Thursday, August 28, 2008

Bajaj Allianz Financial Distribution Ltd to venture into credit card biz

Soon the Bajaj Allianz Financial Distribution Ltd (Bafdal) will be making its venture in credit card business. In Bajaj Allianz Financial Distribution Ltd (Bafdal), both Bajaj Finserve Ltd and Allianz SE of Germany have a 50:50 partnership.

“We are talking to a few players, but nothing has been finalized yet,” said Jitendra K. Bhagat, chief executive officer of the company.

Bafdal, has started mutual fund distribution business. Bafdal has started this business in a joint venture with Taurus Mutual Fund which is distributing life and non-life insurance products as well as consumer loan products of group companies.

“Credit cards are complementary to our consumer finance business. We have not yet decided whether it will be a proprietary or a co-branded card. The card will be launched within this financial year,” Bhagat said.

Regarding the distribution of mutual funds, Bhagat told that the company had short listed five fund houses to sell their products. “In fact, Allianz itself has applied to market regulator Sebi for a license to start asset management business in the country. Given the long understanding and association with the Bajaj group, I believe, the mutual fund business will also be carried out by the Bajaj Allianz alliance,” Bhagat said.

Taurus, the second-oldest mutual fund house in the country after Morgan Stanley, on the other hand, is planning to catch up with its peers.

Waqar Naqvi, has been recently positioned as the CEO of Taurus Asset Management Company said, “The promoters were not focused on increasing the distribution network. Now we want to increase our distribution network aggressively. We are expanding the number of offices and employing more people.”

Currently Taurus is having eight schemes and Rs 400 crore of assets under management. Out of which Rs 150 crore is under debt funds and Rs 250 crore under equity schemes.

The fund has a net worth of Rs 150 crore and will be utilized in its expansion. “Our net worth-to-AUM ratio will be the highest in the industry,” Naqvi said.

Tuesday, August 19, 2008

Banks allow conversion of credit card dues to loan

More and more banks are encouraging borrowers to convert credit card dues into personal loans with an aim to keep away defaults which can be prompted by inflation and rising rates. All leading banks are giving an option to the investors of making payments for purchases in installments. Some banks are being practical and, others are giving the option as part of a restructuring package after classifying the customer as offender.

As per the Reserve Bank of India (RBI), data credit card transactions amounted to over Rs 60,000 crore between May 2007 and May 2008. According to RBI data around 20% of card transactions were rolled over, resulting in Rs 12,000 crore of credit card receivables, which have been classified as loans by banks. In the earlier years, the amount classified as loans was less than 10% of credit card transactions. Banks are fearing the rising interest rates and prices are eating into the disposable income of borrowers, which can increase the chances of default.

Credit card dues after the initial interest-free period draw interest rates of over 18-38%. Thus personal loans can be availed against this at rates starting from 14%. Banks have started becoming more practical therefore, for some time banks have been offering the facility of paying for purchases in installments to their cardholders. In some cases, banks have started giving suggestions to the customers who make large transactions. Otherwise banks give this offer when a customer fails to make a large payment. For instance at present, SBI Cards is offering the EMI scheme on transactions of more than Rs 2,500.

Banks have started keeping a watch on the customers who have not been regular with their payments. “We have an idea about customers’ spending patterns through the transaction monitoring alert system. If a customer spends an average of Rs 8,000 on his credit card every month and suddenly we witness a transaction of Rs 50,000 billed in his name, we call the customer. We inform the customer that he/she has an option to convert it into EMIs, which could weigh lesser on his pocket,” said ICICI Bank head, cards group, Sachin Khandelwal.

Mr Khandelwal added in case customer plans to buy an appliance for Rs 20,000 but ends up spending Rs 40,000 on a higher-end product, then bank offers these options to customers at the store itself. Get all the best credit cards offered in India by all major banks with their attractive rewards points.

With cards the traditional way has been replaced where consumer durables used to be financed through dealerships, which is costly.

Citibank is offering the conversion of the out standings on cards into personal loans. Still these customers will be reported to the credit bureau. “Customers who become delinquent are also offered special installment programs called ‘settlements,’ which ensure structured payments in a timely manner and reduce their overall credit burden. Once again, Citibank works directly with the customer to understand their overall debt and evaluates their cash flows to ensure that this personalized payment plan is affordable on a monthly basis throughout the tenor,” said Citibank business manager-cards Sandeep Bhalla.

Mr Bhalla added that the bank is cross-selling installment loans to customers in order to help them in meeting their purchasing and payment needs through marketing efforts. “These are designed and delivered after having a conversation with the customer on his or her overall needs and ability to pay, based on monthly cash flows. This interaction determines the amount and tenor of the loan, such that a customer can manage the monthly payments to Citibank along with their other payment obligations. These promotions are offered through certain preferred vendors at points-of-purchase or upon request by customers post their purchase,” said he.

Wednesday, August 6, 2008

Tata Capital to venture into credit card business of Tata Group

One year back Tata Capital, a finance company was launched offering a suit of financial products. Now Tata Capital will be venturing into credit card business of the Tata group, with an aim to boost its product portfolio targeted at retail and institutional customers.

In February 2006 first Tata card, the country’s first white label credit card was launched, in association with SBI, that marked the group's re-entry into plastic money business. But in 2003, Tata group company —Tata Finance — sold its credit-card business to ICICI Bank- country's largest credit card issuer with over 8 million customers.

A Tata group executive informed that Tata Capital's possibility of managing the credit card venture from Tata Son's can not be ruled out in future, as it is more synergic to Tata Capitals retail finance operations which offer personal, car and home loans.

The exact number of cardholder base of the Tata card can not be ascertained, the card was launched to tap the huge employee and customer base of the Tata group by rewarding them each time they buy a Tata Indica car to Titan watch to Voltas air conditioner. On a White label card, the logo of the issuer is not show on it as against a co-branded credit card, which bears the logos of the alliance partners. The group has employs around 3.50 lakh people worldwide.

Currently SBI card is having a base of around 3 million cardholders. The top players in credit card segment are ICICI Bank, HDFC Bank, Citibank, SBI, HSBC and Standard Chartered Bank. In India credit card base has grown to 27 million from 17 million in 2006.

Tuesday, August 5, 2008

Credit Card Holders Association appeals RBI to put cap on interest rates

The Credit Card Holders Association (CCHA) has appealed the Reserve Bank of India to put a restriction on the interest rate charged by different banks and also to take strict action against the banks who are using recovery agents to harass debtors.

CCHA general secretary C V Giddappa said, "Rate of interest charged by banks range from 36 to 42% in addition to a 12% service charge. In spite of the RBI decision to regulate the appointment and engagement of recovery agents, banks continue the practice".

He informed that recovery agents harass debtors in case they failed to repay a single installment of the debt incurred on their credit cards. He added, "There have been cases where a bank has, at one go taken the entire debt amount from the card holder's account."

"Several people have complained of banks registering criminal cases in places away from the residence of the customers ".

Monday, August 4, 2008

RBI plan to make ATM usage free from 2009

Deputy Governor V Leeladhar said banking regulator Reserve Bank of India is worried on the rising defaults in credit cards.

He said, “Credit card defaults are rising and it is a matter of concern. It just shows that due diligence was not done while selling cards”. Deputy Governor added credit card issuances are not picking up the face.

While speaking on the sidelines of a banking conference Leeladhar said that the Payment & Settlements Systems Act 2007 is likely to be conveyed by the government in a week’s time.

The act will legalize electronic payment systems in the country and will bring global non-banking payment companies like Western Union, Visa and Mastercard under the control of the RBI.

Leeladhar informed RBI has plans to make ATM usage free from 2009, the process is on track after the largest public sector bank State Bank of India, joined the National Financial Switch (NFS) two months ago.

“SBI handles about 25% of the three lakh daily ATM transactions. After they have joined the NFS, they have got customers from other banks using their ATMs, which is a good sign,” he said.

SBI is having the largest ATM network in the country and it is the only largest bank which had avoided getting into an ATM sharing agreement with any bank, or joined a switch.

Leeladhar added as SBI has joined the NFS, soon other banks will follow suit. “There are 2-3 public sector banks which are yet to join, but I am sure they will also do so soon,” he said.

The RBI will be recommending a national centralized electronic clearing system (ECS) for funds transfer. The ECS system has gained popularity for payment of bills and mutual fund systematic investment plans has been currently divided into different zones.

“We are planning to centralize it at the RBIs national clearing cell at Nariman Point. It will be linked to banks’ core banking platform,” he said.

The RBI also has plans to make use of satellites to reach banking services to areas which are unreachable. The RBI will be helping banks lease satellite’s for this purpose and also pay the cost on behalf of the banks.

“For hilly terrains like the North East we plan to pay the full cost, while for rural areas we will pay 75% of the cost and 50% of cost for semi urban areas,” Leeladhar said.

He added that satellite is the most ideal back up for banks as it is most disaster proof.

Meanwhile, the Indian Banks’ Association (IBA) also has plans to start a payment and settlement switch for which it expects to get license by the middle of August. “It will be called National Payment Corp of India and will be owned 51% public sector banks,” said K Unnikrishnan, deputy chief executive, IBA.