RBI shouldn't force banks to lower rates

The RBI will soon come out with the final guidelines for calculating base rates under the new marginal cost of funds method. Base rate is the minimum lending rate that banks are free to set after fixing a spread over their total costs, which includes cost of funds. Earlier, banks could use either the average cost of funds or the marginal cost of funds method. Most adopted the former; this, according to RBI, has impeded quicker transmission of policy rate cuts to borrowers. When the RBI lowers its policy rate, banks trim rates only on new deposits. Under average costing, the cost of funds takes time to fall. Under marginal costing, the cost of funds will fall more quickly and may force banks to cut rates more sharply.

Forcing banks to reduce loan rates, however, seems retrograde. Given the weak credit offtake and growing pile of bad loans, banks are already finding it hard to maintain their margins.

The new method is likely to pressure margins further. The issue of transmission has been around for decades now. In an attempt to fix it, the RBI has been working with the rate structure for many years now. But not much has changed. Earlier, banks lent at sub-Basic Prime Lending Rate or their reference lending rates to avoid tweaking their benchmark rates.

Now banks prefer to tinker with the spread rather than the base rate. The RBI has already tweaked some norms for base rate calculations. But these efforts are only half the solution.

Instead of micro-managing banks, the RBI should increase retail participation in the bond market. A deeper bond market (where rates have fallen sharply) is necessary to ensure that rates flow seamlessly between markets.

Business Line

Banks, insurers keen on tying up with India Post

The e-mail may have replaced the snail-mail but India Post has survived the numerous obituaries written for it and become much sought-after once again on the strength of its unmatched network.

After being pursued by e-commerce firms for logistics and other support, the country’s oldest postal service provider is now being wooed by banks and insurance companies as it gears up for a debut in the payment banking business. The list of those keen to tie up with India Post includes marquee names like SBI, Bajaj Alliance, IDBI, YES Bank, HDFC and Axis Bank.

There are 17 such banking and insurance companies who have shown interest to use the postal network for delivering their services such as EMI collection and insurance.

According to government sources, these companies want to use the postal network by partnering with the India Post Payment Bank, which got licence from the RBI recently.

Sources close to the development toldBusinessLine that SBI could be the first bank to join hands with the Postal Department. “SBI chief (Arundhati Bhattacharya) and Kavery Banerjee, Secretary, Department of Posts, had a meeting recently and they discussed to work hand-in-hand for providing services to customers,” an official said.

Both the heads — of the largest bank and postal networks — discussed how they can leverage each other’s strengths and help extend financial services to the disadvantaged, the official added.

“There was a discussion also on how a postman can work as a bank agent in far-flung rural areas where neither a bank branch nor a bank agent can go for verification of loans. But with the Postal Department’s help, farmers and students can get loans (for agriculture/education) without much hassle,” the official said.

ATMs at post offices

The official said the government is also working towards banks installing ATMs at post offices; the Department of Posts has a network of 1.55 lakh branches across the country and more than 85 per cent are in rural areas.

But it is evident that the banks are gung-ho about tying up with the Postal Department as they will only stand to benefit. “This initiative will play a pivotal role in bringing a large number of uninsured segments of the country under the safety net and improving the penetration of insurance in the country,” said TA Ramalingam, Chief Distribution Officer, Bajaj Allianz General Insurance.

A tie-up with payment banks like The India Post will provide insurers an opportunity to distribute retail insurance solutions such as personal accident and health insurance policies to their huge customer base, he said.

“This will also enable insurers leverage on the payment bank’s strong distribution network to take insurance solutions to the unrepresented segments in the country, especially in tier-III cities and villages,” he added.

Business line

Punjab National Bank (PNB) Branches to Open a Sukanya Samriddhi Account (SSA) & PNB’s Centralised Contact Number

The Government of India notified the rules for Sukanya Samriddhi Account (SSA) on December 2, 2014, Prime Minister Narendra Modi launched this scheme on January 22 and the RBI issued a circular to all the authorised agency banks on March 11. But, even after a series of such events, no bank was ready to open this account even a few days back. People were returning disappointed from the bank branches where they were told by the branch staff that no such notification/circular was received by them regarding any such scheme.

But, Punjab National Bank (PNB) has now officially started opening these accounts at 1604 of its branches all over India. Though the bank has not provided the list of these 1604 branches which have started serving for this scheme, it has provided a centralised customer care number calling which you can get the address of the branch nearest to your place. The number is 011-25744370.

Here is the link to the website of Punjab National Bank (PNB) on which you will get all the information regarding this scheme – PNB Website Link. Under Public Provident Fund & Govt. Saving Scheme,“Sukanya Samriddhi Deposit Account” is listed. When you click on that, it will take you to the following page – “Features of Sukanya Samriddhi Deposit Account”.

As PNB must be having all the latest information about this scheme, I would like to highlight the features of this scheme once again as given by the bank on its website.

Depositor - For this scheme, Depositor is an individual who on behalf of a minor girl child of whom he or she is the guardian and deposits amount in account opened under this scheme.

Guardian - In relation to a minor girl child, Guardian means:

(i) either father or mother; and

(ii) where neither parent is alive or is incapable of acting, a person entitled under the law for the time being in force to have the care of the property of the minor.

One Girl One Child - Depositor cannot open multiple or more than one account in the name of a Girl Child. Natural or legal guardian of a girl child allowed to open one account each for two girl children.

Under this scheme, natural or legal guardian of the girl child shall be allowed to open third account in the event of birth of twin girls as second birth or if the first birth itself results into three girl children, on production of a certificate to this effect from the competent medical authorities where the birth of such twin or triple girl children takes place.

Age Restriction for Opening of Account - The account may be opened by the natural or legal guardian in the name of a girl child from the birth of the girl child till she attains the age of ten years and any girl child, who had attained the age of ten years, one year prior to the commencement of these rules shall also be eligible for opening of account under these rules. Scheme has been commenced from 02.12.2014.

Documents to Open the Account - (i) Birth certificate of girl child (ii) Address proof (iii) Identity Proof

Maximum and Minimum Deposit - Minimum – Rs. 1,000/- Per Year (thereafter any amount in multiples of Rs. 100). Maximum – Rs. 1,50,000/- Per Year.

Term Period - Deposits can be made till completion of 14 years from the date of opening of the account. The maturity of the account is 21 years from the date of opening of account or if the girl gets married before completion of such 21 years, the operation in the account shall not be permitted beyond the date of her marriage. In other words, No Deposit for the period from 15th to 21st year of account.

Interest After Maturity of account - If account is not closed after maturity, balance will continue to earn interest as specified for the scheme from time to time.

Interest will be compounded yearly and will be credited to account till the account completes fourteen years from the date of opening. Interest for the Financial year 2014- 15 is 9.1% p.a. and for Financial Year 2015-16, it is 9.2% p.a.

In case of account holder opting for monthly interest, the same shall be calculated on the balance in the account on completed thousands, in the balance which shall be paid to the account holder and the remaining amount in fraction of thousand will continue to earn interest at the prevailing rate.

Regularisation of irregular account and Penalty - Where minimum amount of Rs. 1000/- a year has not been deposited, then such irregular account may be regularised on payment of a penalty of Rs. 50 per year along with the minimum subscription of Rs. 1000/- for the year(s) of default any time till the account completes 14 years.

Mode of Deposit - Deposit can be made in cash; or by cheque or demand draft. Where deposit is made by cheque or demand draft, the date of encashment of the cheque or demand draft shall be the date of credit to the account.

Premature Closure of Account - (1) In the event of death of the account holder, the account shall be closed immediately on production of death certificate issued by the competent authority and the balance at the credit of the account shall be paid along with interest till the month preceding the month of premature closure of the account , to the guardian of the account holder.

(2) Where the Central Government is satisfied that operation or continuation of the account is causing undue hardship to the account holder, it may, by order for reasons to be recorded in writing, allow pre-mature closure of the account only in cases of extreme compassionate grounds such as medical support in life- threatening diseases, death, etc.

Pre-Mature Withdrawal - To meet the financial requirements of the account holder for the purpose of higher education and marriage withdrawal up to 50% of the balance at the credit, at the end of preceding financial year shall be allowed but such withdrawal shall be allowed only when the account holder girl child attains the age of 18 years.

Transfer of Account to Other Place - The account may be transferred anywhere in India if the girl child in whose name the account stands shifts to a place other than the city or locality where the account stands.

Closure on Maturity or Before Maturity due to Marriage of Account Holder - The account shall mature on completion of 21 years from the date of opening of the account. But, in case marriage of the account holder takes place before completion of such period of 21 years, the operation of the account shall not be permitted beyond the date of her marriage. In such closure of accounts, account holder will have to give an affidavit to the effect that she is not less than 18 years of age as on the date of closing of account.

Branches Authorized to Open Account - 1604 branches are authorized. Please contact at 011 – 25744370 for address of branch.

In case you do not understand any of its features and have any query regarding this scheme, please share it here, I’ll try to respond to it as soon as possible.