SBI may expand to Pakistan soon as central banks explore banking ties

NEW DELHI: The central banks of India and Pakistan are likely to meet in Karachi later this month to explore banking ties as part of measures to step up bilateral trade between the two nuclear rivals.  The south Asian neighbours, who have been to war three times since independence from British rule, do not allow their banks to open branches in each other's territory. A decision to open dialogue on this, with the State Bank of Pakistan taking the lead, was taken at the meeting of the Indo-Pak joint working group on economic and commercial cooperation in New Delhi recently.  "The central bank of Pakistan will send an invite to the RBI (Reserve Bank of India) for holding the meeting by mid-September," a government official told ET.  The two sides had agreed at the commerce secretaries' meeting in April this year that closer cooperation between their banks was important to give a push to bilateral trade and the process of opening branches in each other's country needed to be fast-tracked.  India and Pakistan have signed what is widely considered a path-breaking trade pact that includes grant of most favoured nation, or MFN, status to India, removal of non-tariff barriers, such as strict quality standards by India, cooperation in the power sector and removal of investment barriers.  "It depends totally on the RBI on how they want to proceed on the proposal," the official said.  The two central banks will give inputs to their respective commerce secretaries, who will discuss the issue at their proposed meeting in November.  Although permission to bank in each other's country is likely to boost bilateral trade, the RBI is expected to tread cautiously as the facility could also be used for terror financing.  "There is definitely a concern that the banks could be used as a conduit for transferring money to fund terrorist activities," the official said.  Besides, Indian exporters say any reciprocal access to banks will help Pakistan's exporters more as India already has many national and international banks providing pre-and post-shipment credit.  "Branches of Indian banks there can help make the trade and finance situation better in Pakistan due to better credit facilities, policies and products," Orient Craft chairman and managing director Sudhir Dhingra said.  The current bilateral trade between the two countries is less than $2 billion.  India estimates it could rise to $4 billion if MFN is offered as it would save businesses the trouble of shipping through third countries like Dubai.

ET 

RBI adopts village in Karur to strengthen financial literacy

The Reserve Bank of India (RBI) has adopted a remote village lacking in financial literacy to implement its outreach programme in the district. Elavanur village in K. Paramathi block is set to reap the benefits of personnel banking directly under the guidance of the RBI. The village is one among the four in Tamil Nadu and Puducherry selected in the current year. At a meeting at the village on Saturday, RBI Deputy General Manager S. Selva Raj spoke on the salient features of the programme and exhorted the people to join the banking mainstream. He told them that in future all government welfare measures and benefits would be routed through bank accounts of the beneficiaries. Mr. Selva Raj said the RBI has identified one village in each district to implement the programme under which the financial literacy level would be bolstered.  The habit of banking by helping them open no frills account, and bringing all households under the banking umbrella, would be imbibed into the masses. The objective is to ensure inclusive and equitable growth of the selected village, and the development noticed in the model village be replicated in other villages with the active participation of the villagers, administration and banks operating in the area. On financial inclusion scheme, Mr. Selva Raj said the poor need not be bullied by the cumbersome process of banking and by opening no frills account they need not maintain any minimum balance. Eligible people in Elavanur village could get bank credit support based on their income. Lead District Manager K. Chandrasekaran said the RBI adopted Elavanur village in consultation with the lead bank.  The success of the programme depended on the involvement of the people and there was a possibility that eligible artisans, farmers, students and entrepreneurs of the village would get bank credit support through better financial literacy. RBI Assistant General Manager Natarajan said frequent meetings would be conducted in the village to improve the people's exposure to banking activities. He gave a demonstration on identifying counterfeit currency. A quiz programme was organised on banking activities and prizes were distributed to the winners. Ramasamy, Manager, Lakshmi Vilas Bank, Chinnadarpuram; and RBI AGMs Ganesan, V.L. Satheesh Kumar and Manoj Kumar spoke.

HBL 

Kotak Mahindra unveils the Money Ka Matlab campaign

Chandigarh : Private lender Kotak Mahindra Bank today unveiled a new campaign called Money Ka Matlab (What does money mean to you), aimed to develop better banking products by discerning consumers insights about money. Under this campaign, which starts from today, two renowned bikers - Vir Nakai and Leon Dawson are embarking on a two week long road trip from Chandigarh to Bangalore asking people to understand meaning of money. Kotak Mahindra Bank flagged off this 3,500 km motorcycle expedition covering 7 states (11 cities) including Chandigarh UT, Gujarat, New Delhi, Rajasthan, Mumbai, Goa and Bangalore. Both of these bikers will tweet and blog about their experiences while capturing how Money Ka Matlab changes from one city to another.The most fundamental aspect of our lives is money.Getting a perspective of what money means to different people will extensively help us in understanding their needs and aspirations, which eventually will help us serve them better, with relevant products and responsive service offerings, said Mahesh Balasubramanian, Executive Vice President and Co-Head Branch Banking, Kotak Mahindra Bank, on this occasion. Asked about banks plans, Mahesh said that the bank had planned to expand its branch network from 323 to 500 branches in next 18-24 months. We have already applied with RBI for opening new branches, he said. Started its operations in 2003, Kotak Mahindra Bank would continue to focus on secured lending business including mortgage, commercial and retail, he said.

IBN Live

''There’s potential for growth in banking''

The draft guidelines released by the Reserve Bank of India (RBI) on new bank licences for the private sector are much tougher than earlier norms. Though the banking sector should expand further and there is room for expansion, there is the need for caution because it is an area which had once seen a lot of malpractices. The nationalisation of banks in 1969 and 1979 had freed major banks from the control of large industrial houses. It also made banking more socially and economically relevant. Public sector banks account for three-fourths of the banking sector now. However big they have grown, they are unable to meet the entire the banking needs of the country and hence the need for more private banks. The new guidelines have not closed the field for industrial houses, except those engaged substantially in real estate, construction and capital market activities. Industrial houses had once diverted funds from the banks they had controlled and the new norms will ensure that they cannot do this again even if they secure new banking licences. The RBI has sought to lay down a whole array of conditions like a diversified ownership, sound credentials and a 10-year banking experience and integrity to qualify for licences. The insistence of Rs 500 crore of minimum capital requirement and a capital adequacy ratio of 12 per cent will see to it that only those with sufficient financial strength will seek to enter the field. Since expansion of banking is a major aim they are also required to open one-fourth of their branches in rural and semi-rural areas. The RBI will have the power to supersede the bank’s director board in some cases.  Though many of the norms may seem draconian they are needed because banks have access to thousands of crores of public and customers’ funds. RBI governor D Subbarao had recently cautioned against corporations trying to use banks “as a private pool of readily available funds.” Even with stringent conditions there is great demand for new banking licences. That shows the potential for growth of the sector in the coming years. The RBI will be very selective and discriminating in awarding the licences. It has even said that meeting the eligibility criteria does not ensure that an applicant will secure a licence. The conditions should not be relaxed but only tightened if necessary.

DH

CENTRAL BANK OF INDIA WON SKOCH AWARDS

Central Bank of India had launched 3 schemes for investing in youth for their employability through vocational skill training and developing entrepreneurship with an aim to graduate them from job seeker to job maker. For these initiatives, Central Bank of India has been conferred awards in 3 categories viz 1. Skill Development using NSDC Platform 2. M A S T 3. Developing Youth Enterprise by Skoch Foundation. S/Shri B N S Ratnkar & Shri Umesh Kumar Singh, General Managers of the Bank have received the award at the hands of Dr K C Chakrabarty, Dy Governor, RBI during celebration of Digital Inclusion Day on 01st September, 2011 at Delhi. 

APN News

Micro-lender Bandhan Fin mulling banking foray

Kolkata-based microfinance institution (MFI) Bandhan Financial Services plans to appoint a consultant to conduct a feasibility study on a possible foray into the banking sector. The Chairman and Managing Director of Bandhan, Mr Chandra Shekhar Ghosh, said on Monday that the company was in talks with Ernst and Young and Boston Consulting Group for the same. The MFI, with a current net worth of Rs 600 crore and a paid-up capital of Rs 96 crore, proposes to apply for a banking licence once the Reserve Bank of India comes out with its final guidelines on new bank licensing.  The draft guidelines for new bank licences released by the RBI recently stipulate a minimum capital requirement of Rs 500 crore. “We are more or less in sync with the norms laid out in the draft guidelines. So we are hopeful of getting a licence,” Mr Ghosh said. International Finance Corporation has acquired a little over 10 per cent stake in Bandhan by pumping in equity worth Rs 135 crore. The investment would shore up its net worth to Rs 650 crore by March 2012, Mr Ghosh said. Bandhan plans to provide technical assistance to MFIs overseas to earn a fee-based income. “Indonesia-based MFI, MBK Ventura has sought technical support in the form of skilled staff, IT system and product designing.  “We are likely to enter into an agreement with MBK in the next three months. A London-based MFI planning to enter the Ghana market has also asked for our support. We are looking into the offer,” Mr Ghosh said.

HBL

Katrina vs Kareena

Bollywood actor Katrina Kaif may be a world away from Mint Road but Reserve Bank of India Governor D.Subbarao found a connection. Recently, talking to Indian Economic Service officers about decision-making, he said the process could not be dependent on one person’s view and should be a group decision. By way of example, he said if he were asked to choose the most beautiful face in Bollywood he would name Kaif. “But the rule of the game is that you are rewarded for choosing the person you think is most beautiful… Now, most people may think Kareena Kapoor is the most pretty so I would have to go with Kareena rather than Katrina.”

BS

RBI might not raise repo rate further: Mukherjee

Mumbai: The Reserve Bank of India (RBI) might not increase its key lending rate further as it will impact growth, the Business Standard newspaper reported on Monday quoting Finance Minister Pranab Mukherjee. “As far as tightening monetary policy is concerned, if these policies need to be extended, then it will have some impact on overall growth scenario. But I am optimistic that it will not have to be extended,” the paper quoted Mukherjee as saying in Kolkata. However, it wasn’t possible at the current juncture to ease the tightening, the report quoted him as saying. The RBI’s next rate setting meet is scheduled on 16 September. Mukherjee said food inflation would settle at 6-7 percent by the end of the current financial year in March, according to the report. India’s food price index rose 10.05 percent, its highest in nearly six months, and the fuel price index climbed 12.55 percent in the year to 20 August. Gross domestic product growth in Asia’s third-largest economy slipped to 7.7 percent in the three months through June, slightly exceeding the median forecast in a Reuters poll for an annual rise of 7.6 percent.

Firstpost

In the interest of inflation - Is RBI's tight monetary policy helping in fight against inflation?

In December 2009, alarm bells rang when headline inflation, based on the wholesale price index, or WPI, touched 7.15 per cent. It was way above the Reserve Bank of India's comfort level of 4 to 4.5 per cent. Since then, there has been no going back.

Inflation dips to 8-mth low | Hints towards another rate hike

In July this year, inflation was 9.2 per cent and RBI expects it to rise for a while longer. The policy response to this macroeconomic challenge before India has had fascinating sub-plots. RBI has emphatically staked its claim to lead the fight against inflation by reminding everyone that it is the only institution in the country with a formal mandate to deal with it. It has also pointed out that the Central government has not pulled its weight in the battle, leaving the central bank to carry the ball.

Food inflation rises to double digits

The result has been 11 policy rate increases since March 2010, and a strong chance of one more on September 16, when the next policy announcement is due. Deutsche Bank economists Taimur Baig and Kaushik Das, who wrote a report in August after a meeting with the central bank, are among a growing band of analysts who have concluded another interest rate hike is around the corner.

RBI needs to balance between growth, price stability and financial stability: D. Subbarao, RBI Governor, in August 2010

RBI's strategy to tame inflation has been by pulling back demand in the economy through the repo rate, or the rate at which RBI lends money to banks. An increase in the repo rate gradually translates into higher market rates of interest for car and home loans, which act as a drag on demand.  Since March 2010, the repo rate has gone up from five per cent to eight per cent. These measures were expected to slow the rate of increase in the general price level in India. That has not happened so far.  So, is the interest rate, RBI's chosen tool to pull back demand, the best option in the current circumstances? Even if it is not, there have been no loud dissenting voices.  In August, Kaushik Basu, Chief Economic Advisor in the Ministry of Finance, in a working paper uploaded on the ministry's web site made a nuanced argument on interest rates and inflation which, in a circuitous way, raised questions on RBI's approach. The paper carried a disclaimer that the views in it were personal.

Taming inflation govt's top priority: Pranab

The crux of Basu's analysis was that increasing rates when there is a shortage of liquidity, or credit supply, in the system will lead to higher costs all around without really making a dent in inflation. Basu concluded that curbing demand was the right strategy, but interest rates should be used only in the right context. His paper drew attention to details that needed to be understood before using interest rate as a tool to deal with inflation. Basu did not offer an opinion on RBI's current policy stance. Besides, the paper was ambiguous about the timing of a tight monetary policy. RBI's early interest increases in 2010 came when the unexpectedly high bidding in 3G auctions led to a surge in demand for liquidity.

India can grow at 9% during 12th five-year plan: Montek

Did some of RBI's interest hikes last year take place in a situation of liquidity deficit? "The answer is we do not know," Basu concluded. Separately, in a recent study on inflation, Mumbai University's Neeraj Hatekar, Ashutosh Sharma and Savita Kulkarni concluded that restrictive monetary policy might be of limited relevance in controlling non-food inflation. Interest rates play more than one role in fighting inflation. One of RBI's toughest challenges is to deal with a fuzzy thing called inflationary expectations. Consumers' expectations of inflation can be self-fulfilling, and when expectations are high, the economy is in trouble. The interest rate is the only real tool RBI has in reining in expectations and one it has used like a sledgehammer since May to signal its commitment to price stability. "There's a clear link between expectations and interest rate," says D.K. Joshi, Chief Economist at rating agency CRISIL, the Indian arm of Standard & Poor's. "You have to raise interest rate, that's what anchors expectations." Regardless of the liquidity situation in the economy, then, a few doses of interest rate increases are the only way RBI could have signalled its commitment to price stability.

Business Today

Montek: Growth target above 9% unwise for India

Planning Commission deputy chairman Montek Singh Ahluwalia, asserting that double-digit economic growth was not on the radar in the next 10-15 years, said a nine per cent growth target was “actually ambitious” for India, and aiming higher was “unwise”. “I think a nine per cent growth target is actually ambitious, and we have emphasised in the approach paper that it should not be assumed this is going to happen if we act on a business as usual basis,” Dr Ahluwalia told Financial Chronicle in an interview on the 12th Plan approach paper. Dr Ahluwalia said even nine per cent growth would require a lot of hard work in the 12th Five-Year Plan (2012-17), and aiming higher would be “unwise” at this stage. The Indian economy is estimated to grow at an average annual rate of 8.6 per cent in the current 11th Plan (2007-2012). He said even with eight per cent growth, India would become the third largest economy at $10 trillion in 2025, after China and the US, and this would bring the poverty level to just 5-10 per cent. He denied that the Anna Hazare agitation was the trigger for the commission to take a serious view on lack of governance. On “game-changing measures”, Dr Ahluwalia said these were difficult to point out, but the 12th Plan’s focus was on infrastructure, agriculture, water, energy, manufacturing, education and healthcare.

Asian Age

Committee of local and foreign banks including Citibank, ICICI Bank to help government frame norms on capital infusion

NEW DELHI: Unsure of how to meet the large capital needs of Indian banks under the Basel-III norms, the government has set up a committee of local and foreign banks to suggest a framework for capital infusion. The committee includes Citibank, ICICI Bank and two public sector banks.  "The aim of this committee is to look into the overall requirements of the banking sector and make suggestions to the Reserve Bank of India," said a finance ministry official. As per an ICRA report, the total Tier-I Capital requirement under Basel framework will be at around 8.5%-11%, as against the current RBI norms of 6%. Tier I capital of a bank includes equity capital and disclosed reserves. Over the next decade, estimates of capital needs of Indian banks range from 6 lakh cr to 8 lakh cr. Experts say that it will be difficult for the government to continue to captialise public sector banks when it is looking to control its expenses to reduce the fiscal deficit to a sustainable 3% of GDP. "The government will need to dilute its stake if it has to allow banks raise more capital to meet the credit expansion plans, which will only increase in proportion to their lending," said BMR Advisors chief mentor Bobby Parikh.  Implementation of the Basel III norms is scheduled to commence from January 1, 2013. In 2010-11, the finance ministry had allocated 6,000 crore towards bank capitalisation. Of this corpus, it plans to allocate nearly half to the country's largest lender State Bank of India to help it maintain a Tier-I capital of 8% at the end of the current fiscal. The slowdown related rise in non-performing loans will also increase the capital needs as banks will have to set aside part of profits to cover bad loans.  SBI made provisions of around 8,792 crore in 2010-11 which brought down its Tier-I capital adequacy ratio to 7.8%.  As on March 31, 2011, the gross non-performing assets of public sector banks stood at 71,047 crore.  Parikh says even old private sector banks will have to find the right strategy to raise capital or they will stagnate and forced to look at merger with other large players.  The government has committed to keep its stake at 58% in PSBs and maintain their Tier I capital at 8%. "If they do not allow PSBs to tap the equity markets they may have to divert the savings from social sector schemes towards bank capitalisation," said senior economist Crisil, Sunil Sinha.

ET

Waiting for the next messiah - Rasheeda Bhagat

....In a recent freewheeling chat with the RBI's Deputy Governor, Dr Subir Gokarn, who was in Chennai to address a huge gathering of students at the SRM University in Chennai for a BL Club event, I quizzed him on how he saw the future of India's future — youngsters — panning out. ....

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External sector risks cannot be ignored

...In view of the foregoing, it may be concluded that the build-up of foreign exchange reserves does not guarantee sufficient insurance. The downside risks of the external sector should not be ignored....

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