Banks told to follow security norms

WELL DESERVED

N.S. Vishwanathan, Regional Director, RBI (right), giving away Life Time Achievement Award to

N. Vittal, former Chief Vigilance Commissioner,  at a workshop in Chennai on Saturday. P.W.C. Davidar, the other awardee, is in the picture

CHENNAI: The Reserve Bank of India is serious about the security guidelines provided by it to nationalised banks and is keen that they implement them properly, said N.S. Vishwanathan, Regional Director, RBI, Chennai, here on Saturday. Speaking at a workshop on ‘Cyber Crimes: Safe and Secure e-banking', organised by the Cyber Society of India and Computer Society of India, Mr Vishwanathan said that the RBI was closely monitoring, whether the banks were strictly implementing the guidelines. In February 2001, the RBI released its information technology vision document, one of the components of which was the introduction of core banking system, which offered new opportunities and rendered best services to the customers, he said. Another example of the system was the mobile alert to customers. Whenever account holders used credit or debit card, they would get a message on their mobile about the amount spent or withdrawn. Similarly, the RBI had insisted that the banks keep the customer-related information confidential, which was one of the major initiatives of the RBI. Introduction of a second password for online transactions was another important directive of the RBI. This was introduced after a lot of deliberations with the banks. The official website of the RBI carries two or three notifications every day, he said. Last year, the RBI constituted a committee to look into governance, information security, access control and accountability. Mr. Vishwanathan said governance was very critical. A proper segregation of duties was necessary for good governance. As far as information security was concerned, bankers had to take into account various aspects such as quality of data, accuracy and usability of data. Accountability could be achieved through internal audits and they could check whether the controls were in place and whether they were giving the expected results; these were some of the issues that needed to be addressed, the Committee had pointed out. Banking system should mainly focus on the human element, which is most neglected, said N. Vittal, former Chief Vigilance Commissioner. Problems in security were caused mostly due to neglect of human element. Another aspect was human greed. Both could be checked through transparency in selection process, he suggested. Eighty per cent of cyber crimes were committed by insiders, he said.

The Hindu

Follow senior citizen scheme strictly, RBI advises banks

The Reserve Bank on Saturday, asked banks to strictly implement a government order mandating them to give 9 per cent interest on a saving scheme for senior citizens and retired defence personnel. RBI has found that some of the banks do not implement Senior Citizens Savings Scheme - 2004(SCSS), particularly in case of retired army personnel and have denied the facility of SCSS to some of them in contravention of the instructions ibid. “We, therefore, reiterate that you may strictly adhere to the instructions issued vide our above circular and ensure extending the benefits of the scheme to retired army personnel also, if otherwise found in order,” the RBI said in a notification. The scheme can be availed by people of 60 years or above. However, persons retiring from defence services are given a relaxation of five years in age availing this scheme. The scheme is operated through all branches of public sector banks which are operating PPF Scheme. Under the SCSS, the deposit made will earn an interest rate of 9 per cent per annum and interest is paid on quarterly basis. In another notification, RBI allowed banks to continue practice of keeping aside 5 per cent of the restructured accounts by their rural branches for another two years.  This facility was given to back rural branches which lacked expertise or appropriate infrastructure to ensure computation of diminution in the fair value of advances extended by their small or rural branches. Such banks were given the option of notionally computing the amount of diminution in the fair value and providing therefor at 5 per cent of the total exposure in respect of all restructured accounts where the total dues are less than Rs 1 crore till the financial year ending March 2011. “On a review, it has been decided... (it) will remain applicable...till the financial year ending March 31, 2013,” the Central bank said.

Are profits of PSU banks becoming hostages to Chairmen?

Earlier this week, a Deputy Governer of the Reserve Bank of India no less raised the issue that profits and losses of banks are becoming hostage to retiring or incoming chairmen, or something to that efect. This observation that profits of PSU banks tend to dip when the chaimen change has now become a bit of a derisive fact for stock market investors.

Among the banking fraternity, there are loud whispers that chairmen refuse to recognise NPAs towards the end of their career to avoid looking bad. As also, a tendency among incumbents to be more than cautious early in their tenure so that the profits start improving later in their career. In an interview with CNBC-TV18's Latha Venkatesh, Former Finance Secretary, S Narayan, Former Oriental Bank Chairman & MD, BD Naranag and UR Bhat, Head, Dalton Capital, talk about the effect a new chairman has on the profits of a PSU bank.

Below is the transcript of the interview.

Q: Is this just an optical illusion or do you in your experience actually notice that incumbent Chairmen want to start with a slightly poorer performance so that they look good in their tenure. What is your comment on the kind of data that was presented to you?

Naranag: There are two common things that make a serious impact on the bottom-line of the bank; that is pension provisions and NPA provisions, they are common denominators.

Second is how we handle it. It is true that the incumbent would like to see that slate is cleared and he doesn’t have to bear the brunt. But without realizing that banks are an institution on home, the whole country looks at their results and any major volatility will give a very, very wrong impression of the situation which otherwise doesn’t warrant. For a simple reason that when we talk of an economy for a layman, 60% of what it means is banking. So projecting so much of volatility into the bank results would mean you are just sending wrong signals to the entire investment community.

Q: How do savvy investors, big investors, institutional investors look at his whole trend. Are you, over the past several years, almost beginning to believe that every time a Chairman is retiring. let me get out of that stock?

Bhat: I think that is something the market has factored in in terms of valuations. If you see there is a huge valuation divergence, for the same amount of profit within public sector bank and a new generation private sector bank. Typically the price to book could be almost double, or for e.g. PE ratio would also be something like double, so which basically shows that the confidence level in the balance sheet of a public sector banks from the investor community is somewhat less. I think it really happens because of two reasons; one is everyone wants to look good so therefore do the big bath, take the big bath, clean the slate - that is what happens. Why is it that is possible? Because when we started the reform process in the early 90s, we came to this conclusion that on the 91st day if an asset is not serviced becomes non-performing. So the element of discretion that was available earlier has come down dramatically, that is what it looks like. But what really happens is there is a performing asset, there is a non-performing asset. There is class in between which is a barely performing asset or a technically performing asset, which is a sort of an animal where you scramble on the 90th day and see that it becomes performing by ensuring that the critical amount is remitted, and this is what incumbent Chairman continue to do and the new Chairman doesn’t have to do that because he knows that this is eminent NPA anyway so why should it become an NPA when I am fully in charge so let me do it in the first stage itself.

Q: Now what has happened is that the finance ministry and the Reserve Bank of India are insisting on system recognition of NPAs. Is that at least plugging some loopholes, you just have to go with the computer and when it shows a non-payment or even there can discretion be used and you are able to make some borderline cases as Mr. Bhat said?

Narang: At least if the banks accept and implement that system-driven NPA recognition system, 90% of it will be accurate. So the element of inaccuracy will be only 5-10%. Even that makes a great job.

Moneycontrol

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RBI expected to maintain tough stand on inflation in mid-term monetary policy review

The mid-term monetary policy review is scheduled for next week, and talk of another interest rate hike is in the air. The economy is at a critical juncture with respect to a balance between inflation, industrial growth and the monetary policy tightening. The Reserve Bank of India (RBI) has already tightened the monetary policy several times since the last one and half years.  The interest rates have gone up to a level where they are threatening to impact industrial growth. Although the inflation rate has shown some signs of coming down, it is still ruling quite high and is yet to come under complete control. Due to several domestic as well as global factors, more action from the policymakers is needed to bring the inflation rate down further. These are some major factors that would be under consideration during the forthcoming monetary policy review: 

The headline inflation based on the Wholesale Price Index (WPI) data and also the inflation rate based on food articles has come down in the recent weeks. However, it is still above eight percent which is much higher than the comfortable limits of 5-5 .5 percent.  There are several domestic as well as global factors fuelling the inflation rate. On the domestic front, the demand is quite robust and as a result the price rise has spread to broader items. This is fuelling the headline inflation. On the other hand, the soft monetary policies and other ongoing issues in the global markets is constantly pushing prices of international commodities up. This is another significant factor contributing to the high inflation rate here. A high inflation rate will prompt the RBI to maintain a tough stance.  The monsoon is a significant factor that influences the economy directly and indirectly as a large portion of the population depends on agriculture-based income. The Met Department has predicted a normal monsoon this year and its progress has been good. A good monsoon has the potential to stimulate economic activity and also check food prices due to good crop yields.  Recent data shows the GDP growth has started coming down a bit due to the tight monetary policy regime followed by the RBI in the recent past. Analysts feel a slower economic growth rate is on the cards in the short term, provided the RBI can control the inflation rate through a tight monetary policy.

ET