per RBI's April bulletin.
The number of credit cards has been declining in the last two years. It was 247 Lac in March 2009 and 275 Lac in March 2008.

ABN Amro cuts credit cards Limit

ABN Amro India has cut the credit limit of some credit card customers to a tenth and raised the minimum amount payable to 7% of total dues from 5%, possibly to persuade them to surrender their Credit Cards as it draws closer to selling its retail operations to UK’s Hong Kong and Shanghai Banking Corp (HSBC).
ABN Amro, owned by UK’s troubled Royal Bank of Scotland, or RBS, has also decided to freeze fresh retail lending, including credit card and personal loans, to arrest a pile-up of bad loans, two people familiar with the matter told ET.
One of them, a senior bank executive, said even at the peak of the financial crisis, ABN Amro did not resort to such drastic cuts.
An ABN Amro spokesperson called the move a standard industry practice. "As a responsible lender, we review card limits and take appropriate action on an ongoing basis to protect our customers and manage risk," she replied by email.
Although ABN Amro had no comment on the number of credit card users, a person familiar with ABN Amro’s operations said it has more than 4 lakh active credit card users. The bank’s strategy, he said, could be to discourage users and get them to give up their cards or reduce their credit exposure.
ABN Amro has been up against a large number of employee exits to competitors after the deal with HSBC came to light. It has also laid of some of its employees in the credit card and personal loan departments.
Currently, the bank has around 2,854 employees, down from 3,300 in early 2008. About 2,500 are in the retail and commercial banking department. It has another 8,500 in its two outsourcing arms.