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Banking

Finance Ministry planning to double the Banks’ commission for DBT scheme from 1% to 2%

Finance Ministry is in the final stages of the course to double the commission to banks at 2% of the quantum of funds they transmit to individual beneficiaries under the government’s Direct Benefit Transfer (DBT) scheme. The current rate of commission is 1% per for every transaction under the DBT.

The government transfers money to the bank account of consumers of kerosene, LPG, etc. via its DBT scheme in order to do away with the loopholes and ascertain corruption free delivery. Now, the Finance Ministry plans that for all accounts, whether under Pradhan Mantri Jan Dhan Yojana or otherwise, if subsidy is routed via the DBT scheme, 2% of the total amount will be given to banks as administration cost. This money will not be cut from the consumer’s account but the government will spend extra 2%.

Example, if in a year, a bank transfers Rs 10 crore as DBT payments, then the government will transfer Rs 10.2 crore to that bank.

Banks play a very important role as Govt agents in routing subsidies via DBT Schemes.

ICICI Bank presents ‘Cardless Cash Withdrawal’ – Withdraw cash from ATM without a card

ICICI Bank has initiated ‘Cardless Cash Withdrawal’, a facility that permits its customers to transfer money from their account to anybody in India with a mobile number. The recipient can withdraw money anytime without using a debit card from ATMs of ICICI Bank all over India. The receiver can do this even without having a bank account of any bank.

Currently, electronic remittances are probable for only those with a bank account. Beneficiaries who don’t have a bank account can receive cash only via money order which is an expensive and time consuming course for remittances.

The ‘Cardless Cash Withdrawal’ service can be started by any ICICI Bank savings account customer (sender):

  • ICICI Bank savings account customer (sender) logs into the Internet banking.
  • Register the recipient’s name, mobile number and address.
  • The sender receives a 4-digit verification code
  • The recipient receives a 6-digit reference code, over SMS on his mobile.
  • The recipient can now go and withdraw cash from any ICICI Bank ATM by entering the mobile number, cash amount along with the verification and reference code, within 2 days of the transaction.

This service can also be used by the ICICI Bank’s account holders to withdraw cash from their own accounts without using a debit card.

RBI gets tough; says, if a company is unable to repay then that could lead to other group units and management being termed ‘wilful defaulters’

RBI in order to put intense pressure on businessmen, whose companies default in future, has intensified wilful defaulter rules. Now if a company is unable to repay then that could lead to other group units and management being termed ‘wilful defaulters’.

RBI held: “In cases where guarantees furnished by group companies on behalf of the wilfully defaulting units are not honoured when invoked by the banks, such group companies should also be reckoned as wilful defaulters.”

Thus, this cross default condition would apply if the offending borrower has raised up funds on the strong point of the balance sheet of its other group companies. Banks have also been asked to recover from personal guarantees offered by promoters even without draining other ways. The new norms have comes as a result of cases like Kingfisher Airlines where regardless of having a promoter guarantee and the existence of cash-rich companies in the group, lenders are realizing it as a challenge to raise funds.

RBI held that “It is clarified that this would apply only prospectively and not to cases where guarantees were taken prior to this circular. Banks may ensure that this position is made known to all prospective guarantors at the time of accepting guarantees.”

The modified guidelines nevertheless will not be of much benefit to banks in recovering from present borrowers like Kingfisher Airlines as they apply only prospectively and not to cases where guarantees were taken prior to this circular.  Around 5% of the loans in the Indian Banking system are in default whereas another 5% are under stress and have been offered some flexibility in repayment under a restructuring programme. Clarifying on its earlier norms the RBI had said the defaulting ‘unit’ appearing therein would include individuals, juristic persons and all other forms of business enterprises, whether incorporated or not.

The new norms have come soon after the RBI governor Raghuram Rajan recently held that the wilful defaulter tag is a powerful weapon in the hands of creditors.

See: “Willful defaulter tag is a powerful weapon in hands of banks for resolving bad loans”: RBI Governor

RBI sets upper age limit for private bank CEOs at 70

The RBI brought relief for investors in HDFC Bank and IndusInd Bank, who have been anxious about the destiny of their celebrated chiefs who have provided massive returns in the past few years. Full-time directors of Pvt. banks can now continue up to the age of 70, in line with the Companies Act 2013. The bank boards will, nevertheless, hold the right to set a lower retirement age for officials.

RBI has been decided that the upper age limit for MD & CEO and other WTDs (Whole-Time Directors) of banks in the private sector should be 70 years, i.e.- beyond which no person should remain in the post. Within the overall limit of 70 years, individual bank’s boards are free to fix a lower retirement age for the WTDs, counting the MD & CEO, as an internal policy.

This view received further credence after the P J Nayak committee proposed a maximum age of 65 for bank CEOs. The committee, to review governance of boards of banks, had made the suggestion in its report to RBI this May.

Whilst RBI can take decision on what can be done at private banks as they are governed by the Companies Act, the Parliament has to amend the Bank Nationalisation Act to permit parallel provisions for state-run banks.

  • This is the first time RBI is prescribing retirement age for Pvt. bank CEOs.
  • The RBI Move aligns retirement with the Companies Act 2013
  • Minimum age to become Manager is 21 years.
  • Maximum age for CEOs, whole-time directors is 70.
  • Age of Top Bank CEOs: Aditya Puri (MD & CEO HDFC Bank: 64 Years), Romesh Sobati (MD & CEO IndusInd Bank: 65 Years), Chanda Kochar (MD & CEO ICICI Bank: 52 Years).

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