Subsidiary route for foreign banks: RBI

RBI made a categorical assertion that the advantages in wholly owned subsidiary far outweighs the downside risks vis-a-vis branches because branches are not separate legal entities in India. Whereas subsidiaries are concerned they are locally incorporated separate legal entity with its own capital base and board of directors. Till date no foreign bank has approached RBI for setting up a subsidiary probably due to lack of incentives, the apex bank said.  Hence, RBI added, there may be a need to incentivise that model. Also, from a financial stability perspective, RBI views there would be a need to mandate the subsidiary form of presence at the entry level.  Minimum capital requirements for the entry-level wholly owned subsidiaries of foreign banks may be in line with new private sector banks. It also dwelt on various factors for setting up foreing bank presence in the country such as ownership pattern and financial soundness and rating. The Reserve Bank of India (RBI) in a discussion paper presented, on Friday, on its website said it prefers allowing foreign banks entry in the country through subsidiary route than the branch model, after taking lessons from the recent global financial crisis.

FM meets financial sector regulators ahead of budget

Finance Minister Pranab Mukherjee on Friday met India’s top economic regulators seeking inputs on the macro economy and developments in the financial sector as preparation for budget 2011-12 entered the final leg. Mukherjee’s meeting with members of the high-level Financial Stability Development Council (FSDC) came days ahead of the Reserve Bank of India’s (RBI’s) quarterly monetary policy review on January 25. This was the second meeting of the high-level FSDC within a month. The first meeting was held on December 31, 2010. “The RBI policy is scheduled on January 25. As a standard practice I have come to review the macroeconomic situation with the finance minister,” RBI Governor D.Subbarao told reporters after the meeting. The RBI has raised key policy rates six times so far this year as prices raced into high-double digits pummeled by a supply crunch of staple items. In November RBI had increased the repo and reverse repo rates each by 0.25 percentage points to 6.25% and 5.25%, respectively. A higher repo, the rate at RBI lends to lenders, raises the banks’ borrowing costs prompting them to raise interest rates for final home, auto and corporate borrowers. A higher reverse repo — the rate at which RBI absorbs excess cash — means it would suck cash from the system to stymie demand and cool prices. The issues discussed in the meeting include, functioning of FSDC, state of the Indian economy, economic recovery in advanced countries and implications for India. Besides, Subbarao and officials of the finance ministry, the meeting was attended by Securities and Exchange Board of India (SEBI) chairman C B Bhave, Insurance Regulatory and Development Authority (IRDA) chief J Hari Narayan and Pension Fund Regulatory and Development Authority chairman Yogesh Agarwal.

Malegam panel fell short of expectations: AP

Andhra Pradesh government, whose controversial law to rein in micro-finance institutions had led to a serious crisis in the MFI sector, said the Reserve Bank of India appointed Malegam Committee fell short of expectations. In a letter addressed to the Reserve Bank, the AP government said the Malegam report failed to put in place an effective protection mechanism for the poor borrowers from being exploited. The AP government said the RBI panel did not attempt addressing the existing debt burden on the poor that had reached unserviceable levels at interest rates ranging from 28 to 60 per cent. Also, the suggestions of the state government for rescheduling or debt swapping of high cost debt was not heeded. The government said “no relief has been proposed by applying the interest rate cap for the outstanding loans” and the “recommendations do not cover the loans which are outstanding.” Further, the state government said the Malegam report did not make any concrete recommendations for improving credit flow from the banks directly to the poor using the self help group (SHG) mechanism that allows cheaper credit. The AP government was also of the view that self regulation didn’t work in any sector, more so where a profit motive was involved. Referring to the suggestion of RBI panel that asked the MFIs to comply with the regulations through code of conduct, the government said “the implementation mechanism proposed is very weak. Greater reliance is placed on the ability of MFI to regulate itself. Even now, such codes exist, which are never implemented.”

Sobti re-appointed Managing Director & CEO of IndusInd Bank

The Reserve Bank of India has conveyed its approval for the re-appointment of Romesh Sobti as Managing Director & CEO of IndusInd Bank for a further period of three years. This will be with effect from February 1, a press release issued here today stated. Sobti joined IndusInd Bank on February 1, 2008. In the past three years, the bank has seen a magnificent turnaround in profitability/productivity and the health of its loan-book. The bank is now well-capitalised and positioned for robust growth in the next 3-years, the release said.

RBI Planning To Boost ATM Security In India

ATM fraud in India is not a new crime. It has been in existence for long. Even techno legal solutions for the same have been provided in this regard by techno legal experts for long. However, ATM frauds were not taken seriously by Indian government in general and reserve bank of India (RBI) in particular. It is only recently that RBI took some pro active actions in this regard. RBI would soon ask banks to shift to chip-based ATM cards from the existing magnet strips ones and upgrade the currency vending machines. This was one of the original solutions provided by Praveen Dalal, a Supreme Court Lawyer and leading techno legal expert of India. According to Praveen Dalal ATM frauds cannot be tackled successfully till we use techno legal measures. The technological mechanisms like Designated time, Microchip technology, Biometric tokens, Enhanced security, ATM Monitoring, Customised softwares, Customer motivation, Alerts, etc can be used to minimise and prevent ATM frauds in India, suggests Dalal. In a welcome move, RBI has accepted some of the suggestions of Praveen Dalal, including using a chip-based ATM card. According to Dalal the banks should use cards containing a microchip that can make them harder to forge. RBI has also decided to adopt widespread changes in the existing IT system of the Indian banking industry to make banking services more safe and secure. The apex bank has also suggested setting up separate cell on bank fraud in police departments. It has also suggested that for debit or credit card transactions at the POS (point of sale) terminals, PIN-based authorisation should be put in place instead of the signature-based system. The non-PIN based POS terminal would be withdrawn in a phased manner.

RBI wants banks to beef info security

In a move to strengthen the information technology architecture of banks, the Reserve Bank of India (RBI) has asked the institutions to form an policy approved by the board. The central bank has emphasised the need to create an exclusive board-level IT strategy committee, with two directors as members, where one would be an independent director. A working group, under the chairmanship of RBI executive director G Gopalakrishna, has recommended enhancing RBI guidelines relating to the governance of IT and information security measures to tackle cyber fraud, apart from enhancing independent assurance about the effectiveness of IT controls. “All members of the IT Strategy Committee would need to be technically competent, while at least one member would need to have substantial expertise in managing/guiding technology initiatives,” the committee said. The committee has been asked to review the plans at least once an year. In addition, banks will soon have a chief information officer (CIO), who would play a role in the executive decision making function. “The key role of the CIO would be to act as an owner of the IT function and enable alignment of business and technology,” said the central bank. The working group has also suggested an additional post of Chief Information Security Officer (CISO) who will be responsible for making and implementing policies to protect information. “An official of GM/DGM/AGM level can be appointed as CISO, who will report directly to the head of the risk management function and should not have a direct reporting relationship with the CIO,” RBI said. A board-approved information security policy needs to be in place and reviewed at least annually. To prevent skimming of credit and debit cards, the working group recommended that RBI move to use chip-based cards in a phased manner. “Chip-based cards help prevent frauds using the details recorded on the magnetic-stripe of the card. Sparing one or two private sector banks, all other banks currently issue cards with a magnetic stripe on it,” RBI said.

Governance deficit, graft extremely serious issues: Azim Premji

Wipro chairman Azim Premji on Friday reiterated that governance deficit and corruption were extremely serious issues for the future of the nation.
"Enough is enough. The situation in the country is extremely serious for its future and it is important that people in leadership give constructive suggestions to the government to rectify the situation," Premji told. Referring to the open letter written Jan 17 by 14 eminent citizens, including himself, to national leaders on governance deficit and corruption, Premji said though there was a response from the government, he would like to maintain the sanctity of the dialogue than making it public.  In the open letter, the noted citizens expressed concern with the general deterioration in the overall value system of the nation. They were also alarmed at the widespread governance deficit almost in every sphere of national activity, covering government, business and institutions.  Besides Premji, other eminent citizens who were signatories to the letter were former Reserve Bank of India (RBI) chief Bimal Jalan, HDFC chairman Deepak Parekh, former Hindustan Lever chairman Ashok Ganguly and Godrej & Boyce chairman and managing director Jamshyd Godrej.

Special sop goes as RBI replaces J&K Bank as state's banker

Bringing the curtain down on a special dispensation available to Jammu and Kashmir, the Reserve Bank of India (RBI) has entered into an agreement with the state government to undertake its general banking business and act as the sole agent for investment. Following Friday`s agreement, effective April 1, Jammu & Kashmir Bank will not be permitted to provide overdraft to the state government. Unlike other states, the bank, which is majority-owned by the state, provided these services to the state government as part of a special arrangement for J&K. The other states, like the Centre, use RBI`s ways and means advances for overdrafts to meet cash flow mismatches. From April, J & K Bank will act as an agent of RBI to conduct the state government`s general banking business, the central bank said in a statement on Friday. It also said the agreement was signed on the basis of a recommendation from the state government.

RBI moots arms model for MNC banks

The Reserve Bank of India expects existing branches of foreign banks, of a certain size to voluntarily convert themselves into wholly owned subsidiaries (WOS). In a discussion paper on presence of foreign banks in India, the central bank said on Friday, it would be mandatory for banks which opt for branch mode of presence, in the country, to convert themselves into WOS if they become systemically important. To incentivise them to set up or convert into an WOS, the central bank says it could consider extending to foreign banks a branch expansion policy as applicable to private sector banks. In other words, they would not be given ‘national treatment’ like public sector banks.  Moreover, foreign banks WOS, with a capital adequacy ratio of at least 9% for preceding two completed years, and the accounting year and net non performing loans of less than 7% could declare a dividend.

Sahara objects to RBI ad on deposits

The Sahara group has taken umbrage over a Reserve Bank of India advertisement, issued earlier this week, cautioning deposit holders to be cautious about deposits raised by the Sahara India Pariwar and has challenged the central bank’s jurisdiction in doing so. Sahara Pariwar, in a letter to the RBI, has said that there are a host of companies in the group which are raising funds and come under purview of other regulators, which are not governed by the RBI. These companies include Sahara India Life Insurance, Sahara Asset Management, Sahara Real Estate Corporation and Sahara Housing Investment Corporation. Challenging the banking regulator, Sahara, said that Sahara Real Estate Corporation and Sahara Housing Investment Corporation are issuing optionally fully convertible debentures and these investments do not come under the RBI’s purview. Similarly, it also pointed out that the Sahara Credit Cooperative Society is promoting micro savings for micro lending, which also does not come under RBI regulations. The RBI on January 18 had issued advertisement in leading newspapers stating that it had received complaints that Sahara group of companies has been mobilizing deposits from the public under the generic name of Sahara Pariwar. The central bank had cautioned the public stating that when money is collected in the name of Sahara Pariwar they should verify the name of the company which issues the deposit receipt and whether the company is authorized by the RBI to accept deposits from the public. They were also cautioned that the RBI does not guarantee repayment of deposits accepted by Sahara India Financial Corporation (SIFCL) or any other company in the group.