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Tuesday, May 31, 2011
Villagers get smart cards
Pune based information technology company DSK Digital has rolled out a project to issue smart cards to the residents of Velu village in Maharashtra's Pune district as part of the financial inclusion process steered by Central Bank of India CBI). The initiative is under the Reserve Bank of India's (RBI) mandate to bring every citizen of the country in the banking network. A large number of funds are allotted by the Government of India to the people who are living below the poverty line. But, it is usually seen that there is a large scale pilferage of these funds. Issue of smart cards will not only help credit the funds straight into the accounts of the beneficieries but also create their 'banking history' which will make them eligible for various credit schemes of the government. RBI has chosen Khopi as a model village to implement financial inclusion initiative by opening of bank accounts for beneficiaries. Closely monitored by RBI and CBI, the project was started in February with the help of DSK Mobilis. More than 300 villagers have opened accounts in CBI under this project until now. These accounts are no frill accounts i.e. zero balance accounts without any deposit. DSK Digital has produced smart cards using its in-house integrated technology platform for the device DSK Mobilis. These smart cards were distributed to villagers by Chief General Manager-in charge RPCD of RBI, Deepali Pant Joshi. "The banks have come to the doorsteps of villagers because opening bank branches in every village is not practical. The smart cards will introduce financial literacy in Khopi and increase the bank's daily transactions," Joshi said. DSK Digital Chairperson Hemanti Kulkarni said, "Villagers will have simple and direct access to all the funds from government due to this RBI project. This will make the bank transactions easy and safe. This account can also be used for all day to day transactions. All the villagers will get a hassle free access to their financial accounts if this project is implemented throughout many villages". Vinod Phillips, Head, Business Operations at DSK Digital said, "DSK Mobilis has an integrated GPS, GPRS services. An inbuilt camera takes the picture of the account holder, while finger prints are scanned by inbuilt finger print scanner. This entire enrollment process takes mere 180 seconds." The responsibility of enrollment, verification and account transaction has been entrusted to DSK Digital. DSK Mobilis application supports all activities related to user enrollment, registration, remittance, disbursement, OD, loan etc. In addition, the device runs completely on solar power. Smart card slots in the DSK Mobilis are used to make transactions and a printed receipt is given to the account holder after the transaction. As finger prints of the account holder is verified using this technology, nobody besides the account holder can use the smart card". DSK Digital will also implement smart card projects in 83 villages of Ahmednagar district, trgetting 1.25 lakh accounts, Phillips said.
TOI
Cover more villages, finmin tells banks
Enlarging the scope of ongoing ambitious financial inclusion (FI) programme which was targeting 73,000 villages initially , ministry of finance (MoF) has asked the banks to prepare plans to cover 6 lakh villages in the country. All the banks, involved in the FI project, have been asked to furnish the details of the villages to be covered by them by June 15. Arvind Kumar, the newly-appointed joint secretary in the finance ministry, met the officials of the Indian Banks’ Association (IBA), Reserve Bank of India (RBI) and the senior officials of a number of state-owned banks at New Delhi Friday last. Earlier while interacting with the heads of public sector banks (PSBs) , Shashikant Sharma, financial services secretary, had asked them to start working towards covering the entire 6 lakh villages in the country under the ongoing FI programme. The MoF had asked the IBA and RBI to prepare an action point for this during the forthcoming meeting. In the scaling up financial inclusion programme, the government has asked them to include those villages with a population of 1,000 that are located in the periphery of those villages that are having population above 2,000 and which are already being covered under the programme. In toto, there are nearly 1 lakh such villages in the country with a population of 1000. IBA will write to the state level bankers’ committees (SLBCs) in the country that will further get the details from their respective district level coordination committees in this connection so as to prepare a roadmap. Also, the government will ask the banks to take the Swabhiman project, a nationwide awareness programme on financial inclusion which was kicked off by the UPA chief Sonia Gandhi in February to the grassroots level. Talking to FE, K Unnikrishnan, deputy CEO who had attended the meeting, IBA, said the problem was only with those regional rural banks (RRBs) that were yet to complete core banking solutions (CBS). However, they will expedite the process of FI once they complete the CBS by September, added Unnikrishnan. There are 20,000 to be covered by the RRBs under FI, whereas they have been able to cover only 3,000-4,000 villages so far.
FE
RBI committee had considered raising SLR in annual policy
Reserve Bank of India’s Technical Advisory Committee (TAC) on monetary policy had considered increasing the statutory liquidity ratio (SLR) by 100 basis points in the annual monetary policy to tighten liquidity supply to banks. Currently, the SLR — the mandatory liquid reserves (other than cash) that banks have to maintain with RBI — stands at 24 per cent of net demand and time liabilities. According to the minutes of the TAC meeting published by RBI, “In addition to the increase in policy rates by 25 basis points each, one member was of the view that SLR could be increased by 100 basis points.” The particular member also suggested RBI's repo facility should be limited to up to two per cent of the excess SLR securities held by banks. This step, if implemented, could limit the flow of liquidity from RBI to banks under the liquidity adjustment facility. The committee suggested RBI should continue with its anti-inflationary stance, since inflation could pose a major risk to growth in the future. The members, however, had varied opinions on the extent of the rate increase that the central bank should announce on May 3. “While four members of the committee felt the repo and reverse repo rates be raised by 25 basis points each, two members suggested a rise of 50 basis points each in the repo rate and the reverse repo rate,” said the RBI release. One member also suggested if needed, the central bank could exercise control on capital inflows. The TAC meeting was held on April 27 and was attended by Y H Malegam, Sanjay Labroo, Dilip M Nachane, A Vasudevan and Sudipto Mundle, along with RBI Governor D Subbarao and four deputy governors. On May 3, RBI had raised the repo and reverse repo rates by 50 basis points, while the SLR and cash reserve ratio were kept unchanged at 24 per cent and 6 per cent, respectively.
BS
International banks in emerging markets
The presence and growth of foreign banks in emerging markets pose important challenges, both for these countries and the international financial system. Yet, the debate on banking re-regulation ignores the implications of developments in the emerging economies.........
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Which way will interest rates go?
Economists expect that higher interest costs and tight liquidity may adversely affect the GDP growth rate in the near term even though India’s economic fundamentals remain extremely strong. Since March 2010, in the last 14 months, the Reserve Bank of India (RBI) has hiked the reverse repo rate on nine occasions. In combination with repo rate (which is the current operative rate), it means that RBI’s key policy rate has more than doubled during this period—from 3.25% in March 2010 to 7.25% at present. It may be recalled that the wholesale price index inflation, which was in negative territory in July 2009 went up to cross the double-digit mark at 10.36% by March 2010. The main contributor to such high inflation was food article prices, which increased at close to 20% per annum last year. During this period, three-month commercial paper (CP) rates also moved up from 3.5% then to about 10% currently, reflecting higher funding cost for corporate India. Economists expect that higher interest costs and tight liquidity may adversely affect the GDP growth rate in the near term even though India’s economic fundamentals remain extremely strong. The question that, therefore, gets invariably asked in every discussion these days is: “Where are the interest rates headed next?” In its monetary policy review for 2011-12 earlier this month, RBI has sought to maintain an interest rate environment that moderates inflation and anchors inflation expectations. It would imply, therefore, that RBI may continue to hike policy rates and maintain a tight liquidity stance till such time that inflationary expectations moderate sufficiently. There are three important variables that may affect inflation going forward. Monsoon will have a significant impact on inflation. As discussed earlier, last year inflation was driven largely by high food prices, which have moderated significantly over the last few months. A normal and timely monsoon will indicate stable food and vegetable prices and have positive impact on inflation. The second critical variable would be global oil prices. In the last few months, following disturbance in North Africa and the Middle East, global crude prices have moved up sharply on apprehension of reduced supply from these areas. Recent collapse of a nuclear power plant in Japan following a massive earthquake has increased expectation of higher reliance on thermal power further supporting higher crude prices. With continued uncertainty on geopolitical environment, oil prices are expected to remain firm putting pressure on inflationary expectations. Finally, price movements in other global commodity such as copper and aluminium will also have a strong impact on inflation. As per the current assessment, inflation is likely to remain elevated in the first half of the year. Assuming a good monsoon and gradual stability in North Africa and the Middle East resulting in lower oil prices, inflation may moderate thereafter. Let us examine the trajectory of short-term interest rates first over the next year. Last year, telecom companies borrowed aggressively from the banking system to fund the bids at 3G and broadband telecom licence auctions. Credit pick-up from other sectors also remained robust. With the government also holding large cash balances, the system liquidity turned negative. The credit-deposit ratio of the banking system was above one for the better part of the year, which means that banks were lending more than fresh collection by way of deposits. Following a record subscription in Coal India’s initial pubic offer, system liquidity came under severe strain, necessitating special liquidity infusion measures from RBI in a counter-cyclical move. As a result, banks began to sharply hike deposit rates in order to attract fresh deposits to improve the liquidity and balance sheet ratios. By this time inflation was consistently exceeding all expectation and market rates started pricing in expectations of stronger hikes by RBI. Consequently, short-term rates moved in a fast-forward manner to price all these negatives and spreads between repo rate and three-month bank CD rate widened from about 50 basis points last year to above 400 basis points in March. In the new financial year in April, liquidity situation improved with government spending and fresh system flows. With the financial year-end pressure behind and in a more balanced liquidity environment, short-term rates (up to one year) may already have peaked in the current interest cycle. They may now fluctuate between its March high and April lows. In other words, short-term rates should remain within the March highs of 11-12%. In so far as long-term rates are concerned, additional factors of government borrowing program, growth in credit and global bond markets will also play a role. While very high oil prices may result in higher subsidies, volatility in equity markets may undermine disinvestment targets. Further, poor monsoon may result in additional burden on government finances. All the above factors will affect fiscal deficit and inflation. Thus, better visibility has to emerge on these factors before a decisive view on long-term bond yields can be available. However, currently the yield curve is pretty much flat with one-year treasury bill at 8.30% and 10-year government securities at 8.35%. With overall interest rate environment uncertain and with RBI’s current focus on moderating inflationary expectation, one would expect a small rise in 10-year yields, maybe a push towards 8.50% levels, in the near term.
Mint
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