Central bank to simplify KYC norms

The Reserve Bank of India (RBI) will soon come up with guidelines to simplify know-yourcustomer (KYC) norms and to make Aadhaar the proof for address and identification. In
the next few days, we will come up with guidelines on simplification of KYC norms and
use of Aadhaar both as an address proof and identification proof, said RBI Deputy
Governor H R Khan, while speaking at Bancon 2012.
According to Khan, there are also thoughts on coming up with policy measures on the
International Bank Account Number, which will facilitate portability. We are also trying
to marry banks and post offices in an electronic fund management system, he said. He
also stressed on the means by which the payment system could work as a catalyst for
financial inclusion. Khan said India was the second largest in terms of cash usage to
gross domestic product. He said efforts were being made to make India a less-cash
society.
According to the deputy governor, innovative payment systems can handle large
account transactions. Khan also said white label ATM scheme would be rolled out very
soon and 10 per cent of the machines would be in tier-V and tier-VI cities. He also said
there was also a need for point-of-sale infrastructure and banks should go in a big way
for its acquisition. There is also a need to create easy-to-use products and easily
available products, said Khan. When it comes to mobile banking, there are issues
pertaining to security.
According to Khan, such issues should be addressed by providing security. He said, We
need to see if ATMs and mobile phones can be used for customer grievance redressal.
According to him, a large number of potential customers can be catered to with
innovations and there is a need to raise the level of awareness of bank staff and
customers.
However, there are also challenges. There is a need for rationalisation of policy
framework for business correspondents, said Khan. He added currently, mobile banking
has less than one per cent customers. According to him, the Interbank Mobile Payment
Service is not picking up much.
In the second-quarter review of the monetary policy last month, RBI had proposed to
review the KYC norms, for simplifying these within the provisions of the Prevention of
Money Laundering Act and according to international standards.

RBI had also it would launch a pilot project, using the Aadhaar data collected by Nandan
Nilekani-headed Unique Identification Authority of India, to authenticate banking
transactions at ATMs and merchant terminals.

BANCON 2012: Banks want RBI to allow gold

buyback
Banks have asked the Reserve Bank of India to allow them to buyback gold which is not
allowed at present, though banks are allowed to sell gold coins.
In an interaction with Subir Gokarn deputy governor, RBI, at the annual banking
conclave BANCON, State Bank of Indias chairman Pratip Chaudhuri suggested such a
move which will in turn will improve market liquidity.
Today all the banks are selling gold but RBI does not allow to buyback their own gold.
Suppose somebody has taken gold from my bank and the same gold, without opening
the seal, comes back, banks are not allowed to buyback. What would be the underlying
thoughts as it is impeding the liquidity of gold holdings, Chaudhuri asked the regulator
in an interaction which followed by a speech by Gokarn on the countrys gold import
problem.
In 2011, the country imported 969 tonnes of the yellow metal, according to World Gold
Council data. The country, which is the largest importer of gold, had increased the
import duty to discourage gold imports.
RBI had announced to set up a committee under K U B Rao to look at the issue of
lending by NBFCs against gold and to assess the trends in demand for gold loans. The
group was also examining to study the factors influenced gold imports and analyse the
implication of gold imports for external and financial stability. The committee's report
will be in the public domain shortly.
Gold is being demanded for many reasons, there are many factors that are driving it

and there is no reason at all to deny in any way investors from accessing it. But it is
creating some macroeconomic stresses and so the challenge is to find ways to replicate
the financial characteristics of gold without necessarily causing physically importing,
Gokarn said.
The central bank has mooted alternative channels for investment which will fetch gold
like investments to discourage physical investment in gold. According to Gokarn, the
proposed gold backed instruments are, modified gold scheme, gold linked account, gold
accumulation plan and gold pension plan.
In the modified gold backed scheme, it is proposed that the physical gold to be
deposited for a definite period with interest payment in grammage after maturity. In the
gold linked account, it is proposed to be a non-interest bearing account while gold
accumulation plan will be a similar to the systematic investment plan of mutual fund
scheme, in which the SIP will buy small quantity regular intervals. The gold pension
plan, which is mulled for the senior citizens will have the feature of reverse mortgage
product of properties.
The Reserve Bank had earlier directed banks not to give loans for purchase of gold in
any form, including primary gold, bullion and jewellery, to dissuade people from
indulging in speculative activity.
"It is advised that no advances should be granted by banks for purchase of gold in any
form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold
Exchange Traded Funds (ETF) and units of gold mutual funds," RBI said had.

Home loan portability reaps huge gains for SBI

With customers are allowed to shift their home loan to other banks at no extra
cost, State Bank of India has seen 25 per cent of its fresh home loans are to customers
who migrated from other banks.
Last year, following Reserve Bank of Indias suggestion, the Indian Banks Association
had asked to its member banks to abolish pre-payment penalty on floating rate home
loans which encouraged customers to shift banks and take advantage to lower rate.

At present, SBIs home loan rate lowest among large banks, which is 10 per cent for Rs
30 lakh loan. SBI also have the lowest base rate the reference rate for all loans which
is at 9.75 per cent.
In October, RBI by issuing a circular, abolished pre-payment penalty for all banks.
SBI which is pushing its retail credit growth, as corporate loan demand is slack, had also
reduced the spread it charges from home and auto loan customer. Spread is the
difference between the base rate and the actual rate which a bank lends to a borrower.
Following encouraging response to its rate reduction, SBI, is targeting 30 per cent
growth in the home loan segment for the current financial year as compared to 16-18
per cent overall loan growth. After the rate reduction, home loans disbursals of SBI have
increased almost by 3 times to Rs 150 crore per day.
Capitalisation
With the government planning to infuse Rs 15,000 crore in public sector banks in the
current financial year, SBI said it will prefer a rights issue over a qualified institutional
placement.
Finance Minister has said that around Rs 15,000 crore has been allocated for
recapitalisation . We will see what kind of allocation comes from the government.,
Chaudhuri said adding that the bank is confident of getting Rs 4,000 crore from the
government.
As on September end, SBIs capital adequacy ratio was 12.63 per cent with a tier-I
capital of 8.97 per cent.
Base rate
While SBI has decided not to reduce its base rate for the time being, but Chaudhuri did
not rule out the possibility of a rate cut next month.
We have reviewed the base rate. We have decided not to reduce it any further, as our
base rate is the lowest, Chaudhuri said.
He said the banks asset liability committee will again meet in the first week of
December to decide on the matter.

Transforming the future of Indian banking

The pace of the next decade?s growth depends upon how adeptly Indian
banks can navigate major environmental disruptions, which are already
determining the industry?s state of play in Asia
Over the last decade, Indian banks have enjoyed bumper returns as total industry
assets grew from $290 billion in 2001 to over $1,600 billion in 2011. Indian banks did
better than their emerging Asia counterparts, with ten of them among Asias top 30
value creator banks in the past decade. In the next ten years, banking revenues in India
will likely climb further from $56 billion in 2010 to $250 billion by 2020 contributing
to more than 12% of Asias total banking revenue growth.
Consequently, four or five Indian banks could potentially enter the global top 20 by
market capitalisation by 2020.
However, the speed and pace of the next decades growth is contingent upon how
adeptly Indian banks can navigate major environmental disruptions, which are already
determining the industrys state of play in Asia.
An uncertain macro-economic environment caused by slow developed markets and
exacerbated by local market uncertainties, has led to a higher level of loan losses and
slowed growth. Concurrently, changing global and local financial regulations, such as
Basel III, will further pressure Indian banks.
Also critical are the discontinuities created by changing consumer behaviour and rapidly
evolving technologies. Our research shows that consumer loyalty in India has dropped
by 40% since 2007, giving rise to an increasing number of banking relationships per
customer and increasingly fragmented wallets across banks. Thanks to new
technologies giving rise to alternate banking channels, financial institutions should
therefore be prepared to compete for their consumers with new rivals who use
disruptive new technologies such as wireless broadband, big data and cloud.

Unaddressed, these discontinuities could are likely to push down the average return on
equity (RoE) for banks in India by 4 percentage points for existing players.
Naturally, this has implications for the future strategy of banks. McKinsey research on
300 banks in Asia showed that historically the best predictor of a banks returns is the
average RoE of the home market it comes fromand only 14 of the 300 banks analysed
significantly outperformed their countrys median RoE.
Given the emerging discontinuities, Indias banks must think beyond simply relying on
revenue growth momentum. Banks that have spent the past five years prioritising
growth by setting up more branches and acquiring new customers will have to
differentiate themselves by building one or more of three transformative capabilities:
Next generation risk management skills to profitably target underserved segments such
as SMEs and mass market; innovative multi-channel distribution infrastructure to
increase share of primary banking relationships, and privileged customer insights for a
more granular approach to growth.
Next generation risk management capabilities will transform the way banks grow a
critical but underserved part of the Indian financial services landscape: SMEs, selfemployed individuals, and the mass market. Currently, banks have not completely
understood these segments, and through-cycle returns particularly on lendingvary
widely among banks.
However, our analysis of the past decades top performing banks in Asia showed that
several had superior risk management capabilities, and had sustainably and
successfully lent to SMEs, achieving higher margins and better growth. The capabilities
need to be end to end from prospecting, to underwriting, to monitoring early warning
systems, to collections to earn superior returns. New mechanisms could offer
opportunities for differentiated capabilities through several changes, for instance,
incentivising sales staff based on collections, not disbursals; innovative collateral-based
lending; using qualitative credit assessments to underwrite; developing effective early
warning systems; and fully utilising internal and external data to underwrite and monitor
credit risk.
Seamless multi-channel distribution will soon be essential to serve customers who
increasingly move between online and offline channels in their consumer decision
journey. Today, the most-searched financial services brands online in India are seeing
the fastest revenue growth offline, proving that building a brand online has real power in
an online-offline world. By 2015, Indias current online user base of 122 million is likely

to touch 350 million, of which 70 million digital high-value consumers will drive a
revenue pool of $60 billion to 70 billion by 2020. Capturing this opportunity here and
now is critical, because online consumer behaviour is changing faster than financial
institutions are responding.
Privileged consumer insights can be used to develop a granular approach to access local
markets and customer segments. These insights are a much greater driver of growth
and economics than currently perceived by most banks. For example, the McKinsey
Cityscope demographics database shows that 80% of emerging Asias and Indias
growth will come from middle-weight cities, some of which contain more affluent people
than larger cities. For instance, Ahmedabad has a much higher per capita income than
Delhi, Bangalore, Chennai or Kolkata with a higher proportion of digital high-value
customers than any other city in India. Similarly, micro-market insights can reveal
pronounced differences for example, 7 of 35 micro-markets in Mumbai will account for
40% of potential new CASA deposits over the next 5 years, while others will see a degrowth in the same period.
Banks must pick where they invest against developing these three transformative
capabilities. The discontinuities will pressure average industry returns and level the
playing field for attackers who will use new technologies to compete with established
financial institutions. However, those Indian banks that lead in the list of the worlds top
20 banks will have innovated successfully for even greater returns, potentially widening
the gap between the top performers and the rest of the industry for another decade
after.
The above will be deliberated upon by the eminent speakers at the BANCON
2012 which is hosted by Bank of Maharashtra jointly with Indian Banks
Association, scheduled for 24th & 25th November 20012 at Pune,
Maharashtra.
Renny Thomas is a partner at McKinsey & Company, and leads McKinseys Financial
Services practice in India

Opportunities in Indian Banking Sector

The RNCOS report - "Opportunities in Indian Banking Sector" - provides extensive research and
rational analysis on the Indian banking industry. This report has been made to help clients to evaluate
the opportunities, challenges and driving forces critical to the growth of banking industry in India.

The forecast given in this report is not based on a complex economic model but is intended as a rough
guide to the direction in which the market is likely to move. The future projection is done on the basis
of the current market scenario, past trends, and rules and regulations laid by the regulator and
supervisor of the financial system, Reserve Bank of India (RBI).
The report provides detailed overview of the Indian banking industry by contemplating and analyzing
various parameters like assets size, and income level. It helps clients to understand various products
available in the Indian banking industry and their future scope.
The future forecast discusses the future prospects of different arms of banking industry including rural
banking, bancassurance, financial cards, mobile banking, role of technology in rural banking, pension
funds, and the future course of action and strategies for pension fund industry to be taken at macro
level.
Key Findings of the Report
- Pension fund industry in India grew at a CAGR of 122.44% from 1999-00 to 2006-07.
- Rural and semi-urban India is expected to account for 58.33% of the insurance sector by 2010.
- In terms of ownership, debit cards are more in number than credit cards but in terms
of transactions, credit cards are used more than debit cards.
- The ATM outlets in India increased at a CAGR of 28.09% from March 2006 to March 2007.
- Rural and semi-urban centers account for 66% of total bank branches.
- Indian Mutual Fund industry witnessed a growth of 49.88% from May 2006 to May 2007, and higher
growth is recorded in closed ended schemes at 215.61%.
- Increasing number of millionaires in India is increasing the scope of Wealth Management Services.
- Bankable households in India are anticipated to grow at a CAGR of 28.10% during 2007-2011.
- Investment by banking sector in Information Technology is expected to increase at 18% in 2007
from last year.
Key Issues & Facts Analyzed in the Report
- Market analysis of different product segments in the banking industry.
- Evaluation of current market trends.
- Basel II Accord and capital requirement by Indian Banking Industry.
- Role of technology in banking industry.
- Pension fund industry in India.
- Urban Vs rural banking in terms of deposit, branches, and credit and future outlook of rural banking.
- Drivers and constraints for credit and debit cards industry in India.
- Analysis of various challenges and opportunities for the industry.
Key Players Analyzed
This section covers the key facts about the major players (including Public, Private, and Foreign sector)

in the Indian banking industry, including Bank of Baroda, State Bank of India, Canara Bank, Punjab
National Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Citibank, Standard Chartered Bank, HSBC
Bank, ABN AMRO Bank, American Express, etc.
Research Methodology Used
Information Sources
Information has been sourced from books, newspapers, trade journals, and white papers, industry
portals, government agencies, trade associations, monitoring industry news and developments, and
through access to more than 3000 paid databases.
Analysis Method
The analysis methods include ratio analysis, historical trend analysis, linear regression analysis using
software tools, judgmental forecasting, and cause and effect analysis.