The largest lender in the country, State Bank of India (SBI) plans to increase its stake in SBI Card to 74 per cent by the end of June 2017. The stake will be increased by first quarter of next financial year after overcoming some regulatory issues.
The approval for increasing the bank’s stake in its two credit card joint ventures with General Electric Company to 74% has been given.
The bank has approval to infuse Rs. 1, 160 crore in the two JVs - SBI Cards and Payment Services Pvt. Ltd. (SBICPSL) and GE Capital Business Processes Management Services Ltd (GECBPMSL) through purchase of equity shares from GE Capital so as to increase SBI's stake in both the companies to 74%. Currently, SBI holds 60% stake in SBICPSL and 40% in GECBPMSL.
SBI Card has around 4.3 million users. It’s latest offering - 'Unnati' is targeted at all SBI customers, including Jan Dhan account holders throughout the country. The new card is being launched in the era of digitization where new users are sought to undergo cashless transactions which will help transform India into a digital economy.
It is aimed to issue the card to people with balance of Rs. 25, 000 which will be offered through network of 20, 000 plus SBI branches. This card will be offered free at zero annual fee for four years to promote digitization. It will cater to the credit card requirements of new users and those without any credit history.
The Reserve Bank of India (RBI) has put four public sector banks, including IDBI Bank and Indian Overseas Bank under watch and advised them to stay off risky assets so that their financial health is not stressed further. Though UCO Bank is said to also be in the list, the fourth bank could not be ascertained as of yet.
The RBI had carried out asset quality review (AQR) which will come to an end on March 31. The financial health of these lenders is not said to be improving and may remain so even after the AQR. These banks are suffering losses and have been advised to improve their financials by looking for capital infusion and creating a self-sustaining model by selling assets.
The gross NPA of Indian Overseas Bank (IOB) increased by 52% to Rs. 34, 502.13 crore at the end of December 2016, while the loss stood at Rs. 554 crore.
The gross NPA of IDBI Bank grew to 80% to Rs. 35, 245 crore and it booked a loss Rs. 2, 255 crore. The government shifted IDBI Bank's MD and CEO Kishor Kharat to Indian Bank. M K Jain, MD and CEO of Indian Bank, was in turn moved to IDBI Bank. UCO Bank is also expected to remain under stress during the fourth quarter ending March 31. Its gross NPA during the third quarter surged by 49% to Rs. 2, 181.26 crore and the loss was Rs. 437 crore.
Finance minister Arun Jaitley today ruled out farm loan waivers by the Centre. He further stated that states can utilise their own resources in this regard. The rationale given for this decision is that the Centre cannot adopt a selective approach by helping one state and not the others.
Jaitley said in the Rajya Sabha - "This issue (loan waiver) has cropped up in several states. The Centre has its policies for agriculture sector under which we provide interest subvention and other support. We will continue to give all that. If a state has its own resources and want to go ahead in that direction (waiving farm loans), it will have to find its resources. The situation where the Centre will help one state and not the others will not arise.”
Agriculture Minister, Radha Mohan Singh has stated that the BJP government in Uttar Pradesh will waive off loans of small and marginal farmers as has been promised in party's state election manifesto in the recent assembly polls.
The Oppositions party led by Congress had demanded that the BJP led government should announce a loan waiver for farmers across the country as was done by the UPA in 2006 and not just for Uttar Pradesh where the BJP has returned to power with a major mandate.
With Bangladesh’s Prime Minister, Sheikh Hasina visiting New Delhi next month, it is being expected that India will announce a large credit line amounting to $4 billion to Bangladesh.
There will be some agreements that will be signed between the two countries. One would be to get India on board as an adviser in implementing the Rosatom-Bangladesh nuclear power plant in Rooppur.
India had extended a similar credit line in September 2016 to Vietnam. It was a $500 million credit line for Hanoi to build its defense.
There will some defense agreements (seven MoUs) that will be executed between the two nations. One is for training crews of the Bangladesh Navy. China has played a key role in Bangladesh Navy's modernization and the deal to train Bangladeshi crew is seen as an attempt to leverage capacity-building cooperation with countries in the region to block Chinese demands for access.
There will be another deal that will be signed between the nations. This is for the implementation of Bangladesh's first nuclear power project at Rooppur. In November 2016, India had proposed it be made part of the agreement between Bangladesh and Rosatom for advisory support. Almost US$ 1 billion is likely to be allocated for infrastructure development of the project. The Rooppur project is being established by Russia's Rosatom, with Russia and Bangladesh approving the draft inter-governmental agreement last week.
Edelweiss India Special Situation Fund has bailed out Unitech Machines (which is an auto component maker) with a loan of Rs. 380 crores. This loan will be converted into equity which will be encashed by Edelweiss at a premium when the company floats its shares. The funds received will be used to repay the loan of Yes Bank, ICICI Bank and other banks and financial institutions. The loan comes at a time which will prevent a default on part of Unitech Machines. The loan is in form of a seven year bond with an option to convert these bonds into equity after three years.
Unitech Machines is India's third largest two-wheeler lighting solutions provider and a primary vendor to Hero MotoCorp. Edelweiss India Special Situation Fund is focused on turnaround of stressed assets. It has a corpus of 11, 000 crore.
As part of the loan deal, Rs. 330 crores will be used to repay loans of banks and other creditors and the balance amount of Rs. 50 crores will be used as working capital.
If it would not have been bailed out by Edelweiss, Unitech Machine would have defaulted in the quarter to March and would have added to the stress on Indian banks which are already facing a crunch due to defaulting loans. It plans to repay all its loan to its six lenders and Edelweiss would be the sole lender to the company.
Finance Minister Arun Jaitley stated last week that here was no proposal before the government to withdraw the new Rs 2, 000 currency notes in a written reply to the Lok Sabha.
It was also informed that the old Rs. 500 and Rs. 1, 000 notes that have been returned to the currency chests of Reserve Bank of India (RBI) amounted to Rs 12.44 lakh crore as on December 10. This data would have to be reconciled with the physical cash balances to eliminate counterfeit notes, accounting errors and possible double counts etc., after which only the final figures will be arrived at.
As of March 3, the currency in circulation stood at Rs. 12 lakh crore.
On November 8, last year, the BJP government led by Prime Minister, Narendra Modi, had announced the demonetisation of Rs. 500 and Rs. 1000 currency notes in order to curb black money, corruption and terror financing.
In a statement, the Finance Minister stated - "Demonetisation seeks to create a new 'normal' wherein the GDP would be bigger, cleaner and real. This exercise has resulted in an increase in deposits with banks. This will facilitate reduction of interest rates and provide more headroom to banks to expand their credit base.”
The limits of withdrawal from savings bank accounts were also completely removed from March 13. This has brought about a sense of normalcy in the banking operations and liquidity in the country.
An Inter-Disciplinary Standing Committee on Cyber Security has been set up by the Reserve Bank of India (RBI). The set up of this committee was proposed in the last monetary policy review outing.
The committee has been formed on the recommendations of the expert panel on Cyber Security and Information Technology Examination headed by Ms. Meena Hemchandra. As per RBI reports, the 'Statement on Developmental and Regulatory Policies' which was presented along with the sixth bi-monthly monetary policy on February 8, 2017 had proposed the constitution of the inter-disciplinary standing committee.
This committee will comprise of 11 members. They will review and revise the cyber threats inherent in the existing/ emerging technology, study adoption of various security standards/ protocols, interface with stakeholders and suggest appropriate policy interventions to strengthen cyber security and resilience.
The members of this committee are various learned and distinguished personnel who belong to different banks and organizations. The team is not limited to these 11 members and the RBI may include within this committee, more experts in the field of cyber security. The committee may also operate through a framework of sub-committees to examine and assess specific issues, as and when the need arises.
Asian Development Bank (ADB) and India have entered into a $500 million loan pact to expand inter-regional power connectivity and to strengthen the existing transmission system to accommodate renewable energy-generation capacity in India. The inter-regional connectivity will boost transfer of power to southern regions which have been affected by power shortages.
As per the statement issued, $500 million loan will come from the capital resources of ADB and will make up around 19 per cent of the $2.581 billion total project cost. Power Grid Corporation of India (Powergrid) will be providing counterpart financing of USD 2.081 billion for the entire project. The duration of the loan is 20 years, including a five-year grace period with an annual interest rate determined in accordance with ADB's LIBOR-based lending facility.
The project which is being set up with this loan facility is expected to be completed by December 2020 and is stipulated to build 800 kilovolt (kV) and 320 kV High Voltage Direct Current (HVDC) converter stations and 765 kV power transmission systems in India. It will also help Powergrid to add 6, 000 MVA transmission capacity between Raigarh in Chhattisgarh and Pugalur in Tamil Nadu; 2, 000 MVA transmission capacity between Pugalur in Tamil Nadu and North Trichur in Kerala and 3, 000 MVA transmission capacity to accommodate renewable energy flows via Bikaner in Rajasthan.
United Bank of India (UBI) has entered into a tie-up with Indian Railway Catering and Tourism Corporation (IRCTC) to offer the bank customers with the facility to purchase railway tickets using the bank's debit card from the IRCTC website.
UBI is a Kolkata based bank which is now the 14th bank and 10th among government banks to provide the ticket booking facility to its customers by having a direct tie- up with IRCTC.
As per recent orders, the Government has waived service charges on train ticket booking done through the IRCTC website in order to promote digital transactions and make way for a cashless economy. IRCTC is also keen to enter into tie ups with various banks to facilitate their customers to book their tickets directly from the IRCTC website.
UBI’s executive director, Mr. Ashok Kumar Pradhan, stated that the bank is continuously working to provide convenience to its customers by introducing technology based products and services.
As per recent reports, UBI has a net profit in their quarter Rs. 64 crore which was due to an increase in its non-core income. Its net profit was Rs. 17 crore in the year ago period.
Working Capital is defined as the capital of a business which is used by the company to carry out day to day trading operations and is calculated by the current assets minus the current liabilities. Working Capital Financing is mostly used by small companies. It assists them in taking care of the creditors and continue the cash flow on a daily basis.
Every business, be it big or small requires a smooth cash flow to trade and run the operations smoothly. A company carries the risk of ruining its reputation if it doesn’t pay the bills on time. For a complete financing solutions, companies rely on banks for working capital to manage their operations. Working capital financing has broadly been categorized in Trade Credit, Cash Credit/Bank Overdraft, Working Capital loans, Purchase/Discount of Bills, Bank Guarantee, Letter of Credit and Factoring among others. Let’s have a quick look on them.
Working Capital Financing - the types
Trade credit is the credit given by bank to business on the basis of the firm’s reputations and credit worthiness. This system of working capital allows the business to buy or purchase products without making immediate payment and the credit is given on short term basis. There is a free period for the companies to capitalize on, once the free period is over, a fee is charged and the calculation is based on the period of the credit used.
Cash Credit/ Bank Overdraft
This is the most widely used of all the working capital financing by the companies. The facility is given by banks which sanctions a specific amount to business to make payments. The cash credit works mainly because the business is charged interest on the amount used by the company, not on the total sanctioned amount. The companies wisely utilise the facility by depositing a part or the full amount to avoid interest and at the same time gets the benefit of carrying the business without any hassle.
Working Capital Loans
A working capital loans is quite like term loans and is given by financial institutions to companies for investing it on permanent financial needs, not on the temporary or daily financial operations. In this kind of working capital financing, the company has the flexibility to make the payment on installments or the full amount at the closure of the loans.
Purchase/Discount of Bills
This type of finance is also widely used by small companies as it comes out to be more lucrative than others. Regardless of the company’s size and magnitude, a company is bound to generate some bills including recurring charges. These bills work as a document for the sellers who approach the bank with the bills and are given an amount after applying the discount on the bills and the interest. The amount is collected by the bank from the debtor on the maturity date of the bills.
This is popularly known as non-fund based working capital financing where the companies avail bank’s guarantee to minimise the risk or failure of delivering the task undertaken by the company or the services promised by the companies. The guarantee can be revoked by the holder in case of non-performances and the bank makes money by charging commission and may ask for some security before issuing the guarantee.
Letter of Credit
Like Bank Guarantee, this too is known as non-fund based working capital financing. The difference between the two is very marginal. In the former the bank guarantee is revoked and the payment is made to the holder in case of non-performance of the opposite party while in Letter of credit, the payment is made to the opposite party, if the party performs as per the agreement and terms of the Letter.
This is more of a conventional source of funding on a short term basis. The concept works on an arrangement where a company sells its accounts to a third party at a price which is lower than its actual value. This is where third party becomes a ‘Factor’ and renders factory services to the company. The third party (Factor) takes care of the financing as well as hold the right to collect the money from the debtors. Factoring Working capital is again divided into two categories- one is with recourse and the other without recourse. The former comes into the picture when the debtor fails to make the payment which is then taken care by the company and in the latter it is borne by the third party in case of non-payment.
The above working capital financing are the most popular ones and are widely used not only by small business enterprises but also big companies. The nature of finance is solely dependent on the size and the value of the company, along with its credibility in the market. The companies with good number of plants would require some of the above working capital financing to make sure the financial transactions are smooth. Having said that, these are not the only working capital financing modules, but there are others like public deposits, corporate deposits and commercial paper. So, if you are operating a business then you need to do a thorough research and consult with the bank representative to understand what kind of working capital would suit the demand and requirement of your business. In addition, one must also make sure the documents required by the banks before you apply for any such options. Once you understand the process and the complexities of the working capital financing and choose the right option then it could be extremely beneficial for you to operate your business.