VITALINFO taking a short break..........................

As you know, VITALINFO was launched on 23^rd November 2010 with the very purpose to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI. It has continuously been updated on a daily basis well before 8 a.m. without taking even a day’s break, be it Sunday or public holiday. I have been receiving excellent feedback from RBIeties all over India.  I shall be away on official tour to Malaysia and Singapore leaving India today and returning back on 4^th May 2011. Much as I would wish to, the VITALINFO will not be available during the period.  Hence VITALINFO intends to take a short break.  See you again on 5^th May 2011. Meanwhile, I request you to submit your vital feedback on VITALINFO online by clicking the link on the site.

Regards

‘There is a crying need for well-informed decision making, based on proper research'

Ms Usha Thorat has been a familiar presence to most RBI watchers for the last two decades when she held the reins in various departments after rising through the ranks. An alumnus of the Lady Shriram College and Delhi School of Economics, Ms Thorat handled a range of portfolios in her 38-year career, capped by a stint as Deputy Governor between November 2005 and November 2010. Her all-round exposure has given her deep knowledge of the way markets and various players function. She herself rates her work in connection with the growth of government securities and debt market a decade ago as among her important contributions. Always careful with her words, she has been an articulate and photogenic ambassador for the central bank. Her handling of the many challenges in this job came in for praise from the Union Home Minister, Mr P. Chidambaram, at a public function some months ago. He complimented both her and her long-time colleague Ms Shyamala Gopinath for their ‘safe pair of hands' in the tumultuous days of 2008-09.  She is described by those who know her well as pleasant, dynamic, vivacious, and knowledgeable. A woman with a no-nonsense approach, she is said to be forceful in her presentation, creative and brimming with new ideas, and has yoga and bird-watching for hobbies. She met Business Line recently at her office in Mumbai and talked about her latest assignment as Director of Centre for Advanced Financial Research and Learning (CAFRAL). 
What is CAFRAL about? What is its mandate?
We had a vision for this centre in 2006 when the Prime Minister and former governors and deputy governors were here for a function. We felt that our bankers training college (BTC) needed to be revamped. Although some of its programmes were well-regarded, most banks have now developed their own training establishments. And markets have also taken care of training needs of bankers. So we had to reinvent ourselves. Dr Y.V.Reddy, then Governor, felt that instead of focussing on training, we need to focus on research and learning. We wanted to develop this into a global hub for policy research in banking and finance — of use to policy makers and central bankers and serving the requirements of the system. The context was also that as India was a growing into a dominant player, its financial sector should also set its aspirations higher and try and become a more important player in the globe.  When I left the RBI, the governor asked me to take up this role. I liked the idea because I have been participating in global conferences and been part of various committees. There is so much of research that is done in these countries on regulatory issues. Today, we are accepting global standards and internationally accepted guidelines such as capital adequacy, the methodologies and so on. But we don't have enough research to even differ with that approach. Take for instance the issue of having countercyclical buffers if credit to GDP ratio exceeds a particular level. Now, we are an emerging country whose Credit-GDP ratio will grow for the next few years. So what we said is that we'll look at credit to certain sectors — such as real estate or capital market and when they go beyond our comfort zone, we'll put in limits and build buffers.  And that has worked better. But all of these things – about what made us decide on 2 per cent provisioning for instance, we need lot more research. We have been quite hard-pressed when we have gone to Basel committees with our prescriptions. We also need to build capacity both with the regulator and the regulated entities.  Financial sector regulation is still in its infancy because data is still not fully available on a lot of things. For example, if you look at Basel requirements, you need seven years data (that includes one year of downturn). Our data is still not good enough. So, can we measure risk better? There is a crying need for well-informed decision making, based on proper research. If we can fulfil that need, we would be rendering a great service. We would like to be a kind of interface between academia, practitioners and bankers. There are people who have the knowledge and the methodologies and lots of Indian talent that is available. We would like to use this skill for public good and do something that is useful for central banks. BIS (The Bank for International Settlements) will also collaborate with us and provide us resource persons. We have been in touch with researchers who are very enthusiastic because of the potential access they will have to data from banks and regulators. Even in the few meetings I have had with academics and bankers, they have found talking to each other has been very useful. There are a lot of issues that need clarity – many people don't understand why we need controls on capital flows and why we need caps on debt capital. They argue that this denies them access to cheap credit. But there are other considerations — including macro-economic stability. We are planning to have programmes for boards of banks — for their directors. We will start with a CEO's conference on May 28 — where we are going to discuss business strategies in the changing regulatory landscape — about coping with new demands for raising more capital. We are going to discuss regulatory challenges — the issue of addressing growth challenges while also keeping an eye on risks and destabilising factors, the trade-offs that are required to maintain a stable financial system. We are going to look at financial markets, financial stability and financial inclusion. Later on, we can look at things like e-learning, like what other global institutions have — where they put even regulators and heads of institutions through a ladder of tutorials. I have found this whole thing quite exciting.  
How are you staffing your organisation? Do you have people coming in from RBI?

Yes. There are a few people who are from RBI. We have been told that we need to get a few people who will be anchored in this institution for a longer spell — but we can look for many others who will see it a short term assignment. We'll be putting up our Web site soon. We are looking for people who are interested in financial sector research and who are willing to spend some time. We could have people who are with us for 2 to 3 years but we are also looking at project based assignments. We could even look at neighbouring countries and central banks from South East Asia so that there are some mutual learning possibilities. We can look at people who would like to come on sabbaticals.

The one challenge that researchers usually face is the quality of data and the difficulty of reconciling two pieces of data from two different agencies. How are you addressing this?
Yes. That is a challenge. In fact some people have advised us that CAFRAL should focus on data — on data consistency, data mining, data packaging etc. And although we are sponsored by the RBI, the data that we will get from RBI, will of course have to go through the same protocol — there are confidentiality issues. The banks may not want us to single them out and publish any research that could be identifiable with them. We have to look into this.
What about funding for the centre? Are you looking at tapping funds from government or other market sources?
Right now, it is met by Reserve Bank of India. We can't become completely dependent on market funding because if we don't focus on the subject that will help the bottom lines of those who commission the research – then that may not be able to sustain. The funding will go naturally into those areas which will yield benefits for them. But money is not a problem. We will try to do what the BTC did in terms of providing a platform for policy and regulatory issues. We could, for instance, hold a dialogue there and bring people together. It is not in the RBI — so it provides an academic environment that is neutral — so everybody can speak more freely – both the banks and the regulator.

Banks’ profits to go up on RBI relaxing provisioning norms

The Reserve Bank’s recent decision to relax provisioning requirement for banks will improve the profitability of lenders in the short run, bank officials have said. Responding to representations of banks on mandatory provisioning of bad assets, RBI has said that till the time it introduces a more comprehensive methodology of countercyclical provisioning taking into account the global standards, lenders are required to set aside stipulated capital with reference to NPA position as on September, 2010. Welcoming the decision, a senior banker said the initiative will help in improving the bottom line of banks as they will not have to make additional provision towards bad assets. Thus, operating profit will not be drained out for making additional provision for rise in bad debts, another banker said. As per the current prudential norms, banks are required to set aside capital to the tune of 70 per cent of their bad debt on running basis. This is called as provision coverage ratio (PCR). Country’s largest lender State Bank of India’s profitability has been impacted as the bank had to set aside capital each quarter to meet the 70 per cent provision coverage ratio as prescribed by RBI. The bank has been given additional time till September this year to meet requirement. RBI decided to hike the provision level in the aftermath of financial downturn with a view to enhance the asset quality in the banking system as additional provisioning would give more cushion to banks against the rise in bad loan levels. Majority of the banks achieved the PCR of 70 per cent and have been representing to RBI whether the prescribed PCR is required to be maintained on an ongoing basis, RBI said in a notification. “The matter has been examined and till such time RBI introduces a more comprehensive methodology of countercyclical provisioning taking into account the international standards as are being currently developed by Basel Committee and other provisioning norms,” it said, adding banks are required to set aside stipulated capital with reference to gross NPA position as on September 30, 2010, it said. Besides, banks have been allowed to utilise the additional PCR beyond the 70 per cent for making provision against bad assets. “The surplus of the provision under PCR vis-a-vis as required as per prudential norms should be segregated into an account styled as countercyclical provisioning buffer,” it said.  This buffer, it said, will be allowed to be used by banks for making specific provisions for non-performing assets (NPAs) during periods of system wide downturn, with the prior approval of RBI.

INCLUSION BANKING WILL SOON BE PROFITABLE: UNION BANK

Union Bank of India, the fifth largest public sector lender with over Rs 3.55 lakh crore in assets, has said its financial inclusion project, called the ‘new bankable class’, will turn profitable sooner than expected. “Going by our experience with the financial inclusion project, which we call ‘banking for the new bankable class’, this will turn in profits sooner than later, especially when the cash transfer facilities under Adhaar scheme starts flowing in,” Union Bank chairman and managing director MV Nair told PTI in an interaction here.  Nair, who recently got a three-month extension after completing his tenure, said, “For us, this is not a loss making business. Some of the segments such as remittance facilities for the migrant labourers as also those for the milk and fruit vendors, under the inclusion project are already profitable.  The MNREGA (National Rural Employment Guarantee Scheme) payments may remain in loss for some more time but then the government is subsidising it.”  He said the bank got into this business three-four years ago, well before the government and the Reserve Bank began pushing it and made it mandatory from the last financial year.  “At Union Bank, we always believed in the opportunity at the bottom-of-the-pyramid and our innovative approaches have worked well so far and we hope this will continue to be so. This has given us the confidence to move into financial inclusion space well in advance. “When we looked at this large unbanked class, we realised that they were a future business opportunity and not a burden on our finances. Hence we started it off and looked at it as an investment for the future. And we are happy that we started it earlier than others,” the chairman of the Mumbai-based lender explained the rationale behind this move. The bank has already opened six million inclusion accounts and its project is well on course, he continued. “The RBI has allotted us 3,159 villages. As of March 2011, we have already covered 2,511 villages. We intend to cover 10 million customers by March 2013 under the inclusion plan,” Nair said. For the new bankable class, the UNI is offering a combination of banking products such as no-frills savings account, microcredit, micro insurance, remittance facilities and overdraft, the chairman said. However, industry analysts are not so hopeful about the profitability of the inclusion drive. For instance, Ernst & Young India partner and financial services head Ashvin Parekh is of the view that looking at the way the government and RBI are pushing this, it will impact the profitability of small banks. According to Parekh, “the ideal model would be the government setting up some banks, specifically for the inclusion project, and once the target is met, privatise them. “Or else, it could ask only large banks, which can absorb the losses for a longer period to drive the project and give them some tax incentives,” Parekh said.

Why IMF advice finds no takers

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Inflation and growth

The RBI should take some additional steps to curb inflation, instead of taking baby steps, which it has done in the last one year, without it yielding much result. The spectre of inflation continues to loom large and bite into the wallets of the common man. The key policy rates should be increased by at least 50 basis points and there should be some sacrifice on the growth front to prevent any further escalation in inflation. Inflation will have a long-term impact and a cascading effect on various sectors of the economy, which will result in both social and economic crisis. So, curbing inflation should be given the precedence over double-digit GDP growth.
R. Karthik, Chennai  (Hindu – Business Line)

Why the delay in new bank licence norms?

The delay, it seems, is deliberate, and neither the government nor RBI is too keen to welcome a new set of private banks in a hurry.  India’s banking regulator is yet to release draft guidelines on licensing norms for new banks. Finance minister Pranab Mukherjee first announced the government’s intention to allow a set of private firms in the banking space in his February 2010 budget speech, surprising the Reserve Bank of India (RBI), which was till such time pushing for consolidation in banking. More than a year later, there is no sign of the draft rules even after Mukherjee said in this year’s budget speech that RBI would issue guidelines on new banking licences by 31 March. This has not happened because the finance ministry is not happy with the draft prepared by the central bank. It wants too many changes. RBI first prepared a discussion paper on the subject in August and sent the first draft guidelines to the ministry ahead of this year’s budget. But the ministry has not cleared the guidelines yet. It is pushing hard for the regulator to make some changes—big and small—and RBI is willing to accommodate some but not all. We don’t know when the regulator will be in a position to release the draft guidelines. Let’s take a look at the suggestions of RBI. I have not reviewed the draft guidelines prepared by the central bank, but from various sources who have direct and indirect knowledge of what it contains, I understand that RBI is ready to allow big industrial houses to set up banks if it gets the power to supersede boards of banks that are not being run properly. It also wants the right to oversee the operations of the promoting company and any affiliates that will have business relationships with the bank. This is being done through an amendment of the Act that governs banking in India. Mukherjee in his February 2011 budget speech promised the changes in the Act, and the proposed amendment to the Act was tabled in Parliament during the budget session itself. Currently, RBI does not have the power to dismiss a bank board, but under section 45 of the Banking Regulation Act, 1949, it can force the amalgamation or merger of a bank with another, and force a reconstruction of the board to protect the interests of depositors, shareholders and employees. RBI is also in favour of an industrial group setting up a holding company to own the bank and other financial services companies of the group, keeping the manufacturing and trading business out of it. This will help the Indian central bank regulate the group better. The so-called wholly-owned non-operative holding company, according to the draft, should be registered with RBI as a finance firm and governed by a separate set of prudential guidelines. Those industrial groups that will be allowed to set up banks will have strict restrictions on exposures to other group firms. The regulator is not comfortable giving a licence to any industrial group that gets 10% of its income from real estate or the broking business. The minimum capital a new bank would need is pegged at Rs. 500 crore, and the RBI paper that is lying with the finance ministry also insists that the new banks need to be listed within the first few years. Among other things, the draft guidelines outline how much the foreign shareholding should be in a new bank, and how fast the promoter needs to pare its stake from 40% to 15%, and says rural branches should constitute one-fourth of the branch network to ensure the spread of banking services. Although the new private banks that have been functioning are required to have at least 25% of their branch network in rural and semi-urban India, most have focused only on semi-urban centres and have ignored rural India. This time around, RBI does not want to take any chance, and it wants the new banks that will be given licences to spread banking services in even remote and thinly populated villages. I am told that the finance ministry is not comfortable with RBI’s suggestions on paring the promoter’s stake within the first few years as well as capping the foreign stake. It also does not want RBI to be bluntly saying that no industrial house with exposure to the real estate sector will be allowed to set up banks, even though it appreciates the spirit behind it. Similarly, it is not very excited about the central bank’s insistence on rural banking and tough talk on superseding bank boards. I don’t know when the finance ministry will finally give its green signal. After its nod—and necessary changes—RBI will release the draft guidelines, seeking public comments. It will take a few months more to prepare the final guidelines. And all applications seeking banking licences will be examined by an external group before RBI considers them. I will not be surprised if we hear Mukherjee in his February 2012 budget speech reiterating his commitment to allow new private companies to establish banks. What is not clear is: why did RBI have to send the draft guidelines to the finance ministry? After all, it’s a mere draft, and it will be finalized only after receiving comments and feedback from various quarters. Couldn’t RBI have gone ahead with the draft guidelines and taken into consideration the government’s feedback before finalizing it?  There are various theories doing the rounds. One is the regulator’s reluctance to be solely responsible for drafting the guidelines for the most critical segment of the financial segment when the second-generation spectrum licensing scam is emerging as the largest political corruption case in India. For the same reason, the government also is not in a hurry to push new banking licences, many in Delhi say. The delay, it seems, is deliberate, and neither the government nor RBI is too keen to welcome a new set of private banks in a hurry.

RBI likely to pull up 7 banks for flouting currency regulations

MUMBAI: Banks will face regulatory action and penalties for old derivative deals where currency laws were flouted and complex products missold to companies. The Reserve Bank of India (RBI), which has been scanning the derivative books of banks for close to a year, has identified the errant banks and the nature of irregularities .  A fortnight ago, in a meeting with senior members of the money and currency markets, the banking regulator spelt out that errant banks will be pulled up. Seven banks, including six private and foreign banks and a state-owned lender, may be pulled up by RBI, said a source familiar with the development .  "RBI has come up with specific views on each bank and the penalty will depend on how severe the violations are," said the person. The central bank has conveyed its decision to association of money market dealers, currency dealers and the lenders' lobby, Indian Banks' Association. "In some cases, it may just be a rap on the kuncles and word of caution. But some will be fined. That's the impression we get," a senior banker told ET. RBI had sought information and went through derivative deals of as many as 22 banks. It has now come to a conclusion that some banks had entered into transactions that were not only sharp but unacceptable.  "The penalty to be imposed is relevant as banks had marketed high risk products," said Sandeep Parekh , lawyer, Finsec Law Advisors. "This move will give further teeth to the demand for a further probe by a law enforcement," he added. "Banks had structured these derivative transactions in accordance with the RBI guidelines. If the RBI imposes a penalty corporates and the authorities would be convinced that the banks were at fault. This would weaken the banks defence," said a lawyer who had handled the case of a private sector bank. "If the penalty is imposed the only positive is that the court may rule against a CBI probe as it would be convinced that the regulatory body has taken prudential action," he added.  "Banks have stopped marketing these exotic derivatives since 2008 hence this move will not have any significant impact on the derivatives market. At present, banks are offering plain vanilla products," said a senior banker. Over-the-counter derivatives help companies to hedge against fluctuations in foreign exchange and interest rates. Banks had sold currency derivatives to enable corporates of all sizes to either improve the earnings on their exports, or lower the outgo on imports or cut the interest and repayment cost on loans.

Inflation hurting the growth process

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Co-op banks take RBI to court over Parekh losses' write-off

In another case of a regulated entity taking the regulator to court, the Gujarat Urban Co-operative Banks Federation (GUCBF) has petitioned the Gujarat High Court, seeking relief from a circular issued by the central bank. The case relates to the Madhavpura Mercantile Co-operative Bank (MMCB), which was trapped in the 2001 Ketan Parekh scam and had lost money heavily. The 150-odd Gujarat-based co-op banks had kept deposits with MCCB, which was also acting as the clearing bank for many of these smaller banks.  In December, RBI issued a circular asking them to write off all the losses in one go in the financial year 2010-11. If implemented, the net worth of at least four co-op banks from Gujarat would get wiped out. Most banks have partially provided for such losses and a few have provided for fully, but the four smaller banks whose net worth would get wiped out have joined the federation in filing this petition. The petitioners have told the court that “on account of the negative impact on the balance sheet, there would be erosion of faith” that can lead to the depositors resorting to massive withdrawals. “This would further affect the working of the bank. The bank would also not be in a position to maintain the statutory CRR (cash reserve ratio) and SLR (statutory liquidity ratio). This would again lead to further action under the Act, making it virtually impossible for the bank to survive and function,” they said. The High Court has admitted the petition and has issued notices to the Union government, RBI, CBI, Central Registrar and MMCB. The case is scheduled for hearing on Monday. The federation has also asked the court to set aside RBI’s December circular. The banks’ representation to RBI has not helped them in securing more time for making such a provision. They have represented to the RBI, seeking seven years’ time to make full provision. The petitioners have also requested the court to ask the investigators to file a report and show how money is being recovered from Ketan Parekh. When contacted, Jyotindra Mehta, chairman of the Gujarat Urban Co-operative Banks’ Federation said, “The recovery of dues from Parekh could solve the problem. RBI should provide for more time for the revival of MCCB, which is under way, and the RBI deadline will end in the second quarter of the current financial year.”  A committee led by a retired IAS officer is trying for the revival of MCCB, leading accounting firm Deloitte was appointed to suggest a plan. Deloitte had submitted an interim report and the final one is expected soon. “The RBI deadline for MCCB revival is ending in the next quarter, which should be extended to give revival a chance,” said Mehta.  The federation has also petitioned the High Court to direct the Central Bureau of Investigation and the authorities concerned to take effective steps for recovery of amounts outstanding from broker Ketan Parekh and his firms. It has sought a speedier investigation and the cancellation of broker’s bail.

Monetary Policy, Inflation and Depositors – S.S.Tarapore

The Common Person could live with the current inflation rate if it were a 'true' indicator of inflation which is commonly known to be much higher than what the official indices show. The Reserve Bank of India ( RBI) is scheduled to announce its first quarterly monetary policy review of 2011- 12 on May 3, 2011. There would be considerable interest as each set of players would evaluate it from their own viewpoint. What then should the Common Person look for in the monetary policy? The central anxiety, for quite some time, has been the acceleration of inflation. Inflation is hurting the vulnerable sections the most. What is the extent of inflation? There are various ways of measuring inflation but the official focus in India is on the year- on- year change in the Wholesale Price Index ( WPI). This index does not correctly reflect the impact on consumers. The authorities are making efforts to have a comprehensive Consumer Price Index ( CPI) and although this has been undertaken there is need for the new index to stabilize before it becomes relevant for policy purposes. The RBI has many constraints in dealing with inflation. The RBI does not have a single inflation target while the issue of growth predominates and quite often inflation becomes a secondary objective to overall growth. Policymakers have repeatedly said that monetary policy should not do anything which would jeopardize growth. This has blunted the efficiency of monetary policy. RBI's comfort zone was all along meant to be around a 5 per cent inflation and higher inflation rates would invite monetary policy action. In this context, the present episode of a prolonged high inflation rate has made a dent into RBI's credibility. The RBI's cherished goal of a medium- term inflation rate of 3 per cent is no The kind of inflation we now have is generalized and not restricted to a few sectors and it no longer makes sense to go on talking about supply side inflation. It is heartening to see that the government is somewhat subdued on the issue of growth and now concedes that some sacrifice of growth would be necessary if inflation is to be brought under control. The Common Person could live with the current inflation rate if it were a ' true' indicator of inflation which is commonly known to be much higher than what the official indices show. Moreover, what hurts the Common Person is not the rate of inflation but its level. Illustratively, when mong dal prices rise from Rs 60 per kilo to Rs 100 per kilo the increase is 66.6 per cent, but when it rises further to 120 per kilo, we are told that the rate of increase has come down from 66.6 per cent to 20 per cent. Now when the price comes down to Rs 105 per kilo we are expected to rejoice and forget that a price of Rs 105 per kilo is historically very high causing great distress to the Common Person. It is time the Common Person is not deceived by these numbers and told the true story which would then push monetary policy to take stronger action to tackle inflation. It would be unfair to only blame the RBI as the problem lies elsewhere. The government wants its borrowing programme to go through smoothly without unduly high interests and at the same time expects that adequate credit is made available to the commercial sector. To meet these conflicting objectives, the RBI keeps the system sloshing with liquidity. This also enables banks to keep lending What the RBI has done is to fix its current policy repo rate at 6.75 per cent ( the repo rate is the rate at which RBI provides liquidity to banks against the security of government securities). The RBI has, over the past year or so, undertaken eight increase of the repo rate, each of ' baby' steps of 0.25 per cent. The current policy rate is totally ineffective. Given the present inflation rate, what is required is a full one percentage point increase in the repo rate but the present philosophy of the RBI would not permit it. The May 3, 2011 increase in the repo rate should be, at least, 0.50 per cent. The RBI would do well to take a leaf out of the Chinese central bank's policy which prefers strong monetary policy action. The other powerful instrument is the cash reserve ratio ( CRR) under which the RBI presently impounds 6 per cent of deposits of banks. An increase in the CRR by 0.50 per cent, which would impound Rs 25,000 crore of liquidity, would be appropriate. But the RBI has been shy of using this instrument during the past two and a half years. Here again, the RBI needs to closely study the active Chinese CRR policy. A victim of the present monetary policy has been the depositor who faces negative real rates of interest as the return to depositors is less than the inflation rate. It is true that, in the February- March 2011 period, some banks offered rates as high as 10 per cent. This was largely to swell the balance sheet numbers for March 31, 2011. Predictably, these banks have, in early April 2011, cut back deposit rates by one percentage point. Depositors are the mainstay of banks but they are not fairly remunerated. All that depositors can pray for is that the RBI, on May 3, 2011, shifts gears to undertaking a strong tightening of monetary policy. The RBI is at the cross roads. If it chooses the path of tightening monetary policy it would be criticized by vested interests, but if it does not it will be condemned by history for not alleviating the suffering of the masses.

Banking on change........

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The Suvikas People's Co-operative Bank Ltd., Ahmedabad – Penalised

The Reserve Bank of India has imposed a monetary penalty of Rs. 1.00 lakh (Rupees one lakh only) on The Suvikas Co-operative Bank Ltd., Ahmedabad, Gujarat in exercise of powers vested in it under the provisions of Section 47(A)(1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS) for violation of Reserve Bank of India instructions on Know Your Customers (KYC). The Reserve Bank of India had issued a show cause notice to the bank, in response to which the bank submitted a written reply. After considering the facts of the case, bank's reply and personal submissions in the matter, the Reserve Bank came to the conclusion that the violations were substantiated and warranted imposition of the penalty.

Efforts on to minimise cheque transactions

VARANASI: Deputy Governor of the Reserve Bank of India (RBI) Shyamala Gopinath said efforts were being made to encourage electronic transaction of money to minimise transactions through cash and cheques.  Talking to reporters on Saturday, she said it was not possible to stop the use of cheques for money transactions in one go, but efforts were on to encourage maximum use of ATM and electronic transaction of money. For the purpose, money transactions through cheque would be made costly, she said and added efforts were also being made to expand the reach of banking system in rural areas of the country.   She further stated that RBI had undertaken financial literacy and financial inclusion campaign in rural areas to bring rural populace into banking fold. Through this campaign, rural masses are educated about the banking system and they are mobilised to open their accounts in banks. She said positive response was being received and efforts were being made to develop proper infrastructure and link the government schemes to banks. "It is just a beginning, a lot has to be done yet," she said and added technological upgradation of the system was being done to provide maximum benefits to people.  Replying to a query regarding the operation on non-banking financial institutions, she said RBI had got a suggestion that it should regulate the functioning of non-banking financial institutions for small borrowers. She said financial inclusion in rural areas was needed for proper growth and  development.  Gopinath was in the city to attend programme on financial inclusion and financial literacy organised by the Lucknow unit of RBI at Nagepur village in Raja Talab area on Saturday. The programme was organised under RBI's programme to conduct outreach visits and develop certain identified villages as model villages. Addressing the programme, she highlighted various activities of RBI and expressed her hope that rural development was possible if banks and state governments worked together. Addressing the function, the executive director of Union Bank of India SC Kalia said efforts were being made to upgrade the Kisan Credit Cards to draw money from ATM without going the the bank branch. The function was also addressed by RBI Regional Director Amrendra Sahoo and others. The RBI personnel also distributed smart cards among the villagers, school bags to children and cricket kit for the students of Shiv Narayan Memorial Inter College on the occasion.

Over 50% population without bank account: RBI Deputy Governor

Inspite of 40 years of nationalisation of banks, over 50% of the country's population is without a bank account, deputy governor of Reserve Bank of India (RBI) Shyamala Gopinath said today. "We have started an innovative programme to educate such people. A 'financial literacy mission' has been launched to make people aware of the schemes they can avail," said Gopinath while addressing a function in Varanasi. "There is a need to get villagers out of clutches of local money lenders who are exploiting them and charging humongous interest rates," Gopinath said. After this programme common man would become aware and benefit from government loans, mutual funds and banking services, she said. To lessen the pressure on banks and facilitate an easy transaction of money for those working under Mahatma Gandhi NREGA a plan of payment through their biometric cards is also on anvil, Gopinath added.

Ethics, governance step into the murky real estate world

Good governance’ is fast becoming a buzzword in the murky world of the country’s real estate. At a time when the realty sector is facing a credibility crisis, following its links with the 2G telecom scam, regulators, government, non-profit bodies and stakeholders are working on measures that might bring a semblance of order in the chaotic industry. The National Housing Bank (NHB) and the Indian Banks Association (IBA), for instance, are learnt to have finalised guidelines for property valuation that can be used as yardstick for bank lending. Valuation of property is extremely disorganised in India and lacks uniformity of any kind, while it is a streamlined business the world over, points out a real estate expert. Sachin Sandhir, managing director and country head (India), Royal Institution of Chartered Surveyors (RICS), told Business Standard that initially banks and financial institutions would use the property valuation guidelines as recommendation, but these might become mandatory for the industry over a period of time. The project is being carried out under the guidance of the Reserve Bank of India (RBI).

Union Bank chief expects rate hike by central bank

Mumbai: State-owned lender Union Bank of India may revise its lending rates in case there is any hike in the key policy rates in the annual monetary and credit policy by Reserve Bank of India(RBI), due on May 3.  However, the bank is not looking at revising its deposit rates even after the revision in the key policy rates said MV Nair, CMD, Union Bank.  The bank crossed a total business of R3,55,000 crore as of March 2011 and has recorded growth of 19.1% in deposits and 26.3% in advances.  “We do expect that the RBI might increase its key policy rates when it announces its annual monetary policy early next month as it was during inflation. So, we will wait for the policy before revising our lending rates. However, in any case, we may not revise our deposit rates,” he said.  Commenting on the recent RBI regulation on provision coverage ratio (PCR) where RBI has said banks need not provide beyond 70% of their gross non perfoming assets, Nair said the bank has already reached the regulatory requirement level of 70%. “Now we will start creating a buffer,” he added.  Replying to a query that what would be the hit on his bank out of the second option of pension for the bank’s retired employees, which banks have been asked to do within last year’s balancesheet, Nair said the bank will have to take a hit of R480 crore. “We are ready for it. The bank expects to achieve credit growth of 23% and deposit growth of 20-21% during the current fiscal. In any case, we want to be above the industry level by about 2-3% when it comes to credit and deposit growth for the current fiscal,” said Nair.  Nair said his bank was looking at an NIM of 3-3.1% for the current fiscal, as against the currently existing mark of 3.25%.  At present, the bank is focused on implementing two key initiatives with the support of consultants. One is on the HR front and another in the area of customer service excellence.  As a part of its relationship value to customers, the bank is aggressively promoting various online payments to government and its agencies and to the integrated services under government schemes, by leveraging on technology.

Credit Policy review around the corner; inflation a major concern

The monetary policy makers will meet in the first week of next month to review the various factors influencing the macroeconomic conditions, and to make the necessary changes in the monetary policy. The domestic economy is at a crucial juncture with respect to the balance between inflation, industrial growth and the monetary policy tightening. The Reserve Bank of India (RBI) has already tightened the monetary policy several times since last year and the interest rates have gone up to a level where they threaten to impact industrial growth.  However, the headline inflation rate is still ruling quite high and is not under control . Due to several domestic as well as international factors the inflation rate calls for more measures and close monitoring by the policymakers.  These are some of the major factors that will be under consideration during the forthcoming monetary policy review in the beginning of next month:  The headline inflation rate in food articles has come down significantly over the last few weeks. However, the broader inflation rate is still ruling high. The Wholesale Price Index (WPI) based inflation rate stood at 8.98 percent for the month of March. This is much higher than the upward revised projection given by the RBI. Analysts believe there are several domestic as well as international factors fuelling the inflation rate. On the domestic front, demand is quite robust and as a result the price rise has spread to broader items that are fuelling the headline inflation rate. On the other hand, the soft monetary policy and other ongoing issues in the international markets are constantly pushing the prices of international commodities up. This is another significant factor contributing to the headline inflation rate. Analysts expect the RBI to maintain its hawkish stance in the forthcoming monetary policy review.  The monsoon is another factor that can influence various macroeconomic parameters and investors should track the developments around it. Since the agriculture sector depends a lot on the monsoon, it's very important for the economy to have a normal and timely monsoon.  A good monsoon can keep a check on food prices and helps the policymakers in fighting the headline inflation.

Provisioning norms for banks relaxed by RBI

In a move seen as a major relief for all commercial banks, the Reserve Bank of India (RBI) has tweaked its provisioning norms to enable banks as to how much they should set aside to cover bad debt and thereafter excess provisions made after September 2010 be used to cushion shocks 'during periods of system-wide downturn.'  Currently, banks are required to set aside 70 per cent of their bad debt as per the provision of coverage ratio (PCR).  Simply put, for instance, if a Rs 100 loan has turned bad, setting aside 70 per cent as PCR means that the bank has to set aside Rs 70 as provision as it expects to recover Rs 30 of the loan. The notification issued by RBI on Friday wants the cushion -- known as “counter cyclical provisioning buffer” — to be set up out of any surplus available after complying with the stipulated 70 per cent PCR of the gross non-performing assets as of September 2010. The banking regulator made it clear that the surplus provisions under PCR should be segregated into an account, computation of which may be undertaken as per the format prescribed by it (RBI). However, to dip into this, banks will require approval from the regulator, it added. September 2010 onwards, RBI said, on incremental NPAs banks would have to set aside money based on the income recognition norms. This ranges from 10 per cent in the initial months when the asset is classified as substandard to 100 per cent when it is classified as a loss asset after a few years. Bankers have welcomed the RBI move.  In this context, Indian Banks' Association (IBA) Chairman and also CMD of Bank of Baroda, M D Mallya said “Balance sheet planning will become easier. If a bank earns windfall profit, say from treasury operations, it can be set aside as a buffer and subsequently used during bad times.”  It may be recalled that many banks including the country's premier lender State Bank of India have had complained in the past that this regulatory compliance is high and dented their profitability, while RBI was insisting that this is a part of prudential norms in tune with international banking practice.

RBI begins cheque truncation system

VARANASI: To improve the efficiency of cheque clearance and reducing clearance-related frauds, the Reserve Bank of India (RBI) has begun a cheque truncation system (CTS) as pilot project.  Deputy Governor, RBI, Shyamala Gopinath gave this information to the media on Friday. Gopinath is here to take part in a programme of RBI under financial literacy project at Raja Talab on Saturday. "Presently the CTS is operational at Delhi and Chennai," she said and added it would be implemented at national-level after it was properly operational. The CTS is an online image-based cheque clearing system where cheque images and magnetic ink character recognition (MICR) data are captured at the collecting bank branch and transmitted electronically eliminating the actual cheque movement. Its benefits include realisation of proceeds of cheque within the same day, easy data storage and retrieval, minimise risks and secured cheque clearing system, cost saving, minimising bottlenecks and delays between presentation and realisation time.   Regarding RBI's financial literacy project, she said the objective of the project was to disseminate information regarding the central bank and general banking concepts to various target groups, including school and college-going children, women, rural and urban poor, defence personnel and senior citizens. "It is intended to educate the masses about the benefits of banking system and cover maximum villages under banking system," she said and added banks officials had also been directed to simplify the procedure to attract maximum number of people.   She said in the current financial year, three villages in Varanasi, Chitrakoot and Allahabad districts of Uttar Pradesh had been selected for the financial literacy project. The beginning is going to be made at a village in Raja Talab area on Saturday. She said all banks had been asked to maintain transparency in their functioning. Replying to a query regarding inflation, she said the matter would be reviewed in a meeting on May 3.

SBI to bear loss arising out of termites eating currency notes

Lucknow: Though the exact amount of loss arising out of termites eating up currency notes inside a steel chest at a State Bank of India (SBI) branch in Barabanki district of Uttar Pradesh is yet to be quantified, it will be borne solely by the SBI itself and there would be no loss to the public at large. This was stated by Amarendra Sahoo, Regional Director of Reserve Bank of India, Uttar Pradesh and Uttaranchal.  Talking to FE, Sahoo said that the joint team of senior RBI and SBI officials, which had visited the bank in Barabanki, has found that though mutilated, most of the notes eaten up by the termites had their numbers intact. “Those notes in which the numbers are intact, will be replicated by the RBI while the fate of those which have been mutilated beyond repair will be adjudicated once the investigation is complete,” said Sahoo, adding “there would be no loss to the public. The bank will bear the loss, if any.”  It may be mentioned that in an almost outlandish case, aghast bank officials on Wednesday found termites to have made a hearty meal out of currency notes worth approximately Rs 1 crore kept inside the strong room at a SBI branch in Fatehpur block of Barabank district near Lucknow. A team of senior officials of the SBI and RBI visited the branch on Thursday to investigate the matter. SBI AGM Geeta Tripathi, who headed the inquiry team said after the visit prima facie it appeared that the notes in the currency chest had been damaged by termites as the branch was housed in a very old building which was ridden by termites. Cases of files and furniture being damaged due to this malice had already been brought to the notice of the management and efforts were on to relocate the bank at some other place. The SBI, had in a press release late on Thursday night clarified that “no discrepancy has been detected in the currency chest except that some notes have been found to be slightly damaged. We don't expect any loss arising out of this and all corrective measures have been taken”.

Axis Bank gets RBI nod for merger of Enam's investment bank biz

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Infrastructure debt fund outline to be drawn up on Monday

New Delhi: The government and financial sector regulators such as RBI, Sebi and Irda will draw up the outline of the proposed infrastructure debt funds on Monday as the country prepares for raising $1 trillion for building ports, highways, power utilities and telecom infrastructure in the next five years.  The finance ministry, which will co-ordinate the meeting, will also seek views from foreign pension funds on how to make the proposed infrastructure debt fund an attractive investment option for them, a senior ministry official told FE. By June, the government hopes to give final shape to the fund announced in budget 2011-12.  Finance minister Pranab Mukherjee announced setting up debt funds through special purpose vehicles for attracting foreign investment in the infrastructure sector. “To attract foreign funds for financing of infrastructure, I propose to create special vehicles in the form of notified infrastructure debt funds,” he had stated. Last June, an expert panel headed by HDFC chief Deepak Parekh had recommended setting up such a fund with an initial corpus of R50,000 crore to meet the financial needs of the sector. According to sources, the proposed infra debt fund would have relaxed capital adequacy norms. In the budget for this fiscal, finance ministry had lowered the withholding tax rate from 20% to 5% and exempted the income of the fund from payment of income tax.

RBI grants relief to banks on NPAs

MUMBAI: In a move that will ease pressure on bank profits, Reserve Bank of India has said that an earlier guideline requiring additional funds to be set aside for bad loans will not apply to loans that turn bad after September 2010.  This move will benefit all lenders as RBI has now specified the end point for setting aside additional provisions on bad loans. These guidelines on additional provisions were issued in October 2009 after banks turned in large profits following a bounce back from the global financial crisis.  At that time, the central bank had said that the idea was to build up a capital buffer during good times so that it could be used ifthe outlook for the economy changes. suddenly  State Bank of India will gain directly from this measure as RBI has said that even for those banks that have not achieved the prescribed provision coverage ratio, the target date continues to be September 30, 2010. SBI has been struggling to meet the 70% PCR and was expected to meet the target in the current fiscal. "Some of the banks that had been granted extension of time beyond the stipulated date for achieving the PCR of 70% on their request should calculate the required provisions for 70% PCR as on September 30, 2010 and compute the shortfall there from," said RBI "What this means is that after making provisions for NPAs as on September 2010, banks will only need to make the normal provisions for bad loans and the additional burden on the balance sheet will cease. But going forward, provision requirement could get stiffer as regulators move towards advanced accounting standards," said the chairman of a public sector bank.  But banks that have already made a provision will need to keep it aside as an additional buffer. "The surplus of the provision under PCR vis-à-vis as required according to prudential norms should be segregated into an account styled as countercyclical provisioning buffer. This buffer will be allowed to be used by banks for making specific provisions for NPAs during periods of system-wide downturn with the prior approval of RBI," the central bank said.  In a recent report on the banking sector, Care ratings had said that banks had improved its provision coverage ratio to 58.31% by end-December 2010 from 52.85% a year back.  Private banks have already crossed RBI's prescriptions by achieving a PCR of 74% as against 70% mandated by RBI but public sector banks continued to lag with a PCR of 54.41%. "On an overall basis, provisioning expenses rose by 54.48% on y-o-y basis in 9MFY11 on back of higher NPA provisioning by banks to achieve the RBI mandated 70% NPA provision coverage," Care said.

RBI alters bad asset provision norms, State Bank to benefit

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Bank investments in mutual funds more than double

Investments made by banks in mutual funds soared in the fortnight ended April 8, on the back of improved liquidity.  According to the data released by the Reserve Bank of India(RBI), bank investments in instruments issued by mutual funds had more than doubled compared to the previous fortnight. Bank investments in mutual funds were at Rs 111,279 crore on April 8 compared to Rs 47,638 crore as on March 25. “Liquidity had improved in the first week of April as year-end pressures came off,” said a banking analyst at a domestic brokerage. Liquidity had sharply turned into the surplus mode in the first week of April. According to analysts, excess funds that banks had picked up in order to dress their balance sheets towards the financial year end.

RBI asks banks to create special buffer

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RBI Announces Limits for Ways and Means Advances for 2011-12

Mumbai (ABC Live): The RBI on Friday has decided in consultation with the Government of India that the limits for Ways and Means Advances (WMA) for the financial year 2011-12. Information to this effect was made by Alpana Killawala, Chief General Manager through Press Release: 2010-2011/1542 that the limits for Ways and Means Advances (WMA) for the financial year 2011-12 would be as under:

       · April 01, 2011 to April 20, 2011

       · April 21, 2011 to June 30, 2011

       · July 01, 2011 to September 30, 2011

       · October 01, 2011 to March 31, 2012

The Reserve Bank may trigger fresh floatation of market loans when the Government of India utilises 75 per cent of the WMA limit. The Reserve Bank would retain the flexibility to revise the limits at any time, in consultation with the Government of India, taking into consideration the prevailing circumstances. The interest rate on WMA/overdraft will be:  a) Ways and Means Advances: Repo Rate b) Overdraft: Two percent above the Repo Rate The minimum balance required to be maintained by the Government of India with the Reserve Bank of India will not be less than Rs.100 crore on Fridays, on the date of closure of Government of India's financial year and on June 30, i.e., closure of the annual accounts of the Reserve Bank of India and not less than Rs.10 crore on other days.  As per the provisions of the agreement dated March 26, 1997 between the Government of India and the Reserve Bank of India, overdrafts beyond ten consecutive working days will not be allowed.

The bright side of inflation

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Centre can borrow more till June 30

The Centre will get a little more headroom for borrowings under the ways and means advances (WMA) facility that the Reserve Bank of India operates. The Centre will now be able to borrow up to a maximum of Rs 45,000 crore through this window between April 21 and June 30 — which is a greater part of the first quarter. Last year, the government had been kept on a tight leash with WMA borrowings capped at Rs 30,000 in the first half of the year till September 30. This got tighter in the second half (October 1 to March 31) when borrowings were limited to Rs 10,000 crore. This year the limit will be bumped up to Rs 45,000 crore for a short period of 71 days. It will, however, be kept at Rs 30,000 crore between April 1 and April 20 and then again between July 1 and September 30. In the second half of the year, the limit will be scaled back to last year’s level of Rs 10,000 crore.  As in the past, the RBI may trigger a fresh flotation of market loans when 75 per cent of the limit under WMA are utilised. Under the provisions of a 1997 agreement between the government and the RBI, the Centre will not be allowed an overdraft facility beyond 10 consecutive working days. The interest rate on the WMA advances will be pegged at the repo rate, which is currently pegged at 6.75 per cent. This could rise by 25 basis points when the RBI meets on May 3 to review its monetary policy. The interest rate on overdrafts will be capped at 2 percentage points above the repo rate. The government will have to maintain a minimum balance of not less than Rs 100 crore on all Fridays, the date of closure of the Government of India’s financial year, and on June 30 when the RBI closes its annual accounts. On all the other days, a minimum balance of Rs 10 crore will have to be maintained.  The WMA facility was introduced in 1997 after the system of issuing ad hoc treasury bills was phased out. It provides temporary accommodation to the government — up to 90 days — and is subject to limits.  The Fiscal Responsibility and Budget Management (FRBM) Act 2003 has prohibited direct borrowings by the Centre from the RBI with effect from April 2006 except by way of WMA or under exceptional circumstances.

To fine tag lane violators, operator writes to NHAI

DS Construction (DSC), the agency responsible for regulating movement through the toll gate on the Gurgaon-Delhi Expressway, has said that though they had written to the National Highways Authority of India (NHAI) proposing a penalty on motorists who violate traffic lanes, it is yet to get a response.  According to the DSC, most of the traffic jams take place when non-tag commuters move into the tag lane and heavy vehicles move into ordinary lanes — causing confusion. Despite deploying marshals and requesting for change from the Reserve Bank of India, it has not been able to manage the situation.

Kadapa DCCB gets RBI licence for banking

The Reserve Bank of India has granted licence to Kadapa District Cooperative Central Bank (DCCB) to carry on banking business in India, Kadapa DCCB Chairman K. Brahmananda Reddy has said. RBI's Rural Planning and Credit Department regional office in Hyderabad sent a communiqué granting the licence under Section 22 read with Section 56 (o) of the Banking Regulation Act, 1949, Mr. Reddy told newsmen.

This auction has a banknote that even RBI will vie for

Walk into the Expo Center at Cuffe Parade's World Trade Centre and, if you are lucky, you may be able to pick up a gold coin weighing 1 tola (11.6 grams) for around Rs 50,000. We know the market price for a gold coin is close to Rs 24,000. But this ain't an ordinary coin. It's a rare piece of Indian history that will be yours to keep and cherish. Starting today, the World Trade Centre is hosting an exhibition that will be followed by an auction conducted by a leading numismatic firm, Todywalla Auctions. Among the collectibles that will be up for auction are a silver-punched coin belonging to Magadha Janapada, which flourished in central India 2,500 years ago. There are also 1,700-year-old gold coins from the Gupta and the Kushan empires.  What should excite most history buffs is that the collection also includes coins from the era of one of India’s most well-known emperors - Jalal-ud-din Akbar. Malcolm Todywalla, of Todywalla Auctions, said, “Most of the Akbar gold mohurs weigh approximately 11.6 grams (1 tola). These used to have the name of the emperor, the place where it was minted and the date, etched in Urdu. Likewise, the square-shaped coins were typical of Akbar’s time… These rare artefacts are priced at nearly Rs 50, 000 each.” Perhaps in a sign of the deteriorating conditions of the Mughal dynasty, there are also coins in silver (a less valuable metal) on display from lesser-known emperors such as Jahandar Shah and Farukhsiyar. However, what sets Todywalla’s heartbeats racing is a not metal but paper. Neverthless do not underestimate it. This British Oriental Banknote from the 1840s is so rare that even the Reserve Bank of India’s museum doesn’t have one of its own.  The bank note, expected to fetch anything between Rs 6 lakh to Rs 8 lakh, was printed only for the Indian market. In the centre of the note is Mumbai’s Town Hall (now the Asiatic Library), surrounded by open expanses of greenery and medieval Gothic buildings. But will Indians actually spend good money on such items? Todywalla believes so. “There’s a great demand for the Indian numismatics in the market. People are very keen to buy them because apart from its monitory value, these rare items speak volumes of India’s rich culture and heritage,” Todywalla said.

Baby steps cannot curb inflation - S. S. TARAPORE

In its first monetary policy review this fiscal, the RBI should jettison half-hearted measures and go for an unequivocal anti-inflationary thrust. There is scope to increase the cash reserve ratio and place limits on credit growth. The Reserve Bank of India (RBI) will, on May 3, 2011, announce its first Review of Monetary Policy for 2011-12. For the past two years, the spectre of inflation has loomed large, but RBI has consciously opted for ‘baby' steps in its monetary policy, ostensibly on the premise that nothing should be done to slow down economic growth.  The year-on-year Wholesale Price Index (WPI) at the end of March 2011 is close to 9 per cent. The average WPI showed an increase of 9.4 per cent in 2010-11, as against 3.6 per cent in the previous year. The average food inflation in 2010-11 is uncomfortably high at 11 per cent.  The government's policy was clearly tilted towards accelerating growth, and inflation was considered as an inevitable price for growth. The government now recognises that inflation is now strongly wedged into all sectors; there are strong compulsions to control inflation as it is impacting not only the poor, but also the vocal middle class.  The Finance Minister, Mr Pranab Mukherjee, has, more recently, referred to a clear choice between controlling inflation and sacrificing some growth. The Deputy Chairman of the Planning Commission has admitted that a 9 per cent growth in 2011-12 is no longer in the realm of possibility and that we would have to settle for 8.5 per cent. While the RBI will be berated for not taking effective action to squelch inflation, it must, in fairness, be stressed that the overbearing tilt of the government towards growth has made life for the RBI rather difficult.  The window of opportunity for strong monetary policy action is invariably short and the RBI would, in the current milieu, be well advised to jettison its ‘baby' steps and opt for stronger measures. It is the job of industry to shout from the roof-tops that any increase in interest rates would jeopardise growth. Banks will also argue that any increase in interest rates would reduce their net interest margins. The RBI should not be swayed by these seductive sirens.  The RBI has to take a call on the monetary policy on May 3, 2011, and it would be best if its stance was in the nature of a strong, unequivocal and unswerving anti-inflationary policy.  The present repo policy of 6.75 per cent is out of kilter and ‘baby' steps would not be in consonance with the difficult inflationary situation. The central bank would need to take note of its own Inflation Expectations Survey of Households which reflects an anticipated inflation rate of 13 per cent.  The RBI should, on May 3, 2011, shift gears and move over to at least a one-half of one percentage point increase in the repo rate to 7.25 per cent; in actual fact the need of the hour is a full one percentage point increase, but this would not fit in with the prevailing RBI philosophy.  The apex bank has rightly indicated that it would prefer the banking system to be in deficit mode, which would make the monetary transmission process more effective.  It been reluctant to wield the cash reserve ratio (CRR) instrument lest it result in a cessation of credit. Banks are clearly over-extended with a year–on-year incremental credit deposit ratio of 99 per cent and as such there is no likelihood of any cessation of credit. The RBI should, therefore, increase the CRR by 0.50 percentage point which would impound Rs 25,000 crore and move banks into a deficit mode.  The RBI should set a prudential limit of an incremental credit-deposit ratio of say 70 per cent; any bank exceeding the 70 per cent limit should be subject to a penal interest of 3 percentage points above the prevailing rate at which it seeks access under any RBI facility.  Anticipating pressures on their net interest margins, banks have already started reducing their deposit rates, instead of increasing their lending rates. This reflects the clear bias of banks against depositors. The Discussion Paper on the Savings Bank Deposit Rate is showing no signs of life. Pending the comprehensive Discussion Paper, the least the RBI could do, in the present situation, is to immediately increase the Savings Bank Deposit rate from a fixed rate of 3.5 per cent to a fixed rate of 4.0 per cent.  It is unconscionable that banks should borrow from the RBI and place these funds with mutual funds. Banks should not be allowed to pass on their funds management duties to mutual funds.If the RBI is committed to developing the gilt-edged securities market it should progressively increase the proportion of banks' holdings of these securities which should be marked-to-market. The draft guidelines for licensing of new private sector banks have been inordinately delayed and the RBI would be well advised to release these draft guidelines on May 3, 2011.

Court to Centre: are you sleeping?

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Termites eat up Rs 1 crore at SBI branch in Uttar Pradesh

Currency notes worth over Rs 1 crore were reduced to dust in the chest of State Bank of India (SBI) in Uttar Pradesh's Barabanki district, officials said on Thursday. The mutilated notes were found in the chest on Wednesday. Apparently, termites ate the stacks of notes. An SBI chest normally contains Rs 50 crore cash for disbursement. The officials at the bank remained non-committal about the amount of cash destroyed. However they estimated that the loss of currencies could be worth over Rs 1 crore. The Reserve Bank of India (RBI) has been informed about the incident and anti-termite treatment was underway at the branch. Branch Manager Sunil Dwivedi said, "I am not sure where the termites came from, but as you can see this building is quite old. Anti-termite treatment is now underway."

JK Bank to establish Financial Literacy Centres: Chairman

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Fake currency worth Rs 2.8L detected at RBI

CHANDIGARH: The Reserve Bank of India (RBI) in Sector 17 is being haunted by fake currency notes. Fake currency totalling Rs 2.80 lakh, which includes notes in the denomination of Rs 50, Rs 100, Rs 500 and Rs 1,000 was detected by RBI officials in the last six months. The RBI officials have submitted the fake notes at the sector 17 police station for further investigation.  Police sources said the maximum fake currency was detected on March 16, this year. It comprised 406 notes, including 7 notes of Rs 1,000 and 352 of Rs 100. The fake currency was detected while checking the notes through special machines installed at the RBI in sector 17. The latest tranche of fake currency was detected on April 19 and comprised 284 notes including 7 of Rs 1,000, 29 of Rs 500 and 219 of Rs 100. This fake currency has been submitted with the police station in sector 17 and a detailed development report (DDR) has also been lodged in this regard. A senior RBI official on condition of anonymity told TOI, 'It is very difficult to ascertain who is depositing the fake currency with the bank because money at the bank is received from different parts of India, especially from different branches situated in northern India'.   The RBI official said, 'We can't destroy the seized fake currency without informing the area police and we have also sought help from cops to detect the source of these fake notes'.  Inspector Hardeet Singh, SHO of the police station in sector 17 said, 'It is very difficult to ascertain the source of the fake currency because the RBI branch in sector 17 has a huge jurisdiction and currency is received from different parts of India'. He said after completing the formalities, the fake notes will be returned to the RBI authority, which is authorized to destroy it.

Got lottery mail? Report it: DM

NOIDA: If you get an email from the Reserve Bank of India (RBI) congratulating you on winning an international lottery prize worth several hundred dollars, beware! It's a fraud, delete it, ignore it and don't get tempted by it.  This is the message conveyed by the district administration of Gautam Budh Nagar to warn its citizens regarding the menace of email fraud. Says Deepak Agarwal, District Magistrate, "The RBI has circulated a notice to create awareness amongst the public about this fraud. People should be careful and not believe these emails." He adds, "This is a good initiative by the RBI, as it will help save many an innocent from losing hard-earned money."   In the last few years, there has been an increase in such instances of banking fraud through 'phishing'. Phishing is a fraud where criminals create emails and websites that closely resemble those of legitimate companies. Generally, the fraudsters lure people through these e-mails by promising an astronomical amount either for wining a lottery or for helping to secure a deceased person's wealth, or promising a job in a big corporate or even securing admission in a prestigious educational institute.  "Unfortunately, not many people complain or even register a case on receiving such fraud emails," says Alok Kumar Singh, in-charge of the surveillance and cyber cell in Gautam Budh Nagar. He adds, "It is a cause for concern and needs to be addressed. Anyone who needs to register a complaint regarding cyber fraud can contact us at the senior superintendent of police's camp office, located at sector 27."  As per the circular received by the administration, the RBI has clarified that remittance in any form towards participation in lottery schemes is prohibited under the Foreign Exchange Management Act, 1999. Further, these restrictions are applicable also to remittances for participation in lottery-like schemes functioning under different names, such as, money circulation scheme or remittances for the purpose of securing prize money or awards. Moreover, the RBI has clarified that it neither maintains any account in the name of individuals, companies or trusts in India to hold funds for disbursal nor does it allow individuals to open an account to deposit money with the Reserve Bank. It also does not issue any certificates or advices or confirmations, evidencing receipt and holding of money in these accounts.