The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
Tuesday, May 31, 2011
Villagers get smart cards
Pune based information technology company DSK Digital has rolled out a project to issue smart cards to the residents of Velu village in Maharashtra's Pune district as part of the financial inclusion process steered by Central Bank of India CBI). The initiative is under the Reserve Bank of India's (RBI) mandate to bring every citizen of the country in the banking network. A large number of funds are allotted by the Government of India to the people who are living below the poverty line. But, it is usually seen that there is a large scale pilferage of these funds. Issue of smart cards will not only help credit the funds straight into the accounts of the beneficieries but also create their 'banking history' which will make them eligible for various credit schemes of the government. RBI has chosen Khopi as a model village to implement financial inclusion initiative by opening of bank accounts for beneficiaries. Closely monitored by RBI and CBI, the project was started in February with the help of DSK Mobilis. More than 300 villagers have opened accounts in CBI under this project until now. These accounts are no frill accounts i.e. zero balance accounts without any deposit. DSK Digital has produced smart cards using its in-house integrated technology platform for the device DSK Mobilis. These smart cards were distributed to villagers by Chief General Manager-in charge RPCD of RBI, Deepali Pant Joshi. "The banks have come to the doorsteps of villagers because opening bank branches in every village is not practical. The smart cards will introduce financial literacy in Khopi and increase the bank's daily transactions," Joshi said. DSK Digital Chairperson Hemanti Kulkarni said, "Villagers will have simple and direct access to all the funds from government due to this RBI project. This will make the bank transactions easy and safe. This account can also be used for all day to day transactions. All the villagers will get a hassle free access to their financial accounts if this project is implemented throughout many villages". Vinod Phillips, Head, Business Operations at DSK Digital said, "DSK Mobilis has an integrated GPS, GPRS services. An inbuilt camera takes the picture of the account holder, while finger prints are scanned by inbuilt finger print scanner. This entire enrollment process takes mere 180 seconds." The responsibility of enrollment, verification and account transaction has been entrusted to DSK Digital. DSK Mobilis application supports all activities related to user enrollment, registration, remittance, disbursement, OD, loan etc. In addition, the device runs completely on solar power. Smart card slots in the DSK Mobilis are used to make transactions and a printed receipt is given to the account holder after the transaction. As finger prints of the account holder is verified using this technology, nobody besides the account holder can use the smart card". DSK Digital will also implement smart card projects in 83 villages of Ahmednagar district, trgetting 1.25 lakh accounts, Phillips said.
TOI
Cover more villages, finmin tells banks
Enlarging the scope of ongoing ambitious financial inclusion (FI) programme which was targeting 73,000 villages initially , ministry of finance (MoF) has asked the banks to prepare plans to cover 6 lakh villages in the country. All the banks, involved in the FI project, have been asked to furnish the details of the villages to be covered by them by June 15. Arvind Kumar, the newly-appointed joint secretary in the finance ministry, met the officials of the Indian Banks’ Association (IBA), Reserve Bank of India (RBI) and the senior officials of a number of state-owned banks at New Delhi Friday last. Earlier while interacting with the heads of public sector banks (PSBs) , Shashikant Sharma, financial services secretary, had asked them to start working towards covering the entire 6 lakh villages in the country under the ongoing FI programme. The MoF had asked the IBA and RBI to prepare an action point for this during the forthcoming meeting. In the scaling up financial inclusion programme, the government has asked them to include those villages with a population of 1,000 that are located in the periphery of those villages that are having population above 2,000 and which are already being covered under the programme. In toto, there are nearly 1 lakh such villages in the country with a population of 1000. IBA will write to the state level bankers’ committees (SLBCs) in the country that will further get the details from their respective district level coordination committees in this connection so as to prepare a roadmap. Also, the government will ask the banks to take the Swabhiman project, a nationwide awareness programme on financial inclusion which was kicked off by the UPA chief Sonia Gandhi in February to the grassroots level. Talking to FE, K Unnikrishnan, deputy CEO who had attended the meeting, IBA, said the problem was only with those regional rural banks (RRBs) that were yet to complete core banking solutions (CBS). However, they will expedite the process of FI once they complete the CBS by September, added Unnikrishnan. There are 20,000 to be covered by the RRBs under FI, whereas they have been able to cover only 3,000-4,000 villages so far.
FE
RBI committee had considered raising SLR in annual policy
Reserve Bank of India’s Technical Advisory Committee (TAC) on monetary policy had considered increasing the statutory liquidity ratio (SLR) by 100 basis points in the annual monetary policy to tighten liquidity supply to banks. Currently, the SLR — the mandatory liquid reserves (other than cash) that banks have to maintain with RBI — stands at 24 per cent of net demand and time liabilities. According to the minutes of the TAC meeting published by RBI, “In addition to the increase in policy rates by 25 basis points each, one member was of the view that SLR could be increased by 100 basis points.” The particular member also suggested RBI's repo facility should be limited to up to two per cent of the excess SLR securities held by banks. This step, if implemented, could limit the flow of liquidity from RBI to banks under the liquidity adjustment facility. The committee suggested RBI should continue with its anti-inflationary stance, since inflation could pose a major risk to growth in the future. The members, however, had varied opinions on the extent of the rate increase that the central bank should announce on May 3. “While four members of the committee felt the repo and reverse repo rates be raised by 25 basis points each, two members suggested a rise of 50 basis points each in the repo rate and the reverse repo rate,” said the RBI release. One member also suggested if needed, the central bank could exercise control on capital inflows. The TAC meeting was held on April 27 and was attended by Y H Malegam, Sanjay Labroo, Dilip M Nachane, A Vasudevan and Sudipto Mundle, along with RBI Governor D Subbarao and four deputy governors. On May 3, RBI had raised the repo and reverse repo rates by 50 basis points, while the SLR and cash reserve ratio were kept unchanged at 24 per cent and 6 per cent, respectively.
BS
International banks in emerging markets
The presence and growth of foreign banks in emerging markets pose important challenges, both for these countries and the international financial system. Yet, the debate on banking re-regulation ignores the implications of developments in the emerging economies.........
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Which way will interest rates go?
Economists expect that higher interest costs and tight liquidity may adversely affect the GDP growth rate in the near term even though India’s economic fundamentals remain extremely strong. Since March 2010, in the last 14 months, the Reserve Bank of India (RBI) has hiked the reverse repo rate on nine occasions. In combination with repo rate (which is the current operative rate), it means that RBI’s key policy rate has more than doubled during this period—from 3.25% in March 2010 to 7.25% at present. It may be recalled that the wholesale price index inflation, which was in negative territory in July 2009 went up to cross the double-digit mark at 10.36% by March 2010. The main contributor to such high inflation was food article prices, which increased at close to 20% per annum last year. During this period, three-month commercial paper (CP) rates also moved up from 3.5% then to about 10% currently, reflecting higher funding cost for corporate India. Economists expect that higher interest costs and tight liquidity may adversely affect the GDP growth rate in the near term even though India’s economic fundamentals remain extremely strong. The question that, therefore, gets invariably asked in every discussion these days is: “Where are the interest rates headed next?” In its monetary policy review for 2011-12 earlier this month, RBI has sought to maintain an interest rate environment that moderates inflation and anchors inflation expectations. It would imply, therefore, that RBI may continue to hike policy rates and maintain a tight liquidity stance till such time that inflationary expectations moderate sufficiently. There are three important variables that may affect inflation going forward. Monsoon will have a significant impact on inflation. As discussed earlier, last year inflation was driven largely by high food prices, which have moderated significantly over the last few months. A normal and timely monsoon will indicate stable food and vegetable prices and have positive impact on inflation. The second critical variable would be global oil prices. In the last few months, following disturbance in North Africa and the Middle East, global crude prices have moved up sharply on apprehension of reduced supply from these areas. Recent collapse of a nuclear power plant in Japan following a massive earthquake has increased expectation of higher reliance on thermal power further supporting higher crude prices. With continued uncertainty on geopolitical environment, oil prices are expected to remain firm putting pressure on inflationary expectations. Finally, price movements in other global commodity such as copper and aluminium will also have a strong impact on inflation. As per the current assessment, inflation is likely to remain elevated in the first half of the year. Assuming a good monsoon and gradual stability in North Africa and the Middle East resulting in lower oil prices, inflation may moderate thereafter. Let us examine the trajectory of short-term interest rates first over the next year. Last year, telecom companies borrowed aggressively from the banking system to fund the bids at 3G and broadband telecom licence auctions. Credit pick-up from other sectors also remained robust. With the government also holding large cash balances, the system liquidity turned negative. The credit-deposit ratio of the banking system was above one for the better part of the year, which means that banks were lending more than fresh collection by way of deposits. Following a record subscription in Coal India’s initial pubic offer, system liquidity came under severe strain, necessitating special liquidity infusion measures from RBI in a counter-cyclical move. As a result, banks began to sharply hike deposit rates in order to attract fresh deposits to improve the liquidity and balance sheet ratios. By this time inflation was consistently exceeding all expectation and market rates started pricing in expectations of stronger hikes by RBI. Consequently, short-term rates moved in a fast-forward manner to price all these negatives and spreads between repo rate and three-month bank CD rate widened from about 50 basis points last year to above 400 basis points in March. In the new financial year in April, liquidity situation improved with government spending and fresh system flows. With the financial year-end pressure behind and in a more balanced liquidity environment, short-term rates (up to one year) may already have peaked in the current interest cycle. They may now fluctuate between its March high and April lows. In other words, short-term rates should remain within the March highs of 11-12%. In so far as long-term rates are concerned, additional factors of government borrowing program, growth in credit and global bond markets will also play a role. While very high oil prices may result in higher subsidies, volatility in equity markets may undermine disinvestment targets. Further, poor monsoon may result in additional burden on government finances. All the above factors will affect fiscal deficit and inflation. Thus, better visibility has to emerge on these factors before a decisive view on long-term bond yields can be available. However, currently the yield curve is pretty much flat with one-year treasury bill at 8.30% and 10-year government securities at 8.35%. With overall interest rate environment uncertain and with RBI’s current focus on moderating inflationary expectation, one would expect a small rise in 10-year yields, maybe a push towards 8.50% levels, in the near term.
Mint
Monday, May 30, 2011
INVITATION TO JOIN EXRBITES
Dear friends,
You will be happy to know that I have provided a link on http://in.groups.yahoo.com/group/exrbites today to the blog of Shri Mangesh Tarambale of RBI titled "VITALINFO". The VITALINFO site provides a platform for wider dissemination of updated information related to and happenings of events in and around RBI. I can assure you that there will not be any need for you to go through various financial newspapers for getting latest updates. We are very thankful to Shri S.S.Didolkar, our member, for sending us this link.
You will be happy to know that we have formed an internet Group "EXRBITES" of all past or present employees of Reserve Bank of India including Associate Institutions under Yahoo groups. The name of the group signifies that all of us will have to be "Ex" today or tomorrow. The main aim of the group is to promote goodwill and maintain database to enable members to share any information/material/photos including their experiences/aspirations/views with other members. The membership is absolutely free. To know more about the group and for becoming member please click at the link below or go to the website/home page of the group by typing following in your browser:-
Once the page opens please click “JOIN THIS GROUP”. Follow the instructions and click "Send". You must have an yahoo ID for becoming a member. If you don't have one please click at "Create an account" instead of "Sign in" when the yahoo page opens to get new ID before proceeding further. For any further information/ assistance please feel free to contact undersigned at any time.
With regards
Madan Gauria, AGM (Retd)
Moderator
1234, Sec. 44 B, Chandigarh-160047
Tel. 0172-2666780, 09915106631, 09316471887
Economic resilience
The book, Global Crisis Recession and Uneven Recovery, written by Y V Reddy, past governor of the Reserve Bank of India (RBI), contains his thoughts on the economic crisis and his views on the global financial system. It is the story of uneven recovery and prospects for India. The book contains 27 chapters, divided into five sections, where each chapter contains the edited versions of lectures delivered by Y V Reddy in different forums. There has been a number of books written on the global financial crisis. Central banks, which played a key role in the crisis management, did not express their views due to obvious constraints. Central bankers not holding official positions are in a better position to throw light on the subject. Emerging markets have shown remarkable resilience during the crisis and are presently poised for respectable growth. Since the crisis originated in advanced economies, the views of the emerging markets, which bore its brunt, have not been articulated. The author has had the insider’s view of the crisis, and was closely associated with several international initiatives to understand the crisis and identify the measures needed in response to a unique globally emerged perspective. The author has penned his scholarly views on the economic crisis which engulfed the world, and which he, being at the helm of affairs in India, ensured that India largely escaped the fate that affected the world’s largest economies. The author discusses the causes of the crisis, the influence of ideas, institutions, interests, individuals and integrity. At the global level, the International Monetary Fund (IMF), which is responsible for the surveillance of economic and financial policies of countries, did not predict the crisis. Some governments in advanced countries contributed to the crisis by pursuit of relentless deregulation in the financial sector and failure of the state, market, governance, intellect and morality. There is a sense of relief that a total collapse of the financial markets and deep depression have been avoided by timely initiatives at the national level, which were co-ordinated globally. Almost all countries experienced recession and almost all are in a state of recovery, although it is uneven and there is multiple speed recovery in different countries. An impact of the crisis has been on the analytical framework governing economic management, which in most countries, proved to be less than adequate. India has undoubtedly emerged stronger and more resilient after the crisis. The author feels that the crisis happened before India went irrevocably in the direction of excesses in the financial sector. The book ends by discussing the challenges that are specific to policymakers in India, particularly the RBI. It is argued that excessive stimulus in the form of additional expenditure and consumption in the government was undertaken in the past and it was partly driven by electoral compulsions. As against the unique challenges, India has some unique strengths: India has a large economy, the financial sector has exhibited strength and resilience, the policy instruments in place can be calibrated by the RBI depending upon the situation, and RBI has considerable credibility. It is therefore reasonable to expect that policymakers will successfully manage India’s economy during challenges. The book contains perspectives and analyses presented in a lucid style and non-technical language, written by one of the leading authorities on banking and finance. It will be of interest to students, researchers and professionals working in banking, finance and economics.
Deccan HeraldIntel to sell products to boost RBI's fin inclusion
Global chip maker Intel sees big opportunity in RBI's financial inclusion programme and is all set to launch its Universal Handheld Device (UHD) for banking operations by the end of this year, according to a top company executive. "The UHD reference design has been developed in India for Indian market. We are taking to companies, who are willing take it up with their brand name," said R Ravichandran, director (sales), Intel South Asia. UHD is a compact instrument with seven inch screen and a biometric finger print readers along with a thermal printer, which can be used by business correspondents hired by banks to take banking to rural and remote areas of the country. As two-thirds of the Indian population doesn't have access to banking services, the RBI has come out with an initiative –Financial Inclusion-- in which banking will be taken to the doorsteps of rural masses. Most of state-owned banks have already announced their Financial Inclusion plans and targets and started recruiting business correspondents in large scale. UHD, which is an Atom-based embedded device has a printer, biometric capable. It has got a smartcard reader and is also GPRS integrated. Customers can pick and choose the functions they want to perform. According to Ravichandran, the pilot programme and device testing is currently underway and they anticipate huge demand for this device as the financial inclusion programme takes off at large scale. Ravichandran said the price of the UHD instrument will depend on the configuration and may start from Rs 30,000-35,000. "Various features of the device like Battery life, connectivity are being tested in rural conditions. Hopefully by the second half of this year we see some deployments happening. People are also happy with the product," he said. Replying to another question, he said Intel was also weighing options like exporting these products to Brazil and South Africa. Further, according to a senior official of Intel, the chip maker entered in to an agreement with a Taiwanese ODM. As per the agreement Intel will get royalty for every piece that is sold.
BS
Mobile phones can be a popular medium of payment: Assocham
NEW DELHI: With the mobile telephone penetration expected to reach 100 percent by 2015, cell phones can emerge as a popular medium of payment, a survey said Sunday. While India has been among the fastest growing mobile markets, with 846 million subscribers, the country pre-dominantly remains a cash economy, Assocham said adding that as much as 67 percent of retail transactions are conducted in cash. "While the ubiquitous mobile is surely the most promising channel, the need of the hour is to develop an innovative mobile payment system," the chamber's Secretary General DS Rawat said. It said that the booming retail market with annual transactions worth USD 410 billion make phones a perfect medium for payments. A growing middle class with over 300 million people and their increasing disposable income has led to the exponential growth of retail market, it said, adding that by 2015, mobile phone penetration stands to touch about 100 percent. "But the country is pre-dominantly a cash economy with 67 percent of retail transactions being conducted in cash. All current non-cash payment modes like credit cards, debit cards and multiple mobile payment solutions appeal to a small section," it added. Mobile payments are a must for India to retain its growth where most people do not have a bank account but have a mobile phone, it said. "Stakeholders involved in the development of mobile payments ecosystems are the RBI, network operators, financial institutions and technology providers," it said.
TOI
India Inc confidence down in April-June: CII
NEW DELHI: Rising inflation and expectations of yet another hike in policy rates by the Reserve Bank has dampened the business confidence of Indian corporates for the April-June quarter, a survey today said. According to CII's quarterly Business Outlook Survey, the Business Confidence Index (BCI) for April-June, 2011 declined to 62.5 from 66.7 in the previous quarter (January-March). It said the top three business concerns are high raw material cost, infrastructural shortages and high interest rates. "Expectations appear to be relatively bleak due to uncertainties about international commodity prices, especially oil, expectations about further tightening of monetary policy and inflation which has been persistently high," it said. The headline inflation in the country stood at 8.66 per cent in April. Inflation has been above the 8 per cent mark since January 2010, much above the government's comfort zone of around 5 per cent. The RBI has increased its key policy rates nine times since March last year to curb inflation. Experts have said the central bank is likely to go for further rate hike during its next mid-quarterly review in June. Majority of the 300 companies participated in the survey foresaw an increase in the company's spending on capacity expansion during April-June period as compared to the previous quarter. Participants also said that there might be a slow down in consumer demand. Talking about the economic growth, CII President B Muthuraman yesterday said that the country's growth would slow down this year because of high inflation, rising oil prices and commodity prices. "I expect the growth this year will slow down, investments are slowing down, margins are getting squeezed over last six months. So we must expect slowing down of economy compared to last year. We will probably have growth in the region of 8 to 8.5 per cent this fiscal," he said.
ET
FHC model: safeguard against systemic failures
The fall of unfathomable financial institution Lehman Brothers in August 2007 as a prelude to deep financial crisis that gripped the world in the last few years was a wake-up call for central banks. In August 2007, the Reserve Bank of India (RBI) came out with a discussion paper on holding companies in the banking group, where the central bank suggested to have .........................
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Savings bank deregulation holds no fears
One way of protecting the interest of small savers would be to link the return on such deposits to a policy rate. The ideal policy rate for this purpose would be the reverse repo rate..........................................
Read here..................
Read here..................
Islamic Banking : What in store for India?
India recently got a green signal from the Reserve Bank of India for Islamic banking in the country. This new development was most awaited and is expected to result in some exciting progress in the days to come. India with a 15% Muslim population, the highest in a non- Islamic country.....................
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Smart Cards for Villagers
Pune: The villagers of Khopi Village, Taluka Bhor, will be handed over Smart Cards by RBI and Central Bank of India today. The ceremony will be held at 10 am at the village and will be attended by Hemanti Kulkarni, chairperson, DSK Digital Technologies Pvt Ltd, Deepali Pant Joshi, Chief General Manager, RBI, Ms. Kamala Rajan, Chief General Manager & Principal and R L Sharma, General Manager/Vice Principal, College of Agricultural Banking, RBI, Pune, and Vinod Phillips, head, Business Operations, DSK Digital Technologies Pvt Ltd. This will be an occasion to experience the Mobilis device, discovered by DSK Technologies Pvt Ltd, which is being used for financial initiatives by RBI and Central Bank of India.
FE
Double benefit for salaried class - T. C. A. RAMANUJAM
Deduction for contribution to the National Pension Scheme in the hands of the employer and exclusion of such contributions in computing exemption for Sec 80C is a morale booster for employer and employee. The New Pension Scheme (NPS) was introduced by the Union Government in 2003. According to the new scheme, employees appointed on or after January 1, 1994 will contribute 10 per cent of their Pay and Dearness Allowance to the Pension Fund Regulatory and Development Authority under the Ministry of Finance. An equal amount will be contributed by the Centre. The scheme is mandatory for Government employees, but optional for other citizens of India. NPS merely declared that tax benefits would be applicable as per the Income Tax Act 1961 as amended from time to time.
The New Section 36(1)
The Finance Act, 2011 has inserted a new Section 36 (1)(iva) with effect from assessment year 2012-13 to provide that an assessee will get a deduction in respect of contribution towards a pension scheme referred in Section 80CCD of the Act on account of an employee up to 10 per cent of the salary of the employee in the previous year. For this purpose, ‘salary' includes DA, if the terms of ‘employment' so provide, but excludes all other allowances and perquisites. Currently, contribution made by an employer towards a recognised provident fund, an approved superannuation fund or an approved gratuity fund is allowable as a deduction from business income under Section 36, subject to certain limits. However contribution made by an employer to the NPS is not allowed as a deduction. The newly inserted clause provides that any sum paid by the assessee as an employer by way of contribution towards the pension scheme on account of an employee to the extent it does not exceed 10 per cent of the salary of the employee in the previous year, shall be allowed as deduction in computing the income under the head ‘Profits and gains of business or profession'. No doubt, such deduction would have been available under Section 37. The matter, however, is placed beyond doubt by the new Section. It should, however, be noted that deduction would be available only upon actual payment. The term ‘employee' will include all employees including Director-employees. The limit of 10 per cent will apply to each employee individually. The Finance Act has also amended Section 40A (9) for this purpose.
Limits on Deduction
Section 80CCE provides that the aggregate amount of deduction under Section 80CCC and 80CCD shall not exceed Rs 1 lakh. The Finance Act, 2011 provides that contribution made by the Central Government or any other employer to NPS shall be excluded while computing the limit of Rs 1,00,000. The contribution by the employee to the NPS will be subject to the limit of Rs 1,00,000. At the same time, deduction in respect of contributions by the Central Government or any other employer to NPS available under Section 80CCD (2) will not be subject to the limit specified in Section 80CCE. This provides a leeway for employees to seek a restructuring of the pay. Employers may be willing to include the contribution to the NPS in the pay package and claim 10 per cent of the salary as deduction. Depending on the pay scales, such restructuring may offer a benefit to both the employer and the employee. The Employees Provident Fund Organisation has within its fold 4.72 crore subscribers. They get interest income of 9.5 per cent on PF deposits for 2010-11. There is also a move to increase the rate of interest .
Waiver for PF interest
In this context, the decision of the Income-Tax Department to grant an exemption from tax on the interest income on PF deposits will come as double bonanza for the subscribers. Deduction for contribution to the NPS in the hands of the employer and the exclusion of such contributions in the hands of the employees in computing the exemption under Section 80C will mean a morale booster for the employer and the employee. A caveat will be in order. The NPS has been challenged before the Central Administration Tribunal, as unconstitutional and inequitable by the Dakshin Railway Employees Union. The challenge is to the mandatory nature of the NPS in the case of government employees. There is apparent discrimination between those who joined service before January 1, 1994 and those who joined later. The matter is pending before CAT.
(The author is a former Chief Commissioner of Income-Tax.)
Tech trauma for bad assets
PSU banks are shifting to a technology-based platform to calculate non-performing assets (NPAs) in the fourth quarter — a period the lenders reported fresh defaults and made higher provisioning for bad loans. Bankers and analysts said the shift to the new platform was one of the main reasons for the rise in bad assets during the fourth quarter. The new technology is part of the banks’ core banking solution (CBS), replacing the earlier practice of tracking bad loans manually. According to the Reserve Bank of India’s (RBI) norms, if either the interest or the principal on a loan is overdue for more than 90 days, the account becomes NPA. Banks have to make provisions, or set aside funds, against such loans. Last year, the finance ministry had directed PSU banks to identify bad loans with the help of technology rather than manually. The ministry had asked the banks to migrate to such a system by March 31. This deadline has now been extended till September because of software-related problems. Indian Bank began moving to the new system from April last year, while the Bank of India, Canara Bank, Andhra Bank are in various stages of implementation with agricultural loans and advances up to Rs 50 lakh yet to come under the platform. Bankers say by September, the remaining loans will be covered. Under the technology-based platform, NPAs are tracked on a daily basis through the use of computers. Bankers pointed out that the earlier practice gave some discretion to the officials, which might have led to lower NPAs. However, in the system-generated method, NPAs are immediately identified. This is one of the reasons why PSU banks adopting the new system have shown a rise in bad loans. “It (the new method) certainly leads to transparency and prevents any form of manipulation. Moreover, it gives an accurate picture compared with the manual intervention,’’ says a senior official of the Bank of Baroda (BoB). A significant part of BoB’s loans are now under the new method. Manish Karwa, M.B. Mahesh and Nischint Chawathe, banking analysts at Kotak Institutional Equities, recently said in a note that bulk of the slips in the fourth quarter was because of the efforts made by public sector banks towards a stringent recognition platform for non-performing loans that disallowed any manual intervention. The analysts warned of fresh defaults in the next two quarters. “We expect more slippages in the first half 2011-12 from this transition as most public sectors are yet to fully complete the transition of their overall loan portfolio.”
The Telegraph
BANKER'S TRUST - ARE PSU BANK HEADS FEUDAL LORDS?
The chiefs here work under a lot of stress as they are not only answerable to their board, but also to officials of the ministry of finance and politicians, and they are not paid well, but when it comes to managing the bank, at least some of them behave like feudal lords. What does the chairman of a public sector bank do if he can’t get into the car that is supposed to ferry him to the bank’s guest house from an airport? He will catch a taxi. Right? Well, partially. Indeed, he will catch a taxi, but he will also suspend the senior executive who is at the airport to receive him. I am not cooking up this story. It happened in Mumbai in the third week of May. On a Thursday evening, the chairman of a public sector bank took a flight from a southern city to Mumbai. The liaison officer of the bank was at the airport to receive him along with a general manager who heads the bank’s Mumbai operations. The liaison officer went inside the airport to greet his chairman and the general manager preferred to wait outside while the airconditioner was on to keep the car cool on a hot and humid evening. While the chairman’s suitcase was being loaded in the car’s boot by the driver, the doors got locked with the key in the ignition. As it was not possible to get another office car at that time (it was well past 9.30pm), the liaison officer first tried to arrange for a “cool cab”, but the queue at the airport counter was long. Finally, he hailed a Meru cab to take the chairman to the bank’s guest house in Cuffe Parade in south Mumbai, but by that time, the chairman lost a precious 45 minutes and his cool. The delivery of the suitcase at 1am to the guest house and the apology of the general manager next morning (he even touched the chairman’s feet, I am told) did cut no ice with the chairman, who suspended him on Friday. The suspension order was revoked after a national daily narrated the story graphically last week. I am not naming the bank and its chairman as more than individuals; this incident is probably symbolic of the culture in public sector banks that account for roughly 70% of the Indian banking industry. The chiefs here work under a lot of stress as they are not only answerable to their board, but also to officials of the ministry of finance and politicians, and they are not paid well, but when it comes to managing the bank, at least some of them behave like feudal lords. Using guest houses for personal purposes such as accommodating relatives when their children get married is not uncommon for the bosses. In the executive lunch room of one public sector bank, I have seen a particular table being reserved for the chairman where no one is allowed to sit. In yet another bank’s lunch room, I have seen the chairman eating green chillies till beads of sweat trickled down his bald head and somebody wipes it with a white towel before serving dessert. The suspension of a senior executive for being stranded at an airport for about an hour may be a little too much, but a few years back another senior executive of another bank got transferred to the North-East—traditionally seen as a punishment posting for a banker—after a guest house elevator got stuck with both the chairman and his wife inside. To pacify his wife, who was very upset, the chairman had to leave the guest house immediately and at night shifted to the guest house of another organization that he had previously headed. The general manager was handed his transfer letter the next morning. How do private sector bankers deal with such situations? Differently. This is not because they get higher compensation packages and have more patience and less stress in work. Most private banks have facility management divisions that look after logistics and other related issues, and normally the senior managers do not get involved in arranging the chief executive’s vehicle at the airport or food at the guest house. Only when it comes to fixing appointments in the finance ministry or the regulator in Mumbai do senior managers get involved. They attend such meetings with the chief executives, take notes, and oversee the follow-up actions. But greeting the boss at the airport, and arranging vehicles and flowers at the guest house are the responsibility of the facility management division. I spoke to a Mumbai-based psychiatrist to understand why such things happen in the public sector banking industry. Are the bosses a pampered lot? Is it outright feudalism? The psychiatrist—she doesn’t want to be named—blames both the culture as well as individuals for such incidents. According to her, one should not generalize such problems and instead focus on an individual’s behaviour. After all, everybody does not suffer from road rage. She also wants to know why the general manager went to the airport to receive his chairman. I am told the rulebook does not say that a senior executive needs to be present at the airport, but by tradition most go and there are bosses who actively discourage this practice as it’s a sheer waste of time that can be better utilized for soliciting business or recovering a bad asset. After discussing these episodes with the psychiatrist, I am feeling a bit relieved, as such incidents could be exceptions and not norms. Meanwhile, here is a piece of advice to the reinstated general manager. Next time he goes to receive the chairman at the airport, he can carry a tennis ball with a hole drilled in it. Apparently, if you place the tennis ball against the outside lock where you would normally insert your key and push as hard as you can, the air pressure will pop the inside lock open. Needless to say, I read this on the Internet and have not tried it yet.
Mint
Sunday, May 29, 2011
RBI goes back to school, digs deep into research & training
Usha Thorat, head of RBI’s recently set Centre for Advanced Financial Research and Learning says that while most countries come armed with financial research on the G20 summits, India clearly lags behind. “There is a real dearth of research in the financial sector issues,” says Thorat. The new section of the central bank is set to create a “global hub for both research and learning in banking and finance.”
Thorat, who also heads the NBFC rules committee, discloses that the report that will be submitted by the end of June is likely to manage regulatory arbitrage and regulatory overlaps.
Below is a verbatim transcript of Usha Thorat’s interview with CNBC-TV18.
Q: What is the term of reference of this institution? What are you planning to achieve?
A: Let’s look at the name itself - the Centre for Advanced Financial Research and Learning - so it is really expected to become global hub for both research and learning in banking and finance, which is the broad objective of this center.
Q: What you do? You hold training courses for bankers? What is your core strength? Will you be having researchers? Will you be having teachers, will you be having bankers?
A: Basically, we are looking at is the two basic activities — research and learning. When we look at research, we want to do high quality research. However the research needs be useful to bankers, regulators, supervisors, policy makers and governments, hence, needs to have applicability. In general, the financial sector is under researched in India. The kind of data that you need in a manipulable form is not available. There is a certain amount of lack of research and this reflects in all our participation in the global forum. When you are going on to the G20 or you are going to the Financial Stability Board or the Basel Committee, most of the countries come with research backing them. There is a real dearth of research in the financial sector issues.
Q: Coming to the more operable part, you have to have Basel II, Basel III norms. Will you be training RBI staff itself into outdoor?
A: It will encompass both research and learning. We would have a set of programmes for training RBI staff and the banks own management as also the banks; we are not planning to go down in the bank, as long as we sensitize the top and senior management to the needs of risk management and Basel III.
Hence, we are focusing initially on financial risk management, financial regulation, and financial markets as the areas of priority. We will be holding programmes for senior management of the banks and courses may be for our own people to be able to move over to more advanced methods under the Basel II and Basel III
Q: You are also still one foot in the RBI in terms of heading the NBFC rules committee. Are you all close to submitting report?
A: We are close to submitting our report by end of June as the governor stated in his monitory policy statement. It has been wide range of issues that have been referred to us and we have had the benefit of traction with the market participants as well. It is quite a challenging task and it is quite complicated as well, because essentially the focus is firstly why do you regulate? How do you regulate and supervise and not miss things out and how do you not spend too much time on what you really don’t need to be doing? So, it is a kind of ensuring that supervisory resources are optimized. At the same time, you don’t want to be doing things you need not be doing.
Q: Will the term of reference or will the end result be that you have to come to terms with the fact that NBFCs you can’t manage with light touch regulation anymore, there will be more heavy regulation?
A: It has to be in the context of what has been the experience. It has got to do what is the international experience; it also has to deal with regulatory arbitrage and regulatory overlaps. Hence, we need to be able to handle all of this while looking at the eventual outcome.
Moneycontrol
Banks fail in agriculture funding, rue State officials
Bhubaneswar: State Development Commissioner (DC) and Agriculture Production Commissioner (APC) Rabi Narayan Senapati expressed his concern over the bankers’ reluctance to provide loans to agriculture and allied sectors. He was addressing the State Level Bankers’ Committee (SLBC) here on Thursday. Senapati revealed that banks as a whole have lent Rs 6,752 crore against the target of Rs 9,166 crore for the agriculture sector. This year, an ambitious target of Rs 12,924 crore has been set for the banks for funding the primary sector of the State, he said. Principal Secretary of Finance JK Mohapatra and Principal Secretary of Agriculture RL Jamuda echoed the concern of Senapati. Commissioner-cum-Secretary of Fisheries and Animal Resources Development Satyabrat Sahu came down heavily on the erring bankers, who are just not providing enough loans to the sector. Gauging the mood of the top bureaucrats, SLBC Chairman and UCO Bank Executive Director Ajai Kumar said the banks in Odisha have to finance more and more to the agriculture sector to enhance the income of farmers. Robust institutional credit would increase agriculture production and productivity, which in its turn would boost the State’s economy, he said. Expressing concern over the fact that a large number of applications under pisciculture and horticulture are pending with different bank branches, Kumar said steps should be taken for their disposal without further delay. The banks’ proactive role in providing finance to farmers would help them come out of the clutches of the private moneylenders, he said. He, however, observed that the State Annual Credit Plan of Rs 25,233 crore for the year 2011-12 "is a very high amount." Under the Annual Credit Plan 2010-11, the achievement of banks in all sectors was 97 per cent. The percentage of priority sector advances to total advances is 57.54 per cent against the national parameter of 40 per cent. However, the credit target for the current fiscal is on the higher side, he added. Kumar emphasised that the banks should increase their CD ratio to meet the target. Even though the present CD ratio of the banks as a whole in the State is 65 per cent, some of the banks have not achieved the CD ratio of the national parameter of 60 per cent, he pointed out. On the Financial Inclusion Plan, he said all the 1,878 villages with more than 2,000-population would be covered under banking facilities by March 2012. Kumar also said that the banks should give more stress on financing to the MSME sector for the development of the State. Kumar said the banksm which have been selected to open RSETIs (Rural Self Employment Training Institutes) in their respective lead districts, should set up them without further delay. Among others, RBI Regional Director B.K.Bhoi, NABARD Chief General Manager MK Mudgal, SBI Chief General Manager CH Narasimha Rao and UCO Bank General Manager and SLBC convener SK Dey Purkayastha were present at the meeting. Many bankers expressed their concern overthe poor recovery performance, particularly under the Government-sponsored schemes.
Pioneer
India Inc gets more room to invest abroad
Overseas direct investment rules for Indian companies were substantially relaxed by the Reserve Bank of India (RBI) on Friday, cutting by half the financial commitment for companies when they provide guarantees for projects on behalf of their overseas subsidiaries or joint ventures. The RBI has also allowed them more leeway to restructure the balance sheets of these entities. As more Indian overseas ventures compete to bag projects abroad, their parent companies were finding it more difficult to provide a 100% performance guarantee for each project. The cost of such guarantees were crimping the balance sheets of the Indian companies. Instead of the 100% performance guarantees issued to or on behalf of the JV or the wholly–owned subsidiary (WOS) that was taken into consideration while arriving at the financial commitment, it has now been lowered to 50%. “Considering the risks associated with such guarantees vis- Ã -vis financial guarantees, it has been decided that only 50% of the amount of the performance guarantees may be reckoned for the purpose of computing financial commitment to its JV, WOS overseas, within 400% of the net worth of the Indian party as on the date of the last audited balance sheet, ” the RBI said in a notification.
IE
PM hopeful of 8.5 per cent growth in current fiscal
Disagreeing with the Reserve Bank, Indian Prime Minister Manmohan Singh on Saturday expressed optimism that India will be able to achieve 8.5 per cent growth during the current fiscal despite concerns over high oil prices. "As of now I have not seen any sign that we should change our view with regard to our ability to sustain a growth rate of 8.5 per cent... I am confident that we will be able to sustain a growth rate of 8.5 per cent this year", he told reporters who accompanied him on his visit to Africa. The Reserve Bank of India, country''s central bank, in its annual credit policy had pegged the growth for the current fiscal at 8 per cent, down from 8.6 per cent recorded during 2010-11. Referring to agriculture situation and its impact on inflation, Singh said, "Whatever evidence we have, we expect a normal monsoon. And if the monsoon is normal, it will strengthen our ability to control food inflation". The headline inflation was 8.66 per cent in April, much higher than the Reserve Bank''s comfort level of 5-6 per cent. On oil prices, Singh said, "There are problems with regards to the burden of oil subsidies. They have to be tackled and all these issues will be claiming our attention in weeks and months to come". Although the oil marketing companies have raised the petrol rates in view of spiralling prices in the international market, the government is yet to take a view on diesel prices. A decision on raising diesel price is likely to be taken by the Empowered Group of Minister (EGOM) headed by Finance Minister Pranab Mukherjee in the second week of June. India imports about 75 per cent of its total crude oil requirement.
MSN
Growth and Finance
IN THIS BOOK, TOP EXPERTS, POLICMAKERS AND ECONOMISTS OFFER THEIR ASSESSMENTS OF INDIA'S PERFORMANCE IN THE AREA OF ECONOMIC AND FINANCIAL REFORMS AND ANALSE THE CONTINUED CHALLENGES
P. P. Ramachandran : The book under review is a festschrift in honour of Dr. C. Rangarajan.
Continue reading..........................
Singapore bank freezes all accounts of Speak Asia
Raipur: All accounts of survey and research company, Speak Asia, have been closed by the Singapore-based United Overseas Bank in India and Singapore. The multi-level marketing company is facing serious allegations of fraud. This development will lead thousands of members in Chhattisgarh and 19 lakh in India to bear huge losses. The AGM of Reserve Bank of India, R Maheshwari, has made it clear that Speak Asia has not been granted permission to carry out its operations in India. All the offices of the company in the city, including the main office in Katoratalab, have been closed. Several members of the company have filed written complaint with IG Mukesh Gupta and SSP Dipanshu Kabra against Speak Asia. The investors have said that after the closure of company’s account the payment has been stopped and they are not receiving the SMS from Speak Asia which they used to get earlier. Over 50 thousand people from Raipur, Bhilai, Durg, Rajnandgaon, Bilaspur, Jagdalpur and several other districts had invested Rs 150 crore in Speak Asia. Speak Asia is the company where consumers pay around Rs 11,000 for a membership which will allow them to conduct some surveys online for the firm. The members also get paid for filling those surveys. It is believed that the Rs 11,000 investment could be recovered within three months.
Daily Bhaskar
Saturday, May 28, 2011
Taxpayers, watch out for this RBI site
Cyber criminals are using their best bait in the Indian cyber space to con more and more internet users. This time it’s in the name of the apex banking organisation of the country, the Reserve Bank of India (RBI). Researchers at Pune’s Global Intelligence Lab of e-security giant Symantec found a phishing spam propagated in the cyber space wherein a fake website carrying RBI’s name has been created. After the income tax department announced that the last date for sending tax returns for the present financial year has been extended to July 31, phishing sites have been created to con internet users. The website carries the RBI logo and name and it has been mentioned on the homepage that the users will get their tax refund amount deposited into their personal bank accounts. Users are lured into putting their personal and confidential banking details on the website. Gaurav Kanwal from Symantec said, “Symantec has been in contact with the RBI. The bank has said that emails sent in its name to customers have been observed asking for bank account details. The RBI has clarified that it has not sent any such emails and that the RBI or any bank never issues communication asking for bank account details for any purpose. The RBI has appealed to the public to not respond to such emails and not share their bank account details with anyone for any purpose.” A list of country’s eight leading banks has been mentioned of the website. Users are asked to select the bank in which they have their accounts. They are then asked for their customer ID and PIN or the password. Assuming it to be the RBI website, users end up providing such confidential details, making themselves easy target for cyber criminals who have launched the website and extract the valuable information. The fake website then takes the users to another webpage which asks for their credit card and/or debit card details. After users key in these details, the website displays a message acknowledging that the request for the tax refund has been submitted successfully. Users are then redirected to the real RBI website. This is not the first time that a government institution’s site has been spoofed. Last year, during the same period, a website in the name of the income tax department had been created by cyber criminals. To avoid phishing attacks, internet users are advised to not click on suspicious links in email messages, avoid providing any personal information when answering an email, never enter personal information in a pop-up screen and update security software frequently.
DNA
Polaris to offer Intellect Core Banking to RBI
Intellect CBS will help the RBI to have a cross functional automation and integration of the banking operations in all regional offices of the bank with departments like Deposit Accounts and Public Accounts Department.
CHENNAI, INDIA: Polaris Software, a Financial Technology company, on Friday announced that it would implement its Intellect Core Banking System (CBS) across Reserve Bank of India (RBI). The end-to-end implementation includes System Integration and maintenance of software for a period of ten years, said a press release. The deal is valued at $55 million, the release added. RBI, India's Central Banking Institution, wanted to implement a centralized CBS at all its offices encompassing all banking and accounting operations to align with its current and future IT requirements, including one Generalized Ledger for the bank. Intellect CBS would help the RBI to have a cross functional automation and integration of the banking operations in all regional offices of the bank with departments like Deposit Accounts, Public Accounts Department and Pubic Debt Office. It would bring technologies like Run Time Reuse, Look Ahead Processing, Back Ground Processing and Transaction Splitting to ensure high scalability and performance in both OLTP operations and batch operations like EOD, claimed the company. The solution would provide future regulatory and functional requirements of RBI with shortest go to market timelines. It would also offer security features by design such as internal account numbers, tamper proof database, PKI supported transaction execution and storage, security in account operations including positive pay features, document certification and verification, two factor authentication and one time password provisions. Arun Jain, chairman and CEO, Polaris, said, “I am delighted that after stringent evaluation of the Next Generation architecture of Intellect, RBI chose Polaris. This $55 million deal is the single largest Intellect win for Polaris.”
Basu pitches for FDI in multi-brand retail to tame inflation
Describing the Indian retail sector as "primitive", the IMG on Friday suggested that foreign investments in the multi-brand retail should be allowed at the earliest to check rising prices. "India's retail sector continues to be primitive. It’s time for India to allow FDI in multi-product retail and IMG recommends that the government consider this at the earliest," Chief Economic Advisor and head of the Inter-ministerial Group (IMG) Kaushik Basu said. Besides opening the retail sector for FDI, the IMG also advocated reforms in agriculture marketing laws to reduce the gap between farm gate and retail prices and contain inflation "which has emerged as a major concern in the past few months". Headline inflation, stood at 8.66 per cent in April, much above the Reserve Bank's comfort level of 5-6 per cent. Food inflation was 8.55 per cent for the week ended on May 14. The IMG constituted in February by Prime Minister Manmohan Singh, however, said the FDI in multi-brand retail should be opened in a calibrated manner. "We are not saying just open the gates and let them (foreign investors) anywhere and everywhere," Basu said adding initially few foreign investors should be allowed and that too in specific areas away from cities. "We want to specify physical areas (for foreign retailers) so there is also lot of room for small traders," he added. He said FDI in the sector will serve the interest of both farmers and consumers in long run. "This could provide remunerative prices to farmers and fare prices for consumers specially during the peak marketing season," the advisor said.
NDTV Profit
Refund failed ATM transactions in 7 days: RBI to banks
The Reserve Bank today directed banks to reimburse customers for amounts wrongfully debited from their accounts in failed ATM transactions within seven days of an account holder's complaint or else pay a Rs 100 per day compensation. "The time limit for resolution of customer complaints by the issuing banks shall stand reduced from 12 working days to seven working days from the date of receipt of customer complaint," the RBI said in a notification. Failure to re-credit the amount within seven working days will require the issuing bank to pay a compensation of Rs 100 per day, it said. Earlier, banks were required to reimburse customers for amounts wrongfully debited from their accounts in failed ATM transactions within 12 days. The RBI further said that all customers are entitled to receive such compensation for delays only if a claim is lodged with the issuing bank within 30 days of the date of transaction. The directive shall be come into effect from July 1, 2011. The central bank instructed the issuing bank and the acquiring bank to settle failed ATM transaction disputes through the ATM system provider only. "No bilateral settlement arrangement outside the dispute resolution mechanism available with the system provided is possible," RBI said. This measure is intended to reduce instances of disputes in payment of compensation between the issuing and acquiring banks, it added. The RBI said that the step has been taken to bring down the instances of disputes in payment of compensation between the issuing and acquiring banks.
BS
RBI slaps notices on several banks, asking them to pay crores of rupees as fine for dishonour of instruments under ECS beyond the acceptable limits
The Reserve Bank of India has written letters to several banks because they have crossed the limit of instruments dishonoured under the Electronic Clearing Service (ECS); 3%-5% is the acceptable apex bank norm—in a few cases, the percentage of dishonoured instruments under ECS has been as high as 30% to 40%. However, this move is a warning, and may not lead to punitive action The RBI (Reserve Bank of India) keeps a track on the percentage of dishonoured instruments cleared under the ECS of all banks. The ECS allows paperless direct credit and debit transactions for all banks. However, if a bank crosses the limit of instruments dishonoured under the ECS, the RBI asks the respective bank for an explanation. According to the apex bank, "3%-5% is the tolerance level on a daily basis. At times when it goes up to 30%-40%, we ask the bank to find out about the particular accountholders whose instruments are not being honoured under ECS." Often, banks are not aware about the accountholders who are repeatedly dishonouring their financial instruments as ECS is transmitted in bulk to the clearing house. The main problem is that even if one of the ECS instruments bounces, then it affects two or three banks at a time. It affects the ECS user bank, the ECS beneficiary bank and the destination bank to which the amount has to finally get transferred. In a letter addressed to ICICI Bank, a copy of which is with Moneylife, the RBI has said: "Please refer to paragraph 2 of the Minutes of the General Body Meeting of the Chennai Bankers Clearing House (CBCH) held on August 2, 2010 and our letter dated October 28, 2010 relating to return clearing discipline. In pursuance of the instructions contained therein, it has been decided to invoke penalty @Rs. 1000.00 per return for the month of January. The number of MICR and as well as RECS (Dr) returns of your banks has since been generated from the system and the details are been given in annexure. After deducting the tolerance of 4% and 5% on MICR and RECS returns respectively, a penalty of Rs 39821000.00 (Rupees Three Crore Ninety Eight Lakh twenty One Thousand only) is proposed to be imposed on your bank for non-adherence to the return discipline. You are hereby advised to put forward your case as to why Rs 39821000.00 (Rupees Three Crore Ninety Eight Lakh twenty One Thousand only) shall not be imposed on your bank. Your response should reach this office on or before 15 days from the issue of this letter, failing which it shall construed that you have nothing to report and accordingly the Bank shall proceed with a suitable action." We gather that several other banks have been pulled up in a similar fashion. Thus, the RBI has defined a definite tolerance level beyond which it would charge a bank a certain fine on each rejection. That is why the RBI has threatened to charge a Rs3.98 crore fine for ECS dishonour beyond acceptable limits on ICICI Bank. Moneylife spoke to the RBI for clarification. The central bank spokesperson said, "There were several banks that were not adhering to what we call 'return discipline' in Chennai and the notice was issued to all of them. The fine amount, though, varied. The purpose of the show-cause notice was to shake the banks out of complacence and to ensure that the rate of 'returns' fell within our comfort zone (and not really to collect fine amounts from them). There is significant improvement in the position now and we are not pursuing the penalties with the banks." It was only after receiving the letter from the central bank that banks started screening accounts and transactions and are stopping all ECS debits. ECS is a mode of electronic funds transfer from one bank account to another using the services of a clearing house. This is normally utilised for bulk transfers from one account to many accounts or vice-versa. This facility can be used both for making payments like distribution of dividend, interest, salary, pension, etc. by institutions or for collection of amounts for purposes such as payments to utility companies (telephone, electricity), or charges (house tax, water tax), etc or for loan instalments of financial institutions/banks or regular investments of individuals. The ECS user bank is called the 'sponsor' bank under the scheme and the ECS beneficiary accountholder is called the ECS 'beneficiary' bank. The destination account holder's bank or the beneficiary's bank is called the 'destination' bank. The beneficiaries of regular or repetitive payments can also request the paying institution to make use of the ECS (Credit) mechanism for effecting payment.
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