Centre for Advanced Financial Research and Learning (CAFRAL)

Smt. Usha Thorat, Ex-DG has taken over as the Director of the CAFRAL on January 17, 2011. The Centre has been set up as a non-profit organization in the form of a Trust under the Indian Trusts Act as a centre of excellence for research and learning in the field of banking and finance with the objective to develop a valuable resource centre for research and capacity building for central bankers, regulators and senior management of banks in India and outside.

LIC infra bond hits regulatory wall

The Life Insurance Corporation (LIC), will not be able to issue tax-saving infrastructure bonds aggregating 5,000 crore to retail investors this fiscal due to a regulatory glitch, which was discovered after India’s largest investment institution was named an issuer of these bonds by the income-tax department.  Insurance regulations allow life insurers to raise funds only for promoting their core business. So, logically, life insurance companies cannot raise money for any other activity.

RBI issues new guideline for NBFCs

The Reserve Bank of India (RBI) on Monday said all nonbanking financial companies (NBFCs) should provide 0.25% of their outstanding loan book, even as the loans are good, as provisions.  This is over and above the standard provisions that NBFCs have to make for bad debts. “In the interests of counter cyclicality and so as to ensure that NBFCs create a financial buffer to protect them from the effect of economic downturns, it has been decided to introduce provisioning for standard assets also,“ RBI said in a notification on Monday.

Banks lag in inclusion mission

The commercial banks in Karnataka are lagging behind the schedule of achieving the financial inclusion targets set up by the Reserve Bank of India (RBI). As against the target of reaching out 2,253 villages with a population of over 2,000 by March 2011, the banks have covered only 1,075 villages by end of December 2010, thereby achieved about 47 50 per cent of the target. According to data available with the State Level Bankers’ Committee (SLBC), Karnataka the banks in the state have been set a target of covering 3,395 villages with population of over 2,000 having no bank branches in the state. These villages have no access to banking facilities.  Financial inclusion is the availability of banking services at an affordable cost to disadvantaged and low-income groups. In India the basic concept of financial inclusion is having a No-Frill savings account with any bank. As advised by the RBI, the banks had indicated in their board approved financial inclusion plans (FIPs) that they would provide banking facilities to 2,253 villages by March 2011 and 3,395 villages by March 2012. “Certain discrepancies like duplication or overlapping of villages, inclusion of villages already having branches, and such others were observed and subsequently the target was revised. Thee banks have now been asked to submit the monthly progress made in new formats prescribed by RBI and ministry of finance indicating revised villages,” he said at the 115th SLBC meeting, here today.  Making his observations at the SLBC meeting, here today, he said he bank officials in the designated districts are working on a part-time basis to achieve the desired financial inclusion goals. The banks need to provide adequate resources to achieve targets under the “one district many banks” model.

Assocham urges RBI to increase bank liquidity

The Associated Chambers of Commerce and Industry of India (Assocham) on Monday cautioned the Reserve Bank of India (RBI) against any attempt at tightening its monetary policy and maintained that the need of the hour was to increase bank liquidity and sustain credit growth in the face of the unprecedented rise in the inflation rate. Assocham President Dilip Modi urged the RBI to reduce its rates by 50 basis points so as to provide banks with an additional Rs.21,000 crore of liquidity. He contended that liquidity was a pre-requisite for achieving the 9 per cent plus growth rate during the current fiscal and also pointed out that banks had already pleaded for reduction in CRR and SLR to make available more funds due to spurt in credit offtake and also because they were facing reduced deposit growth. Mr. Dilip said that funds and lower cost of funds were necessary to create large and improved supply-chain infrastructure, capacity building as well as innovation to address the demand and supply mismatch. Any meddling with the policy rates, he warned, would derail the growth trajectory and recommended removing supply constraints and enforcing reforms in critical sectors and preparing the country for higher growth challenges.

RBI may define good, bad years, adjust bank provisioning norms

The Reserve Bank of India (RBI) may define good and bad years for banks, based on certain economic indicators, to determine how much provisioning they should make for bad debts, according to two people familiar with the matter. This is part of the move by RBI to align banks with Basel III norms, which offer guidance on various operational issues, including capital adequacy. As per the norms, it is a macro prudential issue to set aside more capital when the economy and profitability is good and use those extra provisions when these are not performing as well. When profitability weakens, banks can set aside less capital. The move may placate banks that have been complaining to RBI about stiff provisioning norms. The phased implementation of Basel III norms will start from 1 January, 2013. “RBI may bring in this norm (on provisioning) even before it implements Basel III in India,” said another senior banker who didn’t want to be identified. Under the current rules, banks are not allowed to use funds set aside as provisions for capital building. This may also be relaxed, allowing banks to use the funds for other purposes if needed, said the banker. RBI officials have already said on various platforms that the provisioning requirements could come down. Executive Director Anand Sinha indicated this in December, but didn’t give any timeframe. Sinha, who was speaking at Bancon, the annual bankers’ conference, said the high provisioning requirements were stipulated at a time when Indian banks were having good profits. “It is not meant to be kept at that level,” Sinha had said, noting that some banks have resented the high provisioning requirement. “It was part of the process that we are adopting. In good times, you should set aside more capital while in bad times, you should release more capital. It is a first step that we have taken but we are working out details of it, whether it would be 70%, or whatever. It is for building up stock (of capital) in good times,” Sinha later clarified at the sidelines of the conference.

Monetary policy management becoming tougher: RBI Governor

Reserve Bank of India (RBI) Governor Duvvuri Subbarao today said it is a real challenge for the Reserve Bank to support economic growth and batten down the surging inflationary pressures, hinting that it will be a tight-rope walk for him on January 25. The central bank is slated to unveil the third quarterly review of its monetary policy on January 25, when it is expected that RBI will tighten its policy tools by another 25-50 basis points for the seventh time in a row in this fiscal, as both food as well as headline inflation numbers have been on a northward-ho since the last policy announcement on November 2 when the bank had announced that monetary policy neutralisation process was over.  "Though we recovered faster from the crisis, inflation also caught up with us sooner than others. For the Reserve Bank the challenge is to calibrate monetary policy taking into account the demands of inflation management and the demand of supportive recovery," the Governor told the students of the Indira Gandhi Institute of Development Research on their convocation here today. "A lot of other countries are still flirting with deflation... and are still concerned that they might have deflation. On the other hand, we are having a surging inflation," the governor said, and noted that there has been broad-based recovery across the globe in general and across the sectors of the domestic economy, following the slew of fiscal and monetary prop-ups.