Visual exhibition by RBI under way

GUWAHATI, June 10: Governor of Assam Janaki Ballav Patnaik today inaugurated the exhibition – Newsibition – of RBI at Srimanta Sankardeva Kalakshetra, Panjabari, and said: “It is a story being  told in the shape of news and pictures from its inception in 1935 to the present day. Under section 22 of the RBI Act, it is the only national agency in India which has the sole right to issue bank notes of all dominations. In fact it is the bankers’ bank and every bank in India is required to maintain with the Reserve Bank a cash balance equivalent to 5 per cent of its demand liabilities and 2 per cent of its time liabilities”.  Newsibition is a visual exhibition which traced the 75 years of the history of the Reserve Bank of India (RBI) through many anecdotes, photographs, documents and interesting visuals. The exhibition titled ‘Mint Road Milestones’ is based on a book with the same title published by the RBI during its Platinum Jubilee last year. He also said that in the recent economic growth of the country’s economy, the RBI has played a pivotal role. When the financial systems in United States and the other developed countries of the world failed to withstand the worst depression they faced, India was least affected by it. He also said, “Inflation has emerged as a major concern. Despite some fall in food prices, prices have not come down in other major commodities. This is a challenge to be met with utmost urgency by adequate financial measures”. Speaking on the occasion, RBI Regional Director Surekha Marandi said that the narrative of the book interwined the history of the central bank with the financial history of the country and world developments of the time. “The exhibition also displays internal documents and photographs, tells the story and the context of Reserve Bank policy measures and give glimpses of how the newspapers and media viewed the policies of RBI,” she said and added that the exhibition would remain open for public viewing from till June 29, 2011 from 11 am to 7 pm.

The Sentinel

Subbarao favours autonomy to achieve medium-term goal

Favouring greater autonomy, Reserve Bank of India (RBI) Governor D Subbarao today said greater freedom would help central banks to focus on price stability in the medium term. Monetary policy typically acts with a lag, and price stability therefore has to be viewed in a medium-term perspective, Subbarao said in a speech at the SAARC Finance Governors' symposium at Kumarakom in Kerala. "Having autonomy frees the central bank from the pressure of responding to short-term developments, deviating from its inflation target and thereby compromising its medium-term inflation goals," he said. In a bid tackle inflation, the RBI raised key policy rate nine times since March 2010. Last month, it raised short term lending rate and savings bank rates by 50 basis points to check price rise. "Even as the importance of central bank autonomy in monetary policy is now broadly accepted, there is a growing view that central bank decision making has to become transparent and that central bankers have to be more accountable for the outcomes of their decisions," he said. The standard argument for central bank autonomy is that autonomy enhances the credibility of the central bank’s inflation management credentials, he said. He noted that the much prized autonomy of central banks has come under assault post-crisis with an influential view gaining ground that one of the principal causes of the crisis was the unbridled autonomy of central banks. Subbarao said with central banks assuming increasing responsibility for financial stability, the autonomy question has acquired an additional dimension and greater urgency. The main apprehension is that a formalised mechanism for coordination between the government and the central bank for financial stability will alter the level, content, process and frequency of interaction between the two, and over time this will erode the autonomy of the central bank, he said. It is argued that it will be difficult to keep monetary policy and policies for financial stability strictly apart, and a formal forum for coordination would facilitate spillover into monetary policy, he added. Subbarao also pointed out that the financial stability is not exclusive responsibility of central bank.

BS

Greater need to ensure autonomy to central banks: RBI

With central banks assuming increasing responsibility for financial stability, there is a greater need and urgency to ensure their autonomy, the Reserve Bank of India's governor said on Friday. The RBI is not constitutionally independent and the government has the power to direct it, and also appoints the central bank's governor and four deputies.  "It is important for the government and the regulators in India to develop conventions and practices which will serve the goal of preserving financial stability without eroding the autonomy of the regulators," Duvvuri Subbarao said in a speech at the SAARC Finance Governors' symposium in the southern Indian city of Kumarakom. Though many central banks do not have an explicit mandate for financial stability, post crisis in 2008, several jurisdictions are vesting this as a formal mandate to central banks, Subbarao said. The RBI's mandate is to maintain prices and financial stability and includes macro and microprudential regulation. Preserving financial stability requires coordination among regulators, and between regulators and governments, he said. "...it is generally acknowledged that these coordination mechanisms, especially as between the government and the regulators, must function in ways that do not compromise the autonomy of the regulators." The RBI raised interest rates more than expected last month and vowed to battle price pressures even at the cost of sacrificing short-term growth, even as the government counts on strong growth for the current fiscal year to help fund increased social spending and keep the fiscal deficit in check. "Having autonomy frees the central bank from the pressure of responding to short-term developments, deviating from its inflation target and thereby compromising its medium term inflation goals," Subbarao said

BS

SBI breaches RBI norms on RIL exposure for 3rd year

The country's largest bank, State Bank of India, has breached RBI's credit exposure norms during three consecutive years with regard to its loans..........

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Families see inflation rising 120 basis points

MUMBAI: Households expect inflation to rise by 120 basis points in the next one year with those living in Bangalore and Jaipur expecting inflation to touch 16% unlike those in Patna and Kolkata, who see inflation hovering around 9%.  These were the findings of 'Inflation expectation survey of households' released by the Reserve Bank of India on a quarterly basis. The survey was conducted on 4,000 urban households across 12 cities from January to March 2011. It captures inflation expectation over the next three months and for the next one year. As things stands now, the headline inflation stood at 8.6% in April. RBI expects inflation to be around 9% in the first half of the financial year and set a target of 6% by the end of 2011-12. As against the current expectation of 11.5%, households expect inflation to rise to 11.9% during the next quarter and 12.7% next year. The survey showed that 34% of the respondents felt that RBI is taking necessary action to control inflation while 39.6% felt that the central bank was not taking action to control inflation. Out of these 34% respondents, 61% are aware that RBI's action has got an impact on inflation.  The central bank survey shows that inflation expectations of households have come down compared with the previous round of survey. The inflation expectation for the next three months and for next one year stood at 11.9% and 12.7%, respectively, against 12.4% and 13.1% assessed in the earlier round of survey. Households' expectations of general price rise were mainly influenced by movements in food prices. The percentage of respondents expecting price rise has gone down for all product groups such as general prices, food products, nonfood, household durables, housing and services. RBI has said the movement of inflation expectations shows that the future inflation expectations are usually higher than the perception of current inflation. They provide useful inputs on directional movements of future inflation. However, these are not to be treated as forecast of any official measure.

ET

A litmus test for RBI - Rajeev Malik

The central bank will appear vacuous if it holds fire next week following its ultra hawkish guidance at the last monetary policy review

All eyes are on the Reserve Bank of India’s (RBI’s) upcoming mid-quarter monetary policy review on June 16, the first review following the unexpected 50 basis point (bp) increase in early May. It is ironic that the RBI’s aggressive 50-bp move came just as global commodities hit an air pocket. Indeed, the CRB index of commodities and Brent are both slightly lower now compared to early May. However, neither decline is big enough so far or can be viewed as being firmly sustainable to prompt the RBI to stay on hold. India’s inflation remains suppressed owing to the lack of a more complete adjustment in several local prices. After having sounded exceptionally hawkish just six weeks ago, the RBI will appear to be avoiding its own guidance if it stays on hold next week, especially since inflation remains worryingly high. Also, the inflation data are yet to be fully impacted by the long overdue adjustments in local fuel and other prices, and the much-needed meaningful fiscal adjustment remains uncertain. Even a slightly better-than-expected wholesale price index (WPI)-based inflation for May should not be a cause for celebration. In the absence of fuel price adjustments, looking at the inflation readings is like looking at a swimsuit without a body — it just does not capture the real effect. The March quarter GDP report cannot be an excuse for staying on hold as signs of moderation existed even when the RBI increased key policy rates by 50 bps. GDP data are, for the most part, a lagging indicator, as several monthly indicators provide earlier clues. It has been widely overlooked that non-agricultural GDP growth moderated only marginally to 7.8 per cent year-on-year (YoY) in January-March from 8.0 per cent in the December quarter. A sizeable upward adjustment in the GDP for January-March quarter in 2010 also made the YoY comparison less flattering. Further, gross tax receipts suggest a better tone of economic activity even though economic growth is widely expected to moderate as a desired policy outcome. In the annual policy, the RBI stated the obvious that there is no trade-off between growth and inflation in the long run. While that it true (and it is encouraging that the RBI discovered that after missing inflation forecast in the last few years), it conveniently overlooked to point out that there is little role for monetary policy in the long run. Low inflation is favourable to long-term growth as interest rates decline, which in turn boosts growth, which in India’s case could also get a shot in the arm if the government ever wakes up to work on reforms. In an earlier piece (“Lower growth, higher inflation”, May 11) , I had pointed out that there is a risk of over-tightening as the WPI inflation that the RBI focuses on appears to have little sensitivity to softening non-agricultural GDP growth if commodity prices are rising. This is because WPI inflation (and non-food manufactured goods component) is significantly more sensitive to international commodity prices than the typical consumer price index (CPI)-based inflation. It is instructive to note that the new CPI series shows inflation running around 6.0 per cent YoY, and a sequential pass-through (not seasonally adjusted as there are still not enough data points) that is much lower than what the WPI indicates. This is as it should be, but the RBI appears idiosyncratically wedded to the input prices in the WPI for setting interest rates, an approach that is faulty, in my view. India has not had many monetary tightening cycles in the last two decades. The first cycle, in the mid-nineties, ended in tears. Unstable domestic politics, post-reform bust in investment, and external events (ie Chinese renminbi devaluation in 1994 and the Asian financial crisis in 1997) were among the important reasons, with the RBI’s tightening being a contributor to but not the key driver of the domestic slump that followed. The industrial sector was painfully flat on its back through FY02, although the downturn was also instrumental in restructuring businesses. Essentially, inflation was killed but so was the industrial sector — hardly the desired finesse. The last monetary tightening in 2004-08, especially the mature phase of 2006-08, is a far better case study to gauge the RBI’s response function. However, it too had several important differences from the current monetary tightening that began in early 2010 following the exceptional easing in late 2008 put in place after the global credit crisis. Higher inflation due to global commodity prices is common to both cycles, but there are several important differences on the composition and drivers of economic growth, magnitude of capital inflows, and the nature of the RBI’s tightening (for example, less reliance on the use of cash reserve ratio). In particular, domestic demand was much stronger and more balanced in the last cycle. However, the cycle was cut short by the global credit crisis that prompted an aggressive monetary and fiscal easing by the RBI and the government. An important aspect of the last tightening that is overlooked is that the RBI had maintained the repo rate (at which banks borrow from the central bank)at 7.75 per cent for a little over a year before an unexpected jump in inflation (driven mainly by global commodity prices) prompted an additional tightening of 125 bps packed in June-July 2008. Non-agricultural growth had been slowing until then but we never got to see the full impact of the tightening as the deceleration that followed was also affected by the global credit crisis. Subsequently, there was a quick and significant reversal in policy. Even though the RBI’s policy comes every six weeks, the central bank appears to have a bias for announcing rate increases more often in the quarterly reviews than in the inter-quarter meetings. That bias should be eliminated unless that is what the RBI intends, in which case the sensible approach of inter-quarter reviews is a waste. The bottom line is that in the absence of favourable lasting inflation news, holding fire next week will only compromise the effectiveness of the RBI’s signalling from the last meeting. At the very least, the guide should follow his own guidance.

The author is senior economist at CLSA, Singapore. The views expressed are personal BS

RBI to soon issue new Rs 100, Rs 10 notes

MUMBAI: The Reserve Bank today said it will soon issue new notes of Rs 100 and Rs 10 denominations in the existing series named after Mahatma Gandhi. While the Rs 100 denomination notes will have the inset letter 'L' in both numbering panels, the Rs 10 notes will have the inset letter 'B', the RBI said in separate statements.  "The Reserve Bank of India will shortly issue Rs 100 denomination banknotes with inset letter 'L' in both numbering panels in Mahatma Gandhi Series," it said.  The notes will have the signature of RBI governor D Subbarao on one side and the year 2011 printed on the other.  Similarly, it will shortly issue Rs 10 denomination banknotes with inset letter 'B' in both numbering panels in Mahatma Gandhi Series 2005.  "Except the change in the inset letter, the design of these notes (of Rs 10 denomination) to be issued now is similar in all respects to the banknotes in Mahatma Gandhi Series 2005 issued earlier," it said.  All banknotes in the denomination of Rs 100 and Rs 10 issued by RBI in the past will continue to be legal tenders.

TOI

'Electronic payments can curb black money'

The group president for Visa, one of the world's largest payment companies, has said that governments can curb black money by partnering commercial institutions to promote.......................

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High rates hurting growth, RBI needs to fix problem: Basu

NEW DELHI: Concerned over the impact of high interest rate on consumer demand, Chief Economic Advisor ( CEA )) Kaushik Basu on Friday said the RBI will need to have a re-look at the monetary tightening policy . "RBI will have to balance its monetary policy tightening in view of growing concerns, particularly in consumer goods front, where higher interest rates are impacting demand," Basu told reporters here. The comments comes as the RBI is scheduled to hold a mid-quarter review of the monetary policy on Wednesday. The central bank, in its bid to tame high inflation, has raised its key policy rates nine times since March 2010 It is widely expected that the bank may again hike the rates on June 16. As per the latest Index of Industrial Production (IIP) data, output in the consumer goods sector slowed to 2.9% in April from 13.8% in the year-ago period. Meanwhile, the growth in factory output numbers for the fiscal 2010-11 has been revised upward to 8.2% in the new series (with base as 2004-05) from 7.8% growth projected in the series with 1993-94 as base year. Basu said there will be a marginal upward revision in 2010-11 GDP figures following change in IIP growth. "There will be a small upward revision in FY'11 growth figure due to change in IIP growth. We are in the midst of re-calculation of our growth prospects. We will be able to come out with clear assessment by the end of the month," Basu said. According to the Central Statistics Office (CSO), the GDP in last fiscal is esimated at 8.5%year-on-year. On the diesel price hike, he said the government should soon take a decision in this regard. "We (the Government) are committed to our fiscal consolidation target. We don't want to divert from it. We will very soon have to take stock of diesel prices," Basu said. Oil Minister S Jaipal Reddy today met Finance Minister Pranab Mukherjee this afternoon to apprise him of the precarious financial state of the stateowned oil firms, who are living off borrowed money in the absence of the government raising prices of diesel, domestic LPG and kerosene.

ET

M. V. Nair gets extension till March 2012

The Central Government has approved the extension of Mr M. V. Nair, as Chairman and Managing Director, Union Bank of India, for a year till March 31, 2012. The bank is yet to receive the government notification, said an official from the bank. Mr Nair had completed his five-year term as CMD on March 31, 2011, but he had not completed 60 years of age. He was first granted an extension of three months till June 2011. With this extension Mr Nair will complete six years as CMD Union Bank of India. He had taken charge as head of the bank in April 2006.

The Hindu

ASSOCHAM-Deloitte study says Payments by mobile phones set for sharp upswing

Electronic wallets are a must for India to retain its growth where most people do not have a bank account but have a mobile phone. “Companies identifying this opportunity and leveraging available technologies and regulations to carve out mobile retail payment solutions that are suitable to Indian marketplace are set to emerge leaders in this space, leaving others behind.”..............

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Floating Rate still the best Option

The interest rates have been increasing steadily . Thanks to the inflation rate, interest rates are not showing any signs of cooling down. The Reserve bank of India (RBI) is doing all it can to bring down the inflation rate and control the inflationary pressures. So far, the success rate has not been much. The RBI has to balance its measures with growth. It has been increasing the key rates - repo and reverse repo rates - in order to control the inflationary conditions. As a result of these measures , banks have been increasing the home loan interest rates. The lending rates, in fact, have been increasing on all kinds of loans - personal, vehicle, and housing loans. The increasing interest rates have resulted in increases in EMIs. The question that now arises is whether it is a good time to lock-in to a fixed interest rate. Considering the past trend of continuous interest rate increases , will it makes sense to opt for a fixed rate is the question many prospective borrowers ask.  In case of an increasing interest rate scenario, borrowers on a floating interest rate scheme are always at a disadvantage. The interest rate on the loan is increased as soon as the bank decides to increase its interest rates.  Therefore, the dilemma faced by many borrowers is whether to opt for a fixed rate loan or a floating rate loan in the present scenario . This becomes all the more important because the quantum of a home loan is mostly large and the tenure long.  In a fixed rate of interest scheme, the rate of interest is decided before-hand - at the time of taking the loan. Ideally, the rate should remain the same through the tenure of the loan irrespective of the market rates. In case the interest rates go up, the borrower should still pay the rate of interest fixed at the time of availing the loan. In case the interest rates go down, the borrower loses as he has to pay a higher interest as compared to the market rates. However, as of now, there are no fixed rate loans for the entire term. The banks incorporate a reset clause. This clause gives the bank the right to increase the interest rate in case the market interest rates increase drastically.  In case of a floating rate loan, the rate of interest is linked to the market rate or a benchmark rate - the base lending rate of the bank. The rate of interest varies directly with the market rates of interest. In case the market interest rates go down, the cost of borrowing for the borrower also goes down. In case the market rates go up, the cost of borrowing for the borrower also goes up. Thus, the borrower floats along with the market rates of interest and has to constantly monitor the market movements. In the present scenario, a borrower is unsure about which loan to choose. There is some risk involved in both the cases, and the borrower needs to take a conscious decision. The present increase in interest rates has been due to the increase in inflation rate. Once the inflation rate comes under control, the interest rates have to come down too.  For the growth of the economy, high interest rates cannot be sustained for long. Although no timeframe can be fixed, the measures initiated to control inflation should start showing results shortly. This will result in a reduction in interest rates. As such, it does not make sense for a home loan borrower to lock-in to a fixed interest rate loan. It would be better to opt for a floating rate loan. The interest rates have almost peaked. Although another increase could happen in the near term, in the long run the rates are bound to come down.

ET

Why Are Banks Not Promoting The IMPS Money Transfer Service?

Six months after the National Payment Corporation of India (NPCI) launched the ambitious Inter Bank Mobile Payments Service, 22 Banks have integrated the service across the country. Around 10 million customers registered for the service in the month of April. However……

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Central banks best positioned to maintain financial stability: Subbarao

The fear is that a formalised mechanism for coordination between the Government and the central bank for financial stability will, over time, erode the autonomy of the central bank, Dr Subbarao pointed out....................

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Subbarao makes peace with govt on FSDC

In a reversal of its earlier stand, the Reserve Bank of India (RBI) on Friday said financial stability cannot be its exclusive responsibility. The latest stance is in line with the government’s view that financial stability should be under its jurisdiction. RBI Governor Duvvuri Subbarao, who had always argued that financial stability should be an exclusive domain of the central bank, on Friday changed his position and said, “Even as the Reserve Bank has implicitly been the systemic regulator in India, financial stability cannot be its exclusive responsibility.” He was addressing the SAARCFINANCE Governors’ Symposium at Kumarakom, Kerala. The government had made its intention clear from the beginning by setting up the Financial Stability and Development Council (FSDC), headed by the finance minister. Ever since the proposal for setting up of the FSDC was mooted, the RBI governor has been expressing his reservation, on the ground that it can impinge on the central bank’s autonomy and flexibility.

12 FEBRUARY, 2010 - MUMBAI Post-crisis, there is a growing view that unless financial stability is explicitly included in the mandate of central banks, it is likely to fall through the cracks

5 AUGUST 2010 - HYDERABAD Should financial stability be an explicit mandate of the central banks? Pre-crisis, as I said, there was no answer; post-crisis, the answer is mostly ‘yes’

10 JUNE 2011 - KUMARAKOM Even as RBI has implicitly been the systemic regulator in India, financial stability cannot be its exclusive responsibility. Other financial sector regulators such as Sebi, Irda, PFRDA too have important responsibilities. Beyond the regulators, the crisis has demonstrated the importance of the coordinating role the Government has to play, especially in crisis times

On August 5 last year, in a speech made in Hyderabad, Subbarao had said the answer to the question, should financial stability be an explicit mandate of the central banks, is “mostly yes”, in the aftermath of the global financial crisis. However, Subbarao — whose three-year term will end on September — on Friday said the FSDC will play the central role in a crisis, and the sub-committee of the council headed by RBI governor will only be active during normal times. “Beyond the regulators, the crisis has demonstrated the importance of the coordinating role the Government has to play, especially in crisis times,” he said. The RBI governor acknowledged that formation of a sub-committee strikes a balance between the government's desire to head the Financial Stability and Development Council and the need for centrality of the RBI in matters of financial stability. “In the Indian context, the proposed structure attempts to strike a balance between the government objective of ensuring financial stability to reduce the probability of crisis and the operative arrangements involving the central bank and other regulators,” he said. The governor, who now thinks central banks should play a substantive role in maintaining financial stability but not the exclusive role, says prioritisation across multiple objectives will be a challenging task. He cites the example of the statutory liquidity ratio regime in India, which poses a growth-stability trade off dilemma for RBI. The SLR requirement, which mandates banks to maintain 24 per cent of the net demand and time liabilities as statutory liquidity ratio, entails lesser flow of funds to productive sectors, which can adversely impact investment and growth. Mint Road sources said the change in the governor’s stance on this important issue is because of the government going ahead with its plans despite RBI reservations on several issues, like the Ulip ordinance, creation of separate DMO, etc. Sources said the Governor may have thought there was no point in staying in a state of perpetual conflict with the government.

BS

Financial stability mandate must gel with monetary policy: Gokarn

The financial stability mandate given to central banks should be compatible with operation of monetary policy to manage inflation expectation and economic growth, according to Subir Gokarn, deputy governor of RBI. The global crisis has questioned the premise that price stability and financial stability are complementary. Rather financial stability can be jeopardised even in an environment of price stability and macroeconomic stability, Gokarn said in his address at a symposium on financial stability. This is the theme for the two-day conference of governors of central banks in South Asia. He said the predominant focus on price stability might have yielded low and stable inflation in terms of prices of goods and services. However, such lowering of returns in the commodity/service producing sectors could have diverted the search for yields to the financial sector. This approach has put a question on the pre-crisis consensus of running a monetary policy framework with ‘a single target’ (like price stability) and ‘a single instrument’ (like short-term policy interest rate). The financial stability mandate and governance arrangements for central banks must be compatible with their monetary policy responsibilities. It is now impossible to imagine sustained growth without financial stability. In case of South Asian countries, there may be specific features of the financial sector that pose challenges to the stability of the system, absent in advanced economies. The crucial goals of financial literacy and financial inclusion are not ignored in the overdrive for financial stability, Gokarn said.

BS

Banks should make transactions cost-effective: RBI

RBI Deputy Governor K.C.Chakrabarty has asked banks to make transactions cost-effective to be in a position to establish the customers’ rights. He asked the bankers to leverage on technology to make financial inclusion a reality and said expanding business and retention were the two challenges before them. Money lenders still held sway in the country as banking penetration was only around 40%, he said addressing a function yesterday organised jointly by State Forum of Bankers’ Clubs- Kerala and Bankers’ Club, Greater Kochi, Chakrabarty said new banking licenses are being issued to strengthen competition in the industry. He warned bankers against opening accounts that led to illegal foreign remittances. 

DNA

Audit glare on SBI provisions

The resultant fall in the SBI’s profits drew a caustic remark from RBI Deputy Governor K.C. Chakrabarty recently. Although Chakrabarty did not name the bank, he said whenever the chairman of a bank retired, its profits went down as the successor wanted to start with a clean slate.......

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Saraswat Bank to hire 6K staff in 5 yrs

Armed with a licence from the Reserve Bank of India (RBI) to operate all over India, Saraswat Co-operative Bank, India's largest urban cooperative bank has announced plans to hire 6,000 staff in the next five years to more than double its branch network in the country. "The pan-Indian permission has opened up vast opportunities for us and we have decided to grow our branch network to 500 by 2016 from 216 currently," said Eknath Thakur, chairman, Saraswat Co-operative Bank. "We will recruit more people in the coming days to support the massive planned expansion. By 2016, we will have total employee strength of more than 9,000 as compared to 3,338 now. This year we will employ 1,200 people," Thakur said. The bank, the biggest among India's 1,750 urban co-operative banks in terms of volume of business, currently operates in six states - Maharashtra, Goa, Karnataka, Gujarat, Madhya Pradesh and Delhi-NCR. It will soon open branches in more cities across India. The bank has plans to open 100 new branches this financial year, including 77 in the six states where it is now present. "The rest will open in the new regions. We are now an all-India bank. Among co-operative banks we are the first to receive such an approval from the RBI," Thakur said. With the pan-India banking license the bank has raised its business volume target to Rs. 75,000 crore in 2016 from Rs. 28,000 crore currently. "The bank will now be able take rapid strides to raise the bar of its business-mix (total business). Earlier, we doubled our business-mix every six years, now we will be able to do it every four years," Thakur said. Thakur said that Saraswat Cooperative Bank recently became the largest cooperative bank in the country after achieving business mix of Rs. 28,000 crore surpassing the erstwhile largest cooperative bank Maharashtra State Co-operative Bank with a business mix of Rs. 27,800 crore. Due to restrictions imposed by the RBI, till 2005 the bank could not add a single branch and was restricted to 75 branches. By March 2009, it added 96 new branches by acquiring seven sick co-operative banks over a period of four years. After the RBI lifted the restrictions to open new branches, the bank enhanced its network to 216 by March, 2011. Saraswat Bank also announced a tie-up with Reliance ADAG under which the Anil Ambani-led group will market a core banking solution developed by the bank's infotech subsidiary. "We have recently tied up with the ADAG through which we can sell our core banking software, 'Swift Core', to banks using ADAG's optical fibre network spread across the country," Thakur said. Swift Core has been developed by Saraswat Infotech Limited (SIL), Thakur said, adding that an estimated 300 small banks across the country need to install core banking software as a compliance measure. For the financial year 2010-11, the bank had reported a net profit of Rs. 212.27 crore compared to Rs. 119.67 crore, up 78 per cent. During the year, the net interest income grew from Rs 328.81 crore in 2009-10 to Rs 527.80 crore. It had reported 10.75 per cent growth in deposits while advances grew by 24.45 per cent. Its own funds rose from Rs 1,270.37 crore in 2009-10 to Rs 1,473.49 crore. The bank managed to bring down the percentage of gross NPAs from 3.92 per cent to 3.25 per cent. However, this figure is high compared to industry standards. The high NPA rate is the result of added weight of NPAs of the seven acquired co-operative banks.

Business Today

Savings banks died out in the 1980s. Is it time to bring them back?

Many countries in the world have two fundamentally different types of banks that accept deposits. One is the sort we have in the UK, which economists call “commercial” or “retail” banks. These accept deposits – a form of loan to the bank by the depositor – as a source of capital (like a loan from a bondholder or money from a share issue), and then use that capital to support loaning money out to businesses, or form personal loans, or for mortgages, etc. They make their money principally via the difference between what it costs them to obtain loans themselves (e.g. the interest paid on deposits) and what they themselves receive in interest on the loans they make, after taking account of losses on bad debts. This sort of bank is familiar to us. The other sort, “savings banks”, is less familiar. Savings banks originated to encourage thrift by the poor. The central idea of a savings bank wasn’t that one accumulated interest on savings. Rather, it was a place one accumulated savings themselves, rather than spending all one’s money on alcohol, gambling, tobacco, or life’s many other temptations. Because their function was accumulation, it was central to their purpose that the funds saved be completely safe – safety was much more important than getting high deposit interest rates. We used to have savings banks in the UK, until the mid-1980s. The last one was the Trustee Savings Bank, now part of the Lloyds banking group. The safety of deposits in UK savings banks was guaranteed by the Savings Bank Act 1817, which required that the only things permitted to be done with savings bank deposits were for them to be invested in government bonds or deposited at the Bank of England. At their height, in the 1920s and 1930s, the savings banks were as large as any of the Big Four London clearing banks. They died out in the 1970s and 1980s for three key reasons. First, high inflation in the 1970s meant that the value of savings was seriously eroded – they lost value. Second, in the Secondary Banking Crisis of the early 1970s, government intervention ensured that no retail bank collapsed. Third, in 1979 the UK introduced deposit insurance for the first time on retail bank deposits. These last two factors meant that the safety advantage of savings banks – the upside to compensate for the low-to-negligible interest paid – was diminished. Many other countries still have various forms of savings banks. I don’t believe that they can be resurrected in the UK as institutions competing directly with retail banks. But what we could (should) do is to require every bank licensed to accept retail deposits to legally nest within itself a savings bank and offer those seeking to make deposits the first option of placing money in savings bank deposits (I call them “storage deposits“). (Mervyn King is a supporter of this idea.) This would mean every bank could have a form of deposit that the government could insure 100 per cent, without limit (as opposed to the current limits on deposit insurance, which created difficulties, for example, for those selling a house before they buy). If we insured storage deposits 100 per cent, we wouldn’t need to insure other deposits as much (or even, perhaps, at all). That would greatly improve incentives in the banking sector.

The Telegraph

MFI Regulator: Centre or State?

Interestingly, this is the position former RBI Governor Y V Reddy took last year when he said microcredit institutions are institutionalised moneylenders, and could be governed by state legislations as issues relating to lending are a state subject...........

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