EDI celebrates 12th convocation in G'nagar

AHMEDABAD: Cheerful smiles and warm greetings filled the lush green campus of Entrepreneurship Development Institute of India (EDI) at Gandhinagar which donned a celebrative mood on Monday. The institute was celebrating its 12{+t}{+h} convocation of the 'Post-Graduate Diploma in Management - Business Entrepreneurship' and 'Post-Graduate Diploma in Management of NGOs.'  The convocation, which had deputy governor ofReserve Bank of India K C Chakrabarty as its chief guest, awarded diplomas to a total of 74 students from the two programmes. EDI president and IDBIchairman R M Malla, EDI director Dinesh Awasthi, faculties of the institute and many parents were present at the event.  At the convocation's speech, Chakrabarty said that the youth are at a right time to explore opportunities in entrepreneurship and other areas in the country. "If one goes by indicators, such as spending power, lifestyle, health and opportunities in general, one can derive that the Indian economy has come a long way in terms of economic growth. Especially over the last few years, the economy has entered a high-growth phase, averaging 8.6% per capita income per annum. India is sure emerging as a dynamic economic hub where growth is facilitated by efficient banking system, foreign direct investment, export demand, capital markets etc. The domestic entrepreneurial class is greatly benefiting from this and leading growth," he said.  Chakrabarty also referred to globalisation and its consequential changes in economic policies and technology as an opportunity for entrepreneurship. "Look at how new communication technologies have reduced economic distances, lowering costs and ensuring faster and cheaper movement of goods and services. I would say amidst such an environment, it is easy for potential entrepreneurs to grow," he said. Highlighting the importance of both commercial entrepreneurship and social entrepreneurship before concluding his speech, Chakrabarty said that the two kinds of entrepreneurship are like the two sides of the same coin and they must go hand-in-hand.

Messing up succession

There was no reason why the Union finance ministry should have messed up succession planning at the country’s premier bank, State Bank of India (SBI). If the idea was to allow the incumbent managing director, R Sridharan, a limited tenure in the top job, as a consolation since he missed out being considered for the job given the existing rules on age and eligibility, it is understandable. No harm done if you allow a senior person a brief term, before the regular appointment is made. In the past, even the Reserve Bank of India (RBI) had such interim governors. However, if the reason for the present situation was lack of proper paper work by those responsible for the selection process, then it reflects poorly on the Union government and the Union finance ministry. Also, it is unfair to whoever finally gets the top job at the country’s biggest bank. It is axiomatic that the successor to an outgoing top executive of any important organisation should be identified at least six months in advance. Not doing this lays the system open to the allegation that there is a conscious desire to build scope for extended lobbying and influence peddling. As and when a chairman with a reasonable tenure takes over, he will have his hands full, and a handicap to boot. The previous chairman had defied the RBI by not fully meeting the provisioning norms laid down. Doing so now will immediately depress the bottomline, thus putting it in an unfavourable light compared to the earlier period. This will reinforce an unfortunate pattern in the reporting of public sector banks’ bottomlines. As the time for one chief to go approaches, performance starts smelling of roses and there is a sharp decline immediately after the new chief takes over, inviting the notion that he has inherited a poor legacy.  Another challenge the next chairman will face is to improve the quality of assets. It is far from what it should be, with SBI trailing its peer group. There was, in fact, no improvement in this regard during the long tenure of the previous incumbent. The asset quality appears to have been sacrificed on the altar of high growth and improvement in market share, important as they are. Therefore, a period of consolidation instead of chasing growth for the sake of growth may be in order. The outgoing chairman, O P Bhatt, had displayed remarkable aggression vis-à-vis the competition and this can-do attitude had enthused the organisation and enabled him to lead from the front. The challenge for the new leader will be to continue to enthuse without some of the earlier bravado, particularly picking a fight with the regulator. But though motivation is needed, there must be something to motivate. It is highly doubtful if the likes of Mr Bhatt are being recruited now at the entry level. Four decades ago, not only were the bank’s entry level salaries among the best in the country, including the private sector, the number of decent private sector jobs obtained on merit was far fewer. The bank has developed a serious talent deficit and the government has to do something to allow it to win appropriate talent across levels. SBI is a national organisation so it must get the best in the national interest. Better leadership planning is a necessary part of building organisational morale, which is critical to attracting good talent in any organisation.

Delay led to uncertainty: Anand Sinha

The Deputy Governors of the Reserve Bank of India (RBI) are known to rarely, if ever, let anyone know what’s on their minds. However, in a rare interview, RBI Deputy Governor Anand Sinha didn’t shy away from expressing his anxiety about the delay in his appointment.  Sinha replaced Usha Thorat, who retired in early November.  “With the time for my usual super-annuation from the bank’s services fast approaching, it made things a bit uncertain for me and my family, since in such a situation, I was not able to a take a view on my plans for the future. I could also see my wife and children were tensed,” Sinha said in an interview published in Without Reserve, an RBI magazine. Chief General Manager Deepak Singhal is the editor of the magazine. The search committee to identify a deputy governor was formed in August and the recommendations were sent in September. Yet, the post was vacant for more than two months, due to a delay in the appointment announced by the government. To be eligible for the post of RBI deputy governor, one has to be less than 60 years of age, with two years of residual service. The retirement age for a deputy governor is 62 years, while for other RBI employees, the retirement age is 60. Things became uncertain for Sinha because he attained the age of 60 in February, and as an executive director, he would have retired had he not been appointed a deputy governor. “To be honest, the instant thought was more of relief than happiness. Yes, I did feel happy when, just after the interview, newspapers started indicating that my name had been recommended by the selection panel. The final announcement of course, came after quite a while,” Sinha said. “So, when it came, I just felt relieved. Did I feel ecstatic? No, I have a pretty steady temperament,” said Sinha, who names Mahatma Gandhi as his favourite personality.

Paisa bolta hai

Top jobs at PSU banks lie vacant

NEW DELHI: State Bank of India, the country's largest lender, is not the only bank to have a near empty top deck. There are at least half-a-dozen high-level banking jobs that are lying vacant as various government agencies keep tossing files from one ministry to another. On Monday, the number of vacancies shrunk marginally with Sushil Muhnot taking over as the new CMD of  SIDBI, a post that had been lying vacant for over nine months. But the job of Punjab & Sind Bank CMD has been lying vacant for over nine months as the Prime Minister's Office and the finance ministry cannot decide if they should stick to the 30-year-old practice of appointing a Sikh or change the rule. South Block, where PMO is housed, has raised the issue at least twice but amid opposition from Sikh leaders, the finance ministry went ahead and suggested that a bureaucrat be appointed Punjab & Sind Bank CMD as there were no Sikh bankers available to step into the corner office in Delhi's Rajendra Place. Similarly, despite interviewing candidates last November, the government is yet to decide on who should be the new Nabard chief though the post is empty since U C Sarangi moved out of the refinance and regulatory agency in early December. But this would pale in comparison to the delay in the appointment of an IDBI Bank deputy MD for which interviews were held as early as November 2009. On March 30, nearly 18 months later, the personnel department asked the finance ministry to resubmit the proposal to appoint B K Batra as deputy MD after seeking fresh vigilance clearances from RBI and the Central Vigilance Commission. At SBI, four of the top board-level executive slots are unoccupied as the government has been unable to finalise appointments. The fifth position—held by R Sridharan, a managing director who is the officiating chairman—is due to fall vacant in less than three months. This is in sharp contrast to the private sector where the CEO is announced months in advance and groomed to take over the corner office. Following the sacking of P J Thomas as CVC, the government has increased due diligence in government appointments in recent weeks. But over the last 12-18 months, most appointment proposals put up by the finance ministry has run into hurdles in the PMO, only to be cleared on resubmission.

A case in point is the selection of a bunch of CMDs for public sector banks where the finance ministry had proposed to lower the eligibility norms. The PMO initially turned down a proposal saying that those with less than two years of residual service were ineligible. Similarly, it opposed the finance ministry's proposal to straightaway appoint an executive director as the CMD of a large bank. Typically, on promotion, an executive director is appointed as the head of a small public sector bank and later moved to a larger bank. Subsequently, the PMO cleared both the appointments, said an official. Between tossing of files, there is complete uncertainty at banks. For instance, Union Bank of India staff and clients do not know if they will have to deal with a new chairman in three months as M V Nair has been given only 18 months extension against the original proposal to reappoint him for a year. Officials said that what also delays is frequent change in rules or complete absence of procedures. For instance, the cabinet secretariat recently pointed out that there were no norms in place for the appointment of SBI chairman. Similarly, there are no norms for reappointment of bank and financial institution chiefs. This was recently pointed out by cabinet secretary K M Chandrasekhar who has now asked the finance ministry to set up a board to review the performance of an incumbent before recommending him or her for reappointment. So, an extension to LIC chairman who is due to retire in around two months, is likely to be routed through this committee first before going to the Appointments Committee of Cabinet.

Sebi to address RBI concerns on foreign investment in MFs

The Securities and Exchange Board of India (Sebi) will address the concerns of the central bank while framing the guidelines for allowing foreign individual investors to invest directly in registered mutual funds.  The guidelines, which will be in place by mid-May, will also ensure that the subscription process is as simple as possible.  A senior finance ministry official said Sebi was working on the guidelines in consultation with the Reserve Bank of India (RBI). RBI has been worried over the high share of portfolio funds in overall capital inflows as they are prone to sudden stops and reversals. It has also been insisting on strict adherence to know-your customer (KYC) norms for investments from abroad. The official said the guidelines would address these concerns. At present, foreign institutional investors (FIIs) are allowed to invest in mutual funds. “The group on capital inflows, in July last year, suggested general permission for foreign institutional investments. It has been decided that the recommendations will be implemented in stages, beginning with mutual funds,” he said. The group on foreign investment, headed by the current Sebi Chairman, U K Sinha, who was UTI Mutual Fund chairman that time, recommended an overhaul of the regulatory framework. The panel proposed doing away with different categories such as FIIs, foreign venture capital investors and non-resident Indians (NRIs). In the Budget, Finance Minister Pranab Mukherjee announced the government’s intent to liberalise the Portfolio Investment Scheme to allow Sebi-registered mutual funds to accept funds for equity schemes directly from foreign investors who meet the KYC norms. Sebi will issue the guidelines to implement the move while RBI will rewrite the Fema Inbound Investment Regulations.

No easy banking entry for NBFCs as finance ministry seeks tougher norms

NEW DELHI: The finance ministry has sought strict norms for non-banking finance companies, or NBFCs, that want to convert into banks or promote banks. The move threatens to upset plans of several finance companies that are keen to enter the banking space. The ministry has suggested that only those NBFCs, which have a minimum balance sheet size of Rs 10,000 crore and gross non-performing assets of less than 5%, should be allowed to convert into banks or set up new banks, said an official privy to the discussions between the ministry and the Reserve Bank of India (RBI). "We want only those NBFCs that have a strong capital base and smooth operations to participate in the process," the official said requesting anonymity. Various entities like Religare , Bajaj Finance , Mahindra & Mahindra , IL&FS and Shriram City Union Finance are mulling entering the banking space. The ministry is currently examining the draft guidelines on the new banking licenses submitted by RBI last month. The banking regulator had originally planned to release the draft by the end of the month. But divergent views between the ministry and RBI have delayed their release. The RBI's discussion paper on conditions for entry of new banks had invited arguments for and against allowing NBFCs to convert into banks. It had also deliberated on the issue of allowing NBFCs to promote banks. In the guidelines sent to the government, the RBI has favoured both the options. It has even proposed that if an NBFCs converts itself into a bank, its existing branches in Tier III to Tier VI cities should get a branch status automatically. But the finance ministry does not agree with this view. "One of the major initiatives for new banking licenses is financial inclusion," said the official quoted earlier. "NBFCs which have already set up their base in smaller cities are more competent to take the cause of financial inclusion." RBI had in 2001 allowed an NBFC with a good track record to convert into a bank, provided it was not promoted by a large industrial house and satisfied the prescribed minimum capital requirement. Only one finance company has so far converted into a bank. he finance ministry has also opposed RBI's suggestion to restrict foreign direct investment in new banks. It says bringing down foreign investment limit to 49% from the existing 74% will send a wrong signal to investors. "But RBI has argued that when it is already encouraging foreign banks to set up wholly-owned subsidiaries, allowing 74% FDI in new business will defeat the objective of setting up Indian banks," the official said. Foreign banks have already said they should not be treated differently from lenders such as ICICI Bank and HDFC Bank , in which foreign holding is more than 49%. RBI has, so far, maintained that both the banks are exceptions and if 74% FDI was allowed in new banks, it would not be able to justify the difference between foreign and private banks, which have more than 50% foreign investment.

Malegam panel mulls recommending more licences for urban co-op banks

The cooperative banking sector is gearing up for a makeover, with greater participation of cooperative societies in banking operations.  A high-powered committee, under the chairmanship of Y H Malegam, a member of the board of directors of the Reserve Bank of India (RBI), is considering  recommending licences to new cooperatives planning to become urban cooperative banks (UCBs), and convert the existing credit cooperative societies into a cooperative bank.  At a recent meeting, the six-member Malegam Committee decided to meet national and state cooperative federations and cooperative bankers to chalk out the road map for making urban cooperative banking more inclusive for the cooperative sector. “We are exploring the possibility of simplifying the licensing procedure for cooperative societies seeking to become a registered UCB. Further, we are also considering an option of converting existing credit societies into a UCB,” said H K Patil, president, National Federation of Urban Cooperative Banks and Credit Societies (NAFCUB). Patil is also a member of the Malegam committee.  The terms of reference laid out by the committee seek to recognise the need for UCBs in India and rising financial inclusion in non-banked regions of the country through these UCBs. The committee would also look at giving credit societies the authority for banking operations. Currently, there are about 50,000 credit societies in India.  The Malegam committee will also discuss the possibility of an apex body under the umbrella organisation concept to advise UCBs for better monitoring of funds and investments. The apex body will also offer guidance on various technological aspects to modernise the functioning of UCBs.  “Only UCBs can reach the non-banked regions of the country. So far, there is only 40 per cent financial inclusion in India. For the remaining 60 per cent, UCBs bear immense importance. So, there are a lot of expectations from the Malegam committee recommendations,” said Subhash Gupta, chief executive, NAFCUB.  According to industry sources, going forward, some issues related to higher authority and freedom in the urban cooperative banking may also come up. “The UCBs are not allowed to operate in forex or take deposits from trusts or government agencies, while nationalised banks are permitted under the banking act. Hence, it would be required to put UCBs on a par with nationalised commercial banks to make them sustainable,” said Ghanshyambhai Amin, president, Gujarat State Cooperative Federation.  So far, the committee met four times in the past three months and the next meeting is scheduled to be held later this month. “Though we have a deadline, we cannot comment on when would the report be finalised, as we not even come halfway so far,” said Patil.  Currently, there are around 1,674 UCBs operating in India, with 6,900 branches spread across the country. The total number of customers with these USBs exceeds 20 million. The deposits are expected to grow by around 16 per cent in the current financial year. UCB deposits were recorded at Rs 1.82 lakh crore as on March, 2010.  This was a rise of 14 per cent compared to the previous year.  The growth in advances has been almost on a par with growth in deposits.

High interest rate regime over

CHENNAI: Good news for potential home and car buyers. Bankers said that lending rates have peaked and they may not go up further. That holds true for deposit rates too.   "I am not expecting either lending or deposit rates to move up from here. They are going to remain benign, depending on the situation of inflation," Mohan Tanksale, executive director of Punjab National Bank, said.   M Narendra, chairman and managing director of Indian Overseas Bank, said that some small banks, who have not been able to fully pass on the increase in their cost of fund, may go for a further 0.25% increase in their lending rates. "However, interest rates in general are going to remain stable in the first quarter of 2011-12." S C Sinha, executive director of Oriental Bank of Commerce, said deposit and lending rates are going to fall from here on. The bankers' opinion is based on the expectation that inflation rate will come down further. They are also expecting the liquidity situation to improve in the coming days. "We have seen that the inflation rate is coming down because of the combine effort of the RBI and the government. We are expecting inflation to come down further to 7%. The government also has started spending, which would ease the pressure on liquidity. Thus we may see only one or two small steps from the RBI," said Narendra.   United Bank of India's executive director S C Bansal said that the RBI may increase its policy rates by another 0.25%. He, however, said that the hike will not have any further impact on the interest rates.  "There are two reasons why interest rates may not go up further. Banks are comfortable with the liquidity, where it stands now. Second, the first quarter of a financial year is usually sluggish in terms of credit demand. Thus, there is no pressure on banks to raise lending and deposit rates," Bansal said.  According to the Reserve Bank's latest data, banks have seen a 23.3% growth in their credit in FY11, compare to a 16.2% in FY10. The demand for deposit grew only by 16.6% as against 18.8% the previous year.  Banks are expecting things to change. They are pegging deposit growth at 20%+ in the current financial year.

ASSOCHAM urges govt to exempt currency conversions from service tax

The volatility in exchange rate markets even on intra-day is quite large, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM). Apex industry body ASSOCHAM has urged the government to exempt currency conversions from service tax as the new rule will put extra burden on corporates and blunt competitiveness of exports out of India.  The Reserve Bank of India (RBI) publishes market rates at noon to act as a reference rate and the foreign exchange market is open between 0900 to 1630 hrs. Even if a bank decides to charge no incremental charge or fee over and above its cover rate in inter-bank market, the final transaction rate charged to a corporate can be significantly different from the RBIB (RBI reference rate).  The volatility in exchange rate markets even on intra-day is quite large, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM). On many days in the past one year when exchange rate moved by one per cent, the median intra-day movement was half per cent.  “Therefore a banking and financial services entity cannot charge such difference to its customers on real time basis when transaction is booked,” said chamber’s secretary general D.S. Rawat. “This valuation basis will significantly increase transaction costs and decrease India’s competitiveness in global markets.”  Charging service tax on the differential between RBIB and the rate at which transaction is booked has no link with service provided by a bank. There is no element of service involved in such transactions, said Mr Rawat in a representation to the Central Board of Excise and Customs. “Moreover, companies have no control over such transactions.”  There are no such instances of a similar tax being imposed anywhere in the world – especially in countries where Indian companies compete in common markets. This has also been stated in a research study released by the Department of Economic Affairs.  “As a matter of fact, competing countries have been facilitating their external sector by various measures like a stable currency in China, procedural relaxations and lower interest rates,” said Mr Rawat. “It would tantamount to imposing service tax not on the service part – which otherwise is absent in such transactions – but on the profit or loss made by money changers.”  This is against the very spirit of service tax legislation where rendering services is a determining factor, he added.  If at all the government wants to bring these transactions within the ambit of service tax, then determination of value of services should be restricted to fees or spreads charged by banks towards foreign exchange conversions, and not otherwise.  In any case, said Mr Rawat, the taxable value tax should not be more than 0.01% of transaction value.

RBI to make public roadmap for introduction of holding co soon

The RBI is likely to soon come out with a roadmap for introducing a holding company structure for banks which will help conglomerates in the finance sector to generate funds for subsidiaries.  An RBI working group, headed by Deputy Governor Shyamala Gopinath, has almost finalised the discussion paper on this and it would be out soon for public comments, sources said. The holding company would be regulated by the Reserve Bank of India (RBI) and all the entities, including the new and the old, in the banking sector will follow the holding structure model once the central bank puts this in practice, according to the sources. A holding company can usually have a bank, life insurance firm, a general insurance and an asset management company as its subsidiaries. India now follows a universal bank model which can have financial services like insurance, asset management, securities business are separate subsidiaries of a bank.  For example, county''s largest bank SBI has SBI Life, SBI MF, SBI Capital etc as its subsidiaries now.  Following the announcement made by the RBI in its last annual policy, it constituted working group headed by Gopinath to recommend a roadmap for the introduction of a holding company structure together with the required legislative amendment or framework.  The other members of the committee include financial sector expert Y H Malegam, Prashant Saran, member SEBI, Keki Mistry Vice Chairman HDFC Ltd, R Sridharan Managing Director SBI, N S Kannan, Chief Financial Officer ICICI Bank. The last discussion paper on the Holding Companies in Banking Groups by Reserve Bank was made public in 2007.  The feedback on the discussion paper emphasised the need for introduction of bank holding companies or financial holding companies in India to ensure an orderly growth of financial conglomerates and better insulation of a bank from the reputation and other risks of the subsidiaries within the group.  The holding company model is expected to ease burden on banks for infusion of funds into capital-intensive subsidiaries like life insurance.  The Committee on Financial Sector Assessment (CFSA), in its report issued in March 2009, observed that given the lack of clarity in the existing statutes relating to the regulation and supervision of financial holding companies, the holding company structure as prevalent in the US for financial conglomerates is not currently in use in India.  The CFSA noted that the absence of the holding company structure in financial conglomerates exposes investors, depositors and the parent company to risks, strains the parent company''s ability to fund its own core business and could restrict the growth of the subsidiary business.