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.

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.