Crack whip on chit funds, RBI to NE States

Worried about rising incidents of non-banking finance companies (NBFCs) hoodwinking the public, India's central bank has asked north eastern states to constitute a robust economic offence wing and enforce legislation like the Chit Fund Act. A large number of NBFCs have cropped up in the northeast, luring customers with promises of high returns on deposits, although they do not have a licence from any of the regulatory authorities to accept deposits from the public. "Setting up of economic offences wing, enactment of Protection of Interest of Depositors (in Financial Establishments) Act and framing rules under the Chit Fund Act are the urgent matters which should be looked into by the state governments to deal with such illegal entities," RBI Regional Director Surekha Marandi told IANS in an interview here. She said that none of the 116 NBFCs currently functioning in the north-eastern states is a deposit-taking company. States frame rules specific to their needs for some federal acts, which govern the activities of businesses in a particular sector. Tripura doesn't have an economic offences wing and has not framed state rules with regard to the Chit Funds Act. Marandi said that recently a network marketing company by the name of "Jainex International Trade" has duped thousands of gullible investors in Manipur to the extent of nearly Rs 40 crore and their network disappeared all of a sudden. Several other companies are also operating in the same line in Manipur and other northeastern states. "Framing state rules under the Chit Fund Act, Prize Chits and Money Circulation Schemes (Banking) Act 1978 and other related central acts are the only answers to check the menace posed by the NBFC and UIBs," the RBI official said. "The offences under these central acts are cognizable offences," she said. The NBFCs not recognised by financial sector regulators like the RBI, the Insurance Regulatory Development Authority (IRDA) or the Securities and Exchange Board of India (SEBI), cannot accept deposits from the public or do any monetary business. But the RBI or other regulators cannot take action on companies that are not registered with them. Hence the onus lies on state governments to monitor the activities of such firms as have mushroomed in the northeastern region in recent years, mobilising huge deposits from people by promising abnormally high rates of interest, at 25 to 30 percent. After collecting the money, they vanish overnight. "State governments should make efforts to arrest the people involved in the dubious activities of such companies," the RBI regional chief said. The Tripura government, during the recent budget session of the state assembly, moved a new bill amending the Tripura Protection of Interest of Depositors (in financial establishments) Act, 2000, for enhancing the level of protection of the depositors in monetary firms, including NBFCs and UIBs, by providing more teeth to the existing legislation. The new bill proposes to impose a fine of Rs.10,000 for every flawed provision and act by the NBFCs and UIBs and in addition Rs.1,000 per day for continuation from the date of default. Marandi said that the RBI, on its part, had decided to open its sub-offices in six northeastern states - Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura and Meghalaya - in a phased manner for better monitoring of the functioning of the nationalised, private banks and other financial institutions. The first such RBI sub-office in the series was inaugurated in Agartala by central bank Governor Duvvuri Subbarao last week. According to an RBI official, the next sub-office would be set up in the Meghalaya capital Shillong soon. Currently, RBI has a regional office in Assam's main city of Guwahati. "With the setting up of these sub-offices, RBI's mission to improve the banking services to the northeastern region and to ensure banking access to all people would be fulfilled to a large extent," Marandi said. 

SME Tiumes 

Seminar on Bank Fraud

Shimla: A one day Seminar on non banking Institutions and Companies that accept deposits and later vanish by duping the people was held in the Conference Hall of Police Hdqrs. by the Department of Non Banking Supervision of RBI.  The Seminar was inaugurated by Shri Somesh Goyal, ADG, AP&T. He appreciated the efforts of RBI in spreading awareness among the police officers about the role of law enforcing authorities on modus operandi and areas of frauds committed by unscrupulous non banking financial companies.  Almost 20 officers and investigators of H.P.Police drawn from various districts participated in the seminar. The RBI has circulated a list of 28 such vanishing companies that are registered under Himachali address.

RBI's research wing plans to play growth catalyst to financial sector, policy makers

MUMBAI: The Reserve Bank of India plans to position the Centre for Advanced Financial Research and Learning - or CAFRAL - promoted by it, as a top-rung research institute to cater to policy makers and the financial sector.  The centre, which is headed by former deputy governor of RBI Usha Thorat, will for the first time provide a platform for academics, researchers and practitioners to explore and carry out research on policy and regulatory issues in banking and finance.  Ms Thorat told ETthat besides research reports, the centre plans to conduct workshops, seminars and conferences regularly. The institute will flag off its initiative by hosting a conference with CEOs from commercial banks on May 28 on 'Business strategy in the emerging regulatory landscape'.  The new research centre hopes to sensitise banks on how to adopt a risk management framework for driving strategy and capital planning by hosting this meeting.  The centre will also partner with the Bank for International Settlements, or BIS, to host a conference in November this year on financial sector regulation and its implications for growth, equity and stability in the post-crisis world. The aim, according to Ms Thorat, is to provide a better perspective on emerging market economies.  For many emerging market economies, the challenges now revolve around maintaining a higher growth in the new regulatory framework. The BIS and CAFRAL meeting will flag off issues which could have an impact on emerging markets in terms of growth and stability.

ET 

RBI has no plan to conduct open market operation as of now: Sources

MUMBAI: The Reserve Bank of India has no plans as of now to buy government bonds from the secondary market to support the market or to ease tight liquidity condition given its anti-inflation stance, two central bank officials with direct knowledge told Reuters.  Some market participants are expecting the Reserve Bank of India (RBI) to conduct open market operations (OMO) by June to ease the expected liquidity stress due to advance tax outflows.  "There is a large redemption in July and this is only a temporary tightness. We would have done an OMO if liquidity tightness would have been beyond the plus/minus 1 percent (of deposits) comfort zone for a sustained period," said one official.  Advance tax payments are due by June 15 and dealers expect the liquidity in the banking system to turn into deficit of 1 trillion rupees, much above the RBI's comfort zone of 500 billion rupees shortfall. But around 370 billion rupees of 9.39 percent 2011 bond will mature on July 2.  "The main task now is to bring down inflation," said the second central bank official.  Buying government bonds from the open market will infuse liquidity and stoke inflation further, much against the central bank's stance.  RBI governor Duvvuri Subbarao also told participants at a meeting with state finance secretaries earlier this week, that there is no plan to conduct an OMO now, two sources who attended the meeting, told Reuters.  Subbarao said this whilst explaining why the pressure of raising money from the market was more stiff this year than last year's, one source said.  He said facilities such as liquidity adjustment facility should be able to tide over a temporary cash crunch, said another source who attended the meeting.  When contacted, RBI spokeswoman Alpana Killawala said, providing context to Subbarao's comments, "We have been maintaining that we have a number of instruments and we will use them as and when warranted."  Subbarao also acknowledged at the meeting that government bond yields are at high levels and added that inflation and high level of borrowing by the state and central governments were the other reasons why market borrowing was more difficult this fiscal, officials said.  Dousing bond market expectations that the RBI being the debt manager to the government may buy bonds to prevent any sharp rise in yields, the central bank officials said rising yields correctly reflect the underlying inflation pressures and the RBI's stance.  On Thursday, the 10-year benchmark 7.80 percent 2021 bond yield rose to its highest level of 8.40 percent since it was first issued on April 8 on inflation concerns.

ET

Difficult to assess risk premium on oil, says Nomura

When I was in India, I saw Subir Gokarn come out with a very strong statement warning on inflation. The risk being greater, I think he was absolutely right to do the policy rate hike. We are big fans of the RBI, we think it’s a very competent central bank; it is going to have to continue to make tough decisions............

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RBI to soon release guidelines on new bank branches

The Reserve Bank will soon release guidelines for implementing its proposal to locate at least a quarter of the new bank branches in the unbanked areas, which generally fall in the rural areas. "RBI will issue guidelines for 25% rural branches soon," said a banker present at the central bank's post-policy meeting today.  In its annual monetary policy announcement on May 3, RBI had asked banks to open 25% of their new branches in Tier-V and VI centres.The central bank held the customary post-policy meet here with bankers wherein it apprised them of the changes announced in the annual policy for FY12. Deputy Governors Shyamala Gopinath and Anand Sinha along with nine bankers, including Indian Overseas Bank Chairman and Managing M Narendra, were present at the meeting. Issues relating to Basel II and III norms were also discussed at the meeting, bankers said.

BS

RBI sets up Central Registry to prevent property loan frauds

The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security  of same property, the RBI said. The Reserve Bank of India (RBI) in a notification on Wednesday, announced the operationalisation of a central registry that will have details of all properties against which loans have been taken.  Towards this end-The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI)-a government company licensed under the Companies Act.1956, has been incorporated to operate and maintain the Central Registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Initially transactions relating to securitisation and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property, the RBI said in a statement. R.V.Verma, Chairman and Managing Director, National Housing Bank, has been given additional charge as the registrar of the Central Registry for three months, and he will also be the managing director and CEO of CERSAI.

Moneylife

JK Bank changeover political issue :Mehbooba

Srinagar: Rejecting the lame excuses forwarded by the state government to defend its decision to move away from JK Bank’s over draft facility to the RBI’s ways and means arrangement, Peoples Democratic Party today maintained that the decision was a serious blow to state’s dignity, self respect and self reliance.In a statement PDP president Mehbooba Mufti said it was unfortunate that the government had now deployed the Bank management to defend a decision that has serious political implications and disastrous consequences for governance in the state. “While the government itself has been unable to convince anyone on the subject it is ironical that the bank owned by it should call the decision to surrender state’s only financial mechanism to centre a win-win situation for all” she said and pointed out it was a political issue and not a management concern. Mehbooba said while the ‘benefits’ of the decision that the government. claimed to flow out of its dumping of JK Bank as its lender have been rejected by experts and the public opinion in the state it seems the fall out of it has already started being felt as even at the beginning of the fiscal year bills have been bouncing from the treasuries. She said the contractors executing government works have been on a war path and refusing to carry out works because of the inability of government to make timely payments. “In certain cases even the salaries are in default and daily wagers and seasonal workers hardly ever received their dues in months.” Reiterating that the decision had taken away from the state its last pillar of self reliance and source of fiscal management Mehbooba said the state governments would henceforth be completely dependant on central government and the RBI for even routine spending. Even as the National Conference made noises about its autonomy demand in practice it was conceding even the last remnants of it to stay in power, she said “notwithstanding the fact that JKB the icon of state’s pride and institutional capabilities was reduced to a mere disbursement branch of the RBI”. Mehbooba said the National Conference which had in a similar ‘brazen’ manner sold out state’s water resources had now resorted to ‘mythological sources’ to show itself as the savior of our interests.  On the one had it has started trumpeting ‘discovery’ of some 36 year old government order having not even archival value on the other it has not been telling the people why the government which is credited with issuing it had not implemented it for seven long years till it remained in power Mehbooba wondered. Even after that the National Conference ruled the state for more than two decades with huge legislative majority that was misused to further dis-empower the state.

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Banks want complete say in savings accounts

Banks should have the power to decide on their own structure, terms and conditions, and charges for opening and maintenance a savings account if the central bank decides to deregulate the savings deposit rate, top bank officials told the Reserve Bank of India (RBI) today. Top officials from public and private sector banks met RBI Deputy Governors Anand Sinha and Shyamala Gopinath to discuss the broad issues in the sector and analyse the impact of the latest policy rate increase on inflation. According to a banker, who attended the meeting, one of the points of discussion was deregulation of savings deposit rates, where lenders have asked RBI to allow them to decide on the maintenance and other charges for a savings account. Some of the banks have also sought RBI’s permission for offering differential rates on differential balances in a savings account. “We favour complete deregulation and not partial deregulation,” the official said. Earlier this month, RBI raised the savings deposit rate by 50 basis points. As a result, banks are now required to pay four per cent interest on savings deposits. The central bank started the process of deregulating the savings deposit rate by releasing a discussion paper on this issue late April. The rate is currently the only administered one, which is decided by the banking regulator. In the discussion paper, while RBI favoured deregulation as such a move would improve transmission of the monetary policy, it also expressed concerns over unhealthy competition and asset liability mismatches. However, the central bank seems to suggest that advantages outnumber worries and hence it was expected the savings deposit rate would be deregulated in a phased manner. Savings deposits account for 22 per cent of total bank deposits. Bankers said while an increase in savings deposit rate was unlikely to exert undue pressure on their margins, partial deregulation, however, might stress their profitability.

BS

Provide portfolio mgmt details, RBI tells banks

WHAT RBI WANTS TO KNOW

* Nomenclature of the scheme

* Details of products offered — whether they are bonds, FDs or debentures

* If there is any actual, perceived or potential conflict of interest in offering such products

* Disclosures to clients about risks and returns

* Obligation of the bank towards clients regarding products advised on

* Organisational structure for providing WMS

* Professional qualification and a proper criteria for officials handling WMS

* Code of conduct, if any, for officials handling WMS

* Number of branches where such schemes are operated

* Whether or not the services are free

* Amount of funds managed under each scheme

* Number of frauds, complaints and grievances addressed

The Reserve Bank of India (RBI) has asked banks to furnish details of the portfolio management services offered by them. The Financial Stability and Development Council (FSDC) had earlier mandated RBI and the Securities and Exchange Board of India (Sebi) to undertake a review of the existing practices followed by banks and brokerage houses in offering wealth management services. The regulators were also asked to to come up with fresh guidelines for wealth management services. RBI had, earlier this week, sent mails to various chief executive officers of banks, asking for the details of their operations. It sought to know under what name various products were sold — whether they came under portfolio management, wealth management, private banking or investment advisory. RBI guidelines pertain to portfolio management services. “RBI has asked us to furnish details of the various parameters of portfolio management services like nomenclature, the products offered and the disclosures we make to clients about risks and returns” said a senior official of a public sector bank. Most foreign and private banks, along with a few public sector banks, offer portfolio management services. RBI also wanted to know if there was any actual, perceived or potential conflict of interest in offering such products and a bank’s responsibility or obligation towards its clients. It also asked whether the people selling these products were qualified and whether there was a proper criterion for employees offering such services. Banks would also have to provide information on the number of complaints and the performance of their grievance-redressal mechanism. Portfolio management services offered by banks are classified into four categories — referral services, investment advisory, non-discretionary and discretionary. Sources said the current norms do not clearly distinguish between investment advisory and non-discretionary portfolio management services. Currently, to offer portfolio management services, banks need RBI’s approval. They also have to be registered with Sebi. Registration with Sebi is also required to offer investment advisory services, which are non-discretionary in nature (the client’s approval is required for investment). The RBI communique follows a fraud in Citibank’s branch in Gurgaon in December 2010. The fraud was allegedly committed by its employee, Shivraj Puri, who had siphoned off Rs 400 crore by selling financial products not authorised by the bank. The investment products were allegedly sold to high net-worth individuals, with a claim that these would generate very high returns.

BS

Less than 50% small villages have banking facility

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Priority sector advances to shoot up by 25.02 per cent

Action plan:Collector Mahesan Kasirajan, second from right, handing over the first copy of the annual credit plan for 2011-12 to R.Krishnamurthy, Chief Regional Manager, IOB, in the city on Wednesday. Solomon Paul Jayaraj, left, AGM, NABARD, and R. Gunalan, right, Assistant General Manager, RBI, Chennai, are in the picture.

TIRUCHI: Priority sector advances in Tiruchi district is set to increase by 25.02 per cent during 2011-12. The annual credit plan (ACP) envisages a total credit flow of Rs.2054.23 crore in the district during the current financial year, marking an increase of Rs.411.22 crore over 2010-11. The agriculture sector, as usual, would get the lion's share of Rs.1,158.08 crore as per the projections of ACP for the district, released here by Collector Mahesan Kasirajan on Wednesday. The credit flow envisaged for agriculture and allied activities accounts for 56.38 per cent of the total credit outlay. The allocation for the sector has been increased by 22.81 per cent, amounting to Rs.215.14 crore, over the previous financial year. A major portion of the allocation to agriculture sector would go towards short term crop loans. The ACP has earmarked Rs.950.61 crore, accounting for 82.08 per cent of the allocation for the sector, for being advanced as short term loans. Minor irrigation programmes would get Rs.26.03 crore. Farm mechanisation would also get a thrust with the credit advances under this head being projected at Rs.71.43 crore.The ACP has earmarked Rs.232.22 crore to the non-farm sector, accounting for 11.30 per cent of the credit plan. In non-farm sector, advances to small scale industries would take the major share of Rs.192.13 crore. The other priority sector advances would be to the tune of Rs.663.93 crore, constituting 32.32 per cent of the credit plan. Of this, Rs.153.44 crore would be advanced as educational loans to 11,890 students. Advances to non-farm sector would go up by Rs.40.16 crore, an increase of 20.92 per cent over the previous year. The credit flow to other priority sector has been hiked by Rs.155.92 crore, an increase of 30.69 per cent over the previous financial year. The non-priority sector advance is projected at Rs.904.65 crore. About 93.67 per cent (Rs.2054.23 crore) of the ACP would be disbursed through commercial and private sector banks in the district, while cooperative banks and other financial institutions would contribute about 6.33 per cent (Rs.130 crore).Mr.Kasirajan appealed to the bankers to extend their cooperation in achieving the targets set in the ACP. R.Krishnamurthy, Chief Regional Manager, IOB, said the deposits of banks in the district stood at Rs.10,656 crore and advances at Rs.8,221 crore. The credit deposit ratio in the district stood at 77.14 per cent. During the previous financial year, Rs.93.26 crore has been advanced to self help groups, he said. R.Gunalan, Assistant General Manager (AGM), Reserve Bank of India, Chennai, Solomon Paul Jayaraj, AGM, National Bank for Agriculture and Rural Development, M.Santosh Kumar, Project Director, District Rural Development Agency, and T.Ramados, Lead Bank Manager, spoke. 

Hindu 

Time to review inflation strategy

Over the past decade, the Reserve Bank of India (RBI) has claimed a victory of sorts by refusing to allow inflation to plunge too low or soar too high. But this is little consolation to most households. From 2002 to..........

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Govt doesn't favour holding company set up for PSU banks

NEW DELHI: The finance ministry is not in favour of pushing staterun banks into adopting the holding company structure proposed by the banking regulator.  The Reserve Bank of India (RBI) on Monday put out a report recommending a financial holding company model for the financial sector, which it says will protect banks from being destabilised by the activities of other firms controlled by the same promoter.  "We are not going to push them (public-sector banks). They can adopt the structure as and when they decide," the official said. In it report titled 'Introduction of Financial Holding Company Structure', put out for comments by stakeholders, the RBI has suggested two routes for migrating state-run banks to the holding company structure.  The first is to transfer government holding in the bank and other subsidiaries of the bank to a holding company.  In the other, the government continues to hold stake in the bank, but other stakeholders gets transferred to the holding company. In this case the government will be able to unlock its holding values in the subsidiaries. However, the ministry anticipates problems with both options. In the first, the government will not only have to meet the capital needs of the bank, but also that of non-bank subsidiaries.  Besides, if the holding company is listed and the bank is not, the government will be stuck with shares in an unlisted entity. "What purpose will it serve to hold majority stake in a bank that is controlled by an FHC (financial holding company) for all purposes," the official said.  In the other method, there will be valuation problems when holdings in diverse companies are transferred to a holding company.  The government has said it will maintain at least 51% stake in banks. A member of the working group that compiled the RBI report said, "The working group had representations from the government, IBA and private players. If some issues are still pending, they can be incorporated in the final guidelines."  The chairman of a leading staterun bank told ET that the finance ministry is yet to ask banks for their views. "It's too early and we would like to wait for further clarity," he said.  Sector experts say it will be difficult to convert public-sector banks into a financial holding structure quickly, unless some of legacy issues linked to the Banking Regulation Act are resolved.  "Most state-run banks have recently set up subsidiaries in insurance, asset management and other sectors through the joint venture route, and the long-term interests of their JV partners would need to be addressed adequately for a smooth transition," said Robin Roy, associate director, financial services, PwC India.  The RBI report says the structure may create challenges in governance. In the second case, for instance, the bank will have two large shareholders - the government and the holding company - each with differing interests.  The regulator had set up a working group in June last year to examine the feasibility of introducing a financial holding company structure in India. The working group, headed by RBI deputy governor Shyamala Gopinath, has members from the RBI, the finance ministry, the markets regulator (Sebi), the insurance regulator (IRDA), and the Indian Banks Association.

ET

The water wars

Why should we not have a policy that requires all new commercial and residential construction to build, at their cost, reservoirs that can be accessed for public distribution? Or insist that cooperative societies make arrangements for rainwater harvesting, at their cost, to supplement water supply? Consider what we are losing: harvesting rainwater off the roofs of the bungalows of the Municipal Commissioner, the Chief Minister, the RBI Governor, the Port Trust Chairman and the Mayor would probably yield over 5 lakh litres of water even assuming only 24 inches of rain. Think of the numbers without water who could be helped with that.........

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Finmin for ' middle path' on Jalan panel report on bourses

RBI may tweak norms to boost core sector funding

The Reserve Bank of India (RBI) might modify some of the existing rules to encourage insurance and pension funds to invest in the infrastructure sector, a senior government official said here on Thursday. "Participation of insurance and pension funds in the infrastructure sector in India is much lower when compared with the developed markets," said department of economic affairs secretary R Gopalan. Speaking at an Assocham seminaronThursday ,he said a number of discussions have taken place to encourage long-term investment in the infrastructure sector and the RBI is now close to bringing in some changes. He did not give further details. Gopalan added the government will launch the proposed Infrastructure Debt Fund within the next few months without having to change many of the regulations. "Regulators are working very hard and they are trying to see that they don't upset existing regulations and still try to come out with the infrastructure debt fund," he said.  The country would need investment of up to $1 trillion in five years between 2012 and 2017 in the sector. "There are two kinds of routes we are looking at—one is the bond route through debt fund and another is the unit route through the capital market," he said. Addressing the conference on capital markets, Gopalan said there is a need to develop the capital market. However,headed that any reform in this market will have to be gradual and stable. On the Bimal Jalan committee suggestions relating to market infrastructure institutions such as stock exchanges,depositories and clearing corporations, the secretary said there is a need to find a middle ground. "There are extreme views on both the sides. Sebi is seized of this. We need to find a middle path,"he said.Jalan committee submitted its report to Sebi last November.

FE