FM to have last word in FSDC

First meeting scheduled around month-end. The Finance Mnistry is going ahead with its plan to be the final authority in the proposed Financial Stability Development Council (FSDC) structure despite Reserve Bank of India’s (RBI’s) objections.  Though the final guidelines for the proposed council are yet to be formulated, it has been decided that issues which elude consensus within the FSDC sub-committee – headed by the RBI governor – will be automatically referred to the finance minister, who will chair FSDC.  Industry sources say this translates into the finance minister’s intervention on most issues as there is hardly any consensus at such meetings. Even the High Level Co-ordination Committee (HLCC) was unable to agree on most issues, they said. The first meeting of FSDC has been scheduled around the end of this month and will be attended by the heads of the four regulators, the finance secretary, the banking secretary, the director general (department of currencies) and the finance minister. Interestingly, RBI deputy governors are not included in the sub-committee, though they are invitees to the present HLCC. With FSDC in place, HLCC will die a natural death. In response to the draft guidelines, RBI had suggested that the governor-chaired sub-committee be given the authority to sort out regulatory disputes and the matter be referred to a higher authority only if the chairman was unable to resolve any issue. In the initial proposal for FSDC, two sub-committees were envisaged. The one on regulatory coordination was proposed to be chaired by the RBI governor, with the finance secretary heading the sub-committee on financial stability. RBI objected on the grounds that the functioning of FSDC was likely to impinge on regulatory autonomy and flexibility. “This may affect the ability of the sectoral regulators to act in a timely manner, taking into consideration the specific compulsions and circumstances of the sector concerned,” the central bank had said. Following RBI’s observations, the government and the regulator reached a compromise formula, under which it was agreed that while the finance minister would head the proposed body, the governor would head the only sub-committee of FSDC. The terms of reference of FSDC include inter-regulatory co-ordination, financial stability, financial literacy and inclusion, and sector development. Interestingly, they also mention that “any other issue” deemed fit by the chairman or the council could be taken up. The government also differs with RBI on financial stability being the exclusive mandate of the latter. Sources said the government was of the view that RBI would not be able to ensure fiscal or social stability as well as the government. The finance ministry also cited the recent global financial crisis where governments played a more critical role to restore normalcy.

Finance ministry doubts EPFO’s 9.5 per cent math

The finance ministry has raised doubts over how the Employees’ Provident Fund Organisation (EPFO) managed to extract an extra Rs 1,731 crore from its accounts to reward subscribers with an additional 1 per cent interest rate this year. The Central Board of Trustees had in September declared a 9.5 per cent rate for 2010-11 after discovering a surplus in its interest suspense account. In 2009-10, it had paid 8.5 per cent to its subscribers. Although the interest rate is declared by the labour ministry, it is the finance ministry that notifies it. Without an official notification, subscribers who withdraw money from the PF would not be able to earn the 9.5 per cent rate applicable for this year. The finance ministry fears that once a high rate for EPFO is set, it might be politically difficult to lower it in the coming years. It had recently appointed a panel chaired by the Reserve Bank of India deputy governor Usha Thorat (who has retired since) to review the current system of fixed returns on all small savings schemes. While the panel will most likely suggest a shift to market aligned rates, the sources said it would be a tricky affair given the EPF’s new 9.5 per cent return benchmark.

Prepaid payment instruments come in various options; choose the one that suits your needs

Think of prepaid and the first thing that will come to your mind is the scratch card you would have bought to recharge your cellphone. But prepaid has since acquired a whole new meaning with prepaid payment instruments coming into existence. These include not just the traditional scratch cards, but also smart cards, virtual cards, Internet wallets, mobile wallets and mobile and your Internet account. You can use these to pay bills while on the move, your driver could use it to remit money back home and your child won’t have to rely on your credit card to make purchases online.

What are prepaid payment instruments

The Reserve Bank of India (RBI) guidelines define them as payment instruments that allow you to purchase goods and services against the value stored in them. A customer can purchase the value and store it on the instrument. The transaction can be done through cash, debit or credit card. Such payment instruments include paper vouchers, magnetic cards and smart cards, Internet and mobile accounts and wallets. There are three types of payment instruments—closed, semi-closed and open instruments. The last two enable mobile transactions.  These instruments work best for those who may not have a credit or debit card, but would want ease in bill and ticketing payments. Moreover, they can be a huge advantage and can provide much ease to the section that does not have access to formal channels. Says Vivek Saxena, co-founder and CEO, ZipCash, “Apart from teenagers who shop online but may not have a credit card, this is also meant for working people who are looking for a safe and easy way to make their payments. You could also use this if you don’t want to use your credit card for small transactions.” These are safer bets compared with a credit or debit card since your liability is limited to the value you store in cases of fraud.

RBI holds meeting with Bankers on resuming credit to Microfinance Institutions

The Reserve Bank of India yesterday met select banks and SIDBI to get an assessment regarding the ground level situation in the microfinance sector in Andhra Pradesh and other states and the need for any interim measures. The RBI sensitized the banks to the need to maintain funding lines to MFIs on merits to prevent contagion. The Indian Banks Association will shortly come up with concrete proposals for the measures to be taken in the interim, for consideration of Reserve Bank of India.

Who will float new banks?

The Reserve Bank of India (RBI) on Thursday put up on its website comments of industrial houses, banks, non-banking financial companies (NBFCs), microfinance institutions (MFIs), industry associations and public on its discussion paper on the entry of new banks, released in August. The range of comments varies and there is no consensus on the profile of new entrants.