Portfolios of DGs

Tighter but uniform KYC norms in offing

NEW DELHI: With the government facing heat on the issue of black money, the Finance Ministry has begun an exercise to make identification norms uniform and more stringent for capital market players like FIIs, mutual funds and brokerage customers.  In addition, market regulator SEBI is working on further tightening of its surveillance mechanism, an official in the Finance Ministry said.  The issue of making the 'know your customer' (KYC) norms more strict was taken up at the last meeting of a sub-committee of the Financial Stability Development Council (FSDC), headed by Reserve Bank Governor D Subbarao.  "We are working on a common KYC. It will be more strong and stringent," the official said.  At present, different market players follow different KYC norms.  As for the SEBI surveillance rules, he said, "We have enough safeguards to check inflow of illicit and unaccounted money into the capital market. The only possibility of such flows into the market is through foreign institutional investors and high net worth individuals. We will make the surveillance stricter."  The moves are part of the government's fight against the black money menace amid intense pressure from civil society, Opposition parties and the Supreme Court.  The RBI and SEBI have been tightening KYC norms from time-to-time. Furthermore, banks also required to update the information of their clients. Between January, 2010, and January, 2011, SEBI banned over 30 entities for engaging in circular trading for periods ranging from two months to two years.

ET

Low-cost banking on mobile

Two engineers from the country’s premier engineering institution decide to venture out on their own and create social impact. In the process, they create Eko, a service that fosters financial inclusion. The banking service leverages community relationships for increasing the reach of basic financial services. It provides a safe gateway for funds deposits and withdrawals. The service is meant especially for people from low-income backgrounds............

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Not talking shop

Reserve Bank of India (RBI) Deputy Governor K.C.Chakrabarty loves to talk as much as people love to listen to him. At a recent banking seminar he was the last speaker and he made the point that he was at a disadvantage since he ran the danger of being repetitive. He still spoke at length. But when it came to answering questions from reporters on inflation he was uncharacteristically brief. "I can't talk on inflation everyday. It's not a cricket match" he said. 

Father, Son and Holy RBI

In keeping with his established penchant for innovative ideas, RBI Deputy Governor K.C.Chakrabarty has argued for a ‘new trinity’ that can transform India into a $50-trillion economy over the years, from a little over $1 trillion at present. Inclusion, technology and education would be the new trinity, he told a gathering of bankers in the capital. He prescribes boosting the education sector to cut the current account deficit, as the billions of dollars that Indian students spend in the US will then be spent in India. Drivers for high-end Mercedes cars are trained in India, not in the Mercedes plants abroad, he says, stressing that India can build education capacity to provide requisite technical skills to its workforce at home.

FE

Increase loan monitoring mechanisms : Chakrabarty asks banks

Padgha (Maharashtra): Deputy Governor of Reserve Bank of India (RBI) K C Chakrabarty today asked banks to increase their loan monitoring mechanism in view of the rising interest rates, for an early detection of building up of stress. "We are telling the banks to improve their risk management capabilities to manage the possible deterioration in asset quality, because of high interest rates," Chakrabarty told reporters here on the sidelines of a Bank of India event. Chakrabarty said that the credit growth has been satisfactory till now and the RBI feels that as of now, "things have not gone out of hand" on the asset quality front. The Deputy Governor suggested that banks should not overexpose to a particular sector. "You (banks) don't do anything too much, (because) then, we will be in problem," he said. With an eye to tame the headline inflation number, the RBI has raised its key rates 10 times since March 2010, the last being a 25 basis points increase on June 16. In the last announcement, it has also hinted at going in for more hikes if the inflation--which stood at an uncomfortable 9.03 per cent in May--continues to be high. As the RBI's tightening gets passed on to the borrowers, who are forced to pay more to service their loans, there is a fear that bank's asset quality may be affected. .

IBN Live

ICICI, Kotak, Yes Bank swell up realty exposure

As India’s central bank continues its vigil on fund flow into the property market, banks have sharply increased their exposure to real estate firms. ICICI Bank has a whopping Rs 25,094 crore exposure to real estate firms in 2010-11, an increase of 85 per cent over the earlier financial year ended March 2010. This is followed by smaller players such as Yes Bank, Axis Bank, Kotak Mahindra Bank and Bank of Baroda. The cash-starved realty companies are agreeing to cough up higher rates of interest to repay old debts or raise fresh debt as they struggle to finish off incomplete projects. The option of equity financing is nearly dead in property market. Commercial real estate exposure in banking parlance means credit given to property developers for developing a project. Growing its exposure at a much slower pace is State Bank of India, with a 4.2 per cent rise to Rs 14,011 crore for the financial year ended March 2011. This excludes home loans, finance to housing finance companies, National Housing Bank and other mortgage-backed securities. Crippled by muted demand and an overhang of supply, real estate developers have defaulted to banks and contributed to higher non-performing assets, according to RBI. Of the total non-food bank credit of Rs 36,77,429 crore, about Rs 1,14,550 crore is to the real estate companies. This figure doesn’t include home loans and loans to housing finance companies and mortgage-backed securities and Rs 1,73,944 crore to NBFCs that is under RBI watch for possible diversion to the real estate indirectly from the banking sector. Explaining the gravity of the situation, a senior Axis Bank official told Financial Chronicle on the condition of anonymity, “The exposure to real estate is the offshoot of the rise in demand for finance from the sector as there are a lot of commercial places being developed for BPOs and for the IT sector.” “Though our NPAs are negligible, bad loans are fast forming as there are unsold capacities in Gurgaon, Hyderabad and Chennai,” said the official. An e-mail questionnaire sent to ICICI Bank went unanswered. Developers anticipated a bigger demand and also higher rental, both of which have not happened. JP Morgan said in a recent research report, “Developer loans increased by 85 per cent year-on-year, but management maintained that most developer exposure is to large developers, with low loan to value (LTV) and limited exposure to smaller developers.” According to RBI, the new private sector and foreign banks increased their commercial real estate exposure by 59 and 69 per cent respectively, a rate much higher than the single digit growth rate witnessed by the other two bank groups. The rate of growth of NPAs in this segment at 19.8 per cent was also higher than the overall NPA growth rate of 14.8 per cent. In particular, the NPAs in the commercial real estate segment grew at 70.3 per cent as at end March 2011, most of the impairment taking place in public sector banks. Rajat Monga, treasury group president (financial markets), CFO, Yes Bank, said, “We fund only special purpose vehicles (SPVs) of companies. The land is generally mortgaged to the SPV and we have customer advances coming into the SPV; the revenues flowing to the SPV are escrowed making it quite stable financing. We have hardly any NPAs from the sector.” While Unitech and DLF have the largest exposure to banks, a large number of unlisted developers have also managed to take out finance from the banks, particularly the public sector banks. A few other banks such as HDFC Bank and Punjab National Bank have consciously brought down their real estate exposure. A senior PNB official told FC, “We achieved this by asking the developers to prepay some of their loans for which we gave some interest rate concessions.” Among foreign banks, Standard Chartered Bank has been active in the real estate market, providing finance to project developers, say bankers.

http://www.mydigitalfc.com/news/icici-kotak-yes-bank-swell-realty-exposure-074

'India not to lift ban on high denomination IC for Nepal'

The Governor of Reserve Bank of India (RBI), Dr D Subbarao, said that India would not lift existing ban on the circulation of Rs 1000 and Rs 500 denomination Indian Currency (IC) notes in Nepal, stating that the threat of counterfeit notes is still high. "We can´t allow circulation of Rs 1000 and Rs 500 denomination IC notes in Nepal given the high chances of circulation of counterfeit currency to India from Nepal. One of the issues of discussion at our recent meeting with governor of Nepal Rastra Bank (NRB) was the problem of counterfeit currency," told Subbarao to visiting Nepali economic journalists.  He also stressed on the need to take joint measures to end the circulation of fake IC notes through the open border between the two countries.  Amid rising incidents of cross-border flow of fake IC notes, India imposed a ban on the circulation of Rs 1000 and Rs 500 denomination notes in Nepal about ten years ago. Back then, the decision was supposed to have been taken on political considerations. According to NRB sources, the RBI may be ready to change its decision but only if it is taken up and endorsed at the political level.  Stating that shooting fuel prices is the common factor behind rising inflation in both the countries, he said giving fuel subsidy would not help ful for sound economy for long run though it commonly taken as a easy measure to curb inflation in short run. "Fuel subsidy is bad in the long run for a sound economy," he added.  He said India has given high priority to bring down inflation stating that inflation dropped to 9.1 percent in 2011, down from 11 percent in 2011. "It has become a challenge to mange economic growth and inflation in India. So, we are laying focus on strengthening supply side to tame the rising inflation," he added. Meanwhile, joint-secretary in the Indian Ministry of External Affairs (MoEA) Satish C Mehta asked Nepali businessmen to focus on the vast market of bordering Indian states — Uttar Pradesh (UP) and Bihar — for the market of their products and bring down trade deficit. "Nepal has to tap the high potentials of UP and Bihar for the marketing of Nepali goods as these states are home to over 250 million people.  These states are far nearer to Nepal compared to other states of India," said Mehta at the concluding function of two-week long training program organized for 15 Nepali journalists at Indian Institute of Public Administration (IIPA) in New Delhi with the support of Indian MoEA. The program included a visit to capital and financial markets in New Delhi and Mumbai and interactions with senior officials.  He said export from Nepal to India has grown 11 times between 1996 and 2009. He advised Nepal to focus on medicinal herbs, high-value agriculture products, and generation of electricity by taping immense hydropower potential.  "Ongoing tarai roads, Integrated Customs Points, and railway links at major cities of Nepal with Indian bordering cities will not only facilitate the bilateral trade but also bring down the cost of doing business in Nepal," Mehta said.

http://www.myrepublica.com/portal/index.php?action=news_details&news_id=32562

India’s inflation dilemma

For RBI to engineer a soft landing it will need to update its understanding of the growth inflation trade-off. Given the long lags in monetary transmission, using.....

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Stable core inflation to end rate hikes

Gokarn pegs growth at 8%, says inflation will slow to 6% by end of this fiscal assuming no new shocks appear

Mumbai: The key to the Reserve Bank of India (RBI) ending the rate hike cycle is for non-food manufacturing, or core, inflation to stabilize around 4-4.5%, says deputy governor Subir Gokaran. Core inflation for May was at 7.3%. RBI will press the pause button only when it sees “particularly the non-food manufacturing inflation starting to stabilize, which is what we saw in the second half of 2010,” Gokarn said in an interview at Bloomberg-UTV’s Banker’s Trust programme, to be telecast this week. “We need to keep an eye on that.” According to Gokarn, the number and overall magnitude of interest rate increases have a bearing on both economic activity and inflation expectations, and RBI expects that over time its set of hikes will lower inflation. This will happen on account of two factors—one, economic activities will slow; and two, inflation expectations will moderate. This will then allow people to make their own planning and pricing decisions, based on lower inflation outlook. “It’s a process that takes time and we have to give it that time,” Gokarn said. Unfolding RBI’s plan for a “soft landing”, Gokarn said the central bank is projecting that inflation will remain high till at least the middle of the fiscal year, but expects the cumulative impact of the rate actions to show in both slower growth and lower inflation numbers over the second half of 2011-12. “Slower growth is something we accept as a price of managing inflation, but we don’t expect that slowdown to be dramatic... We expect that growth will move from 8.5% of last year to 8% this year but, along with that, inflation will come down from 9% to 6% by the end of the (fiscal) year assuming that no new shocks are to appear.” Stating that a “neutral zone” of policy rate is a nice idea “but it’s difficult to quantify”, the deputy governor said “conceptually”, the interest rate is in a zone where it is possible for RBI to reverse the policy “fairly quickly” if the circumstances demand so. In 2008, RBI’s policy rate was ruling at 9%, but within a few months it was brought down sharply when the world experienced an unprecedented credit crunch in the aftermath of the collapse of US investment bank Lehman Brothers. “If we are hit by a severe shock we do have the capacity to reverse,” Gokarn said. After hiking rates six times between March and November 2010, RBI chose to hold its policy rate at 6.25% in its mid-quarter review of monetary policy in December, which many believe was not the right measure to adopt at that time. Gokarn defended the lack of action, saying the pause in hikes in December followed a moderation in non-food manufacturing inflation. Manufacturing inflation, also known as core inflation, is essentially driven by demand and makes up the non-food basket of the wholesale price index. It spiked up to 8.5% in March after moderating at around 5.5% between June and October. The pause was also in the backdrop of an unprecedented tightness in liquidity with banks borrowing at least Rs. 1 trillion daily on an average from RBI to meet short-term cash requirements. RBI has hiked its policy rate 10 times since March 2010. The 50 basis points (bps) hike in May was the biggest increase in the current cycle. One basis point is one-hundredth of a percentage point. Gokarn said one of the factors that forced RBI to go back to the 25 bps hike in last week’s mid-quarter review was a possibility of higher rates impacting business performance. “Our readings of financial performance do not suggest that (the impact of higher rates) is broad-based yet, (but) it may become and that’s a possibility that we have accommodated because one of the factors against a 50 (bps hike) this time is that the slowdown we anticipated may gain some momentum... There is a consideration of the factor,” he said in reply to a question on whether rate hikes are hurting companies. Average inflation in the previous fiscal year was 9.57%, the highest since 1995, and much higher than RBI’s projection. RBI’s original projection for inflation was 5.5%; after two revisions, this was raised to 8%. Analysts are skeptical about RBI’s 9% inflation projection till September as it was 9.06% in May and a likely oil price hike and the food security Bill that promises subsidized food to 68% of India’s population will put pressure on inflation. Gokarn said 9% inflation till September is not a target but a projection; “it’s based on certain assumptions and if assumptions go wrong, projections will go wrong,” he said. “We have pointed to some factors that may cause inflation to increase but there are also factors that may cause inflation to decrease—like commodity prices may soften, economic activity may start to moderate, which will have an impact on pricing power.” Admitting that the central bank was in danger of losing its credibility after missing its inflation projections last year, Gokarn said the 50 bps rate hike in May was prompted by RBI’s desire to demonstrate that it has not “diluted” its “commitment to inflation control”. “We felt that we had to reclaim the position that we had not given up on inflation, that it was very much a priority, and if people, markets, investors intermediaries were not convinced, we needed to take stronger action.”

Freeing savings rate

During the interview, Gokarn dropped a hint that RBI may not push hard for freeing the savings bank rate. In May, RBI released a discussion paper on the pros and cons of deregulating the savings bank rate and is now gathering feedback on the paper. “We toyed with the idea of putting up a working group but we realized that the views on either side were so firm that the working group would not end up in a consensus. So we said let’s put out a discussion paper with the pros and cons and get feedback, which we are getting now.” His personal view is that “there is merit in it (the savings bank rate) being deregulated because it is consistent with the overall financial reform strategy”, but RBI has to “take into account the fact that a lot of people see this as a safe and reliable source of monthly income and that’s a viewpoint that has come out strongly from a variety of stakeholders”. “We can’t just say (that) we are not going to address your concerns. So, I would presume that the outcome would be either status quo, which is always a possibility, or some sort of a middle ground where these stakeholders’ interests are given some considerations.”

Mint

Are we close to end of rate tightening?

If corporate earnings in the July quarter continue to be robust, pricing power of companies remains intact and inflation continues to rule high, one can expect the eleventh rate hike in July.....

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RBI sends questionnaire to banks

Questions have been raised on the transparency of banks in dealing with wealth management clients and demands made that the RBI act against such practices by introducing checks and balances.

Recently the wealth management and private banking business of banks have come in for a lot of flak for cases of mis-selling. The case where a relationship manger with Citibank India, Shivraj Puri, allegedly duped investors of at least Rs350 crore added fuel to the fire.  Questions have been raised on the transparency of banks in dealing with wealth management clients and demands made that the Reserve Bank of India (RBI) act against such practices by introducing checks and balances.  RBI seems to have taken note and, to start with, has recently sent a letter to scheduled commercial banks asking them to clarify on certain aspects of their private banking and wealth management business. The letter has 29 questions. Even Securities and Exchange Board of India (Sebi) is involved in the exercise. “We are conducting a study jointly with Sebi and depending upon the responses, we will decide the future course,” says Alpana Killawala, chief general manager, RBI. Any formal guidelines on the subject will benefit you, the customer, in terms of transparent and services. With banks growing as a distribution channel for many products and large customer base, their client list is also expected to be the longest among all distributors. S. Raman, chairman and managing director, Canara Bank, said, “We have received the questionnaire from the regulator but as such most government-owned banks are not present in the space of wealth management and private banking.” The industry, however, is not too happy. “If RBI formalizes a broader framework, it will suit the interest of the mutual fund industry. But if each and every aspect of the business is regulated, it will adversely impact all stakeholders,” says Rajan Krishnan, chief executive officer, Baroda Pioneer Asset Management Co. Ltd.

Mint

You can do four kinds of financial transactions from your mobile phone

To avail the Mobile wallet facility, yours and the beneficiary’s bank accounts should be linked to IMPS. Currently, 21 banks are linked to IMPS

Your mobile phone can manage a part of your financial life. Here are four important financial matters that you can tackle on the go using your cellphone.

Mobile wallet

This prepaid semi-closed instrument facility allows you to load money on your cellphone to make certain payments. You can load up to Rs. 50,000; the limit was raised from Rs. 5,000 by the Reserve Bank of India (RBI) last month. You can pay utility bills, such as electricity, gas and water, mobile bills, cable or DTH subscription fee and insurance premiums. You can also purchase goods and services from registered vendors. However, this facility cannot be used to transfer money to another individual. You can download the application from your bank or service provider’s website and get the wallet enabled on your mobile. According to RBI data, 34 out of 39 banks that got approval for mobile banking have started the service. Airtel Money is the first telecom provider to launch this facility.

Transfer money to another account

The National Payments Corporation of India has an inter-bank mobile payment service (IMPS), which enables savings account holders to transfer money to another account within the country through their mobile. To avail the facility, yours and the beneficiary’s bank accounts should be linked to IMPS. Currently, 21 banks are linked to IMPS.

Tracking personal expenses

You can track your household expenditures on your mobile by using one of the many existing personal finance mobile applications. Most such applications come with predefined expense categories and payment method to make using it easy. Additionally, you can enter notes, date, place and currency information for a comprehensive overview. Most applications allow you to synchronize information with a portal. Some even have charts and graphs to compare expenses. Track Every Coin and iPersonal Expenses are two such applications.

Share trading on your phone

You can even trade in stocks while on the move. A number of brokerage firms provide this facility. Some basic things that customers can do are tracking live market levels, viewing intra-day charts, creating customized lists and viewing live stock quotes. Some brokerages also enable buying and selling stocks. If you have an online trading account with the brokerage, along with buying and selling stocks, you may also be able to view your day’s position, track your portfolio performance real time, check order and trade reports, modify pending orders and check margin account balance.

Mint

The percentage game

The RBI credit policy continued with its anti-inflationary stance, raising interest rates, and indicated that controlling inflation would be its priority. For a central bank to be able to prevent price shocks from becoming persistent inflation, its policy strategy has to go beyond episodic rate hikes to a full-blown strategy of commitment, communication and consistency.  While most people expected the rate hike, considering the increase in inflation as seen in the most recent data, others, such as industry lobbies, objected to the rate hike. It is argued that when inflation is being caused by factors that the central bank has no control over, such as food prices, global commodity price shocks or a large fiscal deficit, there is no role for monetary policy. It is true that the central bank cannot control an increase in onion prices if the harvest fails, and shocks to inflation will continue to be caused by such difficulties. The only thing monetary policy can do in this situation is to control the medium- or long-run inflation rate. It can ensure that owing to a credible commitment to a low inflation rate in the medium term, the rise in inflation owing to an episodic food price shock is seen by the public as a one-time temporary increase in inflation. That way it will not feed into inflationary expectations, into wage bargains and cost of production, and hence become generalised.

IE

India Inc bracing up for tough times

More galling than the failure of RBI’s measures to tame inflation is the abysmal lack of actions by the central government against the systemic weaknesses of the economy. It has to persuade the G20 to initiate action on reining in global commodity prices as they ride a wave of gushing liquidity.......

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Banks gear up to increase lending & deposit rates

Mumbai: Close on the heels of the Reserve Bank of India (RBI) raising its policy rates by 25 basis points in its mid-term monetary policy review last week, banks are gearing up to...

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Reserve Bank addresses inflationary tendencies

The rate hike in future is dependent upon the extent to which the current global uncertainties impact domestic growth. The RBI expects that this rate hike will result in “containing inflation and anchor inflationary expectations by reining in demand-side pressures and mitigate the risks to................

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Greece In India

Both Dr Singh and Dr Rangarajan knew that a half-hearted move would make matters worse. Global financial markets and the IMF expected more. Dr Singh pretended to get in touch with the Deputy Governor in Mumbai and claimed he was unable to get him. Mercifully, those were not the days of cell phones and SMS. Good old MTNL could be depended upon not to put a call through! A night of failed communication between North Block and Mint Road enabled the “jump” after the intervening “skip”.......

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The RBI’s got its sums all wrong, we’re not on an upward curve

With reference to the editorial Not a loan at home (Our Take, June 17), if the Reserve Bank of India (RBI) believes that increasing interest rates is the solution to our economic problems, then it is grossly mistaken. If it was so easy, why didn’t Argentina and Greece adopt a similar strategy to tackle their economic crises?  In fact, our economy is booming, but only on paper.

VN Kesavan (Hindustan Times)

Tax relief on health check-up

New Delhi, June 19: The government has said that employees will no longer have to pay income tax on money drawn from welfare funds for annual medical check-ups. The Central Board of Direct Taxes has issued a notification, according to which no income tax will be levied “to meet the cost of annual medical tests or medical check-ups of the member, his spouse and dependent children” if money is drawn from the welfare fund to meet the expenses.

The Telegraph

RBI chair in city to study regional economy

CHANDIGARH: A Reserve Bank of India (RBI) chair has been approved to be set up at Centre for Research in Rural and Industrial Development (CRRID) to carry out research in monetary, financial and real sectors. "A memorandum of understanding was signed between the two institutions this week," director general of CRRID, Dr Sucha Singh Gill revealed to The Times of India here.  CRRID is the only institution in entire northwest India to have a chair of RBI offering an opportunity to researchers to develop credible regional financial tools. RBI has already approved a grant of Rs 4 crore to the research institution. The grant will be released in several tranches as the work progresses. The institution has targeted to start the search for an RBI professor early July.  CRRID was the third national institution to have been offered such a chair across the country. Two such chairs this month went to Chennai and Kerala. Such chairs are already working in IIM Ahmedabad, IIM Bangalore, JNU and Delhi University, among others. The research will be used as policy input for RBI.  Dr Gill said though what needs to be researched has to be decided in consultation with the RBI professor to be appointed, yet studying the region itself offers great insight into monetary, financial and real sector issues of the region.  For example, the issue of commission agents in Punjab is a very peculiar model of financial transactions and there is a scope for the banking sector to closely understand it for planning growth and credit planning, he said.  Once a growth engine of the Indian economy due to progress in agriculture, the region is now growing slower than other states.  This phenomenon needs a lot of research for financial and economic planners to take corrective decisions.

TOI