RBI takes ‘outreach programme’ to south Kashmir village

Srinagar, Sep 22: As part of its financial inclusion and awareness drive, the Reserve Bank of India (RBI), Jammu office today organized an outreach programme at village Tailwani, Islamabad (Anantnag). The programme was presided over by K K Saraf, Regional Director, RBI, Jammu and among others attended by DDC, Islamabad (Anantnag), Kifayat Hussain Rizvi, Banking Ombudsman, New Delhi and J&K M Rajeshwar Rao and others. Saraf said during the Platinum Jubilee Year (2009-10) of establishment of RBI, it was decided to reach out to the remotest villages of the country for extending banking services so that the common man is linked to the banks without actually visiting a bank branch through Information and Communication Technology (ICT) initiatives. Saraf said that Tailwani village was one of the villages chosen by RBI for outreach activities in J&K for 100 per cent Financial Inclusion during 2010-11 by using ICT for issuance of smart cards through the Business Correspondent (BC) model.  The main aim was to achieve the objective of financial inclusion and providing doorstep banking services to the rural poor, small and marginal farmers, people of small means, women, etc.  He also explained to the gathering that the biometric smart cards have inbuilt security features and are therefore very safe for conducting transactions. The card holders would also get receipt for each transaction. 

Greater Kashmir

RBI asks banks to implement safety measures for card usage

MUMBAI: In order to minimise fraud cases and ensure security of transactions, the Reserve Bank of India (RBI) on Thursday asked banks to implement various safety measures related to credit card and debit card usage over a period of next two years.  The central bank directed banks to strengthen the existing payment infrastructure and future proofing system along with adoption of fraud risk management practices within a period of next 12-24 months, RBI said in a notification.  "The increased usage of credit/debit cards at various delivery channels also witnessed the increase of frauds taking place due to the cards being lost/stolen, data being compromised and cards skimmed/counterfeited. There is, therefore, an imperative need to secure such card based transactions...," it said. It also emphasised on the need to migrate to Euro pay MasterCard Visa (EMV) chip and PIN based cards from the present magnetic strip cards as the later is vulnerable to skimming and cloning.  "The need for a complete migration to EMV chip and PIN based cards could be considered based on the progress of 'Aadhar' (Unique Identification Card) in about 18 months," it noted.  As per the circular, the central bank has directed banks to implement improved fraud risk management practices by September 30, 2012. The banks have also been directed to strengthen merchant sourcing and monitoring process by September 30, 2012. The central bank also given a timeframe till September 30, 2013, to banks for securing the technology infrastructure.  To strengthen infrastructure for accepting these cards, RBI has said that commercial readiness of acquiring infrastructure to support PIN at POS (points of sale) should be ready by June 30, 2013.  Similarly, the enablement of all POS terminals to accept debit card transactions with PIN should be completed by June 30, 2013.  The apex bank also directed banks to be ready from technical perspective to issue EVM cards by June 30, 2013.

ET

Banks’ grievance redressal not satisfactory, says Chakrabarty

Mumbai: Reserve Bank of India (RBI) Deputy Governor K.C.Chakrabarty has said that the efficacy of the mechanism for redressing customer grievance in Indian banks is far from satisfactory, despite having undertaken a number of initiatives for ensuring fair treatment to customers. “It is necessary to further develop a credible and effective functional system of attending to customer complaints by strengthening banks’ internal structures to attend not only to the basic customer needs, but (also) the special needs of disadvantaged groups, such as pensioners and small borrowers, including farmers,'' he said at the Annual Conference of the International Network of Financial Services Ombudsman Schemes — INFO 2011 at Vancouver, Canada on Tuesday. Moreover the challenge of financial education, in a multi-lingual and multi-ethnic country like India, poses many operational difficulties, given the low levels of financial literacy and a population of 30% which is uneducated, he added. “We are trying to tide over this situation by adopting multi-disciplinary and multi-channel strategies. Taking into account these considerations, a committee was constituted by the RBI,'' he said. The committee was to look into the banking services rendered to retail and small customers and pensioners, structure and efficacy of the existing grievance redress mechanism, the functioning of Banking Ombudsman Scheme, possibility of leveraging technology for better customer service in the light of increasing use of Internet and IT for bank products and services, etc. and to recommend steps for improvements. Chakrabarty further said the lessons that the global financial crisis have been expensive and painful. “Let us not blindly believe in the ability of the markets and competition to take care of all segments of the population,” he said. “There are sections of financial consumers who always have the highest sense of protection and there are the vulnerable sections of the society who feel left out. We have to move to an order where the market forces, competition, effective regulation and a vibrant Ombudsman scheme all co-exist and handle matters concerning financial consumers’ protection in a harmonised way,” said Chakrabarty. 

FE

RBI asks banks to beef up security for e-transactions

The Reserve Bank of India (RBI) has asked banks to strengthen their payment infrastructure for safety in automated teller machines (ATM) and point of sale terminals. It has set a two-year timeline for banks to upgrade the systems beginning with implementation of fraud risk management services by September 30, 2012. In accordance with the suggestions by the working group appointed by the regulator in March this year, RBI has also asked for better sourcing and monitoring process at the merchant level by the same time frame. The regulator has directed banks to migrate to EMV chip cards and PIN-based cards by June 30, 2013. The central bank has also said that Aadhaar-based biometric identification instead of the personal identification number (PIN) should be used for all card transactions which include transactions in ATM and point of sale transactions. “The need for a complete migration to EMV Chip and PIN-based cards could be considered based on the progress of Aadhaar in about 18 months,” RBI said. It is, however, clarified that banks are free to migrate to EMV Chip and PIN-based technology, depending on their commercial judgment and decision taken by their respective boards, the regulator added.

BS

RBI warns banks on poor customers

In the name of financial inclusion, banks should not blindly follow a policy of customer acquisition, providing new access to new customers. Instead, they must address the issues faced by poor customers properly, for it might otherwise lead to a long term mistrust and loss of confidence in the banking system. According to Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty, financial inclusion is an important tool for economic development, but it might also impact the poor adversely by increasing their indebtedness and wiping out their savings and assets. “While financial inclusion is a necessary pre-condition for financial stability and inclusive economic development, the negativities that may affect a poor, ill-informed, new customer can be enormous — from high level of indebtedness due to excessively high prices and predatory lending, to complete loss of savings and assets created out of loans and those collaterally charged to the banks,” Chakrabarty said during his address at INFO, 2011, at Vancouver. He added if problems faced by the poor ill-informed customers are not addressed in a proper manner, it might lead to a long term in formal financial institutions and loss of confidence in the banking system. It is, therefore, imperative that all consumers should benefit from the same level of security and protection, whatever be the institution they operate with, he said. Hence, for banks, these initiatives should not be treated as costs, but need to be reckoned as investments necessary for business stability, he added. “Unchecked market forces and lax policies, combined with relaxed regulatory oversight, can result in customers being exploited while efforts to open financial markets to serve the bottom of the pyramid are made through financial inclusion measures,” he added.

BS

Axis Bank launches ‘MyDesign Card'

Axis Bank on Wednesday announced the launch of “MyDesign Card”, India's first debit card which allows the customer to incorporate a personal image of his or her choice. Speaking at the launch function, Jairam Sridharan, head (consumer lending & payments), said the popularity of debit cards, especially for purchases, was growing rapidly in the country. “By empowering our customers to design their debit cards, “MyDesign” aims to promote closer customer engagement with the bank,” Mr. Sridharan said. He said the facility can be availed by logging online to the bank's portal or apply for the card through any branch of the bank. In “MyDesign', the customer can incorporate images of themselves and their loved ones, and recapture moments from their fondest memories on their debit cards. The module also provides customers with an option to choose an image from a wide gallery which includes sports, zodiac signs, Indian & international tourist spots, wildlife and pets, landscapes, music, automobiles and many other images, he said.

BS

How independent is the RBI?

The Reserve Bank of India (RBI) last week raised interest rates for the 12th time in 18 months and signalled it is not yet done with rate tightening as it struggles to control inflation that has run up a 13-month high. Hours after the announcement, Kaushik Basu, the finance minister's chief economic advisor, said he had expressed reservations about a rate increase, suggesting there is pressure against further tightening from the government. Meanwhile, India's headline inflation, at nearly 10 percent in August, remains way above the RBI's comfort zone, and even Basu admitted that the country was facing a difficult inflationary situation.

So, the question is: How independent is the RBI?

WHAT DOES THE LAW SAY?

The RBI is not constitutionally independent, as the 1934 act governing its operation gives the government power to direct it. The government appoints the central bank governor and four deputies. "The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest," the act says. Technically, the government is also permitted by the act to supersede the central bank if it believes the RBI has failed to carry out its obligations.

HOW DOES IT WORK IN REALITY?

Over the last quarter century as India's economy was liberalised, the RBI has been more independent. However, there continues to be much consultation between the bank and the finance ministry, and the government has been known to exert its will, against the wishes of the central bank chief. There is no legal act mandating autonomy of the RBI, but there is a growing convention that the RBI is allowed autonomy to do what it wants, analysts say. Consultations between the central bank and the finance ministry are not unusual in India.

IS "CONSULT" JUST A POLITE WORD FOR "GOVERNMENT ORDER"?

Not necessarily. The RBI and government have clashed over monetary policy in the past, notably during the tenure of the previous governor, Y.V. Reddy, and then-Finance Minister Palaniappan Chidambaram. In 2007, global interest rates were softening but the central bank under Reddy maintained a hawkish stance, citing inflationary risks stemming from high oil prices. The government favoured lower interest rates to help sustain high growth and bring relief to borrowers. The RBI's view prevailed and it hiked policy rates. In June of the following year, however, Reddy was prodded by the finance ministry to raise rates against his wishes, he revealed in an interview after he left office. More recently, government officials alarmed over slowing economic growth were advocating a pause in the central bank's 18 month long monetary tightening cycle. However, the RBI persisted with a larger-than-expected rate hike in July, followed by another increase at its September policy review and said it was too soon to ease back from its anti-inflationary bias. But the finance ministry and the RBI generally try and find common ground on issues concerning monetary policy.

SO WHAT GOVERNS THE RBI'S INDEPENDENCE?

Personalities to a very large extent. Reddy, for example, was seen as fiercely independent. Mild mannered Subbarao is seen more open to consultations with the finance ministry, although he has demonstrated independence with criticism of the government's inability to rein in fiscal deficit.  He also aired his reservations over setting up a council headed by the finance minister to reconcile differences between regulators.

WHAT OTHER INFLUENCE CAN THE GOVERNMENT HAVE?

Appointments. The government appointed Subbarao, who was the top bureaucrat in the finance ministry, as central bank governor, bypassing Reddy's deputy Rakesh Mohan, who had been seen as a strong candidate. This was a rare instance where the top bureaucrat in the finance ministry was appointed to the top job at the Indian central bank immediately after serving out his stint as finance secretary. The government can also issue directives on non-monetary policy matters such as foreign investment rules in the banks.

WHO SHOULD INVESTORS BE WATCHING FOR POLICY CLUES?

Both the government and the central bank. Top officials, including Finance Minister Pranab Mukherjee and his chief economic adviser Kaushik Basu, and Planning Commission Deputy Chairman Montek Singh Ahluwalia speak frequently on matters of monetary policy, and their views are considered influential in policy decisions. But it is the governor who has the final say. He decides the timing, means, and degree of policy moves. Subbarao opted for a 50 basis points rate hike in July when the majority of the technical advisory panel members favoured a pause in monetary tightening or at the most a 25 basis points rise in rates. Last week, he went ahead with the rate hike cycle even after Mukherjee's adviser Basu had suggested a pause.

Moneycontrol

RBI is everyone's punching bag – S.S.Tarapore

It is wrong to blame the RBI for the slowdown and high inflation. At best, it can be criticised for not having come down hard on inflation. Besides, monetary policy has been proactive when the other arms of policy have not delivered. The Reserve Bank of India (RBI) released its mid-quarter monetary policy Review on September 16, 2011. Predictably, the RBI raised the repo rate from 8.0 per cent to 8.25 per cent, the reverse repo rate from 7.0 per cent to 7.25 per cent and the marginal standing facility from 9.0 per cent to 9.25 per cent. These baby steps should not have caused any furore. But the uproar was on account of global problems, and a fall in output together with persistently high inflation in India.

INFLATION THREAT

The global situation has gone from bad to worse and the US, Europe and Japan are hurtling into an abyss. The Emerging Market Economies (EMEs), having been accommodated on the High Table of the Big Boys, will be expected to give a helping hand to the industrial countries. In India, real growth is showing signs of some slowdown from the heady 9 per cent levels and the cherished aspirations of a 10 per cent growth rate are dashed. It is conceded in official circles that India would find it difficult to attain a 9 per cent annual rate of growth during the 12th Plan. Despite the efforts of the RBI, the inflation rate is close to the psychologically dreaded level of 10 per cent. It bears mentioning that the official price indices, the world over, generally understate the actual rate of inflation. Even if the rate of inflation comes down, the level of inflation would be higher and thereby put a cruel burden on the weaker sections of society. Given the international and domestic developments, it is imperative that India quickly crushes inflation. Increases in policy rates by 0.25 per cent should surely not be considered as harsh measures. Even the cumulative increase since March 2010 of a little over 3 percentage points should not be considered as drastic, given that after the global financial meltdown Indian interest rates were very low. The repo rate of 8.25 per cent is still a negative real rate and, therefore, the monetary tightening can hardly be called harsh. It is reported that India Inc. is angry with the RBI. Further, critics of RBI argue that if a series of interest rate increases have not been able to bring down inflation, any further interest rate increases would be counter-productive.

NEEDLESS CRITICISM

The other arms of economic policy have just not delivered and the only wing of policy that has been proactive is monetary policy; it is grossly unfair to blame RBI for the slowdown of the economy along with continued high inflation. The criticism of the RBI, if at all, should be that it has not operated fast enough and sternly enough—but that is nobody's case. The window of opportunity is very narrow and baby steps taken over a prolonged period create more tensions than sharper policy steps. The late Dr I. G. Patel, when he was the Governor, would often stress that one-shot measures create less policy tensions than a series of small steps. The government has an overbearing role in the formulation of monetary policy. Hence, it is not fair or appropriate for the government to distance itself from the latest monetary policy. Sound bytes emanating from the government seemed to imply that monetary policy was the last hope for dealing with inflation, which incidentally is generalised and much as government policymakers wish to deny it, generalised inflation is a monetary phenomenon. There is an unwritten code of conduct that the government does not criticise the RBI in the open as it is a party to the decisions. The Chief Economic Adviser, the renowned Dr Kaushik Basu, in an unprecedented outburst on the eve of the policy, is reported to have said that monetary tightening had harmed growth instead of taming inflation, which was a public message to RBI to desist from raising interest rates as higher interest rates would attract more foreign capital and thereby fuel inflation.  The ground realities are that, on the contrary, there have been capital outflows. Again, the Finance Minister expressed the hope that the existing policy to control inflation would not be extended. As Ms Kalpana Kochhar, Chief Economist, Asia Region of the World Bank, rightly pointed out, the reference to Turkey as a model to follow was not appropriate as Turkey had received massive capital inflows; in contrast, in the case of India there have been capital outflows. Policymakers of today should read the Parliamentary records of the early part of 1982, when the then Finance Minister, Mr, Pranab Mukherjee, in a Calling Attention Motion on the RBI Monetary Policy provided a magnificent defence of the RBI. This should be a mandatory read for all policymakers. The formulation of the September 16, 2011, monetary policy of the RBI must have been a period of great anxiety for the top management of the RBI. Kudos to the RBI for holding on to its faith.  Dr Manmohan Singh, as Governor, in the early 1980s, would say that the Governor of RBI was performing loneliest job in the country. As the French philosopher Voltaire said, it is dangerous to be right when the government is wrong.

HBL

RBI's Gokarn:Indian Domestic Demand Buffer To Global Turbulence

NEW YORK (Dow Jones)--Huge domestic demand within India provides a buffer to global economic turbulence, said the deputy governor of the country's central bank. "The advantage of the Indian economy is that it has a high level of domestic demand," said Subir Gokarn, deputy governor of the Reserve Bank of India, speaking in New York.  While this is positive in the longer term, in the short term, it creates volatility, he noted. As seen in the previous credit crisis, this volatility creates a liquidity crunch. "Sharp exits of capital pose the risk of liquidity constraints," Gokarn said, noting the country's monetary policies have tried to maintain liquidity. Speaking about the rupee declining, he said there is "no target to defend it at any particular level, no line in the sand." Any intervention is for "smoothening, not targeting," he said. A major challenge for the country is inflation, he said, in an environment where food prices are rising and oil prices are not declining despite slower growth in the global economy. India needs to increase its food productivity, he said, in an attempt to ease the situation.  It is also essential to rebalance demand such that there is a balance between consumption and investment.  

WSJ

Priority sector lending norms for NBFCs in public interest: Thorat

Mumbai: Usha Thorat, chairperson of the Reserve Bank of India’s (RBI) panel on finance companies, has said that the Reserve Bank of India (RBI) is not being unfair to non-banking financial companies (NBFC) when it comes to priority sector lending norms, according to a release by Indian Merchant's Chamber (IMC). Responding to the industry players, she said consumers’ protection is a strong regulatory objective and the proposed recommendations of a working group report on NBFC have come from two main premises namely, funding risk and concentration. “The risk is associated in wholesale funding to select sectors and a similar risk exists in concentration on a particular industry. Though, concentration on a specific sector develops expertise of NBFCs in that sector, but downturn in any of such sectors, could pose greater risk,” she said. R Sridhar, MD, Shriram Transport Finance Company, however, argued: “The cost of borrowing has gone up by about 50%in last few years. Our cost to consumers has also gone up. If due attention is not paid to NBFCs, the small borrowers would be forced to go back to the moneylenders.”

FE

RBI tightens return filing format for NBFCs

The Reserve Bank of India (RBI) today tightened the return filing format for non-banking financial companies (NBFCs) under which they would have to make disclosures about their deposit and lending activities to the central bank more frequently. As per the new regulation, deposit taking NBFCs would have to submit reports on deposits and prudential norms to the RBI on quarterly basis, as against annual and half-yearly basis respectively earlier. Similarly, the apex bank asked non-deposit taking NBFCs to file statements on capital funds, risk weighted assets, risk asset ratio, among others on quarterly basis. The regulations relating to reporting about liquid asset, exposure to capital markets, among others have been retained. The deposit taking NBFCs will have to file quarterly returns on liquid assets to the RBI. Also, NBFCs with a total assets of Rs 100 crore and above will file monthly returns on exposure to capital market, the notification said. Non-deposit taking NBFCs would continue to file monthly returns on important financial parameters. The RBI said the returns, under the new norms, concerning deposits, prudential norms for deposit taking NBFCs and statement of capital funds, risk weighted assets, risk asset ratio for non-deposit taking NBFCs should be submitted for the July-September quarter. All these filings will have to be done by NBFCs to the central bank in the revised formats notified by the apex bank, the RBI said.

BS

Arcil revises profit after RBI questions accounting policy

India's largest stressed assets buyout firm, Arcil - promoted by the country's top lenders - has slashed its earnings and restated its profits for FY11 besides shelving a proposal to pay dividend to its shareholders, after the Reserve Bank of India raised questions relating to the company's accounting practices....

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A dangerous remedy

......Should RBI take a “pause”? We think not. Even after relentless raising of policy rates, real interest rates—however measured—are barely positive. Clearly, there is still scope for further tightening. If the fear is that high rates will hit the country hard.....

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RBI to intervene, if required: Pranab Mukherjee

...“The RBI Governor has made it quite clear that as and when the situation warrants, the RBI will intervene. Right now, there is no such situation,” Mr. Mukherjee said....

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RBI suspected to have sold dollars at around Rs 49.15: traders

The Reserve Bank of India (RBI) was suspected to be selling dollars in the forex market on Thursday at around Rs 49.15 to arrest steep losses in the local unit after global risk aversion prompted investors to move into safer assets like debt. The RBI was likely to have started selling dollars from 49.15 per dollar, helping drive the partially convertible rupee back below the 49 mark, 11 dealers said. At 3:10 pm, the rupee was at 48.98/99 per dollar, after hitting 49.18, its weakest since 2 September, 2009, when it was down 1.7 percent on the day.

Firstpost

RBI has managed exchange rate well

The Indian rupee has depreciated by more than eight per cent so far this month, after remaining stable for a fairly long period. Naturally, there has been a growing pressure on the Reserve Bank of India (RBI) to aggressively intervene in the forex market to stem the rupee's decline, since imported inflation rises and risks associated with exchange rate volatility are growing. Despite the rupee falling to its lowest level against the dollar in more than two years on Thursday, RBI has stayed on the sidelines, stating it would intervene aggressively only when it saw excessive volatility. Many experts feel this stance of RBI's would aggravate the uncertainty in equity markets and scare foreign investors away. However, as a central monetary authority, RBI has to focus on the effectiveness of forex interventions. We cannot forget such interventions do involve important costs. Among others, these costs are the risks of financial losses on the operations, the cost in terms of resources devoted to the conduct of these operations, and the cost in terms of credibility, if the intervention fails to deliver the desired effect. The considerations of the costs versus gains of intervention might have prevented RBI from intervening aggressively, though there has been some intervention in the market, as reported by some of the newswires. While the current attack on the rupee is primarily sentiment-driven, on account of the growing turbulence in Europe, the rupee has developed a strong depreciation bias, due to India's widening current account deficit and growing dependence on short-term flows. These factors may not allow our currency to recover substantially (and sustainably), even after RBI intervenes aggressively. Also, according to RBI's report on forex reserves in August, India's external liabilities are more than its external assets. So, RBI would like to use forex reserves more prudently. Besides, a depreciation bias would help exports and employment generation, which is the need of the hour. We also need to understand central banks the world over prefer selective, rather than complete, public disclosure of their interventions to make such moves more effective.

Rupa Rege Nitsure, Chief Economist, Bank of Baroda (BS)

It’s premature to say RBI will change its stance

.... You would ideally not expect them to suddenly change the stance and they are continuing with that because inflationary expectations have still not been addressed and that is RBI’s main concern. So it’s premature to say that they will change the stance. I would still put a probability of a 25 basis points hike in October.....

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RBI finds itself isolated in war on inflation

...Until now, the government and the RBI have largely been on the same page when it comes to monetary policy, with near double-digit inflation not only an economic worry but also a political headache. But over the past few weeks, criticism and advice for the RBI chief have been more blunt than usual......

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