Delays in RBI, SBI appointments slow down policy decision-making

Inordinate delays by the government in making appointments for crucial posts in Reserve Bank of India and State Bank of India have resulted in slower policy decision-making. For more than two months now, the deputy governor’s position has been vacant in Reserve Bank of India. Usha Thorat, one of the four deputy governors of the central bank, retired on November 10. To identify Thorat’s replacement, a search committee was formed and interviews were conducted as early as the first week of September. Though a search panel, headed by RBI Governor D Subbarao, recommended a few names soon after the interviews were over, the government is yet to make up its mind. Similarly, the managing director’s post in State Bank of India (SBI) — the country’s largest lender — is also vacant after the retirement of S K Bhattacharyya on October 31. SBI’s case is, however, slightly complicated.  A few rounds of interviews have already been conducted, in which four of the seven deputy managing directors have appeared. Sources said those interviews were conducted not only to choose Bhattacharyya’s replacement but also to appoint two more MDs. Following the amendment to the SBI Act, the government can appoint four managing directors on the board of the bank. However, no appointment has come so far. The government has also conducted interviews for the SBI chairman’s post as the present chairman O P Bhatt will superannuate on March 31. Whatever may be the reasons for the delays in the appointments, important policy formulations, especially at the central bank, are getting delayed as a result. Mint Road sources said the work of issuing guidelines for new banking licences has been going on at snail’s pace since Thorat’s exit was finalised. Thorat was heading the department of banking development and operations – the department which is forming the guidelines. “The absence of a full-time deputy government has affected the progress on this crucial issue,” an RBI source said. RBI had decided that another Deputy Governor Shyamala Gopinath would look after Thorat’s department till a new DG was appointed. As a result, Gopinath has been handling 19 departments since early November. That RBI will issue guidelines for the entry of new banks was announced in the budget of 2010-11, in February, and in the last one year only a discussion paper was floated. Towards the end of December, RBI published the gist of feedback that it had received from individuals, banks, business houses and others on the discussion paper. Similarly, the road map for foreign banks in India, for which a discussion paper was scheduled to be put up by September, was announced by the governor during the Annual Policy Statement in April. But that deadline was missed long back. On the issue of new bank licences, sources said RBI was keen to issue the draft guidelines very soon as it was announced in the budget last year, and the government may want to know the progress made since then. Over the past few years, the government has started presenting an action taken report of the last budget announcement along with the budget of that year.

Union Bank awarded SKOCH Financial inclusion Award

Is inflation rising on changing consumption pattern?

Ahead of monthly inflation numbers that are due on Friday, the Reserve Bank of India (RBI) has said that food inflation seems to be pointing towards changing consumption patterns as India gets more affluent and people move towards more high value commodities. Echoing RBI’s stance, Planning Commission chairman Montek Singh Ahluwalia said, “The high inflation number points towards people eating healthier food, better lifestyles.” According to him, changing consumption patterns & richer protein diets among Indians could be the reason behind the inflationary spiral.

ICICI Bank to make credit Card IVR transactions more secure from FEB 1

From February 1, 2011, IVR tansactions on ICICI Bank Credit Card will be completely secure, as per ICICI bank. Based on a Reserve Bank of India mandate, The bank has introduced an additional layer of security for IVR transactions on ICICI Bank Credit Cards. Every time you pay for a purchase or service through any merchant’s telephone system (IVR), you will be asked to input a One Time Password (IOTP). One can generate the IOTP via SMS or ICICI Bank website or even in realtime during a purchase. This one-time password is valid for 24 hours or one transaction, whichever is earlier. After February 1, 2011, no transactions over IVR will be carried out without IOTP verification, as per the bank.

Banks, BCCI in trouble with RBI over South Africa IPL

The Indian Premier League (IPL) in South Africa was littered with violations of foreign exchange laws, according to the Reserve Bank of India (RBI). In the over three years that it has existed, the IPL’s history has been a narrative seeped in scandals, mainly financial. The Reserve Bank of India or RBI has found serious violations by the IPL’s parent body, the Board of Control for Cricket in India (BCCI) in connection with the second edition of the Twenty20 league that was held in South Africa in 2009. The RBI has submitted a detailed report to the Parliamentary Standing Committee on Finance that’s examining alleged financial impropriety in the IPL. The report says that the BCCI did not get the required permission from the RBI to open foreign exchange accounts in South Africa.

RBI mulls new category to regulate more MFIs

The Reserve Bank of India (RBI) is likely to create a separate category in the non-banking finance company (NBFC) space to include more microfinance institutions (MFIs) for regulation. The central bank’s proposal to create the NBFC-MFI category comes on the back of recommendations made by a committee headed by Y H Malegam that MFIs operating with a profit motive should be brought under the purview of RBI. Malegam is on the board of RBI. The committee was set up by the banking regulator in October to look into various issues related to MFIs, including the interest rates charged from borrowers and practices used by them for recovering loans.  At present, RBI regulates those MFIs which are registered as NBFCs. Although the registered companies cover over 80 per cent of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIs in the country. Parameters such as maximum exposure, net worth and minimum capital requirements will be prescribed for those entities. The committee will define which institutions can be termed as MFIs and what constitutes micro credit. Sources said, as recommended by the Malegam panel, the regulator would bring about regulations for the new category which would prohibit all in it from resorting to coercive recovery practices. In addition, the committee has recommended the regulator cap the interest rate charged by MFIs. At present, the rates charged by MFIs go as high as 32 per cent. However, bank loans to MFIs, classified as priority sector lending, would continue, a banking industry source said. “Taking away the priority sector status will make loans costly for MFIs, which can make the business model unviable,” he said. MFIs raise about 75 per cent of their borrowings from banks, 15 per cent from equity and another 10 per cent from other sources like cash securities. Though NBFCs come under the non-banking supervision department (NBSD) of the central bank, it is not clear whether the NBFC-MFI category will be with NBSD or the rural planning and credit department. The Malegam committee which was constituted in October had Shashi Rajagopalan, U R Rao, Kumar Mangalam Birla and K C Chakrabarty, deputy governor of RBI as members. V K Sharma, an executive director of RBI is the member secretary of the committee.

PM to meet RBI Governor to discuss monetary measures to curb inflation

The Prime Minister, Dr. Manmohan Singh will meet Reserve Bank of India (RBI) Governor D Subbarao over the possibility of further monetary steps to check price rise here today. Dr Singh’s meeting with Subbarao comes ahead of RBI’s quarterly review of monetary policy on January 25. RBI has already raised the short-term key borrowing and lending rates six times in 2010 in a bid to raise cost of funds and check inflationary expectations.

RBI must be main regulator for fin holding cos: Panel

The Reserve Bank of India (RBI) should be the main regulator, for prudential and supervisory functions, for financial holding companies (FHCs). This is part of the draft recommendations of an internal working group of the Reserve Bank, set up to draw a road map for the introduction of a bank holding company structure.  The committee has, however, noted that if the government retains its majority shareholding in State Bank of India and other public sector banks, they cannot move to a holding company model.  The group, headed by Deputy Governor of RBI Shyamala Gopinath has suggested that the FHC structure should be made mandatory for new entrants to the banking space. An FHC will typically have a bank, an insurance company, an asset management company and others of the sort operating under it. But, the report says setting up such a structure will require extensive amendments to the Banking Regulation Act, 1949, including giving clear powers to RBI to regulate the holding company. Amendments to the Act are now pending in Parliament, but the Gopinath group says those are not enough. The Gopinath group has also recommended a fully capitalised model for the holding company instead of an intermediate holding structure as that would make the relations between the operating companies and the holding company, complex. The need for a holding company structure has risen in India as banks have diversified into several lines of business and need more capital from markets to expand further. A holding company model would, among other things, givethem the advantage to raise capital riding on the brand value of the group, which is not possible now. On the issue of supervision, the group has apparently recommended consolidated supervision to ensure safety of depositors, investors and creditors. “However, amendments will have to made to the Banking Regulation Act and even the RBI Act to bring FHCs under a proper regulatory jurisdiction with particular reference to registration, inspection, giving directions and calling information,” said a source in the know of the developments.“The committee is also expected to suggest two options to financial conglomerates for migration to the FHC model. They could either consider demerging the banking business into a new wholly-owned subsidiary or create a new company altogether and its shares to shareholders of the existing banking company,” said the source. The committee is also expected to take a view that the financial conglomerates should be given the option to choose if they want to migrate to the holding company structure. FHCs, the committee is of the view, should not face any limits while expanding into non banking financial areas. Several legal changes have been suggested by the committee to make the FHCs happen. This includes the need to amend the ceiling on voting rights for shareholders of banks, which is part of the Banking Regulation Amendment Bill 2010. Currently, irrespective of the shareholding the voting right is capped at 10%. Others include changes in the Companies Act and in the RBI Act.