25 paise? Not acceptable

KOCHI: The announcement of the Reserve Bank of India to withdraw 25 paise coin has raised confusion among the people with many refusing to accept it. The worst hit are the bus operators who have to bear the brunt of this announcement.  The bus conductors are facing problems to convince people that the coin is still in circulation. The RBI has made it clear that the 25 paise coin is still a legal tender and will continue to remain in circulation until June 29.  Sources in the RBI said that refusing to accept the coin would be a crime. They said the RBI had announced the decision much ahead, and it had specifically stated that the date on which it would cease to function would be announced later. “This is a big headache. We have to take the wrath of the public for no reason,” a bus conductor said. “Some passengers can be convinced easily. But a few insist for higher denomination coins.”  The RBI officials have further said that the 25 paise coins can be exchanged at listed banks after June 29.

RBI halts NBFC licenses till review of finance co rule: Report

MUMBAI, APRIL 13: Toyota Kirloskar and Daimler, the maker of Mercedes cars, will have to wait a few more months to begin their business of lending for car and equipment purchases as the Reserve Bank of India put on hold new licences awaiting new guidelines, Economic Times said Wednesday citing unnamed sources. The central bank, which is in the midst of tightening rules for lenders who don't fall under the 'banks' category, has told some of the applicants that it may not issue one till the new rules come into force, the paper said. It might take RBI two to three months to come out with its new guidelines. Jain Irrigation and German electrical equipment-maker Siemens the other companies planning to set up a finance company that would fund purchases of their own product, helping their businesses grow. Europe's biggest automobile company Volkswagen recently got the license for such a company. Manufacturing companies such as General Electric and others across the globe do fund equipment purchase that has helped them grow. Even state-run Bharat Heavy Electricals plans to set up a non-banking finance company. However, reckless funding could result in the collapse of even the parent company. GE, the top manufacturing company in the world, had to seek the help of US authorities during the 2008 crisis as there were few takers for its commercial paper. Because of these companies' role in the financial markets, the RBI set up a committee under former Deputy Governor Usha Thorat to finalise a new set of guidelines after raising their capital requirements recently. RBI believes that there is a need to strengthen the supervision of the 12,500 NBFCs in the country due to the high exposure of banks to NBFCs at over Rs. 15 trillion.

Insurance on bank accounts

Even if you have multiple accounts, when the bank goes into liquidation, it will pay only Rs 1 lakh. When a bank goes into liquidation, what happens to our hard-earned money that we believed was safe? The government has constituted the Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures and covers all accounts of schedule banks recognised by the Reserve Bank of India (RBI). Deposits in scheduled banks are insured up to Rs 1 lakh. So, if a bank goes into liquidation, the depositor is paid up to a maximum of Rs 1 lakh. However, there are some interesting points. Even if an individual has multiple accounts spread across various branches of the bank, the amount paid would be Rs 1 lakh. In other words, the insurance cover is for the actual amount of loss, subject to a maximum of Rs 1 lakh per individual per bank, regardless of the number of accounts and branches in which the amount is deposited. However, if the same individual operates different accounts in different capacities, each account would be insured up to Rs 1 lakh separately. In the case of joint accounts, accounts in various combinations of the same persons are added together and the combined total is insured up to Rs 1 lakh. Thus, when there are two accounts — one in the name of husband and wife and the other wife and husband — the insurance on the two accounts will be Rs 1 lakh. However, if the husband has one independent account and the wife has another, each account would be separately insured up to Rs 1 lakh. Although, logically, this may sound absurd, the scheme of insurance has been drafted in this fashion. A company called Hardayal Singh Patel was engaged in civil and government contract works. It was required to furnish security by way of fixed deposits for undertaking the contracts. It deposited various amounts in 29 different fixed deposits, placed with Indira Priyardarshini Mahila Nagrik Sahakari Bank Maryadhit.Due to financial bungling and internal misdeeds, the bank went into liquidation. Its licence was revoked by RBI, and an official liquidator was appointed by the state government under the Cooperative Societies Act. When the company asked for a repayment of its deposits, only Rs 1 lakh was paid. So, it filed a consumer complaint, but it was dismissed. Next, the company appealed to the National Commission, alleging the state government had failed to exercise control over the bank and the audit inspections were not carried out in time, because of which the bank’s office bearers could misappropriate large amounts. The company contended that its deposits should not be clubbed for the purpose of the DICGC scheme, as these pertained to security for different contracts. The National Commission observed that its arguments were neither reasonable nor justified in view of the provisions of the DICGC scheme. It held that it was not entitled to any preferential treatment over other depositors, who have also to be paid from the funds made available under the scheme. Since the entitlement under the scheme had already been paid, the dismissal of the complaint was in order. However, the commission clarified in case the liquidator succeeds in recovering the amounts from the defaulters and from those who have misappropriated it, the amount so recovered would have to be distributed proportionately to all depositors. With this observation, the company’s appeal was also dismissed.  We must ensure that we deposit our money in well-established banks to minimise risks. Also, considering the present times, the DICGC scheme requires to be revised to increase the insurance limits.

Jehangir B Gai - The author is a consumer activist

Banking facilities for select MP villages by 2012

After a slow progress of the financial inclusion drive last year, bankers have set a target to provide banking access to each village above a population of 2,000 by 2012. The state, according to bank data, has only 2,736 villages out of a total of 52,000, which have a population above 2,000. Bankers in the state have, however, no immediate plans to cover those villages which have a population below 2,000. “We will cover all villages above 2,000 population under the financial inclusion programme by 2012,” S Sridhar, chairman of Central Bank of India, and state level bankers committee said here.  The state government had earlier refused bankers’ demand of two per cent commission to execute the task. During year 2008-09, a huge amount under various government sponsored schemes like NREGA was lying in the state’s kitty, as the Central government had made payment of these schemes mandatory through banking.   Last year, the state government had warned the bankers it would otherwise use its own cooperative and regional rural bankers’ network if the financial inclusion programme or banking facility in rural areas was not ensured. “Now, private bankers are also actively participating in financial inclusion programme,” Sridhar said. Adding, “We will hopefully attain the targets by December. We will also be covering more villages through IT-enabled financial inclusion programme in unbanked (sic) villages”. The state has 5,460 bank branches and 2,673 automatic teller machines. Labourers and farmers have to either toil miles to reach a bank or wait for more than a month for the payment to come into their accounts. “There are cases in tribal-dominated areas where bankers deny immediate payment to labourers and it takes a month or more for them to claim their remuneration,” a senior state government official informed Business Standard, adding, “The state government is persistently urging bankers to ensure banking facilities in rural areas through IT-enabled financial inclusion programme but there is no breakthrough”.  In February, Reserve Bank of India Governor D Subbarao, on his visit to Bhopal, had also asked bankers to achieve the target of providing banking facility to all villages with more than 2,000 population by 2012.

More confirmation of a slowdown

Click to read.................

Bank of America can continue to lend to RIL

Bank of America, one of the largest banks in the US, can continue to lend to Reliance Industries (RIL), the largest Indian conglomerate in terms of market capitalisation, according to sources in the Reserve Bank of India (RBI).  Following RIL Chairman Mukesh Ambani’s induction on the Bank of America board, there were issues whether the US banking behemoth, which operates in India through branches, could lend to RIL. According to the Banking Regulation Act, a bank cannot lend to a company whose promoter is on its board.  Since Ambani was an independent director and not a member of the bank’s local management committee, the US lender can continue to lend to RIL, sources said.  According to laws, if a bank inducts a member into its board, it cannot grant fresh loans to the company, which the board member represents. Existing term loan facilities would continue till the contract expires, but the bank needs to stop working capital loans immediately, once an individual becomes a board member of the bank. Last month, Ambani became the first non-American on the board of one of the largest financial institutions of the world. Ambani would serve on the board’s compensation-and-benefits committee and the credit committee. The bank has sought shareholders’ approval for Ambani’s appointment in its upcoming annual general meeting on May 11.  Bank of America had informed the US market regulator that it had allotted 1,835 shares, worth over $24,500 (about Rs 11 lakh), to Ambani as a “portion of the annual retainer” payment to its directors. Ambani may get a total of over Rs 1 crore of annual compensation in cash and stocks, going by the bank’s director compensation policy. However, Bank of America has not disclosed its specific director fees for Ambani. As chairman and managing director of RIL, Ambani was paid Rs 15 crore for the financial year ended 31 March, 2010.

Rural services: RBI unhappy with banks' performance

SRIKAKULAM: Reserve Bank of India is dissatisfied with the poor progress of the banks in providing banking facilities for the rural areas with more than 2000 population. The RBI officials have identified that 6,999 villages in Andhra Pradesh could be provided banking facilities, but in reality only 840 villages have been given an opportunity to transact with the nearby branches. Districts such as Srikakulam are also lagging behind in achieving the targets of RBI officials.  As per the new guidelines, the banks have to appoint business correspondents to open new accounts and take up transactions where there are no branches for the respective banks. Only State Bank of India and Andhra Bank are ahead of others in implementing the guidelines of the RBI in Srikakulam district. SBI-Ramalaxmana branch has started ‘banking on bike' two months ago to provide hassle-free services to customers of the villages where there are no branches for the bank. The business correspondents of the bank will have to complete transactions within Rs.10,000 in the village itself as they are equipped with Internet connected laptop and scanner. They can open new accounts also. The facilitators, who move on bikes, will complete the transactions in the villages and update the information immediately after reaching the respective branches. Reserve Bank of India Assistant General Manager T. Kiran Kumar has told the The Hindu that the banks might overcome the teething problems and reach the targets by March 2012. He has said that the RBI and banks are trying to provide attractive remuneration to the persons who join as business correspondents in villages.

RBI IMPOSES FINE OF Rs. 9 LAKH ON THREE COOPERATIVE BANKS

The Reserve Bank of India has imposed penalties of Rs. 9 lakh on three cooperative banks for violation of regulations and guidelines relating to anti-money laundering. Two of the banks, Ankola Urban Co-operative Bank and Kushtagi Pattana Sahakara Bank Niyanit, are based in Karnataka, while Salal Sarvoday Nagrik Sahakari Bank is a Gujarat based lender. The apex bank has imposed a penalty of  Rs. 2 lakh on Ankola Urban Co-operative Bank for violation provisions relating to the Banking Regulation Act, 1949. The Kushtagi Pattana Sahakara Bank Niyanit has been told to pay a penalty of  Rs. 5 lakh for similar violations.

NABARD appoints new ED

Mr. B S Shekhawat has been appointed as Executive Director of the National Bank for Agriculture and Rural Development (NABARD). Earlier, Shekhawat headed the NABARD State Projects Department as Chief General Manager. Shekhawat has over 33 years of experience in various roles with the RBI and NABARD. He has headed NABARD's regional offices in Kerala and Gujarat and has worked in areas of foreign exchange and currency management, watershed development, microfinance, cooperatives and rural Infrastructure development. As Executive Director, Shekhawat will handle departments dealing with economic analysis and research, institutional development and technical services.