RBI hints at using ‘Aadhaar’ for authentication in banking




G Padmanabhan, Executive Director, RBI

 The Reserve Bank of India is considering the use of biometric data captured for Unique Identification issued under the government’s ambitious ‘Aadhaar’ scheme. According to G Padmanabhan, Executive Director at RBI, a working group looking into enhancing security of present card transactions has noted that Aadhaar biometric data would serve as a secure second factor of authentication even for magnetic stripe cards obviating the need mandating a switch over to chip and pin card regime, which has cost implications for the industry. He spoke at length on frauds and authentication issues at an event in Mumbai last Friday. He highlighted the type of frauds and ways to deal with them. “While the challenges to security are stiff and increasing by the day, being alive to threats is more important,” Padmanabhan said in his speech. RBI has introduced certain measures like one-time password (OTP) and confidential data confirmation. This measure has ensured greater security in online card transactions and instances of online frauds has considerably dropped, he added. More importantly, this has resulted in a significant growth in card transactions in this mode, reflecting the enhanced level of customer confidence.

Here is some key feedback RBI has received on the secondary authentication process from customers:

* One time password or two factor authentication is one of the methods in securing transactions. However, the essential requirement of such OTP being sent to the registered mobile of the customer leads to several issues or inconvenience due to factors like network availability, restriction to a particular phone number, non-availability of the service when customer travels abroad, timing out of online transactions due to slow speed of OTP transmission etc. It also has cost implications for the customer as he has to pay for charges at international data transmission tariffs..

* Multi-layer security by way of log-in password, transaction password and some confidential data confirmation make online transactions more secure, and in a better manner. But, there are issues like memorising of multiple passwords, slogans, pictures and answers to questions. Some transaction of urgent nature getting stuck due to these problems and even online access getting blocked some times. This, coupled with the time taken for access re-activation, password generation,which is sometimes a time taking process, causes irritation and inconvenience to the customer.

* In mobile banking, the challenge is to decide the transaction value limits up to which unencrypted data can be transmitted for payments or funds transfer. If the limits are set too tight, there can be cost and efficiency implications while making it too lax may invite the risk of information getting compromised.

* Surveillance cameras help in making ATM transactions more secure, but there are issues about privacy and more so, customer discomfort with the same.

All the above factors make it necessary for RBI to look at other credible options. Unique Identification number with its biometric database could ensure that the person with the right identity is accessing personal financial data. In April 2011, UIDAI (Unique Identification Development Authority) discussed possibilities of the number usage in the banking sector with a section of banks. They were looking to allow customers to operate ATMs armed with only their 12-digit Aadhaar number where the access will be facilitated by a biometric scan, said a report in the Mint newspaper.

Firstpost

Follow norms on issuing DDs: RBI to banks

The Reserve Bank of India (RBI) today said some banks had breched guidelines by issuing demand drafts of Rs 50,000 and above on deposit of cash and asked the lenders to stick to the rules. According to the existing guidelines, demand drafts and other such intruments such as mail transfers, telegraphic transfers and travellers cheques for Rs 50,000 and above should be issued by banks only by debit to the customer's account or against cheques and not against cash payment. "It has been brought to our notice that some banks have recently issued demand drafts of Rs 50,000 and above on deposit of cash and not against debit to the customer's account or against cheques or other instruments tendered by the customer," the RBI said in a notification. It asked the banks to comply with thr rules which were laid down back in 1991. "Any violation of these instructions will be viewed seriously," the RBI said, without disclosing the identity of the concerned banks. The apex bank termed the breach of the guidelines as a matter of serious regulatory concern and said such practices could have wide ranging ramifications.

BS

Saraswat Bank readies for conversion into commercial bank

At a time when scheduled urban banks are facing constraints in meeting strict norms for capital adequacy and limitations in raising funds, Saraswat Cooperative Bank has initiated steps to become a commercial bank. “A slew of initiatives have already changed the bank’s status quoist culture to a modern-day banking solution provider. The bank has already embarked upon an ambitious target of achieving a business level of Rs 1 lakh crore by 2021. Against this backdrop, converting it into a commercial bank is being seriously looked into. However, the issue is at a preliminary level,” Chairman Eknath Thakur told Business Standard. The city-headquartered lender, which has a total business of Rs 27,313 crore, is working out a detailed plan in this regard. This is not the first time that a cooperative bank would be converted into a scheduled commercial lender. In May 1995, Development Credit Bank (DCB) was converted into a Scheduled Commercial Bank in the wake of the country’s economic liberalisation, according to the DCB website. The Reserve Bank of India’s assessment of the bank’s financial health, operations and systems will be among the key factors in considering its proposal for conversion. Saraswat Bank is yet to submit a proposal to the banking regulator. “As an urban cooperative bank (UCB), we face two challenges in building our capital base to support credit growth. First, present legal norms allow UCBs to only issue shares at face value (say at Rs 10 per share) even though its the book value, which reflects financial strength of bank may be strong. In other other words, the bank is not able to issue shares at premium despite better standing. Another aspect is despite being a cooperative body, bank pays tax on the profits, limiting ability to recoup resources for capital,” Thakur added. “The Reserve Bank of India treats us on par with commercial banks when it comes to meeting regulatory norms. However, urban cooperative banks are not allowed to do some business which commercial banks are permitted to operate in,” he said. The UCBs also face the challenge of grooming human resources. Thakur said that over a period, ticket size of assets (loans) and liabilities (deposits) have grown, especially for industry and business accounts. Bank staff and directors should be capable to handle larger proposals. That needs grooming in project appraisal, day-to-day monitoring and documentation. As on March 31, the bank’s deposits grew to Rs 15,800.96 crore from Rs 14,266.73 crore a year ago, while its profit surged to Rs 212.27 crore from Rs 119.67 crore. Ashok Pandit, former chairman of the bank, said, “Over the years, the Saraswat Cooperative Bank has not only increased its presence across the country but outnumbered some of the public sector banks on some of the parameters. There is no need to over fear. This bank has the potential to become a commercial bank, as we have seen similar cases including that of Development Credit Bank.”

BS

Kerala temple panel meets for evaluation

The five-member expert committee constituted by the Supreme Court to scientifically evaluate the treasures found in vaults of Sree Padmanabhaswamy temple today met to evolve strategies for the preservation of articles. The panel headed by senior bureaucrat and Director General of National Museum CV Ananda Bose held a meeting to evolve a work plan to go about the job as mandated by the apex court, official sources said. The committee, however, did not begin videographing and photographing of treasures, as directed by the court. Other members of the panel are RBI nominee Vikas Sarma, archaeologist Dr MV Nair, Archaeological Survey Of India's nominee BV Raju and temple executive officer VK Harikumar. The meeting reviewed the work already done by seven-member committee which had opened four of the six inner chambers and inventoried the articles. The inventory panel, which included two former judges of the Kerala High Court, had opened four vaults, which were found to contain a glittering pile of priceless treasures like gold jewels, stone-studded crowns, rare idols, rubies, diamonds, piles of gold coins and stacks of gold and silver ware, reportedly worth over Rs 1.5 lakh crore. A Division Bench of the Supreme Court comprising Justices RV Raveendran and AK Patnaik, had on July 21 ordered the formation of the panel to supervise the unearthing and preservation of the assets.

BS

RBI Governor Calls for Better Global Coordination

VISAKHAPATNAM: The Reserve Bank Governor Duvvuri Subbarao today called for better coordination among the nations to correct the still-lingering global economic imbalances that cropped up after the 2007-08 financial crisis and which continue to haunt the developed world. "Microprudential supervision is necessary and needs to be supplemented by macroprudential oversight, so that the global imbalances can be corrected," the Governor said, delivering a lecture on `India and the global financial crisis: what have we learnt?' at the School of International Business, Gitam University, here. Talking about the lessons from the crisis, the Governor said, "Global imbalances need to be redressed for the sake of global stability... Global problems require global coordination." The RBI chief said India could quickly recover from the 2007-08 global financial crisis because of the prudential policies adopted by the government and RBI, though country witnessed a dip in GDP growth, which was "because of our deep financial and trade integration with the rest of the world." Stating that learning from history was important to prevent such crises, the Governor observed that too much borrowings and markets instability were also warnings for the economy.

The Outlook

RBI Governor D Subbarao says need to raise rates to curb inflation



Tackling crisis:

The RBI Governor, Dr D. Subbarao, delivering a talk on "India and the global financial crisis: what have we learnt?" at GITAM School of International Business at Visakhapatnam on Monday. GITAM President, Mr M.V.V.S. Murthy, and the Vice-Chancellor, Mr G. Subrahmanyam

VISAKHAPATNAM: India needs to raise interest rates to restrain inflation, said Duvvuri Subbarao, governor of the Reserve Bank of India, on Monday. Restraining inflation will ensure medium-term economic growth is sustainable, he said in a speech on India and the global financial crisis.  The 10-year benchmark bond yield rose 2 basis points to 8.45 per cent after the governor's comments.  Last week, the central bank had raised interest rates by 50 basis points in a bid to tame inflation amid signs of slowing economic growth. It was the 11th rate increase since March 2010.

ET

RBI offering bitter but unavoidable medicine

Central bankers never talk about what the worst-case scenario is,' admitted Mervyn King, governor of the Bank of England , in a rare moment of candour. It's a different matter that King was referring to the Lord's test between India and England, where the worst-case scenario was that bad weather had set in and 'we are not going to get a single ball bowled for the rest of the day' . But he could well have been speaking for the governor of the Reserve Bank of India (RBI), D Subbarao. The Bank's First Quarter Review of Monetary Policy 2011-12 released last Tuesday paints a rather gloomy picture of slowing growth and persistent and high inflation but stops short of describing what the worst-case scenario could be, a return to the stagflation of the 1970s. After all, none of the factors advanced as justification for the sharper-than-expected hike in policy rates is particularly new or convincing. Demand pressures have been strong and inflation has been way higher than the RBI's own projections for the past many months. Yet the RBI preferred to hold its horses and persevere with 'baby-steps' . As for growth, it chose to ignore signs of over-heating when, arguably, there was a case for monetary tightening and tighten just when there are signs that growth has begun to moderate, even if, as the Statement says, there is 'no evidence as yet of a sharp of broad-based slowdown.' So why did the RBI turn much more hawkish than earlier ? Why did it decide that it is not only 'necessary to persevere with its anti-inflationary stance' , but also go on to administer harsher medicine than in the past, disregarding market expectations and its own decidedly more dovish past?  The Bank claims it has been among the most aggressive across the world in tightening liquidity (a debatable claim going by the accompanying table), but conveniently ignores the fact that even more aggression was called for since inflation is among the highest in India. So what changed? There are two possible explanations . One, the inflation outlook is far worse than the Bank has cared to admit to date. A careful reading of the RBI's First Quarter Review of Monetary Policy 2011-12 released last Tuesday suggests this might be so. For perhaps the first time, the RBI has put inflation concerns foremost and in no uncertain terms, calling it the 'dominant macroeconomic concern'. Better still, unlike the previous year when it retained its unrealistically low estimate for year-end inflation only to dent its credibility when the final March 2011 number came in, it has raised its inflation projection for March 2012. The Bank now expects fiscal 2011-12 to end with inflation at 7%, up from 6% projected in May this year. Even this comes with a number of caveats: the performance of the southwest monsoon that does not look too hopeful at present, crude oil prices whose outlook is uncertain , policy decisions regarding administered prices. Hence, we could end up with inflation well above 7%.

ET

'Govt should restrict fiscal deficit at 4.6%' - C Rangarajan,Chairman, PMEAC

Though the finance ministry expects the economy to grow at 8.6 per cent this year, the Prime Minister’s Economic Advisory Council (PMEAC) has lowered the growth forecast to 8.2 per cent from nine per cent earlier. Chairman C Rangarajan told Vrishti Beniwal the revenue target might remain at the budgeted level and the focus should be on expenditure.

What factors led you to revise the growth target?

Subsequent events have led us to revise our target growth rate downwards to 8.2 per cent from 9 per cent in February. The global situation has deteriorated since then and the environment is not conducive for rapid growth. The industrial production has also showed a decline.

What are the risks to the GDP growth this year?

It is dependent upon a reasonable monsoon. We think it will be a good monsoon this year. The other is the international economic situation. If it deteriorates further, we may have a problem. Otherwise, we think the target will be met.

What are the immediate areas of concern for the government?

Bringing inflation down to a comfortable level and maintaining the fiscal deficit are the major short-term challenges. These should be addressed well so that the growth rate in industrial production and investment sentiments pick up.

Would it be possible for the government to meet its fiscal deficit target?

They should restrict the fiscal deficit at 4.6 per cent of gross domestic product. It is a difficult task, but appropriate policy decisions have to be taken.

When do you see inflation coming down?

By November, we should start seeing a decline in inflation. It also depends upon whether the trend has started or not. I mean the inflation may remain at a high level till November and then start declining.

What prescription would you offer to keep the current account deficit low?

We have projected a current account deficit of 2.7 per cent. I think that is a reasonable level of current account deficit, which can be financed by promoting foreign investment flows. Given our growth needs, a moderate trade deficit and current account deficit are inevitable.

Do you think the budgeted limit for expenditure might be breached due to a rise in subsidies?

They have certain expenditure pattern and we have to see whether that pattern can be maintained or not. There is some element of subsidy. (But) the rest of the expenditure should be maintained at the budgeted level. Also, some expenditure will come in future or the last quarter of the year. It may not necessarily be meant for the full financial year such as food security.

Should the government look at augmenting its revenues from different sources to compensate for any increase in expenditure?

I think they will meet the revenue target. Some expenditure may shoot up and to that extent, revenue augmentation will become important. We adjusted downwards excise duties in the wake of the slowdown. But a decision will be taken only when the fiscal deficit cannot be maintained at the budgeted level. In the medium term, introduction of the Goods & Services Tax and the Direct Taxes Code will help. GST can add to revenue growth if rates are properly chosen

What should be the government stand on diesel decontrol and increase in petroleum prices?

We should go for diesel decontrol as a matter of policy, but whether it should be raised or not would depend on international prices. So long as crude prices do not show a rise, further adjustment in petroleum prices may not be necessary.

Have interest rates peaked or the Reserve Bank of India (RBI) may continue with a tight monetary policy?

RBI action will depend upon behaviour of inflation. We believe until such time when inflation shows definite signs of decline, the present tightening policy should continue.

BS 

Economic Advisory Council scales down growth to 8.2 %

Dr. Rangarajan said: “To keep the economy growing at 9 per cent, it is important to increase the fixed investment rate.''

Read.........

Stimulus, RBI policies helped faster recovery: Subbarao

Reserve Bank of India (RBI) Governor D Subbarao on Monday said fiscal stimulus packages by the government and the central bank’s monetary policies helped the country recover faster from the global financial crisis. The financial crisis of 2008 was different from other past economic crises, he said while addressing the students of Gitam School of International Business here. During the past crises, only one or two countries were affected but in 2008, the whole world was affected and India was no exception, he added. “During the crisis, India’s GDP growth slowed, rupee depreciated by 30 per cent in 15 months, exports slipped 25 per cent, FIIs had taken money out of Indian markets, corporate houses faced liquidity crunch and the entire financial markets had come under pressure. These were the ill-effects of the crisis,” he said. “The current crisis is not the end. In future also, we can see such crises but we should reduce their impact by proper policies,” he told the students.

BS

The Indian economy: A trillion dollar baby twice over

What actually happens in the next five years has tremendous implications for everybody ranging from the richest to the poorest

India will almost have a $2 trillion economy by the end of March 2012, falling a mere $6 million short of the mark, according to a new report by the Prime Minister’s Economic Advisory Council (PMEAC) released on Monday. Data released by the PMEAC shows that India doubled both the size of its economy and its per capita income in five short years. The average income of an India is estimated to be $1664 a year. Though economies do not move in a straight line, a simple extrapolation suggests that we could have a $4 trillion economy and an average annual income of $3328 by FY17 in case the next five years are similar to the past five years, admittedly a brave assumption. As a point of comparison, it is sobering to note that China had that level of per capita income around two years ago, which already puts us ten years behind it. The real question then is whether India will indeed move along the same trajectory as it has done in the past five years. Or will its path out of poverty be even steeper? Or will growth flatten out? What actually happens in the next five years has tremendous implications for everybody ranging from the richest to the poorest. The former may continue to prosper, but higher economic growth will give the latter avenues to move out of poverty as well as provide the government tax revenues to help those in danger of being left behind. This is why the thrust of policy should be to encourage fast economic growth, to ensure that India keeps on the current flight path and does not crash land as many Latin American countries did in the 1970s. The signs do not seem good right now, with slowing growth and higher inflation clouding the prospects of the Indian economy in the next few quarters. Some of the current pain could be cyclical. The bigger danger is that the slowdown in growth and rise in prices could become structural, in which case the problem cannot be tackled by the Reserve Bank of India but needs urgent attention from a distracted government, especially getting economic reforms off the ground once again. Manmohan Singh​ could go down in history as the man who helped energize the Indian economy after 1991 and the man who was at the helm when it lost speed after 2011.  

Mint

End of rate hike cycle likely in September: Experts

All talks of the Reserve Bank of India ending the rate hike cycle came to a standstill on July 26, when the bank hiked key policy rates by 50 basis points as against the consensus expectation of 25 basis points. Going forward, analysts expect the regulator to extend its current rate hike series by another 25 bps as inflation continues to scale up at least till August. However, the regulator is widely expected to take a pause afterwards with the country's growth momentum increasingly showing signs of moderation. "Inflation will likely peak in August to about 10%," a research report of Kaushik Das, an economist from Deutsche Bank, stated. "It would then moderate gradually to 8% by December and further to 7% by end of March 2012, provided monsoon turns out to be normal and global commodity prices remain stable at current levels. Given the RBI's tone, we believe that unless external risks (primarily stemming from US and Euro area debt crises) manifest in a disorderly manner, the RBI will find itself compelled to raise rates again in September by 25bps," he explained. The RBI raised the repo rate (8%) and reverse repo (7%) rate by 50bps in its first quarter monetary policy on July 26. Repo is the rate at which banks borrowing money from the RBI while they park their excess liquidity through reverse repo window. Since April, 2010, the regulator hiked its key rates by 325 bps in a bid to contain high price rises. "Despite its hawkish stance, the RBI is nearing an end to its hiking of rates," said Sonal Varma and Aman Mohunta from Nomura Research in a note. "We attach a 60% probability to another 25bps repo rate hike in September, followed by a pause. We believe the RBI’s aggressive rate action reflects both a need to front-load its rate hikes due to lags in policy transmission and a recognition that rate hikes could become politically more difficult as the growth slowdown broadens." Though the RBI governor expressed satisfaction over policy transmission, there were many banks, which did not fully pass on the higher cost of borrowings to their customers. In the aftermath of RBI’s recent hikes, however banks across the board are hiking their lending rates. "So, what will be the impact of repeated rates hike on the growth?" ask many who are apprehensive of slower pace of growth at the cost of taming inflation. "Economic growth set for a moderation in FY12 to 7.9%–we expect the effect of growth moderation to be amplified in the second half due to statistical base effect elevated level of inflation to provide downside risk to growth," said Shubhada M Rao and her team of economists at Yes Bank . They expect monetary tightening to continue by another 25 bps till September. In the first quarter credit policy, the RBI governor, however, did not sound overly cautious on growth moderation as he felt "growth moderation still in early stage".

Moneycontrol

FM raps banks on farm lending

Finance minister Pranab Mukherjee has pulled up chairmen of government-owned banks in a recent meeting for not meeting targets for agriculture lending. As per the Reserve Bank of India (RBI) guidelines on lending to the priority sector, banks are required to achieve a target of 18% of the total credit towards agriculture. Several large and mid-sized banks have failed to meet their targets. The finance ministry has also asked banks to show specific reasons for not being able to achieve the set targets. Bank chairmen have now been directed by the government to frame a mechanism to ensure that the set targets are met.  At present, the banking system covers about 50% of the farmers in the country. The rest are still primarily being catered for by money-lenders, with cash strapped micro financial institutions have significantly reduced lending to the farmers.  "The finance minister has raised concerns over the issue of agriculture lending and we will get back with suggestions on how to address the problem" a public sector bank chairman told HT. However, it was a one time scheme and banks were expected to shore farm loan portfolio and bring as many farmers as possible under the formal banking net. The growth in the number of farmers'account has been a mere 14% in the last one year. Mukherjee has also asked banks to devise a strategy to increase the number of farmers' bank accounts. The move would give a push to the much hyped financial inclusion programme of the UPA government

HT