95% of farmer households in NE sans banking - Deepak Mohanty

Executive Director of the RBI, DK Mohanty addressing the gathering at the ‘Financial Outreach’ camp held on Wednesday, March 23 in at Chumukedima village.

DIMAPUR, MARCH 23 (MExN): The Reserve Bank of India as part of its platinum jubilee celebrations is currently in the midst of ‘Financial Outreach’ campaign to reach out to the ‘unbanked’, particularly at the rural areas. The mission is to extend hundred percent ‘financial inclusion’ to every household in the country.   The Executive Director of the RBI, DK Mohanty was in Dimapur on Wednesday, March 23 attending one such outreach camp organised at Chumukedima village. Today’s was the fifth such camp held in the north east this year. Other officials present at the camp included - Surekha Marandi, Regional Director, RBI Guwahati; Kevikha Kevin Zehol, Deputy Secretary, Finance; CC Mitra, Director, IIBM; BB Sangma, Banking Ombudsman, Guwahati; Dr Bhaskar J Sharma, GM SBI, Guwahati; Dr US Saha, GM, NABARD, Dimapur; DC Maongwati Aier and officials from other financial institutions.  The apex financial institution of the country has already conducted one at Khonoma village under Kohima district in November last year during the first phase of the campaign (2009-10). The efforts of the RBI, notwithstanding, Mohanty revealed that 75 years since the foundation of the RBI: “As many as 145 million households or about 43% of the adult population in the country still do not have access to banking…” The situation is grimmer in the north east. “About 95% of the farmer households (in the region) do not have access to formal finance.”  It is high time that the villagers should the take lead role side by side with the formal banking system in making their villages as productive units and self sufficient, Mohanty challenged. As such, the RBI is on mission mode to bring the remaining 47% of the population under the fold of mainstream banking system inorder to achieve ‘financial inclusion’ in every nook and corner of the country. “We are here with you today to share your dream of ‘financial inclusion’ and interact and share your experience regarding availability of banking services and understand the problems… in a better way. In this mission, everyone has an important role and responsibility to play and the rewards and benefits will also be enjoyed by all.” To this end, he informed that there are a plethora of initiatives which have been launched for the northeast like capital subvention (financial assistance) for recurring expenses for opening branches, provided the state governments concerned grant the premises and security.   Mohanty emphasized that the RBI want to ensure that every adult villager has a bank account and are able to save their money and avail bank loans. Emphasizing on loans, he said that they are unlike subsidies or grants. Loans should be used mainly for productive purpose since they have to be paid back with interest, he stressed. “Once you pay back your loan you will have a good rapport with the bank and you will get a bigger loan in the next round which will be a win-win situation for both the bank and you.”  “There is also a plan extend banking services to all villages with population of 2000 and above by 2012.” “The RBI has identified 196 such villages in Nagaland and allotted to various banks. The services will either be brick of mortar branches, through once a week mobile services or through banking correspondences according to the capacity of the banks,” he said.   He also put in a word of caution, urging the villagers to be wary of unscrupulous companies and other entities collecting deposits from the general public illegally under various schemes through network marketing. Some of these companies even claim fraudulently that they have the RBI’s approval, he further warned.

Trade imbalances are not the problem

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Licences for new banks will come with strict rules

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Banks to have extended working hours on March 30, 31: RBI

The Reserve Bank of India (RBI) asked banks to have extended working hours on March 30 and 31, 2011, to facilitate receipt of government revenue from members of public even at late hours.  It has been decided in consultation with the Controller General of Accounts that all regional offices of RBI and branches of agency banks conducting government business will suitably extend the banking hours to conduct government business by keeping their counters open for the purpose on March 30 and 31, 2011, the central bank said in a statement.  This will facilitate receipt of revenue from members of public even at late hours, it said.  It will help in accounting of all the government transactions of the current financial year (2010-11) by March 31, 2011, it added.

RBI to Indian banks: work harder - James Lamont

Duvvuri Subbarao, India’s central bank governor (pictured), is never short of recommendations of how India can reach double digit economic growth.  A few months ago he was touting more foreign direct investment to make what he called the “quantum leap” from India’s current 8.5 per cent growth rate to something nearer neighbouring China’s. But a recent fall in FDI has persuaded Subbarao to turn to domestic savings as the key.  His latest recommendation won’t make him friends among the country’s more somnolent bankers, who are already under pressure to deliver a massive expansion of services to reach tens of millions of unbanked Indians in the years ahead.  “For the double-digit growth that we aspire for we will need to have savings…and for that to happen we need to encourage savings,” the governor of the Reserve Bank of India told a meeting of international bankers in New Delhi this month. “Banks will have to raise the interest rates they offer to depositors and reduce the interest rate they charge from borrowers.”  The catch is that banks would have to cut their very healthy profits – unless they make their own “quantum leap” in efficiency and target more fee income.  India’s banks have for long enjoyed cosy margins and benefited from regulated interest rates on savings accounts. They have reaped rewards from an under-banked market with few alternative capital market instruments for depositors and lenders. It has been an almost effortless way to make money.  Surprisingly, that and uncomfortably high inflation hasn’t deterred Indian savers. India’s savings rate has risen from about 20 per cent of GDP to more than 30 per cent during market liberalisation over the past 15 years.  Nonetheless, Mr Subbarao wants to strike a blow for consumers. In gentle tones, he is calling time on fat interest rate margins of about 3 percentage points. He is also making an appeal for more efficiency among banks that employ a lot of people and are badly in need of technological advance. The underlying message is that India’s banks, among them 26 publicly owned institutions, need to work harder for their profits, and benchmark themselves against international peers.  To enable them to cut lending rates, banks will have to reduce wage bills and transaction costs, weed out non-performing assets and seek efficiencies through technology.  Banks have traditionally defended their high operating expenditure. After all, India is a big, unconnected country with a lot of people on low incomes. They claim not to be out of whack with counterparts in Latin America and elsewhere in Asia, like Indonesia.  They have, however, responded to a more dynamic environment by bettering their return on assets and lowering staff costs.  The run-away success of the Indian IT outsourcing and business processing industries has shown how India can radically cut operating costs for financial institutions overseas, among them Citigroup, Bank of America and JP Morgan.  Mr Subbarao has a point asking why the same efficiencies should not be brought to bear at home.

http://blogs.ft.com/beyond-brics/2011/03/23/rbi-to-indian-banks-work-harder/

Deposit growth improves, but more needed to meet RBI target

Banks must garner Rs 1.5 lakh cr in last fortnight this yr to meet 18% growth target.  Deposits grew at a pace of 16.58 per cent over a year as on March 11, as compared to 16.45 per cent the earlier fortnight. In a fortnight, banks were able to garner Rs 56,517 crore worth of deposits due to attractive interest rates.  The Reserve Bank of India (RBI) had projected an annual growth rate of 18 per cent in deposits and 20 per cent in bank advances. As on March 11, bank credit grew at 23.2 per cent. While the growth in advances has been better than expected, growth in deposits was limited by high inflation. Also, interest rates offered on fixed deposits were low for a major part of the current financial year.  “The real interest rate was negative for most of the year. Very high inflation did not allow allocation of savings to bank deposits, as interest rates offered by banks on fixed deposits were also low at around seven per cent,” said Vaibhav Agarwal, vice-president, research, Angel Broking. He expects deposit growth to be 17-18 per cent by the end of March.  Inflation has been high through the year. The Wholesale Price Index (WPI) for February was at 8.31 per cent, while it was 8.23 per cent in January, 9.41 per cent in December and 8.08 per cent in November. RBI expects inflation to be at eight per cent in March.  Bankers, on the other hand, are confident of achieving the 18 per cent growth projection.  “It should be achievable, as there is usually a brisk offtake in the last fortnight of a financial year. Also, there will be huge roll-overs lined up in the last 10 days, which the banks can re-price and retain the existing portfolio,” said S Govindan, general manager, Union Bank of India.  “Every bank will deploy serious marketing strategy at the month end, so that they can show higher deposit growth in the balance sheets for the financial year 2010-11,” said a senior official with Central Bank of India. He said there would be huge deposit mobilisation in the last week of this month.  Deposits in the banking system were Rs 44 lakh crore at the end of March 2010. Banks will have to garner around Rs 1.5 lakh crore more in the last fortnight this year if the 18 per cent growth target is to be achieved over last year’s figure. Deposits as on March 11 were at Rs 51 lakh crore.

State Bank of Indore merger in interest of public: Govt

The acquisition of State Bank of Indore by State Bank of India (SBI) last year was in public interest, the Rajya Sabha was informed on Wednesday.  The merger was in “overall public interest,” Namo Narain Meena, minister of state for finance, said during a debate over the SBI (Subsidiary Banks) Amendment Bill, 2010, in Rajya Sabha.  “Now, they (State Bank of Indore customers) can deposit and withdraw money from all 14,000 SBI branches,” he said.  The upper house later passed the bill, seeking to omit all references to State Bank of Indore, acquired by SBI in July last year. He assured members the interest of employees would be protected.  He added banks were doing a “commendable job”, with their performance being unaffected during the global recession.  “The credit goes to the Reserve Bank of India and the banks alike,” he said.

Top bankers, regulators & legal experts to assist Sri Krishna in FSLRC

NEW DELHI: An eclectic mix of bankers, former financial regulators and legal experts have been named members of the Financial Sector Legislative Reforms Commission, or FSLRC, to be chaired by Justice Sri Krishna. D Swarup, former pension regulator, P J Nayak, former Chairman Axis Bank; K.J.Udeshi, former Deputy Governor RBI, C Achuthan, legal expert and part-time member of the law commission; J R Verma, former member Securities and Exchange Board of India and Justice Debi Prasad Pal feature have been appointed as members of the FSLRC to re-write and clean up financial sector laws of the country.  The mandate of the Commission would be wide and may include a review of the pay scales in RBI, PFRDA, IRDA and SEBI , said a government official privy to the development.

RBI’s proposal rejected, realtors may be barred from seeking licences

NEW DELHI: The finance ministry has opposed the Reserve Bank of India's suggestion to restrict foreign direct investment in new banks to 49%, saying the change in norms will hurt investor sentiment.   It has also asked the central bank to bar real estate firms from seeking banking licences and alter conditions relating to financial inclusion and stake dilution by promoters.  "The rollback of the current FDI norm from 74% to 49% will not send a good signal to investors and is avoidable," a senior finance ministry official said. "We have asked the RBI to reconsider this."  The central bank's suggestion was part of its comments on the draft guidelines for new bank licences, which it submitted to the finance ministry earlier this month.  The RBI was expected to issue the draft guidelines for new bank licences before the end of this month, but the differences of opinion with the finance ministry could delay the process.  The ministry has asked the RBI to ensure the guidelines clearly say that the new banks will be exempted from Press Notes 2, 3 and 4, which revamped the country's foreign investment policy and procedures.  Without the exemption, these banks would become foreign banks if overseas investment in them crosses 50%. This would lead to imposition of the same restrictions on them that apply on foreign companies.  The government is already struggling with policy issues in respect of private lenders, such as ICICI Bank and HDFC Bank , where foreign holding is more than 50%.  The ministry has also suggested that the RBI should disqualify any group that has exposure to real estate from seeking a banking licence.  "A lot of issues have risen with real estate companies who got 2G licences," said the official. "We would like to avoid such a situation."   The central bank had suggested that companies that derive 10% or more of their income or assets from real estate, construction or broking activities should not be eligible.   The finance ministry has also opposed the RBI's suggestions on financial inclusion and stake dilution by promoters of new banks.   The central bank had proposed to make it mandatory for new entrants to have at least 25% of their branches in rural areas with population of less than 10,000.  The ministry, however, wants it to allow new banks to open one-fourth of their branches in tier-III to tier-VI cities, having a population of up to 50,000. The ministry has also differed with the central bank on the schedule and the extent of dilution by promoters. The RBI had suggested that the promoter holding in the new banks should be brought down to 15% over a period of 10 years.  But the ministry wants promoter holding to be brought down to 20% after a period of five years and other shareholders should not hold more than 10% stake. "This will help in maintaining a balance between promoters' interest and good corporate governance norms," the official said.   The finance ministry has also said that promoters should have an initial minimum shareholding of 40%, which should be locked for five years. The ministry has supported the RBI's draft guidelines on initial minimum capital of Rs 500 crore, but has suggested that this should be raised to Rs 1,000 crore over a period of five years. "This will ensure that there are sufficient funds for initial smooth operations and also bank licence aspirants will have to be committed towards expansion," the official said.

Co-operative banks back in business

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Bid to arm RBI with sweeping powers

New Delhi: The government has sought Parliamentary nod to give sweeping powers to the Reserve Bank of India to inspect books of all associate enterprises of a bank, including its holding company. The regulator is poised to get more powers to not just confine itself to holding companies but even a subsidiary company or a joint venture of the holding company.   This means that if the holding company of a bank has a subsidiary which is in education or fertilizer business, RBI will have powers to inspect their books as well. At present, RBI has to seek assistance from sectoral regulators and the Registrar of Companies (RoC) to inspect the books of entities that are not regulated by it.  The proposal may also expose RBI to criticism of stepping into the domain of other regulators such as those for insurance, capital markets, pensions and Forward Markets Commission which oversees futures trading in commodities.   The banking regulator, which acts as the central bank and also oversees the functioning of the bond, currency and money markets, has generated considerable controversy in recent years by protesting against any move to dilute its role.  RBI regulates the functioning of banks and NBFCs, which in recent years have tried to become one-stop financial stores by setting up subsidiaries to manufacture and sell insurance policies, mutual funds and pension plans. Besides, several players have investment banks and brokerages. Some of them have also set up private equity funds, which RBI is keen to regulate given the global debate on these investment vehicles.  After a lengthy turf battle with RBI, the finance ministry seems to have turned the corner and tilted the regulatory scales in RBI’s favour. While defining bank associates, the Banking Laws (Amendment) Bill 2011 that was introduced in Parliament on Tuesday has proposed that RBI be given powers to look at entities that control the composition of the board or other bodies governing the company.  Similarly, any entity —which in RBI’s opinion exercises significant influence on a bank in taking financial decisions—can be probed by the regulator. The bill has proposed to allow RBI officials to inspect the financial statement of any shareholder as it provides for inspection of accounts of those “able to obtain economic benefit from the activities of a banking company”.  The move comes at a time when the government is egging RBI to issue new banking licences. The regulator had sought more teeth before issuing the draft guidelines. The list of new powers includes ability to supersede bank boards for up to 12 months and appoint an administrator to manage affairs. The administrator would be required to seek shareholders’ nod to appoint new directors within two months of taking charge.  The regulator is also proposed to be given powers to define “fit and proper persons” who can acquire 5% or more stake in a bank. In any case, a stake acquisition beyond 5% will need prior approval of RBI.

Yields hold near 3-week high before bond sales

Eleven-year bond yields held near a three-week high on speculation demand for the notes will wane as the government starts debt sales for the new fiscal year in April. The yield on the 8.08% note due August 2022 was at 8.12% after Tuesday's trade, compared with 8.13% on Monday, according to RBI's trading system. Monday's closing level was the highest since February 25.  The government plans to borrow . 4.17 lakh crore ($92.7 billion) in the next fiscal year beginning April 1. The government and Reserve Bank of India representatives will meet on March 25 to fix the bond auction schedule for the next six months, a finance ministry official said March 19, declining to be identified as the budget information was confidential.