Monetary policy review: the two core subjects

WORRIED LOT

RBI Governor D. Subbarao (centre) and Deputy Governors K. C. Chakrabarty (left) and Subir Gokarn arrive for a meeting to announce the half- yearly review of RBI’s monetary policy in Mumbai last week

Deregulation of savings bank interest rate is an important step

Although it was most keenly anticipated, the 25-basis point hike in the repo rate to 8.50 per cent has been less of a surprise than two other announcements. The Reserve Bank of India's statement, as part of its forward looking guidance, that “notwithstanding current levels of inflation persisting till December, the likelihood of a rate action in mid-December review is relatively low'' is the clearest indication that monetary tightening that began in February, 2010, is coming to an end. The second significant announcement is the one relating to deregulation of savings bank deposit rate. As always, inflation has been the dominant concern of policymakers. The apex bank's indication of a ‘pause' in the interest rate action has been welcomed by industry and banks. Of course, there are caveats to this long-awaited policy statement. The central bank expects the inflation rate to start declining from December “and then continue down a steady path to 7 per cent by March, 2012.” (The RBI has retained its inflation projection for March 31, 2012, at 7 per cent). It is expected to moderate further in the first half of 2012-13. The projected decline in inflation is partly attributed to the fall in commodity prices and partly due to the cumulative impact of monetary tightening. Further, moderating inflation rates will in turn impact favourably on commodity prices. These expected outcomes will give room for monetary policy to address growth concerns in the short-run. However, monetary policy's traditional trade-off between supporting growth and curtailing inflation — till now heavily tilted towards the latter — has only slightly become more evenhanded. As always, monetary policy actions will have to respond to changing macroeconomic conditions. Inflation risks continue to remain high over the medium-term. Several factors are responsible for this — structural imbalances in agriculture, infrastructure capacity bottlenecks, distorted administered prices of several key commodities and the tardy pace of fiscal consolidation. These risks can only be mitigated by concerted policy actions on several fronts. The slow progress in some of these has been causing concern. For instance, on the crucial area of fiscal consolidation, the Finance Minister has said that it may not be possible to rein in the fiscal deficit to within 4.6 per cent of the GDP as projected in the Union budget.  The RBI has categorically stated that in the absence of progress on some of these key issues over the medium-term, the monetary policy stance will have to take into account the risk of inflation surging in response to even a modest growth recovery.

Freeing SB deposit rates

Three favourable outcomes are expected from the policy action and guidance — on the basis of a credible commitment to low and stable inflation, medium-term inflation expectations will remain anchored; the emerging trajectory of inflation, which is expected to begin to decline in December, 2011, will be reinforced; and these two in turn will stimulate investment activity. Announced as part of the review covering developmental and regulatory policies, deregulation of savings bank interest rate is an important step, having deep implications for banks as well as their customers. For nearly eight years until May this year, the savings bank deposit rate remained at 3.5 per cent after which it was raised to 4 per cent. In another move that had benefited the customers, the RBI asked banks to calculate interest on the daily balances in their accounts. Until then banks were calculating interest on the minimum balance in the customer's account between the tenth and last date of the month. It is not clear whether, after deregulation, banks will continue to pay interest on the daily balances or switch to some other mode such as monthly or quarterly basis.  Deregulation of savings bank deposit rates has taken place long after all other deposit rates and most rates on advances were freed. Experience so far with deregulation has been satisfactory. It has spurred competition in the financial sector, imparted greater efficiency in resources allocation and strengthened the transmission mechanism of monetary policy. However, even with all the perceived benefits from the earlier deregulation, freeing savings bank interest rates was by no means a given. An RBI discussion paper, circulated six months ago, was tilted towards deregulation, even while listing the pros and cons of such a move.

Opposition to the move has specifically centred on the following:

Savings bank accounts are predominantly used by the not so well-off and those in rural areas. The regulator and not individual banks is better equipped to take care of these account holders. However, the argument has lost much of its weight in a scenario where the opening of the financial sector so far has passed on the benefits all round. It is not inconceivable that even the vulnerable sections will benefit from the freeing of saving bank interest rates. Innovation will get a boost as banks engage each other in a combination of price and non-price competition. Most public sector banks and even some leading private banks such as ICICI Bank and HDFC Bank have a high proportion of savings bank deposits. Over time, these banks have come to depend on these low cost deposits for bridging their asset-liability mismatches. While technology application and innovation will enable some of these banks to retain their edge, the fear is that decontrol will lead to some reckless bidding by a few banks. That would be injurious not only to them but the entire financial sector. However, it has been pointed out that term deposit interest rates have been freed for quite a while and barring isolated instances have tended to converge within a narrow range. For the common man, the savings bank account is the first and often the only point of contact with the banking system. It is about time that a major disincentive in the form of low, administered deposit rate is removed.

HBL 

RBI urged to evolve ‘know-your-bank' framework

Anticipating the possibility of banks outdoing each other with their new-found freedom to set interest rates on savings bank deposits, a bank depositors' body wants the Reserve Bank of India to evolve a ‘know-your-bank' framework for customers. This could serve as a guide to place deposits with banks having superior ratings. This demand from the All-India Bank Depositors' Association comes in the wake of the RBI announcing complete deregulation of the interest rate on savings bank (SB) deposits on October 25. Prior to the liberalisation, all banks paid the stipulated 4 per cent interest rate on these deposits. In view of the likelihood of higher interest rates being quoted on SB deposits of over Rs 1 lakh and non-availability of insurance cover on such deposits, it is all the more important that depositors know the financial standing/grading of banks before placing deposits with them, said Mr Ashok Ravat, Honorary Secretary, All-India Bank Depositors Association. The RBI, in its second quarter review of monetary policy last Tuesday, said that each bank has to offer a uniform interest rate on SB deposits up to Rs 1 lakh. In the case of SB deposits over Rs 1 lakh, banks may provide differential rates of interest.  Bank depositors, especially those placing deposits of over Rs 1 lakh, would do well to ensure the safety of the principal deposit amount and not get lured by higher interest rates that some banks may quote on SB deposits, cautioned Mr Ravat. Currently, insurance cover on bank deposits is limited to Rs 1 lakh per depositor on deposits held by him/ her at all the branches of a bank taken together. This cover is provided by the RBI's subsidiary, the Deposit Insurance and Credit Guarantee Corporation.  If a bank goes belly-up then the Corporation, which insures all bank deposits, such as savings, fixed, current, and recurring, can settle claims in respect of deposits up to Rs 1 lakh. The depositor has to bear the risk for deposits over this limit. The RBI knows the status of banks' health by virtue of being their regulator and supervisor. Hence, it should make the public aware of banks' financial health through a ‘know-your-bank' framework so that depositors are aware that they are placing deposits with strong banks, said the Association representative. When the RBI has prescribed that banks should strictly adhere to ‘know your customer' norms to prevent money laundering and financing of terrorism, customers too should have a ‘know-your-bank' reference framework so that they can place deposits with banks which have a relatively better regulatory grading.  “Before shopping around for higher interest rates on SB deposits, depositors should ensure the safety of their funds.  “The RBI knows the status of banks' health as it regulates, supervises and inspects them. There is no harm in putting the grades given to banks in public domain so that depositors can take their decisions to place deposits accordingly,” said Mr Ravat.

HBL

Curb fake currency to check inflation: RTI activist

Struggling hard to control surging inflation by making credit dearer, the Reserve Bank of India has got a peculiar suggestion: focus on counterfeit currency to fight spiralling prices. The prescription came through an application under the Rights to Information Act by an activist from down-south Kerala state. “In our country, where unaccounted and forged money are prevailing, if we ensure the security of the notes seriously, we can easily put the price index to a low level,” according to R Murali’s application to the central bank. To a query on what action RBI has taken in this regard, the latter refused to answer, saying this is not information that could be given under the RTI Act. The applicant also suggested a change in the design of the notes and the circulation of the new-look ones to offset the menace of the conterfeit currency floating in “large scales”.  The central bank refused to answer this too. However, RBI did inform the applicant that the process of strengthening design and security features was completed earlier in 2005 and the central bank periodically reviews these issues. There is no official estimate of the fake currency in circulation, thus making it difficult to assess its impact on fuelling inflation, it added. However, earlier this year, Global Financial Integrity had said the counterfeit rupee was becoming a cause of concern in India. “Fake rupees are believed to be printed in Pakistan and then channelled through Dhaka, Bangladesh and Bangkok, Thailand into Kathmandu,” according to its February report on ‘Transnational Crime in the Developing World’. The report had said Indian authorities estimate that as many as 400 million fake rupee notes with a value of some $9 million are in circulation in the state of Uttar Pradesh alone. Also, fake currency dealers in Nepal projected in 2009 that India would, by 2010, see the circulation of fake currency with the face value of nearly Rs 10,000 crones ($2.2 billion). RBI, in November 2009, had instructed banks to reissue notes in the denominations of Rs 100 and above over their counters or through ATMs — only after machines checked and confirmed their authenticity. For this purpose, banks should use such machines in all their branches having average daily cash receipts of Rs 50 lakh and above, the central bank had said. This year, wholesale price-based inflation in India refused to come below the nine per cent mark till last month, despite successive rate hikes by RBI. This, when the central bank had raised policy rates 13 times since March, 2010.

BS

RBI on board, DMO to be operational by FY12-end: FinMin

An independent debt management office (DMO), to handle the sovereign debt of the government, is likely to be fully functional by the end of the next financial year. The finance ministry would try to table a Bill to this effect in the upcoming winter session of Parliament. The ministry has sent the draft legislation to all stakeholders, including the Reserve Bank of India (RBI), and the comments are expected shortly. If all the stakeholders are on board, the ministry will seek the Cabinet’s nod to seek Parliament’s approval so that DMO can become operational in 2012. RBI has often voiced its discontent, on the proposed move of shifting debt management functions under its aegis to the North Block. While, a finance ministry official said all the differences with the central bank have been ironed out, the central bank has yet not publicly supported the move. “We are targeting the winter session for Public Debt Management Agency of India Bill. We need RBI’s comments for drafting legal provisions and various other technicalities. Our aim is to make DMO operational towards the end of the next financial year (2012-13),” said a finance ministry official.  Any objection by RBI, now, may scuttle the chances of introducing the Bill. The finance ministry, however, has said it has tried to address the concerns of RBI in the design and structure of DMO. Simultaneously, it has started preparatory action on setting up DMO. RBI Governor D Subbarao was against shifting DMO to finance ministry because of human resources and manpower issues. The finance ministry has assured that all 21 public debt offices of RBI will continue to function as they are doing today, but they will function at the behest of DMO. RBI’s another concern was, when DMO was thought of, the government’s fiscal situation was under stress. To this the ministry’s argument is, the government is on the path of fiscal consolidation. According to the finance ministry, with the setting up of the DMO, the dilemma of RBI between managing monetary policy and debt operations of the government will be eliminated. At present, both the government’s debt and fresh borrowings are managed by the central bank. The finance ministry feels there is a conflict of interest and wants to separate RBI’s role as the decider of interest rate in the market and at the same time being the banker to the government. Earlier this year, RBI Governor D Subbarao had said only the central bank had the requisite expertise to manage market volatility, and an independent debt agency, driven by narrow objectives, would not be able to do. Finance minister Pranab Mukherjee in his Budget speech of 2011-12 had proposed to introduce the Public Debt Management Agency of India Bill in the next financial year.

BS

Banks caught in RBI-finance ministry divide

Central bank unhappy with North Block’s EMI diktat to banks, asks for more provisioning

Just a few months after the finance ministry asked public sector banks to increase the tenure of home loans, the Reserve Bank of India (RBI) wants banks to increase provisioning for such extensions as they amount to asset restructuring. The ministry’s directive in August asking banks not to increase equated monthly instalments (EMIs) and instead increase the repayment tenure was aimed at providing some relief to customers amidst painfully high interest rates. But, the banking regulator isn’t amused by the directive. It sees this as encroachment on its turf. The RBI has asked banks to treat a home loan tenure increase as loan restructuring. As a result, additional capital is required to be set aside for those loans. Banks are already facing pressure on asset quality, following the economic slowdown amid high interest rates. The additional provisioning requirement will add insult to injury as it will deplete their bottom line further. According to RBI norms, standard assets restructured by banks will be immediately reclassified as sub-standard assets and attract higher provision. Bankers say they are sandwiched between the RBI and the government. “The government directive has clearly not gone down well with the regulator. The central bank is of the view the government should have consulted it before taking such a decision. Any such circular is ideally issued by the regulator,” says a senior banker. Several banks, including State Bank of India, Syndicate Bank and Central Bank of India, increased the home loan repayment tenure to 25-30 years, as compared to 20 years earlier, after the finance ministry circular. Some of the banks, which were not willing to increase the repayment tenure, approached the RBI for a clarification on the provisioning requirement, and were told there would be no let-up on that. Bankers said increasing the EMI tenure for a couple of years was a common practice done by way of an informal understanding with customers. “However, now that the government wants to make it mandatory by issuing a circular, the RBI wants us to play by the book,” says another banker. Banks now blame the finance ministry for making an informal practice mandatory, for which they have to pay the price in terms of higher provisioning. The issue was also raised during the post-policy meeting of bankers with senior RBI officials on October 25. In the second quarter review of the policy, the RBI had announced the constitution of a working group to review existing guidelines on restructuring of advances. Bankers who attended the meeting said the working group was also expected to take up the issue.

BS

Bank Staff Begin 72-Hour March to Mumbai

Thousands of citizens along with employees of Pen Urban Cooperative Bank from Maharashtra's Raigad district Sunday started a march to chief minister's bungalow in Mumbai to press for their demands. As a part of the 'Save Pen's Bank' movement, depositors, employees and account holders of the bank from Pen town of the district started the 72-hour march to Mumbai. The movement was supported by the All India Bank Employees Association (AIBEA) and the Maharashtra State Bank Employees Federation. The Reserve Bank of India (RBI) in September last year imposed stringent restrictions and passed an order for the closure of 18 branches of the Pen Bank. Despite this the bank was said to have released loans for over Rs.500 crore to non-existing account holders without verification of documents. The RBI, in October last year, imposed a penalty of Rs.1 lakh as the bank failed to satisfactorily respond to a show cause notice. "The 72-hour march will culminate at Chief Minister Prithviraj Chavan's residence where a delegation of bank representatives will meet and apprise him of the situation," said Vishwas Utagi, general secretary of AIBEA. "Several employees have lost their jobs and thousands of depositors and account holders have lost their money due to many scams by the bank's chairman and directors," he added. In November last year, bank chairman Shishir Dharkar, his wife and six others were arrested in connection with another scam related to gold export worth Rs.480 crore.

http://www.daijiworld.com/news/news_disp.asp?n_id=120606

Saved by RBI

Savings rate deregulation could be a bonanza for small depositors

The Reserve Bank of India (RBI) has at last rung down the curtain on administered lending rates by freeing the interest rate on savings bank accounts. The interest rate was pegged at four per cent in May after remaining unchanged for eight years. Banks will now be free to pay whatever they like as long as they offer a uniform interest rate on savings bank deposits of up to Rs 1 lakh, beyond which differential rates can be offered depending on the size of deposits. Being able to get away with paying less was a crutch that was offered to the state-owned banks in order to give them time to get ready to face competition implicit in a level playing field. Twenty years, since the reforms began, is a long time in which to grow up. The move will be an invaluable gain for ordinary depositors, who have been getting the short end of the stick by earning a pittance for their money at a time when inflation has been running close to 10 per cent. Banks have a point when they say that these accounts are mostly run like current accounts to meet day-to-day obligations and so do not deserve to earn any interest. If interest rates are free to ride the market, then bank charges should also be levied on the number and size of transactions. But with core banking in place, banks’ cash management capabilities have undergone a considerable change and banks deserve to be compensated only for any fluctuation that their aggregate current account savings account (Casa) deposits face from large numbers of small transactions that cannot be attributed to any extraneous factors. Banks are, in fact, benefiting from the increasing use of electronic cash transfers. People keep less cash at home (maintain higher bank balances) because they can make just-in-time electronic withdrawals and payments, thereby posing no additional costs for banks since the days of manual ledger posting are gone. Freeing savings bank interest rates has several systemic benefits. One, greater competition will force nationalised banks with large Casa funds to offer better service. Two, for the central bank, transmission of monetary policy signalled through policy rate changes will improve. Three, the overall efficiency of the banking and financial system will also improve. This will enable India to further differentiate itself from China, which has a more regulated and inefficient financial system. Under it ordinary depositors are fobbed off with low interest rates and large state-owned units are able to borrow and invest cheap. Ordinary Chinese are chafing at the inequity of low interest rates on their large savings which are unable to fetch them what matters the most: housing, which a property bubble has made unaffordable. But the regulator should also look at complaints from nationalised banks that they are operating on an uneven playing field since the onus is on them to promote rural banking even as the smaller, private banks with fewer diseconomies of scale cream off the better business. The cost of delivering financial inclusion should be carefully calculated and those undertaking the task should be suitably compensated.

BS

BOM gives training to CBI officials

Nabard moves govt seeking more autonomy

Nabard currently has to secure prior approval from the Reserve Bank of India (RBI) if it wants to lend to any firm outside its jurisdiction, such as NBFCs, chairman Prakash Bakshi said.  Nabard is seeking more autonomy for its board to decide the creditworthiness of potential borrowers without consulting RBI for each plan, Bakshi said. “What we have suggested to the government is that why should we ask RBI (if Nabard wants to lend to new types of institution),” he said. “Nabard’s board should be able to decide if this is a new type of institution, the terms and conditions, and the eligibility of the party.”

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The Art of Inflation Management

...While this part of the discourse may be broadly described as the science of inflation, there is also the art of controlling inflation devisiting country specific and situation specific anti- inflationary measures. Both the science and art of controlling inflation are equally important and should be mutually supportive. The art of inflation management extends beyond text book punditry......

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Economy slips through leadership gap

After dinner at a tony Delhi restaurant on Monday night,a group of bankers asked themselves whether RBI governor Duvvuri Subbarao would raise interest or hold rates the next morning.The 4-2 majority was in favour of a hold. Next day rates were hiked for the 13th time in a row............

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RBI’s ill-timed adventure

... In pandering to market expectations and playing to the corporate gallery, the latest monetary and credit policy may have just made the macroeconomic situation much more difficult and uncertain than it already was.....

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Voting inflation

...If the government continues to come up with policies aimed at the next elections, RBI may have no option but to get back to rate hikes sooner rather than later......

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Why India’s monetary policy is a failure - Sarajit Majumdar

Inflation affects the purchasing power of people adversely. Especially food price inflation affects the poor and the low income groups harder than the higher income groups. In India, the annual food price index rose by 10.6%, during the week ending October 8 compared to last year. Pushed by food prices the headline inflation has reached an alarming 9.72%. The latest hike in index is nearly double the rate that the Reserve Bank of India expects — annually 5% or 6%. The inflationary pressure is not due to supply bottleneck in food grain. In fact, food grain production in India has reached a record 241 million tonnes in the agricultural year 2010-11, compared to 218 MT in 2009-10. Food inflation has been a worldwide phenomenon since late 2008. The phenomenon is attributed to large scale diversion of crop land to biofuel production, loose money policy, fiscal imprudence and rise in fuel prices. Fuel price has indeed contributed to food price hike in India. But the other reasons do not apply to the Indian economy. Deficit financing is on a leash. So is monetary policy. In order to tame the rising food price index, the RBI is trying to control money supply in the economy by raising repo rates, at which it lends to other banks, and reverse repo rates, at which it borrows from other banks. Already the RBI has hiked the repo rate by 3.25 percentage points in 12 installments since March 2010. This has jacked up the interest rate in commercial banks. High bank rate discourages investment and encourages savings, thereby reducing aggregate demand. However, the increase in the interest rate has done little to contain food inflation. On the contrary, costlier loan has hampered the growth rates of Gross Domestic Product and industrial output in the current fiscal’s first quarter. According to the RBI, while industrial growth rate decelerated, agricultural growth rate accelerated in this period. Yet the food price index soared upward. This clearly is a failure of the country’s monetary policy or monetarism itself, endorsed by the International Monetary Fund. Prof C Rangarajan rightly commented that increasing interest rates will reduce demand only in the housing and car markets. He does not envisage easing food inflation before the middle of 2012.  Rangarajan’s point is bolstered by the fact that the RBI’s tight money policy hardly has any impact on food price inflation. The failure of the monetary instrument in controlling inflation of basic food articles follows from exposing Indian agriculture to free market forces in many ways. Unlike the industrial sector, the agricultural sector functions outside the organised money market. Farmers undertake production not for cash alone, but also for subsistence. Irrespective of monetary policy, agricultural production must take place. Thus, farmers have to use costly fertilizer, pesticides, and irrigation to derive maximum yield. The gradual reduction of state subsidy in fertilizer, pesticides and electricity for pump irrigation has escalated production cost. Deregulation of the petroleum sector, and allowing the oil PSUs to operate in a free market has imposed an additional price burden on farmers, as oil price keeps rising. Oil price hike, at double digit rates, results in higher transportation cost for agricultural commodities as also higher production cost for farmers using diesel pump sets for irrigation. At the level of marketing and distribution of agricultural products, speculative commodity trading becomes active in influencing market prices. Futures trading and hedging in agricultural commodities can add to inflationary pressure. Prices of futures trading influence the spot market prices in commodity. A high price quoted in the futures market means a high spot price. In 2008, owing to high prices of potato, rubber and soy oil, the government had to ban commodity trading in these items, though with little effect. As the government, at the behest of international financial institutions, is encouraging more of market economy and less of state role, the agricultural sector suffers due to the market’s vagaries. Traders and hoarders call the shots. The public distribution system is slack. Under such circumstances, the state’s distributional intervention was necessary but it stood aloof. So much so that when wheat was rotting, the Supreme Court suggested that the excess wheat be distributed to the poor free of cost. The prime minister refused. Had the wheat been distributed free, the price of wheat in the market would have crashed. Just to prop up commodity trading and corporate retailers, the government fought the suggestion. That is why only indirect measures like monetary policy is resorted to combat inflation.

The writer is a Kolkata-based economist, and a former member of faculty of Madras Institute of Development Studies, Chennai. (DNA)

'RBI may lower growth projection'

..."Our FY12 Gross Domestic Product (GDP) growth forecast remains at 7 per cent with downside risks and we think the RBI may need to still revise its growth forecasts downwards," said Goldman Sachs Global ECS Asia Research in 'Asia Policy Watch'......

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Anxious wait on for high interest on savings

... Even as the RBI has left it to the banks to fix the interest rate for savings account, few of them are already in a "client-pleasing mode."...

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Interest rates: Breaching the last dyke

....Regulation of deposit interest rates is by no means specific to India, but has been adopted in the past in most countries, and continues to prevail in many countries including China.....

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LIFE AFTER SAVINGS BANK DEREGULATION

...freeing of savings bank accounts will encourage foreign and new private banks to enter rural India, the traditional stronghold of state-run banks, to raise relatively cheap money.....

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Savings account interest rate deregulation will not benefit customers much: Dhirendra Kumar, Value Research

.... If you are the kind of bank customer whose savings account has an average balance of 1 lakh, then you're going to make about 166 a month extra by the time the dust settles down. That's not a sum that matters to you. If your average balance is 2,000 then you will be left richer (if that's the word) by 3.34 a month and there's no one to whom that sum matters. If you actually have a sum in a savings account on which this loose change matters to you, then you probably don't exist. Otherwise you would have heard of fixed deposits......

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The effect of deregulation of savings account rates

...There are two possible outcomes, interest rates on savings accounts can either move down wards or upwards. It is more likely that the savings rate will move upwards given the current competitive conditions......

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Regulating cooperative banks – M.S.Sriram

In discussions on banking licences, one rather ignored area is that of urban cooperative banks (UCBs). This has remained somewhat below the radar. However, it appears that there might be some action in this space if the Reserve Bank of India (RBI) considers issuing licences for new urban co-operative banks in the near future. A recent report submitted by an expert committee of RBI, led by Y.H. Malegam, lays down some of the principles for issuing new licences.......

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Mushrooming gold loan business now under RBI scanner

The thriving gold loan business in India has come under the scanner of the Reserve Bank of India (RBI). With a sudden spurt in gold loan companies across the country, the regulator has put such companies under its watch to identify the possibility of any systemic risk..........

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The commoner’s banker

Reserve Bank of India (RBI) Governor D Subbarao took a momentous decision this week to deregulate savings bank deposit rate, the last of regulated rates. The man, who was forced to hike policy rates for 13 consecutive times in a relentless pursuit of lower inflation over the past 19 months since March, 2010, can now take pride in deregulating savings account rate, even if that means squeezing profit margins of banks in a fiercely competitive market. In an exclusive interview with Financial Chronicle after unveiling the second quarter review of monetary policy, Subbarao said: “For a large majority of low-income households, this is their principal avenue for savings. So they must get a market-related interest rate. That was the main motivation, and not managing banks’ margins.” The fineprint of the move tells another story. By deregulating rates, he wants to continue what RBI has been doing through this long rate-tightening cycle — increase lending rates. Once banks start increasing savings bank deposit rates, their cost of funds will move up, forcing them to increase lending rates. Subbarao was appointed the 22nd governor of RBI on September 5, 2008. As his term was coming to an end last month, he got an extension up to September 4, 2013. Last year, Subbarao ushered in base rate to replace the long-existing benchmark prime-lending rate in a bid to make the loan pricing mechanism more transparent. He has also proactively pushed banks to cover unbanked areas through a slew of sops and policy measures. His balancing act to keep inflation down by sacrificing overall economic growth may have drawn many critics, especially those in the middle-class. Home, car, education loans have all become pretty expensive over the past two years. Unfortunately, in the past 19 months of the rate-tightening cycle, the apex bank has always been behind the curve with small predictable moves of 25 basis points. It was forced to revise its inflation target for March 2012 twice since May, which has been now pegged at 7 per cent. Whatever one may argue about the independence of RBI, it is clear that finance minister Pranab Mukherjee has finally prevailed upon the governor to give up on the rate-tightening cycle for the larger interest of pushing growth and investment in India. With food inflation hovering over 10 per cent and wholesale price index above 9 per cent, it was but imperative for RBI to maintain a hawkish stand. But Subbarao has always been known to be a man of consensus, someone willing to take a few risks notwithstanding the criticism. From his days in Andhra Pradesh, where he was assigned to set up the state beverage corporation, to the deregulation of savings deposit rates, Subbarao’s focus has been very clear — the man on the street. He remains an egalitarian in a banking system where small customers pay higher rates of interest to cross-subsidise lower rates availed by corporate borrowers.

FC

Not to hike rates is guidance, not commitment: RBI's Gokarn

The New Money Order

...RBI sees mobile payments as a tool for financial inclusion. Banks stand to gain, too. They get deposits on which they pay out no interest. The Boston Consulting report says agents service customers for less than 50 paise per transaction, compared to Rs 40 to Rs 60 at a bank branch......

Continue reading.............

Creation of low-income micro-lending NBFC cleared

MUMBAI: The Reserve Bank of India has approved the creation of a separate category of specialised finance companies catering to low-income groups, a move that will make banks more comfortable lending to microfinance institutions (MFIs) and help alleviate some of the pain being felt by the sector.  RBI will announce its detailed guidelines for these so-called NBFC-MFIs by the end of November, it said in its second quarter review of the monetary policy. A RBI-appointed panel headed by its board member YH Malegam earlier this year recommended creating a special category of NBFCs operating in the MFI sector. The panel had suggested a minimum net worth of 15 crore for an entity to qualify as an NBFC-MFI. "A long-standing industry demand has now been met," said Alok Prasad, chief executive officer at MFIN, a representative body of MFIs, adding that RBI's move would lift the cloud of uncertainty over the MFI sector.  The MFI sector has faced tough times for the past year or so, battling charges of predatory lending practices. In November 2010, the Andhra Pradesh government promulgated an ordinance, putting drastic curbs on MFIs after reports of coercive loan recoveries by some of them, which had allegedly led some debtors to commit suicide.  The ordinance - which requires MFIs to declare interest rates upfront and make all details relating to borrowers public, among other stipulations - brought MFI business almost to a standstill.  Currently, out of the 300 MFIs in the country, about 70 are regulated by the central bank as NBFCs, but account for the majority of the loans disbursed by the sector. The panel also recommended a margin cap of 10% for MFIs with portfolio less than 100 crore and 12% for smaller MFIs.

ET

Obopay rolls out mobile payment service for Nokia users

With mobile banking steadily gaining pace, the service providers are gearing up to make the most out of it. Obopay, a mobile payment service provider, is all set to expand across the country on the back of a tie-up with handset manufacturer Nokia. The company had earlier joined hands with Union Bank of India and YES Bank. The prepaid service is currently available in 130 cities in India and going ahead will be available at more than 200,000 Nokia Priority dealers, 2,300 branches of Union Bank of India and 214 branches of YES Bank. “Over the past two quarters there has been more than 50% growth on a monthly basis hence ensuring faster uptake of the service across the country,” said Deepak Chandnani, chief executive officer, Obopay. He said that the company is in talks with other banks and the service will be available across the country by end of this financial year. An individual need not have a bank account to make use of this service. A prepaid mobile account can be opened with the help of a photo identification card and address proof. The service allows an individual to transfer money, make utility bill payments and recharge mobile phone accounts. Money can also be transferred from one bank to another with the help of National Payments Corporation of India.

BS

RBI doubles transaction cap on amall amount transfers

The Reserve Bank of India (RBI) has been making consistent efforts to achieve the objective of financial inclusion. There is a need to extend coverage to those who cannot open a bank account. It includes those working in far off places from home and have to transfer money to their families back home.  Now, transferring a small amount has been eased further. In order to help those who do not have a bank account, the RBI has eased the norms. It has doubled the transaction cap on small money transfers.  Cash payouts of amounts transferred out of bank accounts to beneficiaries not having a bank account have been liberalised. There is an enhancement of transaction cap from the existing limit of Rs 5,000 to Rs 10,000. This is subject to an overall monthly cap of Rs 25,000 per beneficiary. Banks are permitted to provide services that facilitate transfer of funds from accounts with them of their customers to recipients not having bank accounts at an ATM or through an agent appointed as a business correspondent. Banks can facilitate such fund transfers through any other authorised payment channel as well. Banks can enable walk-in customers not having a bank account there to transfer funds to any of the accounts in the bank subject to a transaction limit of Rs 5,000 and a monthly cap of Rs 25,000 per remitter. A walk-in customer at a bank can also remit funds up to Rs 50,000 to the bank account of a beneficiary through the National Electronic Funds Transfer (NEFT). Such a walk-in customer needs to provide minimum details such as his name and complete address to the remitting bank.  Banks can also enable transfer of funds between domestic debit, credit and pre-paid cards. These will be subject to the same monthly cap. The total outstanding amount on a prepaid payment instrument should not, at any point in time, exceed the limit prescribed by the RBI.  All these changes will benefit a large number of people who does not have access to formal banking channels. Such people faced difficulties in using authorised channels to transfer funds. According to the RBI, these relaxations will provide money transfer facilities in a safe, secure and efficient manner across the length and breadth of the country. The RBI has asked banks and other financial institutions to put in place a system of safeguards, including velocity checks and alerts to customers about credit into accounts, using the new facility. Any unusual spurt in volume of credits in a particular account needs to be immediately investigated. Appropriate authorities will be alerted regarding suspicious transactions. The RBI has also directed that such fund transfers are to be effected on a real or near real time basis. All these steps will certainly give an impetus to the process of financial inclusion.

ET 

RBI seeks views of stakeholders on terms of reference of Nair Committee on priority sector lending

MUMBAI: The Reserve Bank has sought views of stakeholders on the terms of reference of Nair Committee to look into various issues related to priority sector lending, including review of loan limits under the segment.  The stakeholders have been asked to give their views and comments by November 15.  "The RBI has, through a questionnaire, sought views/ comments of all stakeholders on the terms of reference for the Nair Committee on Priority Sector Lending. Comments/ suggestions/views may be emailed latest by November 15, 2011," the Reserve bank of India (RBI) said in a statement.  The committee, headed by former Union Bank of India Chairman and Managing Director M V Nair, was constituted by RBI in August and is expected to submit its report of priority sector lending by the end of December.  Stakeholders' views have been sought on various issues including desirability of simplifying the approach to directed lending, inconsistencies or ambiguities in the existing guidelines, nature of activities presently classified as priority sector that need relook and new areas which should be incorporated. Besides, they have been asked to name the activities for which the classification changes depending upon the limit of loan amount need to be revisited and ways to ensure that loans given by banks reach the eligible categories, and so on.  The terms of reference of the Nair committee is to revisit the current eligibility criteria for classification of bank loans as priority sector with reference to nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans.  It will review nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans under priority sector segment.  The terms of reference of the panel include review of limits on loan amounts.  It will also review appropriate documentation and due diligence thresholds to ensure that loans extended by banks are for the eligible categories of purposes and borrowers, which need special attention and treatment, it said.  Besides, the panel will consider the desirability, or otherwise, of capping interest rate on priority loans.  The panel will also review the current allocation mechanism for Rural Infrastructure Development Fund (RIDF) and other funds.

ET

Base effect behind RBI’s projection on inflation dipping in December

In his recent monetary policy review statement, the RBI Governor, Dr D. Subbarao, has projected that the wholesale inflation rate will “begin falling in December 2011 and then continue down a steady path to 7 per cent by March 2012”. What explains this optimism, reflected in the reference to reassuring “momentum indicators”?  A look at the ‘WPI-All Commodities Index' indicates that the assertions could be based, to a large measure, on a favourable base effect coming into play in December, which should help achieve what a sustained rate hike spree since early last year has failed to accomplish. The base effect essentially refers to the statistical impact of the previous year's high index reading in calculating the annual inflation. Data show that the ‘WPI-All Commodities Index' reading for December 2010 had shot up to 146 points from November's 143.8 points — a 1.5 per cent sequential increase compared with an average sequential increase of 0.6 per cent in the previous two months.  As a result, the year-on-year headline inflation estimate for this December, which will use the All Commodities Index reading for December 2010 as the base, should see sharp moderation as the base year reading is high. Going forward too, the index shows big spurts in both March and April 2011. This should sufficiently ensure that by the beginning of next fiscal (March-April 2012), the headline inflation estimate would dip further, exactly in line with the RBI's projections, with the base effect again coming into play.  In its efforts to bring runaway inflation under control, the RBI has raised the benchmark rate by 375 basis points since March last year. Despite these measures, headline inflation was recorded at 9.72 per cent in September, its tenth straight month above 9 per cent and the highest among the BRIC group that includes Brazil, Russia and China.

HBL

13 repo rate revisions in 19 months, yet no results

Is the monetary policy not yielding desired results or the government has erred somewhere? The RBI is trying to control money supply in the economy by raising repo rates, at which it lends to other banks, and reverse repo rates, at which it borrows from other banks. This has jacked up the interest rate in commercial banks......

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At 11.43 pc, food inflation skyrockets

... According to RBI Governor D Subbarao, lower production of pulses and inadequate supply of protein-based food may put further pressure on food prices in the near term.....

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Battling inflation while pursuing growth

.... We know that the fruits of GDP growth are not equally distributed among the people of the country especially to the poor. But the effect of inflation is badly experienced by all especially the poor. Therefore it is preferable that control of inflation should get priority over growth. Keeping the inflation well within control, whatever the growth the country achieves, should be good for all the people of the country……

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RBI panel may propose reserve, provisioning rules for non-banking finance cos

MUMBAI: A panel constituted by the Reserve Bank of India may suggest provisioning and reserve requirement rules for non-banking finance companies that will narrow the gap between these lenders and banks, two people familiar with the thinking of the committee said. "In terms of risk management, there will be movement closer to that of banks," said a person familiar with the group's deliberations. "The room available for regulatory arbitrage should no longer be there with some reserve requirements," he added. For the first time in more than a decade, the central bank in May formed a committee under former Deputy Governor Usha Thorat to address issues relating to non-banking finance companies (NBFCs). The group was asked to focus on the definition and classification of finance companies and may make its suggestions public as early as this week. Finance companies that have few restrictions on sectoral lending, group-wise exposure, lending against shares and real estate loans are seen as creating risk to the system since they borrow from banks. Any seize-up in lending due to a crisis similar to the 2008 meltdown may put even the banks at risk, the person added.  The recommendations will address these issues. Some of the proposals could crimp the profitability of finance companies. Bank loans to NBFCs have risen 55% in fiscal 2011, prompting the RBI to call it 'lazy banking'. Gold loans such as the ones offered by Muthoot Finance and Mannapuram Finance are growing at 50% annually. Securitisation of loans and assignment transactions have raised red flags. The committee included, among others, Sanjay Labroo, director, central board of RBI and Rajiv Lall, MD and CEO of IDFC. But there were no representatives from deposittaking finance companies, leading to fears that their interests may not be protected. 

ET

Competition to intensify onsavings bank deregulation

...Banks in India held 26 per cent of their total deposits in the form of savings bank deposits as of June 2011. Assuming the savings bank deposit rates of these banks rise by 1 percentage point, profits before provisions and taxes will be lower by 9.3 per cent (based on FY-11 profits) if they do not pass on the deposit rate hikes to borrowers...

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What to make of free bank deposit rates

............The rates will now closely reflect the policy rates. This means like any other deposit rate, savings rate will also fluctuate and a bank offering a higher rate today may not be the one always offering the best rate............

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Thumbs up for RBI decision

The deregulation of interest rates by Reserve Bank of India (RBI) augurs well for those city residents who have been saving money in their banks, instead of investing it in other avenues like the share market....

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Deregulation of savings bank deposit interest rates likely to push loan rates up

.......The deregulation of savings bank deposit interest rates is expected to put additional cost pressures on banks and thereby impact their profitability. Analysts believe banks are likely to offset the impact of this increase in interest costs partially by levying transaction and service charges on bank accounts.....

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Deregulation of savings bank interest rates: RBI’s move not practical in the present scenario

....The RBI has only created discrimination between the lower middle class and the upper middle class by allowing the banks to quote differential rates for balances below and above Rs1 lakh. .......

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SBI may raise saving deposit rate by up to 125 basis points

....By freeing the savings bank deposit rates, RBI has demolished the last bastion of the regulated interest rate regime. As part of the economic reforms programme, the Reserve Bank of India (RBI) had earlier given freedom to banks to determine fixed deposit rates, depending on their asset-liability positions.......

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Soiled currency exchange mela held

Tuticorin : A mela was organised by Industrial Credit Investment Corporation of India Bank, Tuticorin Branch, on Friday to exchange soiled and mutilated currency notes. Besides, coin mela was organised at the venue in the public interest. Collector Ashish Kumar inaugurated the programme in the presence of S. Ilango, Assistant General Manager, Reserve Bank of India. The programme was scheduled under the guidelines of RBI, Chennai. Nearly 400 customers benefitted from this programme after exchanging the soiled and mutilated notes valued at Rs.4,00,000 and coins to the tune of Rs.3,00,000. Besides, fresh currency to the tune of Rs.35, 00,000 was distributed to people. A fake note identification awareness was created by the RBI officials. “Traders and people hesitate to accept dirty and torn currencies though there is a guarantee clause from the Reserve Bank Governor. Banks need to replace the soiled notes and half or full torn notes with fresh ones when people demand. Such services could be rendered under the guidelines of the RBI refund rule 2009,” Krishnamurthy, Special Assistant, RBI, said.  The ICICI Bank has been carrying out this exercise at regular intervals through Currency Chest called Integrated Currency Management Centre.

HBL

Issue chip-based cards, banks told

The Chennai Police has urged all banks to consider issuing chip-based credit and debit cards to avoid duplication. This comes in the wake of a rise in complaints of bank card frauds, including card cloning and data theft from ATMs. Commissioner of Police J. K. Tripathy, who convened a meeting with representatives of various banks here on Tuesday, advised them to be more sensitive towards issues concerning transaction security. He urged for some changes in the present system for bank cards, including the introduction of biometric identification system, cards with chips, and dynamic PIN system for ATM users. Mr. Tripathy also asked bankers to provide online and mobile banking facility only after providing adequate advice to customers on the safe usage of the service. He also requested users of ATM machines to be more cautious and inform authorities in case they find any mysterious objects in the card slot. The meeting was attended by representatives of more than 30 banks, officials from Central Crime Branch and RBI.

HBL

Phase out cheques and go electronic, RBI tells NBFCs

As part of its green initiative, the Reserve Bank of India has asked all non-banking financial companies (NBFCs) to gradually phase out use of cheques and shift to electronic payment system.The government, in its green initiative efforts, has suggested several steps for entities in financial sector, including NBFCs, for better utilisation of resources and delivery of services. “NBFCs are therefore, requested to take proactive steps in this regard by increasing the use of electronic payment systems, elimination of post-dated cheques and gradual phase-out of cheques in their day to day business transactions,” RBI said.  These will result in more cost-effective transactions and faster and accurate settlements. The Centre has developed an e-payment system for disbursal of subsidies to consumers of fertilisers, LPG and kerosene. 

DH

Central Banking Wisdom

Y.V. Reddy, the author of this book (India and the Global Financial Crisis), was governor of the Reserve Bank of India from September 2003 till September 2008 (Lehman Brothers collapsed on September 15 that year). No less a publication than The New York Times credits him with being one of the architects of the policies that cushioned the Indian economy from being hit hard by the global financial crisis. In this book, a compilation of Reddy’s essays on a range of banking-related subjects, the chapter on the global financial crisis offers insights into how Western central banks — chiefly the US Fed (though Reddy abstains from naming it) — failed to discharge their regulatory duties properly. Reddy’s points about the Indian central bank’s policies that enabled the country to emerge relatively unscathed should be read closely by all who want to gain an insight into the arcane world of central bank policy-making.

Proud boast

In the early years of the first decade of this century, it was the proud boast of the US Treasury and central bank that they had learnt to tame the boom-and-bust cyclicality of the economy. In reality, what the Fed was doing was that to keep the economic expansion going it kept interest rates at very low levels for a prolonged period. Sceptics like Raghuram Rajan who warned that such policies would create asset bubbles, whose bursting would cause grievous damage to the economy, were scoffed at. Retribution finally arrived in 2008. The Fed’s accommodative policy had created a surfeit of liquidity which, in the pursuit of high returns, was invested in high-risk instruments, including mortgage-backed securities. During the years leading to the crisis, between the market and the government, the balance of power had clearly shifted in favour of the former. The prevailing wisdom then was that the markets knew best. And even if they were sometimes prone to excesses, they had the capacity for self-correction. Regulators allowed themselves to be persuaded (by vested interests within the financial sector) that they had no business intervening in the markets.

Played the fiddle

Prices in asset markets soared, like Nero the US central bank played the fiddle while the economy burnt. For its inaction it offered the excuse that spotting a bubble in advance was difficult, and in any case, spotting bubbles was not part of its mandate. So it did not tighten regulation when the economy displayed excessive exuberance. It allowed itself to be lulled into complacency by a viewpoint widely prevalent then that even if there was excessive risk in the system, new derivative instruments and new entities like hedge funds would help disperse it widely.  Reddy asserts that the central bank’s failure lay in the fact that it did not take the countercyclical measures so necessary for moderating boom-and-bust cycles. Instead its policies first fuelled the boom, and in the later stages, it stood by and watched the bubble grow. He further adds that many central banks in the developed world focused only on containing inflation. Since their mandate did not explicitly say so, they were not vigilant about maintaining the stability of the financial system.  Reddy criticises Western central banks’ practice of providing forward guidance about monetary policy to the markets. Assured that rates would not be raised anytime soon, speculators speculated freely with borrowed money. It is understandable why such a practice is anathema to an ex-RBI governor like Reddy. In India the central bank tries to achieve its policy goals more through shock measures and by doing the very thing that the market doesn’t expect.

Regulatory capture

Regulatory capture in the US also contributed to the crisis, says Reddy. The fast-growing financial sector had come to wield inordinate influence over the political economy, and by extension, over the regulators. Former Goldman Sachs employees holding heavyweight positions within the government is a case in point. With such people in charge, a laissez faire policy vis-à-vis the markets was the natural outcome.

Crystal gazing

Reddy’s foresight is apparent from his comment that the steps taken by the US to revive its economy would have consequences for developing economies. This has indeed come about. The quantitative easing programmes led to escalation in commodity prices and import-dependent nations like India paid the price in the form of high inflation.  Reddy’s prescient warning that the fiscal stimulus measures undertaken by developed countries would increase their debt levels, and that these nations should constantly assess the fiscal sustainability of their actions, has also turned out right. Three years after the crisis, high sovereign debt in much of the developed world has taken away governments’ ability to take counter-measures as growth stalls and the danger of a double-dip recession looms large.

India: relatively unscathed

To readers one of the key points of interest in this book would be the policies that helped the Indian economy escape the crisis with only a marginal slowdown in its growth rate. Reddy explains that in India monetary policy always tended to be countercyclical: in other words, policymaking here did not encourage the build-up of asset bubbles. Moreover, the RBI conscientiously discharged its duty of maintaining financial stability. And it did not encourage speculation by providing forward guidance on policy. Also, during the boom years India and many other Asian nations wisely built up their forex reserves. This served as a kind of insurance in case there was a sudden outflow of portfolio flows (which dominated the strong foreign capital inflows of the boom years). During the East Asian crisis of the late nineties, such outflows had wreaked havoc on the currencies and economies of many East Asian nations, and they were keen to avoid a repeat.

Lessons learnt

Has the world drawn any lessons from the economic havoc — massive destruction of wealth, years of slow growth, and unemployment of millions — that the crisis has wrought? Yes, to some extent. In the developed world, it is now recognised that the deregulation of the financial sector needs to be reviewed and redesigned. Policymakers there now admit that the financial sector, though critical, is only a means to an end, and that while it may enable growth, it does not create or sustain it. Its unbridled growth may not be permitted in future.On financial innovation, it is recognised that all innovation may not be good for the system: a balance has to be struck between efficiency and the larger social good. The crisis has also had the salutary impact of restoring the balance of power in favour of the government. It is no longer presumed that the markets are always right and that they do not need the government’s regulatory hand to guide them. In future, says Reddy, central banks of advanced nations will also have to focus more on financial stability, besides discharging their basic duty of inflation targeting.  In fact, central banks of the advanced world would do well to take a leaf from the Indian central bank’s manual of policymaking (to which the author has contributed richly). After all, it is among the few central banks that have emerged from the crisis with their reputation enhanced.

http://www.valueresearchonline.com/story/h2_storyView.asp?str=18321

Monetary Policy Review: Cat on the wall? – S.Balakrishnan

‘I am marrying today but I am likely to divorce after two months'.

This about sums up in layman's language the essence of the second quarter Review of Monetary Policy Statement for 2011-12 released on October 25.

In a policy sense, we have to look far beyond quarterly Monetary Reviews and examine how we can minimise conventional energy and commodity intensity of the economy without sacrificing growth. For, why the ‘prediction' that ‘the likelihood of a rate action in the December Mid-quarter Review is relatively low' when ‘both inflation and inflation expectations remain high' (begging the question of what are ‘inflation expectations': the first is a fact and the second is conjecture).  And: ‘We expect these levels to persist for two more months'. The precision is staggering; it's as if the RBI knows the exact date from which inflation will start falling. Do we have an astrological central bank? Of course not, for it goes on to say, ‘there are potential risks of expectations becoming unhinged'. Will all of us go mad? At the end of a series of about a dozen rate increases (and almost abject apology about the latest) the RBI takes comfort in decimal point downgrades to inflation and growth. There is a bold projection (with several qualifications as has become customary) that inflation will drop to 7 per cent by March 2012 and further in 2012-13. Does it mean the RBI is content if inflation isn't above the high single digits? It's difficult to have the best of all possible worlds, that is, low (2-3 per cent) inflation and high (10 per cent — give or take a little) growth, now that the rest of the world has caught on to the phenomenon and implications of rapid growth in China and India.

Most important are commodity prices. Global energy and metal prices swing wildly from day to day, depending on economic news from, and perceptions of, these two countries.  Therefore, in a manner of speaking, the worse the US, Europe and Japan do, the better for China and India, as there is then less pressure on commodities. But do we want the former risking our flourishing IT sector? In a policy sense, we have to look far beyond quarterly Monetary Reviews (important as they are for the short-term) and examine how we can minimise conventional energy and commodity intensity of the economy without sacrificing growth.  In other words, more GDP with less of non-renewable resources. The need is for infrastructure of the right quality and type — example, mass transportation, fuel efficient small cars, offsite work using computers and networks, and so on. Should we be so obsessed with repo rates to the exclusion of all other issues of the real economy? The least important are, in fact, the Ministry of Finance, the RBI and the parasitical financial sector. As far as quarterly Reviews are concerned, the best thing for our monetary architects would be a non-cataclysmic global or domestic event forcing rate cuts next time. After all, that is what even they seem to want. 

The author is a Chennai-based financial consultant. (HBL)

RBI warns against fraudulent offers

Kohima, October 27 (DIPR): With a number of fictitious offers of cheap funds in recent times, often in the form of lottery prize money, through letters, e-mails, SMS, etc being offered by fraudsters, the Reserve Bank of India (RBI) has advised customers to be aware and follow proper guidelines laid down by the RBI. The RBI has said that fraudulent communications are being sent on fake letterheads of the RBI or other reputed organizations, purportedly signed by their top executives/senior officials. It has been reported that many persons have fallen victims to such teasing and tempting offers and in the process, have lost huge sums of money. The fraudsters seek money from people, under different heads, such as, processing fees/transaction fees/ tax clearance charges/ conversion charges, clearing fees, etc. The fraudsters open multiple accounts in banks in the name of individuals or proprietary concerns in different bank branches for receiving such payments and the amount so remitted is withdrawn immediately, leaving the victims in the lurch. Evidently, the fraudsters’ strategy is to play upon the credulity / naiveté / gullibility / ignorance / greed of unsuspecting victims, the RBI said.  In the light of such undesirable developments, the RBI has advised to follow and take care that customers “do not remit or deposit any amount in response to such fictitious offers of easy money through lottery, prizes etc, received mainly through letters, email or SMS.” Further, RBI said it “does not maintain any account in the names of individuals/companies/trusts etc. to hold funds for disbursal.” Reserve Bank of India would never ask people to deposit money in any account. Also note that “making any type of remittance towards participation in schemes of lotteries/ offers from unknown entities abroad or their agents in India is illegal.” Customers may refer to the cautionary advices available in the matter at the RBI website (www.rbi.org.in). The RBI has further advised on registering such cases with the local police or the cyber crime wing at the State police headquarters, in case customers receive any such offer and invariably do so, if you have already parted with any amount at the behest of the fraudsters. 

http://www.morungexpress.com/frontpage/72424.html