Page 6 - Banking Finance November 2019

BANK UPDATE

ICICI Bank introduces new PSBs start offering loans based on customers’ risk
FD scheme with insurance profile
ICICI Bank has recently launched a Bank of Baroda, Union Bank of India and Syndicate Bank — three public-sector
new fixed lenders have taken steps in transparently segregat-
deposit (FD) ing retail loans into their own versions of prime and
scheme FD subprime risk exposure, using third-party credit
Health that scores of potential borrowers to offer them differ-
will offer the ent home-financing rates.
dual benefit of an FD along with free Bank of Baroda, for e.g., under the new external
critical illness coverage with a sum benchmarking regime will be using three credit score slabs from the Credit In-
assured of Rs 1 lakh. formation Bureau (India) Ltd (Cibil) in order to price new home loans. Custom-

"This offering is a first in the indus- ers with high credit score, defined in excess of 760 out of a maximum 900, will
try and provides advantage of safety pay 1% lower interest compared with those reporting scores in 675-724 range
and growth of a fixed deposit along — the lowest score slab at which loans will be offered.
with protection of critical illness Customers logging scores above 760 will now pay 8.1% on new loans at Bank of
cover which will provide financial Baroda, while those in the third slab will pay 9.1%. The cost of financing for
help, if needed. It comes with a those falling in the middle, with credit scores between 725 and 759, will be
complimentary insurance covering 8.35%. These floating rate loans at Bank of Baroda are linked to an external
33 critical illnesses for a period of one benchmark, and the interest rate would not depend upon either the quantum
year for sum insured of Rs 1 lakh to
or duration of loans. All three lenders will use credit scores provided by Cibil.
the FD holder," says Pranav Mishra,
Head - Retail Liabilities, ICICI Bank. With the RBI now allowing high-street banks to charge a credit risk premium
over external benchmarks to compute effective interest rate, credit scores of
In case of a medical emergency,
borrowers are expected to become even more crucial in determining retail
one's personal savings (mostly fixed mortgage costs.
deposits) are first liquidated if the
person is not covered with health Kerala Bank receives approval from RBI
insurance or the health cover is in- RBI has recently given approval to the Kerala government in terms of setting
adequate or the specific disease is
up its own bank, by merging district co-operative banks. After this formation,
not covered under the health policy.
the proposed "Kerala Bank" will be largest banking network in the state.
Therefore, having an additional pro- Chief Minister Pinarayi Vijayan said, "Kerala Bank would be formed amalgamat-
tection without any cost looks prom-
ing the district co-operative banks (DCBs) with Kerala State Cooperative Bank.
ising at a time when many investors
The final nod by the RBI was subjected to some conditions, he said adding the
have seen subdued equity returns
and high fluctuations in the same. setting up of the new bank would also be in accordance with the final verdict of
Many such investors are turning some cases pending before a court in this regard.”
back to fixed deposits for stable re- “Happy to know that the Reserve Bank of India has given the final nod for the
turn. setting up of the Kerala Bank ... we hope that the formation of the new bank
will accelerate development of the state," he said in a social media post.
"FDs have been a fundamental invest-
ment option for most individuals irre- According to government sources, 13 DCBs would be merged with the Kerala
spective of their risk appetite. With State Co-operative Bank for forming the proposed Kerala Bank. All the DCBs,
the prevailing volatility in financial except the one in Malappuram district controlled by the opposition Congress-
markets, we see renewed interest by led UDF, had approved the Left government's proposal of amalgamation in their
customers to invest in FDs as they respective general body meetings.
offer a combination of attractive in- The government had claimed that the objective of the formation of the Kerala
terest rates, liquidity, safety of capi- Bank was to strengthen the cooperative sector, while the Opposition had al-
tal and assured returns," says Mishra. leged that it would destroy the traditional cooperative sector.

6 | 2019 | NOVEMBER | BANKING FINANCE