Bank holds soiled notes, coins exchange mela

BHUBANESWAR: The Indian Bank organised a Mela for the exchange of soiled, cut, mutilated notes and also coins in collaboration with the RBI here in the premises of Saheed Nagar Branch on Friday. RBI Deputy General Manager K.R.Padmanabha Rao inaugurated the Mela with distribution of coins to the public. It was conducted in the presence of DGM and Zonal Manager OP Ambasht, Assistant General Manager of Zonal Office HS Patro and Assistant General Manager of Bhubaneswar branch A Bhimeswar Rao with participation of staff members from different branches of the city here. All arrangements were made for the smooth conduct of the Mela that continued from 11 am to 3 pm.

'Good leader leaves behind a better leader'

HYDERABAD: Former governor of Reserve Bank of India, Y V Reddy, stressed on the need for better governance, especially in the public sector which he said is often encouraged to mimic the private sector these days.  Speaking at a conference on `Leadership & corporate governance in turbulent times' organised in the city by the School of Management Studies (University of Hyderabad) on Friday, Reddy said that is was poor governance that led to the micro-finance trouble last year.  Reddy, in response to questions posed at him during the session, expressed concern over the underlining feudalism prevalent in the country, which was leading to concerns of dearth in second-rung leadership in the country. Taking the example of a family enterprise, the Padma Vibhushan awardee said that family members are preferred to take over as successors as against an outsider, irrespective of the individual's credentials. "That is why I personally feel that a good leader is one who is able to ensure there are better leaders after him," Reddy said.  He said, "I had the good fortune to have people like  Dr.Jalan and others as my superiors who were men of great intellect and capability. My short five-year stint as a leader (I was following orders the rest of my career), was inspired by such people and what I learnt from them."  Reddy then went on to speak about crisis situations during his stint in the RBI and elaborated on one incident that took place in the nineties. "We had to decide on whether or not to sell gold to clear India's debts. That was a crucial choice and after much deliberation we went ahead with it," Reddy said.  Further, answering questions as to why RBI decided to abruptly increase interest rates, when the US, also reeling under inflation, has not, the former governor said: "The economic cycle of every country is not the same. Increasing the rates in India was a necessity. I said this when I was governor and I still maintain my stand."

‘New banking models needed for financial inclusion’

A large part of the Indian population does not have access to savings, credit and remittances. Many steps have been taken in this direction but we still need to go a long way. Janmejaya Sinha, chairman-Asia Pacific, The Boston Consulting Group, tells DNAin an interview what more needs to be done to increase the rate of financial inclusion. Excerpts:

In the past, the government along with the Reserve Bank of India has taken many steps towards financial inclusion. What other steps do you think we require?

India started pioneering financial inclusion long ago. Gandhiji talked about co-operatives, we created regional rural banks, social service area approach, priority sector and the Kisan Credit Card. For a long time we have been emphasising on inclusion. But the fact is at that stage it was not possible. It is only now that India has a $1,000 per capita and a large economy which will grow fast for many years. So you really have the bare bones of a strong platform. Together with this you now have technology. The other issue is rural has become more important as a part of sales for companies. For the first time there is a real chance to actually address the problem of financial exclusion. But the journey is long. Firstly, we have illiteracy. Both you and I struggle with financial products, so just imagine how big will be the challenge if somebody is illiterate. Then there is not enough income, and the banking models that have been created are for the rich. Those models are based on float, you keep a high deposit and I would not charge you. Overall the timing is good, but the way to use this timing requires new models to be used.

Which will be these new models?

I would think these new models will be based on four parameters—reduction in the cost of manpower, usage of technology to get a distribution reach, collaboration across industry boundaries and use of the Aadhar platform (India’s new unique identification system). Then you can have a model that will be able to reach and serve these people in a sustainable way which will be non-loss making.

In your financial inclusion report you had stressed that there should be a per-transaction cost for the “Aam Aadmi”. Can you tell us more about it?
Today if you want a savings account and if I tell you every time you withdraw money you will be charged, then it sounds bad. You will say it is my money and you are charging me for withdrawal. But let me give you an alternative. When we had done this survey in 2006, we were saying that if you want to have safekeeping then you must pay for it unless you keep a sufficient balance that the bank can make money from it. So many of them said they wanted to keep very small amounts. If you keep very small amount, the bank does not get much float. In that case the bank is giving you safe keeping. If you are willing to pay for a locker, this is another form of locker. This is not a bad thing because this is providing a service at a cost but this is a service that is needed.

In the report you have also talked about financial inclusion index. Can you elaborate?

This is an index which will decide whether financial inclusion is improving or not. There are four needs that must be served — savings, credit, remittance and insurance. Right now no one is measuring that. This index may be used by the government to measure progress.

No Proof Required What markets want, RBI gives

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Fin inclusion plan big opportunity for banks: BCG

Boston Consultancy Group (BCG), along with top industry body CII, has come out with a 15-point agenda on how to convert a Rs 20,000-crore obligation into a real opportunity for banks to realise the government's ambitious financial inclusion programme. The consultancy firm, in a report titled 'Obligation to Opportunity', said though India is emerging as a major economic force, growth in not broad-based as a majority of the population is excluded from the financial services sector and this needs to be addressed. "India's chances of being a major economic power will be severely jeopardised if growth is not broad-based. We have to include each and every person in the financial sector," BCG Chairman (Asia-Pacific) Janmanjaye Sinha told reporters while releasing the report here today. According to the report, about half of the Indian households do not have access to products like remittances, savings and credit. However, it pointed out that there has been an improvement in the current levels of financial inclusion at 47%, from about 35% five years ago. BCG's agenda, that would help market participants as well as policy-makers to ensure financial inclusion, includes the need to bring down human resource costs per employee, learning to make low-cost distribution partnerships, Aadhar (brand name for unique identification numbers) as a platform and disbursal of the government payments using Aadhar-linked bank accounts, among others.

RBI to enforce most Malegam panel proposals from 1 April

The Reserve Bank of India (RBI) is set to implement most of the recommendations of the Malegam panel to regulate India’s Rs.22,000 crore microfinance industry from 1 April, but existing loans of microlenders will be exempted from the new norms initially, according to three persons familiar with the development. This means that microfinance institutions (MFIs) will be unable to give fresh loans to anyone whose household income is more than Rs.50,000 or credit of more than Rs.25,000 to a single borrower.  MFIs will not be able to charge more than 24% interest. Besides, they will have to cap their margins at 12%.  Two of the three persons are bankers and one the head of a leading MFI. All three declined to be named. At a meeting with bankers on Thursday, RBI made it clear that the industry should be prepared to accept most of the suggestions of the panel, including the cap on family income, size of loan and interest rate from 1 April.  The regulator had held discussions with top bureaucrats of state governments in February. It will meet MFIs next week in the last round. Once the new regulations come into play, all MFIs will have to lend 90% of their total loans in compliance with the new rules and if they fail to do so, such loans will not be treated as priority sector advances.  Priority sector status for such loans is crucial for MFIs as banks mainly lend to them to cover their mandatory lending requirement. Under current norms, Indian banks are required to lend 40% of their loans to agriculture and other weaker sections. If banks fall short of this target, they can buy the loans of MFIs to meet the level.  MFIs are engaged in the business of giving tiny loans to poor borrowers. Typically, they lend at 24-32% or even a higher rate, citing high operational costs. They get money from banks at 9-12%. The existing loans of microlenders will be exempted from the new regulations, which will be offered “grandfathering” to facilitate a smooth transition. Grandfathering implies allowing their continuation in compliance with the old rules, after these are changed, for a certain period.  At Thursday’s meeting, banks told RBI they were not keen to launch an industry-wide loan restructuring for MFIs and this can be done only on a case-to-case basis.  “Banks said they are ready to restructure loans of those MFIs which have majority exposure in Andhra Pradesh, but those having (relatively) minor exposure can seek alternative means to overcome the crisis,” one of the bankers said. RBI has also mandated the Indian Banks’ Association, the national bankers’ lobby, to take stock of bank funding to the microlending sector since mid-January when it had asked banks to resume lending to the crisis-ridden microlending industry and recycle loans to enable the sector tide over the crisis, until new regulations are in place. The Malegam panel was appointed in October to review microfinance industry regulations after the sector plunged into a crisis following the Andhra Pradesh government restricting operations. Andhra Pradesh accounts for more than a quarter of India’s total microlending loans. The state law barred weekly collections and made government approval mandatory for every second loan to a borrower.  The regulation hit MFIs, causing a sharp fall in collection rates and forcing many of them to stop fresh lending. Banks, too, stopped fresh funding to the sector. The Malegam committee, which submitted its report on 19 January, recommended that MFIs with a loan portfolio of Rs.100 crore should not keep a margin of more than 10%. For the smaller MFIs, the margin is capped at 12%. According to the panel, the number of outstanding loan accounts serviced by MFIs in the country between March 2007 and March 2010, rose from 10.04 million to 26.7 million, while the outstanding loan amount increased from about Rs.3,800 crore to Rs.18,344 crore.  Senior officials of the microlending industry said they will argue against the Rs.50,000 family income cap the panel has  recommended as it is impractical to assess this. Besides, this will also disqualify 70-80% of the existing borrowers of MFIs from accessing microcredit. “It is unrealistic to limit the annual family income at Rs.50,000 and a large part of the market is going to be excluded from the fold of microfinance. Also, assessing the annual income of the borrower is extremely impractical,” said Alok Prasad, chief executive officer of Microfinance Institutions Network.

RBI Still Toddling on Its Tightening Path

India's central bank surprised no one by its decision to increase rates on Thursday. But the question is how much of an impact the move will really have on rampant inflation plaguing the economy. The Reserve Bank of India's quarter-point increase in its lending and borrowing rates was the eighth hike in the past year. In total, it has raised rates by two percentage points. Through this tightening, inflation has persistently beaten the RBI's own forecasts. The central bank raised its forecast for the wholesale-price index rate to 8% by the end of this fiscal year in March, revising it for the third time this fiscal year. Tightening hasn't worked that well, partly due to the RBI's tendency to break it into small quantums. Its rationale is that it doesn't want to disrupt the growth momentum. But this argument doesn't hold up now as well as it did a year ago. Despite the continued uncertainty in other economies, India has largely shown resilience and will likely record 8.6% economic growth in this fiscal year. Still, the RBI continues what it calls a "calibrated approach". Given interest rate hikes have a lagging effect "acting aggressively early, in October-December, would have brought inflation down to more tolerable levels," says Jay Shankar, economist with Religare Capital Markets. Acting aggressively now, poses a "greater risk of derailing investment and growth, even as inflation stays out of control," he says. A large part of this inflation problem is, of course, out of the RBI's control. It stems from food prices that rise because of supply shortage. Even though some food article prices are now cooling, the food articles index is still rising at close to a 10% rate from last year. Worse, this has spurred a more broad-based inflation in manufactured goods: non-food manufactured products inflation rate jumped to 6.1% in February, from 4.8% in January. Add to this the rising trend in global commodity prices and India could have a real problem at hand. RBI could at best try to keep in check speculation on further price gains that could further fuel inflation. But a quarter-point increase won't dampen any price rise expectations ahead.  

Britain hopes for EU-India free trade accord this year

Chennai, Mar. 18: British Trade and Investment Minister Stephen Green said he hoped the Free Trade Agreement (FTA) between India and the European Union (EU) would be concluded by the end of this year. Speaking to reporters here Friday, Green said: "We hope the European Union-India Free Trade Agreement may be there by the end of this year. I had discussed this issue with Indian government officials." Queried about his meeting with Reserve Bank of India (RBI) Governor Duvvuri Subbarao during his current visit, he said: "We discussed about monetary policy. The UK welcomes the RBI's idea of having foreign bank branches as Indian subsidiaries rather than being a branch." While stating that foreign banks in India should also play their part in financial inclusion, he also said Indian banks like State Bank of India (SBI) were doing good business in the UK.

Costlier credit

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Banks to set up pool for unclaimed money - Hindustan Times

Banks to set up pool for unclaimed money - Hindustan Times

Govt may give more teeth to RBI

The government is considering giving more teeth to Reserve Bank to deal with banking sector problems before permitting private sector entities to float commercial banks. Empowering RBI is essential for obtaining information about other businesses of the corporate houses seeking banking licences, in order to protect depositors' interests, official sources said. The government, sources said, is considering to amend the Banking Regulation Act through which RBI would be empowered to seek information from an entity running bank and other businesses like insurance and asset management as well. Sources said this is relevant as the risks of these companies can slip into banks by virtue of same parentage, sources said. Banking Regulation Amendment Bill is likely to be tabled in the Monsoon session of Parliament.  Presently, insurance companies are regulated by Insurance Regulatory and Development Authority and asset management business comes under the purview of SEBI. After the clearance of the bill, RBI would have power to call for information and assess information, sources said, adding, these powers are required if the private entities are allowed to enter into banking space to protect interest of depositors.  As per the current practice, India follows subsidiary model where non-banking business of a bank like insurance and asset management are subsidiaries.  By virtue of this, risks attached with this can impact the banking entity. Meanwhile, RBI has already said it will look at business plan for financial inclusion, in addition to other things, before granting banking licence to new companies. "One of the criteria for evaluating application (for new bank licence) that we will get in due course of time, will indeed be their business plan for financial inclusion," RBI Governor D Subbarao had said earlier this month. The apex bank had brought out a discussion paper in August, 2010, on giving out new banking licenses to business houses and non-banking finance companies, besides regulations for the same to foster competition.  The RBI also sought to know "whether industrial and business houses could be allowed to promote banks." Various entities like Reliance Capital  IndiaBulls  Religare, IFCI and Aditya Birla Financial Services are said to be mulling entry in the banking space. India presently has 27 public sector banks, seven new private sector banks, 15 old private sector banks, 31 foreign banks, 86 regional rural banks, 4 local area banks, 1,721 urban cooperative banks, 31 state cooperative banks and 371 district central cooperative banks.

Nokia ties with Indian bank for mobile payments

March 18, 2011, 08:30 AM — IDG News Service —  Nokia has tied with Union Bank of India to roll out mobile payment services that are targeted at the large number of Indians who do not have banking facilities. The service will enable consumers to transfer money to other persons, withdraw cash at automated teller machines (ATMs) and designated retail stores, and pay utility bills as well as recharge pre-paid mobile connections, Nokia said on Friday.  Using the service, called "Union Bank Money powered by Nokia", Union Bank and Nokia plan to take banking services to over 10 million people across 32,000 villages by 2013. The service has been rolled out in Gurgaon near Delhi, with plans for a country-wide rollout in the next few months.  India's central bank, Reserve Bank of India (RBI), has been attempting to make it easier for Indian banks to reach rural people by allowing them to appoint "banking correspondents" in remote locations where there are no bank branches. These correspondents, which can include small retail outlets, are allowed to open new accounts, dispense and accept cash from customers, and offer other services on behalf of the bank.  The service from Nokia and Union Bank is based on the Obopay mobile payment platform, and will be available on a range of mobile phones, including those from vendors other than Nokia, a Nokia spokeswoman said. The service is also independent of the mobile operators.  Once they have created an account at a correspondent outlet, and installed the banking application on the phone, users can use SMS (Short Message Service) to transfer funds or receive money, the spokeswoman added. The mobile number will be the unique identifier for the purpose of the bank. Users will be charged a fee on certain transactions. Nokia did not discuss its revenue sharing agreement with the bank.  Nokia is already offering a similar service since last year in three locations in a tie-up with another bank, Yes Bank. The company will explore similar tie-ups with other banks, the spokeswoman said. Nokia will supplement 3,000 Union Bank branches across the country with its large network of retail outlets, some of which will serve as correspondents for Union Bank money services.  The company currently has 200,000 retailers in the country selling its phones, of which about 70,000 sell only Nokia phones, the spokeswoman said. The company has not finalized on how many of these retailers will be acting as correspondents for the service.  The RBI amended the rules for banking correspondents in September to allow "for profit" companies to do the job, besides individuals, non-governmental organizations, cooperative societies and post offices.  India's mobile operators are also trying to get into the mobile payments business. Bharti Airtel, the largest mobile operator in the country, has tied with State Bank of India, India's largest commercial bank, to take banking services to people who do not currently have the facility. The mobile operator launched separately in January its "airtel money" service which allows users to purchase Airtel currency which can then be used to make payments using mobile phones.  ICICI Bank, India's largest private sector bank, also announced a tie-up with Vodafone Essar, the Indian joint venture of Vodafone, to offer financial products such as savings accounts, pre-paid instruments and credit products through a mobile phone platform.  The mobile banking ventures are expected to help the operators get customer loyalty while boosting their flagging margins, analysts said.

'Invest in liquid or liquid-plus funds'

With interest rates likely to go up in the future, staying with liquid or liquid-plus funds will mean better returns and flexibility. Today, when the Reserve Bank of India raised key rates - repo and reverse repo - by 25 basis points, debt fund investors would have wondered if this was the time to get locked into medium or long-term schemes. The answer, however, is still no.Financial experts feel with inflation still not under control, the apex bank could raise rates in the future. Amandeep Chopra, head, fixed income, UTI AMC, said: "It is advisable to go for liquid and liquid-plus or ultra short-term schemes because more rate rise is likely in the future." Staying short will also mean provide flexibility, in terms of moving money from one kind of scheme to another, if there is a change in the interest rate cycle. Also, short-term debt funds will give better returns because the constant churn that fund managers have to do. According to Value Research, a mutual fund research agency, ultra short and liquid debt funds have returned 6.09 per cent and 6.02 per cent annually. While gilt, medium and long-term debt funds gave 5.63 per cent. This clearly indicates that short-term funds were able to stay ahead from longer-term funds, in terms of returns. However, there is a word of caution. If one were to move their money too much in one year, there would be a tax on short-term capital gains. The capital gains will be added to your income and taxed, according to the income tax slab. Another reason why fund managers are advising against locking-in money in medium or long-term debt schemes is because of the inability to take advantage of any rise in the rates in the future. Also, rise in yields will impact returns of long-term funds adversely because of the inverse relationship with price of bonds . Mahendra Jajoo, executive director and chief investment officer, fixed income at Pramerica Mutual Fund feels by June, when early indications are available for monsoon, a clear trend on long-term rates will emerge. However, if you want to lock-in money in existing rates, look at fixed maturity plans. FMPs are offering 9.9 per cent to 10 per cent for a one-year term. And despite being riskier than other debt schemes because of their exposure to corporate paper, these schemes get double indexation benefits for tenures that are slightly more than one year. Say, if one invests in an FMP in March 2011 which is maturing in say, May 2012, there will inflation indexation benefits for years 2010-11 and 2012-13. This would mean higher post-tax returns for the investor.