Bhubaneswar, April 5: A special police battalion will now provide security cover to vital installations and VIPs in Cuttack and Bhubaneswar. The first batch consisting of 501 sepoys today participated in a passing out parade at the Urban Police and Traffic Training Institute in Bhubaneswar. Director-general of police (DGP), Manmohan Praharaj, said: “These personnel were provided advanced training for nine months.” They would be deployed at vital establishments such as residences of the governor and chief minister, state secretariat, legislative Assembly, Reserve Bank of India (RBI) in Bhubaneswar and Orissa High Court in Cuttack.
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Wednesday, April 6, 2011
Reserve Bank of India penalises The Mehsana Urban Co-operative Bank Ltd., Mehsana (Gujarat)
The Reserve Bank of India, in exercise of powers vested in it under the provisions of Section 47A (1)(b) read with Section 46(4) of the Banking Regulation Act, 1949 (AACS), imposed a monetary penalty of `5.00 lakh (Rupees five lakh only) on The Mehsana Urban Co-operative Bank Ltd., Mehsana (Gujarat) The penalty was imposed for violation of Reserve Bank instructions on membership of co-operative societies, conduct of non-banking business, use of work "Bank" in the name of another institution and share linking norms. The Reserve Bank had issued a show cause notice to the bank, in response to which the bank submitted a written reply. After considering the facts of the case, the bank's reply and also personal submissions in the matter, the Reserve Bank concluded that the violation was substantiated and warranted imposition of penalty.
FII investment doubles since Dec'08; FDI grows gradually: RBI
NEW DELHI: Foreign direct investment (FDI) into India has grown gradually since December 2008, while overseas fund flow in the capital market have nearly doubled in the two year period, according to an RBI data. An analysis of the Reserve Bank data shows that since December 2008, FDI investment have grown from $ 125.2 bn to $ 198 bn in December 2010. Comparatively, portfolio investment, both in equity and debt securities, jumped from $ 91.6 bn to $ 171.7 bn in the aforesaid period. Experts said foreign investors are finding Indian securities market well priced and are preferring to put in money even as long term overseas fund in the form of FDIs are investing gradually. Growing from December 2008, FDI in India at the end of June 2009 stood at $ 145 bn, while increasing to $ 167 bn at the end of December 2009. It further grew to $ 178.3 bn in June 2010 and to $ 198 bn till December 2010. In sharp contrast, portfolio investment increased to $ 95.9 bn at the end of June 2009 and jumped to $ 117.2 at the end of December 2009. This was again followed by a sharp surge to $ 135 bn in June 2010 before touching the $ 172 bn mark by December 2010. FIIs mainly invested in equities, with their investments rising from $ 69 bn to $ 138.2 bn, while their investments in debt securities grew by $ 10.8 bn to $ 33.4 bn in two years. Meanwhile, the portfolio investments made by Indians in other countries grew from $ 0.6 bn to $ 1.1 bn, while the direct investments by them overseas rose from $ 63.3 bn to $ 92.4 bn during the period under review.
RBI admits to ‘new normal’ inflation tangle
Acceptance of higher inflation rate as the new normal will raise risks of accelerating inflation,” Subir Gokarn, Deputy Governor, Reserve Bank of India (RBI), said on Tuesday, adding the economy has to avoid the vicious circle of high inflation, low investment and slow growth. The economy should get into a virtuous cycle of low inflation, high investment and fiscal consolidation accompanying high growth, he said. Headline inflation stood at 8.31% in February after a gruelling year in which food inflation hovered close to double-digits. “Despite significant actions on policy rates and liquidity by the Reserve Bank of India, inflation remains high, giving rise to some very fundamental questions,” said Gokarn while speaking at the meeting of the national executive committee of FICCI. Highlighting on the need to tackle inflation Gokarn said, “India’s central bank cannot afford to be slack on inflation.” The current rate of inflation raises concerns about the risks of spiralling and may slow down the growth momentum, he said. “In essence, the trade-off is more between inflation now and growth in the future. The only way to keep food prices in check is to produce more than what people want to consume.” The RBI has already raised interest rates eight times since March 2010.
Bank CEOs oppose savings rate deregulation
MUMBAI: CEOs of large commercial banks have urged the Reserve Bank of India (RBI) not to deregulate interest rate on savings bank account. At a meeting between the chief executives of select banks and RBI Governor D Subbarao on Tuesday, most bankers vehemently opposed the move to deregulate savings account rates which is fixed at 3.5%, sources said. The meeting was a prelude to the central bank's annual monetary policy to be announced on May 3. The Reserve Bank of India has set up a committee to study the consequences of freeing up of savings rate. All interest rates except the rates on savings account are free now. Bankers told the governor that deregulation of savings rate could impact the stability of deposits. "These are uncertain times. There is uncertainty about inflation, interest rates and growth. Therefore, in such times, we have suggested that, perhaps , this may not be the right time to consider a deregulation in rates," said a banker present in the meeting. Recently, former RBI governor YV Reddy also opposed deregulation of savings bank account rate. "Many of the common people don't have time to apply their mind and shift money from savings to deposits, etc. So, for heaven's sake, give one banking instrument, one bank account where the man knows that this is the interest rate, this is the facility. This is required . I would even say, particularly , it is required for women in India whose money should be safe from their husbands ," Mr Reddy had said in a recent media interview. While expressing his reservation on deregulating savings rate, the recently retired chairman of the State Bank of India , Om Prakash Bhatt, said: "A bank may pay 1% or less for those account holders who have small deposits and 5% if they are willing to keep Rs 50,000 in savings account. This in turn will impact small depositors."
Monetary policy: Bankers urge RBI not to hike repo and reverse repo rates
Bankers present in Tuesday's meeting also urged RBI not to raise key rates - repo and reverse repo - on fears that borrowers may not have the appetite to pay higher rates on loans. Some banks also said they have not yet passed on the 25 bps hike in key rates in March to borrowers. The central bank has hiked repo and reverse repo rates eight times in the past one year to tame inflation. However, some bankers urged RBI to raise key rates to control inflation. India's headline inflation has remained above RBI's comfort level over a year now. The benchmark WPI rose to 8.31% in February from 8.23% in January. The latest weekly data showed food inflation at 9.5% in the week ended March 19, down from 10.05% in the previous week. Economists expect RBI to continue raising rates to keep inflationary expectations under check. Bankers have also asked RBI to give them time till June to restructure loans to MFIs. The central bank had given time till March 31, to reschedule loans of MFIs, while allowing them to classify it as standard assets. Banks have even told RBI that securitised portfolio sold by MFIs to banks should be allowed to be restructured under the same dispensation. During the meeting, RBI also raised concerns about steep rise in banks' loan to the real estate sector. Banks' exposure to the sector stood at 107,889 crore in the first 11 months of 2010-11, up 17% YoY. Bankers, however, felt their individual exposure has fallen in the past few months.
RBI Never asks for Your Bank Account Details
It has come to the notice of the Reserve Bank of India that mail has been sent in its name "inviting bank customers to update their bank account details against online phishing". The Reserve Bank has clarified that it has NOT sent any such email. It has further clarified that the Reserve Bank or banks never issue communication asking for bank account details for any purpose. The Reserve Bank has appealed to members of public not to respond to such mails and not to share their bank account details with anyone for any purpose.
More HK banks will set up ops if RBI issues licences: HKTDC
Mumbai, Apr 5 (PTI) The Hong Kong Trade Development Corporation (HKTDC), feels that more Hong Kong banks would set up operations in India if the Reserve Bank of India (RBI) issues licenses to foreign banks. "Presently, we have HSBC in India. We feel some more banks will be interested in starting operations in India if RBI permits banking licenses to foreign banks," HKTDC's Assistant Executive Director, Raymond Yip, told reporters here today. India is the second-largest market for Hong Kong as nearly 11 Indian banks have their operations here, he said. "With the economy reviving slowly, we are expecting a few more Indian banks to set up their operations in Hong Kong," he said. The HKTDC is also focusing on the Indian market for enhancing its imports and exports, he said. "We (India and Hong Kong) export and import pearls and jewellery at a larger scale as compared to other products. At the same time, India is emerging as an IT hub. Therefore, we are also looking at this sector as a potential trade destination for Hong Kong," Yip said.
Cardless banking with Aadhaar number may soon become reality
Some banks and the Unique Identification Authority of India (UIDAI), which is spearheading the ambitious Aadhaar project, are looking to allow customers operate ATMs armed with only their 12-digit Aadhaar number; the access will be facilitated by a biometric scan. New Delhi: Soon, it may be possible for customers to operate ATMs without cards. And, eventually, shop without credit cards. Some banks and the Unique Identification Authority of India (UIDAI), which is spearheading the ambitious Aadhaar project, are looking to allow customers operate ATMs armed with only their 12-digit Aadhaar number; the access will be facilitated by a biometric scan. Experts say the move could reduce cost of operations for banks and also reduce instances of debit card fraud. Even while UIDAI is still working to fine-tune the model, state-owned Corporation Bank is readying to implement the new model. “We will be launching this service in the next three-four weeks for our customers in Delhi,” said an official of the bank, asking not to be named. With a mere 58,000 Aadhaar numbers issued in Delhi (4.2 million have been issued across India), the number of customers using Corporation Bank’s service will be limited at first. But it will increase. UIDAI hopes to issue 600 million numbers by 2014. The number of credit and debit cards as on January stands at over 230 million in the country, according to the Reserve Bank of India (RBI); the issue cost of each card varies between Rs. 20 and Rs. 80. For cardless transactions to become a reality, customers will have to link their bank accounts with the Aadhaar number. At the time of enrolment, UIDAI is giving people the option of either opening a new bank account, which will be Aadhaar-enabled, or linking to an existing one. UIDAI has already done field tests in Jharkhand and is readying its infrastructure to support bulk transactions. “The servers and systems are currently being tested to see if they can take at least 100 million transactions simultaneously... UIDAI is working to ready them by July this year,” said an official familiar with the development, who did not want to be identified. Both the officials independently confirmed that the approval from the regulator is in place. “The Reserve Bank of India has given an in-principle approval for the plan, but the final go-ahead will be needed closer to the actual launch,” the second official said. “RBI’s main concern is safety... This will take care of all the safety aspects,” added the Corporation Bank official. “It is one of the safest ways to do banking... It will make sure that the right person is using the right account,” said the second official. The move to cardless banking will take quite some time. And the move to cardless shopping some more. That’s because banks will have to install a biometric reader in all their ATM machines and will also have to upgrade the applications on them to make them cardless. There were at least 43,000 ATMs across the country as of March 2010, according to RBI. Moreover, the core banking solution, through which banks integrate all transactions across branches, will also have to support the new model. According to Alpesh Shah, partner and director at Boston Consulting Group, the cardless banking model would have a large impact, but over the next three-five years. “Banks will have to upgrade their infrastructure, which may take a few years. So there will not be much impact in the next six months to one year. But over a longer term, once the concept catches on, it could change the way banking is done,” he said. A Union Bank of India official, who also did not want to be identified, said that while Aadhaar will provide sufficient authentication for transactions, it will take some time for banks to adapt to the new system and put in place the necessary infrastructure. Interestingly, UIDAI is hoping banks will rapidly upgrade their technological infrastructure as a sort of quid pro quo for pushing more business their way. The Aadhaar initiative will be facilitating the opening of several million new bank accounts during the enrolment process. UIDAI is already in the process of empanelling banks for this. Aadhaar has so far enrolled around 4.2 million people in the country and around 80% of them want a new bank account, according to UIDAI estimates. To make cardless banking work, UIDAI will have to link its servers at one end to the banks and on the other to the National Payments Corporation of India (NPCI). Each bank has its own financial switch, which is connected to the national financial switch (NFS). NFS facilitates routing of ATM transactions through connectivity between the banks’ switches. NPCI does the settlement under this network. “If banks agree on such a model, NPCI has no problems in switching the transaction,” said A.P. Hota, managing director and chief executive officer of NPCI. Cashless transactions at retail establishments pose a challenge. “A card is not built only for use in ATMs. It is meant to be used in other devices also, such as point of sale terminals used in retail outlets... So a bank cannot completely do away with issuing the card,” said an official at IDBI Bank Ltd, who did not want to be identified. UIDAI does have a plan to enable micropayments even at retail outlets through what it terms micro-ATMs, essentially low-cost hand-held devices with a fingerprint reader.
Liquidity surplus banks park Rs. 31,000cr with RBI
The beginning of the new financial year 2011-12 has witnessed some radical improvements in liquidity scenario in the system. For the first time, almost over a year the banks have parked surplus liquidity to the tune of R31,000 crore in the reverse repo window of Reserve Bank of India. RBI's reverse repo window pays 5.75% to the banks. The rates for certificate of deposits (CDs) also softened on Tuesday. One-year CD fell by almost 30 basis points from 9.70% to 9.40% on Tuesday. Till March end, banks had been borrowing consistently from the RBI's repo window, which has varied from over R50,000 to R1,000 crore. Banks have raised resources through high cost deposits and certificate deposits in the past. MD Mallaya, CMD of Bank of Baroda, said that the exact liquidity situation is likely to be good in the future. “By and large, we have entered the phase of slack season when credit demand will be less and government spending has already happened in March. Interest rates are to remain stable for now. Accretion of deposit shouldn't be a challenge in future,” he said. On whether RBI will take measures to suck out liquidity, he said, “It is too early for RBI to take a view on the issue. It will depend on overall macroeconomic conditions.” M Narendra, CMD of Indian Overseas Bank, said the sudden surplus may be happening as banks might have done it in a bid to go for pending deployment of credit. Few banks may go for deposit rate cuts too, he said. “But, such surplus may not continue further. Still, it is not indicator enough for RBI to take measures to suck out the surplus liquidity,” he said. SC Kalia, executive director of Union Bank of India, said it looked like liquidity crunch should not be any issue now. During the year, a lot of deployment of funds took place on short-term basis. The surplus of liquidity was also due to the redemption pressure on MFs. “When those funds are coming, there will certainly be liquidity surplus with banks. Liquidity may be at comfort level, but not that much surplus so that it would lead to RBI taking measures to suck out liquidity,” he added. D Sarkar, ED of Allahabad Bank, said that liquidity had improved now as lots of government funds had been released recently. “At the moment we don't feel there is any need to go for cut in deposit rates,” he said. Net liquidity injection through LAF declined from an average of R93,000 crore in January to R79,000 crore in February 2011, and further to R68,000 crore in March mainly due to increase in government spending and consequent decline in government cash balances with RBI. D Subbaro, governor of RBI, had said going forward, the overall liquidity situation is expected to move close to the comfort level of the RBI.
Inflation may hurt investments, growth: RBI
MUMBAI: The Reserve Bank of India has probably, for the first time in many years, said that inflation may 'spiral' out of control, hurting investments and economic growth. This is an indication that policy rates will keep rising till it re-creates an atmosphere for sustained growth. "The current rate of inflation does raise concerns about the risks of spiralling, as high inflation becomes increasingly entrenched into the wage and price-setting behaviour of workers and producers," Subir Gokarn , deputy governor at the Reserve Bank of India, told an industry conference. "In turn, if this were to adversely impact investment activity, the growth momentum would inevitably slow down. In essence, the trade-off is more between inflation now, and growth in the future," Mr Sbir Gokarn said. India's inflation that started climbing due to food prices two years ago and is fast spreading to all parts of the economy. That is forcing wage-earners to seek higher salaries and is triggering product price increases. Wholesale prices rose 8.31% in Feburary, above the RBI's 8% target that was revised many times. Food inflation was at 9.5% for the week ended March 19. RBI raised rates eight times in 13 months to 6.75%, but the negative real return continues. "It signifies the extent or magnitude of the spill-over of higher food and oil prices to generalised inflation," said Deepali Bhargava, chief economist at ING Vysya Bank . Central bankers, inspired by former US Federal Reserve chairman Alan Greenspan, are careful in their diction to describe the state of the macro economy. The RBI has been gradually moving to accepting that price rise is now widespread, after arguing that monetary policy is ineffective in tackling supply-side induced inflation. In the last few quarters, it shifted to saying that supply side is 'spilling over' to manufacturing that could keep inflation at elevated levels. Economists tracking the central bank say, this may be first time that the word 'spiralling' is being used by a top central banker. It could not be confirmed. Inflation is threatening to plunge economies into crisis. China raised interest rates for the fourth time since the crisis ended, and US Fed chairman Ben Bernanke and Jean Claude Trichet of the European Central Bank are joining the chorus about the destabilising effects of price rise. "We have to monitor inflation and inflation expectations extremely closely because if my assumptions prove not to be correct, then we would certainly have to respond to that and ensure that we maintain price stability," Ben Bernanke said on Monday. The desire for above average economic growth may force people to live with higher prices for a sustained period. "Acceptance of a higher rate of inflation as the new normal - an inevitable consequence of rapid growth - will raise risk of accelerating inflation," said Gokarn. "If in fact, the contribution of investment spending to growth is declining, the constraints can only become more binding, further aggravating inflationary pressures." Crude oil prices near $120 a barrel and copper, lead and silver prices at historic highs could accelerate further as investors losing faith in paper currency chase real assets.
REVISED TAKEOVER CODE, JALAN COMMITTEE REPORT FACE DELAY
It is now clear that the revised takeover code and the Bimal Jalan committee report will not be implemented soon and in the same form, since the finance ministry wants to seek industry views on these two sets of recommendations this month, before the market regulator could take a decision. A section of industry has criticised the Jalan panel report for its opposition to listing of stock exchanges and the revised takeover code recommendations for making acquisitions costlier, among other issues. It was expected the two issues would be on top of the agenda of new Securities and Exchange Board of India (Sebi) Chairman U K Sinha. While the capital markets division in the finance ministry would hold consultations on the Jalan panel report, Chief Economic Advisor Kaushik Basu would have interactions on the revised takeover code. Both would happen this month, officials told Business Standard . In a clear indication that the Jalan panel report might be tweaked, a key official said, “Nowhere in the world are reports suggested by committees implemented in toto.” A committee set up by Sebi on the takeover code had recommended raising the trigger for open offer to 25 per cent from the current 15 per cent. A panel headed by the former presiding officer of the Securities Appellate Tribunal (SAT), C Achuthan, also proposed to raise the statutory open offer size to 100 per cent. The proposal on 100 per cent open offer may make it difficult for local players to fund the acquisition. As such, the local players may be placed at a disadvantageous position vis-avis foreign ones, said Equity Head of SMC Global Research Jagannadham Thunguntla. The Bimal Jalan committee on ownership and governance of market infrastructure institutions has recommended that exchanges should not be allowed to list, a ceiling should be put on their profits and dividends, and the role of anchor investors should be limited to only domestic players. A section of industry has criticised the report as anti-competitive. When asked whether the government has some concerns on the revised takeover code, Basu said, “At the moment, I have an open mind.” The chief economic advisor said he would shortly decide who should be invited for consultations.
Banks Mean Business, Inclusion Long Way off
RBI’s latest release of ‘Statistical Tables relating to Banks in India’ is quite revealing when we juxtapose FY00 and FY10 data. We’ve had several measures that have been invoked under financial liberalisation while a lot has also been spoken of on inclusion to add a social dimension. How has this model worked? The study of data over these 10 years has some interesting stories to tell. Three aspects of banking development could be looked at: banking structures, business profile and financial performance. Under banking structures, the growth in network increased from 67,532 branches to 87,768. However, the share of rural branches came down from 48% to 37% while that of urban and metro increased from 30% to 40%. Quite clearly, banks have been going to places where there is business. Simultaneously, the staff strength came down by around 14% to less than a million i.e. 869,412 (FY09). Banks have effectively used technology to replace surplus manpower. The business profile reveals that deposits remain the main source of funds, accounting for 79% of total liabilities as against 80% in FY00. Second, term deposits continue to be around 65% of deposits and there has been virtually no change here. Third, surprisingly, households have become less important for banks in terms of garnering deposits with their share going down from 67.6% in FY00 to 58.3% in FY09. Banks evidently prefer to raise bulk deposits from corporates which have lower transaction costs and are easier from the point of view of ALM considerations. This also reflects household’s preference for stock markets and insurance products and corporate proclivity for parking funds with banks through the CD markets, which is a sign of a mature banking system. On the lending side, some discernible patterns have emerged. To begin with, the share of term loans has gone up from 36.5% in FY00 to 57.4% in FY10, which may be attributed to the demise of development banking with banks taking on the role of long-term lending. Second, the share of priority sector lending remains at around 31% and banks have just about met their targets and have not really followed the inclusive model. Maybe, there is a very critical role for MFIs here. The fact that NPAs in this sector tend to be higher could be a reason for not converting enthusiasm into action. Third, the level of concentration in loans is unchanged and Maharashtra and Delhi still account for around 42% of credit, which is reflective of the demand coming from the more industrialised states where business is higher. Fourth, the sectoral distribution of credit has also changed. In terms of share in total credit, professionals (3.2% to 9.8%), personal (11.2% to 12.7%), finance (4.8% to 8.5%) have been gainers while trade has come down from 15.6% to 10.7%. The success of banks in terms of financial performance has been quite amazing. Profits, which were never really very important for public sector banks, have seen a turnaround. The return on assets has increased for the entire sector from 0.73% to 1.05% in FY10, after peaking at 1.12% in FY08. This is remarkable at a time when the base of total assets has quadrupled from . 15.16 lakh crore to . 60.25 lakh crore. Return on equity, however, has been more volatile. The increase in base of net worth explains most of this phenomenon. Third, despite interest rates coming down on account of RBI policy on both deposits and advances, the spread has remained rather stagnant. Such high spreads are atypical of mature banking systems and may be attributed to a combination of higher risk in the system as well as operating expenses. Intermediation costs have been coming down from 2.68% of total assets to 1.80% in FY10.Last, gross NPAs have come down from 12.8% to 2.5%. So, how does one evaluate the performance over this decade? Banks have been driven by commercial considerations as witnessed in improved financial performance and proliferation of banking structures towards centres and sectors of growth. Intermediation costs have to be improved upon and one vital missing link in banking ideology which has to get excluded is the 'inclusive nature of banking'. Quite evidently, new innovative models have to be built aggressively if we are really serious.
Kamath takes over as CMD at Vijaya Bank
HS Upendra Kamath took charge as the Chairman and Managing Director of Vijaya Bank, succeeding Albert Tauro who has retired from service. Kamath, who has 37 years of experience in the banking sector, was previously the executive director at Canara Bank. He is considered an expert in areas such as corporate finance, SME finance, risk management and international operations and has been a member of committees of the RBI and Indian Banks Association such as the working group on Benchmark Prime Lending Rate and the committee on retail banking.
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