Estd AUGUST, For a greener planet, please don't print this unless necessary

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1 Banking News Estd AUGUST, 2015 For a greener planet, please don't print this unless necessary NEWS BULLETIN from ALL INDIA BANK EMPLOYEES ASSOCIATION PSU bank union opposes grant of license to payments banks Alleges that it is a direct attempt to boost private sector banking BS Reporter Chennai August 21, 2015 All Indian Bank Employees Association (AIBEA) has opposed grant of license to payments banks alleging that this is nothing but a direct attempt to boost private sector banking and to minimise the role of public sector banks, along with their market share.

2 In a statement, C H Venkatachalam, general secretary, AIBEA said Public Sector Banks (PSBs) in India have done yeoman services in changing the banking profile and transforming from class banking to mass banking. "Our economy was saved from global financial and banking crisis only due to the reason that our Bank were insulated by Government controlled public sector banks. Our strong banking regulations helped in sparing the country from a major financial disaster. But in the name of banking reforms the Government is trying to dilute PSBs and boost private Banks," he said. "All these are private corporate companies who had defaulted and it is strange that RBI and Government want to encourage the very same private sector to start Banks," said Venkatachalam, adding that bad loans of nearly Rs 6 lakh crore. As on March 31, 2015 there are 7,035 cases of willful defaulters involving bad loans of Rs 58,792 crore. The bad loans in the banks as on March 31, 2015 has risen to Rs 2,97,000 crore excluding another Rs 4,03,004 crore of bad loans of 530 corporate companies shown as rescheduled and restructured loans under CDR scheme. Bad loans struck up in top 30 borrowal accounts of PSBs as on March 31, 2015 is Rs 1,21,162 crore. Because of the thinning of margin and profits, Banks are striving hard to fetch low cost deposits like savings and current account and every Bank is concentrating on CASA deposits as the main route to improve their cost of funds and profitability. CASA Deposits/Savings deposits of the common people are like oxygen to the Banks. "At this juncture, giving license to such private companies to start payments banks whose main job is to collect savings and current account deposits will cut at the roots of the public sector banks," said Venkatachalam. If these private payments banks are allowed to gather the savings and current deposits of the people which are of low cost, public sector banks will be deprived the same and hence the cost of banking services in PSBs will increase and rate of interest on small loans and priority sector loans will also go up. "Allowing such banks in private sector is anti-public sector banks and, in the long run, anti-people. AIBEA opposes the move and has urged the Government to stop this policy of allowing payments banks in private sector," said Venkatachalam, adding that the union will be writing letters to the RBI Governor and Finance Minister not to go ahead with this policy.

3 Payments banks might eat into low cost deposits of commercial banks The spread of payments banks might also deprive regular banks of the fee income they earn from customers, like those for making demand drafts, cash transfers, remittances Krishna Kant Mumbai August 21, Universal banks have reasons to worry about the just-licensed payments banks. The latter are likely to eat into the low-cost deposits of commercial banks, beside hurting their fee income. Many individual customers are likely to shift a part of their liquid cash from use for day-to-day transactions from their savings accounts to those at payments banks. For, the regulations allow payments banks to pay interest on deposits as universal banks do. However, the maximum deposit in a payment bank account cannot exceed Rs 1 lakh per customer. Nor can a payments bank lend money. Surplus cash can only be invested in government securities. Currently, the competition for current and savings account (Casa) deposits is largely between younger private sector lenders like YES Bank and Kotak Mahindra, and public sector banks and large established private banks such as HDFC Bank, ICICI Bank and Axis Bank. The former are paying a higher rate on high-value savings deposits to wean of customers from established banks. Now, they have to prepare for competition. Casa deposits are as much as 40 per cent of deposits of top public and private lenders such as State Bank of India, Punjab National Bank, ICICI Bank, HDFC Bank and Axis Bank. Paytm.com was among the 11 payments bank licences issued by the central bank. Existing mobile wallet applications like paytm.com and mobikwik.com are already popular with consumers and have begun to handle quite a bit of utility payments. Once they start offering interest on deposits, customers might move their liquid cash to accounts at these payments banks, says Dhananjay Sinha, head of institutional equity at Emkay Global Financial Services. The trend will be aided by a rise in consumer confidence once these institutions come under the regulatory radar of the central bank.

4 The spread of payments banks might also deprive regular banks of the fee income they earn from customers, like those for making demand drafts, cash transfers, remittances, cash withdrawal through cheques and ATM transaction fees. Other say the pain for universal banks, if any, would be only in the short term. In the longer term, banks will adopt many of the practices and technologies adopted by payments banks and participate in the growth story, says financial advisor Ashvin Parikh. Others say the impact will largely depend on banks' ability to cope with the new environment. It might happen that universal banks themselves adopt technologies and launch mobile applications that mirror the payments banks. Given their existing customer base, they could end by undermining payments banks. So, it is premature to say it's negative for universal banks per se, says Kartik Srinivasan, head of financical sector ratings at ICRA. He explains that banks have a huge advantage, given their customer base and the flexibility to offer the whole suite of financial products. Unlike a payments bank which can only make money by tolling on transactions. A deposit with a bank also makes it easier for individuals to get loans. This might lead many to keep the bulk of their savings with regular banks and only move a small part of the cash to payments banks. One thing is for sure. Retail customers and depositors are up for a treat as incumbents and newcomers vie for their attention in the new environment. Will complement existing business, says Cholamandalam Investment MD OUR BUREAU businessline CHENNAI, AUGUST 21: Vellayan Subbiah Cholamandalam Investment and Finance sees payments banking services complementing its existing business as a financial services provider. The company, which was granted a payments bank licence by the RBI, offers comprehensive financial services, including loans for vehicles, housing and

5 SMEs (small and medium enterprises). It has over 534 branches across India with an estimated assets under management of about Rs 25,000 crore. Vellayan Subbiah, MD, Cholamandalam Investment, said as a financial services provider it can now add on components such as accepting deposits and holding balances for individual accounts. As part of enhancing financial inclusion it will also expand its network to the North-East. Depending on RBI s regulations, the Murugappa group company is open to the idea of roping in a partner who can help bring in volumes on the payments side, he said. It will focus on the retail and SME segments. With its existing business providing it a base of over eight lakh truck drivers and about 20,000 SMEs, the payments bank licence is a nice fit. The limit of Rs 1 lakh on deposits from an individual will fit about 85 per cent of its customers profile, he said. Will pose challenges to commercial banks LN REVATHY / AJ VINAYAK / BUSINESSLINE / COIMBATORE/MANGALURU, AUGUST 21: Competition likely to increase for small-value accounts, say bankers The new payments banks are likely to impact commercial banks, say bankers. They echoed the fears expressed by Arundhati Bhattacharya, SBI Chairman, who felt that these new banks will pose a threat to the existing players with their ability to move money as well as compete for low-cost savings accounts. Business Line spoke to some commercial bankers to get their views. Terming it as a tricky game, N Kamakodi, CEO of City Union Bank, said that on the one side there are telecom companies that can virtually move currencies. On the other, some banks still have limitations in adopting technology. While every customer of the bank has a mobile phone, not every individual has a bank account as yet. The last mile connect is still missing, but the mobile phone penetration is phenomenal, he said. SR Bansal, Chairman and Managing Director of Corporation Bank, said that the competition for savings bank portfolio, especially in the case of smallervalue accounts, will increase as far as public sector banks are concerned.

6 Allaying the apprehension of immediate shift in clientele, he said commercial banks are already offering remittances services, such as ECS, card payments, utility bill payments, Net banking, and mobile banking. Customer service P Jayarama Bhat, Managing Director of Karnataka Bank, said that customers choose SB accounts for their convenience. It all depends on the quality of the customer service. Payments banks can accept a maximum of 1 lakh per customer, totally concentrating on small account-holders. Asked if banks need to carve out a separate vertical to meet the requirements under the payments banking model, Bansal said commercial bankers must prepare themselves to take on the challenge and be more innovative so that they not only match the products and services that are on offer from the new players but also meet the growing requirements of customers. Bhat said that banks can continue offering good products and apps to customers under their existing structures. On payments banks being allowed to set up ATMs, he said before offering ATMs they will have to issue debit cards. It will be helpful to commercial banks, as the customers may use it in the ATMs of commercial banks, too. 2 ND SEPT. ALL INDIA BANK STRIKE : WHY? TO OPPOSE ANTI-PEOPLE ECONOMIC REFORMS ANTI-WORKER LABOUR REFORMS ANTI-PEASANT LAND REFORMS ANTI-PUBLIC SECTOR BANKING REFORMS ALL INDIA BANK EMPLOYEES' ASSOCIATION Central Office: PRABHAT NIVAS Singapore Plaza, 164, Linghi Chetty Street, Chennai Phone: , & Fax: , e mail ~ chv.aibea@gmail.com