Employees Provident Fund subscribers will receive 8.5% interest on their deposits

The meeting of the Central Board of Trustees (CBT) of the Employees Provident Fund Organisation (EPFO) took place today. Chaired by Mallikarjun Kharge, CBT talked about the interest rates of the provident fund for the current fiscal year. In the meeting, it has been decided that that 45,00,000 subscribers will get 8.5% interest in 2009-2010 fiscal year on their provident funds.

The decision came at a time when banks are lowering its interest rates. In May 2009, State Bank of India, the largest lender of the country, cut its interest rates by 25 to 50 basis points. Other state-run banks also cut their interest rates. Indian Bank cut its lending rate by 50 basis points from 12.5% to 12% which came into effect from July 1, 2009. Indian Overseas Bank announced to cut its lending rate by 0.5%. The decision to retain the interest rate at 8.5% was “on expected lines.”

For the fifth time in a row, the interest rate has been kept at 8.5%. The decision will be forwarded to the Finance Ministry for ratification. In total, Rs. 1.82 lakh crore will be paid and a surplus of Rs.64,00,000 will remain in the current fiscal year.

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State-run banks in India are cutting their lending rates

After State Bank of India reduced its lending rate last week, other state-run banks in India are slashing their lending rates. Indian Bank slashed its lending rate by 50 basis points from 12.5% to 12% that started from July 1, 2009. Indian Overseas Bank (IOB), another state-run bank announced to cut its lending rate by 0.5% to 12%. This comes in the face of State Bank of India, the largest Indian bank slashed its lending rate by 11.75% last week. The Times of India reports:

The benchmark prime lending rate (BPLR) was revised downwards by 50 basis points effective from June 29. SBI had last reduced BPLR by 75 basis points on January 1, 2009. Following SBI's move, many other public sector lenders, including Allahabad Bank, reduced BPLR by 50 basis points.

In order to attract more customers the banks are now softening their lending rates. Union Bank of India and IDBI Bank are cutting its lending rate by 0.25% that also comes into effect from July 1. State Bank of Mysore, cut its lending rate by 50 basis points and deposit rate by 25 basis points.

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State Bank of India is offering Ezee Car Loan Scheme at an attractive rate

On June 27, 2009, State Bank of India (SBI) further slashed its interest rate on its Ezee Car Loan scheme to attract more credits. Till date, private banks such as the HDFC Bank, ICIC Bank were very popular for car loans but SBI is now is curving its niche in this segment.

Under the new Ezee Car Loan scheme of SBI, car buyers would pay 8% interest in the first year and then 10% interest in the second and third year. The scheme will continue till September 30, 2009. The Telegraph reports:

The EMI on Rs 1 lakh loan under the new scheme will be as low as Rs 1,559 in the first year and Rs 1,647 in the second and third year.

The interest rate will be reset from the fourth year at the card rate contracted as on the date of sanction, depending on the tenure of the loan.

The card rates are 25-75 basis points below the bank’s prime lending rate (PLR). The bank recently brought down its PLR to 11.75 per cent.

Earlier in February 2009, the interest rate for the Ezee car loan was 10%. Due to positive response from the customers, SBI decided to continue the scheme at an attractive interest rate. Under the new scheme, customers would not have to pay any processing fee. Aside from buying cars, SBI is also providing balance transfer facility which would allow customers, who took loans from other banks, to transfer their loans to SBI at lower rates.

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Indian government is going to allow more foreign banks to operate in the country

Indian government, from now on, will gradually open up to foreign banks. The Committee on Financial Sector Assessment (CFSA), headed by Rakesh Mohan, Deputy Governor, Reserve Bank of India (RBI), published a report on March 30, 2009, which said that the country’s banking sector should open up for foreign banks as per the WTO requirements. The six volume report is available on the official website of The Reserve Bank of India, www.rbi.org.in and came out just before meeting of the government in April, where officials will talk about allowing foreign banks to enter India and setting the terms of and conditions for their operations.

Here are some of the major points of the reports:

• The entry of the foreign banks in India must be gradual.

• If the government fails to meet the funding needs of the state-run banks then the government should go for a merger with a bank in which government has higher stakes.

• Foreign banks can operate in India by opening up branches or through subsidiaries. However, the country where the bank is headquartered should also give Indian banks the same opportunity.

• If a foreign bank operates in India through its subsidiary, then it would account for 74% stake in the Indian venture and the organization should be treated as a private organization by the Indian government. The subsidiary should also be listed on the local stock exchange.

• The bank must give loans to small and medium farm enterprises.

• Currently foreign banks are allowed to set up brands, subsidiaries. They are also allowed to convert their existing branches into wholly-owned Subsidiaries (WoS). If a foreign bank converts its branches into subsidiaries then it would be given permission to acquire stakes in Indian private banks that requires restructuring.

The Committee on Financial Sector Assessment (CFSA) was created in 2006. Currently, the Indian government is the largest player in the banking sector accounting for more than 70%. The State Bank of India is the biggest lender of the country with more than 10,000 branches. At present, twenty nine foreign banks are operating in India with more than 270 branches. India is bound by the World Trade Organisation agreements to allow foreign banks operate inside the country. It only allows twelve foreign banks per year. The report has been created to form a “well-considered approach” for foreign banks to fulfill WTO requirements.

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(This entry was originally published in March 2009 and it is based on the context of that time.)