Cash Costly, allow Banks to Charge for Cash Transactions

Mumbai, December 26: The country’s largest bank, State Bank of India, wants the government to allow banks to charge customers for cash transactions, said a senior executive. “We must be allowed to charge bank account holders to charge for cash transactions. Handling cash is a huge cost to banks,” said Manju Agarwal, deputy managing director at SBI. “Given that this is an opportune time, there needs to be incentives to use cards or internet to make electronic payments and discourage cash.”

The Reserve Bank of India and commercial banks face a total of Rs.21,000 crore ($3.5 billion) in currency operations costs annually. Speaking about the digital push after demonetisation, Agarwal said they have seen multifold rise in debit card and mobile banking usage to make payments. Banks, including SBI, have been promoting cashless transactions through cards and their mobile applications. SBI is aggressively promoting its SBI Buddy. Moreover, in collaboration with telecom firm BSNL, it has launched its new app – ‘mobicash’ which features three-way access to transfer fund from the mobile phone.

Agarwal said there were easy and secure ways to make cashless transactions even on basic phones which facilitate transactions through SMS or USSD code. Last week, SBI chairman also spoke about finding ways to disincentivise cash transactions, such as imposing a charge or levy above a specified limit or threshold, after normalcy is restored in banking operations.

With about 90% of our transactions done in cash, India has a cash-to-GDP ratio of about 12.2%, believed to be relatively high compared to many of its peer countries like Brazil, Russia and Mexico. Though the withdrawal of high-value currency notes has taken the number to 7.3% of the GDP, which is lower than US at 7.8% (as per RBI data), it is estimated to settle at 10% after the entire demonetised value is back in the system.

Bhattacharya said if India wanted to de-emphasise cash, not only should there be an incentive for people to move towards a cashless economy, but also a disincentive for transacting excessively in cash, leaving out small-ticket transactions. “Cash imposes a huge burden. We don’t understand it as it is not immediately visible. It is a huge burden on society,” she added.

SBI to cut processing and conversion fees on home loans

With the advent of festival season India’s largest lender – SBI has embarked upon a special campaign to ramp up its home loan book. It is going to reduce the processing fee for home loans to Rs.1,000 per loan irrespective of the size. The offer would be made available from September 1 onwards, a senior bank official told.
With the advent of festival season India's largest lender - the State Bank of India (SBI) has embarked upon a special campaign to ramp up its home loan book. It is going to reduce the processing fee for home loans to Rs.1000 per loan irrespective of the size. The offer would be made available from September 01 onwards, a senior bank official told.
Currently, loan processing is at 0.25% of the loan amount subject to a cap of Rs 6,500 for loans upto Rs.75 lakhs. For any higher loan amount, the maximum fee ceiling is Rs.10,000.  For example, if you apply for a loan of Rs. 20 lakhs, you need to pay a processing charge of Rs.1000/- With the new offer, it will be uniform at Rs.1,000 for a home loan. However, the offer would end on 30th November, 2012.
At the same time, the banking behemoth is actively mulling reduction in conversion fee which is presently at 1%. For all banks, conversion fees are in the range of 0.50-2%. This move, if implemented, will help the existing (SBI) home loan customers, who are not entitled to get the benefit of reduced interest rates to avail of the lowered interest rates. Let’s assume the loan size is Rs.30 lakhs and a customer has already repaid Rs.10 lakhs. Therefore, he has to pay Rs.20,000/-(i.e. 1% of 30-10 lakhs) one-time upfront for the conversion.
Earlier, SBI cut the interest rates on home and auto loans by over 50 basis points, effective from August 07. However, it did not change the base rate (remains at 10% p.a), the benchmark rate below which the Reserve Bank of India does not allow any bank to lend. Now, a home loan borrower can avail of a home loan with interest at 10.25% as against 10.75% prior to the rate cut, for a ticket size of Rs 30 lakhs. The interest rate will be 10.40% for loans above Rs. 30 lakhs. The EMI on Home Loan tenor of 30 years is Rs.897 per lakh which is the lowest in the market.
However, the new rates are available only to the new customers. So, a customer who had taken a loan at a higher floating rate viz. 11.25% will be keen to avail the benefit of the current lower rate. So, he can convert his loan to the new rate by paying the conversion fee. "Those proposed moves by RBI will certainly benefit customers, who should tap opportunities right in time. However, the bank cannot just keep on doing this beyond a point as it may hurt their margins," said Anil Rego, CEO and founder, Rights Horizons, a Bangalore based advisory firm.
With 26% market share, SBI continues to be the leader in home loan market followed by the privately held housing finance company- HDFC.  "We have got some surplus funds after RBI cut statutory liquidity ratio by 1% to 23%. We have decided to utilize it in expanding our retail business. The Bank is aiming at 20-25% growth in its home loan portfolio. As the country's largest bank, we have a vital role to play in supporting the economy", said the official.
As of July, SBI's home loan portfolio stood at around Rs 1.06 lakh plus crores. Total retail loans stood at Rs 1.86 lakh crores in the April-June quarter. To facilitate home loan borrowers, it is planning to upload the list of housing projects, approved by the bank shortly.  The bank has tied up with 1,046 such projects across India till July in 2012-13. In order to enlist its projects, a builder has to meet certain norms prescribed by SBI. For listed projects, the bank sanctions home loans in 4-5 days while it takes around 14 days to approve a home loan for other housing constructions. The lender offers a loan to value (LTV) of 90% for home loans upto Rs 20 lakhs and upto 80% for loans above Rs 20 lakhs.

SBI chief gets taste of RBI's tongue-lashing

Chennai, Aug 27: His predecessor, O P Bhatt, had spent the better part of his five-year tenure in a bitter war of words with the Reserve Bank of India over teaser home loans and sundry other things. State Bank of India Chairman Pratip Chaudhuri obviously didn’t want that to continue — so his first public statement after taking over in April last year focused on why SBI should not get into a state of perpetual conflict with the regulator.
Chaudhuri’s best efforts apparently have not been enough to soothe the RBI’s nerves and to stop it from seeing SBI as a problem child. A week after he suggested the abolition of the cash reserve ratio (CRR) — the proportion of deposits banks need to park with the regulator — RBI Deputy Governor K C Chakrabarty bluntly said on Monday — Chaudhuri “has to find some other place” if he could not work as per the central bank’s regulatory environment.
Chakrabarty was responding to a question from the audience at a conference on systemic risk here. The tongue-lashing took many by surprise, as it was probably the first time that a top RBI official resorted to such a public reprimand for the chairman of the country’s largest bank. Chaudhuri had said keeping the CRR balance with the RBI was costing the banking system Rs 21,000 crore. He had questioned why the CRR was not applied to insurance companies, non-banking financial companies and mutual funds, which were also mobilising public deposits. “CRR doesn't help anybody and it is unfairly put on the banks,” Chaudhuri had said.
While the RBI used to pay interest on CRR funds, that was withdrawn a few years back. Interestingly, SBI has reduced the lending rate on some segments such as retail and small and medium enterprises and said the reduction was due to a cut in the CRR and not due to a policy rate or repo rate cut. The RBI had reduced the repo rate in April by 50 bps to eight per cent.
Meanwhile, to another query as to “which banking tree needed to be protected”, Chakrabarty, drawing a forest fire analogy, said: “Obviously, it is SBI. It is too big a tree. If you fail to protect the SBI tree, it (the fire) may spread to other banks and it will turn out to be a systemic failure.”

Rate cut could be good news this festive season

New Delhi, August 6: RBI's decision to slash the SLR rate by 100 basis points has pleasantly surprised many. Banks had witnessed tight liquidity position in last few months, but the current move by RBI would ease the pressure, to some extent. The effect of RBI's step has been taken immediately by the State Bank of India (SBI) on a positive note as it has announced a cut in the home loan and car loan interest rates with effect from August 7, 2012. Home loan interest has been cut to 10.25 per cent from existing 10.5 per cent for the loan amounts below R 30 lakh, whereas the loan amount between R 30 lakh to R 75 lakh will now attract an interest rate at the rate of 10.4 per cent.

 

The maximum cut of 85 basis points has been announced on the loan amount above R 75 lakh. Auto loan interest rate has been reduced to 10.75 per cent from the previous rate of 11.25 per cent. The banking sector is expected to follow the trend with increased liquidity in the days to come. The base rate is standing unchanged at 10 percent at the moment, so existing bank borrowers would not get the benefit of any rate reduction.

 

In the term-deposit front, SBI has announced a cut in the term deposit rate for five years (up to ten years) by 25 basis points to 8.5 per cent with effect from August 7, 2012. Contrary to the move of the largest bank, the second-largest bank of India i.e. Punjab National Bank (PNB) has announced an increase in term deposit rate from 8.75 percent to 9 percent for a one-year tenure single deposit of Rs one crore or fewer amounts. It has also increased the NRE deposit rate to 9 percent. The PNB's change would be effective from August 2.

 

Good news this festive season

 

The current reduction in the loan rates is expected to change the momentum of loan trends in the banking sector. With the reduction in housing loan interest rates, banks that reduce the interest rate in current market would position itself as an affordable loan provider amongst other banks.

 

Similarly, in the car loan segment, banks would compete to attract customers with offers and discounts in interest rates.

 

With the festive season round the corner, most banks are likely to slash interest rates. Also there is bound to be increased consumer interest in the purchase of home, cars and consumer durables during the festive season, increasing the probability of a downward loan trend. Expenditure tends to rise this season and banks would ideally like to be in a position to offer the interested borrower the best deal. From the point of view of customers, any further rate cut by banks would be a welcome move, and they will find the prospect of a lowered interest rate burden on car and housing loan very attractive now.

 

The rate cut could well be one of the strategies for banks to take up market share in the retail loan segment. Since RBI has restricted banks from charging penalty on prepayment of loans or levying foreclosure charges on floating-rate home loans, banks that slash the rate would benefit in context of clients shifting from other banks, which are still waiting to reduce the rate. If other banks don't follow the trend by cutting the rate, then they are likely to lose a few customers in the days to come.

 

Being the festive season, the banks are not only expected to cut the interest rates but also offer discounts in other charges to attract the customer and find a space between car and home buyers. It looks like SBI has just pushed the alarm button for other banks to wake up to a changing trend. So the current scenario looks all set for more smiles on the faces of customers in the days to come.

SBI cuts home, car loan rates

Thursday, August 02, 2012

State Bank of India has cut home loan and car loan rates. This could trigger a rate war among banks to attract retail customers as loans to industry have slackened.

SBI’s rate cut gambit comes in the wake of the RBI effecting a one percentage point cut in the statutory liquidity ratio on Tuesday. The SLR cut is seen allowing banks the cushion of additional liquidity.

India’s largest bank has cut home loans by up to 0.60 percentage points and car loans by 0.50 percentage points.

The interest rate on home loans up to Rs 30 lakh will be 10.25 per cent (10.50 per cent earlier).

On home loans beyond Rs 30 lakh and up to Rs 75 lakh, the bank will charge 10.40 per cent interest (10.75 per cent). The interest rate on home loans beyond Rs 75 lakh will be 10.40 per cent (11 per cent earlier).

SBI has cut interest rates on car loans to 10.75 per cent from 11.25 per cent earlier. The equated monthly instalment on car...