'Financial inclusion is more than access to microfinance'



Usha Thorat, Director, Centre for Advanced Financial Research and Learning



Hyderabad : Access to microfinance by itself cannot be taken as financial inclusion, as the latter idea requires having an individual bank account which brings the account holder into the national payment system and insures her deposit, according to Usha Thorat, director, Centre for Advanced Financial Research and Learning. Addressing the valedictory of a three-day summit on microfinance here on Thursday, Thorat, who was a deputy governor of the Reserve Bank of India, said, “Financial inclusion has become a global buzz word, figuring on the agenda of G-20 meetings. We need to convince banks about the profitability of serving the poor.” Referring to a comment that the focus has been more on providing credit services rather than on savings, she said the original RBI rules required a six-month savings record by the groups before they could take loans under the SHG-bank linkage programme. She said her organisation would take up research on how to utilise the social capital built by SHGs for financial inclusion, called for more attention to the issue of urban poverty too. B Rajsekhar, CEO, Society for Elimination of Rural Poverty (SERP), said the notion that the SHG movement in the state was successful because of funds from the World Bank was incorrect. According to him, the World Bank assistance during 2000-2011 was Rs 2,200 crore, while the cumulative bank lending to SHGs was Rs 34,316 crore. The Centre’s contribution under the Swarna Jayanti Swarojgar Yojna was Rs 500 crore, the SHGs’ own corpus was Rs 5,070 crore, and the state government contributed Rs 1,099 crore as incentive for prompt repayment. On the suggestion that SHGs were evolving as a parallel structure to the Panchayat system, Rajsekhar said that with the participation of SHG women, the dysfunctional institution of Gram Sabha had actually been revitalised. Earlier, Sarpanches and ward members used to run the system on their own without any participation of Gram Sabhas in the decision making. At the end of the summit on Microfinance and Inclusive Development, the organisers issued a declaration with 12 points, including one calling for integration of microfinance interventions into sub-sectors like agriculture, dairy, fisheries, etc. Another said self-regulation of microfinance programmes would promote growth with equality. MP Vasimalai, president, International Network of Alternative Financial Institutions (Asia), said there were many different models of SHGs being followed in different areas, and these experiments leading to a diversity of models needs to be encouraged. According to him, microfinance is not an alternative to mainstream systems and it was too early to talk about the derivatives of microfinance such as micro-insurance.

BS

Return of the prodigal; Vijayan may be reinstated as CMD, LIC

Reportedly given clean chit by the CBI, the former chairman of Life Insurance Corporation of India, T S Vijayan may be reinstated to his original position, authoritative sources have said. Vijayan was demoted to the position of managing director in May this following a cash-for loans scam which engulfed the corporation's investment department in November last year. But now his name has been cleared by the investigating agencies. An indication that decks are being cleared for Vijayan to take over the reins as CMD looked clear after authorities decided to postpone the interview for the new CMD abruptly on Wednesday.  Those who were summoned for interview included D K Malhotra Acting CMD, Tomas Mathew MD, and also T T Mathew K Sahoo and K B Saha, all ED.  Since Vijayan has been given a clean chit, he may have to wait for the CVC clearance to get back in the grooves.  It may be mentioned that Vijayan demotion had come within weeks of the finance ministry setting up a committee led by former Deputy Governor of the Reserve Bank of India (RBI) Vepa Kamesam to probe the investments made by the LIC in the last three years... The LIC's investment corpus is worth 9 lakh crore. Also to be mentioned that Vijayan had earlier earned laurels for his innovative ideas and presently has two years of service before reaching the age of superannuation.

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Make public RBI advisory note issued to ICICI

The Central Information Commission (CIC) has directed the Reserve Bank of India to disclose an advisory note it issued to ICICI Bank for alleged violation of any RBI guidelines or for contravention of the provisions of money laundering and foreign exchange acts. The case relates to an RTI application filed by SS Vohra, who had sought to know details of such advisory notes issued by the apex bank to Patna and Hong Kong branches of ICICI Bank.  ICICI Bank has objected the disclosure of the information citing three exemption clauses of the RTI Act section 8(1) (a), (d) and (e).  These section exempt disclosure of information which can -- prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the state, relation with foreign state or lead to incitement of an offence, is related to trade secrets and commercial confidence and is held in fiduciary capacity. During the hearing, Vohra said the Finance Minister had made a written statement in Parliament that Patna branch of ICICI Bank Limited had opened some fictitious accounts for alleged fraudsters for which an advisory note was issued to it in December 2007.  Chief Information Commissioner Satyananda Mishra said there was "no merit in the contention that the advisory note issued by the RBI to the Bank in the present case will, by any stretch of imagination, fall under exemption clauses" cited by the bank.

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RBI sees more Asia monetary tightening

CANBERRA: Monetary tightening is set to continue in emerging economies, with inflationary concerns becoming more important, RBI governor Duvvuri Subbarao said on Thursday, after giving a speech at an Australian university in Canberra.  "I would see continuing of monetary tightening across emerging economies," said Subbarao, when asked about monetary policy settings in Asia.  He noted that the International Monetary Fund has said growth in emerging economies was in line with earlier forecasts, but that inflationary concerns have become more important.  "We've (India) been experiencing inflationary pressures for the past two years," he said.  The Reserve Bank of India (BRI) last week lifted official interest rates for the 10th time in just over a year to help curb stubbornly high inflation as growth slows in Asia's third-largest economy.  The repo rate was raised by 25 basis points to 7.5 percent. Wholesale inflation in India stands at 9 percent, roughly double the central bank's comfort level.  Economists expect the RBI to lift rates by a further 50 basis points in 2011, with the tightening cycle seen to be nearing its peak.  Rising rates and slowing growth add to the headaches for Prime Minister Manmohan Singh, whose embattled government is buffeted by criticism over inflation, a spate of corruption scandals and its inability to push through reforms.  India's annual economic growth in January-March slipped to a lower-than-expected 7.8 percent, the slowest pace in five quarters, as the rise in credit costs and inflation weighed on consumption and investment.

ET

Global Financial Crisis and India

Speaking on "India and the global financial crisis" in the 2011 K R Narayanan Oration, Dr Subbarao quoted K R Narayanan commenting that globalisation was not the end of history. He then pointed out that the latest Global Financial Crisis (GFC) was truly global. He humorously pointed out his term as Reserve Bank Governor started just before the GFC, so some blamed him for it. India had a well regulated financial sector but was still hit by the GFC.....................

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Pyramid schemes: Daylight robbery

Clearly, with no blanket ban or registration and regulatory supervision, pyramid companies can operate freely until they collapse. The police, in most states, especially Mumbai, initiate some desultory action only when investors throng to file complaints after the cheques stop coming in. Even the Reserve Bank of India (RBI), maintains a Sphinx-like silence (as in the case of Speak Asia) or, at best............

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Food inflation stays sticky, gives RBI much to chew on

The latest surge in food inflation numbers makes RBI’s recent claim on prices stand on its head. Headline inflation would be mostly driven by commodity prices in next few months and........

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Siddharth Sahakari Bank's licence cancelled

The Reserve Bank of India (RBI) has cancelled the licence of Pune-based Siddharth Sahakari Bank Ltd as it had ceased to be solvent and all efforts to revive it had failed. The apex bank had also requested the registrar of co-operative societies, Maharashtra to issue an order for winding up the bank and appoint a liquidator for the bank. In a statement issued on Thursday, the apex bank noted, "In view of the fact that Siddharth Sahakari Bank Ltd, Pune, Maharashtra had ceased to be solvent, all efforts to revive it in close consultation with the government of Maharashtra had failed and the depositors were being inconvenienced by continued uncertainty, the RBI delivered the order cancelling its licence to the bank before commencement of business on June 14, 2011."  On liquidation of the bank, every depositor would be entitled to a repayment of his/her deposits up to a monetary ceiling of Rs one lakh from the Deposit Insurance and Credit Guarantee Corporation (DICGC) under usual terms and conditions. A scrutiny conducted with reference to the bank’s financial position as on September 30, 2010 had revealed further deterioration in its financial parameters. The CRAR was negative (-)90.3 per cent, net worth was assessed at (-) Rs 1,463.41 lakh and net loss was assessed at Rs 1,723.70 lakh as on that date. Additionally, the bank had apprised that it was facing severe liquidity problems due to heavy withdrawals from deposit accounts during September 2010. The sponsorship of sub-membership of the bank to Pune Bankers’ Clearing House was withdrawn by Cosmos Co-operative Bank Ltd, Pune with effect from October 30, 2010 as the bank had failed to meet its clearing liability. "Serious deficiencies as mentioned above revealed that the affairs of the bank were being conducted in a manner detrimental to the interests of the depositors," the statement further noted. The bank was issued a show cause notice on April 06, 2011 as to why the licence granted to the bank on November 29, 1996 to conduct banking business should not be cancelled. The bank had submitted its reply but was not found satisfactory. The bank was also advised to explore the possibility of merger with a sound urban cooperative bank. But in absence of any concrete proposal for merger, the RBI took the extreme measure of cancelling licence of the bank in the interest of bank's depositors.With the cancellation of licence and commencement of liquidation proceedings, the process of paying the depositors of the Siddharth Sahakari Bank Ltd, Pune, Maharashtra will be set in motion subject to the terms and conditions of the Deposit Insurance Scheme, the apex bank said. Siddharth Sahakari Bank was granted a licence by RBI on November 29, 1996 to commence banking business.

BS

RBI Deputy Governor lists areas for reforms

Dr Subir Gokarn, Deputy Governor, RBI, speaking on ‘Economic Reforms for Sustainable Growth’ at the 175th AGM of the Madras Chamber of Commerce and Industry, in Chennai on Thursday

“Policies and strategies for sustainable growth have to be welfare-oriented”

Reserve Bank of India, Deputy Governor, Subir Gokarn, on Thursday outlined food, human capital, infrastructure and financial sector development as critical area for reforms to achieve sustainable growth. Addressing the 175th Annual General Meeting of the Madras Chamber of Commerce and Industry (MCCI), he said: “This is not intended to be an exhaustive list…I have chosen my list based on my understanding and knowledge of them and not because I believe they are decisively more important than others that have been excluded. Nor am I claiming to offer panacea by way of reform ideas.” Dr. Gokarn said that the policies and strategies for sustainable growth have to be welfare-oriented; they must give due consideration to risks and have pragmatic “whatever works” approach.  On food inflation, he said: “The enduring solution to the persistent demand-supply imbalances in food is to increase supply rapidly. Production of relevant items has to be increased, mostly by increasing productivity. Cultivation risk has to be mitigated for farmers to find these products more attractive. Transportation, storage and distribution efficiency has to be increased to keep losses and distribution margins down.” Noting that the Centre had taken the first step by setting up the National Mission on Protein Supplements, he said that the need of the hour was to come out quickly with a concrete action plan.  According to him, infrastructure problem has two dimensions – sectoral and geographic. Significant progress had been made in the areas of sectoral imbalances. Over a period of time, policy clarity has been achieved and appropriate regulatory structures have been or are being put into place, he said. Mentioning that between 2020 and 2030, India would takeover the mantle of ‘factory of world' from China, he said that basic concern was the quality of workforce and called for providing vocational and job-oriented training to equip workers to function effectively. About the financial sector, he said that penetration of insurance, pension and other long term savings instruments were extremely low as households kept the money at home or in bank accounts. Last-mile delivery mechanism had to be developed to take these products to a vast pool of new customers. Later talking to reporters, he said that the forecast of below normal monsoon rains would not pose too much threat to food inflation so long as the central part of the country received close to normal rain.  “The central part is where there is lot of concentration of pulses and cereals. If rainfall in that part of the country remains close to normal, I do not think there will be any pressure. RBI is keeping a close watch on cereals, oilseeds and pulses. However, it is too early to speculate on the impact of the monsoon on food inflation.”  MCCI president, T.T. Srinivasaraghavan said that they were setting up a Rs.6.50-crore skill development centre in Thiruvallur district.  Soft launch would take place by end August and in the first-two years, it would train about 3,500 workers. Besides, MCCI will release a status report on ‘Entrepreneurial ecosystems in Tamil Nadu,' and the bottleneck that hampers the growth of the Chennai Port Trust by August 29.

Business Line

Slowdown may gain some momentum

We don’t expect the slowdown to be dramatic. We expect what is now being referred to as soft landing—that is growth will move from the 8.5% of last year to perhaps 8% and along with that inflation will come down from 9% to perhaps 6% by the end of the (fiscal) year assuming.....

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Government as a microlender

For the government to be present in an industry as a participant and be the entity setting rules is the ultimate conflict of interest.....

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RBI bats for controls on capital flows

Batting for controls on capital flows, the Reserve Bank of India (RBI) on Thursday said capital inflows much above a country's absorptive capacity can pose problems other than currency appreciation......

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RBI warns banks on real estate valuation frauds

Alarmed by inflated valuations of real estate properties for the purpose of loans, the Reserve Bank of India (RBI) has asked all banks to submit an action-taken report on the issue. The matter was raised last week by RBI Governor D Subbarao during a meeting of the Board for Financial Supervision (BFS). After this, top RBI officials met representatives of the banking industry earlier this week. The regulator reminded bankers about the prudential norms on valuation of assets and asked them to follow these in both letter and spirit. Sources close to the development said the sharp spurt in such cases pointed to a nexus between independent valuers appointed by banks and a section of real estate developers. “RBI has come across a high incidence of such frauds in recent times while reviewing the annual financial inspection reports of banks. As a result, the matter was taken up by BFS and the governor wanted the issue to be addressed on a priority basis,” said a banking industry official. BFS was formed in 1994 in the wake of the Harshad Mehta scam. Its objective is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. BFS, which meets once a month and discusses annual financial inspection reports and various issues related to the sector. The sources said banks were “reminded” that valuation agencies indulging in such practices could be blacklisted. They were advised to share the names of the blacklisted agencies with each other. Such frauds affect banks when they have to liquidate a property due to a loan default. During liquidation, it is often found that the value of the property is far less than what was mentioned when the loan was sanctioned. RBI has noticed frequent occurrence of such incidents. Confirming the development, Indian Banks’ Association (IBA) CEO K Ramakrishnan said RBI discussed the issue with them. “IBA has shared RBI’s concerns with the member-banks. We have assured RBI that banks will exercise caution while evaluating assets.” According to a note by Macquarie India, non-performing loans in the commercial real estate segment have increased from 1.6 per cent to 2.3 per cent in the past one year. The absolute level of such loans rose 70 per cent last year, particularly for state-owned banks. In October, RBI raised the risk weightage on residential housing loans of Rs 75 lakh and above, to 125 per cent and capped the loan to value ratio at 80 per cent.

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When a bank becomes too cooperative

On May 7, when the Reserve Bank of India (RBI) recommended the 44-member board be superseded by state government administrators, NCP President and agriculture minister Sharad Pawar was quick to express his displeasure: “The bank has disbursed loans on the state government’s guarantee. There has not been a recovery of such loans and that is why it’s being shown as NPAs.”..........

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