BSE launches Shariah 50 index

The Bombay Stock Exchange today launched India's first Shariah-compliant index, to promote financial inclusion among Muslims. The `BSE Tasis  "The introduction of the BSE Tasis Shariah Index will give Islamic and other socially responsible investors another means to access the Indian market and will help attract pools of capital to India from the Gulf, Europe, and Southeast Asia," said Madhu Kannan, managing director and CEO of BSE. "This index will create increased awareness on financial investments amongst the masses and help enhance financial inclusion. It will also build a base for licensing for the construction of Shariah-compliant financial products, including mutual funds, ETFs, and structured products," Kannan added. Prime Minister Manmohan Singh, during his visit to Kuala Lumpur in October, had said he would ask the Reserve Bank of India to learn more about Islamic financial products from Malaysia.

RBI set to moot apex holding co for bank groups - Deputy Governor Shyamala Gopinath

An internal working group of the Reserve Bank of India (RBI) is likely to propose the model of an apex holding company (AHC) for banking conglomerates. It is veering to the view that this structure, as opposed to that of intermediate holding company, would ensure that nonbanking entities within a banking group are directly owned by the AHC. This would reduce contagion risk and protect the relevant bank's reputation. The group headed by Deputy Governor Shyamala Gopinath is working on a draft paper which examines several global models of structuring of banking groups and lists the pros and cons.The group reckons that in the Indian context the model of apex holding company might be preferable, said a source in the know of the development. Listing out the advantages of the AHC model, the source said, “This company will be an investment company which will have control over group companies.According to this model, the bank and the non-bank subsidiaries in a banking group would be owned by the holding firm. The proposed apex holding company model is different from the intermediate holding company that banks like ICICI Bank and SBI planned to set up in 2007. "The proposed apex banking model would require amendments to existing laws and the committee is examining this aspect also," said another source. Additionally, considering that the RBI is in the process of examining granting banking license to new entrants including industrial houses the committee is examining if this structure should be made mandatory for the new entrants.

Pawar bats for urban co-op banks, seeks RBI support

Union Agriculture Minister Sharad Pawar on Saturday asked the Reserve Bank of India (RBI) to adopt a more supportive attitude toward urban cooperative banks (UCBs) while admitting that the wrongdoers did not deserve any sympathy. He said UCBs needed financial support in adopting core banking solutions (CBS) to achieve better efficiency of operations and transparency of transactions. Speaking at the national launch of CBS in UCBs here, the minister said though the cooperative sector’s share in the banking industry was just four per cent, it catered to the poor and the middle class for whom private banks were still out of reach. Pawar said it was possible that the money needed for CBS implementation could come from NABARD. “We will discuss this with NABARD and ensure that small banks do not lack support... small banks should consolidate themselves by forming strategic groups,” he said, adding change was needed in UCBs through integration of technology.

REGULATORY FAILURES

Governments in India have for long regulated many economic and other activities within the framework of the Constitution and the laws passed by the Central or state legislatures. Since no law can be so detailed that it covers all the complexities of implementation, rules and regulations are framed to enable governments to give flesh to the skeletons of overall policies. During the four decades or so when India was committed to a “socialistic pattern” of society, ministers and their bureaucrats developed regulations that controlled almost every aspect of economic activity. There was much abuse of these powers; favours were given to some, bribes smoothed the way for many, nepotism was common, financial and other support to political mentors was the price for some. This continues despite liberalization and the withdrawal of government from many areas of control. This is because decisions that could enable large profits were taken in an opaque manner. There was considerable discretion given to ministers and bureaucrats, easily subject to misuse.  Independent regulators were created to get over this difficulty. The first regulator who took over many of the government’s powers was the Reserve Bank of India, though it remained ultimately subservient to the finance minister and his office. The RBI determined monetary policy. Though there is no legislation that gives it the mandate, it uses monetary policy (money supply, interest rates) to keep inflation within limits. It also manages the external value of the rupee by buying and selling foreign currencies and increasing and decreasing the flow of rupees. It also regulates the different financial institutions.

Make phonebanking more secure: RBI

Banks will ask for an additional password from their credit card customers from the new year for any transactions conducted over phone, subsequent to a Reserve Bank of India (RBI) direction for making phone banking more secure. According to the RBI guideline, all banks will mandatorily decline any telephonic banking transactions, including the automated IVR (interactive voice response) services where customers do not have a onetime password (OTP) for such services with effect from 1 January. However, the OTP will be valid for a single use and would remain in effect for a period of two hours. Customers would need to generate a separate OTP for each IVR transaction.

RBI joins bribes-for-loans scam probe

The Reserve Bank of India has joined the Central Bureau of Investigation in probing the ‘bribes-for-loans’ scandal involving at least 15 companies, in an attempt to prevent loans given to them from burning a hole in lenders’ books.  The central bank has written to all banks seeking details of their lending to firms named by the CBI in an investigation into violations in sanctioning of loans by executives in return for bribes.
“The RBI is trying to assess the extent of exposure, the quality of these assets, and whether banks followed norms while lending to these firms.” Officials at the RBI could not be reached for comment during the weekend.