79,000 villages to get banking services – K.R.Ananda, Regional Director, RBI

Banking services will be extended to 79,000 villages with population more than 2,000 throughout the country before March 2012, according to K.R. Ananda, Regional Director for Tamil Nadu and Pondicherry, Reserve Bank of India. He was launching the RBI outreach programme, at Vellabommanpatti near Vadadmadurai on Saturday, 5^th February 2011.  Initially, 170 villages have been identified this year, and all these will be made as model villages. Every household in model villages will have savings bank account. The bank has identified four villages in the State including Seelapadiyankulam and Vellabommanpatti in Dindigul for this year. The Reserve Bank of India had covered eight villages in 2009-10 in the State. “Villagers will be sensitised to importance of savings. Financial assistance for income generation activities will also be offered to ensure equitable development at these villages. The bankers will depute business correspondents to provide banking service at the doorstep of villagers that will save time and journey distance,” he added.                      - The Hindu

Mobile cash on cards by April

The National Payments Corporation of India (NPCI), an RBI functionary, hopes to rope in about 25 banks into its fold to implement its Interbank Mobile Payment Solution (IMPS). “We have ten banks that have gone live with Interbank Mobile Payment Solution and expect 15 more to join the group before April end,” said NPCI chief operating officer, Mr M. Balakrishnan after unveiling the facility for Karur-based Lakshmi Vilas Bank in Chennai. IMPS is a real time fund transfer facility via mobile phones and does not require the account number of the beneficiary.Once registered with the bank for the service, a unique mobile money identifier (MMID) is issued to the customers, which along with the mobile phone number, is used for both credit and debit transactions. Though the service is enabled through a mobile application download, it can also be used in low-end phones by regular SMS facility.  “Since IMPS does not use the customer’s account number, there is no fear of misuse of accounts through hacking of mobile phones,” Mr Balakrishnan said. - Deccan Chronicle

RBI financial outreach camp at Karsingsa

Encouraged by the response of financial outreach camps organized as part of its platinum jubilee celebrations across Northeastern States during 2009-10, the Reserve Bank of India (RBI) is launching the second phase at Karsingsa from February 12. The purpose of the camp is to bring awareness on banking facilities to every adult citizen in the targetted areas as well as to bring them under mainstream banking. The camp will also aim to disseminate information on various facilities and schemes. Stalls will be set up by the RBI, SBI, UCO bank, Arunachal Pradesh Cooperative Apex Bank, NEDFI, SIDBI, KVIC, NSIC, Agriculture and Veterinary department, State Forest Research Institute and model village among others. Among others, Deputy Governor, RBI, Syamala Gopinath will attend as chief guest while Chief Secretary, Arunachal Pradesh, Regional Director, RBI Surekha Marandi, Banking, Ombudsman for North East, Chief General Manager, State Bank of India NE Circle, General Manager, NABARD, District Magistrate will also attend the camp.      -The Sentinel 

Why a banker questions RBI

There aren’t too many instances of the chief executive of a bank questioning the wisdom of the Reserve Bank of India (RBI) in the country’s banking history. The State Bank of India’s (SBI) refusal to set aside money for making provisions, as directed by RBI, for the so-called teaser home loans is raising many eyebrows.  No banker is willing to formally comment on the stance of Om Prakash Bhatt, chairman of SBI, the nation’s largest lender, but in private, a few say Bhatt “has the guts to take on the regulator” while the more diplomatic ones dub his “defiance” as “creative tension between the regulator and a regulated entity”. Bhatt has done something no Indian banker has done before.  According to the regulator, teaser loans carry high risk and it is willing to revert to bring down the provision rate from 2% to 0.40% for those loans which do not turn bad one year after the loan rates go up. Bhatt contests RBI’s perception of risk and says the home loans that SBI offers at a discount for the first two years are special loans and no teaser loans. He also claims while giving such special loans the bank takes into consideration a customer’s capacity to service the loan when the rates go up. In the absence of any risk of default, the bank does not need to make extra provisioning, as directed by RBI. The audit committee of SBI’s board, headed by chartered accountant Dileep C. Choksi, has endorsed the chairman’s decision. Shyamala Gopinath, an RBI Deputy Governor director of the bank’s board, is a member of the audit committee. Apart from higher provisioning for teaser home loans, Bhatt also has reservations about RBI’s decision on 70% provisions for bad loans. In a television interview, after announcing the bank’s third quarter earning, he dubbed the RBI norm as “arbitrary”.  There are three types of bad loans—substandard, doubtful and loss assets. Till recently, banks were required to set aside the entire amount of loss assets, or those assets which can never be recovered, while provisioning requirement for other two categories varied, depending on their age and quality. RBI in 2009 made 70% provision mandatory for bad assets for all banks.  In other words, irrespective of the degree of deterioration, banks need to set aside Rs70 for every Rs100 worth of bad loans. SBI has so far done close to 64% provisioning for its bad loans and sought time to raise it to 70%. Bhatt’s argument is while money has already been set aside for different categories of bad assets, what’s the point in raising the overall bad loan provisioning to 70%?  Can a commercial banker question the rationale behind a regulator’s decision? While the industry is divided on this, I would be curious to know how does the RBI nominee on the bank’s board react to such moves?  RBI says teaser loans are not only risky, but also an instrument that discriminates one set of borrower against others. This is because new customers get such loans at a discounted rate while the existing customer had paid higher interest rates. If this indeed has been the case, why can’t the RBI nominee on the board settle it at the board level? There is a government nominee, too, on the board. Can a bank chairman overrule these representatives when it comes to taking decisions on such contentious issues.  After he steps down in March, Bhatt’s successor in April will have tough time in keeping both the regulator and the investors happy.  I am taking a break and will not write this column for the next two weeks.              - Mint

When economists turned the spotlight on themselves at Davos

The just-concluded meeting of the World Economic Forum at Davos had proved to be a virtual non-event, overshadowed as it was by the crisis in the Islamic world. But economists basked in the limelight as they were a much-sought-after tribe. Their wide-ranging forecasts — the likelihood of the next economic crash, growth outlook for China, the possibility of a debt crisis, et al — were in demand, at a time when their track record has never been more pathetic — a fact that, ironically, came to the fore in the conference itself. Economics, we all know, is not an exact science and, when it comes to forecasts of this profession, taking them with a generous pinch of salt would be in order.  How credible are these forecasts? In his thought-provoking Three Sacred Cows of Economics, Alex Rubner spoke of an economist who had forecast the age of a river as one million and twenty-one years. Asked how he can be so accurate, the economist replied that, twenty one years ago, the age of the river was estimated at one million years. Nearer home, the Reserve Bank of India, when it came to projecting the inflation rate by the end of March 2011, it had simply shifted the sign post. In stead of the earlier 5.5%, it has now revised it to 7%. Why? Because between the second- and third-quarterreviews, the underlying price scenario had changed for the worse. When the forecasts cover a wide field and many uncertainties loom large, the perils of economic prediction are obvious. But, undeterred, at the World Economic Forum 2011, five top contemporary economists ventured to predict the future of economic forecasting.  But economists are not the ones to shy away from problems and this time around in Davos, they understood that they are the problem. At a closed-door dinner session, some of the best minds in the profession decided to turn the focus on themselves. Among the galaxy of attendees were such luminaries as Robert Shiller of Yale University, Joseph Stiglitz, the Nobel laureate, Simon Johnson of MIT Sloan School of Management , Raghuram Rajan, formerly director of research with the International Monetary Fund and now with the Chicago Booth School of Business, and professor Carmen Reinhart of Maryland University. And, for a change, this debate generated more light than heat. The underlying complexities were examined — the uncertainties, the political factors, natural disasters, outbreak of wars — and why forecasts based on such variables tended to go wrong. As one executive of an asset management company put it, an economic forecast is one input among many. It could be the starting point of an analysis or discussion. Raghuram Rajan referred to IMF’s forecast about Africa, which was belied when the economy of one country had collapsed following an outbreak of conflict, impacting the growth estimate of the entire continent.                                                   - DNA

Egypt crisis to impact policy: RBI

Events in Egypt will have an impact on Indian monetary policy, the country's central bank Deputy Governor told reporters on Sunday.  "After making the policy announcement on 25th Jan, a whole set of events unfolded in the Middle East, which are starting to have an impact on oil prices, obviously, which we did not anticipate at the time we made the announcement," Subir Gokarn, Deputy Governor at the central bank, said.                                                                 TOI

India to use indigenous paper and ink in currency notes

To counter the menace of fake currency notes, the government will soon start using indigenous paper and ink, Union finance minister Pranab Mukherjee said today.  So far, we have been using foreign paper and ink. But now, we will start making our own paper and ink to control fake currency notes," Mukherjee said.           - DNA