After changing its employee incentive plan to meet targets; de-emphasising sales of non-banking products, it has now also done away with a number of fee-based charges for banking products
Eyeing a larger pie of the retail customer base, IDBI Bank today waived all its fee-based charges on savings and current accounts. IDBI customers can now withdraw money from other bank ATMs without any charge, beyond the current number (five per month) which was being charged on withdrawals from other banks' ATMs. It also announced that it is doing away with the minimum balance requirement for its savings and current account holders. "It's free, it's the first in the banking sector and it's for everybody. This will apply to our savings and current account services, starting today. No account holder will have to worry about keeping a minimum balance in his or her account," said RM Malla, the current chairman and managing director of IDBI Bank while announcing the bank's decision.
Although these moves will benefit the bank's current and prospective customers, IDBI Bank will see its bottom-line being hit, especially since it had earlier decided to reduce employee incentives and also de-emphasise the sales of non-banking products like mutual funds, insurance, pension etc.
Earlier, IDBI Bank had announced that it would introduce a variable pay structure, based on performance, a departure from the usual public sector remuneration packages. The bank remained elusive today on this question. When Moneylife asked Mr Malla on the progress on this front, his reply was, "My colleagues are working on it." However, S Ananthakrishnan, executive director of the bank, said that it was revising its incentive structure for its staff across various verticals, according to their performance.
Mr Malla said that IDBI Bank would try to "offset losses from the new free services by loan advisory services and syndicating large loans." It remains to be seen whether other banks will follow suit, as they will have to forgo their non-interest or fee-based income. IDBI Bank has done away with a total of 21 charges related to savings and current account services - these include charges for chequebooks, account statements and demand draft issuance.
Its low-cost deposits or CASA (current account savings accounts) stand at around 14%, which the bank is planning to increase to 20% this fiscal, through the waiver of the above charges. Dishonoured cheques, however, will attract a penalty.
IDBI Bank's CASA current deposit base is low, compared to other banks. Around 70% of its loan book consists of corporate lending. Small and medium enterprises and the agricultural sector (both called 'priority sectors' for government banks) loans account for less than 10% of IDBI Bank's loan book; the balance caters to retail customers. The bank is looking at expanding its retail base, a clear departure from its past strategy.
Mr Malla said the bank will be considering equity dilution in the next 12-18 months but did not disclose the route it plans to take for stake sale. "(The) government's equity currently stands at 65% and we can take it (down) till 51%," said the CMD.
Currently the bank has a network of 720 branches and 1,210 ATMs across India and plans to set up 300 more branches during FY2010-11. The bank reported a net profit of Rs251 crore in the first quarter of FY11 compared to Rs172 crore in the corresponding period last year. Its net interest income stood at Rs851 crore compared to Rs315 crore in the corresponding period last year. IDBI currently has around 40 to 50 lakh retail customers.
"The move is aimed at increasing the bank's below industry-average CASA deposits and the bank expects to double its retail accounts to 1 crore in the next 12 months, IDBI Bank's executive director and group head-retail banking, RK Bansal, told reporters.
"We will like to continue with it for long. All I can say now is that this is going to stay," said Mr Malla.
IDBI Bank also plans a few international forays. A senior official told Moneylife that the bank would set up branches in China and Singapore after it gets the required regulatory approvals.
It remains to be seen if the bank manages to woo retail customers with this across-the-board waiver of service charges. Specifically, moves like waiving the stipulated quarterly minimum balance in a savings account (which can start from Rs5,000 and can go up all the way to Rs1,00,000) can be potentially game-changing. But does IDBI Bank have the marketing chutzpah to back its ambitious plans?
New Delhi: The Telecom ministry today said it has responded to queries raised by government auditor Comptroller and Auditor General (CAG) with regard to the issuance of new telecom licences along with second generation (2G) spectrum in 2008, reports PTI.
The CAG had questioned the method adopted for allocating 2G spectrum to new players at a price discovered in 2001 that resulted in a huge loss to the government, a charge denied by the telecom ministry.
The factual and the legal position of the Department of Telecommunications (DoT) on the decisions taken on the issuance of Unified Access Service (UAS) licences and spectrum allotment have been duly apprised to the Audit for considering and broad government policies as enunciated in the New Telecom Policy of 1999, Five Year plans and TRAI recommendations, DoT said in a statement.
The DoT also clarified that all queries have been duly and promptly replied in time.
The Director General Audit, Post and Telegraph in continuation of their earlier queries has issued Draft Report on 19th July to DoT for comments.
"The Department sent its detailed para wise comments on 27th July itself though the time given was two weeks... and no further CAG audit para as such has been received on the issue," DoT said.
Some of the DoT officials are already under the CBI scrutiny over allegation that 2G spectrum was allocated to companies which did not have experience in telecom sector.
"By comparing the government revenue from 3G spectrum allotment earlier this year, with that of the 2G spectrum allotted in 2008 we can see the huge loss to the government exchequer," CAG has said.
Commenting on the reports that it hid behind CBI, the DoT said "DoT neither delayed the replies at any stage nor evaded from replying the queries of audit. Since some of the documents relevant to the points raised in the queries are in the custody of the CBI, DoT only reserved its right to modify the reply, if required after verification, once the documents are received back from CBI.
With less then 24 hours to the implementation of a SEBI-mandated hike in arbitration fees, investors appeal to the finance ministry for help; they point out that 84% of arbitration cases are decided against them
On 1st September, filing arbitration proceedings against a stockbroker will cost investors a lot more in fees if the claim is above Rs10 lakh. The Securities and Exchange Board of India (SEBI) has decided that arbitration fees will be a percentage of the claim - this will result in a hike of as much as 11 times the current fee for higher claims.
All this while, the arbitration charges were set by the exchanges. Market sources are astounded that SEBI, which always argues that the exchanges are the first line of regulation and supervision, has decided to step in to micro-manage and decide on the arbitration charges and that too with such negative impact for investors. The main beneficiary of the SEBI action, as usual, is the NSE because it has 10 times more arbitration cases filed than BSE. It is also not clear why SEBI should mandate the exact fee, rather than prescribe a cap, as is usual while dealing with competing entities in the marketplace.
For investors, it is a double whammy. Not only does the SEBI move remove the differentiation between the exchanges in terms of fees, but it shows that SEBI either hasn't bothered to look at the trend of arbitration decisions or has decided that investors who dare to file a claim, deserve to be slapped with costs. Consider this. Until now, the Bombay Stock Exchange (BSE) charged a nominal fee of Rs3,970 for claims up to Rs10 lakh while the National Stock Exchange (NSE) did not charge any fee. Now, NSE and BSE will not charge a fee for claims up to Rs10 lakh. On 11th August 2010, a SEBI circular was issued under which, if investors file a claim after six months, they will end up paying a minimum fee of a little over Rs33,000 (inclusive of service tax) and a maximum of Rs43,000.
Amit Bhargava, an investor who has several claims pending arbitration with stock exchanges says, that fees based on the claim amount makes it seem as if seeking justice is akin to asking for a loan. How can the principles of lending be applied to a quasi-judicial process? Mr Bhargava has written to SEBI and the finance ministry and even has a letter from a Whole Time Member of SEBI saying that it will consider his plea and act on it if considered fit. Moneylife forwarded Mr Bhargava's detailed calculations to NSE's non-executive chairman, Dr Vijay Kelkar, who has also agreed to look into his plea.
The six-month timeframe for escalating the fees is also arbitrary. No investor wants to enter into a formal arbitration process without exhausting other options such as persuading the broker to be reasonable, complaining to the stock exchange investor cell or the market regulator. This process would normally take at least six months or more. Sources tell us, the only time arbitration is filed very quickly is when a broker defaults and the claims can be recovered from the contingency funds for investors lying with stock exchanges. In such cases, the issue is resolved very quickly too.
A compilation of arbitration statistics is quite depressing from the investor perspective. The year FY2008-09 saw a massive 3,235 arbitration cases filed on the NSE; of these only 327 (15.83%) proceedings were decided in favour of investors. Of these, only 146 (7.10%) were actually implemented. The BSE saw 309 decisions in arbitration proceedings filed on the bourse, of which 31 only went in favour of the investor and of these only 13 were implemented.
FY 2009-10 saw arbitration awards drop to 1,163 on the NSE. Of these only 281 were decided in favour of investors and here too only 113 awards were implemented. The BSE announced 819 arbitration awards in 2009-10 of which only 224 were in favour of investors and of these a mere 126 awards were implemented. This year 2010-11, there have been 30 arbitration awards on the NSE, of which two have gone in favour of investors. On the BSE, of the 79 awards so far, only 27 have favoured investors and none of these have been implemented. If you total up all the awards in the past three years, it shows that barely 15.8% of arbitrations have gone in favour of investors.
The question is, why then would SEBI tinker with the fees in a manner that it is bound to discourage investors from filing arbitration? It is another decision that is clearly geared to drive retail investors out of the market. Moneylife has repeatedly pointed out that it is such unthinking policies that are largely responsible for India's investor population shrinking from around 20 million when India started its economic liberalisation programme to a mere 8 million today (Swarup Committee report).
Already, investors complain that stock exchanges routinely hustle investors into filing arbitration, rather than attempt to resolve issues through mediation and conciliation. Investors are always at a disadvantage in arbitration proceedings, because they are grappling to understand the rules, while the broker has a core competency to handle arbitration, which includes qualified staff and lawyers and a friendly equation with stock exchange officials and often arbitrators themselves.
According to an analysis by investor Mr Bhargava, for claims of Rs10 lakh to Rs25 lakh, filed within six months, the BSE used to charge an arbitration fee of Rs8,934 while the NSE charged Rs12,000. This is set to rise to a minimum of Rs14,400 and a maximum of Rs19,402. The fee escalates sharply to a minimum of Rs43,118 and a maximum of Rs58,007 if the claim is filed after six months.
For claims above Rs25 lakh, the arbitration fee used to be Rs8,934 on the BSE and Rs18,000 on the NSE. Under SEBI's circular, the fee will shoot up to a minimum of Rs19,403 and a maximum of Rs33,190 on both exchanges. If filed after six months, the fees shoot up to Rs58,008 (minimum) and Rs99,370 (maximum). All these figures include service tax and stamp paper costs.
The cost rises even further and steeply if the investor chooses to appeal - the NSE does not even have a process of appealing against arbitration proceedings and plans to introduce one shortly. The fees for filing an appeal, which range from Rs18,000 to Rs22,000 today (BSE) can rise to as much as Rs91,000 (below Rs25 lakh) to Rs1,32,000 if filed after six months (on claims of Rs25 lakh) after a dispute.