RBI shuffles top deck

Following Anand Sinha’s elevation as Reserve Bank of India (RBI) Deputy Governor, S Karuppasamy has been promoted as Executive Director to fill the vacancy. Prior to this, Karuppasamy was the Regional Director (Kolkata). Now, he will look after the Department of Expenditure and Budgetary Control, besides Information Technology, Urban Banks and Legal affairs. Mint Road sources said the Legal Department had been brought under an ED after a long time. Earlier, it was directly being looked after by a Deputy Governor. Earlier this month, V K Sharma, the senior-most ED, was relieved from the Department of Urban Banks, while the Department of Information Technology had no ED earlier. Sources said the Department of Banking Operations and Development, that of Payments and Settlement and the Financial Stability Unit would have no ED as of now. The Chief General Managers of these three departments will directly report to their respective Deputy Governors.  As an Executive Director, Anand Sinha was looking after Banking Operations and Development, Financial Stability and the Department of Expenditure and Budgetary Control.  Karuppasamy, the senior-most among Chief General Managers, was interviewed in November by a search panel comprising the Governor and Deputy Governors. He has three years of service left and is to retire in January 2014. To be eligible for the post of ED, a Chief General Manager should have three years of residual service. The retirement age for all RBI employees is 60.  The central bank, which has seven EDs, will see one more vacancy in February, with C Krishnan’s term coming to an end.  Interviews were conducted last week to find a replacement. R Gandhi, a Chief General Manager looking after the Department of Currency Management, and P Vijaya Bhaskar, Regional Director (Bangalore), had appeared for the interview.  The chief executive officer’s post in the Deposit Insurance and Credit Guarantee Corporation (DICGC) – a wholly owned subsidiary of RBI – has been lying vacant since October 31 after H N Prasad’s retirement. For the past few years, DICGC has been headed by an ED-rank officer. In May, Deputy Governor Shyamala Gopinath will retire. She will be replaced by an ED.

Reserve Bank of India goes digital

 The Reserve Bank of India is looking to clear its offices from the heavy paper-load and digitise all the documents lying in its various offices.  The move could be a humongous exercise as RBI is looking at digitisation of approximately 30 lakh paper documents and it might take more than a year to complete the task.  However, once complete, the exercise could help the RBI to a great extent in its day-to-day operations as a full digitisation of its entire archive of documents would cut down heavily on the time taken in finding the relevant documents for any of its future actions.  Going paper-less has already become a trend in the banking sector with banks encouraging their customers to opt for email account statements, instead of the traditional paper documents.To meet its digitisation goal, RBI has sought requests for proposals (RFPs) till February 11 from the entities capable of digitising the paper documents at all its offices.  The RBI also held a pre-bid meeting on January 28 to explain the queries raised by potential bidders who would be required to first digitise the paper documents, provide training to the staff and also supply the required software and hardware products to meet the digitisation goal.  The RBI told the potential bidders that approximately 10,000 pages would be required to be scanned per day and the exercise could involve digitisation of approximately 30 lakh documents.

Top bankers speak at Banking Summit 2011 organised by JIM Noida

Jaipuria Institute of Management, Noida recently organized Banking Summit 2011. The theme of the summit was 'Banking in India: Issues and Challenges'. The summit successfully provided a one to one interactive platform to MBA students who shared their doubts and fears with renowned Banking industry leaders. Jaipuria Institute of Management, Noida recently organized Banking Summit 2011. The theme of the summit was ‘Banking in India: Issues and Challenges’. The Summit was launched by the top level personalities of the Banking Industry and the academia. The program commenced with lighting of the lamp by Mr. Sandip Ghose, Regional Director, RBI;  Dr. Anup K Singh, Director, JIM Noida and Dr. JD Singh, Director General, Jaipuria Institute of Management. The summit successfully provided a one to one interactive platform to MBA students who shared their doubts and fears with renowned Banking industry leaders. The esteemed industry leaders shared their thoughts and experiences with the keen management students.  The keynote speakers for the inaugural session were Mr. Sandeep Ghose (Regional Director, RBI), Mr. Ranjan Dhawan (Chief General Manager, PNB, New Delhi), Mr. R. C. Khurana (General Manager, Bank of India, New Delhi) , Mr. Sunil Pant (Chief General Manager, State Bank of India, New Delhi) ,  Mr. Rajnish Kataria (Director, National School of Banking Studies and Corporate Management ), Mr. S. C. Sinha (Executive Director, Oriental Bank of Commerce, New Delhi). The session was inaugurated by Mr. Sandip Ghose, Regional Director, RBI. According to Mr. Ghose, the two challenges that lie in future for the banking sector in India are: Human Resources Management and Financial inclusion. “The banking sector will have a great shortage of human resources in future as there will be a huge number of retirements within the next 5 years,” said Mr. Ghose. He asked all the budding managers to “put on their learning hats” and sharpen their reading, writing, speaking and listening skills to gear up for a banking job.

India's reserves more vulnerable to reversal of capital: Subbarao

‘Move towards capital account convertibility will be gradual’.  India’s foreign exchange reserves are more vulnerable to reversal of capital inflows as compared to countries with current account surpluses, Reserve Bank of India (RBI) Governor Duvvuri Subbarao said on Monday. “Our reserves comprise essentially borrowed resources, and we are therefore more vulnerable to sudden stops and reversals as compared with countries with current account surpluses,” Subbarao said in a speech at the Special Governors’ Meet in Japan.  Subbarao said it was important to distinguish between countries whose reserves were a consequence of current account surpluses and countries with current account deficits whose reserves were a result of capital inflows in excess of their absorptive capacity.  In the third quarter review of the monetary policy, RBI had expressed discomfort over financing the current account gap with short-term capital inflows. As a source of funding the current account gap, FIIs posed a threat due to their unsustainable nature, RBI said. India’s current account deficit hit an all time high of $15.8 billion in July-September. Subbarao said capital account convertibility was not a standalone objective and the move towards it should be gradual. “India has followed a consistent policy on allowing capital inflows in general and on capital account management in particular. Our position is that capital account convertibility is not a standalone objective but a means for higher and stable growth. We believe our economy should traverse towards capital convertibility along a gradual path — the path itself being recalibrated on a dynamic basis in response to domestic and global developments,” he said. “Historically, we have used policy levers on the debt side of the flows to manage volatility. Contrary to popular perception, we have used both quantity and price=based variables to moderate debt flows,” he said.

Rs 250,000 cr bulk deposits up for renewal, rates may be hiked

Interest rates on bulk deposits are expected to shoot up as about Rs 250,000 crore of bulk deposits, out of a total Rs 5,000,000 crore in the system, come up for repricing during this quarter. Banks are vying with each other to widen their deposit base after the Reserve Bank of India (RBI) warned them not to fund credit through the repo window or the call money market. The problem will be aggravated further in the March quarter, when there is a 30 per cent to 40 per cent higher concentration of fixed deposits, as banks contract a higher amount of deposits to show a higher topline growth. About Rs 180,000 crore of bulk deposits mature every month, according to treasury heads of leading banks. A bulk deposit is any deposit over Rs 1 crore. K.R.Kamath, CMD of Punjab National Bank, said the bulk deposits form about 22.43 per cent of their deposit base. “The rates on these deposits could go up if there is a good credit demand in the fourth quarter. We do not have a bunching of bulk deposits, every month we have a portion maturing,” said Kamath. A senior SBI official who deals with revenue and resource management said the total deposits of the banking system is estimated to be around Rs 5,000,000 crore, which includes the current accounts, savings account, retail term deposits and bulk deposits. “About 35 per cent of this is Casa and the remaining Rs 3,250,000 crore are term deposit of which bulk deposits would be Rs 2,275,000 crore. Term deposits are spread out in the 12 months of the year, which works out to roughly about Rs 180,000 crore maturing every month,” said the official.

MFIs want 12-18 months to comply with rate cap

Small and mid-sized microfinance institutions (MFIs) are likely to seek more time to comply with the recommendations of the Malegam Committee report.   The institutions plan make a representation to the regulator through the Micro Finance Institution Network (MFIN), asking for at least 12-18 months to bring down their interest rates to 24 per cent. Smaller MFIs charge 31-50 per cent. The Reserve Bank of India (RBI) has said that it will take a decision on implementing the recommendations by the end of March. The committee has suggested that if its recommendations are accepted, they should be implemented by April.

Benefits of local incorporation

The discussion paper on the presence of foreign banks in India circulated by the Reserve Bank of India draws heavily on the experiences of the global financial sector during the crisis period. A road map for foreign banks drawn up in 2005 had recommended a two-track approach aimed at, on the one hand, increasing the stability and pace of consolidation of both private and public banks in India and, on the other, enhancing foreign bank presence in a synchronised manner. An action plan to be executed in two phases was stalled in the wake of the global financial crisis. There have been valuable lessons from the crisis — among them, the desirability of “subsidiarisation” of significant cross-border presence, which brings with it the advantages of greater regulatory control and comfort to the host jurisdiction. The crisis was exacerbated by complex structures and the implicit belief that certain financial institutions are either too big or too connected to be allowed to fail. The risks can be minimised, although not entirely eliminated, by asking foreign banks to incorporate subsidiaries locally rather than operate as branches. Unlike branches, subsidiaries will have their own capital and boards of directors and be subject to domestic legislation such as the Companies Act.  While opting for the subsidiary model, the discussion paper does not downplay the advantages of foreign banks functioning as branches. These include greater operational flexibility and an enhanced lending capability based on the ability to leverage the capital of their head offices. However, the much-vaunted strengths of major international banks were of no avail during the crisis and, in India especially, their branches seemed to be in a far better shape than the bank as a whole. In the post-crisis period, a majority of regulators are stipulating local incorporation requirements to protect retail depositors and to limit the impact of operations of systemically important banks. A clear demarcation of assets and liabilities between branches of subsidiaries and the head offices is possible. It also becomes easier to define laws of jurisdiction and, in general, enhance the capabilities of the domestic regulators. One important lesson from the crisis is that a foreign bank's support to either its branches or subsidiaries need not be automatic. Given the perceived reluctance of foreign banks to incorporate subsidiaries, certain incentives can be offered without relaxing the entry level requirements suggested in the discussion paper. The issue of reciprocity will also come up, with Indian banks operating branches in many jurisdictions.

THE FINANCIAL CRISIS

Dr.Y.V. Reddy, a former Reserve Bank of India governor, is credited for saving the Indian financial system from the crisis that rocked the globe in the wake of the collapse of US investment bank Lehman Brothers. He was prudent, conservative, and did not allow Indian banks to indulge in those exotic derivatives that he himself did not understand.  

High salaries of MFI bosses raise eyebrows

“In general, when you are dealing with the poor, it does not appear morally right to take high compensation given that the income is coming exclusively from the poor,” says MS Sriram, adjunct professor at the Indian Institute of Management, Ahmedabad. Sriram documented such promoter-friendly payouts in his March 2010 paper titled ‘Commercialisation of Microfinance in India: A Discussion on the Emperor’s Apparel’.   After the collapse of Lehman Brothers in 2008, banking regulators across the world are taking greater interest in the compensation of executives in the financial sector. In India, the Reserve Bank of India (RBI) vets the salaries of bank CEOs and has even intervened in the odd case.    However, the central bank has so far not intervened in the case of microfinance institutions. The RBI-appointed Y.H.Malegam committee, which last month gave recommendations on the way forward for the distressed microfinance sector, was silent on the issue of managerial compensation. It did, though, talk of microfinance companies developing corporate governance norms that limit variable compensation for employees.