NABARD to launch Development Correspondents project

Country’s apex agricultural development bank NABARD said it aims at giving localized weather and crop advisories to farmers through SMS service in association with India Meteorological Department and Krishi Vidnyan Kendras.  NABARD also plans to launch a pilot project called Development Correspondents for information dissemination through use of technology in this regard, said K.V.Rao, General Manager, Maharashtra Regional Office, Pune. He was speaking at a state level Farmers’ Club award function. “Farmers should avail loans to expand their activities and earn profit and repay the loan.  They should desist from asking for loan waiver “ said Shri J.B.Bhora, Regional Director, RBI

RBI allocates portfolios of DGs

Four months after the Reserve Bank of India (RBI) took away important departments handled by K C Chakrabarty, one of its Deputy Governors, the central bank on Wednesday restored most of those and also gave two new portfolios, Department of Banking Supervision and Department of Currency Management.  RBI on Wednesday re-allocated the portfolios of its Deputy Governors, along with assigning responsibilities to Anand Sinha, who took charge as Deputy Governor on promotion today. Chakrabarty got back most of his lost departments — Human Resources, Administration and Personnel Management, Rural Planning and Credit (which looks after financial inclusion). He got Banking Supervision and Currency Management, earlier with Usha Thorat, a Deputy Governor who retired in November. After Thorat’s retirement, all her departments had been temporarily given to another Deputy Governor, Shyamala Gopinath. In August last year, RBI took away four departments from Chakrabarty, though the reason was not made public. Sinha has got the Department of Banking Operations and Development, Urban Banks Department, Information Technology, Expenditure and Budgetary Control, Inspection, Legal and Premises Departments. Information Technology was with Chakrabarty. This is the first time in many years that the Department of Banking Operations and Development and the Department of Banking Supervision are being handled by different Deputy Governors. Earlier, Thorat and then V Leeladhar looked after both departments. Mint Road sources said it had been difficult to ignore Chakrabarty’s experience and efficiency when RBI was dealing with several important policy decisions. The Rural Planning and Credit Department, for example, which carries the responsibility of financial inclusion, may have more responsibility once micro finance institutions (MFIs) comes under the purview of the central bank. At present, only MFIs registered ad non-banking financial companies are under RBI’s lens, but there is a view that almost all important MFIs should come under the regulator’s purview. There is a proposal to bring MFI regulation under the rural planning and credit department, though NBFCs are regulated by the non-banking supervision department. Portfolios of some of the Executive Directors have also been reallocated. RBI is in the process of appointing new EDs by promotion. Till the time, some of the Chief General Managers will report directly to the respective Deputy Governors.

RBI panel proposes guidelines for microlenders

The Reserve Bank of India (RBI) temporarily relaxed rules for bank loans to the microfinance sector, which will allow banks to continue lending to the embattled industry, and unveiled proposed guidelines for the lenders to the poor. The RBI panel's recommendations include margin caps and other measures for a sector that has been hit hard since a key state imposed strict regulations in response to complaints over high interest rates, aggressive recovery practices and overextended borrowers. Microlenders in India typically make loans of about $140, mostly to women. The panel recommended a margin cap of 10 percent over the cost of funds for larger microfinance lenders and 12 percent for smaller lenders in a sector where interest rates can top 30 percent. The report also recommended limiting to two the number of microfinance firms that can lend to the same borrower, and called for a customer protection code for microfinance companies. Other recommendations include creating a separate category of non-banking financial companies (NBFCs) in the sector, which will be designated as NBFC-MFIs. The panel was appointed in October to look into problems confronting the sector, which had been growing quickly and has outstanding loans of more than $6 billion. The recommendations, which were generally in line with industry expectations, are not binding but are expected to act as guidelines for the loosely regulated sector. Shares of India's largest microfinance company SKS Microfinance, which have fallen by more than half since the company went public last August, ended nearly 3 percent higher after the RBI's move to temporarily ease lending rules. EASING CREDIT The RBI will temporarily allow banks to classify as standard loans to microfinance firms that are potentially delinquent, which is expected to ease the flow of credit to the industry. "The fact that the RBI is making an exception on behalf of MFIs (microfinance institutions) and taking special steps to support the industry is a good sign from a direction point of view," said Anurag Agarwal, senior vice president at Intellecap, a Hyderabad-based consulting firm in the microfinance segment. Some critics have argued that microfinance companies should not be profit-driven, while supporters say profits allow lenders to lend to more poor borrowers. The southern state of Andhra Pradesh, which was the largest microfinance market in India, imposed a series of regulations on the sector in October that has severely curtailed operations in the state. India's central bank and finance ministry have both spoken up in support of the sector. "The Sub-Committee has cautioned that while recognising the need to protect borrowers it is also necessary to recognise that if the recovery culture is adversely affected and the free flow of funds in the system interrupted, the ultimate sufferers will be the borrowers themselves," an RBI statement said.

Now withdraw cash at a shop, but bear a cost

ICICI Bank Ltd, the largest private bank in the country, on Tuesday announced the launch of a facility that allows withdrawal of cash at the point of sales (PoS) terminal, an electronic retail payment device or a shop with such a device. The Reserve Bank of India (RBI) first allowed this facility through a notification issued in 2009. Union Bank of India (UBI) was the first to launch this facility in rural areas with the motive of financial inclusion; ICICI Bank claims to be the first to come out with this facility. You can withdraw up to Rs1,000 per day at the PoS terminal at a shop. The best part is that you need not make any purchases from the shop where you avail this facility. If the merchant refuses to give cash, the debit cardholder can lodge a complain with the bank. It is similar to the process where a merchant refuses to accept card for purchase of goods. The RBI circular says, “In case the facility is being availed with the purchase of merchandise, the receipt generated shall separately indicate the amount of cash withdrawal.” The facility, however, comes at a cost. You will need to pay Rs10 per transaction as a fee. You do not have to pay the merchant on the spot; the fee will be charged by the bank and directly debited from your account.

Ensuring security of payment systems a big challenge: RBI

Reserve Bank of India's Deputy Governor K.C.Chakrabarty today said ensuring security of payment systems and protecting customers' funds is the biggest challenge before central banks and payments systems operators. Banks should spread awareness to increase usage of newer payment systems, Chakrabarty said, adding, "this (safety and security) is a big challenge to be faced to avoid erosion of customer confidence in the new age payment systems." Delivering the inaugural address at Banknet's 7th annual conference on payment systems in Mumbai, Chakrabarty said the RBI had mandated the additional factor of authentication for all card-not-present transactions - perhaps the first attempt by any regulator - apprehending security being compromised. "The RBI is currently in discussion with "banks and the card companies to introduce an authentication system for transactions at POS (points of sale)," Chakrabarty said. Apart from that, in case of ATM cards, it is also mulling a move over to the more secure "Chip and Pin" cards from the current pin-only system to check instances of cloning, Chakrabarty said.

FDs: Banks charge penalty for early withrawal

As interest rates inch upwards, returns on fixed deposits (FD) are also getting better, but it may not be a good idea to hop from one FD to another, hoping for a better rate of interest. If you decide to withdraw the earlier fixed deposit to make your money work harder, it will come at a cost to you.
HDFC Bank, one of the few banks that were not charging a penalty on premature withdrawal, will now charge a penalty of 1 per cent from next week. However there are banks such as the Punjab National Bank which has halved its penalty to 1 per cent in line with the penalties that other public sector banks charge like State Bank of India. While ICICI Bank charges a penalty of 0.5 per cent to 1.5 per cent depending on the tenure and size of the fixed deposit. Axis Bank and IDBI Bank are the only banks that do not charge a penalty. RBI guidelines allow banks to determine the penalty on premature withdrawal. "If someone is breaking a contract they will have to pay a penalty," said K.C.Chakrabarty, Deputy Governor  of Reserve Bank of India. This means if a customer decides to invest Rs. 1 lakh in a three year fixed deposit and chooses to withdraw it at the end of the first year, he will get the rate applicable on one-year deposits, but the penalty will be deducted from the interest rate payable. Experts say that with penalties for premature withdrawal becoming the norm, it will be wiser to put your money into a fixed deposit scheme for a shorter tenure.

Reserve Bank of India in tax net

The Reserve Bank of India had some unusual visitors a week ago. Officials from the tax deducted at source (TDS) wing of the income tax department visited the Reserve Bank of India (RBI) headquarters to inquire into the latter’s failure to deduct tax at source since July 2007 on payments amounting to more than Rs.800 crore. The department claimed that according to income tax (I-T) rules, the RBI should have deducted TDS at the rate of 10% on this amount, which comes to more than Rs. 80 crore. After deduction, RBI should have deposited the TDS with the I-T department by the 7th of the month after the one it was deducted for. The I-T authorities found that the RBI had made payments to some government banks as “agency commission” but failed to deduct TDS on it. The commission was paid for banking and government business conducted by these banks on behalf of the RBI. The RBI, in its defence, cited a circular issued by the Central Board of Direct Taxes (CBDT) in 2003, which said that no TDS was required to be deducted on turnover commission paid by RBI to agency banks. The I-T department contended that agency commission and turnover commission are different and the circular was in force only until 2006. The department will not ask the RBI to pay the TDS because it will recover that from the banks.

RBI allows outstation cheque charges hike

The Reserve Bank of India has allowed banks to hike charges for outstation cheques and cheques under speed clearing “to hasten the migration of transactions to electronic mode“, the central bank said on its website. Henceforth, banks will be allowed to charge customers for outstation cheques and cheques under speed clearing valuing above Rs. 1 lakh. Both these charges were capped at Rs. 150 before the notification.

Intermediaries can’t outsource KYC, says SEBI

The Securities and Exchange Board of India wants financial intermediaries to stop outsourcing their know your client (KYC) processes to third parties. The suggestion is part of a SEBI discussion paper on outsourcing by intermediaries. “The informal feedback indicates that the compliance with securities laws, investor grievance redressal and KYC must not be outsourced under any circumstance,” says the discussion paper. SEBI has invited comments from market intermediaries by February 5. According to an industry expert, mutual funds, brokers and depository participants are among the financial intermediaries who have been outsourcing their KYC processes.