Anand Sinha - Man Friday you can always count on

In Delhi’s North Block, which houses the finance ministry, bureaucrats there often say that central bankers are paid to be conservative.  And that is a description which may well fit the new Deputy Governor of the Reserve Bank of India, Anand Sinha. The career central banker has straightway been assigned the charge of the Department of Banking Operations and Development which handles banking licences. That is in keeping with his core competence on this front and banking supervision.  A former boss of his says Mr Sinha was admired most for his ability to think originally on many issues. This has also earned him respect in global banking circles. He is well versed in finer details of new prudential and supervision norms, also known as the Basel III norms, which are currently being debated globally among central banks.  Mr Sinha has been involved in drafting and formulation of several major regulatory and supervisory policies for commercial banks. And that includes draft guidelines in the making on licensing new private banks, besides the policy paper on the entry of foreign banks.  Mr Sinha has had vast global as well as local exposure. He represented India and the RBI on several international committees. He was Reserve Bank of India’s alternative representative on the Basel Committee on Banking Supervision (BCBS), Bank for International Settlements (BIS), Basel, Switzerland, and was also on various sub-committees. Besides, he was also a nominee of the RBI on the boards of several state-run banks.  Commercial bankers view him a little differently. In his interaction with bankers, they say, he talks less and listens more and comes across as a die-hard central banker who reckons that the regulator is always right. They do acknowledge his in-depth knowledge not only of prudential accounting norms, Basel II and III, but also his knowledge relating to the new financial accounting norms such as the international financial reporting standards or the IFRS. There are others who say he is very theoretical in his approach, lacking the pragmatism of his predecessor who despite being a central banker was open to change — a quality which is seen as crucial in the changing financial environment as Indian markets integrate with global markets. His colleagues on Mint Street too acknowledge his cautious approach. According to bankers, Sinha’s personality is in sharp contrast to that of his fellow Deputy Governor, K.C.Chakrabarty, who is known to speak his mind even beyond the confines of the RBI headquarters in Mumbai.  A voracious reader in his free time, Mr Sinha is said to prefer reading serious academic books on banking regulation and supervision. He is known to be the ‘Man Friday’ of the bosses and a boss whom his juniors can depend on, as he is not one who is imposing. An IIT alumnus — a masters in Physics from IIT Delhi — solving mathematical puzzles is a stress buster for Mr Sinha. That is something he may have to reach out for more over the next two years.

Banks’ interest rates on deposits, lending go up again

Barely a week after Reserve Bank of India (RBI) raised key policy rates by 25 basis points and asked banks to restrain lending and promote deposit growth, a slew of commercial banks have begun by increasing their benchmark lending rates and deposit rates. As many as six PSU banks announced hike in base rates, benchmark prime lending rate and deposit rates by 25-50 basis points across various maturities. Bank of India increased its Base Rate (BR) from existing 9.00 per cent  to 9.50 per cent a year and Benchmark Prime Lending Rate (BPLR) from existing 13.25 per cent to 13.75 per cent per annum.  Dena Bank increased its BR by 50 basis points from 8.95 to 9.45 per cent. Two others Oriental Bank of Commerce and Indian Bank hiked deposit and lending rates by 50 basis points, while Indian Overseas Bank raised its base rate from 9 per cent to 9.5 per cent. Oriental Bank has also revised its deposit rates by 25-50 bps across various maturities. Bank of Baroda revised its rates of interest payable on term deposits by 25 bps.

Credit card complaints top list of grievances: RBI Ombudsman

Credit card grievances relating to overcharging and issuance of unsolicited cards accounted for bulk of the complaints received by the banking ombudsman during 2009-10. The banking ombudsman has received 18,810 credit card complaints, which accounted for 24 per cent of the total grievances received during 2009-10, data released by the Reserve Bank of India (RBI) showed. The number of complaints has been increasing year-on-year basis. In 2008-09, the ombudsman received 17,648 complaints, while it stood at 10,129 in 2007-08.  The RBI had launched the banking ombudsman scheme in 2005 to redress grievances of customers. "A general source of these complaints continues to be the difficulty in accessing the credit card issuers and the poor response from the call centres. Simply put, this is the issue of non-transparency and mis-selling," the RBI said. The types of card-related complaints consists of items like issuance of unsolicited credit cards and recovery of premium charges, charging of annual fee in spite of being offered as 'free' card, it said. The ombudsman also received credit card complaints for disputes over wrong billing, abusive calls, excessive charges, wrong debits to account, non-dispensation of money from ATM, among others. "Complaints relating to credit cards (comprising 24 per cent of the total complaints in 2009-10 as compared to 25.5 per cent in 2008-09) show a declining trend this year," the RBI said. The credit card complaints also include complaints related to debit cards and ATM cards also. The ombudsman has also received complaints relating to failure on commitments made by banks, which include delay in providing banking facilities. The ombudsman received 11,569 complaints for failure to meeting commitments during 2009-10, which was 15 per cent of the total complaints received. "This points to the lack of sensitivity, transparency... As these complaints mostly relate to basic banking facilities, banks need to address these issues on priority basis without any demur," the RBI said. Further, it has also received 6,612 complaints related to loans and advance, 1,609 complaints against direct selling agents or recovery agents. In total during 2009-10, the ombudsman has received 79,266 complaints, higher than 69,117 received in the previous year.

RBI wants escrow accounts to protect home buyers

Is your property developer delaying construction or possibly using your booking amount or funds from banks for purposes other than building? Help could be at hand with a new measures proposed by the Reserve Bank of India (RBI), which has advised commercial banks to create escrow accounts to ensure transparency.  Sources in public sector banks told HT that the RBI had taken steps to push for escrow accounts following recent instances of abuse of money meant for home building in the home loan finance scam. The money was channelised for other activities. An escrow is an account held by a lender or neutral third party into which either a homeowner pays money or deposits assets. In the case of real estate purchases, the escrow is created by a tripartite agreement between the developer, the banker and the home buyer and the amount needed to complete the project is calibrated with the progress of construction. Several banks including HDFC and Punjab National Bank have started directing funds to certain real estate projects through escrow accounts.

RBI rejects Karnataka banks' plea on coffee loans

The Reserve Bank of India has not ‘favourably' considered the Karnataka-based banks' request for retention of asset classification status of Coffee Debt Relief Package (CDRP) loans as on June 30, 2009, said a top regional official of RBI at the State-Level Bankers' Committee (SLBC) – Karnataka meeting held on Monday. Mr P. Vijaya Bhaskar, Regional Director, Reserve Bank of India, Bangalore, informed bankers at the 115 {+t} {+h} SLBC meeting that the RBI was not able to ‘favourably consider' their request since asset reclassification cannot be considered on a retrospective basis. Banks in Karnataka have an exposure of about Rs 1,400 crore to coffee growers in the State. According to bankers, such a step would lead to the increase in the level of NPAs under coffee loans, and that banks would have to make provision for these loans. Besides, they would also now have to provide for extra provisioning in addition to normal provisioning for diminution of fair value in case of restructured NPAs. 

MFI law could be stalled

The proposed Microfinance Bill may not see the light of day, as the finance ministry is having second thoughts on coming out with legislation to regulate the sector. This comes in the backdrop of recommendations by the Malegam committee, which said the Bill would cover only about 8 per cent of the outstanding microfinance loan portfolio.   “Our Bill is looking at only 8 per cent of the lending industry. We are yet to take a decision on whether it should be introduced. But if there is a Bill, it will be in harmony with the central bank’s regulations,” a finance ministry official, who did not wish to be identified, told Business Standard. He said the ministry would take a final call on this after the Reserve Bank of India (RBI) decided on the Malegam report.   The committee, constituted by RBI to look into various issues related to microfinance institutions (MFIs), has said that 58 per cent of the outstanding loan portfolio in the sector is owned by the self-help groups- bank linkage model and 34 per cent by designated non-banking finance companies-microfinance institutions (NBFC-MFIs).  Both banks and NBFCs are outside the scope of the proposed Act and regulated by RBI. Organisations not regulated by RBI account for only 8 per cent of the loan portfolio. Since cooperative societies, which give members voting rights, are excluded from the provisions of the proposed legislation, this percentage may be even lower, the committee said. While the committee, headed by Y H Malegam, a senior member of RBI’s central board of directors, largely agreed that the entities not governed by the central bank should come under the Microfinance Bill to eliminate regulatory gaps, a member of the panel, Shashi Rajagopalan, disagreed.

'Banks need to strike a balance between loans & deposits'

At the morning meeting with bankers before announcing the January monetary policy, RBI governor Duvvuri Subbarao had a few simple, curt messages to the CEOs. Increase deposits and go slow on loans, or else be prepared to face the music. His concern stemmed from a number derived from FY11 9-month data submitted by banks. It said that incremental credit-deposit ratio of the banking industry was more than 100%. Simply put, it meant that banks gave more loans than deposits received during the period. As loans outstripped deposits, banks borrowed overnight and short-term money from RBI and money market to lend. It was a risk, Mr Subbarao felt, they should not be taking. The central bank rarely spells out its concerns in too many words. But bank chiefs were quick to sense what's expected of them. RBI thinks that banks, largely to preserve their profits, have been slow in raising interest on deposits which reflects their cost of funds. As they dragged their feet, there was a growing mismatch in bank books which was not immediately visible to shareholders, many of whom felt that a lower fund cost meant great business sense. But the banking system was slowly exposing itself to a risk that disturbed Mr Subbarao. As banks kept interest rates low, savers moved money to other avenues like small savings where it gets locked for a long time. RBI has partly blamed banks for the liquidity crunch which is roughly measured by the amount that banks borrow daily from it; that number for many months has been around Rs 1 lakh crore. Money so borrowed was cheaper than deposits, but it was short-term money that went to fund longer duration loans. In the financial year to December, bank credit rose 16% while deposits moved up by 10%. RBI Deputy Governor Subir Gokarn was forthright when ET reporters met him. "We have articulated our belief that this is not an individual bank's issue... the disparity across banks leads to some sense of risk of instability and ultimately, it's the question of how credit is being financed by overnight borrowing from the repo window. It's not sustainable," he said.  What also worried RBI was the widening gap between the average tenure of loans and deposits. "On the one hand, the maturity of deposits has come down substantially - more than 70% of these are of around two years. But on the lending side, if you consider infrastructure, it needs financing for a longer term," pointed out Anand Sinha , Deputy Governor, RBI.

Banks must accept 25p coins till June

The Reserve Bank of India has asked state-run banks and some private lenders to accept 25 paise coins for exchange until end-June 2011.  The humble 25 paise coin represent 'four annas' of a bygone era will soon be history. The RBI has said that coins with a denomination of 25 paise and below will be pulled out of circulation by June 2011 after which they will cease to be legal tender.  Raging inflation has reduced the monetary value to such an extent that it will not buy even the cheapest lozenge. Also, the cost of minting these coins is higher than their value because of which they are no longer minted. Although many traders already refuse to accept payments in small change below 50 paise, these coins are currently legal tender and it is an offence to refuse them.  The RBI has for some time now been working on a strategy for the reverse flow of coins from circulation before withdrawing them as legal tender. Having now put in place a process, the RBI has asked 45 banks, including all government-owned banks, which maintain small coin depots to arrange for exchange of coins.  The general public can exchange small denomination coins at any branch of these banks.  The government had earlier under Section15A of the Coinage Act, 1906 decided to withdraw the coins of denomination of 25 paise and below from circulation with effect from June 30, 2011. From this date, these coins shall cease to be legal tender for payment as well as on account.  Some time back, the RBI had recommended that the government should withdraw coins below 50 paise. The central bank had also asked for coinization of low-denomination notes of up to Rs 10 since these are high velocity notes and have to be replaced very frequently.