Banks across the country are flushed with currency since demonetization of two of the most popular currency notes – Rs.500 and Rs.1000 was announced by Prime Minister Narendra Modi on November 8, 2016. In lieu of this move, interest rates across deposits and banks have been falling ever since and SFBs or Small Finance Banks are competing with each other to offer the best possible rates on the table.
How are SFBs capitalizing on interest rates post demonetization?
The main reason for slashing the interest rates off deposits have been to keep in check with the offtake of slow credit as the aftermath of demonetization. Customers of SFBs are now being offered interest rates that are up to 200 bps or basis points higher than the current market rates. Take for instance, Suryoday Micro Finance – the bank is offering its term deposits at an interest rate of up to 9% p.a. depending on the tenure and senior citizens will receive an additional interest rate of 0.75% p.a. Even their savings accounts are being offered at an interest rate of 6.25% p.a. for up to Rs.1 lakh and for deposits between Rs.1 lakh and Rs.10 lakhs, an interest rate of 7.25% p.a. is being offered.
Utkarsh is another SFB that is offering their term deposits with interest rates of up to 8.5% p.a. and an additional interest rate of 0.50% p.a. for senior citizens. Utkarsh is also set to open 50 new bank branches over the span of 2 months and upgrade its present MFI or Micro-Finance Institutions into full-fledged banks this April, as communicated by the bank’s managing director, Govind Singh.
Ujjivan is another SFB that is prepared to offer interest rates on deposits that are higher than the prevailing market rates. Ujjivan’s focus so far has been only on wholesale deposits, but it is also preparing itself to raise interest rates for its retail deposits in the near future.
Equitas is offering interest rates up to 9% p.a. on their term deposits and between 6% p.a. and 7.5% p.a. on their savings account.
Capital Small Finance Bank is offering 4% p.a. interest rate on their savings account and 7% p.a. on their term deposits for a tenure between 5 years and 10 years. For senior citizens, the bank is offering an interest rate of 7.2% for a tenure of 400 days.
What does the future look like for SFBs?
The cost of funds for a majority of these Small Finance Banks have been 11% or more. However, as many SFBs are gearing themselves to convert their existing businesses into banks, their cost of funds will most definitely come down even if they are offering interest rates higher than the prevailing market rates.
However, most of the SFBs are said to initially focus on micro lending before transitioning into full-fledged retail banking. Due to this focus, most of the SFBs are proposing to keep their MCLR or Marginal Cost of Funds based Lending rate high.
According to the norms put forth by the RBI (Reserve Bank of India), SFBs have to start their operations latest by this April. RBI granted licenses to 10 SFBs in September 2015 and recently, 11 companies have been permitted to start payment banks.
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TURKEY GOLD BULLION ATM – Gold Deposits Surge In Turkish Banks
From the outside, it looks like any other automatic bank machine on the streets of Istanbul. But rather than notes, this one distributes small pieces of gold.
Gold is hugely prized in Turkey not just for ornamentation or investment by banks but as a secure way for private individuals to hold their savings.
Many people in Turkey – which has one of the lowest private savings rates among major economies – keep gold as security for a “rainy day” rather than products offered by banks. According to estimates, Turks hold some 3,500 tons of gold. Banks have sought to capitalize on the tradition by offering accounts denominated in gold.
“We were thinking about putting all that gold back into the financial system somehow, so we decided to create gold accounts for our clients,” said Seda Yilmaz, marketing manager of the Kuveyt Turk Bank, the first to do so, in 2007. “So we bought 1 kilo of gold, and the demand on the first day was 3 kilos. It was a very good decision, so we decided to move ahead.”
Kuveyt Turk manages 200,000 gold accounts with different products allowing sales by check, bank transfer or mobile phone. Now with the introduction of the first ATMs that issue gold as well as the usual banknotes, consumers can withdraw pieces of gold weighing 1.0 or 1.5 grams.
The success of the ATMs started a trend, with many other Turkish banks latching on. The volume of gold in their reserves has gone from 2 tons in 2007 to 250 tons. The government has also tried to join the bandwagon with the central bank allowing commercial businesses to hold some of their reserves in gold and opening this up to private investors.
“Over the last two years, banks have taken in some 40 tons of gold that people had stashed under their beds. And it’s just a small proportion of the reserves.” Turkish gold jewelers staked their interest in joining the gold investment industry.
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Commercial banks in Turkey held around 250 tonne of gold — worth .4 billion — in deposits by the end of 2013, an example India can emulate to monetise huge gold stocks lying with its households to trim imports and maintain trade equilibrium, according to the World Gold Council WGC Turkey imports scrap gold mostly from Germany and the United Arab Emirates, the gold is turned into standard bullion coins and bars in Turkish refineries and exported. Turkey is at a level to compete with international gold refining centers like Germany and Switzerland, Istanbul Gold Exchange
The absolutely stunning decision by the Swiss National Bank to decouple from the euro has triggered billions of dollars worth of losses all over the globe. Buying surreptitiously allows Beijing to buy bullion at bargain prices; if the world knew how much gold China was really amassing, a run on gold the likes of which the globe has never seen would likely ensue. “We believe China is controlling the gold price because it is buying in such a way so as not to push prices up.” That’s the opinion of respected precious-metals analyst Julian Phillips of The Gold Forecaster, along with a host of other informed sources. The “perfect-storm” of geopolitical instability, diplomatic isolation, severe currency depreciation, and economic decline now confronting Russia has profoundly damaged Moscow’s international standing, and possibly for the long-term.
The repercussions of Russia on a gold-exchange standard would be immense. Above all, it would mean the first major schism in the world’s monetary order. China would quite likely follow suit. It could mean the threat of a severe inflation in the United States should rafts of unwanted dollars make their way back across the Atlantic — the Fed’s ultimate nightmare. Above all, the country will avoid the extreme debt leverages which would not have happened had Western capitals remained on gold.
GREENSPAN: Yes… Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it
TURKEY GOLD BULLION ATM – Gold Deposits Surge In Turkish Banks