Srinagar, March 29: The fifth meeting of the state level task force on Urban Co-operative Banks was held at RBI Jammu office under the Chairmanship of Arnab Roy, Regional Director for Jammu and Kashmir (Chairman of TAFCUB). The meeting was attended by Co-Chairman M Abbas Dar, IAS, Registrar, Co-operative Societies, Jammu and Kashmir, K.K.Saraf, General Manager, UBD, RBI, CO., Mumbai, H S Khitaulia, Deputy General Manager, UBD , RBI, Jammu. Chief Executive Officers of Citizen Cooperative Bank Ltd. Jammu, Devika Urban Cooperative Bank Ltd, Udhampur, Urban Co-operative Bank Ltd Islamabad and Kashmir Mercantile Co-operative Bank Ltd, Sopore also attended the meeting. The meeting reviewed the performance of the Urban Co-operative Banks in the Urban Banking Sector in the State. Opening of new branches by UCBs, imparting training to the staff of UCBs by RBI, complaints against CCBL and elections in CCBL along with latest policy developments were the major issues discussed in the meeting.
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Thursday, March 31, 2011
RBI Decides Not to Change NWMA Limits for States
Mumbai (ABC Live): the Reserve Bank of India has decided not to change the State-wise limits of Normal Ways and Means Advances for the year 2011-12. The aggregate Normal WMA limit for the State Governments inclusive of the Government of Jammu & Kashmir and the Union Territory of Puducherry is placed at Rs.10,240 crore for the year 2011-12 and other terms and conditions of the Scheme would remain unchanged.
RBI ticks off banks for rate reset violations
The Reserve Bank of India (RBI) has come down heavily on some banks which are violating agreements with borrowers while increasing interest rates. RBI has observed that some banks raise interest rates, particularly on term loans, every time the benchmark prime lending rate (BPLR) is changed. This is despite the loan contract clearly mentioning that banks can increase rates only after a gap of a certain number of years. This is known as the reset clause in bank parlance. In case of term loans, the common practice is to prescribe a specific reset period, which can be two years, three years or five years. This ensures that a particular rate, once fixed, is maintained for a particular period. Benchmark lending rates, both BPLR and base rate, can change anytime depending on the interest rate environment. Addressing a complaint from a company last week, the Appellate Authority of RBI rejected a public sector bank’s appeal and upheld the order passed by the banking ombudsman. The appellate authority had asked the bank to retain the rates fixed prior to the reset period. RBI has also ordered a scrutiny of all term loan accounts of the bank as it feels that some borrowers may be ‘suffering in silence’. Asking the Kolkata-based bank to rectify the rate, RBI said in a letter that the appellate authority had directed the bank to review the rate urgently and confirm that the rate was not changed during each reset period in cases of term loans sanctioned since April 1, 2006. “In cases where a discrepancy is observed, the same should be rectified immediately and the excess amount refunded to the borrower,” RBI said.
BOI falters at doorstep
LOHARDAGA: The doorstep service of Bank of India (BOI), being the lead bank in the district, has flopped at Doba, the village adopted by Reserve Bank of India (RBI) under its model village banking programme. Reserve Bank Governor D.Subbarao had visited the village on December 15 to announce the scheme in a bankers' show attended by many top bankers from the country. The BOI's doorstep banking service, launched in the function, was showcased by a business correspondent by inserting smart cards into a mobile machine before Subbarao. Three months later, the service is yet to start in the village. More than 1,200 villagers had opened their accounts to avail themselves of the service but no one, barring the one introduced to the RBI governor during the December 15 function, has been provided with the smart card which is to be used for activation of account through the machine connected to Internet. Reena Mariyana Lakra, the business correspondent, said she had the machine at home which could not be operated as none of the account holders had been given smart cards. "Some days back I was given some smart cards which were taken back by the block unit of the BOI. I had distributed some of the cards which I had to return to the bank," she said. She added that out of over 1,200 account holders only 150 had been provided passbooks. "This delay, however, is going against the RBI's motto of making Doba a 100 per cent banking aware village," said Punam Minz, an anganwari sevika at Doba. District lead bank manager John Kacchap said doorstep banking service was dead since the accounts had not been uploaded on Internet. He, however, claimed that pass books had been distributed. "I talked to the BOI Kuru branch officials, zonal office in Ranchi and the service implementing agency "Integra" in this connection and we are trying to start the service within a week's time," he added.
RBI never understood teaser loans: Bhatt
Outgoing State Bank of India (SBI) chairman Om Prakash Bhatt continued his defiance of the central bank on the teaser loan front saying "the Reserve Bank of India (RBI) never understood our special home loan product. "Obviously, they (RBI) have not understood our product (the special home loan product)," Bhatt, who is superannuating on Thursday from SBI after a five-year stint as chairman and a four-decade-old association, told reporters at the bank headquarters. Reiterating that RBI's stance that SBI's special home loans are similar to the sub-prime loans lent in the US in the run-up to the 2008 global financial meltdown, Bhatt said this view is beyond logic as his offering is sold to those who are "absolutely credit-worthy." However, he was quick to add that this is not a defiant stance with regard to the regulator but this is the view point of a bank that is the industry leader with a quarter of the entire banking business under its fold. "Being the industry thought-leader and market leader, it is the duty of SBI to articulate our views to the regulator. This has to be done in the interest of intellectual honesty and public discourse," he said. However, Bhatt was quick to add that "but if they still insist that this cannot be continued and is against its norms, then we will comply...that does not mean that we don't have a view point on this. Also, I would like to place it on record that so far, all through the five years of my tenure as the chairman, SBI has been 100 per cent compliant with all the RBI regulations."
Apex bank pep pill for states
Mumbai, March 30: The Reserve Bank of India (RBI) today said states should explore ways to raise non-tax revenue and review tariffs in highly subsidised sectors such as power and irrigation. Releasing its study on State Finances 2010-11, the central bank said the budgetary position of states during the year showed a turnaround from the expansionary fiscal stance in the previous two years. According to the study, an improvement in state finances is expected with a majority of the states budgeting either a revenue surplus or a lower deficit in 2010-11 (budgeted estimate) compared with 2009-10 (revised estimate). At a consolidated level, the revenue deficit is placed lower at 0.3 per cent of GDP (gross domestic product) during 2010-11 against 0.7 per cent in 2009-10 (revised estimate). “With an improvement in the consolidated revenue account of states, the gross fiscal deficit as a ratio to GDP (GFD-GDP) is estimated to decline to 2.5 per cent in 2010-11 (BE) from 3.3 per cent in 2009-10 (RE),’’ the study said. The central bank said there was an improvement in key fiscal indicators across states and a majority of them expected higher tax buoyancy. However, non-tax revenue is budgeted to decline in 18 states. The paper said factors such as the implementation of the goods and services tax (GST), the pace of economic recovery, the states’ own efforts towards mobilising non-tax revenues and rationalisation of expenditure will be some of the factors that could impact fiscal consolidation. However, to make progress towards fiscal consolidation, the study said, states should amend their fiscal responsibility and budget management acts and work out a fiscal reform path. “States also need to review their tariff policies, especially those relating to the power and irrigation sectors,’’ the study said. On GST, the apex bank said given the uncertain revenue implications of its introduction, states should undertake a careful management of their finances in the next few years. However, the introduction of GST can enhance the competitiveness of Indian industry and trade. The strengthening of state finance commissions is essential to ensure allocation of adequate resources to local bodies, the report added.
RBI allows co-op banks to collect account-payee cheques from credit co-operatives
The Reserve Bank of India (RBI) has authorised co-operative banks to collect account-payee cheques from co-operative credit societies provided the payees are constituents of the credit cooperatives. This is being done to ease the difficulties faced by co-operative credit societies that are not even sub-members of clearing houses, RBI said in a release today. Members of such co-operative credit societies who do not have bank accounts face difficulties in collection of account payee cheques drawn in their name. Cooperative banks may consider collecting account payee cheques drawn for an amount not exceeding Rs50,000 to the account of their customers who are co-operative credit societies, if the payees of such cheques are the constituents of such co-operative credit societies, RBI clarified today. While collecting the cheques, banks should, however, obtain a clear undertaking in writing from the co-operative credit societies concerned that, upon realistion, the proceeds of the cheques will be credited only to the account of the member of the co-operative credit society who is the payee named in the cheque. "This will be subject to the fulfillment of the requirements of the provisions of Negotiable Instruments Act, 1881, including Section 131 thereof," RBI noted. The collecting banks and the cooperatives should, however, strictly follow KYC (Know Your Customer) norms and enter into an agreement that the KYC documents in respect of the society's customers are preserved in the society's records and are available to the bank for scrutiny. This should not, in any way, affect the rights of the true owner of the cheque in any manner and banks should establish that they acted in good faith and without negligence while collecting the cheque in question, RBI added.
Who is to blame for inflation?
Mumbai: After two weeks, India’s food inflation is back again in double digits. Weekly fluctuations in food prices may not be always be very material but as last month’s WPI numbers show inflation has become generalized and is no longer restricted just to food articles. Doubtlessly, this will put the spotlight on the limited success of the Reserve Bank of India (RBI) in combating inflation for well over a year. Subbarao’s reluctance to deviate from a gradualist approach to tackling inflation led the Wall Street Journal to wonder aloud after the January policy review if he is a hawk, dove or chicken. This is indeed a dramatic shift in perception about RBI from the heydays of 2009, when India and its central bank were the toast of international policy makers, as a 23 March Economic Times article by MC Govardhana Rangan points out. Rangan argues that Subbarao’s policy stance has a Greenspan-like touch in its predictability. Comparisons with Greenspan would probably be the last thing any central banker would want to hear! But is it fair to judge monetary policy without taking into account the role of fiscal policy? In a recent post on iMFdirect, celebrated macro-economist David Romer writes that one of the key points of reasonable agreement among economists after the crisis is: The impact of a change in fiscal policy is extremely dependent on whether monetary policy is able to respond, and on how it responds if it can. We would like to invert the argument to point out that the success of monetary policy depends as much on its own stance as it does on fiscal policy. The fiscal deficit target for next year at 4.6% is by all counts commendable and if realized would be a big step to combat inflation. However, many doubt if the target is actually achievable as Jehangir Aziz puts it eloquently here. If oil prices stay at current levels, Pranabda would probably need Harry Potter’s wand to achieve that target. Now consider growth: a target of 9% is not exactly anti-inflationary. Supply-side bottlenecks may be partly responsible for inflation but faster growth without easing those constraints will cause only more, not less inflation. And if budget projections are to be believed, capital expenditure by the government is going to come down from 13.4% of total expenditure to 12.7%. It is like a car with a fraying engine that is trying to speed faster. So why does the government not acknowledge this and aim for a moderation in growth till it is able to ramp up investments? Kaushik Basu’s argument in this year’s Economic Survey was: In designing inflation control measures it is important to be aware that sudden, sharp policy induced contractions in demand can cause unemployment to rise. He goes on to argue that the trade-off between inflation and employment escapes public awareness as employment statistics come with long intervals unlike inflation numbers. Basu’s point that a hard landing would cause unemployment and misery is true but it actually makes the case for a moderation in growth to avoid a hard landing later. Besides, one can argue that the cost of unemployment has to be balanced against the cost of inflation to evaluate whether on balance the welfare loss of employment is still greater. Secondly, high inflation often leads to what is termed as ‘demand destruction’, exactly what oil prices are threatening to do to the global recovery. If high inflation erodes purchasing power and could slow down consumer demand as some surveys indicate, then inflation rather than policy tightening becomes a bigger threat to growth and employment. Basu also argues that prices tend to be higher in economies where growth is higher. Empirical evidence for such a simplistic relation (which economists term the Balassa-Samuelson effect) has been hard to come by. Casual empiricism also suggests otherwise — we need not even look beyond our immediate neighbourhood to find such evidence. Justin Yifu Lin, chief economist at the World Bank cites China’s example in a recent speech to illustrate how high growth is attainable with low inflation. A fiscal stimulus aimed at increasing railroads, port facilities and other infrastructure allowed China to raise its annual growth rate to 10.9% in 2003-10 from 9.6% in 1979-2002. They achieved it without raising inflation beyond 5% unlike earlier decades when 2-digit growth rate was always accompanied by a 2-digit inflation rate, said Lin. Basu’s contentions may be debatable but the elaborate justification of high inflation could perhaps be an indication that the fiscal stance would be tolerant of high inflation. One reason for this could be that though politically inflation is a problem for the government, financially it is not. As long as nominal GDP is going strong, tax revenues would grow. More importantly, the government being a net borrower would benefit from inflation, at least in the medium term. Not for nothing do they call inflation a tax! However, as the government’s stance is known only once a year unlike RBI’s policy reviews that have a six-weekly frequency, fiscal policy’s contribution to inflation might continue to escape public awareness, slanting discourse on the subject.
RBI BARS NBFC SFROM INVESTING IN PARTNERSHIP FIRMS
The Reserve Bank of India on Wednesday barred non-banking finance companies from investing in partnership firms. The ban on contributing capital to partnership firm has been clamped due to risks involved in associated with these firms, RBI said. It, however, did not elaborate on the nature of the risks.
Bhatt Against Freeing Up of Savings Rate
Echoing ex-governor of RBI YV Reddy, SBI chief says freeing up of deposits will defeat the purpose of financial inclusion - The State Bank of India’s outgoing chairman Om Prakash Bhatt joined former RBI governor YV Reddy, credited with saving the Indian financial system, in speaking against freeing up of savings deposit rates as it may defeat the very goal of financial inclusion and expose the poor to be cheated by banks. “It has done well for a large number of depositors who cannot have recurring deposits,” Mr Bhatt, whose bank controls a fifth of the deposits, said at his farewell press conference. “There are four million people in this country who earn less than . 50 a day and save about . 30 or . 40 a day and they can save the money in the form of fixed deposits or recurring deposits,” he said. Some of the government organisations may also be at the receiving end, if rates are liberalised. “There are large numbers of government organisations who cannot keep money in fixed deposits and so if they keep it in savings deposits they get some money out of it,” he said. RBI governor D Subbarao has set up a committee to study the consequences of freeing up of savings rate which is mandated at 3.5% a year now. All interest rates except rates on savings accounts are free now. Mr Bhatt is not alone in raising concerns over freeing up of deposit rates. Former RBI governor YV Reddy recently said in an interview it may be detrimental to the interests of a large number of people. “Many of the common people don’t have time to apply their mind and shift money from savings to deposits, etc. So, for heaven’s sake, give one banking instrument, one bank account where the man knows that this is the interest rate, this is the facility. This is required. I would even say, particularly, it is required for women in India whose money should be safe from their husbands,” Mr Reddy had said. Banks, which are keen on lowering their cost of funds, are lobbying with the central bank for freeing up of savings rates. Those with lower balances could be short changed for wealthy clients who anyway are paid higher rates for funds in the name of bulk deposits. Freeing up could lead to volatility. A bank may pay 1% or less for those account holders who have small deposits and 5% if they are willing to keep . 50,000 in a savings account. This in turn will impact small depositors. Even public sector banks which carry-out government programmes would get in to a disadvantage. “Deregulation of rates would be detrimental for PSU banks which control 72% of the banking market. We are the bank which does most of the real sector activity of the country in any case,” said Mr Bhatt. “So if we are weakened by the higher cost of deposits, our ability to do the kind of work will be affected,” he added.
Wednesday, March 30, 2011
RBI Governor bats for collective efforts to tackle economic issues
UNITED ACTION: Bank of Sri Lanka Governor Ajith Cabraal lighting the traditional lamp ahead of RBI Governor Subba Rao's (left) oration at the Central Bank of Sri Lanka, Colombo, on Tuesday. Photo: R. K. Radhakrishnan
More countries have begun to think on the problems of common economic concerns with a wider perspective despite there being no natural constituency for the global economy as such, Reserve Bank of India Governor D. Subbarao said here on Tuesday. Talking to this correspondent at the Central Bank of Sri Lanka, he said that he based his optimism on the proceedings of the Paris conference on global economic recovery held early this year. Though each country normally talks for itself in global fora, there was a sense of purpose to come together at this meeting. “I think this trend will continue,” he said. Delivering the 60th anniversary oration on ‘Frontier Issues on Global Agenda — emerging economy perspective,' Dr. Subbarao said that it was more than clear that every single financial crisis came from the same fundamental issues. If these issues were not addressed, then it would again repeat itself. “The global problems we are facing today are complex and not amenable to easy solutions. Many of them require significant and often painful adjustments at the national level, and in a world divided by nation-states, there is no natural constituency for global economy. At the same time, the global crisis has shown that the global economy as an entity is more important than ever,” he said. The adjustments that are required as part of the collective efforts to get out of the present crisis “will be painful for every country” but there was no easy way out. Steps had to be taken otherwise the global economy would be headed for another crisis sooner or later. “We should cooperate not only to firmly exit from the crisis, but also to ensure that in resolving the crisis, we do not sow the seeds of the next crisis,” he said. Dr. Subbarao warned that after the crisis, there would be a tendency for most developed nations to resort to protectionist policies. “Recent international developments mark an ‘ironic reversal' in the fears about globalisation,” he said and added that earlier the developing economies feared integration into global markets, but now the developed world was resisting because the electorate in those countries have been led to believe that, at one level, globalisation meant loss of jobs. In actual terms, for the low-end jobs shipped abroad, better paying jobs were being created in those countries. But if creation of this better paying job lags, as it sometimes does, then, people would find it difficult to accept shipping out of jobs to other countries, he added.
Reforms to prevent economic sector excesses needed
Central Bank Governor Ajith Nivard Cabraal presenting ‘Retrospect 2010’ as a token of appreciation to Reserve Bank of India Governor Dr Duvvuri Subbarao at the Central Bank yesterday. Central Bank of Sri Lanka has acquired a great reputation for professionalism, integrity and sense of purpose over the last 60 years. As Central Banks of emerging economies , both Central Bank and Reserve Bank of India have their tasks cut out for them, Reserve Bank of India Governor Dr Duvvuri Subbarao said . Speaking on “Frontier issues on the global agenda - Emerging economy perspective” at the Central Bank yesterday Subbarao said both countries need to learn from the best in the world, but adapt each one’s learning to the demands and culture of maturing emerging economies. “Both countries need to remain sensitive to the core concerns of an emerging economy all the time and be at the frontiers of domain knowledge,” he said. He said all the global crises have taken a devastating toll on global growth and welfare, and each time of crises experts have said that this time it is different claiming that the old rules do not apply and the new situation is dissimilar to the previous one. However, it would be too costly for the world to heed this lesson and everyone should cooperate not only to firmly exit from the crisis but also to ensure not to sow the seeds of the next crisis in resolving the crisis. He said emerging market economies have not completely decoupled from the advanced economies and their economic prospects remained linked to the prospects of advanced economies. However, all will be collectively better off if all segments of the world grow at a sustainable pace. Elaborating on the issue of global rebalancing he said it is necessary to address three inter-related issues namely, exchange rate flexibility, capital controls and an agreement on a framework for strong, sustainable and balanced growth. Dr Subbarao said protectionism is an important issue on the global agenda and protectionist pressures may arise again. But global welfare will be maximized when collectively resisting short-term pressures and put long-term interest ahead of narrow short-term advantage. Referring to financial sector reforms he said vigorous reforms in the sector are underway and the reform agenda is driven by the need to prevent the type of excesses in the financial sectors of advanced economies that led to the crisis. But emerging economies too will have to implement these reforms, he said.
ATM in your cellphone
Forgot your wallet at home? No worries. Book tickets, pay for groceries and settle your coffee bill with just a few clicks on your mobile phone. Money on your phone sets you free,” philosophizes 20-year-old business student Lalit Ramsisaria. “I don’t need to be in front of a computer to book train tickets or buy a gift for my girlfriend. All I need to do is to launch an application on my phone, make a few clicks and my shopping is done.” Ramsisaria, who has a Nokia E71, is an avid user of a mobile wallet service called ngpay (www.ngpay.com). “All I need is GPRS on my phone and my debit card details,” says Ramsisaria. Ngpay is one of the many applications launched over the last few years in the fast-growing sector of mobile wallet services. Also called m-banking, these services are an initial step towards a world where you can replace your wallet and credit cards completely with your phone. “Mobile banking is a form of cashless banking that enables you to access and use your bank account, debit or credit card through an application on the mobile phone,” says Gautam Shiknis, chief executive officer, mChek (www.mchek.com), another mobile wallet service. These services connect you to vendors—merchants, retailers, cinema halls, restaurants, etc—and allow you to make payments using debit or credit card details. All you need is either a GPRS-enabled phone or the ability to send simple SMSes. If you are not comfortable with third-party applications, you can take a wallet from your mobile phone operator. Recently, the Reserve Bank of India (RBI) cleared the way for a second kind of mobile wallet service—called the “semi-closed mobile wallet”. In this service, you can load money into your cellphone from a licensed company and make payments with it, but you can’t use it to withdraw money, which is what a full-fledged mobile wallet aims to do. In a pilot, Airtel has launched semi-closed mobile wallet services in Delhi, Gurgaon, Faridabad and Chennai. Called Airtel Money (www.airtelmoney.in), it is a free service that allows you to load up cash in your phone, making your SIM a prepaid account as it were, and use it with partnering vendors to pay bills. Airtel Money has, for instance, tied up with around 40 vendors in Haryana and Delhi, including coffee shops, restaurants and cinema halls. Some semi-closed mobile wallet services, such as Mobile Money Services from Nokia and Yes Bank, even allow you to withdraw cash from specified ATMs. Furnishing your bank account details to an unknown application when there’s so much fraud going on is never easy. But mobile wallets are as safe as any other online transaction. “The technology which drives the mobile wallet is quite secure and mostly works on two-way authentication,” says Ashish Sinha, founder of www.pluggd.in, a website on start-ups. It means that every time you make a transaction, the program will automatically ask you for your PIN, which only you know. “Transacting like this is as safe as an ATM transaction. You need to enter a six-digit PIN to complete the transaction,” says Sourabh Jain, CEO of ngpay. Though most of these services are at a nascent stage, especially when you look at their list of vendors, it’s a fast-growing market. After Airtel, Vodafone is in the process of tying up with ICICI Bank to launch a semi-closed mobile service called m-paisa, which it has floated successfully in countries such as Kenya and Japan. Services such as ngpay have over one million users across the country, while mChek boasts of over two million customers, with a network of more than 100 partners that offer a variety of products and services. This is tiny when compared with the number of mobile users in the country, which currently stands at around 650 million. “The system is very simple for the masses to adopt. I think Indians will adopt m-banking much more efficiently once they figure that with an SMS they can transfer money to their loved ones. It’s like a move from no phone to mobile phones which Indians did, skipping the landline completely,” says Shiknis.
Need for an alternative to dollar: Subbarao
Mumbai: Governor of Reserve Bank of India (RBI) D Subbarao has said though it is not feasible now to find an alternative to the problems arising from a single global reserve currency — US dollar — at a global level, countries need to explore other options for protecting themselves from the vulnerabilities that they confront as a consequence of a single reserve currency. “The problem with the world having only a single reserve currency came to the fore during the crisis as many countries faced dollar liquidity problems as a consequence of swift deleveraging by foreign creditors and foreign investors. Paradoxically, even as the US economy was in a downturn, the dollar strengthened as a result of flight to safety,’’ said Subbaro while speaking on ‘Frontier Issues on the Global Agenda Emerging Economy Perspective’ on the occasion of the 60th anniversary celebrations of Central Bank of Sri Lanka, in Colombo on Tuesday. Based on the experience of the crisis, several reform proposals have been put forward to address the problems arising from a single reserve currency, he hinted. “One is to have a menu of alternative reserve currencies. But this cannot happen by fiat. To be a serious contender as an alternative, a currency has to fulfill some exacting criteria. It has to be fully convertible and its exchange rate should be determined by market fundamentals and it should acquire a significant share in world trade,” he said. The currency issuing country should have liquid, open and large financial markets and also the policy credibility to inspire the confidence of potential investors. In short, the exorbitant privilege of a reserve currency comes with an exorbitant responsibility, he explained. Subbarao also drew attention to the fact that managing currency tensions will require a shared understanding on keeping exchange rates aligned to economic fundamentals, and an agreement that currency interventions should be resorted to not as an instrument of trade policy but only to manage disruptions to macroeconomic stability. However, he was vociferous about the fact that currency appreciation is not the only problem arising from the ultra loose monetary policy of advanced economies. Speculative flows on the lookout for quick returns can potentially lead to asset price build up. The assurance of advanced economies to keep interest rates ‘exceptionally low’ for ‘an extended period’ has also possibly triggered financialisation of commodities leading to a paradoxical situation of hardening of commodity prices even as advanced economies continue to face demand recession. “EMEs have been hit by hardened commodity prices through inflationary pressures, and in the case of net commodity importers, also through wider current account deficits,” he said. Managing capital flows should not be treated as an exclusive problem of EMEs. In as much as lumpy and volatile flows are a spillover from policy choices of advanced economies, the burden of adjustment has to be shared, suggested Subbarao. “How this burden has to be measured and shared raises both intellectual and practical policy challenges. Our current theory of external sector management draws from an outdated regime of fixed exchange rates and limited capital flows when the task was largely limited to managing the current account of the balance of payments. What we now need is a theory that reflects the changed situation of flexible exchange rates and large and volatile capital flows. The intellectual challenge is to build such a theory that encompasses both current and capital accounts and one that gives a better understanding of what type of capital controls work and in what situations,” Subbarao said. The practical challenge in these matter is that once such a theory is accepted, there is a need to reach a shared understanding on two specific aspects: first, to what extent are advanced economies responsible for the cross border spillover impact of their domestic policies, and second, what is the framework of rules that should govern currency interventions in the face of volatile capital flows.
Pressures for protectionism to rise in coming years: RBI
The Reserve Bank of India (RBI) today said there are chances that protectionism by the advanced countries would rise and will also take new forms in the post-crisis scenario. "In the years ahead, the pressures for protectionism will mount and protectionism will also take new forms," RBI Governor D Subbarao said at a conference here, a press release said. He further said there is concern in some quarters that even as open protectionism has been resisted relatively well during the current crisis, opaque protectionism has been on the rise. "Opaque protectionism takes the form of resorting to measures such as anti-dumping actions, safeguards, preferential treatment of domestic firms in bailout packages and discriminatory procurement practices," Subbarao added. During the global financial crisis in 2008, many advanced countries, including US, were hit by recession. Many fear that in the post-crisis scenario, developed countries would resort to protectionism measures to protect their domestic industry. He said the efforts of several countries around the world in recent times to resist currency appreciation is a manifestation of macroeconomic protectionism. Subbarao added that in the post-crisis world, there may not actually be 'deglobalisation', but the earlier orthodoxy that globalisation is an unmixed blessing is being increasingly challenged. He said the rationale behind globalisation was that even as advanced countries may see some low-end jobs being outsourced, they will still benefit from globalisation because for every low-end job gone, another high end job - that is more skill intensive, more productive - will be created. "If this does not happen rapidly enough or visibly enough, protectionist pressures will arise, and rapidly become vociferous and politically compelling," Subbarao added.
RBI asks Axis Bank to justify Enam deal price
MUMBAI: The Reserve Bank of India (RBI) has questioned the valuation and structure of the high-profile deal cut by private lender Axis Bank last November to buy Enam Securities - an influential Dalal Street brokerage and investment bank. The banking regulator, which has sweeping powers over lenders, has asked Axis to justify the valuation of the all-stock transaction worth Rs 2,067 crore. At the time of the deal, Axis, the country's third-largest private bank led by CEO Shikha Sharma-a former ICICI Bank director-was on the lookout for an i-bank, and Enam was up for sale. "There are no indications that the deal may fall through, but Axis will have to explain the pricing and nature of the deal, which is essentially issuing stocks to pay for something," said a person familiar with the issues raised by the central bank. The point is whether the proposed practice of issuing new shares should be the preferred mode for banks to acquire new businesses, particularly brokerages. Axis Bank officials declined comment on the matter. But bank insiders were hopeful the regulator would approve the deal. "Technically, the RBI can make certain observations on the deal or ask the bank to tweak the valuation," said the person. Axis senior officials have met the RBI to put across the bank's views on the pricing and structure, which have been cleared by the bank board as well as Enam's. Enam founders -Nemish Shah, Vallabh Bhanshali and Jagdish Master-will own 3.3% equity in Axis once the deal is executed. Interestingly, for Enam shareholders, swapping their unlisted stock for listed shares of Axis would help them avoid capital gains tax. As per the deal, Axis Bank would offer shares to stakeholders of Enam Securities , even though the company would be acquired by a subsidiary of the bank. The newly-formed subsidiary would be headed by Manish Chokani.
Tech shift set to send bank NPAs soaring next month
NEW DELHI: Public sector banks are set to report a spurt in bad loans beginning next month when they shift to a new technology platform to calculate their non-performing assets (NPAs). The platform, called the Core Banking System, automatically processes and updates transactions, helping identify NPAs on a daily basis, as against the current system where most transactions are managed manually, leaving scope for slippages. Bankers say as a result of the mandatory migration to the new system, NPAs of some banks may rise by as much as 150%. This will force the lenders to set aside more funds to cover losses from such loans, which in turn will impact their bottomlines, they said. Several bankers had met finance ministry officials on Monday to ask for an extension of the March 31 mandatory migration deadline. "The government has decided to extend the deadline to June 30 only for accounts up to 50 lakh, and complete the entire process by September 2011," a finance ministry official said. "We don't see a case for relaxation beyond this." According to latest data from the Reserve Bank of India, the gross non-performing assets of state-run banks touched 68,597 crore at the end of December 2010, an increase of 27% from a year ago. "Already there is concern over the rising NPAs," said the chairman of a public sector bank who attended Monday's meeting. "If we reflect an increase in this fiscal, it will have an impact on the banking system as a whole." A look at the loan book of the country's largest public sector lender, the State Bank of India (SBI), gives an indication of the impact. SBI's NPAs rose by about 1,000 crore every quarter in the last fiscal after it started the process of shifting its loan book on the new technology platform, its managing director Diwakar Gupta said. Gupta was also present in the meeting with finance ministry officials. SBI has completed the process, barring agricultural loan, which account for about 3% of its total loans. The bank is concerned that a substantial part of agricultural loans, which are not accounted as bad loans under the manual system, may become NPAs on being shifted to the new platform. Punjab National Bank chairman K R Kamath said the banks would require time to correct any data inconsistencies, which may arise while shifting to the new platform. "We are shifting from a legacy system and a lot of data needs to be aligned," Kamath said. "Undoubtedly, there will be some rise in NPAs." Indian Bank , which was one of the first banks to move to the new system, had reported a jump of 830 crore in bad loans to 1,340 crore. "Shifting to CBS will result in a jump in bad loans but it help in monitoring the system," said T A M Bhasin, chairman and managing director of Indian Bank. The banks would require additional time to further cleanse the data, said Ramnath Pradeep, CMD of Corporation Bank. "So far it has been done manually," he said. "We need to further fine tune the system to avoid any discrepancies."
BoB's Mallya to take over as IBA chairman
Bank of Baroda (BoB) Chairman and Managing Director M.D. Mallya will take over as chairman of the Indian Banks' Association (IBA) from 1 April. He will succeed O.P. Bhatt, who will be superannuating as chairman of State Bank of India on 31 March, an IBA release said here on Tuesday.
The 5 yrs that transformed State Bank of India
OP Bhatt will be most remembered for SBI's rights issue of Rs 20,000 crore, coupled with employee stock purchase scheme that no other PSU bank had ventured into. Besides, the bank also raised equity capital in 2008 when companies such as Wockhardt Hospitals and Emaar MGF pulled out their IPOs. It was a proof of shareholder faith in him. The merger of SBI's associate banks with the parent was talked about since mid-nineties when McKinsey first suggested it. Mr Bhatt recognised the need to build a huge organisation without working at cross purposes. Fortunately for Mr Bhatt, his predecessor, AK Purwar had set the ball rolling by creating a platform for mergers. Mr Purwar ensured a common technology platform and systems and procedures at SBI and its associate banks. Mr Bhatt took it forward. He pushed merger of State Bank of Saurashtra with SBI at a time when the ruling party had a coalition with the conservative Left. SBI's 8% fixed rate home loan scheme, in response to global crisis, gained enormous attention. Although, arch rival and HDFC chief, Deepak Parekh was quick to term it as a gimmick. Its humongous success forced rivals to launch similar schemes, which offered fixed rate in initial years and floating rate for the remaining term of the loan. RBI's then Deputy Governor Usha Thorat expressed concerns over such loans, calling them teaser loans. In response, most home loan providers decided to withdraw such schemes from the market, except SBI. To make a strong case, RBI asked banks to set aside higher capital on such loans, probably to dissuade banks from offering such loans. Mr Bhatt, who felt that the bank's special loans can no way be called teaser scheme, declined to make any provisions for such loans. "There is total transparency on it," said Mr Bhatt. "The customer is not taken by surprise. On the risk side, the eligibility is considered based on the highest interest charged at the time of giving loan. Neither is there opacity, nor is there risk." Mr Bhatt, in fact, felt SBI was not given due credit. "We brought the home loan market back. Lakhs of people own their homes because we kept rates down. It pushed up the economy. But this is something that is not recognised by many." But RBI remains worried about it - possibly relating it to the US sub-prime crisis that sank the global financial system. "Some of us have a strong apprehension that the motivation for introducing teaser loans was not product innovation, but to deprive existing floating rate home loan borrowers from the full benefit of declining interest rates, based on market realities," KC Chakrabarty, deputy governor at RBI, said in a recent interview. "A number of existing home loan borrowers did not get the benefit of lower interest rate." His another clash with the regulator was when he guaranteed bonds of Tata Steel worth Rs 4,200 crore. RBI claimed that regulations do not allow banks to guarantee corporate bonds, while SBI stood by its client - the Tata Group, which was unable to raise funds for the Corus Group purchase. Disputes with RBI does not seem to cease. The banking regulator downgraded SBI by one notch to B- on grounds that the bank has made lower-than-required provisions for bad loans. The rating, which is highly confidential and is not made public, had upset Mr Bhatt, who recently made a case to RBI to review its rating. The biggest challenge for his successor would be to retain the aggressive brand that Mr Bhatt has created for the once sleepy bank.
RBI and its offices in Mumbai and Navi Mumbai will function normally on April 01
The Reserve Bank of India and its offices in Mumbai and Navi Mumbai will function normally on April 01, 2011. The Government of Maharashtra has declared Friday, April 01, 2011 as a Bank Holiday under the Negotiable Instruments Act, 1881, to facilitate annual closing of banks’ accounts. Commercial banks will remain closed for public transactions on that day.
Now, alerts for all credit card payments
MUMBAI: The Reserve Bank of India has asked banks to put in place a system for providing online alerts for all card transactions irrespective of amount. Until now banks had to send online alerts to the cardholders for only 'Card Not present' (CNP) transactions which were for the value of Rs 5,000 and above. Taking note of unauthorized or fraudulent withdrawals from ATMs, RBI has said that banks must implement by June 30 a system of instant alerts for all types of transactions irrespective of the amount, involving usage of cards at various channels. "This measure is expected to encourage further usage of cards at various delivery channels" an RBI circular said. In a circular to all banks, RBI said that it has been informed of unauthorized or fraudulent withdrawals from ATMs. "It is important to arrest the incidents of such frauds in order to further encourage card based transactions in the country where the use of credit/debit cards plays an important role" the central banks said. RBI has said that banks must implement by June 30, 2011 a system of instant alerts for all types of transactions irrespective of the amount, involving usage of cards at various channels. "This measure is expected to encourage further usage of cards at various delivery channels" it said. February `09, RBI had asked banks to send online alerts to cardholders either through SMS or email where the card was used for transaction above Rs 5000. At that time these alerts were required for only those transactions where the card was not present such online purchases or over the telephone. "This measure has been generally welcomed by customers as it enabled them to take prompt action if the card is misused. This measure goes a long way in arresting further perpetration of such fraudulent transactions" RBI said in its circular. Earlier this year RBI sought to make `card not present' transactions more secure by insisting that banks ask for an additional password in addition to the credit card number and the CVV number printed on the back of the card. The additional security feature came into effect from last month.
Tuesday, March 29, 2011
BNM to host Financial Inclusion Policymakers Forum next week
Malaysian National News Agency BERNAMA
FIR against SBI manager for depositing fake currency
KANPUR: The Reserve Bank of India today registered an FIR against a manager of State Bank of India (SBI) for allegedly depositing fake currency, police said here. Anupam Chaudhary, Manager of RBI has registered a case against the manager of SBI located on P D Road in Bajaria area here for allegedly depositing four fake notes of 100 denomination in the treasury of RBI, the police said.
Union Bank opens financial literacy centre
Union Bank of India, lead bank for Ernakulam district, has set up its first Financial Literacy and Credit Counselling Centre (FLCCC) at Perumbavoor. FLCCCs, recommended by the High Power Committee headed by Usha Thorat on Lead Bank Scheme, are being set up in every district with the intention of providing financial counselling service through face-to-face interaction as well as through other available media like email, fax, mobile etc, educating people in rural and urban areas with regard to various financial products and services. The FLCCC at Perumbavur is headed by a seasoned retired bank official and the public is free to approach the counsellor for services. Financial literacy has been given a very high priority and the banking system has taken Financial Inclusion as a mission to be accomplished in a short period. At present, nearly 59 per cent of the population are without bank accounts. In the first phase of Financial Inclusion, all villages having population in excess of 2,000 are being targeted to set up banking facilities. There are about 73,000 such villages in the country, including 120 villages in Kerala. The task of making providing banking services either through a bank branch or through business correspondents (BCs) has been assigned to various banks. Most of these have appointed BCs and the process of issuance of smart cards to the new customers is on. Reserve Bank of India Governor D Subbarao has recently visited the FLCCC at Perumbavoor.
Volkswagen granted non-banking finance licence
Global automobile major Volkswagen's Indian finance subsidiary Monday said that it has been granted non-banking finance company (NBFC) licence by the Reserve Bank of India (RBI). "The RBI license enables the company to offer customers of Volkswagen, Skoda and Audi cars the opportunity of a wide range of financial services,” Volkswagen Finance Private Limited said in a statement. The company said the licence would enable it to offer three product lines, including VW Finance, Skoda Finance and Audi Finance. “VWF India wants to present itself in the Indian market as a mobility provider with products which fully respect the needs of customers,” said Joern Achim Kurzrock, chairman of the board of Volkswagen Financial Services India. According to Kurzrock, the company would focus on specific needs of each customer segment by offering financing options including 3-in-1 bundled packages consisting of financing, insurance and maintenance. The Mumbai-based company would be making an initial investment of over $24 million (Rs.120 crore) in the country. The statement added that the company's customers can avail of financing options at any of the 164 dealer outlets of its brands.
Looking for a locker? Banks aren't only option
Though private players have fewer branches, their costs are competitive. With rising break-ins in their neighbourhood, Brendan and Alexia are looking at locking away their valuables in a safe deposit locker. Earlier, their options were limited to only banks, both public and private sector, but now there are private players that offer this specialised service. Some of these companies include Kothari Safe Vaults, Sakthi Safe Vaults, India Safety Vaults and Asmita Safe Deposit Lockers. To target the customer, there are innovative techniques as well. Sakthi Safe Vaults, for instance, allows operation of the locker even on a Sunday. Salil Datar, head, branch banking and NRI Business at Dhanalaxmi Bank, explains, “Unlike banks, these companies are not regulated by the Reserve Bank of India (RBI). So, they can stay open longer and for more number of days,” he said. What limits private players is the reach. Banks do have an edge when it comes to the number of branches that offer the locker facility. Bank branches that offer this facility are located in many more cities compared to the private companies. As far as charges go, these are reasonable for both players. The annual rental is around Rs 1,000-5,550. However, they will also ask you to maintain a security deposit. And, if you do not pay your annual rent, it gets adjusted with the safe deposit. Once that security deposit is crossed and you still do not pay your rent, the bank can break the locker, record the contents of the locker and may be, file a police complaint. Banks could also ask the customer to maintain a fixed deposit with them, so that they can use the interest income towards annual payment. R U Trivedi, chief manager at Kothari Safe Vaults, says his company takes three years rental as deposit money, unlike in a bank where one has to pay a monthly rental as deposit. “In a bank locker, the interest earned is adjusted with the monthly rental. We charge between Rs 600 and Rs 4,000 a year, depending on the size of the locker.” As for the security of the private company lockers versus the banks, some claim that they have even bettered the safety standards set by RBI’S currency ‘A’ chest specifications. Both banks and private players do insure vaults, though the contents in it are not insured. This is because the contents in the vaults are only known to the owner of the locker. You will have to take an insurance policy yourself to safeguard the contents in the locker.
Banks in state lag in financial inclusion
The banking sector in Karnataka is lagging in implementing the Reserve Bank of India’s (RBI) ambitious programme of achieving financial inclusion in all villages with a population of 2,000 and above. The banks in Karnataka, which are in the forefront of implementing the programme, have barely achieved 50 per cent of the target by the end of February, 2011, a top banker said today. “As against the target of 2,253 villages to be covered by March 2011, the banks in Karnataka have covered only 1,121 villages with a population of over 2,000 so far. The shortfall in target relates mostly to regional rural banks (RRBs), which are presently in the midst of migrating to core banking solution (CBS),” Basanth Seth, chairman, state level bankers’ committee (SLBC) said. Delivering a keynote address at the 116th meeting of SLBC, here, he urged the RRBs to take suitable steps and speed up the process so as to cover the maximum number of villages by March 31, 2011. “Issues like connectivity, inadequacy of training and manpower at the field level, delay in issue and activation of smart cards among others were the chief reasons for the slow progress in achieving financial inclusion,” Seth said adding these issues require urgent attention. Further, products like the savings bank accounts, remittances, entrepreneurial credit, micro insurance and others, should be made available to each account holder under financial inclusion, Seth, who is also chairman and managing director of Syndicate Bank, said. The RBI has identified 3,395 unbanked villages in Karnataka to be brought under business correspondent (BC) model to achieve financial inclusion. So far, Kolar and Chikkaballapur villages have been fully covered under the BC model. RBI governor D Subbarao, who was in Bangalore recently to review the progress of financial inclusion by banks in Karnataka, has directed all the banks to submit a concept paper on ‘meaningful financial inclusion’. All bankers need to deliberate on this crucial aspect and come out with their suggestions, Seth said. While reviewing the performance of banks in the state as on December 2010, the SLBC chairman informed that the aggregate deposits stood at Rs 3,04,413 crore while aggregate advances were Rs 2,37,977 crore with a credit deposit ratio of 78.12 per cent. The advances to priority sector stood at Rs 1,03,302 crore, constituting 46.83 per cent of credit, surpassing RBI stipulation of 40 per cent. Similarly, the advances to agriculture sector were Rs 45,843 crore comprising 19.26 per cent of the total credit, which is above the stipulated level of 18 per cent. Advances to MSME sector stood at Rs 37,545 crore as at December 2010. Vijay Bhaskar, Regional Director, RBI, said the regulator has identified nine villages in Karnataka for adoption as model villages for financial inclusion and they will be showcased across the country to promote the novel concept. He also urged the banks in the state to spread more awareness about the financial literacy. During the meeting, a Kannada version of the book on “Inclusive growth through Business Correspondent”, brought out by Indian Institute of Banking and Finance, southern zonal office, was released by S V Ranganath, chief secretary, government of Karnataka. M N Krishnamurthy, vice president, Indian Banks Association, briefed the house on “Swabhimaan”, the national level awareness campaign on financial inclusion.
An ATM at your kirana shop
The next time you fall short of cash while on a shopping spree, you may not have to rush to the nearest automated teller machine (ATM). The Reserve Bank of India (RBI) has allowed banks to set up electronic retail machines at the merchant’s establishment, popularly called point of sales (POS). This will allow you to withdraw cash — up to Rs 1,000 at one time — with your debit card at the shop itself. At least five banks — Union Bank of India, ICICI, HDFC Bank, IDBI and Axis bank — have started installing these electronic retail machines or cash at POS machines at merchant establishments across select cities. This should soon be a pan-Indian service, as the network expands and other banks follow suit. Importantly, it can be done with or without purchasing anything from the enabled merchant establishment with POS terminals. If you withdraw cash at merchant establishments along with the purchase of merchandise, the receipt generated should separately show the amount withdrawn. This move will particularly benefit those who do not like to carry cash. One can use this to make small purchases or to pay cab fare. But for bigger purchases, this facility does not work so well. Moreover, although the merchant establishment will not charge a fee for dispensing cash, your bank could. While this service is free for IDBI and HDFC Bank’s debit cardholders, both ICICI and Axis Bank are currently levying a service fee of Rs 10. At this cost, paying through your debit card rather than cash will be cheaper. Also, don’t use to withdraw very small amounts because the cost, as applicable in some cases, is not worth it.
SBI's self service banking centre
State Bank of India (SBI) has opened a self-service banking centre in Hyderabad to increase customer convenience and provide 24/7 access to banking. The centre, a branch-less and staff-less technology-based banking outfit, has a multifunction kiosk for internet banking and to print statements. It also provides multiple banking facilities such as ATM, internet and mobile banking, chequebook request, mobile top-up, train ticketing and income tax payments using debit or credit cards. It has three ATMs, including one for the visually-challenged with braille keypad. One BNA (bunch note acceptor) would be installed shortly where customers can deposit money through the machine, a release said.
Wanted - A dream team
Montek Singh Ahluwalia, Shankar N Acharya, Ashok V Desai (though for a short period), K P Geethakrishnan and M R Sivaraman were there to give shape to the idea of early economic reforms initiated by Manmohan Singh. At a step or two below, there were R Venugopal Reddy, N K Singh and Duvvuri Subbarao. Reddy later moved to the commerce ministry before joining the Reserve Bank of India (RBI) as deputy governor and then, after a short stint at the International Monetary Fund, became the head of the central bank. Singh later became the revenue secretary. Subbarao became the finance secretary and is now the RBI governor.
'Ill-conceived financial inclusion strategy may have negative social impact'
The Reserve Bank of India (RBI) wants commercial banks to view financial inclusion as a business opportunity and not a social obligation. “The social costs and consequences of badly conceived and executed inclusion strategy could be enormous. Understanding what the potential consumer needs and why he needs it is one such knowledge input that is critically important,” said Subir Gokarn, Deputy Governor of RBI at a recent event. He said that every aspect of a financial inclusion strategy – whether it is the design of products and services or the delivery mechanism – needs to be viewed in terms of the business opportunity that it offers and not as a deliverable that has been imposed on the service provider. He also said commercial viability need not necessarily be viewed in terms of immediate cost and profitability calculations. Establishing a relationship with first-time consumers of financial products and services offers the opportunity to leverage this relationship into a wider set of financial transactions as at least some of these consumers move steadily up the income ladder, said Gokarn. “In fact, in a high growth scenario, a high proportion of such households are likely to move quite quickly from very basic financial services to more and more sophisticated ones.” Financial inclusion had taken centre stage since the RBI had mandated all commercial banks to cover all villages with a population of 2,000 and above by the end of FY 2012. Banks were also asked to prepare and submit their financial inclusion plans to RBI last year. Banks are currently in the process of implementing the plans. To bring the unbanked population under the ambit of financial services, banks are offering no frills accounts and overdraft facilities on such accounts to make them more attractive. One need not maintain a minimum balance in these accounts.
Bank guidelines soon
New Delhi, March 28: Draft norms on new banking licences will be announced in the next few days, the finance ministry said. “The RBI will come up with the guidelines by the end of this month,” R. Gopalan, secretary in the department of economic affairs, said. The finance ministry will review the guidelines and comments will be invited from the public before the final guidelines were notified, he said.
Monday, March 28, 2011
RBI distributes assets under financial inclusion scheme
RAMPACHODAVARAM: Reserve Bank of India Regional Director A.S. Rao has said that Financial Inclusion is the only method to reach out to interior villages and clear the disparities in the society. He said that with the help of lead banks in the districts, RBI wants to bridge the gap between banker and villager and see that all the banking services will reach to all villages. Participating in assets distribution camp under Financial Inclusion Literacy programme in Devarapalli in the Agency on Saturday along with ITDA project officer Ronald Rose Mr. Rao said that in East Godavari with the support of Andhra Bank they could reach out to interior villages in extending banking services to tribal people. He said that the concept of Financial Inclusion includes opening of bank accounts to all villagers in a selected village and explain about the operations to the youth in that particular village through literacy programme. Mr. Rao said that they would avail the services of unemployed youth . He explained the concept that there are 2,700 villages in the State where there are no banks in which by March 2012 they want to start these correspondence services. Mr. Ronald Rose, Project Officer ITDA said that tribal women should make use of the loans offered by the banks and repay them on time. The villagers asked the Project Officer to open Andhra Bank branch in Maredumilli for which he said that he would forward the representation to the CMD of the bank. The Project Officer asked the RBI officials to arrange loans to tribal people in Agency area. Mr. Rao distributed Bolero vehicle worth Rs.7 lakhs, to a tribal man, Rs.14 lakh bank linkage, and Rs.13 lakh to small scale industries . Andhra Bank DGM Mr. Doraiswami, Lead Bank Manager Mr. Jagannatha Raju, RBI AGM Mr. Kiran Kumar and others participated.
No differences with RBI on new bank licence norms: Pranab
MUMBAI: Finance Minister Pranab Mukherjee today termed as "conjectures and media speculations" the reported differences between him and the Reserve Bank of India on capping FDI at 49 per cent in new commercial banks, the licences for which are likely to be issued soon. "These are all conjectures. There is no question of happiness or unhappiness. We have just received the draft guidelines from the RBI and it is being examined. These are the two wings of the government; we work together and do not indulge in these kinds of speculations," Mukherjee said as he rubbished his reported differences with the central bank on the draft proposals. The Finance Minister was interacting with the media after addressing a post-budget meet organised by the Assocham. The norms seek a cap on foreign direct investment in new private sector banks at 49 per cent. Earlier in the day, Mukherjee said: "We are studying the Reserve Bank's final draft proposals (on new private bank licences). We would take a call on it soon." He was said on the sidelines of Sir Sorabji Pochkhanawala (founder of Central Bank of India) Memorial Lecture 2011 as part of the bank's centenary year celebrations here. There were reports in a section of the media that the Finance Ministry was opposed to the RBI suggestion to restrict FDI in new banks to 49 per cent as the change in norms would hurt investor sentiment. The Ministry reportedly asked RBI to reconsider the same. The move will help the government and the RBI to discourage flow of hot money, which has crossed over USD 60 billion this fiscal, in the country. The ministry has also reportedly asked the RBI to ensure the guidelines clearly say that the new banks would be exempted from Press Notes 2, 3 and 4. Without such exemptions, these banks would become foreign banks if overseas investment in them crosses 50 per cent, which in turn would lead to imposition of the same restrictions on them that apply on foreign companies. Already the country's largest two private sector banks -- ICICI and HDFC's nationality is under cloud as over 50 per cent of their stake are owned by FIIs. Earlier this month, the RBI had submitted its final draft proposal on new private bank licences to the finance ministry in which it called for a holding company structure for promoters of new banks besides capping the FDI at 49 percent.
Udhna Bank case may be handed over to CID
SURAT: Police commissioner Shivanand Jha has suggested to the director general of police of Gujarat that the investigation into the Udhana Citizens’ Cooperative Bank case may be handed over to the economic cell of the CID. The first criminal complaint in the case was registered against the bank's chairman and general manager 10 days ago. Primary investigation into the case has revealed that ad hoc withdrawal of about Rs 13.60 lakh had been made and the public money was misused. The Reserve Bank of India (RBI) had about four and half months ago imposed restrictions on the functioning of Udhna Citizens Cooperative Bank under Section 35 (A) of the Banking Regulation Act. An administrator for the bank, which has about 51,339 account holders and depositors, was also appointed later. The bank has on paper assets and deposits worth Rs 93 crore and made advances to the tune of Rs 68 crore. A large portion of the industrial lending, housing loan and mortgage loans recoveries have not been realized putting the bank to the risk of liquidation.
India May Get its 1st Foreign Islamic Bank in Bank Asya
India may soon get its first foreign Islamic bank with the Reserve Bank of India (RBI) seeking government approval to allow Turkey’s Bank Asya to offer Shariah-compliant lending in the country. Shariah, or the Islamic law, bans interest on financing. Bank Asya is keen to start its Indian operations through a representative office in Mumbai. “So far the bank has only sought permission to open a representative office,” a finance ministry official said. “We are considering their application.” RBI has requested the government to consider the Turkish bank’s application within 45 days. Launched in 1996, Bank Asya aims to develop interest-free banking products, according to its charter. It has 179 branches in Turkey. The current statutory and regulatory framework in India does not allow banks to undertake Islamic banking activities. But the Committee on Financial Sector Reforms, constituted by the Planning Commission, had in a report in 2008 recommended delivery of interest-free finance on a larger scale, including through the banking system. Last year during a visit to Indonesia, the country with the world’s largest Muslim population, Prime Minister Manmohan Singh had said that he would ask RBI to look into the demand for establishing Islamic banking in India. Bank Asya had in 2009 received clearance from Turkey’s banking regulator to open a representative office in India. Its proposal has been pending with RBI for over a year. “After the global economic crisis, RBI has been stringent with allowing foreign banks in the country,” the finance ministry official said. “As a part of its liberalised policy for foreign banks, it has now granted permission to Bank Asya.” Global financial centers, such as Singapore, Hong Kong, Geneva, Zurich and London, have made changes in their regulations to accommodate Islamic finance industry that is now worth about $1 trillion. The case for Islamic banking got a boost in India last month when the Kerala high court dismissed writ petitions challenging the government sanction for starting a nonbanking finance company by the Kerala State Industrial Development Corporation, based on the Shariah. The petitioners had argued that the government sanction amounted to favouring Islam, and that setting up such a company with co-ownership of the state was antithetical to equal treatment for all religions. But the court said the petitioners could not demonstrate how the sanction had the effect of directly promoting a particular religion. India had committed to the World Trade Organization in 1997 to issue 12 new branch licenses to foreign banks every year, a number it has exceeded almost every year since. The finance ministry has said that there are 18 foreign banks, which are looking to set up their branches or representative offices in the country and their applications are at various stages of progress. At present, there are 32 foreign banks in the country.
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