All waiting for financial deals between Kotak Mahindra alliance

Japan's Sumitomo Mitsui Financial Group (8316.T) will consider launching retail banking operations in China, Thailand and India through tie-ups with local partners as it seeks to expand in Asia, its president said.

It would be time-consuming to start retail banking operations from scratch on our own. It would be more efficient and effective to enter by tying up with local banks, either through equity stakes or not.

On Wednesday, SMFG's core banking unit, Sumitomo Mitsui Banking Corp, announced that it had agreed to buy a 4.5 percent stake in Indian lender Kotak Mahindra Bank (KTKM.BO) for $296 million.

India has high growth potential and we have determined we need to make a deeper commitment in the market. So far, SMFG and rival Japanese banks' overseas operations have mostly catered to Japanese companies doing business abroad, but they are now trying to reach out to local customers by tying up with local banks.

Portfolio managers hike charges for beating lower returns

Stock brokers have few equals in ingenuity. Even as inflows into their highly-profitable portfolio management service (PMS) schemes have been declining, most large stock broking firms have managed to sustain margins by arbitrarily changing the rules of the game.

Many clients having subscribed to PMS schemes have earned below par returns on their investments in the past few quarters, as stock brokers introduced new charges.

The fee for portfolio management service is higher than plain-vanilla broking transactions, as brokers claim they are giving customised services to their clients.

There is an upfront fee, which the PMS provider partly passes on to the distributor who brings in the business. In addition, the broking firm charges a management fee, performance-linked fee and an exit load if the client withdraws his money before a specified period.

Many broking houses have now introduced charges like allocation fees, custodian fees, incidental charges and also raised brokerage rates and the upfront fee.

Hear the Eko of mobile banking

It was a chance meeting with former president of India APJ Abdul Kalam at Delhi Airport in 2001 that changed Abhishek Sinha’s life forever.

Kalam, who was then a scientific adviser to the government and a recipient of Bharat Ratna, told Sinha that youngsters like him should start something of their own and create wealth not only for themselves but society at large.

Such was the impact of those words that a year later Sinha put his papers in then Satyam Computers to co-start Six DEE Telecom Solutions, a telecom value-added services firm. Though he sold his share in the venture in 2007 due to strategic differences with the partner, a social entrepreneur was born by then.

And along with his brother, Abhinav, he founded Eko Financial Services. The objective being to make banking easy and reachable to the poor people.

This was the time when we as a country were going through a telecom revolution. Even the poorest of the poor has started owning and understanding a mobile banking via phone and our whole idea revolved around promoting it as a financial identity for them.

Today, three years down the line, over 70,000 people in Delhi NCR, Bihar and Jharkhand have opened a no-frills bank account with the help of Eko Financial Services and almost 2,000 people transact currency amounting to Rs 20 lakh on a daily basis using their mobile commerce channel.

Their partners in this venture have been next-door kirana stores, chemists and other such retailers who act as mini bankers or customer service points (CSPs) in the ecosystem. They help accountholders deposit, withdraw and transfer money by punching numbers on mobile phones.

The startup has over 500 CSPs and the total value of transactions exceeds Rs 20 crore. But the journey has been far from smooth. Despite the low-cost financial inclusion model winning TiE-Canaan Entrepreneurial Challenge, a national-level business plan competition in 2006, funding remained a challenge.

We were just not able to raise money. Whatever money my brother and I got from our exit from Six DEE Telecom Solutions soon started drying up.

Though the tale was short-lived. On February 25, the project started and on February 24 the news came of the merger of CBP with the HDFC Bank. By June, the company had to squander its 2,000 accountholders. “We were left like orphans,” he remembers. Our core team of 10-12 people still exists. They never disbelieved the prospects.

The fact that Eko team has nobody from the retail banking experience makes it more unique. The graduate from Birla Institute of Technology, Mesra says the toughest part has been to convince bankers of the SMS-based banking.

In November 2008, American business magnate Bill Gates visited one of Eko’s CSP that offered the much needed visibility. This was a time when Eko found the going really hard as they struggled to pay salaries to their staff and raised money from friends and relatives. Eko now plans to partner 8,000 outlets, targeting to reach a million customers by year end.

Though Eko has started echoing in the market, Sinha says people’s first reaction when they get introduced to SMS-based banking at a mom and pop store is—if it’s a truth or a fraud? Our dream now is to see bank accounts being as popular product categories as pulses or mobile banking via phone recharge coupons are at retail shops

The Govt has cleared 450-cr WB loan proposal for microfinance

Today, the Government has approved a proposal to draw a loan of USD 100 million (about Rs 450 crore) from the World Bank to promote microfinance in the country.

The Cabinet Committee on Economic Affairs (CCEA) cleared the proposal for on-lending to the Small Industries Development Bank of India (SIDBI), which -- in turn -- would disburse the funds to the microfinance sector.

The fund will be used to promote responsible and balanced growth of microfinance outreach, particularly in under-served areas where micro finance penetration is low, thereby serving the larger objective of promoting financial inclusion.

The decision is expected to help broad-base credit disbursals.

Growth in the microfinance sector has been very high in the last few years, with some of the institutions registering 100 per cent year-on-year growth.

Home loan rates may rise

It seems that home loan rates can rise as the base rate regime will come into effect from July 1.

Increase your home loan eligibility

Teaser home loan rates of some banks, including State Bank of India (SBI), which charges only 8 per cent for the first year may rise, as Reserve Bank of India (RBI) has not allowed banks to lend below the base rate. While SBI indicated that its base rate is likely to be around 8 per cent, for others banks the rate will be 8.25-8.5 per cent. SBI will announce its base rate before June 15.

Get a leeway on home loans

In a meeting held last week, bankers have discussed the issue and are of the opinion that they have to increase their home loan rates. The home loan scheme of SBI will be reviewed by the end of the month, as it was extended till June 30, a bank executive said.

Country's largest lender, SBI which pioneered the concept of teaser rate last year and forced others to follow suit, had earlier said the fixed-cum-flexible scheme was launched as the bank was having huge liquidity following the global financial crisis. However, now the surplus liquidity is no longer there as the banks started to access the repo window of RBI since last week.

Fixed deposit rates mey be rising by Sept

It seems that the decline in fixed deposit rates may be ending soon. A bottoming out by September is being expected (and the figure could touch) to 18.2% by March 2011.

The current growth in bank's fixed deposits is way below comfort levels. If this continues, the full-year target of 18% won’t be reached.

RBI’s projection takes into account the resource needed to meet credit offtake by the private sector and government borrowings along with growth and inflation outlook. Not only are government borrowings high this year, credit growth is also expected to be higher than last year at 20%.

Interest rates on deposits are too low now and in some time banks would have to consider their sources of funds and take a decision on deposit rates so that they are in a position to meet credit growth targets.

There is an upward bias in deposit rates because banks will need money to meet credit demand. Union Bank of India has already revised its interest rates on bulk deposits for 1 year to 6.5% from 6% earlier. It had revised its retail deposit rates to 7.5% for 5 years, 7.25% for 3 years and 6.5% for 1 year in mid-April and is continuing with these rates for now and will take a call when markets start showing signs of liquidity crunch.

With inflation expected to ease out by this financial year end, it is expected that RBI will dilute liquidity tightening. The RBI may hike policy rates by 25 basis points in July and October each unless the European contagion spreads.

Easing inflation will also help in cutting the cash demand. Public cash demand is also expected to scale down as softer inflation reduces the demand for money for day-to-day transactions.

Ample liquidity appears to have drained out to someextent as banks have started borrowing from RBI under the repo window daily to meet their creditdemands.

Spectrum fee eases fiscal deficit pressure

All else remaining unchanged, it is now expected the fiscal deficit of the Union government will be a lot lower than the 5.5% estimated in Budget 2010.

The unexpectedly aggressive bidding for spectrum to provide third generation mobile services and wireless broadband has fetched the government Rs 1,06,262 crore, 200% more than what was budgeted. All this money would be available to the Centre by the end of this month, as winners of the spectrum for wireless broadband have to pay up by June 22.

The spectrum fee will, in one stroke, cut budgeted fiscal deficit from Rs 3,81,408 crore to Rs 3,10,146 crore, or about 4.5% of the nominal GDP assumed in Budget 2010.

This is assuming taxes will grow at the projected rate and disinvestment through the year will fetch Rs 40,000 crore. The two major component of direct taxes — tax on personal income and on corporate profits — is estimated to grow by 15% during the current fiscal to Rs Rs 4,21,897 crore.

That’s the rate at which revenues from these two taxes rose even in the last fiscal when the economy grew only 7.4% in real terms. It would, therefore, seem that the estimates for revenue growth is conservative, even after considering the big give-aways for individual tax payers in this year’s budget.

The finance ministry has estimated collection of tax on corporate profits would climb 23.2% and that on personal income would decline by 1.4%.

But given the strength of the recovery, evident from the robust industrial performance — illustrated by the vigorous growth in fourth quarter profitability and 17.6% expansion of the Index of Industrial Production — these targets may be improved. But there are some impediments to surpassing these target.

With pressure on containing fiscal deficit at 5.5% having eased with the completion of auction for spectrum for new telecom services, the tax department runs the risk of slipping into complacency. It may not make enough effort to bring many more evaders into the tax net.

Risks to global growth can resurface, as the European sovereign debt crisis illustrate. That can affect growth in the Indian economy, and therefore tax revenues of the government. Inflationary pressures may prompt the Reserve Bank of India to adopt a tighter monetary stance, and that can choke off growth some bit.

Curbing of the fiscal deficit is also dependent on the government raising about Rs 40,000 crore from sale of equity in the public sector enterprises. Again, there is a risk that these targets may not be met in a volatile market, even with the new rule that all listed entities should have 25% public float. That apart, coalition members could put a spanner in goverment’s plans.

Lastly, any slippage on the keeping government expenditure within budgeted limits too can play a spoiler in bringing down the deficit to 4.4%.