The country's second largest GSM operator Vodafone Essar has roped in Nokia Siemens Networks (NSN) and Ericsson as partners for its 3G network across India. The company didn't disclose the financial details of the deal. While Ericsson bagged the contract for three metros, NSN was awarded the contract for the remaining six circles.
Vodafone Essar had won the 3G spectrum for nine of the 22 circles across the country for Rs 11,618 crore, the second highest payment made by a private telecom operator for the spectrum. Marten Pieters, managing director, Vodafone Essar, said, "Globally, Vodafone provides enhanced 3G experiences to a large base of customers. India is now ready for 3G, and we are committed to offer similar high-quality 3G services to our Indian customers. Ericsson and Nokia Siemens are specialists in this area and we view this as a very strategic alliance, in order to deliver and maintain a high quality network which customers will expect from Vodafone."
While Ericsson has been selected to provide exclusive 3G services in Mumbai, Delhi and Kolkata, NSN will implement and manage its 3G network in the rest six circles of Tamil Nadu, Gujarat, Maharashtra, UP(East), rest of Bengal and Haryana. Vodafone will utilise this latest HSPA technology to deliver services like video telephony, mobile broadband, mobile TV and others.
Urs Pennanen, India head, Nokia Siemens commented, "We are committed to implement a smart 3G network for Vodafone Essar, based on our global experience and local expertise and resources in India. We are fully geared for a speedy implementation of the 3G network, utilising existing GSM investments for reduced total cost of ownership to the operator. The subscribers will enjoy exciting new mobile broadband services and a seamless interoperability between 2G and 3G."
Success in my Habit
Saturday, October 16, 2010
AI passenger revenue up 24% in Apr-Aug
Air India on Wednesday claimed 24% increase in passenger revenue during April-August as compared to same period last year---a performance expected to help it secure government fund.
"The passenger revenue grew by Rs 830 crore in the first five months of the fiscal on the back of surge in traffic," official sources said.
A ministerial panel to oversee the performance of the airline has linked any further monetary help to the carrier with its ability to cut cost and increase revenue.
The civil aviation ministry is expected to approach the Union Cabinet for further equity infusion into Air India soon to tide over the financial crisis. The airline is estimated to have an accumulated loss of over Rs 12,000 crore as on March 2010.
Almost all the domestic carriers have witnessed a sharp increase in passenger numbers resulting into significant improvement in their yield. The three full-service carriers Air India, Jet Airways and Kingfisher Airlines- have seen improvement in yield on international sectors also. Air India's international yields increased by 13.6% during April-August with domestic yield registering 14.9% growth.
"The passenger revenue grew by Rs 830 crore in the first five months of the fiscal on the back of surge in traffic," official sources said.
A ministerial panel to oversee the performance of the airline has linked any further monetary help to the carrier with its ability to cut cost and increase revenue.
The civil aviation ministry is expected to approach the Union Cabinet for further equity infusion into Air India soon to tide over the financial crisis. The airline is estimated to have an accumulated loss of over Rs 12,000 crore as on March 2010.
Almost all the domestic carriers have witnessed a sharp increase in passenger numbers resulting into significant improvement in their yield. The three full-service carriers Air India, Jet Airways and Kingfisher Airlines- have seen improvement in yield on international sectors also. Air India's international yields increased by 13.6% during April-August with domestic yield registering 14.9% growth.
SCL plans Rs 40-cr greenfield facility
Chennai: Sundaram Clayton Limited (SCL), part of the TVS group and the holding company of TVS Motor, is planning to invest around Rs 100 crore in several projects including a greenfield facility at Oragadam with an outlay of Rs 40 crore. The investment would be spread over for the next two years, said Venu Srinivasan, chairman, SCL.
The new facility would manufacture heavy truck parts and other automotive components including pipes, brackets and aluminum die-casting. The company order book this year included new customers such as Daimler (India and EU) and Nokia Siemens as well as from existing customers like Cummins, Volvo, TVS Motor, WABCO-TVS, Hyundai, Honda and Ford.
“These orders are expected to carry a cumulative potential of Rs 375 crore in the next five years,” Srinivasan said.
To cater to the demand, the company’s planned facility at Oragadam would manufacture heavy truck parts and other automotive components including pipes, brackets and aluminum die-casting.
Srinivasan said the company had set a business target of Rs 725 crore for the current fiscal and Rs 1,000 crore turnover in the next two years. The company’s sales remained stagnant at Rs 492.67 crore in 2009-10 as against Rs 492.36 crore a year ago.
On the exports front, Srinivasan said the demand for commercial vehicles in US and Europe continued to be depressed. North American class-8 trucks market shrunk 42 per cent, while that of class 5-7 trucks dropped by 38 per cent. European medium and heavy trucks also reported 60 per cent drop. “This had resulted the company reporting a 12 per cent drop in the fiscal to Rs 172.72 crore,” he said.
For the current fiscal, the company has set an export target of Rs 200 crore. Srinivasan said, “Key export markets of the company — the US and Europe — are expected to grow moderately during 2010.”
The new facility would manufacture heavy truck parts and other automotive components including pipes, brackets and aluminum die-casting. The company order book this year included new customers such as Daimler (India and EU) and Nokia Siemens as well as from existing customers like Cummins, Volvo, TVS Motor, WABCO-TVS, Hyundai, Honda and Ford.
“These orders are expected to carry a cumulative potential of Rs 375 crore in the next five years,” Srinivasan said.
To cater to the demand, the company’s planned facility at Oragadam would manufacture heavy truck parts and other automotive components including pipes, brackets and aluminum die-casting.
Srinivasan said the company had set a business target of Rs 725 crore for the current fiscal and Rs 1,000 crore turnover in the next two years. The company’s sales remained stagnant at Rs 492.67 crore in 2009-10 as against Rs 492.36 crore a year ago.
On the exports front, Srinivasan said the demand for commercial vehicles in US and Europe continued to be depressed. North American class-8 trucks market shrunk 42 per cent, while that of class 5-7 trucks dropped by 38 per cent. European medium and heavy trucks also reported 60 per cent drop. “This had resulted the company reporting a 12 per cent drop in the fiscal to Rs 172.72 crore,” he said.
For the current fiscal, the company has set an export target of Rs 200 crore. Srinivasan said, “Key export markets of the company — the US and Europe — are expected to grow moderately during 2010.”
Punj Lloyd arm partners French nuke engg firm
New Delhi: Punj Lloyd-group firm PL Engineering Ltd and the Indian unit of French nuclear engineering firm, Nuvia, signed an agreement on Wednesday to form a venture for nuclear engineering and support services.
The proposed venture, which is slated to have a 50:50 equity structure, is being formed to capitalise on an expected surge in demand for nuclear energy-related services in India.
The agreement will lead to the creation of a new joint venture company to deliver quality nuclear engineering and operational support services to the global market, a joint statement from the companies said.
The joint venture will focus initially on providing services to the growing Indian nuclear sector and will later look at the global market.
Mr Atul Punj, Chairman, Punj Lloyd, said, “It's not just India that has very aggressive plans but globally countries are now talking more and more aggressively about ramping up into the nuclear sector, which is arguably considered the greenest energy that exists today… The venture will focus on providing services to the Indian nuclear energy sector and may expand its offerings to the global market.”
Punj Lloyd and Nuvia will hold equal stake in the new venture, the Nuvia Group Chairman, Mr Jerome Stubler, said at a press conference.
Nuvia, part of French construction and concession company Vinci SA, offers engineering and support services to nuclear power producers, power plant operators and turnkey contractors.
The companies are working on the broad size of investments and the process will be completed in 120 days, Mr Punj told reporters.
The proposed venture, which is slated to have a 50:50 equity structure, is being formed to capitalise on an expected surge in demand for nuclear energy-related services in India.
The agreement will lead to the creation of a new joint venture company to deliver quality nuclear engineering and operational support services to the global market, a joint statement from the companies said.
The joint venture will focus initially on providing services to the growing Indian nuclear sector and will later look at the global market.
Mr Atul Punj, Chairman, Punj Lloyd, said, “It's not just India that has very aggressive plans but globally countries are now talking more and more aggressively about ramping up into the nuclear sector, which is arguably considered the greenest energy that exists today… The venture will focus on providing services to the Indian nuclear energy sector and may expand its offerings to the global market.”
Punj Lloyd and Nuvia will hold equal stake in the new venture, the Nuvia Group Chairman, Mr Jerome Stubler, said at a press conference.
Nuvia, part of French construction and concession company Vinci SA, offers engineering and support services to nuclear power producers, power plant operators and turnkey contractors.
The companies are working on the broad size of investments and the process will be completed in 120 days, Mr Punj told reporters.
ICWAI in pact with Russian body
New Delhi: The Institute of Cost and Works Accountants of India (ICWAI) signed a Memorandum of Understanding with Institute of Professional Accountants and Auditors of Russia (IPAR) in Moscow. The MoU between the two accounting bodies is expected to bolster cooperation between the two countries, both of which are constituents of the BRIC and G-20 nations, according to a release. Looking forward to long- term cooperation in business accounting, management accounting and related auditing in both countries, Mr B.M. Sharma, President, ICWAI, said that both parties had agreed to develop joint research and development projects and promote research in work practices of accounting community of both the countries. Both the parties will now work towards mutual recognition of membership and cooperation in international forums like AFAC.
ICICI Bank opens first retail branch in Singapore
Mumbai: ICICI Bank has opened its first retail branch in Singapore after it received the Full Banking Licence with Qualified Full Banking (QFB) privileges from the Monetary Authority of Singapore in April 2010.
This licence allows ICICI Bank to start retail banking operations by offering fixed deposits in Singapore dollars and other currencies, current and savings accounts and remittance services to India. Under the licence, the bank can open up to 25 outlets, including branches in Singapore, said a press release issued by the bank.
ICICI had started its Singapore operations in 2003 and was offering corporate banking services.
The press release quoted Ms Chanda Kochhar, ICICI Bank's Managing Director and CEO, as saying, “The launch of our first retail branch here is testament towards our commitment to Singapore, a market which is a major hub in our international network.”
At present, the bank offers services such as loan syndication, structured financial solutions for Indian corporates, trade services, and wealth management services.
Apart from ICICI Bank, State Bank of India is the only other Indian bank which has the permission to do retail business in Singapore. SBI had received QFB privileges two years ago.
This licence allows ICICI Bank to start retail banking operations by offering fixed deposits in Singapore dollars and other currencies, current and savings accounts and remittance services to India. Under the licence, the bank can open up to 25 outlets, including branches in Singapore, said a press release issued by the bank.
ICICI had started its Singapore operations in 2003 and was offering corporate banking services.
The press release quoted Ms Chanda Kochhar, ICICI Bank's Managing Director and CEO, as saying, “The launch of our first retail branch here is testament towards our commitment to Singapore, a market which is a major hub in our international network.”
At present, the bank offers services such as loan syndication, structured financial solutions for Indian corporates, trade services, and wealth management services.
Apart from ICICI Bank, State Bank of India is the only other Indian bank which has the permission to do retail business in Singapore. SBI had received QFB privileges two years ago.
Firstsource, Barclaycard sign five-year outsourcing agreement
Mumbai: Firstsource Solutions, a Mumbai-based business process outsourcing (BPO) provider, on Thursday announced a five-year outsourcing partnership with Barclaycard, the UK-based credit card and consumer lending business of Barclays PLC.
The five-year customer service contract would involve Firstsource managing Barclaycard’s credit card and payment businesses beginning November 1, the company said in a statement. Firstsource will manage the majority of the services currently provided by the Teesside centre, as well as a related payment servicing team located in Wavertree, Merseyside.
Derek Allgood, global sales and service director, Barclaycard, said, “Firstsource have given us a commitment to establish a long-term presence here in Teesside and, with their global footprint, they are also well placed to meet the current and future needs of our growing international customer base.”
In June, Business Standard had reported that Firstsource is in talks with Barclaycard for an outsourcing contract. In February 2008, Firstsource signed a five-year outsourcing agreement with Barclays’ US credit card business. Under the terms of the agreement, Firstsource is managing and operating Barclays’ operations centre in Colorado Springs, Colorado, which includes providing customer care and collection’s support to Barclays US cardholders.
The five-year customer service contract would involve Firstsource managing Barclaycard’s credit card and payment businesses beginning November 1, the company said in a statement. Firstsource will manage the majority of the services currently provided by the Teesside centre, as well as a related payment servicing team located in Wavertree, Merseyside.
Derek Allgood, global sales and service director, Barclaycard, said, “Firstsource have given us a commitment to establish a long-term presence here in Teesside and, with their global footprint, they are also well placed to meet the current and future needs of our growing international customer base.”
In June, Business Standard had reported that Firstsource is in talks with Barclaycard for an outsourcing contract. In February 2008, Firstsource signed a five-year outsourcing agreement with Barclays’ US credit card business. Under the terms of the agreement, Firstsource is managing and operating Barclays’ operations centre in Colorado Springs, Colorado, which includes providing customer care and collection’s support to Barclays US cardholders.
CIS region invites Indian investments
Hyderabad: A panel of diplomats from CIS countries threw open opportunities for Indian exporters and business houses for export of various products and setting up joint venture units at a seminar on ‘Focus CIS Region' organised by the Engineering Export Promotion Council (EEPC) here on Friday.
The Centre has already taken a string of initiatives to enhance trade between India and CIS region, including Government Lines of Credit (LOC), inter-banking relations, Double Taxation Avoidance Agreement and Bilateral Investment Protection Agreement.
Mr Oleg Laptenok, Ambassador, Embassy of the Republic of Belarus, said exports of engineering goods from India to Belarus increased from Rs 10.13 crore in 2008-09 to Rs 43.90 crore in 2009-10. These included products such as iron and steel bar, machine tools, residual engineering items and transport equipment.
Trade items
India's major items of exports to Belarus include fish filet, extracts of coffee, raw tobacco, compounds of carbon acid, antibiotics, footwear and electric transformers, while its imports from Belarus included potash fertilisers, polyamides, tyres, artificial threats, intermediate iron or alloy-free steel and electric integrated circuits.
Belarus's total exports were of the order of $21.41 billion, while its imports touched $28.39 billion.
On trade between India and Azerbaijan, India imported goods worth Rs 1,335.72 crore, while exported products worth Rs 142 crore in 2009-10. While India's major items of import from Azerbaijan included aluminium and related products, organic chemicals and vegetables, export included products such as pharma, apparel, machinery, paper, tobacco, medical instruments, dye and paint.
In a presentation, it was pointed out that Azerbaijan made only limited progress on instituting market-based economic reforms, with public and private sector corruption remaining a drag on long-term growth, especially in non-energy sector. Therefore, the need for stepping up foreign investment in the non-energy sector was being increasingly felt in that country.
Mr Sergey B. Mikhalev, Consul, Consulate General of Russian Federation, said there was a 7.5 per cent increase in Indo-Russian trade in 2009 to $7.46 billion, with both the countries targeting $10 billion by the end of 2010.
While India's major imports from Russia included fertilisers, non-ferrous metals, coal, coke & briquettes, newsprint, rubber and organic chemicals, its exports to that country included drugs, tea, coffee, tobacco, machinery, transport equipment, electronic goods and readymade garments.
As far as Kazakhstan is concerned, Indian-Kazakh trade increased from $60 million in 2002 to $196 million in 2007, with almost all major pharma companies having operations in that country. India exported engineering goods worth Rs 75.58 crore to that country in 2009-10, including items such as machine tools and transport equipment.
The Centre has already taken a string of initiatives to enhance trade between India and CIS region, including Government Lines of Credit (LOC), inter-banking relations, Double Taxation Avoidance Agreement and Bilateral Investment Protection Agreement.
Mr Oleg Laptenok, Ambassador, Embassy of the Republic of Belarus, said exports of engineering goods from India to Belarus increased from Rs 10.13 crore in 2008-09 to Rs 43.90 crore in 2009-10. These included products such as iron and steel bar, machine tools, residual engineering items and transport equipment.
Trade items
India's major items of exports to Belarus include fish filet, extracts of coffee, raw tobacco, compounds of carbon acid, antibiotics, footwear and electric transformers, while its imports from Belarus included potash fertilisers, polyamides, tyres, artificial threats, intermediate iron or alloy-free steel and electric integrated circuits.
Belarus's total exports were of the order of $21.41 billion, while its imports touched $28.39 billion.
On trade between India and Azerbaijan, India imported goods worth Rs 1,335.72 crore, while exported products worth Rs 142 crore in 2009-10. While India's major items of import from Azerbaijan included aluminium and related products, organic chemicals and vegetables, export included products such as pharma, apparel, machinery, paper, tobacco, medical instruments, dye and paint.
In a presentation, it was pointed out that Azerbaijan made only limited progress on instituting market-based economic reforms, with public and private sector corruption remaining a drag on long-term growth, especially in non-energy sector. Therefore, the need for stepping up foreign investment in the non-energy sector was being increasingly felt in that country.
Mr Sergey B. Mikhalev, Consul, Consulate General of Russian Federation, said there was a 7.5 per cent increase in Indo-Russian trade in 2009 to $7.46 billion, with both the countries targeting $10 billion by the end of 2010.
While India's major imports from Russia included fertilisers, non-ferrous metals, coal, coke & briquettes, newsprint, rubber and organic chemicals, its exports to that country included drugs, tea, coffee, tobacco, machinery, transport equipment, electronic goods and readymade garments.
As far as Kazakhstan is concerned, Indian-Kazakh trade increased from $60 million in 2002 to $196 million in 2007, with almost all major pharma companies having operations in that country. India exported engineering goods worth Rs 75.58 crore to that country in 2009-10, including items such as machine tools and transport equipment.
Two-wheeler sales to cross 12 million units in 2010-11
New Delhi: The sales in the two-wheeler segment for 2010-11 is projected to exceed 12 million units, an increase of 20 per cent from around 10 million units in 2009-10.
According to sources say Hero Honda and Honda Motorcycle & Scooter India will together account for nearly 55 per cent of the projection at 6.5 million units, followed by Bajaj Auto with over 3.5 million units and TVS Motor with nearly two million units. Yamaha and Suzuki will further add to the overall segment.
"This would be a remarkable achievement considering that growth is taking place on a much larger denominator of ten million bikes and scooters reported last fiscal. At this rate, it is only a matter of time before India overtakes China to emerge the world's most important two-wheeler market," as per sources.
Furthermore, Hero Honda is expected to finish the year at over five million units and still maintain its top position. Bajaj Auto is also experiencing a heady run and its Discover brand has finally got the company the big break in the executive segment, which has been Hero Honda's bastion with its Splendor and Passion motorcycles. The Discover 100 and 150 today account for sales of 150,000 units each month and Bajaj could be looking at increasing this to 200,000 units by end-March 2011. Hero Honda's Splendor is still doing 170,000 units a month and continues to be a big draw in smaller towns and cities.
Similarly, TVS Motor has been on a steady run with its Jive auto-clutch motorcycle and the Wego scooter. The company has targeted sales of two million units this fiscal with plans to enhance this further in the coming years. Additionally, HMSI, Honda's wholly-owned subsidiary, is expected to close this year at a little over 1.5 million units, with its Activa scooter continuing to be the key growth driver. The company has a fair portfolio of bikes but the real big numbers are still not coming in at the desired pace.
According to sources say Hero Honda and Honda Motorcycle & Scooter India will together account for nearly 55 per cent of the projection at 6.5 million units, followed by Bajaj Auto with over 3.5 million units and TVS Motor with nearly two million units. Yamaha and Suzuki will further add to the overall segment.
"This would be a remarkable achievement considering that growth is taking place on a much larger denominator of ten million bikes and scooters reported last fiscal. At this rate, it is only a matter of time before India overtakes China to emerge the world's most important two-wheeler market," as per sources.
Furthermore, Hero Honda is expected to finish the year at over five million units and still maintain its top position. Bajaj Auto is also experiencing a heady run and its Discover brand has finally got the company the big break in the executive segment, which has been Hero Honda's bastion with its Splendor and Passion motorcycles. The Discover 100 and 150 today account for sales of 150,000 units each month and Bajaj could be looking at increasing this to 200,000 units by end-March 2011. Hero Honda's Splendor is still doing 170,000 units a month and continues to be a big draw in smaller towns and cities.
Similarly, TVS Motor has been on a steady run with its Jive auto-clutch motorcycle and the Wego scooter. The company has targeted sales of two million units this fiscal with plans to enhance this further in the coming years. Additionally, HMSI, Honda's wholly-owned subsidiary, is expected to close this year at a little over 1.5 million units, with its Activa scooter continuing to be the key growth driver. The company has a fair portfolio of bikes but the real big numbers are still not coming in at the desired pace.
RBI permits corporations to work as rural agents of banks
According to the guidelines, BCs will raise deposits; disburse tiny loans; recover bad loans; sell micro insurance, mutual funds, pension products and other third-party products; and receive and deliver small value remittances
New Delhi/Mumbai: The Reserve Bank of India (RBI) on Tuesday allowed firms to play the role of an intermediary to spread banking in rural areas, in a move aimed at making banking services available to the unbanked.
RBI, in its guidelines for business correspondents (BCs), allowed individuals, non-governmental organizations, cooperative societies, post offices and companies with “large and widespread retail outlets” to become BCs, but kept non-banking financial companies (NBFCs) out of it.
One reason behind the move, according to people familiar with how NBFCs work, could be that these firms, including microfinance institutions, lend money in rural India. If they are allowed to mobilize deposits on behalf of banks and at the same time continue with their business of lending money, there could be a conflict of interest.
Telecom companies, fertilizers and oil marketing companies, and fast moving consumer goods makers with exposure to rural markets are likely to take the plunge following RBI’s move.
According to the guidelines, BCs will raise deposits; disburse tiny loans; recover bad loans; sell micro insurance, mutual funds, pension products and other third-party products; and receive and deliver small value remittances.
Their activities will be “within the normal course of banking business”, but conducted at places other than the bank premises and automated teller machines.
The distance between the BC and the base bank branch should not exceed 30km in rural, semi urban and urban areas, and 5km in metropolitan areas, RBI said.
RBI’s guidelines did not specify the fee structure, but noted the banks may pay “reasonable commission, which may be reviewed periodically”.
“Commission structure, or incentive mechanism, should be devised in a manner that mere increase in the number of clients served or the transaction volume does not drive the commission,” it said, adding that the remuneration should combine fixed and variable parts.
Experts familiar with BC activities are not very excited about the model as yet.
Bindu Ananth, president of IFMR Trust, a non-profit organization promoted by ICICI Bank Ltd, said the big challenge for BCs in India is to find a product mix that makes business sense.
“I think it will move the needle only if NBFCs and people who specialize in this business are allowed. Manufacturing companies have long stopped taking public deposits and will continue to concentrate on their core business,” said D. Muthukumaran, head (group corporate finance) at Aditya Birla Management Corp. Pvt. Ltd.
Abhishek Sinha, chief executive officer (CEO) of Eko India Financial Services Pvt. Ltd, a BC for the country’s top two banks—State Bank of India and ICICI Bank—said this move will bring in investments and expand scale of operations of BCs.
Currently, about 36,000 BCs are being employed by banks, besides less than a dozen institutions such Eko India and Financial Inclusion Network and Operations Ltd (Fino). Banks manage the individual BCs on their own. Once corporations are allowed to enter this space, they will be able to organize them better and take care of the security aspects as the job involves collection and disbursement of money.
The banks will, however, continue to be “fully responsible for the actions of the BCs and their retail outlets/sub agents”, the RBI guidelines said.
Access Development Services, a not-for profit organization that provides technical assistance to microfinance firms, had some time back carried a survey on viability of BCs and found them struggling.
“It was because of high operating costs,” Vipin Sharma, CEO of Access, said.
“Banks also need to look at ways to make the whole BC model more viable. The recent move to free up lending rates for small ticket sizes can serve as a catalyst to make the BC model more viable by allowing correspondents to cover costs,” he added.
About 50% of India’s population does not have bank accounts. In rural India, the coverage among the adult population is 39% against 60% in urban India. This doesn’t necessarily mean that 60 out of every 100 Indian adults in cities have bank accounts as many people operate multiple accounts.
Only 5.2% of the country’s 650,000 villages have bank branches even though 39.7% of the overall branch network of Indian banks, or 31,727, are in rural India.
Only 34% of people with annual earnings less than Rs. 50,000 in urban India had a bank account in 2007. The comparative figure in rural India is even lower, 26.8%.
To handle this, banks have been aggressively opening “no-frill accounts”, that require very low or zero minimum balance.
However, a 2009 study by Skoch Development Foundation, a strategy and management consultancy, says only 11% of 25.1 million such basic banking accounts, opened between April 2007 and May 2009, are operational.
New Delhi/Mumbai: The Reserve Bank of India (RBI) on Tuesday allowed firms to play the role of an intermediary to spread banking in rural areas, in a move aimed at making banking services available to the unbanked.
RBI, in its guidelines for business correspondents (BCs), allowed individuals, non-governmental organizations, cooperative societies, post offices and companies with “large and widespread retail outlets” to become BCs, but kept non-banking financial companies (NBFCs) out of it.
One reason behind the move, according to people familiar with how NBFCs work, could be that these firms, including microfinance institutions, lend money in rural India. If they are allowed to mobilize deposits on behalf of banks and at the same time continue with their business of lending money, there could be a conflict of interest.
Telecom companies, fertilizers and oil marketing companies, and fast moving consumer goods makers with exposure to rural markets are likely to take the plunge following RBI’s move.
According to the guidelines, BCs will raise deposits; disburse tiny loans; recover bad loans; sell micro insurance, mutual funds, pension products and other third-party products; and receive and deliver small value remittances.
Their activities will be “within the normal course of banking business”, but conducted at places other than the bank premises and automated teller machines.
The distance between the BC and the base bank branch should not exceed 30km in rural, semi urban and urban areas, and 5km in metropolitan areas, RBI said.
RBI’s guidelines did not specify the fee structure, but noted the banks may pay “reasonable commission, which may be reviewed periodically”.
“Commission structure, or incentive mechanism, should be devised in a manner that mere increase in the number of clients served or the transaction volume does not drive the commission,” it said, adding that the remuneration should combine fixed and variable parts.
Experts familiar with BC activities are not very excited about the model as yet.
Bindu Ananth, president of IFMR Trust, a non-profit organization promoted by ICICI Bank Ltd, said the big challenge for BCs in India is to find a product mix that makes business sense.
“I think it will move the needle only if NBFCs and people who specialize in this business are allowed. Manufacturing companies have long stopped taking public deposits and will continue to concentrate on their core business,” said D. Muthukumaran, head (group corporate finance) at Aditya Birla Management Corp. Pvt. Ltd.
Abhishek Sinha, chief executive officer (CEO) of Eko India Financial Services Pvt. Ltd, a BC for the country’s top two banks—State Bank of India and ICICI Bank—said this move will bring in investments and expand scale of operations of BCs.
Currently, about 36,000 BCs are being employed by banks, besides less than a dozen institutions such Eko India and Financial Inclusion Network and Operations Ltd (Fino). Banks manage the individual BCs on their own. Once corporations are allowed to enter this space, they will be able to organize them better and take care of the security aspects as the job involves collection and disbursement of money.
The banks will, however, continue to be “fully responsible for the actions of the BCs and their retail outlets/sub agents”, the RBI guidelines said.
Access Development Services, a not-for profit organization that provides technical assistance to microfinance firms, had some time back carried a survey on viability of BCs and found them struggling.
“It was because of high operating costs,” Vipin Sharma, CEO of Access, said.
“Banks also need to look at ways to make the whole BC model more viable. The recent move to free up lending rates for small ticket sizes can serve as a catalyst to make the BC model more viable by allowing correspondents to cover costs,” he added.
About 50% of India’s population does not have bank accounts. In rural India, the coverage among the adult population is 39% against 60% in urban India. This doesn’t necessarily mean that 60 out of every 100 Indian adults in cities have bank accounts as many people operate multiple accounts.
Only 5.2% of the country’s 650,000 villages have bank branches even though 39.7% of the overall branch network of Indian banks, or 31,727, are in rural India.
Only 34% of people with annual earnings less than Rs. 50,000 in urban India had a bank account in 2007. The comparative figure in rural India is even lower, 26.8%.
To handle this, banks have been aggressively opening “no-frill accounts”, that require very low or zero minimum balance.
However, a 2009 study by Skoch Development Foundation, a strategy and management consultancy, says only 11% of 25.1 million such basic banking accounts, opened between April 2007 and May 2009, are operational.
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