Shri R. Gandhi, assumed charge as Executive Director of the Reserve Bank of India

Shri R. Gandhi, assumed charge as Executive Director of the Reserve Bank of India today. As Executive Director, Shri Gandhi will look after Department of Banking Operations and Development, Department of Administration and Personnel Management (including Rajbhasha), Human Resources Development Department and Department of Information Technology. Prior to his appointment as Executive Director, Shri Gandhi was in charge of Department of Currency Management. Joining the Reserve Bank of India in 1980, Shri Gandhi has been in charge of the Reserve Bank's Hyderabad and Delhi offices and the Department of Information Technology. He also held charge of the Institute for Development and Research in Banking Technology (IDRBT) as the Director for a brief period. Shri Gandhi possesses a Masters Degree in Economics, is a certified member of the Indian Institute of Banking and Finance (IIBF), post graduate certificates in MIS, System Programming and Capital Markets. Shri C. Krishnan retired as Executive Director from the Reserve Bank on February 28, 2011.

Shri A.K. Bera, RBI Regional Director visited Surat

Shri A.K. Bera, Regional Director, Reserve Bank of India visited Surat to witness the initiative undertaken by the State Bank of India under the "URBAN FINANCIAL INCLUSION". The initiative has been started in Surat for decongestion at the Bank Branches to facilitate the Migrant Labourers from West Bengal, Orissa,Bihar,Uttar Pradesh etc. They normally, visit the bank branch for remittance purpose to their family residing far away. SBI, through the national level Business Correspondent (BC), an NGO named Zero Mass Foundation (ZMF) opened some 32 Customer Service Points (CSP) to cater banking services like opening of Bank Account under liberalized norms prescribed by the RBI, deposits, withdrawals, remittances etc through POS Machines.Up till now,more than 1 lac accounts have been opened and an average remittance of Rs.1 crore takes place per day.

RBI asks banks to use tech to cut costs, improve service

MUMBAI: The Reserve Bank of India has asked banks to use technology more effectively with a focus on bringing down costs and improving customer services in its information technology (IT) vision document for 2011-17. The vision document, prepared by the high-level committee headed by RBI deputy governor KC Chakrabarty , has directed banks to work towards implementation of technology in achieving cost efficiency in small value transactions, improved customer services and effective flow of information within the banks and the regulator. The report also pushes banks to move from core banking solutions to greater use of information technology in their management of information systems, regulatory reposting , customer relationship management and risk management and financial inclusion. The report has noted that: “Although banks have deployed technology for transaction processing, analytical processing by banks is still at a nascent stage,” adding that using technologies like cloud computing , virtualisation and open source technologies can help banks drive up their operational efficiencies and consequently, pass on the cost benefits to the customers. In terms of information management, the report does admit “a strong linkage” in the use and sharing of information for decision making is missing within the bank (read RBI). “This, to some extent, has bred information illiteracy within the organisation,” it said. The committee, in the report, specifies the role of IT in banking, with the major objective being balancing the three Cs — cost, control and customer services and adoption of technology-based strategies for financial inclusion. The analytics have to be used for improving consumer relationship management and detection of fraud in the system. Mr Chakrabarty said in his speech at a seminar organised by the Institute for Development and Research in Banking Technology (IDRBT): “Technology should work for the business in its aim to make its products and services relevant and accessible to its customers, instead of a fixed sunk cost that sits heavily on a bank’s P&L account.” He has further said, technology should also not only be looked as a cost-cutting tool but as a value creating opportunity to customers.

Banks unable to take technological advantage to reduce cost: RBI

Banks have not taken the full advantage of technology for bringing down the cost of small transactions, improving customer services and an effective flow of information within banks and with the regulator, the Reserve Bank of India (RBI) has said. “One of the shortcomings that has been observed is a disconnect between the information and technology. Although banks have deployed technology for transaction processing, the same has not been explored extensively for analytical processing,” the regulator said in its IT Vision document for 2011-17. RBI, which released the document yesterday, emphasized on the introduction of technology that balanced three Cs, namely, Cost, Control and Customer Services.  The central bank said information technology needed to be revisited, with a focus on implementing data warehousing and business intelligence, adoption of technology-based strategies for financial inclusion, improving customer relationship management (CRM), risk management, fraud detection & prevention and business continuity plans. “IT-based solutions entail operational risks, for which banks have to put in place appropriate control mechanisms and mitigation techniques. With financial stability an important target, the Reserve Bank assigns importance to mitigate IT-related risks in the banking sector,” it said. RBI will start implementing the recommendations of the Vision document shortly. The statement also chalked out focus areas for the regulator. These includes transforming it into an information-intensive knowledge organization. Harnessing human resource potential, migration to enterprise architecture for IT systems and adopting appropriate business process re-engineering are some of the areas outlined by the report.

Performance of schemes in Changlang reviewed

MIAO, Feb 22: The District Consultative Committee of Changlang district reviewed the performances of various government-sponsored schemes at Miao on February 15 under the chairmanship of ADC T Mara and attended by RBI, NABARD and SBI officials. An official statement today informed that it was observed that as against a target of 60 per cent, CD ratio it was 23.54 per cent in the district. However, the district has surpassed targets under priority sector lending, agriculture lending and the lending for weaker sections. Achievement under priority sector lending was 47.99 per cent against a target of 40 per cent, achievement under agriculture lending was 23.15 per cent against a target of 18 per cent and achievement under weaker section was 35.11 per cent against a target of 10 per cent. Achievement under Annual Credit Plan 2010-11 as on December 31, 2010 was 235.68 lakh against a target of 444 lakh which was 53 per cent of ACP. Performance under Government sponsored programmes was not satisfactory as only 17 proposals against 35 proposals under PMEGP was sanctioned as on December 31. Dibrugarh SBI AGM advised that not a single application under PMEGP should be retained by banks since last date for receipt of loan application was February 16. He also advised that banks should take a pivotal role in promotion of SHGs. Further, against a target of 200 nos. of KCCs, only 69 KCCs have been issued so far. Under SHGs, against a target of 11 SHGs, the performance so far is nil. RBI AGM S Sarkar advised the banks to achieve 100 per cent ACP as on March 31 2011. He also advised that the philosophy of financial inclusion be propagated vigorously to achieve more financial inclusion. The banks indicated that they are in the process of engaging Business Correspondents in the village having population more than 2000 and have opened 2411 no frill accounts in the district. NABARD Manager S Mazumder requested the ADC to explore the formation of SHGs in the district by adopting micro-finance vision of the State. Besides, NGOs and banks may act as a SHPI for promotion of SHGs. He also advised that Government of India, NABARD, RBI have accorded priority for issuance of KCCs and also made KCC hassle free. Therefore, banks should cover all the eligible farmers under KCC and form more numbers of farmers clubs for access to credit, technology and market. The LDM and Branch Managers were hopeful of achieving the targets under various parameters by March 31, 2011.

India’s Tax Cuts Leave RBI With Burden to Restrain Inflation - Shamim Adam and Kartik Goyal

India’s plans to lower income taxes, increase wages and boost spending risk fueling price gains that will force the central bank to raise interest rates further.  Finance Minister Pranab Mukherjee yesterday unveiled plans to increase spending by 13.4 percent to 12.6 trillion rupees ($278.3 billion) for the financial year starting April 1. The government is boosting incomes through wider exemptions from individual tax payments, reduced costs for some housing loans and the allocation of 1.44 trillion rupees in subsidies. “The budget hasn’t done enough to curb price pressures and the central bank may have to continue to do the heavy lifting to slow inflation,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “More rate actions are in the offing starting this month.” Prime Minister Manmohan Singh’s government faces five state elections this year and said last week that its “foremost” priority is to curb inflation, which reduces purchasing power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day. The central bank has raised its benchmark rate seven times in the past year and signaled more increases at its last meeting in January.

Stocks Gain

The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 3.5 percent at the 3:30 p.m. close in Mumbai. The Sensex has lost 10 percent this year, the world’s fourth-worst performing benchmark index, on concern government measures to quell inflation will hurt economic growth. The yield on the 8.13 percent bond due in September 2022 was little changed at 8.09 percent as of 4 p.m. in Mumbai after dropping five basis points yesterday, according to the central bank’s trading system. “India’s government is likely to face a challenging year, trying to maintain economic growth, control inflation, and achieve fiscal consolidation,” Takahira Ogawa, a credit analyst at Standard & Poor’s Ratings Services, said in an e-mail today. “The government may struggle to meet its fiscal deficit target for 2011-2012 as pressure to step up spending mounts.” India’s $1.3 trillion economy expanded 8.2 percent last quarter, making it the fastest-growing major economy after China, government figures showed yesterday. The benchmark wholesale- price inflation rate averaged 9.4 percent in the nine months through December, the most in the past decade, the finance ministry said in a report on Feb. 25.

Corruption Allegations

Singh’s budget must be approved by India’s parliament, where the ruling coalition has been battling opposition protests over corruption allegations for months. The final parliament session of 2010 was the least productive in 25 years. Even as he reduced the income-tax burden, Mukherjee moved to boost levies in other areas that might contribute to price pressures. The finance chief included more services under the tax net to lift revenue. Taxes would now be collected from air- conditioned restaurants, hotels, airlines and hospitals. He also imposed an excise duty of 10 percent on branded garments and raised the levy on drugs, textiles and medical equipment to 5 percent from 4 percent. Cipla Ltd., an Indian drugmaker, plans to pass on the increase in excise duty on medicines to customers, its Chief Financial Officer S. Radhakrishnan said yesterday.“I doubt the budget has anything very concrete to dent inflation,” said Samiran Chakraborty, a Mumbai-based chief economist at Standard Chartered Plc. “The burden of controlling inflation will be more on the monetary policy in the near term.”

Tax Relief

From the next financial year, incomes below 180,000 rupees won’t be taxed, higher than the previous threshold of 160,000 rupees. Mukherjee also announced a 1 percent interest-rate subsidy for housing loans up to 1.5 million rupees and said the government will give cash to the poor to buy kerosene. India’s state-controlled railway operator last week said it will leave passenger and freight charges unchanged to help tackle inflation that accelerated to the fastest in a decade.

“The central bank is getting some help from the budget but not very much,” said Leif Eskesen, an economist at HSBC Holdings Plc in Singapore. “It has to carry the burden on really addressing the near-term inflation pressures.” India’s manufacturing grew in February at the fastest pace in three months, according to the purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, adding pressure on the central bank to increase rates further.

Growth Forecast

The finance ministry predicts GDP may grow as much as 9.25 percent in the year starting April 1. The government estimates growth in revenue will outpace outlays, forecasting the budget deficit will narrow to 4.6 percent of gross domestic product in the financial year starting April 1 from 5.1 percent of GDP in the previous year. “The budget may be difficult to deliver in practice as growth assumptions are quite optimistic and they are relying on a significant compression of non-planned spending including a decline in the subsidy bill,” HSBC’s Eskensen said. “If delivered as planned, it will be contractionary. There may be more subsidy outlays later in the year.” Mukherjee cut taxes and stepped up government spending in 2008 and 2009 to provide stimulus worth more than 4 percent of GDP to cushion the Indian economy from the impact of the global financial crisis.

‘Massive Withdrawal’

If the 4.6 percent fiscal deficit target “is met, then it will be a massive withdrawal of stimulus,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai. “It will be largest fiscal consolidation, if it is done, in the history of India.” The government plans debt sales of 4.17 trillion rupees in the next financial year, less than the estimated 4.47 trillion rupees this year. The Reserve Bank is next expected to release its monetary policy decision on March 17. Governor Duvvuri Subbarao on Feb. 26 declined to comment on whether the central bank would take interest-rate action between scheduled monetary policy announcement days. “Growth will slow down next year as the Reserve Bank of India tightening takes effect,” said Dharmakirti Joshi, a Mumbai-based economist at Crisil Ltd., the local unit of a Standard & Poor’s Ratings Services. “The government is taking steps to ease inflation in the budget and the RBI, on its part, will raise interest rates further.”

Microfinance policy - Rewind or Turnaround? - M S Sriram

RBI’s role in giving MFIs policy support was remarkable, but an appropriate regulatory framework for the sector is long overdue As the debate on the future of microfinance continues, it is worth examining the Reserve Bank of India’s (RBI’s) own discourse from 1998 onwards. This is particularly relevant after the Economic Survey tabled on February 26 and the Budget speech both make positive references to microfinance as being an important part of the inclusion agenda. Contrary to what we are led to believe – that microcredit grew on its own and RBI stepped in at this stage to take note of the current practices – RBI played a crucial and catalytic role in the development of microcredit by encouraging and prodding banks to lend to micro-finance institutions (MFIs).  In 1998, MFIs had made early forays and the practitioners had asked for a policy framework. In response, the National Bank for Agriculture and Rural Development (Nabard) set up a task force on Supportive Policy and Regulatory Framework for Microfinance in the late 1998. This task force found microfinance an emerging activity to be nurtured. It was ahead of its times in calling for registration, and regulation through a self-regulatory organisation (SRO). Pending an SRO, the task force recommended that RBI should put an interim regulatory framework. At the same time, Sa-Dhan, the association representing diverse non-governmental and private sector players in microfinance, was established. Sa-Dhan was expected to evolve as the voice of the industry and an SRO. This task force had a profound and simultaneous impact on policy making. In April 1999, the word microcredit was used for the first time in the credit policy, months after the task force was set up, but ahead of its report (October 1999). The statement said, “Micro-credit Institutions … are important vehicles for delivery of credit to self-employed persons, particularly women in rural and semi-urban areas.”And further: “A special cell … is being set up in RBI in order to liaise with Nabard and microcredit institutions for augmenting the flow of credit to this sector. The time frame for the cell … will be one year and its proposals will be given the highest attention.” The credit policy (and a notification in April 1999) drew a distinction between small loans given by banks (with a ceiling on interest rates) and the loans given to MFIs for on-lending (without a ceiling). This notification created a two-way incentive for the commercial banks:

• to abdicate (to the extent possible) their own work of reaching out to the poor;
• to advance bulk loans to MFIs with no ceilings.

The banks did not have a level playing field, but were possibly happy to outsource small credit to MFIs. This opened bank finance to the MFIs, who were largely dependent on donor money. The task force submitted its report in time for the mid-term review of the credit policy. RBI showed remarkable alacrity in acknowledging the recommendations. The review said, “The recommendations made by the Task Force are being ‘processed’ by Nabard in consultation with RBI and Government as appropriate.” The recommendations of the task force were already creeping into the policy much before “processing”, which was unlike the usual policy-making protocol of putting the report in the public domain, encouraging deliberations and incorporating feedback to convert recommendations into actions. The mid-term review reiterated the importance of MFIs and asked banks to include microcredit in their corporate strategy to be reviewed on a quarterly basis. A detailed notification of February 2000 made six significant points:

• No interest cap on loans to MFIs and their loans to clients.
• Freedom to banks to formulate their own model/conduit/intermediary for extending microcredit.
• No criteria for selecting MFIs.
• Banks to formulate their own lending norms.
• Banks to formulate a simple system, minimum procedures and documentation for augmenting flow of credit by removing all operational irritants.
• Banks to include microcredit at the branch, block, district and state credit plans with quarterly progress to be reported to RBI.

The fact is that RBI gave policy support without an appropriate regulatory framework. The notification defining microcredit is stark: “The provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. Micro Credit institutions are those which provide these facilities.” We do not know if it was a deliberate attempt to keep this vague by leaving out amounts or incomes. However, the regulatory discourse was just about opening up another channel of financial services. Even as the somewhat regressive Malegam committee report is being discussed, RBI, on February 14, released a master circular on microcredit which refers to its historical circulars, with little addition: “A joint fact-finding mission looked at the issues plaguing the microcredit sector and ends with saying that findings were brought to the notice of the banks to enable them to take necessary corrective action where required.” In the current circumstances, the finance minister has made a bold and affirmative statement in the recent Budget. He has also thrown in some money for an India Microfinance Equity Fund. This augurs well for the MFI sector — showing policy continuity rather than policy turnaround based on Malegam’s recommendations. Otherwise we would only be able to say microcredit had a bright future behind it, not ahead of it.