RBI not to intervene in forex market: Dy Governor Sinha

New Delhi: Reserve Bank today said that it will not intervene in the foreign exchange market unless the situation is grave, though the Rupee touched 16-month low of 47.59 against the US dollar.  "It is clear policy of RBI that we address volatility and not the level unless it is grave and adverse situation," RBI Deputy Governor Anand Sinha told reporters when asked if the RBI would intervene to check volatility in the currency market. Rupee closed at 47.59/60 to a US dollar today, lowest since May, 2010. As the stock markets fell around the world and capital flows reversed from the emerging markets, including India, rupee lost by more than two per cent against $in the last one week. Agreeing with Sinha, Planning Commission Deputy Chairman Montek Singh Ahluwalia too said that the central bank should intervene in forex market only in extreme circumstances. "The policy that we have followed for long time (is) that rupee should move according to market conditions. We allow Rupee to fluctuate depending on market situation. RBI would only intervene when there is excessive instability," he said. Meanwhile, replying to a query related with entry of corporates in the banking sector, Sinha said the business houses have shown that they have the managerial capacity.  "at the same time we are acutely aware of self-dealing and therefore the draft guideline talks in terms of stringent eligibility criteria and a host of surrounding control to ensure that self-dealing is not allowed or it is checked in time," he said. The RBI recently released draft guidelines for entry of new private banks in the country. However, central bank would issue the final guidelines for granting bank licences to corporates only after Parliament approves the Banking Laws (Amendment) Bill, 2011.

FE

Rural customers must understand products: RBI

To attract the rural masses and meet financial inclusion targets, banks are offering no-frills accounts with in-built features like remittance, micro-credit and micro-insurance. However, the regulator is concerned about the risks that banks may be exposed to, in case customers do not understand the product. Once a no-frills account is opened, customers can receive payments from government schemes like MNREGA directly, make or receive remittances and borrow a sum from the bank without any balance in the account. They are also provided life and general insurance covers. “There should not be a double negative. This means even if I don't want a product, I'm saddled with it. For instance, I need to tell I don't need an insurance policy or I automatically get an insurance policy,” said Deepali Pant Joshi, Chief General Manager, Reserve Bank of India (RBI). “This is what we are uncomfortable with. Because we are dealing with vulnerable and poor clientele, we don't want products to be pushed through to them,” she said, while addressing a seminar on financial inclusion in Mumbai on Tuesday. A senior official with a large Mumbai-based public sector bank said the bank provided an accident cover with the no-frills account. “The bank is taking the initiative and the premium is paid by the bank itself. Each no-frills customer is covered for Rs 50,000. In case there is a claim, the insurance company settles it on verification,” he said. Currently, apart from the zero-balance norm, there are no standard products mandated by the apex bank for financial inclusion. Banks are free to innovate, according to their business strategy. “The range of the products depends on the requirement of the particular area. These are simpler products, but they require financial literacy,” said another Mumbai-based public sector banker. Over the last two years, banks have embarked on the financial inclusion drive to cover under-banked and un-banked villages in India. No-frills, or zero balance, accounts are opened at doorsteps on the submission of basic know-your-customer norms. Banks have appointed business correspondents that enable them to reach out to areas which lack basic technology and infrastructure. On interoperability, Joshi said there was still time. Business correspondents cannot operate for two banks at the point of interaction. This means the agent cannot sell the products of two banks at the same time. “It (the business correspondent model) is a new model. Let it stabilise. Agents should be clear and there should be no confusion at the bottom of the pyramid. Going forward, we may look at it,” said Joshi. She also said banks needed to insure financial literacy while meeting their inclusion targets. “They (customers) must understand the products they are getting, and from the demand side, financial literacy becomes all the more important,” she said.

BS

The "missing" VITALINFO

Due to technical difficulties, VITALINFO could not be updated well before 7.30 a.m. yesterday, i.e. on September 13, 2011.  Thereafter also, only few posts could be uploaded.   I received many phone calls, mails enquiring about this.  I appreciate all of you for the interest shown in VITALINFO.  A "representataive" feedback ---------

Penny pinching: Coins' shortage puts RBI in a fix

NAGPUR: Government mints have been tight-fisted this year as far as supplying coins to the Reserve Bank of India (RBI) is concerned. For the first time in the recent past, mints run by the ministry of finance have supplied just around half of the quantum demanded by the apex bank this year. The RBI, through its various offices in the country, also acts as an agency for supplying coins and currency notes to the public. However, due to a short supply from the mints, RBI's regional offices, including the one at Nagpur, are rationing coin supply. This has left traders unhappy as they have been depending on the RBI counters for coins' supply on an almost daily basis. The unions too had taken up the issue with the management, saying that the rationing has led to inconvenience to the general public. Officials at RBI's central office in Mumbai said the supply has been substantially low. Although not divulging the exact figures on the mismatch between the indented quantity and actual supply, the official, citing the RBI's annual report, said that over 6,000 million pieces of coins are indented each year. However, RBI has got around half of the quantity sought in the current year. In the normal course, the difference is marginal.  The fall in supply is being attributed to reasons like lack of capacity coupled with the aging machinery at the mints which are situated Kolkata, Nashik, Mumbai, New Delhi and Hyderabad. An RBI spokesperson said that the coin distribution at the regional offices have been according to the supplies received from the mints. The RBI office at Nagpur, in the meantime, has limited the supply of coins to 100 pieces per person. This has left the traders as well as their agents complaining that they are not getting enough coins. Coin exchange also provides employment to several persons who earn a living by queuing up at the RBI counters to get loose change on behalf of the traders. In turn, they get around Rs 10-15 per 100 coins, earning around Rs 200 a day. Many of them are housewives. The new rule has cut down their earnings now. The union, on the other hand, has alleged that the RBI here has failed to manage the situation. The president of All India RBI Employees Association's local unit Bidyut Chakraborty said, "The management here is diverting the public to commercial banks from where they are being turned away too. If there is a shortage, the RBI's role becomes much more important as it should ensure that the supply is streamlined." A management representative said that if the RBI starts does not adopt the quota system, it may soon run out of the stock of coins.

TOI

Panel suggests support system for urban co-operative banks

Experts say organisation can insulate mainstream payments and settlement system

A Reserve Bank of India expert committee has recommended the establishment of a separate national umbrella organisation to provide payments and settlement services and other liquidity support, which are normally provided by a central bank, to member urban co-operative banks. Market experts say this move could be aimed at insulating the mainstream payments and settlement system from any fallout due to failure of urban co-operative banks (UCBs). The RBI's committee on licensing of new UCBs has suggested that the umbrella organisation be preferably in the form of a multi-state UCB with membership restricted to and mandatory for urban co-operative banks other than scheduled ones. “There is no need for an umbrella organisation for payments and settlement now as UCBs are becoming robust when it comes to financial strength,” said Mr Satish Marathe, General Secretary, Sahakar Bharati, an umbrella body for promoting co-operatives in various fields. Member urban co-operative banks should be required to maintain their cash reserve ratio (a portion of deposits) in the form deposits with the umbrella organisation. The organisation should invest its funds only in the form of balances with the RBI, deposits with commercial banks or in statutory liquidity ratio (SLR) securities such as government securities.  The committee, headed by Mr Y.H. Malegam, Director, Central Board, RBI, said, the umbrella organisation should offer repo (liquidity injection) and reverse repo (deployment of surplus liquidity) facilities to UCBs in the same manner as RBI offers to commercial banks and at the same rates of interest. In turn, the umbrella organisation should enjoy repos and reverse repo facilities with the apex bank.  Urban co-operative banks can avail of repos facilities only to the extent of their excess SLR holdings. Until the payments and settlements facilities are provided directly to UCBs, the proposed organisation will act as a gateway to provide these services for a fee to the banks. In turn, the organisation will be a member of the payments and settlement system.  Being an urban co-operative bank, the umbrella organisation would have a board of management and will be subject to the regulation, supervision and inspection of the RBI.

HBL

Tarapore berates banks for poor customer service

Noted economist and an ex-Deputy Governor of the Reserve Bank S S Tarapore today criticised the functioning of the country's mainstream banks when it comes to customer service. "It is unfortunate that despite all the efforts made by the government, the RBI, and the banks themselves, the quality of customer service is abominably poor. The perception of the common man is that the quality of banking service is dependent on who you are and who you know," Tarapore said. Addressing the fourth Financial inclusion & digital payment conference organised by the Internet & Mobile and Association of India here, Tarapore said, "incognito visits to bank branches have conclusively shown that the quality of services are sub-standard or even non-existent. "The recent Damodaran committee report on customer service has expressed concern about the rudeness of the bank staff in dealing with customers. One does not expect out-of-the-world quality of service, but it is incumbent on banks to provide quality service, at least equivalent to that provided by other service providers such as airlines, Railways and telecom companies," he said. Stating that banks cannot get away from the fact that the system has an attitudinal problem of hostility towards the common man, Tarapore said this is "all pervasive" in the banking hierarchy from top to bottom. For better customer service, he said, it is necessary to first motivate the top management and this would trickle down to the lower levels. The recent uproar when RBI put out a discussion paper on deregulation of savings bank deposit rates reflects the callous approach to customer service, he said.

IBN Live

Time for RBI to press pause?

All eyes are now on the Reserve Bank of India (RBI) as the mandarins of Mint Road get down to deciding on the next course of action on the monetary policy front on September 16. The jury is clearly out on whether the central bank will raise rates once again, after the aggressive 50 basis point (bps) hike in July, or whether it will finally press the pause button, choosing not to disrupt the growth momentum any more....

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State apex co-op bank unlikely to get elected board soon

...“The bank will have to get a valid license from the RBI and that may not happen even by March next year. There is no question of holding elections for a new board any time soon,” ....

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Saraswat co-op set to turn into private bank

Mumbai: Saraswat Cooperative Bank—the largest lender in the segment—plans to convert itself into a private bank and has sounded off the Reserve Bank of India (RBI) of its intentions. The move is driven by a need to grow its business as there are restrictions on cooperative entities growing their balance sheet.  The 93-year-old Saraswat is the largest and among the better-managed lenders of the 1,750 urban cooperative banks that are doing business in India. The bank has been paying dividends to its shareholders continuously since its inception.  According to sources, the bank has been told by RBI that it cannot continue to grow its balance sheet unfettered as a cooperative. Also, the cooperative structure places restrictions on the size of the loans that the bank can extend to each client even if it has the resources to provide very large loans. Commercial banks, however, face no such restriction and their growth is only restricted by the amount of capital they can raise. Cooperative banks can raise capital only by selling shares to customers. Also because of the cap on dividend their shares are not very attractive to investors as they do not provide the same upside as that of companies that are registered under the Companies Act. The bank’s MD SK Banerji and chairman Eknath Thakur could not be reached for comments. In many ways the bank already provides all the services of a big bank. For instance, the bank’s operations are out of a core banking platform and it is therefore in a position to offer anywhere anytime banking offered by private banks. It also offers Visa cards and internet banking services and has for a long time been offering forex services to its customers. Central banking sources however said that the bank may have to wait until the guidelines for new private banks are finalized before it can expect an approval.

TOI

Reforms: the unfinished agenda

... It is a comforting thought that Rangarajan, who is aptly described as the “philosopher king', would be guiding the reforms in this crucial phase of reaching the benefits of reform to those sections who are desperately in need of them and, having waited so long, are on the verge of losing their patience.......

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Inflation could edge out growth concerns at RBI review

...The latest industrial output reading may have been well below forecasts, but Wednesday's inflation data could well be the deciding factor on whether the RBI chooses to pause, or continue with its monetary tightening. ....

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Where interest rates are headed and why

It’s so tempting to believe that if the Reserve Bank of India’s Governor, D Subbarao, decided to call time on his cycle of raising interest rates on 16 September, everyone’s life would be so much better. At least that’s what a lot of people seem to be thinking...................

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Making NBFCs Bankable!

From a systemic risk perspective, stringent capital regulations coupled with other recommended regulatory measures would help improve the functioning of the NBFC sector in the long-term, but the what needs to be reconsidered is the level of risk that NBFC bring into the financial system vis-à-vis the risk generated by banks and accordingly, implement the prudential and liquidity norms in a phased manner..........

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Redeeming the Indian microfinance industry requires MFIs to put their clients first

Low-income people want appropriate products and quality service and MFIs which focus on meeting client needs in an ethical manner will be the most successful in the long-term ....

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Digital Payment Industry Needs Multiple Models To Push Financial Inclusion

Economist S.S.Tarapore added that the absence of banking technology, reach and coverage, absence of a satisfactory delivery model and absence of a business model were the reasons behind India not achieving financial inclusion…..

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Wanted: ‘Out of the box thinking’ from RBI

New Delhi: The Reserve Bank of India, which reviews monetary policy on Friday, should “think outside the box”, the chief economic advisor to the finance ministry told CNBC TV18 on Tuesday. “We live in a very unusual world where some countries have very, very low interest rates whereas other countries have high interest rates so we must think outside the box in terms of monetary policy and that is what I would stress to the Reserve Bank of India,” Kaushik Basu said. Despite industrial output growth slumping to a near 2-year low in July, inflation data for August to be released on Wednesday is expected to sway the RBI to raise rates this week for a 12th time since March 2010. The wholesale price index in August probably was rose 9.6 percent, a Reuters poll showed, well above the central bank’s comfort zone of 4 to 4.5 percent.

Firstpost

Paying the price

This is with reference to the editorial “Unfair penalty” (Business Line, September 13).  Certainly, floating rates are impacting home-loan borrowers due to frequent changes in interest rates, and have hit their shoestring budgets. Bankers, in order to protect their margins, have almost completely done away with charging of fixed rates and invoking reset clauses, which is difficult to digest. We are aware that banks are enjoying more income by levying high commission on all instruments they deal with, and for issuing statements from time to time. This is nothing but daylight robbery. On top of this, imposing penalties for pre-payment of loans is adding to the customers' misery.  Banks should find out innovative ways to avoid this unpleasant situation. I daresay account-holders are entitled to this privilege?

K. N. V. S. Subrahmanyam (BS)

Analysts divided over RBI move on Friday

Conflicting macroeconomic data on inflation and factory output have made the analysts and economists a divided house on the direction that the Reserve Bank will take on Friday at its mid-quarter policy review........

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RBI justified

“Why we still need a rate hike” (Business Line, September 13) raises some valid points. The RBI's efforts in controlling inflation are commendable. It has been merciless in hiking interest rates and the impact of industrial growth is now becoming evident.  The Government, which has more tools to combat inflation has been in slumber mode. Unless concerted action is taken by the Government on various fronts — preventing logistics delays due to bad roads, rationalising State levies, better supply chain management, and helping farmers improve yields — the RBI has no choice but to raise rates again.

Vivek (BS)

IIP blues

The Reserve Bank of India is in an unenviable position ahead of its monetary policy review meeting scheduled on Friday. It has to take a call on interest rates — whether to raise them further in the face of continuing inflationary pressures or pause temporarily based on the latest disappointing factory output data. To its credit, the central bank has been much more realistic in turning the spotlight on the Indian economy's blind-spots than North Block. In its successive policy reviews, the RBI has not simply focused on inflation's stubborn persistence, but even warned of business mood dips impacting investment and consumption growth declining as interest rate-sensitive sectors face increasingly reluctant buyers. In fact, while New Delhi has tended to exhibit a misplaced optimism about growth prospects with its eyes shut, the RBI was ahead in scaling down its GDP growth forecast for 2011-12 by a full percentage point to below eight per cent.  The latest industrial growth figures for July suggest that the slowdown that many experts and most policymakers thought would be temporary and narrow is, indeed, broad-based. The overall index of industrial production (IIP) registered a year-on-year expansion of only 3.3 per cent, the lowest in 21 months. Manufacturing and mining grew by 2.3 per cent and 2.8 per cent respectively, while the 13.1 per cent increase in electricity was mainly a result of the good monsoon, which has helped boost generation from hydel stations. More disturbing has been the 15.2 per cent dip in production of capital goods, a proxy for investment activity. Even if one discounts for the unreliability of data for this sector — leading to extreme growth volatility — the fact that investment sentiment has been vitiated by recent political developments and concerns over ambiguous laws and tangled procedures among foreign investors cannot be missed. If industrial growth is slowing, there is the possibility of weakening demand on account of high interest rates further dampening it. Persistent increases in its key policy rates over the past 20 months may have somewhat dented non-food ‘core' inflation resulting from excessive demand. But the problem is that while demand in the manufacturing segment may have dipped, general inflation has not. For once the Finance Ministry may be right when its Chief Economic Adviser, Prof Kaushik Basu, says inflation will stay high till December. So the RBI, in a way a victim of its own success, will now have to battle high inflation and the prospect of falling output driven by weakening demand.  For policymakers it would be tempting to pass off the slowdown as partly the outcome of global woes just as earlier they claimed that inflation was also stoked by global commodity prices. But unlike the US and the European Union, India did recover from 2008 with a smart pick-up in 2009. The current slide actually began in the past six months or so. And that has been the result of very successful monetary and very slothful public policies. 

HBL

Unfair penalty

Doing away with the pre-payment penalty may help reduce the distortions arising from new loans being cross-subsidised by existing ones...........

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Customer is king !

The Reserve Bank of India has initiated a series of measures to make banking a customer-friendly experience. While, earlier, it was the M Damodaran Committee that had come out with a report on customer services in banks, now, the Banking Ombudsman Conference has made a host of recommendations to protect the interests of small investors and bank customers........

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