Govt to Increase its stake in Union Bank of India upto 58 per cent

State-owned Union Bank of India today said it is expecting Rs 1,150 crore capital infusion from the government by March 2011, which will increase the Centre's stake to 58 per cent.Currently, the government holds 55.43 per cent stake in Union Bank of India."We hope to get the second tranche of Rs 1,150 crore capital infusion by March. This will help us to increase our tier I capital to 8.37 per cent from the current 7.9 per cent.The infusion will raise the government's state in the bank to 58 per cent.The Cabinet has already approved the capitalisation plan of the Union Bank, which received Rs 111 crore about four months back as first tranche.The bank was expecting a deposit growth of 20 per cent and credit growth of 23-24 per cent during the current fiscal.arlier this week Union Bank of India raised its base rate to nine per cent.

Banks are not in favour of the proposal to allow the entry of industrial houses into private sector banking.

Banks are not in favour of the proposal to allow the entry of industrial houses into private sector banking.This is due to the “unsavory past experience in India and abroad and the large capital buffer that would be available to the banks sponsored by industrial/business houses that would create an uneven playing field with the existing banks”, the Reserve Bank of India said on Thursday. However, the federations and associations of industry as well as the NBFC and microfinance institutions were generally in favour of permitting industrial/ business houses to promote new banks.
Releasing the comments received by the RBI on allowing new private banks, the apex bank said, “experience of other countries shows that combining banking and commerce implies there would be a lot of connected lending. India does not have enough experience in supervising in a scenario when banks are owned by diversified corporates, and allowing such ownership could have serious potential disasters.”
Another suggestion received by the RBI said, “industrial houses have the entrepreneurial and managerial talent in running asset management companies, mutual funds and insurance companies and have successfully penetrated into rural India, as such, their talent could be gainfully harnessed in the banking sector”
“If industrial/ business houses are permitted to promote banks, they should not be allowed to have their own banking operations through the bank they have promoted. Banks promoted by industrial houses should be issued only a retail banking license for first 5 years. Subsequently, commercial banking should be allowed with restrictions on annual credit lines, extensive reporting requirements relating to large credits, etc,” said another suggestion.

fund is low for indian banking system

Year 2010 is proving to be a year of fund crunch for the Indian banking system.If use of Reserve Bank of India's overnight funding window is an indicator of things, Monday saw banks use the repo route to raise a record Rs 1.59 lakh crore.The high repo borrowings were despite the central bank announcing measures to inject Rs 48,000 crore into the system last Thursday.While the cash position might be tight, bankers are not losing sleep yet. Probably, reflecting the sentiment, interest rate in the call money market -- which is an overnight market used by banks to lend or borrow from other banks -- reached a high of 7%.

RBI's move to lower the minimum holding level of government securities, referred to as the statutory liquidity ratio , has provided some comfort to the market. Compared to the new floor of 24%, banks have significantly higher surplus holdings of government securities.Bankers had factored in additional tightness in the market and expect it to continue till the end of the month when the government pays salaries and pension and government departments step up spending.Apart from RBI's actions last week, the government, which is sitting on a cash pile of over Rs 1 lakh crore said it had lowered its market borrowing to Rs 6,000 crore this week, from the earlier scheduled Rs 11,000 crore, to ensure that adequate amount of cash was available in the system. Last week, RBI had announced that it would purchase bonds to the tune of Rs 48,000 crore over the next one month.The steps from the central bank and government come in the backdrop of cash being drained out of the system as companies paid taxes for the third quarter on December 15.Though advance tax might be the trigger this time, liquidity has remained under strain ever since companies paid over Rs 1 lakh crore in July for use of spectrum, or radio waves, to offer third generation mobile telephony and broadband services.With growth in bank deposits failing to keep pace with the flow of loans, the pressure has only intensified to make the cash position in 2010 tighter than 2008, the year the financial crisis hit the world.

Life insurence industry made loss in 2009-10

life insurance industry in the country made a total loss of Rs 988.82 crore in the financial year 2009-10, according to the latest annual report of Irda. But the more pertinent point is that the industry has reduced its loss by a whopping 80 per cent from net loss of Rs 4,883 crore in 2008-09.

During 2009-10 is that among 23 private sector companies — the only public sector company is Life Insurance Corporation , 8 companies have reported positive bottom line against 4 in the previous financial year.

Significant improvement in profitability was revealed by some of the companies. Of course, LIC has highest profit of Rs 1060.72 crore in 2009-10, jump of 11 per cent. Among private players ICICI Prudential has turned around with net profit of Rs 258 crore, Bajaj Alianz with Rs 542 crore and SBI Life Rs 276 crore.

Reducing losses by life insurance companies is big news because it is an industry where breakeven takes between 7 to 10 years and companies which are becoming profitable started about 10 years ago when the government opened up insurance for the private sector. Apart from long turnaround time, life insurance is also a cash-hungry business as private sector companies have already coughed up Rs 21,014 crore towards share capital till the end of 2009-10.

Bharti AXA Life launches Aajeevan Anand

private sector insurance company Bharti AXA Life Insurance today launched Aajeevan Anand plan that provides guaranteed regular payouts after every 5 years and life cover until the age of 100 years.

"Aajeevan Anand is a powerful financial solution that provides guaranteed regular payouts to meet various life stage needs until the age of 100," Bharti AXA Life Chief Marketing and Operations Officer (CMOO) Mark Meehan said.

In addition to these lifelong paybacks, the product provides customers with life cover and hence is an ideal savings cum protection plan, he said.

This whole life plan is apt for salaried people since all premium payments are made in the first 10-15 years of the policy, he added.

The nominee of the policy holder would get sum assured in case of death during the policy period which is 100 years.

Bharti AXA Life is 74:26 joint venture between Bharti Enterprises and AXA of France.

Mobile banking is poised to grow rapidly in India.

ATM and internet banking have been around in India for a while. While both modes have had some success, penetration and use levels have been moderate.

While ATMs offer convenience, they pose a perceived security threat in India given instances of mugging around them. Senior citizens and women appear reluctant to use ATMs if they have a choice to go to a branch and withdraw money in safety. The security situation in India shows little sign of improvement and therefore a large scale proliferation of ATMs will remain a challenge. Internet banking, on the other hand, relies on PC and internet penetration. Estimates suggest that there are approx 40 million internet users which is expected to rise to 100 million soon – despite this growth, penetration and use levels remain low, especially in non-metro areas. Research also suggests that internet banking is picking up amongst the target user group.

While internet penetration and use in India is relatively low, mobile phone penetration is much higher and growing rapidly. There are over 200 million mobile phone subscribers in India and the number continues to explode. Financial services companies are now working with mobile payment players like mChek to offer innovative mobile phone solutions to urban and rural Indian population. Reserve Bank of India has restrictions on non-bank involvement in money transfer. Therefore, development of mobile financial services applications is being sponsored primarily by banks in India.

Economic Times reports that Citigroup has tested a proposition which allows brokerage to respond to margin calls or enhance credit limits, by authorising transactions over the mobile phone. Once the customer and broker sign up for the application, the process is carried out by PIN validations. A one-time PIN is generated for each transaction, which is verified by the customer, after which the bank validates the transaction and sends it to the broker. Once the transaction is completed, the customer is intimated on his mobile phone again. Citi and mChek are also exploring the possibility of a similar offer for mutual funds. They have also launched a mobile application which enables farmers to receive money for sale of produce through their mobile phones. These payments take the form of ‘intent to pay’ information that can be cashed at partner banks.

The paper also reports that Visa recently announced the launch of its Visa Money Transfer on Mobile service, which will enable money transfer via the mobile phone. Initially, this service will be a pilot program available to Visa cardholders of Corporation Bank, HDFC Bank and ICICI Bank. The recipient can be a Visa cardholder of any bank in India and the money can be transferred to his/her mobile phone or Visa card.

Mobile banking has the potential to bring a whole host of people that have no/little access to land lines/internet connections onto the electronic platform – an innovative way to generate financial inclusion. To do so successfully will require customer training, technology stabilization and managing carefully the ‘know your customer’ issues.

India having the most versatile Insurance industry

India has registered a tremendous economic growth over the last decade and the insurance sector has grown with it.

India boasts one of the most versatile insurance industries in the world going by the number of insurance policies on offer and continues to portray huge potential.

Today, according to market survey, the insurance sector in India together with the banking industry contribute about a sizeable seven percent of the country’s gross domestic product not to mention that the government owned Life Insurance Corporation (LIC) has access to funds equaling eight percent of the country’s GDP.

Valuated at $10 billion, the insurance industry in India received major encouragement when in 1999 the government of India put an end to its monopoly on the sector by passing the Insurance Regulatory and Development Authority (IRDA) Bill which did away with all barriers on the entry of private investors besides allowing for foreign investors to come on board with however some limits on direct ownership.

Foreign investors are allowed up to twenty six percent ownership in any insurance company although there is a bill pending that seeks to have this figure increased to forty nine percent.

This however has not slowed down the amount of foreign investment since government records show that in that decade the sector has benefited from an injection of up to $193 million dollars while witnessing the inception of twenty seven new insurance companies. The economy in India has gained from this.

The sector derives its success from the fact that most Indian citizens view life insurance as a way to pay less tax and with innovative insurance products and aggression from the competing insurance companies the sector continues to register new clients at an impressive rate. It is no wonder that most state banks in India include insurance services among their products.

The insurance sector can largely be divided into two sub sectors namely life insurance and the non life insurance. The LIC continues to dominate the life insurance sector and has been recording average annual growths ranging at about thirty five percent although the non life insurance sector is doing much better with growths of more than a hundred percent in the same breath over the last few years.

The huge potential for the sector is mainly underlined by the fact that only about a fifth of India’s insurable population has life insurance cover which presents huge avenues for growth in the near future.